Nobel Prize in economics goes to Philippe Aghion and Peter Howitt and Joel Mokyr

by  Tyler Cowen in

Excellent choices.  Here is the press release with links to longer discussions of their works.

This is a prize for economic growth, and for the ideas of creative destruction.  Those are some of the most important ideas in economics, so I could not be happier with this pick.  Joel Mokyr in particular has been a long-time associate of GMU and Mercatus, so I would like to congratulate him in particular.

Aghion is at INSEAD in France, Howitt at Brown, and Mokyr at Northwestern.  It is also nice to see some people outside of “the usual schools” winning the prize.  Aghion and Howitt, of course, worked together to produce a model of creative destruction and economic growth.  Here are their key papers together.

Joel Mokyr is an economic historian, and best known for his pioneering work in explaining the Industrial Revolution in England.  Here are his best-known works.  Read The Lever of Riches and The Gifts of Athena and A Culture of Growth.  I have benefited most from The Enlightened Economy: An Economic History of Britain 1700-1850.  He has a new book coming out in November, with Tabellini and Greif.  It is correct to consider him as an “Enlightenment thinker.”  Brian Albrecht has a good thread on this.

Below you can find individual posts on Aghion, Howitt, and also Mokyr.  Here is Alex’s post on the prize.

The Economics Nobel goes to Mokyr, Aghion and Howitt

by  Alex Tabarrok in

The Nobel prize goes to Joel Mokyr, the economic historian of the industrial revolution and the growth theorists Phillippe Aghion and Peter Howitt best known for their Schumpeterian model of economic growth.

Here’s a good quote from Nobelist Joel Mokyr’s the Lever of Riches.

Yet the central message of this book is not unequivocally optimistic . History provides us with relatively few examples of societies that were technologically progressive. Our own world is exceptional, though not unique, in this regard. By and large, the forces opposing technological progress have been stronger than those striving for changes. The study of technological progress is therefore a study of exceptionalism, of cases in which as a result of rare circumstances, the normal tendency of societies to slide toward stasis and equilibrium was broken. The unprecedented prosperity enjoyed today by a substantial proportion of humanity stems from accidental factors to a degree greater than is commonly supposed. Moreover, technological progress is like a fragile and vulnerable plant, whose nourishing is not only dependent on the appropriate surroundings and climate, but whose life is almost always short. It is highly sensitive to the social and economic environment and can easily be arrested by relatively small external changes. If there is a lesson to be learned from the history of technology it is that Schumpeterian growth, like the other forms of economic growth, cannot and should not be taken for granted.

Aghion and Howitt’s Schumpeterian model of economic growth shares with Romer the idea that the key factors of economic growth must be modelled, growth is thus endogenous to the model (unlike Solow where growth is primarily driven by technology an unexplained exogenous factor). In Romer’s model, however, growth is primarily horizontally driven by new varieties whereas in Aghion and Howitt growth comes from creative destruction, from new ideas, technologies and firms replacing old ideas, technologies and firms.

Thus, Aghion and Howitt’s model lends itself to micro-data on firm entry and exit of the kind pioneered by Haltiwanger and others (who Tyler and I have argued for a future Nobel). Economic growth is not just about new ideas but about how well an economy can reallocate production to the firms using the new ideas. Consider the picture below, based on data from Bartelsman, Haltiwanger, and Scarpetta. It shows the covariance of labor productivity and firm size.  In the United States highly productive firms tend to be big but this is much less true in other economies. In the UK during this period (1993-2001) the covariance of productive and big considerably less than half the rate in the United States. In Romania at this time the covariance was even negative–indicating that the big firms were among the least productive. Why? Well in Romania this as the end of the communist era when big, unproductive government run behemoths dominated the economy. As Romania moved towards markets the covariance between labor productivity and firm size increased. That is the economy became more productive as it reallocated labor from low productivity firms to high productivity firms.

