How austerity may reduce innovation

An interesting post from Simon Wren-Lewis on how sustained austerity can lower innovation and productivity growth. With the latter growing painfully slowly in the UK and other rich countries for a number of years, this is potentially important. As he notes, it may only explain part of the productivity slowdown, but it still highlights one of the negative impacts of austerity.

Put briefly, austerity weakens aggregate demand when it cannot be offset by monetary policy (as has been the case since the recession). This may create an ‘innovations gap’. Firms facing reduced demand for their products will slow down the rate at which they create or utilize new products, processes and technology via new investment, leading to weaker growth in productivity. This sort of investment would have ’embodied’ the new technology, but in its absence, the improvements will not take place.

Michael Kitson on the importance of innovation and fears over government debt

Economist Michael Kitson dispels some myths about public and private debt and discusses the importance of public investment in new technologies. This video is especially relevant to today’s world of largely sluggish growth in output and productivity. Some of these ideas might help the world economy, and particularly the UK, to do a little better.

Falling cost of renewables will challenge Trump’s plan for coal jobs

This short interview from the Real News Network illustrates the progress of clean energy generation in the US, compared with dirtier sources. The argument is that the cost of renewables is falling fast, such that they are becoming cheaper than coal-fired generation, which Mr Trump has promised to support. Cleaner sources also have positive spillover effects on health, known in economics as a positive externality.

The logic of market forces has probably been helped along by industrial policies, from Obama’s Clean Power Plan to the Chinese government, which has promoted the development of its solar panel industry. But if clean energy becomes cheaper than dirty energy, surely a Republican president looking for a good deal can’t argue with that.

Rethinking the State: thoughts from Mariana Mazzucato

Following yesterday’s quote, a brief video featuring Professor Mariana Mazzucato, who specializes in the economics of innovation and the role of government in shaping new technologies for inclusive growth. I can highly recommend her eye-opening book The Entrepreneurial State – Debunking Public vs Private Sector Myths.

Technological progress and the hand of government

“[W]hen organised effectively, the State’s hand is firm but not heavy, providing the vision and the dynamic push (as well as some ‘nudges’ – though nudges don’t get you the IT revolution of the past, nor the green revolution today) to make things happen that otherwise would not have. Such actions are meant to increase the courage of private business. This requires understanding the State as neither a ‘meddler’ nor a simple ‘facilitator’ of economic growth. It is a key partner of the private sector – and often a more daring one, willing to take the risks that business won’t. The State cannot and should not bow down easily to interest groups who approach it to seek handouts, rents and unnecessary privileges like tax cuts. It should seek instead for those interest groups to work dynamically with it in its search for growth and technological change.”

Mariana Mazzucato (2013), The Entrepreneurial State