Economic Instability, Innovation Dynamics, and GDP Measurement Flaws

Foundations of Modern Economic Dynamics

Systemic Economic Weaknesses and Global Competition

These are the foundational germs of instability: the entry of new competitors in the market that challenge the market shares of established countries. There are limitations of FBK for growth, and difficulty maintaining productivity levels based on FBK. Cheap money due to monetary policy generates a situation of over-indebtedness among companies, consumers, and the public administration. This leads to the uncontrolled creation of money supply for speculative investments, resulting in a growing and continuous debt. These issues were exacerbated by the deregulation and economic liberalism of the 1990s.

Limitations and Inclusions of GDP per Capita

GDP per Capita excludes most non-market and non-productive transactions, with the exception of some specific activities. Key measurement issues include:

• Exclusions: Things produced at home (e.g., childcare, subsistence production).
• Inclusions: Consumption of food and fuel, rental income of owner-occupied housing, prostitution, and drugs.

GDP includes all production independent of its use, utility, or improvements in terms of social welfare. Crucially, it does not include the depreciation of the capital stock. Furthermore, some market activities are included as an estimation instead of their real contribution.

The 2008 Financial Crisis Chain Reaction

1. The Subprime Crisis triggered the Financial Crisis.
2. This initiated a lack of confidence.
3. Lack of confidence triggered the Credit Crunch.

The crisis of 2008 reinforced the over-indebtedness of the private sector, leading directly to decreasing demand.

Dynamics of Skilled Human Capital Migration

Causes of Attraction (Pull Factors)

Factors attracting qualified human capital include:

• Lack of supply of skilled workers in the host country.
• Selective immigration policies.
• Grants to attract and hire qualified immigrants.
• Advantages and attraction of agglomeration (clustering).
• Statistical effects.

Reasons for Migration (Personal Fulfillment)

Skilled individuals often migrate looking for better personal, not just economic, opportunities for self-fulfillment. These include:

• Access to better facilities and material resources for research.
• In search of a research culture based on meritocracy and research freedom.

Radical vs. Incremental Innovation

Innovation can be categorized into two main types:

Radical Innovation (Creative Destruction)

These are innovations, often originating from individuals or small firms, that destroy existing technologies or products. They typically involve low entrance costs because inventions and innovations are based primarily on creative ideas.

Incremental Innovation (Creative Accumulation)

These innovations are usually driven by large firms that maintain extensive laboratories for Research and Development (R&D). They involve high costs because technological capacity is based on the long-term accumulation of knowledge and abilities.

Key Technologies and the Multiplier Effect

Key technologies possess characteristics that drive widespread economic change:

• They generate a substantial jump in productivity across all sectors.
• They often utilize a cheap input as a vehicle for dissemination.
• They generate a new techno-economic paradigm.
• They create self-reinforcing circles of growth.
• A new key innovation generates subsequent innovations in other sectors or leads to new products.