Policy Innovation Blog

Dodgy thought experiments and the speed of innovation

Stian Westlake - 03.10.2012

Martin Wolf wrote a widely quoted article in today's FT arguing that economic growth is slowing down in a long-term and structural way. There's a lot to say about this (I fundamentally disagree with the underlying paper by Robert Gordon that Wolf bases his paper on).

But for the time being, let me take issue with a thought experiment that Wolf (and Gordon) use to argue that innovation has slowed down.

Imagine, they argue, that you have a choice: you can have all the inventions created since 2002, or you can have running water and inside toilets. Most people would take plumbing over Facebook. Ergo, innovation is running out of steam.

But there's a problem with this thought experiment. Psychologists talk about Maslow's hierarchy of needs, a theory that posits that some human needs, like warmth, food and shelter, are more basic than others, and that we seek to satisfy our "higher" needs once our more basic needs have been met.

Running water and Facebook meet different sorts of needs. Running water meets our need to satisfy our thirst, to keep clean and to protect ourselves and our children from disease. It's a relatively basic need. Facebook meets our need for "self-actualisation", a higher need. Given a choice between assuaging our thirst and self-actualising, we'd choose the former. This has little to do with whether Facebook is a bigger innovation, or whether it will generate more growth in output. I'd gladly give up running water for agriculture, and agriculture for the knowledge of how to make fire - but this doesn't mean that the golden age of innovation was the Palaeolithic period.

It's not impossible that innovation is slowing down - it's a very hard thing to prove either way, as the debate following Tyler Cowen's The Great Stagnation in 2011 showed. But this thought experiment doesn't show it.