Freakonomics Radio - 399. Honey, I Grew the Economy

Episode Date: December 5, 2019

Innovation experts have long overlooked where a lot of innovation actually happens. The personal computer, the mountain bike, the artificial pancreas — none of these came from some big R&D lab, but from users tinkering in their homes. Acknowledging this reality — and encouraging it — would be good for the economy (and the soul too).

You ever wonder where mountain bikes came from? People start riding bikes down mountains, and then they modify bikes so that they can ride down mountains more easily. You discover, oh, I have to have stronger brakes, I have to have this, I have to have that. And the manufacturers, meanwhile, are saying, well, that's stupid. You shouldn't be doing that, right? And, you know, your warranty is void, which is their contribution to the innovation process. And then as a lot of people begin to do it, they say, aha, not only is there a proven innovation,

but there's a signal of general demand. And that's the point at which you begin to define what a mountain bike should look like. And that, according to the MIT innovation scholar Eric von Hippel, is how the mountain bike was invented and brought to market. Not by a big bicycle manufacturer, not by market researchers, not by some top-down innovation incubator, but from the ground up. When you think about innovation these days, what kind of image comes to mind? Maybe a massive computer science lab or a well-funded medical device workshop or a flavor profile laboratory run by a gigantic food company? All true enough, but those are just the most visible sites of the innovation

chain. The kind of photos you see in IPO slide decks for so-called cutting-edge companies. They are just the tip of the iceberg. Beneath that gleaming peak lie millions of underfunded, underappreciated home innovators, including, as it turns out, a lot of our listeners. I invented an internet-connected barbecue smoke controller so I could spend Saturday afternoons with my friends instead of monitoring the barbecue. I invented a product called the Rinseroo. I originally was home at my beach house

with messy showers and messy dogs. And I was bucket rinsing my showers and my dogs and I thought there's got to be a better way. I developed something for children to easily color eggs at Easter time. I designed a 3D printed prototype and we love it and it works great. Today on Freakonomics Radio, the power of home innovation and why we are foolish to ignore it for both its economic contributions.

It looks like about 30% of R&D is not counted. And the metaphysical gains. There's something deeply satisfying about being responsible

for something and knowing it all the way down. From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. Eric von Hippel is a seventh-generation academic. His father was a materials scientist who worked on the development of radar.

Well, there were many, many people working on radar. And in his case, he studied dielectrics and waves and so on. His son, meanwhile. I'm a professor at the MIT Sloan School of Management, and I study innovation. The study of innovation is a relatively new field. So really what you had to do was cobble things together. And in my case, I cobbled together engineering and business and economics. I asked von Hippel how he thought about innovation when he was a kid.

Well, you know, I did it myself, right? We had a house in New Hampshire, and my job was to cut up the firewood. So of course I made an automated device. And what does an automated device to cut firewood look like? Well, it has a chainsaw in it, and it's mounted on a sawhorse. So you put the wood on the sawhorse, and then the chainsaw goes up and down, and you move it over a stove length, and it does it again. You know, I mean, why wouldn't one do that, right? I tried to make a pulse jet to drive my bicycle.

I used the wand of a vacuum cleaner as the jet tube. I did not succeed at this, unfortunately. Probably just as well, I would have gone through a wall. Von Hippel went on to become a professional inventor, at least for a little while. I was just graduating for the master's degree in mechanical engineering from MIT, and these guys showed up and said, hey, we need an inventor. The day after, I was on a private plane flying to a startup. The company was called Graphic Sciences.

They were making fax machines, which nobody will now remember. But at the time, they were totally cutting edge. And I ran R&D, and it was fabulous. We had this war with Xerox. It was such fun. Von Hippel spent several years on this track, getting patents under his name. And I began to become interested in the process of innovation as opposed to just doing it,

and I decided I really wanted to understand the process. Von Hippel got a PhD and then returned to teach at MIT, where his father had also taught. He's been there ever since. Among his many distinctions was co-founding the MIT Entrepreneurship Program. He recently put out a working paper co-authored with the Wellesley economist Daniel Sickle that summarizes much of what Von Hippel has learned over the years. It is called Household Innovation, R&D, and New Measures of Intangible Capital. Yes, that's right.

