global thinking

New Ways
to Measure

How much is innovation costing us?
by Tara Smith
When thinking about how to measure investment in innovation, economist Leonard Nakamura ’69 wonders about the costs of being an innovative society. We are, he says, in an age of “creative destruction.”

Corporations are in a relentless race to change the ways we live and work — from smartphones and messenger RNA vaccines to space commercialization and self-driving cars. Those who win this race can earn disproportionate wealth by destroying the competition. “What a lot of innovation does,” Nakamura says, “is put businesses out of business.”

Headshot of Leonard Nakamura, photographed outside with snow on the ground. He’s wearing a navy button-down and a red coat, and the sun is shining on his face.
“We’re good at measuring more, but not at measuring new,” says Leonard Nakamura ’69, economist emeritus at the Federal Reserve Bank of Philadelphia.
The late Bernie Saffran, a legendary Swarthmore professor and Nakamura’s longtime mentor, fanned his interest in economics during the late ’60s, an era of intellectual ferment on campus.

“The student rebellion, including the Black student sit-in my senior year, created special bonds in the Class of 1969,” says Nakamura, who still Zooms with classmates. He spent 30 years in the Economics Research Department of the Federal Reserve Bank of Philadelphia, ultimately as a vice president. Now as economist emeritus, he’s charting a course into economics’ postindustrial frontier.

leonard Nakamura ’69
The industrial era focused on producing goods in great quantity, but that focus of production has run its course, Nakamura says: “Our bodies, closets, and cars are increasingly all obese.”

In the 21st century, we demand new goods — more knowledge, better products, cutting-edge medical treatments. But this growth poses a measurement conundrum for economists. “We may love or hate Google Search or Facebook, but they deliver valuable assets for free and economics gives us no guidance on what they’re worth — and we don’t include them in our price or output measures,” Nakamura says. Electronic pricing, subscription tiers, and complicated pricing strategies make it even harder to track the value of workers’ paychecks. How valuable is an unlimited data plan, or what’s the value of Spotify relative to iTunes?

“Might we be better off with a slower pace of innovation? Maybe we should tax innovators more.”
Innovation does, of course, bring extraordinary benefits. Nakamura’s improved eyesight after recent cataract surgery is one example.

“We have these medical miracles,” he says, “but it’s all very expensive.” Most Americans can barely afford health care and first-rate education. “Most of us are in debt, and that makes people feel poor, although the value of what they get is awesome.” The pace of innovation also makes a college degree more and more necessary. “Might we be better off with a slower pace of innovation?” Nakamura asks. “Maybe we should tax innovators more.”

We think the economy is doing poorly because our statistics show slow growth, “so we’re told we need more growth,” Nakamura says. “We can’t tax or raise the minimum wage because it might slow down innovation. Obama and Biden, Bush and Trump — all say we need to innovate more.” But is that really true, Nakamura wonders, when our world is changing so fast that none of us can keep up?

“Innovation is here to stay,” Nakamura says, “but do entrepreneurs need to earn $60 billion to get it done? Perhaps we should tax wealth and put it back to work to redress our power imbalances, making health care and education cheaper so we can all take advantage of, and keep abreast of, our changing world.

“This could slow innovation, but that might be good.”