State of Innovation

Patents and Innovation Economics

NYT How Did We End Up in a Low Growth World?: $#^@!

The New York Times published one of their standard obscure, rambling articles entitled “We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin.  The author rings his hands over the slow growth of the last 15 years and concludes that we (he) has no idea why we are in this situation, but if it does not change we are in for a gloomy 21st century.

The article is a perfect illustration of the economic professions’ ignorance of what causes economic growth.  What is interesting is that most economists do not really consider this an important question of economics.  They waste an almost infinite number of bits on price theory with its supply and demand curves, while ignoring the most important question in economics.

The article meanders from the statement that like most things in economics it all boils down to supply and demand, ignoring that supply and demand curves are about equilibrium, not growth.  Then it jumps to into a discussion that blames technology as being less effective than in the past and vaguely ties this to a slowdown in the supply side of the equation.  Next it jumps to the favorite crutch of Keynesian-socialists, a lack of demand.  It provides the standard Keynesian/socialists’ answers of loose money policies and fiscal stimulus that have worked in the past ,according to the article, but just do not seem to be working now, all the while ignoring the fact that neither of these have worked in the past.  In the end, the article admits it has no idea why we have slow growth now.

The article illustrates that the economics profession has no idea what causes economic growth.  The Keynesians argue that increasing demand creates economic growth (or at least lack of demand causes recessions), while the rest of the economics profession argues that it is increasing levels of capital.  So called free market economists know what kills economic growth and their economic freedom surveys provide overwhelming evidence in this case.  The US has fallen from 6th in the world to 11th in the world in economic freedom under President Obama (The downward trend started under Bush, showing this is bipartisan effort) according to this article.  Correcting this is a great place to start, however this does not explain what causes economic growth.

Our level of technology is what defines (i.e., provides the upper bound on) our level of wealth.  As a result, the only way to increase real per capita econgrowth.smallwealth over the long term is to invent (i.e., increase our level of technology).  The book the Source of Economic Growth provides overwhelming evidence for this.  Since 2000, when the slow-down started according to the New York Times, we have undermined our inventors, by undermining their property rights in their inventions.  The US has also undermined the three foundations on which technology startups are built: 1) Intellectual Capital, 2) Financial Capital, and 3) Human Capital.  The US has undermined the intellectual capital pillar by weakening the patent system, which leftists and libertarians continue today (see the Venue Act).  The financial capital side has been undermined by Sarbanes Oxley and other financial regulation.  The human capital leg has been frontcoverundermined by accounting changes to stock options.  I discuss how these little known changes in US law and regulations resulted in economic stagnation starting in 2000, while the US had real economic growth in the 1990’s, in my book The Decline and Fall of the American Entrepreneur.

If the US is serious about increasing its long range economic growth it needs to:

Protect the rights of inventors by significantly strengthening our patent system’

Repeal all financial regulation;

Repeal regulatory rules that lock-in specific technologies, such as the FDA, the EPA, and building codes.

These changes would increase the US’s economic freedom score.  We do not have to accept the low growth new normal, however nature to be commanded must first be obeyed.

 

 

 

We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin

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August 11, 2016 - Posted by | -Economics, Innovation, News, Patents | , , , ,

2 Comments »

  1. You’re focused on an important area of growth, but just a component of the economic growth/cost equation. Do need to keep markets free to innovate as you suggest, but the fundamental and larger drag, just like any company, is the cost structure and associated debt leverage. Our country, like any specific Individual company, is increasingly loaded up with overhead given the non productive government’s growth (equivalent of G&A and a large component of which is the destructive bureaucracy advocating growth as opposed to private sector profitability) and debt leverage (another cost burden that weighs on growth). Much like any company, too much overhead and borrowing from the future (sadly for our children and future generations against their earnings) is like a hiker carrying too much in his backpack, negatively impacting his productivity or progress. Further, hyperactive regulation is a friction (like telling the hiker he must visit this or that site or carry art of someone else’s property) often deadly (some don’t make it), on the kind of innovation and entrepreneurial activity that is necessary for growth.
    Hard to be optimistic given that this is a cancer that’s eating it’s host, and that Ayn Rand was so fundamentally concerned about.

    Comment by Ben Brigham | August 12, 2016 | Reply

    • Debt is a problem, but getting rid of debt does not create economic growth. There are plenty of examples of countries with low or no debt that did not have economic growth. There has never been a case of sustained real per capita increases in wealth without increasing levels of technology.

      Comment by dbhalling | August 17, 2016 | Reply


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