paul romer

My (second) Conversation with Paul Romer

Interesting throughout, here is the audio and transcript.  Here is the summary:

Paul Romer makes his second appearance to discuss the failings of economics, how his mass testing plan for COVID-19 would work, what aspect of epidemiology concern him, how the FDA is slowing a better response, his ideas for reopening schools and Major League Baseball, where he agrees with Weyl’s test plan, why charter cities need a new name, what went wrong with Honduras, the development trajectory for sub-Saharan Africa, how he’d reform the World Bank, the underrated benefits of a culture of science, his heartening takeaway about human nature from his experience at Burning Man, and more.

I liked the parts about charter cities and the World Bank the best, here is one excerpt:

COWEN: How optimistic are you more generally about the developmental trajectory for sub-Saharan Africa?

ROMER: There’s a saying I picked up from Gordon Brown, that in establishing the rule of law, the first five centuries are always the hardest. I think some parts of this development process are just very slow. If you look around the world, all the efforts since World War II that’s gone into trying to build strong, effective states, to establish the rule of law in a functioning state, I think the external investments in building states have yielded very little.

So we need to think about ways to transfer the functioning of existing states rather than just build them from scratch in existing places. That’s a lot of the impetus behind this charter cities idea. It’s both — you select people coming in who have a particular set of norms that then become the dominant norms in this new place, but you also protect those norms by certain kinds of administrative structures, state functions that reinforce them.

And this:

COWEN: If you could reform the World Bank, what would you do?

ROMER: Oh, that’s an interesting question. I think the Bank is trying to serve two missions, and it can’t do both. One is a diplomatic function, which I think is very important. The World Bank is a place where somebody who represents the government of China and somebody who represents the government of the United States sit in a conference room and argue, “Should we do A or B?” Not just argue, but discuss, negotiate. On a regular basis, they make decisions.

And it isn’t just China and the US. It’s a bunch of countries. I think it’s very good for personal relationships, for the careers of people who will go on to have other positions in these governments, to have that kind of experience of, basically, diplomatic negotiation over a bunch of relatively small items because it’s a confidence-building measure that makes it possible for countries to make bigger diplomatic decisions when they have to.

That, I think, is the value of the World Bank right now. The problem is that that diplomatic function is inconsistent with the function of being a provider of scientific insight. The scientific endeavor has to be committed to truth, no matter whose feathers get ruffled. There’s certain convenient fictions that are required for diplomacy to work. You start accepting convenient fictions in science, and science is just dead.

So the Bank’s got to decide: is it engaged in diplomacy or science? I think the diplomacy is its unique comparative advantage. Therefore, I think it’s got to get out of the scientific business. It should just outsource its research. It shouldn’t try and be a research organization, and it should just be transparent about what it can be good at and is good at.

And toward the end:

COWEN: Last question thread, what did you learn at Burning Man?

ROMER: Sometimes physical presence is necessary to appreciate something like scale. The scale of everything at Burning Man was just totally unexpected, a total surprise for me, even having looked at all of these pictures and so forth. That was one.

Another thing that really stood out, which is not exactly a surprise, but maybe it was the surprise in that group — if you ask, what do people do if you put them in a setting where there’s supposed to be no compensation, no quid pro quo, and you just give them a chance to be there for a week. What do they do?

They work.

For purposes of contrast, here is my first Conversation with Paul Romer.

Paul Romer’s advice for the World Bank

First, outsource the bank’s research upon which it depends for identifying problems and proposing solutions. Diplomacy and science cannot both thrive under the same roof. One consequence of the bank’s commitment to diplomacy is its necessary embrace of the helpful ambiguity that makes it possible for multilateral institutions to allow “Chinese Taipei” compete in the Olympic Games without “Taiwan, China” having a seat in the UN. Dispassionate examination makes clear that what the bank does to maintain conformity on the diplomatic front is not compatible with scientific research.

All that matter in science are the facts. When complex political sensitivities are allowed to influence research by stifling open disagreement, it ceases to be scientific. For good reasons, the bank’s shareholders have chosen to protect its diplomatic function, at the expense of its research.

