In many growth models, economic growth arises from people creating ideas. The long-run growth rate is the product of two terms: the effective number of researchers and the productivity of their ideas. And we usually take it for granted that we will continue to come up with new interesting (productive) ideas.
The standard hypothesis in much of the growth literature is that idea productivity is constant over time, which is attractive conceptually because, if it is true, a constant number of researchers can generate constant exponential growth. The idea of the Singularity, for example, comes from projecting constant or increasing growth rates into the future.
In a new paper(1), Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb present evidence from various industries, products, and firms showing that while research effort is rising substantially, research productivity is declining sharply (see Figure above). In other words, the productivity of new ideas is declining at a substantial rate in virtually every place they look, and the economy has to double its research efforts every 13 years just to maintain the same overall rate of economic growth (see Table below).
In fact, idea productivity is declining most rapidly in the fastest growing sector in the economy, semiconductors. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips (Moore’s Law) is more than 25 times larger than the number required in the early 1970’s. And the reason is not that this sector has the sharpest diminishing returns—the opposite is true. It is because research in that sector is growing more rapidly than in any other part of the economy, pushing idea productivity down.
Thinking along this line, what’s intriguing is: why are we throwing so many resources at a sector that has the sharpest declines in idea productivity? Maybe we should be looking to more promising pastures…
Alex Tabarrok thinks that the paper is depressing, but I think that the idea of an ever-growing economy is even more depressing, or at least, too naive to be true. Don’t you think so?
(1) Bloom, Nicholas, Charles I Jones, John Van Reenen, and Michael Webb. ‘Are Ideas Getting Harder to Find?’, n.d.