See link to John Cochrane’s excellent response to Gordon’s recent paper.
http://johnhcochrane.blogspot.co.uk/2012/08/gordon-on-growth.html
In particular:
‘My impression of modern growth theory is that the economics of innovation production and adoption are not well understood. Do the distortions of a high-tax, regulated, crony-capitalist, welfare state, just screw up levels? Or do they reduce the spread of ideas behind long-run growth? My fear is “yes.”‘
One point missing from Cochrane’s excellent observation is the fact that the corporate world was able to generate increased profits for a generation due to rising consumer demand from increasing but unsustainable levels of leverage. As a result managers did not have to work as hard to increase profits during the Great Moderation. The fact that productivity growth jumped meteorically between 2009 and 2010 just shows how “unproductive” companies had become in the run up to the Crisis due to cheap credit. Gordon’s negative outlook misses the point as corporations exist to drive productivity increases – that is the process of creative destruction. Shareholders just need to ensure they have the right management teams in place. That unfortunately is less than straight forward given there are few managers around that have had to deal with the challenge of reducing inputs to deliver the same output. Management theory rather than economic theory is likely to provide a better understanding of the “economics of innovation production”.