America's Despair Over Innovation

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Charles H. Duell, the Commissioner of the U.S. patent office in 1899, has been quoted as saying, "Everything that can be invented has been invented." Whether he actually said it or not, this statement summarizes an increasingly common perception today: that the pace of genuine innovation has all but stopped.

If this is true, there are significant negative ramifications, since sustained increases in output per person, and therefore increased growth, depends on innovation.

Surprisingly, this gloomy thinking is being put forward today by some innovators in Silicon Valley. Peter Thiel, a founder of PayPal, is one. He believes innovation in America is "somewhere between dire straits and dead."1

A growing group of economists agrees, suggesting that any impact today's innovations may have will likely pale in comparison to past innovations. Tyler Cowen, an economist at George Mason University, expressed that belief in a 2011 book in which he concluded that the 20th century technological drivers of growth had run their course, and new technologies were not going to invigorate future economies in the same way.2

These pessimistic viewpoints offer three lines of argument to support their conclusions.3

The first is based on growth statistics, particularly what economists call intensive growth, which mostly results from technology that has been devised to provide better ways to use workers and resources. This type of growth leads to continuous improvement in incomes and welfare.

The argument goes that, currently, there is little of this kind of growth in developed economies. Conversely, fast growth is still occurring in emerging markets because it is fueled by the addition of more labor, better labor, capital, and other resources.

The argument further cites U.S. historical data regarding growth in output per person, which can be a good indicator of both an economy's productivity and growth in incomes. Around 1900, this measure had finally broken the 1 percent mark, climbing to a peak of 3 percent following World War II.

By the 1970s, it had dropped to 2 percent, and continued dropping until in 2000 it was back below 1 percent. It has since rebounded slightly to 1.33 percent. The conclusion is that the nation experienced a large wave of growth from dramatic change, but has now settled back down to typical growth, rather than entering an extended era of uninterrupted progress.

The second line of argument is based on what appears to be a decided drop in inventing — at least anything that would have the impact of the steam engine, electrical generators, and indoor plumbing...

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