[I'm trying something new: This is a draft of an essay for publication on rootsofprogress.org. I'm posting it here first for feedback. Please comment!]

If progress is slowing down, is it natural? Robert Gordon seems to think so, prophesying “the death of innovation, the end of growth.” Tyler Cowen, in contrast, writes about it as a temporary phase: the subtitle of his book on stagnation says that “America ate all the low-hanging fruit… got sick, and will (eventually) feel better.”

One hypothesis for why stagnation might be inevitable is that “ideas get harder to find.” We’ve already picked the low-hanging fruit; growth will be harder from now on.

A centerpiece of this debate is a paper by Bloom, Jones, Van Reenen, and Webb titled “Are Ideas Getting Harder to Find?” (hereafter, Bloom 2020). But I think this paper has been misunderstood and misinterpreted by those coming to it from outside academic economics.

This essay will explain that paper to the progress community, and clarify its implications for growth and stagnation. To get there, I will sketch the intellectual history of this subfield, and along the way we will gain a much better understanding of TFP (“total factor productivity”).

Ideas do get harder to find. But, it turns out, that alone doesn’t imply stagnation.

Total factor productivity

In the 1950s, Robert Solow made a major discovery about economic growth, just by writing a simple equation and doing a bit of calculus.

The equation was a “production function,” a mathematical formalism that by then had become common in economics. A production function is an equation for the output of a factory, an industry, or the economy as a whole:

Y = F (K, L)

$Y$ , by convention, stands for output (such as GDP). Capital ( $K$ ) and labor ( $L$ ), the focus of early 20th-century economics, were the traditional inputs.

We may not know the exact form of the production function, $F$ , but we can make some assumptions about it and see where they lead. One question we can ask about $F$ are its “returns to scale”: Suppose we double the inputs—is output also doubled, less than doubled, or more than doubled?

One intuition we might have is that if we double both capital and labor, then we also double output: this is the definition of “constant returns to scale.” The intuition pump, known as the “standard replication argument.” is the following thought experiment: Consider a factory that ...

Economics