Outsourcing research would be a better, more efficient way for the bank to establish the facts needed to do its job. This would also be an investment in the universities that make the discoveries that drive human progress.

Here is the full piece.  What do you all think?

My Conversation with Paul Romer

Here is the audio and transcript, Paul was in top form and open throughout.  Yes economic growth, blah blah blah, but we covered many related topics too:

COWEN: And you also think we should simplify the English language. Right?

ROMER: [laughs] Well, there’s two parts to that. One is, in writing and communication, there should be a very high priority on clarity. It’s hard to know what’s the mechanism that enforces that. There are variants on English, like the English used to write the manuals people use to service airplanes, where there’s a very restricted vocabulary. The words are chosen so that you can’t have any ambiguity because you don’t want somebody servicing a plane to get confused. So there are some things you could do on writing, word choice, vocabulary, exposition.

There’s a separate issue, which is that amongst the modern languages, English has the worst orthography, the worst mapping between spelling and sounds of any of the existing languages. And it’s a tragedy because English is becoming the universal second language.

The incidence of people who don’t learn to read is substantially higher in English than in other languages. People have known for a long time, it takes longer to learn to read in English because of the bad orthography. But what hasn’t gotten enough attention is that there’s an effect on the variance as well. There are more people who never get over this hurdle to actually learning to read.

If there were a way to do in English what they’ve done in other languages, which is to clean up the orthography, that could make a huge difference in the variation associated with whether or not people can learn to read English.

And:

COWEN: Can a charter city work if we import good laws from the outside world but not the appropriate matching culture?

ROMER: You’ve zeroed right in on the connection. The real motivation that I had for charter cities was exactly this one that you can see in the US versus New Zealand. You can think of a charter city exercise . . .

This is actually the story of Maryland: We’re going to create laws, and we’re going to guarantee freedom of religion in Maryland, and it’s in the laws; it’s in the institution somehow. That didn’t turn out very well. Maryland had a Catholic elite but then large numbers of Protestant indentured servants or workers. And this kind of commitment to freedom of religion was not stable in Maryland at all.

The case that’s worth trying to copy is Pennsylvania, where William Penn recruited large numbers of people who actually believed in freedom of religion. The word charter comes from the charter that Penn wrote for Pennsylvania, but it wasn’t the document that mattered. What mattered was that there were a bunch of people in the founding population who were committed to this idea of a separation of church and state and religious freedom. And that’s what made it durable in Pennsylvania in a way it wasn’t in Maryland.

And this:

ROMER: …Moses was of this generation that was too enamored of the car, and this is where I think Jacobs had a better intuition. But the challenge, the dichotomy I would pose would be Jane Jacobs versus Gouverneur Morris.

Morris was the guy who drew the grid that laid out the rectangular street map for Manhattan.

We also discussed music, including Hot Tuna, Clarence White, and Paul’s favorite novel, dyslexia, what Paul has learned about management, and much more.  Self-recommending, if there ever was such a thing.

Why Paul Romer won the Nobel Prize in economics

It is hard to do better than Alex’s video on Romer, pretty much definitive and Romer liked it too.  Most importantly, Romer won the Prize for seeing how the non-rival nature of ideas can boost ongoing and indeed “endogenous” economic growth.  Romer also showed mathematically that this process of growth is bounded, namely that it does not explode without limit, and that the associated mathematical models were tractable.  Previously, economists had feared that increasing returns to scale models might be impossible to work with.  See the top two links here, for the 1989 and 1990 pieces, with the third piece listed, from 1994, being Romer’s easier to read summary of the work.

David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery, is the book on Romer for the ages, a truly splendid creation on both the science and the person.  Romer, by the way, is the son of Roy Romer, former Colorado governor and famous builder of airports.  I believe this later influenced Paul’s interest in the importance of economic growth.

Over time, increasing returns models are seen as less descriptive of growth than perhaps they were in the 1990s.  The growth rates of many countries have been stagnant or even falling, rather than rising.  Nonetheless, for understanding how ideas boost growth, and in cumulative fashion, Romer’s work is essential.  If you are wondering “which economist has done the most to help us explain Silicon Valley,” you would turn first to Romer.

