Too much growth?
Posted by John Humphreys on March 3, 2007
If the profit from innovation is “too high” then people will over-invest in new knowledge to the expense of investments in capital or consumption.
Investments in new knowledge have long-term benefits.
Investements in capital have medium-term benefits.
Consumption spending has immediate benefits.
The correct amount of spending in each will depend on the time value of money (ie discount rates). If we have a zero time value of money then we would value new knowledge more highly and reduce our spending on capital & consumption.
