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Blame Leonhardt

Posted by John Irons, on Wednesday, July 27, 2011, at 8:39 am.

When I began covering the American economy 11 years ago, it was the envy of the world.

The last 11 years have not been kind to it.

via Lessons From the U.S. Economy’s Malaise – NYTimes.com.

Kidding aside, David Leonhardt is moving to DC bureau chief and writes a farewell “Economic Scene” column that looks at several things that we know about the economy and points to some unanswered questions.

I’ll add two things to his list.

We know that growing income inequality comes from both the top and bottom. Incomes at the top have been growing (Leonhardt notes this), but have also been stagnating at the middle and bottom – and have failed to keep-up with average productivity growth (Leonhardt notes this, but downplays too much IMHO). Median incomes essentially did not grow during the 2000′s and poverty levels remained too high even before the current recession.

We don’t know as much as we would like about the determinants of long-term economic growth, including how to effectively spur innovation, experimentation, and deployment. There are clear externalities from basic R&D, and while the federal government does subsidize some research– directly via e.g. the NSF and NEH; and indirectly through tax credits — there is certainly room for improvement.

Of course this doesn’t complete the list, but his column is not a bad place to start.

One Comment

  1. Misaki wrote:

    Innovation will happen naturally in a market that is not distorted by incentives that constrict profitable economic activity to an existing subset of possibilities.

    Innovation in the direction of productivity will not lead to a growth in jobs, but only to an increase in the inequality of the distribution of work. Innovation in new products may lead to a growth of jobs, but it can also lead to an increase in income inequality and therefore an increase in jobs that are popularly seen as not being socially beneficial, such as most of the financial sector.

    The best way to spur ‘innovation’ is therefore just to have a free market, which is exactly what the West and especially the US did well. But for many people, innovation comes second to having an income from a job in a society that does not have a basic social safety net.

    In other words, when people buy iPods and the company selling them or the wealthy receiving the profits save that money (so they can advance on the Forbes 400 list) instead of spending it, the net effect from the introduction of this innovative product is a decrease in the total amount of work done, which in the current economic framework also means a decrease in the total number of jobs.

    Considering this, one might conclude that it would benefit society to ensure a fair distribution of work despite the tendency of people to spend their excess income on high-priced status symbols, which decreases the amount they can spend on other products that take more work to produce.

    Friday, July 29, 2011 at 1:25 am | Permalink

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