By: John Cochrane
Date: October 2019
Key Quotes:
Knowledge externalities: When one person learns how to do something, and when he or she can and does communicate that knowledge to others, the others can quickly benefit from that knowledge, and the group advances.
Knowledge transmission: The knowledge gets produced, which is costly to the individual producing it, and then passed on, where it is much easier to learn than it is to innovate, and the whole group gets better.
Once a piece of knowledge is produced, it is in society’s interest to pass it on as quickly as possible.
Restrictions on IP, including patents, are, in the short run, harmful … slowing adoption while the innovator gets to earn some rents—to give people an incentive to produce new knowledge.
But a lot of productivity-increasing knowledge is created for free.
The key insight of modern growth theory is that the larger the group studying any problem, the faster the knowledge advances.
Most new ideas are bad, so the process of sifting through new ideas, figuring out which are good and bad, and refining them is a lot of what a group does, and all that learning takes time and effort. [error correcting mechanisms].
Today, the group of people studying any problem is much larger, the number of problems that can be effectively studied by groups of efficient scale has grown, and the fraction of the human population that can work together on any one problem has exploded.