If you care even a little bit about innovation or the economy or how the world really works, it's hard to not be seduced by the thesis of this paper. Household R&D or household innovation, the authors write, is an important source of innovation that has to date been largely overlooked. Indeed, it is not currently counted as investment in the literatures on household production and human capital. In other words, home innovation is missing from economic measures like GDP. And why is this important? You know, if you don't assume that it exists, you don't set up measurements to capture it. And then you're left with whatever the residual is, and you think

reality is that way. Von Hippel and Sickle calculate that Americans invest about $41 billion a year in household innovation. This, they write, is about half of what producers spend in R&D to develop new products for consumers, a sizable fraction. Every field we look at, in terms of the basic innovations, about half were done by users. And it's fantastic. Companies very seldom mention the user-developed roots of their innovations. Furthermore, they write, we conclude that household R&D is an important feature of household activity and more generally of the overall landscape of innovation. So, okay, let's start with a definition of terms. Home innovation as we define it is the creation of functionally novel products

by individuals in the household sector. All right, that makes sense. But why has this not been turning up in typical economic measures of productivity? So normally, household activity that's counted is typically services, things that you do for yourself, child care and the rest of it. And, you know, R&D, it wasn't really visible, but it was part of leisure time. It wasn't considered as producing a useful output. So von Hippel and his colleagues designed a nationally representative survey that's now been conducted in 10 countries to learn what share of people were, as they put it, developing or improving consumer products for personal use. They were only able to measure what they call people were, as they put it, developing or improving consumer products

for personal use. They were only able to measure what they call product innovations, not services or process improvements, which are harder to pin down in survey data. Of the nations included, Russia ranked the highest, with 9.6% of the population doing some kind of home invention. The U.S. came in at a healthy 5.2 percent. China was the lowest at 1.5 percent. In any case, the fact is that many successful commercial products started off in someone's garage or basement or crop field. So the Oslo Manual for OECD Nations says, here's how you ought to measure things like innovation. And until the latest edition, which came out in 2018, they said an innovation is not an innovation until it's been placed on the market. So systematically, all this user innovation was invisible.

In other words, the mountain bike, even if 30,000 people built their own before the first company came in, as soon as a company came in, they said, aha, the mountain bike, we attribute it to manufacturer X. So not only was it invisible, but it was totally misattributed to the producer section. And then the producers could say, we're doing such a great job, give us more subsidies and more patents and so on. Von Hippel likes to point out that home inventors have entirely different motivations than big firms. 90% of them are not in it for the money. They're in it for personal use, but they're also into it for fun. Just fun and learning.

Fun and learning and personal use. It turns out those are all important inputs in the innovation process. In all our studies, what we find is that the producers lag the users. So the first PCs were developed by users, right? And they were developed by users because what manufacturer thought anybody would want that? And the user didn't care. So a key point here is that the users, because they are self-rewarded, don't have to worry about selling their innovations to others. Companies, because they're trying to profit from general demand and selling to general demand, they have to care. Just let me play devil's advocate for a second. You're describing firms now as sort of, you know, dullards who look for profit without

much innovation and home innovators as free-spirited, you know, wonderful people who look for innovation and don't care so much about the profit. And believe me, it's a very appealing story you tell. But if I'm a firm that has a huge R&D wing, I've got to say, wait a minute, Professor von Hippel, I think you're maybe giving us not a fair shake here. So the thing is that producers also do things. They just do different things. So the user is developing what he or she needs and generating new function and generating a new market. What the producers then do is they produce things that everybody will want. So they improve products, right? So what you have is user hacks, like the first central

pivot irrigation device done by farmers. Farmers are the ones who do all this stuff, like, you know, the first GPS kind of surveys of fields and so on. Because, I mean, there you are in the winter, what are you going to do, right? And then the companies follow. But what the companies do is make it much more reliable, more easily operable, you know, manufacturable. So these are all very important things to do in the improvement process once you understand what the function is. So it's a complementary relationship. It's a complementary relationship. And what we can help the manufacturers understand is, you know what, you guys,

