01 Mar Economic growth shouldn’t need a defense. But here you go, again.
By James Pethokoukis
One might think that long-lasting and sustainable economic growth, driven by technological improvement and innovation, would be an obviously awesome thing. It helps humanity live longer and better. The impact of rapid vaccine development and innovation provides real-time evidence of that. Progress even provides the tools to deal with unwanted effects.
But not everyone sees things this way. Some pessimists see economic growth and tech advances as only inequality generators and climate destroyers. They seek slower growth or maybe even no growth at all. Stagnation is a feature rather than a bug.
Economist John Van Reenen offers a short, sharp defense of progress (geared toward a UK audience) in a London School of Economics blog post. He rightly notes, for instance, “that tackling climate change requires green innovation” and “it is easier to redistribute when the economic pie is growing faster.” He also points out that in the UK “a fifth of the growth of output per hour since the second world war is due to labour and capital – 80% is because of better technology and management practices.”
Progress has been pretty important in the US as well. As the CBO has noted:
Over the past century or more, gains in TFP [or advances in production technologies and processes] have accounted for well over half the growth in measured U.S. labor productivity (output per hour of work)—that is, they have contributed more to the measured growth of labor productivity than has growth in the amount of capital per worker—and they are likely to be critical for future economic growth as well.
The US economy is about to encounter a tsunami of government spending. President Biden might well get his nearly $2 trillion COVID-related spending package. And then maybe another $2 trillion or more later in the year for infrastructure and other Democratic priorities — with most of it deficit-financed. As a result, Wall Street economists are looking for the economy to jump this year, especially, but also next year. But then most forecasts see a return to the pre-pandemic growth rate, if not slower. Policymakers need to think hard about how all this spending — including plenty on infrastructure and R&D — will boost the long-term drivers of technological progress and productivity growth. But spending is far from everything. Another good point here from Van Reenen:
Growth policies must think not just about stimulating the demand side for innovation through taxes and direct subsidies. We must increase the quantity and quality of the supply of the inventors and entrepreneurs of the future. For example, kids born to the richest one percent of parents are ten times more likely to grow up to be inventors than those born to the bottom 50%. My work shows that the vast majority of this relationship is not due to the lack of talent of poorer kids, but rather to the barriers they face. Policies that give children from disadvantaged groups better opportunities are not just good for equity – they will also be vital to long-run growth.
To that, I would add that the US must also think about the potential of increasing the quantity and quality of future inventors and entrepreneurs who are not currently living in the US — but could be.
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