Ideas are Harder to Find

Source: Growth Econ, Jan 2017

Nick Bloom, Chad Jones, John van Reenen, and Michael Webb have a new paper on how productive we are at producing “ideas”, which one can argue are the ultimate source of all economic growth.

Relative to 1930, we have almost 25 times as many (effective) researchers at work today. This leads to the author’s title question – “Are ideas getting harder to find?”. And the author’s answer is “Yes”.

Start with an explanation that might imply a permanent fall in the TFP growth rate:

  1. The growth rate of the effective population has fallen. If the population that provides researchers (and it is best here to think of the total population of advanced countries, not just the US) starts to grow more slowly, then S grows more slowly, and the long-run growth rate of ideas is going to be lower. Maybe the slowdown in TFP growth is due to slower population growth in developed countries. A counterargument would be that this is offset by the increasing shares of Chinese and Indian populations that are in the pool of possible researchers. A counter-counterargument would be that age distributions matter too, and we’ve got too many stodgy old people, and not enough inventive young whipper-snappers.

Other explanations might imply that the drop in the TFP growth rate will be temporary:

  1. A downward shift in the share of that population that is doing research. This would generate a lower measured short-run growth rate of ideas because S would have a lower short-run growth rate for a while as we moved to a lower share of people doing research. This doesn’t appear to be true in the data, where an increasing share of workers are reported as doing RD work over time – and that should be pushing up the short-run growth rate of ideas.
  2. An exogenous drop in the level of αα. In this case, the growth rate of ideas would eventually rise back up to what it was before, after we had lower measured TFP growth for a while on our way to a new equilibrium. If we’re going to argue about the value of αα, though, then we should start over with our theory about how ideas get generated, as saying “it was a random exogenous shock” ends up being kind of useless.

 

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