you shouldn't be sitting around saying, oh God, what do the users need? Instead, you should look at this complementary system that will, if you look, give you largely free inputs and insights into not only what the thing is, but its general demand. So the first study I ever did was scientific instruments, and I learned by observing scientists that they were the ones developing their instruments. And economists said to me, well, that's scientists

being scientists. That doesn't mean anything. And then my students were all extreme sports people, so we did a whole bunch of stuff in extreme sports, windsurfing and so on. And my colleagues, they said, well, you know, those people are crazy. We know that. That's not generalizable. And that is why we did these nationally representative surveys. And when we did those and we said, look, in the U.S., there's 16 million people who are developing new products for themselves. I remember a particular colleague who will be nameless. He said, ah, that's just people being people. And I said, that's my point.

I have you now. Philosophically, do you think this common idea of entrepreneurship as profit-making sort of pollutes the beauty and art and fun of invention? I do. But, I mean, let them have at it. The innovators themselves don't care. And they're doing it for their own reasons. It does pollute the writing about it, but my colleagues and I are trying to make clear that this is really part of human flourishing. It's a fabulous phenomenon. Ah, human flourishing. I'm not sure I ever really sat down and tried to define flourishing.

I'd like you to meet Edmund Phelps. He's an economist who won a Nobel Prize years ago for his analysis of intertemporal tradeoffs in macroeconomic policy. What's he up to lately? Mostly, I'm directing the Center on Capitalism and Society at Columbia University. Among Phelps' many books is a recent one called Mass Flourishing, How Grassroots Innovation Created Jobs, Challenge, and Change. The notion of flourishing, he says, goes back to Aristotle, but philosophers in the 1960s were talking about it too.

I know because I was around. And this was their word for having a kind of life that has a lot of deep satisfactions. Now, that doesn't sound like something an economist would typically be so interested in. That's right. I guess I'm waiting for the economists to run me out of town, but I'm working at trying to get them to think about flourishing and to think more about the dynamism in an economy that makes it possible for large numbers of people to flourish. I guess I have a love of exploring a problem that I can't answer, a question I can't answer. I really love it. And it's not that I necessarily that I go into the office every day whistling, but it becomes almost an obsession, I guess. Tell me how old you are and how much you are still working.

I'm still 85 as we talk. Next month, I'll be 86. And do you go into the office most days still? I do. And I'm ashamed to admit I sometimes sneak in on Saturday morning. Yeah. What Phelps became obsessed with was what exactly leads to human flourishing and how that translates to innovation and economic growth. It was around the end of the Renaissance that people began to feel liberated and began to feel that, hey, we can create stuff. We can find a better way to produce this or we can find a better way to produce this, or we can find a better thing to produce. And I'm sorry to say the church at that time wasn't very happy with that idea. By 1800, almost everybody was sort of a Renaissance guy, and it was okay to go off on your own thing, the idea of voyaging into the unknown. A lot of innovating was just the excitement of it, the fun of it, the curiosity of it.

It wasn't to make money. But the spirit of innovation did ultimately feed the economy. After the Napoleonic Wars came to a stop, the British economy got going again. And my God, it was just crazy. New steam engines and railway lines. And of course, one thing led to another. The needs of the trains created people thinking about how to solve those problems. So why did innovation flourish in some places and not in others? There are, of course, a million possible factors. Phelps discovered one particularly interesting factor in the surveys he conducted for his research.

There's a question about, did you think that it's important for your children to be obedient? And it turns out that the countries where families prize obedient children, those countries are low in innovation. I love that result. So the spirit of being willing to, if not necessarily break a rule, at least being willing to look at something from a different perspective, yes? Yes, right. But Phelps found that as history progressed, as there came to be more and larger firms tasked with doing the innovation, there came to be less of it. The nature of innovating has changed a bit between the 19th century and where we are now.

