Economist Explains How Much Innovation Is Being Held Back: Says We Need To Fix The Patent System

from the some-metrics dept

On a recent episode of Jerry Brito's Surprisingly Free podcast, he had on economist Alex Tabarrok who recently released a Kindle short, called Launching the Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast. Part of the key argument in the book is that through bad policy, we've really held back the pace of innovation. This is something we've pointed out before, but Tabarrok has some data to back it up. One of the most frustrating things for us has been how many reports use patents as a proxy for innovation, even as many studies have shown no correlation between patents and actual innovation. In this book, Tabarrok, smartly, looks at the growth rate in Total Factor Productivity -- which is a measure of output that comes from "non-traditional" inputs -- i.e., output created directly from land or capital. This is a reasonable way of measuring the impact of technological improvement.

It's important to understand this, so let's take a step back to explain it a little more clearly. Economic growth comes from the ability to get more out of the same amount (or even better, getting more from less). Straight output increases can come just from increasing capital or increasing labor, but you're not expanding the overall pie. Actually creating economic growth -- providing more than was possible before -- comes from knowledge and ideas being applied to various problems. [...]