This is why America has dominated the New Economy. They have to invest more to keep up, and they have to hold down prices if they want to compete. Productivity soars, inflation stays low, and the economy keeps expanding rapidly. Technology has become synchronized with the ups and downs of the rest of the economy. On the upside, innovation and economic growth reinforce each other.
More money spent on innovation means faster growth with low inflation.
But when a downturn starts, watch out. Rather than being led by housing and autos, as in the past, the next recession will be driven by the innovative sectors of the economy. A falling stock market and a slowing economy will mean lower potential payoffs even from successful startups, which will diminish the willingness of venture capitalists and corporations to put resources into the risky business of developing new innovations. The number of startups will decline, the pace of innovation will slow, and prices for tech equipment will fall more slowly or even start to rise, reducing the willingness of companies to buy new technology. What's worse, as the wave of innovation slows, existing companies will lose their fear of being overrun by new competitors.