It does seem as if production is now organized around big firms. So where is an innovator to fit in there? These giant firms kind of imagine that they can compose the innovation by a plan. Actually, I don't think that works out very well. Ordinary people in ordinary firms are not as keen about finding better ways to do things, better products to make. Something has happened to the excitement. There's been some sort of a decline in the mindset,

in the attitudes of people. And as a result, we have this malaise in the economy. And so we need to work on that. Indeed, Phelps and other economists argue that the overall pace of innovation has slowed. We discussed this in an earlier episode called, Are We Running Out of Ideas? But when you look at Phelps's data on human flourishing and Eric von Hippel's data on home innovation, you start to think that maybe innovation hasn't slowed. It's just that a great deal of it is happening in people's homes where it doesn't figure into the innovation and productivity data. One reason that economists have historically overlooked household innovation

is that it doesn't figure in the prevailing theory of innovation that was put forth in the early 20th century by the influential economist Joseph Schumpeter. Schumpeter's idea was that when scientists and navigators discover something new, then countries with very zealous, eager entrepreneurs will work out the commercial applications of the scientific discovery. And so in that vision of the economy, nobody has got any really deep imagination. They might be good at figuring out how to make some gadget work, but they don't have great imaginative powers. Only scientists have imagination. And I'm repelled by that idea, horrified by it, really. And I like to insist, probably I go too far, but I like to insist that the great masses of people have imagination.

And if they're in the economy and in firms that are receptive to new ideas, many of them, much of the time, will have ideas of their own. Do you think Schumpeter was wrong or just wrong for his time? I think he was wrong. Yes. I mean, what we really have is a complementary kind of innovation paradigm, which has been invisible to economics. That's Eric von Hippel again. He too thinks that Schumpeter was wrong, or at least that his theory of innovation

was woefully incomplete around where innovation really happens. I invented myself, and I didn't like the idea that supposedly it was companies who did it. And also, I would see these scientific instrument makers coming into MIT labs,

but they weren't trying to sell something. They were trying to figure out what the scientists had developed. And so when I got into economics and business and so on and saw this standard mantra of producers see needs, it just didn't fit. But if an innovation expert like von Hippel could see the value of home innovation, why couldn't mainstream economists?

It's invisible because nobody's pricing anything. Nobody's selling anything. So they simply didn't know. So the lesson seems to be if you are a government that's trying to measure innovation, find a way to include home innovators. And if you're a firm that thinks of itself as a great innovator, you're probably not as great as you think, and you would do well by getting out of your office and into the homes of inventors around the world. You can start with our listeners.

Hi, my name's Madhav Lavakaray, and I'm a 17-year-old high schooler from New Delhi, India. Madhav says his bedroom was messy, and his parents were always after him to clean it up. Instead of actually cleaning up my room, I decided to build my own burglar alarm, so that any time my parents walked into the room, this really, really annoying alarm would go off.

Coming up after the break, more home inventions you'll want to know about, including a useful tool for diabetics. Also, what invention can do for your soul. We'll be right back. You are listening to Freakonomics Radio. As we've been hearing, home innovation is an important but undervalued part of the economy. You might think that in this era of astounding technologies and automation and all the rest, there wouldn't be much need for tinkerers.

But you'd be wrong, as we discovered when we asked our listeners to send in a voice memo about their home innovations. We received many, many, many submissions from all over the world. Here is a very small sampling. My name is Kwan Yan. I live on a ranch. I have several hundred feet of unpaved road, and it's just a pain to be pulling out these heavy garbage cans every single week. So I outfitted this traditional go-kart with a camera and a robotic arm on it

so that I can operate it remotely. My name is Carlton Riffle, and I invented an alarm clock that's pressure sensitive and will only turn off and stop beeping when I actually get out of bed. So there's no off switch, no snooze switch. Only way to get it to stop is to get up. My name is Jim Hasselmeyer. I live in a town, Fort Collins, Colorado, that is known for having a train line that runs literally through the middle of town and creates subsequent traffic backups. Since the railroad company would not share schedule information with the city, I mounted a camera on my house and wrote software that watches for trains

