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The significance of insurance policies that promote technological growth and innovation

Technological

The significance of insurance policies that promote technological growth and innovation

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Our ability to weather the pandemic and keep working, learning, and maintaining ourselves has been greatly enhanced by the recent advances in technology that have allowed us to do things like Zoom, Netflix NFLX, and app-based grocery deliveries.

In addition, the ability of pharmaceutical companies to develop a vaccine against the Covid virus over a weekend significantly shortened the duration of the pandemic. This would not have been possible a decade ago.

These welcome advances in technology did not just happen by accident: decades of sound, bipartisan politics have fostered an environment that encourages investment in companies and institutions that contribute to technological improvements across the economy.

However, in a recent study, I suggest that these policies could be at risk: Many people seem ambivalent – or worse – about the pace of technological innovation for various reasons. Some argue that most of the benefits of technological advances are mainly for the wealthy, and that the increase in income inequality that it creates creates problems of its own that taint today’s society.

Others are more agnostic about technological improvements, arguing that the pace of innovation in the economy is largely independent of government policy and that pursuing other priorities has no effect on innovation.

That perspective is not new: the influential 2017 book The Rise and Fall of American Growth by NWE economist Robert Gordon suggests that the inherent features of the U.S. economy, which began at the beginning of the 20th century, largely passed after World War II and that future technological advances will be much more incremental and more difficult and costly to society.

While the past eighteen months will believe his perspective for most observant observers, his perspective has nonetheless been embraced by many, in part because it is practical: when these inevitable forces are slowing the pace of technological change and there is little to be done, then pivot if we allocate our economy more resources to other priorities, the opportunity cost is much lower.

I claim it is a rash perspective that threatens our future standard of living. The transformation of the US – and global – economies through developments in information technology came about through decades of thoughtful public investment and private sector incentives that originated in the final days of World War II. It took four decades from the development of the first computer to its widespread use in homes and schools, but its ubiquity resulted in a seismic change in the way we live, and those changes are continuing.

The biotech revolution – fueled by government investments in NIH and leading American universities – opened up the genome and helped create an amazingly fertile US biotechnology industry. Today, diseases that were an effective death sentence a decade ago can literally be cured with a brief drug treatment or even a single injection.

It can be difficult to put these accomplishments into perspective, but here is my attempt at doing so. After the Second World War, labor productivity – that is, a measure of output per hour worked – rose by about 2.5 percent per year; at this rate, our standard of living would double every 30 years or so. Productivity is our best indicator of technological advances.

However, productivity growth declined by about half over the next quarter of a century: economists are still not entirely sure why, but we think it has something to do with the energy shocks of the 1970s and an economy stagnating thanks to strong regulation and a lack of competition .

In the mid-1990s, productivity growth returned to its average growth rate of 2.5 percent per year, largely due to further improvements in computer technology and entrepreneurs learning to capitalize on the IT revolution.

George Mason University economist Tyler Cowen estimated that GDP would be several trillion dollars more than it is today if the quarter-century decline in productivity had not occurred.

Everything that is a key priority for both political parties today – combating climate change, keeping our country’s budget in order, increasing the living standard of the working class and helping people through the Covid pandemic – depends crucially on innovation, not only solving previously unsolvable problems, but also stimulating the economy in order to create jobs and increase incomes – and also tax revenues.

If you don’t make it a top priority, these – and many other goals – will become more difficult to achieve.

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