If you were convinced by Tyler Cowen that we are facing a Great Stagnation, but like me you found his recommendations incomplete and on the short side, then Alex Tabarrok’s Launching the Innovation Revolution is a logical follow-up read. A lot of books get discussed in the blogosphere, and even if you’re the kind of person who reads the reviews on blogs rather than the books themselves, I highly recommend it. It’s short and extremely readable. I finished it in 1.5 sittings. And as Tyler says, Alex is a good tracker of truth, so you don’t have to spend a lot of time and energy figuring out why he’s wrong about something that doesn’t sound right.

There are three main areas of reform he recommends to help our economy grow faster in the long-run: education, patents, and immigration. I can’t disagree with the three categories, in fact immigration and intellectual property were the two categories for gains I suggested were missing from Tyler’s book in my review.

The area that I think begs the most questions is the one on education. Alex argues that there is a strong relationship between a the education levels of a country’s citizens and productivity. “[I]ncreasing the quantity and especially the quality of education”, he argues, ” has potentially enormous payoffs”. I don’t find this very controversial, but how much is there left to gain here for the U.S.? Now I would agree with Alex that are trillions to be gained here, but I am skeptical of the particular low-hanging fruit he identifies:

Average education levels have not stagnated because of fewer PhDs (although as we shall see that is also a problem) but because fewer people are graduating from high school.

He draws a line from high dropout rates and low international standardized test scores to the fact that countries with a better educated workforce innovate more and grow faster. But while I agree it is extremely important to improve the educational outcomes of high school dropouts and those who are currently the worst off, I don’t think raising the productivity of these workers will strongly affect our innovation. This is also why I’m skeptical of basing expectations of the impact of improving outcomes for U.S. high school dropouts on estimates from studies of the effect on average educational outcomes on productivity. My guess is that increasing educational outcomes for the the top two quintiles has a strong impact on overall productivity, while increasing outcomes for the bottom does not have nearly the impact.

In his immigration section Alex nicely lays out the mechanism by which high skilled workers generate spillovers via idea creation. In his innovation section he talks about how inventions build on each other, so an invention today can generate positive returns going far into the future. Given these mechanisms it’s not hard to imagine how increasing education for the top quintiles can increase rates of economic growth. And while it isn’t hard to imagine significant level impacts from increasing education for the lower quintile due to positive spillovers like less crime and higher low-skilled worker productivity, what are the comparable mechanisms for increasing rates of economic growth?

I am not a hardened skeptic here, I am open to persuasion. And like I said I think increasing educational outcomes for high school dropouts is one of the most important things we should be doing. But I do not see a convincing growth argument tied to the rest the themes book.

Another more minor question I’d raise is with respect to teacher quality. Alex argues correctly that we currently pay teachers for experience and advanced degrees even though they are not strongly related to teacher quality, meaning they do not raise value-added test scores. But Alex also argues that teacher quality has decreased over time as measured by high school rank, college selectivity, and SAT scores, and that we should care about this. But is there strong evidence that all of these measures of ability are any more tied to teacher effectiveness than the credentialing and experience Alex criticizes? Matt Di Carlo at the Shanker Institute argues that “it’s very tough to predict teaching effectiveness based on teachers’ measurable pre-service characteristics”, and “when there are associations, they tend to be inconsistent and small”. I think there is an argument to be made that these are at least somewhat useful measures of teacher quality while credentialing is largely not useful, but I don’t think Alex makes the case in his short education section.

But enough on disagreement. I particularly agreed with and enjoyed his section on immigration, and I think reforms there have the most potential to increase economic growth rates. This is especially true because reforming immigration is so easy: just let them in. In contrast, selecting the right innovation policy is more complex:

“No single institution solves all problems. Patents, innovation prizes, patent buyouts and advance market commitments all have their place. The key is to match problems to institutions.”

This is a much more challenging problem than simply liberalizing high-skilled labor markets. Immigration policy that is of an order of magnitude better than what we have in place now is comparatively simple problem when examined next to patent reform.

Overall, you should read Alex’s book. You should have been reading it now instead of reading this review. I hope it is influential.