This Prize is not a surprise at all, and it has been expected, sooner or later, for many years.  (Though I did not think it would come this year. Trump talks so much about his role in boosting economic growth, I feared the Nobel Committee would not at this point in time wish to feed into that rhetoric.  I am glad to see they did not hesitate!)

Here is Romer on Twitter.  Here is Romer on Wikipedia.  Here is Paul’s blog.  He is now at NYU, but spent much of his career at Stanford.  Previous MR coverage of Romer is quite extensive.  Here is the Prize Committee citation, excellent as always.  Here are his three podcasts with Russ Roberts.  Here is Joshua Gans on Paul.  Here is a Sebastian Mallaby profile of Romer.

Romer also in 2000 started and ran a successful business, Aplia, which revolutionized on-line education.  In the context of economics, Aplia is most notable for enabling curve-shifting exercises and the like to be done through an electronic portal.  It was later purchased by Cengage.  So like Nordhaus, Romer also has been a doer, including in the private sector.  Yet Paul once tweeted to Ben Bernanke that “Rich is over-rated.”  It is too hard to convert money into satisfaction.

Romer recently served as Chief Economist at the World Bank, with a somewhat complicated tenure.  You can find numerous articles about this in the media.

Romer has been a central figure behind the notion of “charter cities,” namely an economic region but with external or possibly foreign governance, so as to enforce the rule of law and spur economic growth.  The charter cities idea comes rather naturally out of Romer’s work on the economics of growth.  Think of Romer as asking “which is the non-rival public good which can be extended at very low cost?”, and wondering if that might be law.  Here is his famous TED talk on charter cities.  Here is an interview with Romer on charter cities.  He was originally slated to work with the Honduran government on charter cities, though he dropped out of the project in 2012.  Here is Paul’s account of what happened.

Amihai Glazer and I once wrote a comment on Romer, on his article with Barro on ski-lift pricing, which Glazer and I saw as closely connected to Buchanan’s theory of clubs.  Romer later credited this comment with inducing him to rethink what the notion of rivalry really means in economics, and leading to his two best-known pieces on economic growth; see the David Warsh book for more detail.

Like myself, Romer is an avid fan of the guitarist Clarence White, and several times we have traded favorite Clarence White videos by email.  Romer believes (correctly) that the role of Clarence White in the success of the Byrds is very much underrated, and furthermore he is a big fan of White’s early work with the Kentucky Colonels.  Here is more on Romer’s excellent taste in music, recommended.

Romer also has a well-known survey piece on the importance of human capital for economic growth; human capital of course is where new ideas come from.

Here is a short Romer piece from 2016, suggesting his own work on growth implies “conditional optimism” on climate change, but not “complacent optimism.”  This ties together his work with that of Nordhaus.

Romer is also an advocate of regularizing the spelling of the English language, so as to make it more phonetic.  He believes this would boost the rate of economic growth, and it ties in with some of his work on economic integration and growth.  If English is an easier language to learn, the global economy as a whole in effect becomes larger, and we might expect the rate of ideas generation to rise.

Here is Romer on Jupyter vs. Mathematica.  Here is Romer on corruption in Greece, he has very broad interests.  Here is Romer on TARP and banking reform.  Here is Romer’s recent critique of macroeconomics.

Romer believes (and I concur) that the word “and” is used too much in writing, and in particular scholarly writing.  From the FT:

Circulating a draft of the upcoming World Development Report, Mr Romer warned against bank staff trying to pile their own pet projects and messages into the report. The tendency, he argued, had diluted the impact of past reports and led to a proliferation of “ands”.

“Because of this type of pressure to say that our message is ‘this, and this, and this too, and that …’ the word ‘and’ has become the most frequently used word in Bank prose,” he complained in an email.

“A WDR, like a knife, has to be narrow to penetrate deeply,” he added. “To drive home the importance of focus, I’ve told the authors that I will not clear the final report if the frequency of ‘and’ exceeds 2.6%.”