and sends out alerts via Twitter when a train is approaching. My name is Jim Dent. I probably invent to some degree or another on a weekly basis. I constructed a passenger seat on my lawnmower with a safety rail so my grandchildren can ride along on the mower with me safely. I recently constructed what I refer to as rolling storage panels to organize a range of cords, hoses, chains, and other things in my workshop. I'm currently working on a portable work platform I can attach to my tractor and use for trimming fruit trees and picking fruit. And then there's Madhav, our 17-year-old friend from New Delhi.

The burglar alarm to keep his parents out of his messy bedroom wasn't his only invention. I've always been a maker and tinkerer, and I've built these crazy contraptions at home since I can remember. It started when he was five. He wanted to bake cookies, but his parents wouldn't let him use the oven because he was five. So what did he do? I then took some cardboard and aluminum foil and hacked together my own homemade oven. I then baked my own chocolate chip cookies using the sun's power. And although the cookies were really bad,

it was a victory for me because I built something at home to solve my own problems. When he was older, his father got frustrated that Marav always left the lights on in his room when he went out. If I was a normal teenager, I probably would have just made an effort to switch off the lights and fans in my room. But instead, I took out my Raspberry Pi, this $25 computer the size of a credit card, and hacked away for hours on end, designing circuits, attaching motors, and coding software. After a couple of weeks, I finally had a homemade voice-controlled home automation system in my room so that I could literally be Iron Man and tell Jarvis to switch off the lights and fans. This device actually worked out so well that a

couple of my mom's friends came into my room to test it out and even asked me if I could make one for their teenage daughter's rooms. And they were willing to pay. So for some people, invention is a way to reduce friction in their lives. For some, it's an outlet for creative energies. And for others, it's a necessity because they can't rely on companies to come up with the products they need to keep them healthy or alive. There are over a million medical innovators because of rare diseases. That, again, is the MIT innovation scholar, Eric von Hippel. There are thousands of rare diseases. These are never going to become markets that companies care about.

It is legal in the United States to create and disseminate a medical device without FDA approval as long as no money is exchanged. This, von Hippel tells us, has led to a vibrant community of medical home innovators. One of his favorite inventions is an artificial pancreas. In the case of the artificial pancreas, what was going on was that people were dying overnight because they would miscalculate manually how much insulin they needed. The people he's talking about are diabetic. They take synthetic insulin because their pancreas doesn't produce enough insulin naturally to regulate their blood sugar levels.

Their blood sugar would drop overnight, even though they had a juice box or a source of sugar on their bedside table. If they woke up too late, their muscles wouldn't work to reach it. If I could just drink the juice box, I would be fine. But I was paralyzed. That's Dana Lewis. She's been diabetic since she was 14. And so it was just this terrible feeling laying there paralyzed in the dark. And then thankfully I woke up. It was just a dream. But it was this horrifying nightmare that then primed me that I can't live this way.

That nightmare turned Lewis into an inventor. I'm one of the creators and founders of the open-source artificial pancreas movement. Open-source, meaning the code and schematics for this artificial pancreas are freely available online. This might lead you to think Lewis is a scientist of some sort, or at least a programmer. So I have a background in health communications. It's not technical, not programming at all. She did take some programming courses in college, but most of the skills she deployed in making her artificial pancreas were self-taught.

I was always asked by people, why doesn't your pump and your CGM, the continuous glucose monitor, talk to each other? And I'm like, well, it just, it doesn't. I didn't have access to my data at the time. So once I found somebody who had figured out how to reverse engineer and get the data off the device, and he was willing to share his code, that's when I was like, okay, all these ideas and plans I had to build these systems to make me, the human, how much insulin to dose. And we met somebody else who said, hey, I figured out a way to talk to this insulin pump. And the light bulb went off and we were able to put all the pieces together of talk to the pump, talk to the CGM, put our algorithm in the middle and automate the insulin dosing.

