Innovation Economics

That is the new book by Rob Atkinson and Stephen Ezell.? It is far more mercantilist than I feel comfortable with, yet it is full of information and argumentation, and it is a book one can profitably engage with.? Here is one excerpt:

The largely consensus view among U.S. economic elites is that the massive U.S. job loss in manufacturing is simply a reflection of manufacturing doing well: using technology to automate work and to become more efficient.? It?s the agriculture story they tell us?

There are two big problems with this view.? The first is that it is not supported by the official government data.? In fact, U.S. manufacturing lost jobs much faster in the 2000s than in the 1990s, even though productivity growth was similar during the two decades.? In the 1990s, U.S. manufacturing employment fell 1 percent, while productivity increased 56 percent.? Yet, in the 2000s, manufacturing employment fell 32 percent while productivity increased only slightly faster, 61 percent.? So, clearly, higher productivity was not the main cause of the manufacturing employment collapse.

As Michael Mandel has pointed out repeatedly, there are also problems with the data, and here are our authors on that point:

?a closer look reveals that every durable goods industry grew more slowly in output than GDP except one: computer/electronics which grew a whopping 720 percent faster than GDP?To put this in perspective, this one sector accounted for 113 percent of U.S. manufacturing output growth in the 2000s, even though, in 1997, it accounted for just 12 percent of manufacturing output.

Note that a lot of this measured growth is quality improvement in computers, rather than growth of the sector in the traditional sense of having a rapidly expanding industry.? Employment in that sector fell.? The performance of the other manufacturing sectors is not so impressive:

?during 2001-2010, manufacturing minus computers actually lost 6 percent of its value-added.? Output of the electrical equipment and wood products industries declined by 7 percent, plastics by 8 percent, fabricated metals by 10 percent, printing by 12 percent, furniture by 19 percent, nonmetallic minerals and primary metals and paper by 31 percent, apparel by 34 percent, and textiles and motor vehicles by 39 percent.? In other words, thirteen manufacturing sector that made up 58 percent of U.S. manufacturing employment all produced less in 2010 than in 2001, all at a time when the overall economy grew 15.8 percent.

I suppose you could say that education and health care have in fact seen striking advances in productivity during this period.? Or you could recall my portrait in The Great Stagnation of an economy which has only a very small number of dynamic sectors, with computers of course in the lead.? Overall it is not a pretty picture.

Source: http://marginalrevolution.com/marginalrevolution/2012/09/innovation-economics.html

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