The Innovation Enigma
March 9, 2014
NEW YORK – Around the world, there is enormous enthusiasm for the type of technological innovation symbolized by Silicon Valley. In this view, America’s ingenuity represents its true comparative advantage, which others strive to imitate. But there is a puzzle: it is difficult to detect the benefits of this innovation in GDP statistics.
What is happening today is analogous to developments a few decades ago, early in the era of personal computers. In 1987, economist Robert Solow – awarded the Nobel Prize for his pioneering work on growth – lamented that “You can see the computer age everywhere but in the productivity statistics.” There are several possible explanations for this.
Perhaps GDP does not really capture the improvements in living standards that computer-age innovation is engendering. Or perhaps this innovation is less significant than its enthusiasts believe. As it turns out, there is some truth in both perspectives.
Recall how a few years ago, just before the collapse of Lehman Brothers, the financial sector prided itself on its innovativeness. Given that financial institutions had been attracting the best and brightest from around the world, one would have expected nothing less. But, upon closer inspection, it became clear that most of this innovation involved devising better ways of scamming others, manipulating markets without getting caught (at least for a long time), and exploiting market power.
Read more at http://www.project-syndicate.org/commentary/joseph-e--stiglitz-argues-that-the-impact-of-technological-change-on-living-standards-has-become-increasingly-unclear#TJqQlm8CQ53C75k5.99