It's not rocket science. It was actually really, really straightforward and really simple, but really, really effective. Once you've unleashed that first solution, that first problem solving, it just kind of cascades from there. It may strike you as strange that the artificial pancreas didn't already exist. Diabetes is not a rare disease. More than 30 million people in the U.S. alone have it. So why did it fall to home innovators like Lewis to come up with it and not some big medical device company? Companies were working on the same type of solutions we were, but it takes a very long time to innovate on medical device hardware.

We managed to do it on our own using off-the-shelf hardware a little over two years before the first commercial system was submitted to the regulatory body. And we're still waiting on kind of the next round of the first generation devices to come out five years later, right? To Eric von Hippel's point about the complementary relationship between home innovators and firms, Dana Lewis and her co-inventors have licensed their algorithm to healthcare companies to use in their devices. We very specifically decided not to commercialize because commercializing would make us regulated, but we licensed it so that not only individuals could use it, but also the companies could use it. And we're starting to see examples where the companies have actually taken our code and our ideas, ported it into their systems and run it side by side and said, wow, you know, in 20% of

these cases, your code outperformed ours. So let's figure out how to bring those ideas into our code and make our system even better. And that to us is a huge win. It doesn't matter that they're making money off of it. The whole point is to help people with diabetes. So if somebody commercializes it, great. We're not trying to compete. We're trying to fill the gap. We're trying to get you to move faster. And in some cases, we have actually succeeded in helping companies move faster and helping the regulatory authorities move more quickly in their parents and making hard things easier, also just having fun. But there's one more thing that may drive them, a sort of existential urge. I think people, a lot of them feel bereft of experiences of real agency at work. And so they come home and make something or

tend a garden or build an addition on their house in order to get some of that experience of being able to point to something and say, I did that, and there was no committee involved. That's Matthew Crawford. He's the author of a more personal book about human flourishing than Edmund Phelps' book. It's called Shop Class as Soulcraft, an inquiry into the value of work. How did he come to that? Worked as an electrician for a while. And then I got interested in philosophy and went to Chicago. Absolutely loved grad school, but once again, couldn't get a job using that. I finally landed a job at a think tank in D.C. Hated that. After five months, I quit to open a motorcycle repair shop. So it took him only five months to realize he wanted more visceral work than a think tank could offer?

I would say it took less than a week. But, yeah, I mean, I figured I should try to save face by sticking it out a little bit. What Crawford has been wrestling with ever since is how progress, economic and technological progress in particular, have changed the shape of the human experience. So the great innovation of the assembly line was to separate thinking from doing, to break these tasks down into little discrete jobs that could be performed really without much skill or knowledge. Before that, people in automobile manufacturing were sort of all-around mechanics and fabricators who basically had more or less complete sort of mental ownership of their own jobs. This change didn't come just to blue-collar workers. The whole point of scientific management, as it was called in the 20th century, was to separate thinking from doing.

That's the basic dynamic that has now spread to white-collar work, where so many former professionals are reduced to clerks, more or less. There are, of course, many upsides to this massive change in how things are done. You don't need to know how to rebuild a carburetor to drive your car. You don't need to know computer science to operate your computer. Specialization and standardization have made many wonderful things available and affordable, transportation and medicine and entertainment, on and on. All in the service of convenience. I guess it's this idea that this will free you up to do something, you know, of your own. But, I mean, what is the end point of that?

Like, how far do we want to go in relieving ourselves of involvement in our own world. Crawford argues it's very easy to go too far. To fight this trend, at least in his own life, he's been working on a project. For the last eight years, I've been building a car based on a VW Beetle, but sort of radically re-engineered. I mean, it's been an education in various industrial processes. It's going to have about five times the horsepower. I'm mixing and matching parts from a lot of different kinds of cars. And of course, making a lot more rigid and strong to withstand all this torque it's going to have. He admits his project is excessive. Even he doesn't advocate we all build our own cars. But he says, sometimes you need to go to extremes to figure out some essential truths

