• Cocktail and Dinner Party Economics
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  • Dinner Party Economics

Dotting the i’s: Invention, Innovation and the Industrial Revolution

(See Cocktail Party Economics Chapter 4 p 48)

Invention is the mother of necessity ~Thorstein Veblen (1857-1929) American economist and sociologist
  The implications of A Dozen Facts about Innovation by Michael Greenstone and Adam Looney published as part of the Hamilton Project by The Brookings Institution worries me. A lot actually.  You can find the article here or here in PDF format.)

Major Themes

Let me give you an overview of the policy memo’s major themes.
  1. Innovation and inventions (as measured by total factor productivity) are a major source of growth for the United States which is a good thing. It leads to a higher standard of living, a longer life span and more leisure. (No worries yet.)
  2. Since 1973 total factor productivity (TFP) has slowed down in the USA.  The annual growth rate fell from 1.9% to 0.7%.  In other words, if the growth rate hadn’t fallen, worker’s conpensation would be 51% higher than it is now. (Some anxiety now.)
  3. Prospects don’t look good for the future if things don’t change.  Why you ask?  First, not enough students choose Science, Technology, Engineering and Math (STEM) majors that feed innovation.    Furthermore, women who have increased their participation in undergraduate education, tend to drop out of these innovation inducing majors.  Lastly, close to half of the folks who do choose STEM PhD’s are foreign students and are not allowed to stay in the USA once they are done their degree. Therefore, the US doesn’t get to keep the fruit of their educational investments.  (Brooding fears.)
  4. Change is possible but politically difficult. This requires significant changes in US immigration, education and R & D policies.  (Ominous feelings of gloom.)
So how does this relate to Canada? See Worthwhile Canadian Initiative: A mainly Canadian Economics blog for a Canadian analysis. Be sure to check out the graphs even if you find the mathematics a challenge. Canada may be slightly different from the USA with respect to ‘the dozen facts’.  For starters, our numbers of STEM majors are higher than the US but our productivity numbers are also declining.  I know that the Worthwhile Canadian Initiative points out that for various reasons we needn’t worry about it.  They make the distinction between Gross Domestic Product (GDP) which is output produced on domestic soil and Gross National Income (GNI) which is income generated by Canadians anywhere in the world.  Productivity is about GDP numbers which is now lower than our GNI ones. In other words, the income ‘loss’ due to low productivity in domestic production is more than compensated by our income gains from international investments as well as trade. The view that Canada is doing fine when compared with the USA–thank you very much–is very short sighted.  Given global transmission of technology, I think what happens in the US will directly impact our standard of living.  I am worried about it.

Post Script

So why this article as my first?  Here are my top ten reasons
  1. What Canadian can resist an American report authored by someone with the last name Looney?  It captures some sense of angst we feel about our neighbours to the south.
  2. The authors are both economists.
  3. My husband is an engineer/innovator so I have a personal interest.
  4. The article is free.
  5. It was recently published in August of 2011.
  6. The piece is very readable and meets my definition of entertaining.
  7. The topic is very important as an overarching theme.
  8. The memo is very short.  Only 22 pages.
  9. The Brookings Institution is very reputable.  A good site for students to check out.
  10. The document mentions Tyler Cowen in the sixth point of the document who very kindly gave my book a shout out in his blog Marginal Revolution.

End Credits

I first saw the Canadian productivity numbers in Tyler Cowen’s blog Marginal Revolution. I first saw the Brookings report on the blog Conversable Economist by Timothy Taylor

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Comments (1)

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    Antony Smithmyer


    Great line up. We will be linking to this great article on our site. Keep up the good writing.


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