Harvard’s Ken Rogoff — of Reinhart and Rogoff fame – has a delicious Project Syndicate piece on the dueling theories of current global economic woes — “Innovation Crisis or Financial Crisis?”
As the title implies, once potential cause is that new innovation is simply not bringing the value added to world economic growth — advances such as the internet, iPhones, LED holiday lighting and the like are a lot more hat than they are cattle, so to speak. We have seen this stagnation argument from economists such as Tyler Cowen and Robert Gordon.
The other explanation is that the global economy is still feeling the effects of the financial meltdown from a few years back. Indeed, Rogoff argues that excessive leverage overhang (in other words, lots of debt) is a prime reason why western economies have failed to ramp growth back up. The purpose of the article is to weigh in on the stagnation thesis:
These are very interesting ideas, but the evidence still seems overwhelming that the drag on the global economy mainly reflects the aftermath of a deep systemic financial crisis, not a long-term secular innovation crisis.
Indeed, Rogoff is something of a technology optimist:
There are certainly those who believe that the wellsprings of science are running dry, and that, when one looks closely, the latest gadgets and ideas driving global commerce are essentially derivative. But the vast majority of my scientist colleagues at top universities seem awfully excited about their projects in nanotechnology, neuroscience, and energy, among other cutting-edge fields. They think they are changing the world at a pace as rapid as we have ever seen.
And the punchline:
Frankly, when I think of stagnating innovation as an economist, I worry about how overweening monopolies stifle ideas, and how recent changes extending the validity of patents have exacerbated this problem.
Overweening, an underused word if ever there was one. But the point is solid — the economics profession since at least Schumpeter has fretted about the tradeoffs between providing incentives and the deadweight losses of monopoly power. For some, that isn’t really the point anymore, as we learned reading Liebowitz and Margolis last year, as they focus on the serial monopoly phenomenon especially as it relates to high tech.
Nonetheless, it’s certainly the starting point and these are the types of questions that aren’t likely to go away.