about life. That's what projects like this are really about. I think they encourage a kind of deep cognitive ownership over your stuff. And I think we're sort of missing that feeling that you truly own something. There's something deeply satisfying about being responsible for something and knowing it all the way down. For what it's worth, there's also a growing body of evidence showing that simply doing physical tasks, just vacuuming the floor, chopping onions, or doing some gardening, that these activities improve cognitive function. It may be the physical activity itself. More likely, it's the sense of accomplishment, no matter how small. Yet another reason why Eric von Hippel would like to see America and the world increase its volume of

home production. So we said in the U.S., 16 million people innovating, about 30 million innovations. They do about two a year. But that's a small fraction of all the people in U.S. So how can the rest of us get on board, even if we're not natural inventors, the kind of people who will make an automated woodcutter? In some cases, it may be as simple as giving yourself permission. People put up with a lot of stuff in their lives when they'd like something to be different, but it doesn't occur to them that they might be able to change it. But von Hippel would also like to see systemic encouragement. The idea is to make innovation easier for people who do not have technological skills. And that's going on now with what I call toolkits.

People are making tools which are less and less demanding of technical skills. Now, why does anybody care? Well, here you are, in effect, subsidizing, and, you know, with patents and so on, you're subsidizing producer R&D. So, to create a level playing field, you ought to know where this stuff is coming from, and then you ought to do stuff for that sector, too. And what form would that stuff take? You want a home innovator subsidy of some sort? No, I think what you want is open standards. You want easy places to post designs. You want information about activities of others so that people can get together more easily.

So you can see what everybody's saying to everybody else. You can begin to figure out how to contribute. There's lots of stuff that you could do if this were understood to be an innovation system. I just think this whole thing is so exciting and it's something that people have to know about. It's not just restricted to firms knowing about it. It's people. They have to understand how. It's not just restricted to firms knowing about it. It's people. They have

to understand how important this activity can be and that they can do it. I wouldn't want to dissuade people from thinking big, like, hey, maybe we could build a railway that goes across the country. That, again, is Edmund Phelps, the economist and fan of human flourishing. But most innovation is not like that. And I'm always a little bit disturbed when I see somebody compiling a list of the great innovations in the 19'm dead sure that they don't add up to as large a contribution as all those little innovations that we never hear about, don't know the names of, don't know the people who hit upon the idea. Those innovations are much, much more important in America. People don't realize that Silicon Valley produces maybe 5% of the gross domestic product. Most of the national income is generated by other people in other places in very different kinds of firms, making things we never heard of. If we can get back to an economy where lots of people

are thrilled to death at change and want to create some of it themselves, that's going to be far more important than what Silicon Valley will be doing in terms of gross domestic product and national income, and also in terms of having fun. Yeah, let's not forget the fun. Remember how the Indian teenager, Madhav Lavakuri, dealt with his messy bedroom? I spent hours making the circuit for an alarm that was connected to my door, so that anytime my parents walked into the room, this really, really annoying alarm would go off. So was it successful?

It was a success because the next day I came back from school, the alarm was still going off and my parents were begging me to switch it off. Coming up next time on Freakonomics Radio. The gospel is that everybody hates taxes. Some of the earliest things we know about societies have to do with tax evasion. There must be a way to make people feel better about paying taxes. If you could even allocate, you know, 1% of your taxes to a particular agency or cause, that that would increase people's willingness

to pay their taxes. But beware the unintended consequences. The local governments have begun to cheat. Before you consider any year-end tax moves, you may want to hear this episode. That's next time on Freakonomics Radio. Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Matt Hickey. Our staff also includes Allison Craiglow, Greg Rippin,

Zach Lipinski, Daphne Chen, Harry Huggins, and Corinne Wallace. Our intern is Ben Shaman. We had help this week from James Foster. Our theme song is Mr. Fortune by the Hitchhikers. All the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts or wherever you get your podcasts. Our entire archive is available exclusively on the Stitcher app or at Freakonomics.com, where we also publish transcripts and show notes and so on. If you

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