A642.4.3.RB_SchreterPaul

            It has been shown in 11 developed countries that social climate and monetary policy are what stimulate innovation. (Martín & Ribeiro, 2012) It is therefore true that the rate of innovation is closely tied to the boom and bust cycles of the economy. When the economy is bullish, more lending and more financial backing is available to stimulate innovation. When the economy is bearish, the economic system becomes more conservative, money disappears, and innovation comes to a grinding halt. What Robert Gordon has to offer in his 2013 TED talk holds some truths, however it’s not entirely to the extent to which he believes. (Gordon, 2013) I will explain why Robert Gordon is partially correct, what he has wrong, and how the life cycle of innovation is influenced by economic factors.

            Robert Gordon brings forth the idea that there are headwinds, one of which is debt, hitting the United States and slowing economic growth. (Gordon, 2013) While debt in itself isn’t bad, it does have a tendency to create short term and longer-term cycles of bullish and bearish markets. Ray Dalio perfectly explains this in his “How the Economic Machine Works” animated video. (Bridgewater, 2013) Credit can be used as a simulative for the economy and as a result, innovation booms. However with every boom also comes a bust. With federal interest rates so low and the economic growth coming to a halt, it is likely that we are in a deleveraging situation. Hence Robert Gordon’s prediction for the short term is likely to be true. However what about the long term?

            Erik Brynjolfsson compared labor productivity from 1890-1940 and 1960-2011 and noticed that they were both very similar and in the upward direction. (Brynjolfsson, 2013) He also mentioned that after a lag between the 1940’s and 1960’s, productivity began to accelerate again. A massive deleveraging of the economy back in the 1930’s caused this lag and is likely what we are experiencing now. Once this deleveraging is out of its cycle, productivity will pick up again and innovation will begin to experience stimulation. As Martín and Ribeiro have proven, social climate and monetary policy are what stimulate innovation.

            This weeks discussion talks about the “hard work” that comes into play with  innovation. McKeown introduces the idea of what's called the life cycle of innovation. (McKeown, 2014) This life cycle includes the pre-innovation stage, the innovation stage, and finally the post-innovation stage. The pre-innovation stage requires almost to no resources to figure out what opportunities there are. It’s the innovation stage, the stage that starts that initial commitment, is where resources are most likely required. Resources are required to innovate and resources are required to take advantage of that innovation. For example if a super efficient electric car comes out, its an innovative product, but unless the market is able to afford such innovation, it is likely to die or not pick up speed until a later date in time. In other words, during a recession or deleveraging, innovation is halted.

            I explained why Robert Gordon’s talk on future growth is partially right, why his talk is also partially wrong, and how the innovation cycle is influenced by the economy. In a resource rich environment, innovation thrives. However if starved, it becomes limited in capacity.

References

Bridgewater. (2013). ow The Economic Machine Works by Ray Dalio. Retrieved 2015, from YouTube: https://www.youtube.com/watch?t=81&v=PHe0bXAIuk0

Brynjolfsson, E. (2013). Erik Brynjolfsson: The key to growth? Race with the machines. Retrieved 2015, from TED: http://www.ted.com/talks/erik_brynjolfsson_the_key_to_growth_race_em_with_em_the_machines#t-284541

Gordon, R. (2013). The death of innovation, the end of growth. Retrieved 2015, from TED: http://www.ted.com/talks/robert_gordon_the_death_of_innovation_the_end_of_growth

Martín, M.-Á. G., & Ribeiro, D. (2012). Innovation and Economic Growth: Factors that Encourages Innovation. Cuadernos de Gestión , 51-58.

McKeown, M. (2014). The Innovation Book. London: Pearson.