Sunday, December 10, 2017

"Are Ideas Getting Harder To Find?"

From the National Bureau of Economic Research:

Are Ideas Getting Harder to Find?
Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb
NBER Working Paper No. 23782 September 2017
JEL No. O3,O4
ABSTRACT
In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and their research productivity. We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore's Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s. Across a broad range of case studies at various levels of (dis)aggregation, we find that ideas — and in particular the exponential growth they imply — are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity.
1. Introduction 
This paper applies the growth accounting of Solow (1957) to the production function for new ideas. The basic insight can be explained with a simple equation, highlighting a stylized view of economic growth that emerges from idea-based growth models:
Economic growth = Research productivity × Number of researchers e.g. 2% or 5% ↓ (falling) ↑ (rising) 
Economic growth arises from people creating ideas. As a matter of accounting, we can decompose the long-run growth rate into the product of two terms: the effective number of researchers and their research productivity. We present a wide range of empirical evidence showing that in many contexts and at various levels of disaggregation, research effort is rising substantially, while research productivity is declining sharply. Steady growth, when it occurs, results from the offsetting of these two trends.

Perhaps the best example of this finding comes from Moore’s Law, one of the key drivers of economic growth in recent decades. This “law” refers to the empirical reg- ularity that the number of transistors packed onto a computer chip doubles approximately every two years. Such doubling corresponds to a constant exponential growth rate of around 35% per year, a rate that has been remarkably steady for nearly half a century. As we show in detail below, this growth has been achieved by engaging an ever-growing number of researchers to push Moore’s Law forward. In particular, the number of researchers required to double chip density today is more than 18 times larger than the number required in the early 1970s. At least as far as semiconductors are concerned, ideas are getting harder and harder to find. Research productivity in this case is declining sharply, at a rate that averages about 6.8% per year.

We document qualitatively similar results throughout the U.S. economy. We consider detailed microeconomic evidence on idea production functions, focusing on places where we can get the best measures of both the output of ideas and the inputs used to produce them. In addition to Moore’s Law, our case studies include agricultural productivity (corn, soybeans, cotton, and wheat) and medical innovations. Research productivity for seed yields declines at about 5% per year. We find a similar rate of decline when studying the mortality improvements associated with cancer and heart disease....MUCH MORE (54 page PDF) 
HT: MIT's Initiative on the Digital Economy (IDE