I have always found Romer to be extremely pleasant and open in my interactions with him, and I am very pleased to have interviewed him (no transcript or audio available) at a summer ideas festival (Kent Presents) the year before this one.  The crowd found him very open and engaging.

The Nobel Prize in Economics Goes to William Nordhaus and Paul Romer!

Two excellent choices. Nordhaus for environmental economics and Paul Romer for economic growth. I did a video for MRUniversity that goes over Paul Romer’s contributions including not only economic growth and charter cities but also his entrepreneurship in developing tools to teach economics! The video was done when MRUniversity was in the early years so it doesn’t have a lot of bells and whistles. On the other hand, Romer told me he really liked this video so this year I don’t think I need to write more!

See Tyler’s posts for more on Nordhaus and also on Romer.

Paul Romer *and* the World Bank

I have no direct knowledge of the situation, but here is an extensive report from Bloomberg.  The summary headers are:

  • Paul Romer to give up management of research department
  • Researchers chafed against push to communicate more clearly

But there is more to the story than that.  And here is the FT story:

But some said Mr Romer’s management style, particularly over what some saw as a dogmatic approach to clear writing, was key to the move, citing the recent spat over “and” as evidence.

Circulating a draft of the upcoming World Development Report, Mr Romer warned against bank staff trying to pile their own pet projects and messages into the report. The tendency, he argued, had diluted the impact of past reports and led to a proliferation of “ands”.

“Because of this type of pressure to say that our message is ‘this, and this, and this too, and that …’ the word ‘and’ has become the most frequently used word in Bank prose,” he complained in an email.

“A WDR, like a knife, has to be narrow to penetrate deeply,” he added. “To drive home the importance of focus, I’ve told the authors that I will not clear the final report if the frequency of ‘and’ exceeds 2.6%.”

The 2.6 per cent bar, Mr Romer told the FT, marked the current frequency of “and” in scholarly writing. It also, according to an analysis of bank reports going back decades that he commissioned, was roughly where World Bank report authors landed in the institution’s early years.

But the use of the word “and” over the years had doubled to almost 7 per cent in World Bank reports, Mr Romer pointed out in a January memo to his staff.

I will now have to be more conscious about the use of those three little letters…

Paul Romer on what happened in Honduras

Paul sends me the following, which he describes as “a personal statement to the news media”:

Qn: Prof. Romer, are you still working with the government of Honduras on the creation of a RED – a Region Especial de Dessarrollo?  Or on what some have called a model city? 

Ans: I and the other people who were named to the Transparency Commission wrote a public letter to President Lobo stating that we have no ongoing role in the project. Personally, I have also resigned from the CORED advisory committee.

Qn: In the beginning, you were an active supporter of the RED project. What changed? 

Ans: From recent newspaper reports, I learned that the Honduran agency responsible for public-private partnerships had signed an agreement about a RED with a private company. When I asked for information, I was told that I could not see this agreement.

This was a departure from the standards of transparency that the administration had led me to expect. It was also a departure from the role for the Transparency Commission outlined in the Constitutional Statute passed by the Honduran Congress.

Qn: How can it be that a member of the Transparency Commission could not see such an agreement? Under the process set out in the Constitutional Statute, doesn’t the Transparency Commission have to give an opinion about any proposed RED? 

Ans: In December 2011, President Lobo signed a decree naming me and four other internationally respected individuals to the Transparency Commission. At the time, these appointments were reported in the international news media, in particular by the The Economist. However, the government never completed the process of publishing this decree in the Gazette. The administration’s current position is that because the decree was never published, the Transparency Commission does not exist in the eyes of the law and the five named members have no legal basis for reviewing any agreements.

Qn: Can the government create a RED if the Transparency Commission does not  yet exist? 

Ans: If the Transparency Commission does not yet exist, the administration can propose a RED directly to the Congress. The RED will then come into existence if the Congress passes an act describing its geographical boundaries. Passing an act that specifies boundaries may seem like a minor detail, but under the Constitutional Statute, it has important legal consequences.

