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Innovation in Economics
Innovation improves the performance ('quality' in economic parlance) of everyday objects and the services they provide. But in business, which must survive and prosper, innovation must also deliver on cost. Taking both into account requires the ratio (Q/c), where Q is the 'quality' perceived by the item’s purchaser (as calculated by the MELF) and c the unit cost of its delivery. This metric is neither indicator nor proxy for innovation. It's an exact measure at the heart of economic growth because it controls creative destruction by the Innovation Funnel mechanism. When calculated annually for a large number of items whose data is uniquely available from the DINTEC™ resource the aggregate, which is Sum: (Q/c), enumerates Innovation Funnel output by sector. For durable goods this rises over five decades in a unique shape with distinctive cusps and inflections. This matches Innovation Spending a few years earlier. By such direct connection it's clear innovation drives the economy. In contrast, it's very apparent that factor productivity doesn't. It's insufficiently related to innovation. When input to innovation for non-durable goods soars, factor productivity doesn't respond. It remains quiescent. Similarly for durables. The factor Sum: (Q/c) supersedes all Neo-Classical Theory incumbents because it alone captures creative destruction's contribution to future GDP. Labor and capital become secondary and dependent on what creative destruction demands. National Accounting should connect to this fundamental mechanism of economic growth through tabulating its metric, not least to provide a solid basis for policy.
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Macro Metrics