And they are often funded by equity, not debt, so financial intermediaries are not at risk. The gains to aggregate economic activity from successful innovation – as in the high-tech case – are realized over time. When overinvestment occurs, market returns respond, new investment slows, and the capital stock eventually adjusts. In the end, productivity is higher than it would have been otherwise.
Introduction Robert Hall’s paper is a well-written and remarkably wide-ranging examination of the evolution of the U.S. economy over the past few years.1 I learned a tremendous amount from reading it – and I’m sure that I would learn even more upon rereading it.