Qn: Does the administration have to disclose the terms of any agreement that it signs with a company that will invest in or manage a RED? Does the company have to disclose the identities of its financial backers? Does the company have to disclose anything about its experience or qualifications? 

Ans: The law states that the Transparency Commission must be given all the information needed to evaluate any proposed RED. If there is no Transparency Commission, the Congress is the only remaining protection. To make sure that it is comfortable with the identities of the investors and the governance structure that the investors have negotiated in their agreements, the Congress could insist on full disclosure before it votes a RED into existence. The Congress might also want to insist that it have a separate right to approve any agreement related to a proposed or existing RED that could place a financial burden on the Honduran government. This kind of burden could arise, for example, through an agreement that lets a private party bring a claim for damages against the government.

Qn: Do you know how the misunderstanding about the legal status of the Transparency Commission came about?  

Ans: Various explanations have been offered, but I cannot be certain why the decree naming the members of the commission was never published in the Gazette. Nor can I be certain why the administration did not disclose its decision not to publish the decree.

Whatever the reasons for these decisions, the result was an important failure of transparency. The public perception, that the Transparency Commission was in operation, differed from the reality. This gave the wrong impression about the checks and balances that would be operating as the first RED came into existence.

From the very beginning, I made a commitment to the citizens of Honduras, to the members of the Honduran Congress, and to the many people around the world who wish Honduras well. I committed that I would work for their benefit and do so transparently. This means that at a time such as this I have to be willing to state to the public what I know to be true.

Paul also sends along these links (in Spanish):

Sebastian Mallaby on Paul Romer

The focus of this feature article, from The Atlantic, is charter cities.  Here is one good excerpt:

Ever since the setback in Madagascar, Romer has been coy, for obvious reasons, about which governments are interested in his plan. But he remains optimistic. “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done,” he told me cheerfully. He added that the Daewoo deal might not have been the main impetus for the coup in Madagascar; the real reasons for Ravalomanana’s downfall lay in idiosyncratic local rivalries, even if the opposition exploited sensitivities over land to incite antigovernment protests. I suggested that the fact that land concessions could trigger such emotions was still not a good sign. Romer stopped, considered, and chose his words carefully.

“Anything that involves land can be manipulated by people who want to rise up against a leader,” he began. “You have to find a place where there’s a strong enough leader with enough legitimacy to do this knowing that he’s going to get attacked. It narrows the options quite a bit. But we shouldn’t give up without trying a few more places.” In short, a disappointment with one client is no excuse for failing to pitch other ones. Any entrepreneur knows that.

Paul Romer doesn’t think a charter city in Haiti can work (now)

The post is here, excerpt:

Contrary to what some have suggested, a charter city in Haiti is simply not an option at this time. A charter city can only be created through voluntary agreement. Under the current conditions, the government and people of Haiti do not have the freedom of choice required for any agreement reached now to be voluntary.

He has another idea:

There are clear limits on the number of Haitian immigrants that nearby jurisdictions are currently prepared to accept. But if nations in the region created just two charter cities, they could accept the entire population of Haiti as residents. There are many locations close to Haiti where these new cities could be built, but for now, Haiti itself is the one place we should not consider.

Here is an offer for repatriation to Senegal:

Presidential spokesman Mamadou Bemba Ndiaye told reporters that Mr Wade had shared his plans with senior aides, and they involved offering voluntary repatriation and plots of land to any Haitian who wanted “to return to their origin”.

“Senegal is ready to offer them parcels of land – even an entire region. It all depends on how many Haitians come. If it’s just a few individuals, then we will likely offer them housing or small pieces of land. If they come en masse we are ready to give them a region,” he said.

Paul Romer, ask and ye shall receive

For a man who likes the Kentucky Colonels, is that not how it ought to be?  Reality now brings Caribbean Charter Islands:

The UK has resumed day-to-day control of the Turks and Caicos
islands amid ongoing allegations of widespread corruption in the
British overseas territory, the Foreign Office said tonight.

Local
government in the islands, which lie 500 miles south-east of Florida in
the Atlantic, will be suspended for up to two years while their affairs
are put back in "good order", according to the FCO.

The Islanders themselves are divided over the idea.