Are Ideas Getting Harder to Find?

Innovation and Economic Growth

Article Snapshot

Author(s)

Nicholas Bloom, Charles I. Jones, John Van Reenen and Michael Webb

Source

Stanford mimeo, March 2018

Summary

Economic growth arises when people create ideas. Evidence from a wide range of industries, products, and firms shows that while the number of researchers in increasing, their productivity is falling. Large increases in research will offset its declining productivity.

Policy Relevance

Firms must devote more resources to research to maintain the same rate of growth. Economists should not assume that research productivity is constant over time.

Main Points

  • Ideas are difficult to measure; "ideas" should give rise to exponential growth, such that each new idea raises incomes by a certain percentage.
     
  • Some models of economic growth assume that a constant number of researchers can generate exponential economic growth, but data measuring research productivity in different contexts (including computers, medical research, and agriculture) shows that these models are misleading.
     
  • Growth rates for the U.S. economy since the 1930s are stable or declining; meanwhile, the number of researchers has grown by a factor of 23 (an average growth rate of about 4 percent per year), and research productivity has fallen about 5 percent per year.
     
  • The best example of the need to offset declines in research productivity by devoting more resources to research comes from Moor’s Law.
     
    • According to Moore’s Law, the number of transistors on a computer chip doubles every two years, driving constant exponential growth of about 35 percent per year.
       
    • Firms maintain this growth rate by engaging an ever-growing number of researchers.
       
    • The number of researchers needed to double chip density today is more than 18 times larger than the number required in the early 1970s.
       
  • Data from the U.S. shows that research productivity is falling sharply; every 13 years, the same number of researchers are only half as effective in generating growth, suggesting that ideas are getting harder to find.
     
  • To sustain constant economic growth, the U.S. must double the number of researchers searing for new ideas every 13 years to maintain its growth.
     
  • Economists should not assume that research productivity is constant when modelling economic growth.
     
  • If the growth rate of research were to slow down, economic growth would slow down; reduction in research might have contributed to the global slowdown in productivity growth during the past fifteen years.
     
  • One key contribution of standard growth theory is that ideas are non-rivalrous, that is, ideas are not depleted when used by more and more people.
     

 

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