Wednesday, December 28, 2016

The Great Stagnation

MR points to a new paper by Nick Bloom, Charles Jones, John Van Reenan, and Michael Webb which finds declining ideas TFP (research productivity per researcher, or number of new ideas per researcher) across sectors. They write,
Our robust finding is that idea TFP is falling sharply everywhere we look. Taking the U.S. aggregate number as representative, idea TFP falls in half every 13 years — ideas are getting harder and harder to find. Put differently, just to sustain constant growth in GDP per person, the U.S. must double the amount of research effort searching for new ideas every 13 years to offset the increased difficulty of finding new ideas.
They claim that the relatively stable economic growth in recent decades has been the result of increased research effort (number of researchers), which has off-set the declining ideas TFP. They find the signatures everywhere. In the economy on aggregate,
Across agriculture crops,
Even in semiconductor chips, despite the much acclaimed Moore's law,
In pharmaceuticals research for new molecular entities,
And in medical research
But their conclusion has interesting implications for growth theories,
The only reason models with declining idea TFP can sustain exponential growth in living standards is because of the key insight from that literature: ideas are nonrival. And if idea TFP were constant, sustained growth would actually not require that ideas be nonrival... fully rivalrous ideas in a model with perfect competition can generate sustained exponential growth in this case. Our paper therefore clarifies that the fundamental contribution of endogenous growth theory is not that idea TFP is constant or that subsidies to research can permanently raise growth. Rather it is that ideas are different from all other goods in that they do not get depleted when used by more and more people. Exponential growth in research leads to exponential growth in At. And because of nonrivalry, this leads to exponential growth in per capita income.
This raises questions about the prevailing intellectual property rights regime.

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