Best predictions say growth will rapidly slow in the next three decades---innovation is the key internal link to total factor productivity, which historically predicts GDP.

Millsap 24, [Adam Millsap (Master’s and PhD in economics from Clemson University and a BS in economics and a BA in comparative religion from Miami University in Ohio, Senior Fellow in economics at Stand Together Trust, has taught courses in economics at Johns Hopkins University, Florida State University, Clemson University, and George Mason University), "How Innovation Boosts Growth And Why We Need More Of It," Forbes, https://www.forbes.com/sites/adammillsap/2024/04/06/how-innovation-boosts-growth-and-why-we-need-more-of-it/, accessed 6-27-2024, 4/6/24] Mr.Mr.

Last week, the Bureau of Economic Analysis (BEA) released 2023 fourth quarter GDP growth data for the states. Annualized growth rates varied from a high of 6.7% in Nevada to 0.2% in Nebraska. Idaho, Utah, South Carolina, and Texas also grew by 5% or more (see map below). With better economic policies more states would grow faster.

Map showing state GDP growth rates.

Economic growth is good. More growth means more job opportunities, healthier lives, and safer communities. Americans are blessed to live in one of the richest and most innovative countries on the planet. Unfortunately, too many people take growth for granted. This is reflected in our economic policies that stifle innovation today and consequently reduce growth in the future.

Economic growth is driven by three things: more workers, more capital (machines, factories, computers), or increasing the productivity of workers and capital. The latter driver is called total factor productivity (TFP). TFP consists of new technologies and processes that allow us to combine workers and capital in more productive ways, resulting in more output using the same inputs. Throughout history, increases in TFP have been the major cause of long-run growth, especially in wealthier countries such as the United States.

Over the last 33 years, since the end of the recession in the early 1990s, TFP growth has been disappointing. From 1991 to 2023, average annual TFP growth was only 0.81%. This is bad, but things are actually worse: From 1996 to 2005 annual TFP growth averaged a robust 1.91%, but outside those 10 years, the average was only 0.33%. As a result, GDP growth has also been weaker since 2005, and it is not expected to recover: The Congressional Budget Office predicts growth will slow even more over the next three decades.

We do not have to accept slower growth. Increasing TFP growth will boost GDP growth, and we know that innovation is the key to boosting TFP. In a recent study, Aakash Kalyani of the Federal Reserve Bank of St. Louis finds that more “creative patents”—patents that use original terminology and are thus more likely to represent new technologies—are associated with faster TFP growth.