The Falsity of Positive Technology Shocks

In mainstream macroeconomic models, random shocks drive economic outcomes. Macroeconomic shocks are typically categorized as positive or negative. However, all shocks are exogenous. Although many types of shocks exist, this article argues that there can be no such thing as a positive technological shock. Research and development are not exogenous. R&D requires savings, entrepreneurial insight, and risk-taking. Even an accidental discovery assumes that someone was using resources while looking for something. Because technological “shocks” require the application of research and development resources, they are not shocks. Thus, there is a flaw in how mainstream models represent growth. This article proposes that a proper theory of economic growth is founded on endogenous microeconomic theory.