Alex Tabarrok, and Tyler Cowen, over at Marginal Revolution believe that there has been a great stagnation in innovation in recent decades. Except in IT, we haven't had the same level of innovation as during decades that saw the invention of the automobile or flight, or antibiotics. We don't have new innovations, and that's what's hurting our economy.
Matt Yglesias has been consistently arguing that inequality is making it hard to get new products into people's hands. Essentially, too many Americans don't have the means to consume the hot new product. Too many new inventions (such as smartphones, which is one of his examples) aren't accessible for the majority of Americans. We have new innovations, but they are unaffordable.
I'm sure this argument has been made by one of these people somewhere, but I wonder if growing inequality in the United States is a threat to innovation. And particularly the development of the kinds of products that create lots of jobs and provide real benefits for lots of people. Traditionally, the middle class in America has been a great engine for driving the creation of innovative products. They have enough disposable income to be able to buy a new product, but not so much that there isn't pressure to make it cheap.
Henry Ford made his fortune creating a car that the average American could afford. Remember that the innovation here wasn't the automobile, it was how to make automobiles cheaply. Later, Toyota hit it big creating cheap, fuel efficient cars that average Americans wanted. But now Toyota is developing fuel efficient cars that most people really can't afford (the Prius). Wealthy Eco-conscious consumers are a niche market.
The upper class will reward you for creating cool new gadgets, but the middle class then force you to go back to basics and figure out how you can make it as efficiently as possible. There isn't the same incentive to do this if the middle class isn't spending the same share of income as it was before. Today, power windows come standard, but I wonder if rear-view parking cameras or hybrid drives will ever reach the point where they aren't considered luxuries. It is when inventions become accessible for the great majority of people that can really transform society, from the automobile, to affordable jet travel, to the computer.
This makes inequality all the more pernicious. When there are lots of new things you can buy with alot of money, but few new things you can buy with some money, inequality increases in some non-obvious ways. And in a way that doesn't really show up in statistics about inequality. Too many of our innovators are working to serve the top brackets rather than average Americans.
On the flip side, In other parts of the world, such as India, we're new innovations designed for their rising middle class, and for the poor - "frugal innovation". These include mobile banking in Africa, or mobile monitors for irrigation systems in India. And these innovations have the capacity to really improve the lives of ordinary people.
