What We Talk About When We Talk About Innovation

Bill Gates

So when people say middle class salaries have not gone up much I think that the “basket of goods” approach to measuring improvement inherently understates how much better life is now than it was in the past.

It's not that he's not correct, but there's equity and there's "better." When you talk about quality of life improvements, you're often talking about things that a society shares (or tries to share) access to. Bill Gates uses the internet; so does the homeless person at the library. But: income inequality in the U.S. hasn't been this great since the Great Depression. I worry about the blinkered effect of this kind of thinking.

Still, it's an intriguing question, how to measure what innovation brings to the table, because as Gates instances, innovation often makes something inexpensive. We're not good at seeing the removal of costs as a benefit. (Just like Microsoft can't seem to get their heads around the removal of bloat.)

Elsewhere, the deflationary effect of Wal-Mart's everyday low prices blindsided economists struggling to explain where inflation had got off to. Whatever you do, don't bring up a blunt instrument like GNP to Sightline. In that measurement, the clearcut and sale of every tree on the North American continent would be an economic "boost."

In his roundtable, Gates talked with astrophysicist Lowell Wood, and his former CTO Nathan Myhrvold, now founder of Intellectual Ventures. Wood's examples of innovation were a "5,600-mile airplane flight yesterday for $500" and his laptop, which provides him with the computing power of a $10 million computer from 1980. (Wood probably isn't referring to the innovation of externalized costs, which lets airlines dump tons of greenhouse gases into the atmosphere, or the innovation of airlines' revolving-door bankruptcy protection.) But you see his point.

Myrhvold mentioned Wikipedia, which has more or less obviated the demand for traveling encyclopedia salesmen. For him as well, "the basket of goods" was primarily a structural holdover--you need to be able to compare apples to apples, kwh to kwh.

Gates is a fan of the Freakonomics gang, so he's probably read their roundtable on measuring innovation, and I think in contrast, he and Wood and Myhrvold need to step up their game. They all seem to agree that innovation can "improve the human condition," and that its benefit is under-assessed economically, but they don't really hazard an estimate on what the impact is. We'll have to see where this conversation goes.