Innovation and Productivity Go Hand in Hand

This article originally appeared in the George W. Bush Institute. Click here to read the full article.

By Ike Brannon

The end of Christmas has always struck me as a melancholy time.  Fortunately, my spirit is always buoyed by two of my favorite events which occur shortly thereafter: (1) the Pekin (Illinois) Insurance Holiday Basketball Tournament; and (2) the American Economic Association’s (AEA) annual meetings.

Each event involves a heavy dose of my favorite things. The Pekin tournament features eight high school basketball games, from 9 a.m. to midnight, for three straight days, while the AEA meetings host hundreds of economic sessions over a three day span.  Crowds will gather when a top college prospect is on the court or a former Fed chair deigns to speak, but most of the time, I sit amongst empty seats.

Which is a pity, because last month I saw some great basketball and heard a few scintillating hours of economic debate in a session entitled “Has Innovation Stopped Driving Growth?” I’ll save the basketball vignettes for my sports blog, but the economic session is worth highlighting here.

Perhaps the central question in economics today is what can be done to ensure more long-run growth. During the aftermath of the Great Recession, the debate has receded while policymakers and voters focused on short-term measures to boost economic and employment growth, most of which involve stimulating demand in some way.

But those types of policies can’t help boost the long-run productive capacity of the economy, which ultimately requires that we come up with ways to boost how much workers produce for each hour they work. This is what economists mean when they talk about productivity.