The Mismeasure of Technology

One idea about which economists agree almost unanimously is that, beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” So what is technology?

CAMBRIDGE – There is nothing better than fuzzy language to wreak havoc – or facilitate consensus. Ludwig Wittgenstein argued that philosophical puzzles are really just a consequence of the misuse of language. By contrast, the art of diplomacy is to find language that can hide disagreement.

One idea about which economists agree almost unanimously is that, beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” So what is technology?

The answer explains the unusual consensus among economists, for “technology” is measured as a kind of “none of the above” category, a residual – Nobel laureate Robert Solow called it “total factor productivity” – that remains unexplained after accounting for other production inputs, such as physical and human capital. As Moses Abramovitz aptly noted in 1956, this residual is not much more than “a measure of our ignorance.”

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