Innovation >50% GDP?

What will be the biggest future economic sectors? Medicine is many folks bet – we want few things more than health, and the med spending % of GDP has grown for many decades. But while I agree that medicine will continue to grow for decades, on longer timescales my bet and hope is: innovation.

We are richer than our ancestors mostly because of innovation. But most of the innovation benefits we receive are externalities – we only pay our ancestors (or those to whom they transferred their property rights) for a small fraction of that benefit. If we instead had better property rights for innovation, we’d pay a large fraction of our income as compensation for past innovation. That would increase incentives to innovate, the rate of innovation, and the fraction of the economy devoted to innovation. With good institutions, I could imagine more that half of all income being paid to the innovation industry.

Alas, it is devilishly hard to design good innovation property rights. Patents are supposedly the best we have now, and they are often terrible. But over the next few centuries, we might just create better institutions (e.g., futarchy) to better encourage institution design, and within those institutions, folks may well come up with better designs for institutions to encourage innovation. Optimist that I am, my best guess is that we will succeed at this.

Of course in the long run innovation must run out, and then we’ll have a long stable future with little innovation. But I expect the innovation era to last a few more centuries at least, with the best innovation yet to come.

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  • Midge Wolf

    We already have a mechanism for taking money from the future to compensate innovators today: federally funded research programs financed via deficit spending.

  • Lord

    “If we instead had better property rights for innovation, we’d pay a large fraction of our income as compensation for past innovation. That would increase incentives to innovate, the rate of innovation, and the fraction of the economy devoted to innovation. ”

    This is likely not true. Large returns can just as well reduce innovation since innovation can devalue earlier innovation while preventing future innovation by others than those holding rights to existing innovation. Incentives don’t always work in the manner intended.

  • Wonks Anonymous

    Sounds like the anti-trek economy.

  • Khoth

    I fail to see how giving a vast chunk of our GDP to the rent-seeking descendants of people who invented things is going to help increase innovation. People discount the value of their future income, especially when they’re dead, so the costs of paying for existing things will rapidly outweigh the increased incentives for people to make new things.

    (Useful innovation tends to be based on what came before, so “people will innovate to avoid having to pay royalties on the old stuff” won’t be much of a reason to innovate)

    • Konkvistador

      Why assume people will keep dying or rather will keep dying before their innovations aren’t replaced by better ones?

      Encouraging people who innovate to reproduce is a very good thing, giving their descendants some advantages seems to increase their rate of reproduction, since income is positively correlated with fertility.

      • Konkvistador

        *are replaced

  • Tim Tyler

    Re: “Alas, it is devilishly hard to design good innovation property rights.”

    Do we need those? If innovation is so great, we could just have the government hire and pay inventors, along the lines of how it currently funds research – or perhaps via prizes.

  • Jeremy

    Off topic but interesting:

    According to current Intrade odds and Bayes’ Theorem, Ron Paul is 90% likely to be President if nominated:

  • Hopefully Anonymous

    I think there’s value in intellectuals working out the costs, benefits, and optimizations of innovation reparations.

    If innovators have been poorly compensated in such a way as to decrease future incentives to innovate (or even simply to decrease optimized resource management) then we could look at how cash transfer back to the innovating individuals and organizations can increase current and future innovation (with confidence that future legal regimes will make up for undercompensation in the present). When innovators or dead, descendants and causes could be compensated (again I think this should be worked out with a technocratic lense towards optimizing public welfare rather than through earthy but nontechnocratic notions of fairness.
    There seems to me to be a bias toward retroactive fines on negative externality producers more so than retroactive payments towards positive externality producers, although both public welfare instruments seem to me to be far from good faith optimized.

  • Napoleon

    I would like an innovation to allow me to replace Tom Cruise in Katie Holmes’ relationship. What would I need objective lengthening of everyone’s life by one year for? ;)

  • Norm

    I think property rights for innovation are probably too great now. The time spent squabbling about who gets how much compensation for an innovation is a dead loss to society. There are inherently huge issues with dividing credit among various people who had the ideas first (way overrated) those who reduced the idea to practice, those who made the idea practical and those who succeeded in using an innovation. At each stage there are dozens of previous ideas, practices, twists on existing theories etc. put to use. Personnel and competence effect what works and what doesn’t. On top of all that there are very bad memories of who did what when ( in my experience fortunately I had lots of physical evidence to back up my memories). FWIW I’m a retired R&D manager with 8 US patents.

  • Michael Wengler

    Where is the analysis that shows the way to calculate optimum resources to innovation, and shows we are below that mark?

    Where is the analysis that shows how we would be better off with property rights in general (not just for intellectual property) that did a better job of extending beyond our lifespan?

    My sense ( I have no rigourous analysis to offer either) is that intellectual property is too broadly applied, that most patents are garbage, and that races to patent things is essentially proof that the things patentented are obvious to a group of people skilled in the art, and that the trade of publication for monopoly rights is BS, I’m not aware of anybody who reads patents for any reason other than determining whether they apply to something. That is I’m aware of nobody who reads patents to learn stuff.

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