Beck Diefenbach / REUTERS A Boston Dynamics robot onstage at 2016 TechCrunch Disrupt in San Francisco, California, September 2016.

Innovation Is Getting More Expensive

Behind the Slowdown in Productivity Growth

The white heat of technological progress can be blinding. It has taken less than a lifetime to go from the birth of computing to the first self-driving cars, not to mention the stream of game-changing breakthroughs in science and medicine in between. Yet these high-profile successes mask a problem. Since 2005, annual U.S. total factor productivity growth (which measures the efficiency with which labor and capital are used) has averaged around 0.5 percent, down from an average of around 1.75 percent from 1996 to 2004. That has hurt economic growth, which remains sluggish nearly a decade after the end of the Great Recession. 

The slowdown has sparked a debate among economists over the sources of the problem. Are statisticians mismeasuring—and thus underestimating—output? Is the United States mired in “secular stagnation”—a prolonged period of low economic growth caused by too much saving and too little investment? Or are recent innovations simply not as productive for society as those of the past?

Not long ago, I was among the economists who took a relatively optimistic view toward declining productivity growth. In 2016, I publicly caricatured the ways economists have often interpreted swings in U.S. productivity growth over the past half century. The declining rate, I argued, did not necessarily reflect a long-run trend of slow productivity growth. I attributed it instead to a temporary effect of the global financial crisis and anticipated a turnaround coming down the pike.

Since then, my perspective has changed, swayed by work I carried out with three fellow economists and published in a paper last year. We found that research productivity, or idea productivity—one of the fundamental components of the U.S. economic engine—has been falling for decades. That means that ideas—scientific discoveries or technical advances—are getting harder to find and that innovation is costing more than ever before.

DOING LESS WITH MORE

The creation of ideas is central to a growing economy. Adding more workers or machines boosts GDP, but the only way to

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