A few economists are worried about the great stagnation, the
apparent plateauing of wages and economic growth. Some attribute the malaise to
rising inequality or technology having picked all of the low hanging fruit, or
other causes. Any time someone identifies a problem every person with an
ideology to promote offers their pet ideology as the cause or cure. Here is my
take on it:
The industrial revolution caused per capita incomes in the
West to rocket from $3/day in 1700 to as much as 130 times that amount today. A
graph of incomes produces a “hockey stick” as this graph from the Atlantic that
demonstrates:
Chicago economist Deirdre McCloskey’s explains in her book Bourgeois Dignity: Why Economics Can’t
Explain the Modern World that the innovation caused the rapid take off in
incomes, but innovation requires that society value business and innovation and
adopt “bourgeois values.” She devotes a large portion of the book to slaying
zombie explanations for the rise in incomes, including thrift, capital accumulation,
greed, the Protestant ethic, colonialism, education, transportation, geography,
energy, trade, slavery, exploitation, commercialization, genetics, institutions,
and science.
How is it possible for innovation to benefit all of society
and not just the inventor? After all, successful inventors become very wealthy.
The answer is that innovators capture merely 2% of the total benefit of their
inventions according to Yale economist William D. Nordhaus in his paper
“Schumpeterian Profits in the American Economy: Theory and Measurement.”
