Economic Doctrines and Policy Differences: Has the Washington Policy Debate Been Asking the Wrong Questions?

In an election year when both presidential candidates in the United States are confronted with a troubled economy, the current U.S. political dialogue is giving scant attention to innovation and policy to promote innovative activity.

Innovation policy has gotten short shrift in the U.S. political dialogue largely because the three dominant economic policy models – conservative neoclassical, liberal neoclassical and neo-Keynesian economic doctrines– advocated by most economic advisors, and implicitly held by most Washington policymakers, ignore the role of innovation and technology in achieving economic growth in the global, knowledge-based economy of the 21st century. Unfortunately, while the U.S. economy has been transformed by the forces of technology, globalization, and entrepreneurship, the doctrines guiding economic policymakers have not kept pace and continue to be informed by 20th century conceptualizations, models, and theories.

Fortunately, as described in this policy brief, a new theory and narrative of economic growth based on an explicit effort to understand and model how technological advances have emerged in the last decade. This new economic doctrine on the block— called “innovation economics”—reformulates the traditional model of economic growth so that knowledge, technology, entrepreneurship, and innovation are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy.

This policy brief briefly explains the three prevailing economic doctrines, as well as the newer doctrine of innovation economics, that are competing for the attention and allegiance of U.S. policymakers. In addition to discussing each doctrine’s principles, goals, and what each believes about the economy, it discusses the advantages and limitations of each economic doctrine. Finally, it examines how each doctrine views particular real-world economic challenges and the different types of policy prescriptions that result from each.