Friday, October 23, 2020

Is the fact that ideas are nonrival the key to economic growth in the 21st century? Or: What’s an idea? [the peculiarities of economic models]

I’ve been chewing on one particular paragraph, the final one, of Bloom et al. “Are Ideas Getting Harder to Find?”[1] Why? Because it bears on just what (these particular) economists mean by “idea”. Early in the paper they noted that “ideas are hard to measure” (p. 1108), noting that appropriate units of measure are far from obvious. They went on to note that “in some ways a more accurate title for this paper would be ‘Is Exponential Growth Getting Harder to Achieve?’” Which brings up the question of why didn’t they choose that more accurate title? Custom, perhaps? I don’t know.

How do you measure ideas?

I understand the problem. I’m not at all sure that “idea” can even be a properly technical term, thinking perhaps it’s better regarded as an informal common-sense term with but limited use in technical work. In any event, when it comes to actually measuring ideas, the authors use proxies in two of their three case studies. In their study of semi-conductor manufacture they use research effort as measured by wages as a proxy for ideas (p. 1129) and in their study of seed lines they use R & D expenditure (pp. 1120-1121). Their measure was more direct in the case of pharmaceutical development; they counted articles in the PubMed database as identified by appropriate key words (pp. 1125-1126).

I have no problem with that. But it does mean they tend to tread ideas as atomic entities with no properties beyond the fact that they can be counted, if only indirectly, and that they can be shared. And that brings us to the final paragraph of the article.

Key insight: Ideas are nonrival

Economist distinguish between things that are rival and things that are non-rival. When something is a rival good only one person or entity can use it. If Amalgamated Mining owns a particular deposit of iron ore that means that, for example, Universal Minerals cannot mine that deposit. Ideas, in contrast, are nonrival. The fact that Jim Manley knows Newton’s laws of motion doesn’t preclude anyone else from understanding and using them.

With that mind, considered the highlighted passage from the final paragraph (p. 1139) of Bloom et al.:

That one particular aspect of endogenous growth theory should be reconsidered does not diminish the contribution of that literature. Quite the contrary. The only reason models with declining research productivity can sustain exponential growth in living standards is because of the key insight from that literature: ideas are nonrival. For example, if research productivity were constant, sustained growth would actually not require that ideas be nonrival; Akcigit, Celik, and Greenwood (2016) shows that rivalrous ideas can generate sustained exponential growth in this case. Our paper therefore suggests that a fundamental contribution of endogenous growth theory is not that research productivity is constant or that subsidies to research can necessarily raise growth. Rather it is that ideas are different from all other goods in that they can be used simultaneously by any number of people. Exponential growth in research leads to exponential growth in At. And because of nonrivalry, this leads to exponential growth in per capita income.

The first highlighted passage seems to suggest that that idea that ideas are nonrival is due to the tradition of research on endogenous growth theory. That doesn’t make any sense since the nonrival nature of ideas follows from the definition of “nonrival,” which is independent of that research tradition.

What’s going on? Two paragraphs earlier they had noted that: 1) endogenous growth theory assumes constant exponential growth given constant research productivity, and 2) their article reports a variety of work showing that, in fact, over past few decades it requires more and more research to sustain exponential growth. This final paragraph is an effort to reconcile theory with evidence. The rest of the paragraph after the highlighted section does that.

How does it do it? Not very well, it seems to me, not very well. They cite a paper showing that it is possible to get sustained exponential growth from constant productivity if ideas were rival. However, it turns out that productivity is not constant (the burden of the article) and, wouldn’t you know, ideas aren’t rival either. Surely that must be why exponential growth remains possible.

Really? I understand that that works within the bounds of endogenous growth theory. But it seems awfully flimsy to me. It amounts to little more than saying exponential growth remains possible because ideas are ideas. And that’s not very helpful. Ideas were always nonrival; it’s not as though that property miraculously emerged in time to allow endogenous growth theory to save the appearances – a phrase, incidentally, that dates back to Plato.

It might be more useful to figure out what it is about the current run of ideas that makes them less productive. That’s what I’ve done in my working paper, Stagnation and Beyond: Economic growth and the cost of knowledge in a complex world, which is what I’ve done in my recent working paper on stagnation [2]. But there I was concerned with cognitive architecture and the relationship between ideas and the world. I didn’t treat ideas merely as countable atomic units. Whether my argument is going in the right direction, that’s another matter. But it doesn’t depend on a truism.


[1] Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb, Are Ideas Getting Harder to Find? American Economic Review 2020, 110(4),

[2] William Benzon, Stagnation and Beyond: Economic growth and the cost of knowledge in a complex world, Version 2, Working Paper, August 2, 2019, 62 pp.,

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