Joseph Stiglitz on the Enigma of Innovation

 Economics  

Economist Joseph Stiglitz writes that there is enormous enthusiasm for technological innovation with many attempting to replicate the ingenuity that they regard as America’s true comparative advantage. But there is a puzzle: it is difficult to detect the benefits of this innovation in GDP statistics.

E choing what Erik Brynjofsson and Andrew McAfee base a chapter on in their latest book, The Second Machine Age, Nobel laureate economist Joseph E. Stiglitz recently wrote for Project Syndicate how GDP data does not reflect the impact of innovative technologies.

In terms of GDP, Stiglitz and others are dumfounded; why doesn't innovation seem to be reflected in the statistics?

Stiglitz writes:

In a simpler world, where innovation simply meant lowering the cost of production of, say, an automobile, it was easy to assess an innovation’s value. But when innovation affects an automobile’s quality, the task becomes far more difficult. And this is even more apparent in other arenas: How do we accurately assess the fact that, owing to medical progress, heart surgery is more likely to be successful now than in the past, leading to a significant increase in life expectancy and quality of life? 

In what Brynjolfsson and McAfee call the Superstar economy, innovation tends to profit the select few, with the results not necessarily translating into monetary benefits for all.  Witness the divergence of productivity and GDP statistics over the past 10-15 years.  Previously the data sets tracked each other side-by-side for the previous 200 or so years.

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The long-written about phenomenon of technological unemployment may really be starting to emerge.  In the past, post-recession economies would rapidly make up for the job losses incurred, now we are well into the so-called 'jobless recovery.'  What's more, the phenomenon is accelerating along with exponentially-growing technology.

Martin Ford, who wrote about the changing economy in his, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, says, our current economic model where rich people bring their capital and everyone else brings their labor may no longer work when the capital, in the form of robots and computers, is actually the labor too. Ford is also convinced the transition is coming and coming quickly. 

Stiglitz continues, "One cannot avoid the uneasy feeling that, when all is said and done, the contribution of recent technological innovations to long-term growth in living standards may be substantially less than the enthusiasts claim."

Stiglitz is a University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank. His most recent book is The Price of Inequality: How Today's Divided Society Endangers Our Future.

What do you think?  Is GDP an obsolete measure of the economy now?


SOURCE  Project Syndicate, Top Image -REUTERS/Fabrizio Bensch

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