'The Great Stagnation,' Part II
Karl Smith disagrees with Tyler Cowen. The problem isn't with innovation, he says. It's with us:
To the extent we are throwing money at unproductive uses, is this a supply problem as Tyler posits or a demand problem, as I tend to think?
In other words is it that innovation has just become so darn hard or is it that higher salaries are luring all of our bright kids into becoming doctors and hedge fund managers, while relatively fewer are becoming engineers and teachers.
The net effect of my story is that there less human intellect devoted to productive innovation and that the typical American – by dearth of K12 education – is further from the technological frontier.
Tyler hints at a demand side solution when he says we need to raise the status of scientists, but my question is whether we have actually run out low hanging fruit or have simply stopped picking it?
I don't see this as particularly either/or. Perhaps we've organized ourselves away from innovation because innovating has become too hard, and the rewards have become too uncertain. Better to head to Wall Street and skim a bit off the top of the innovators. Or perhaps we've just made some bad organizational decisions. The solution is the same, either way: Make it more lucrative to join innovative professions than parasitic ones. But we don't do that. To give just one example, an engineer who comes up with an important product has his salary taxed as income. A hedge-fund manager who rides a bubble or gets cheap money to carry trade through a bust gets his income taxed at the much-lower capital gains rate. Getting rid of this distortion -- which would also improve the budget deficit -- is, so to speak, low-hanging policy fruit, and we've not picked it.
| January 31, 2011; 11:00 AM ET
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