1. Or, more accurately, if there was innovation, it was exogenous, not
affected by what market participants did.
2. There are, of course, other exceptions. For instance, if risk markets are
incomplete, free trade can lead to a Pareto inferior equilibrium; free trade
increases risk, inducing investment away from high-risk/high-return sectors
(see Newbery and Stiglitz1982).
3. Note that this critique of the infant-industry argument is distinct from the
usual criticisms based on political economy—that there is “capture” by vested
interests. We deal with these issues below.
1. The Learning Revolution
1. How they make those choices will, of course, have profound effects on
measured growth, since increasing leisure does not show up in conventionally
measured GDP (see Stiglitz, Sen, and Fitoussi2010).
2. This point was emphasized by Keynes (1930). See Stiglitz (2008d) as well
as other chapters in Pecchi and Piga (2008).
3. The difference was referred to as the Solow residual. While technical
change accounted formost of the residual, there were other factors, including
the reallocation of labor from low productivity sectors to high productivity
sectors (see Denison1962).
4. Griliches and Jorgenson’s work (1966,1967), which entailed using alter-
native calculations of the value of capital, suggested a much smaller role for
technical progress. Further problems were identiﬁed in the quantiﬁcation
of labor input, as economists attempted to assess the role of human capital