Rogoff: Innovation Crisis or Financial Crisis?

Kenneth Rogoff says our troubles may last awhile but thye aren't permanent:

Innovation Crisis or Financial Crisis?, by Kenneth Rogoff, Commentary, Project Syndicate: As one year of sluggish growth spills into the next, there is growing debate about what to expect over the coming decades. Was the global financial crisis a harsh but transitory setback to advanced-country growth, or did it expose a deeper long-term malaise?

Recently, a few writers, including internet entrepreneur Peter Thiel and political activist and former world chess champion Garry Kasparov, have espoused a fairly radical interpretation of the slowdown. In a forthcoming book, they argue that the collapse of advanced-country growth is not merely a result of the financial crisis; at its root, they argue, these countries’ weakness reflects secular stagnation in technology and innovation. As such, they are unlikely to see any sustained pickup in productivity growth without radical changes in innovation policy.

Economist Robert Gordon takes this idea even further. ...

These are very interesting ideas, but the evidence still seems overwhelming that the drag on the global economy mainly reflects the aftermath of a deep systemic financial crisis, not a long-term secular innovation crisis. ...

Attributing the ongoing slowdown to the financial crisis does not imply the absence of long-term secular effects, some of which are rooted in the crisis itself. ... Taken together, these factors make it easy to imagine trend GDP growth being one percentage point below normal for another decade, possibly even longer. ..

So, is the main cause of the recent slowdown an innovation crisis or a financial crisis? Perhaps some of both, but surely the economic trauma of the last few years reflects, first and foremost, a financial meltdown...