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Financial Crisis or Innovation Crisis? Both!

NEW YORK  Former world chess champion and political activist Garry Kasparov and internet entrepreneur Peter Thiel, squared off with Harvard economist Kenneth Rogoff on the question whether advanced economies experience a financial crisis or an innovation crisis.

Mr Rogoff, who authored This Time is Different: Eight Centuries of Financial Folly (2009) with Carmen Reinhart, argues that the systemic financial crisis is the root cause of the prolonged economic slump in the western world. In their research, Mr Rogoff and Ms Reinhart found economic growth following a systemic financial crisis to be about a full percentage point below trend growth.

Mr Kasparov and Mr Thiel, on the other side, disavow Mr Rogoff’s claim that the collapse of advanced-country growth is the result of the financial crisis. In their view, the flailing western economies reflect stagnating technological development and innovation, and without radical changes in innovation policy, advanced economies are unlikely to see any prolonged pickup in productivity growth.

Robert Gordon of Northwestern University espouses in Is U.S. Economic Growth Over? an even more dire view, suggesting that the 250 years of rapid technological progress that followed the Industrial Revolution may prove to be the exception, rather than the rule.