Commencement season is now underway, and President Barack Obama recently had the honor of speaking at Howard University. His speech touched on a variety of topics, including the troubling trend of colleges canceling speakers that some students and faculty find offensive. The president is right that people should engage with one another on the battlefield of ideas rather than try to silence those with whom they disagree. As many people have pointed out, this engagement is important for a well-functioning democracy. But what people may not realize is that it's critical for a well-functioning economy as well.

New ideas and innovation are necessary for sustaining economic growth, and there's a large body of evidence that emphasizes the exchange of ideas as an important component of an innovative economy. The United States has been especially successful at fostering innovation and growth in the technology sector. Facebook's market capitalization alone is twice the size of all the large European tech giants combined. There's good reason to believe that America's economic prosperity in this rapidly changing sector is due to its commitment to the free exchange of ideas.

The theory that ideas and innovation are crucial to economic growth is an old one. Joseph Schumpeter's "creative destruction" is perhaps the best known explanation of the role that innovation plays in the economy. Schumpeter explained that competition requires firms to constantly innovate, since those that don't will quickly be replaced by those that do. Ultimately micro-level creative destruction helps drive macro-level economic growth.

But not all countries have to be innovators in order to grow. From the 1950s until the mid-'80s the Solow growth model was the primary tool of economists who studied economic growth. One of its main predictions was that poorer countries would eventually catch up to, or converge with, rich countries.

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The intuitive reasoning behind the theory of convergence is that poor countries could simply imitate the technological innovation of rich countries and grow accordingly. Instead of spending time and resources reinventing the internal combustion engine, the airplane, antibiotics or the assembly line, all countries like China and India had to do was start using them.

But while imitation is a viable method of generating economic growth when a country is lagging behind, it can't go on forever. Once a country reaches the economic frontier – where there are no longer any countries to imitate – only innovation and technological progress can generate additional growth. The United States has been on the frontier for at least a century and our economic growth is primarily powered by our ability to innovate.

Innovation itself is often described as an output of a country – e.g. the United States "leads the world in innovation" – but this language obscures where innovation actually takes place. It happens locally; individuals, not countries, innovate. Engineers and scientists working for companies, laboratories and universities and people tinkering in their garage, shed or basement are the real drivers of innovation, and most of this innovation occurs in cities.

The large amount of specialized knowledge in cities, along with the rapid dissemination of information, is what fosters innovation. In fact, it is not an exaggeration to say that a city's success is proportional to the ability of its residents to innovate and generate new ideas. Cities devoid of entrepreneurs who routinely generate new ideas will stagnate and decay. And stagnation at the local level inevitably leads to stagnation at the national level.

Researchers routinely point out that the proximity of people in cities is one of the primary reasons most innovation occurs there, but the exact mechanism through which the transfer of knowledge and ideas takes place is often omitted. The assumption seems to be that simply putting a bunch of people together on the same city block will create innovation.

But the actual communication part is a crucial input into the production of innovation. As economists Curtis Simon and Clark Nardinelli note in their study of the growth of English cities in the 19th and 20th centuries: "The creativity of the market economy – the increasing returns so important in modern growth theory – in large part arises from what happens when people with information get together and talk. The talk is necessary to turn information into productive knowledge."

Since spreading ideas and information requires communication – people talking to one another, attending lectures and presentations, watching videos, etc. – it's likely that limiting speech, either formally or informally, would have pernicious effects on innovation and harm economic growth in the United States.

Despite the robust protections of the First Amendment and Americans' long history of exercising their right to free speech, there are signs that a significant portion of society is questioning how far this right should extend.

The combination of these incidents reveals that many of the next generation of teachers, politicians, government administrators and business people are comfortable with suppressing speech they personally don't like.

While it's true that speech that offends a large portion of the population, or that criticizes a specific group, is unlikely to be the type of speech that leads to innovation, this criticism in large part misses the point. What matters is not whether restrictions on offensive, hurtful or "hate" speech harm innovation directly, but whether such restrictions significantly reduce the likelihood of engaging in conversation in general.

It's hard to predict where a conversation will end up. While civilized people should try to be sensitive to others, the subjectivity of offensive speech makes it difficult to always say the "right" thing. If the penalty for saying the "wrong" thing is large enough, even a small probability of digressing to a sensitive topic can be enough to discourage conversation.

Currently the United States is one of the most economically competitive countries in the world as well as the most supportive of free expression. I don't think this is a coincidence: America's unique commitment to free speech and the open exchange of ideas has given entrepreneurs in the United States a competitive advantage.