Aghion and Howitt’s work centers on how new ideas emerge and how creative destruction turns those ideas into real economic change through the birth and death of firms. But creative destruction is never painless—growth requires that some firms fail and that labor be displaced so resources can flow to new, more productive uses. Aghion and Howitt will likely point to the United States as dealing with his process better than Europe. Business dynamism has declined in Europe relative to the United States, a worrying fact given that business dynamism has also declined in the United States. Nevertheless, the US has a more flexible labor market and appears more open to both the birth of new firms (venture capital) and the deaths of older firms. Yet, in both the United States and around the the world the differences between high productivity and low productivity firms appears to be growing, that is the dispersion in productivity is growing which means that the good ideas are not spreading as quickly as they once did. Aghion and Howitt’s work gives us a model for thinking about these kinds of issues–see, for example, Ten Facts on Business Dynamism and Lessons from Endogenous Growth Theory.

The case for a Nobel to Joel Mokyr

by  Tyler Cowen in

Here is GPT-5 making the case.  Excerpt:

A micro‑foundation for growth: “useful knowledge,” its two forms, and the Industrial Enlightenment

Mokyr’s signature contribution is to put knowledge—not just capital, labor, or “institutions” in the abstract—at the center of modern growth. In The Gifts of Athena and subsequent papers and lectures, he distinguishes between:

  • Propositional knowledge (“knowledge what” about natural regularities), and

  • Prescriptive knowledge (“knowledge how” about techniques and production).

He argues that sustained growth arises when a society builds positive feedback between the two: deeper scientific understanding makes techniques improvable, while new techniques generate puzzles that push science forward. This is the Industrial Enlightenment: a culture that expects progress, rewards it, and knits together savants and artisans in a “Republic of Letters,” a kind of 18th‑century knowledge commons with rules for open exchange, replication, and credit…

In The Enlightened Economy and A Culture of Growth, Mokyr shows that the British/European break‑out ca. 1700–1850 was propelled less by isolated “heroic” inventions or factor prices alone and more by a cultural–epistemic shift: an elite market for ideas in a politically fragmented Europe created exit options for heterodox thinkers and incentives for rulers to compete for talent. This account complements rather than denies other forces (coal, wages, property rights), but it explains persistence—why growth became self‑sustaining.

…Joel Mokyr changed how economists explain the onset and persistence of modern growth. He supplied a historically grounded, analytically sharp account of how societies produce, organize, and circulate knowledge so that it becomes self‑amplifying. That account has not only reshaped economic history; it has supplied live ammunition for growth theory and for policy in a world where intangible, recombinable knowledge is the main engine of prosperity. The 2025 Nobel Committee’s decision to honor him alongside Aghion and Howitt simply makes explicit what many researchers have long recognized: innovations power growth, and Mokyr showed us how societies build the machinery that powers innovations.

Here is Mokyr in scholar.google.com.  Read The Lever of Riches and The Gifts of Athena and A Culture of Growth.  I have benefited most from The Enlightened Economy: An Economic History of Britain 1700-1850.  You can ask Joel just about anything concerning the Industrial Revolution and he will have an amazingly well-thought answer.  He has a new book coming out in November, with Tabellini and Greif.  It is correct to consider him as an “Enlightenment thinker.”  Brian Albrecht has a good thread on this.  And see Matt Yglesias.  Note also that Mokyr barely has a presence in the “top five” journals.

The case for a Nobel to Philippe Aghion

by  Tyler Cowen in

GPT-5 is very good at this, so I posed the question and here is the answer.  Excerpt:

Schumpeterian growth, made operational.
With Peter Howitt, Aghion’s 1992 Econometrica paper formalized growth “through creative destruction”: quality‑improving (vertical) innovations by entrants and incumbents drive productivity while rendering old technologies obsolete. The model delivers dynamic equilibrium, transitional dynamics (including no‑growth traps), and clear normative trade‑offs between innovation rents and competition. The paradigm was consolidated in two field‑defining books, Endogenous Growth Theory (1998) and the graduate‑level text The Economics of Growth (2009), and popularized for policymakers in The Power of Creative Destruction (2021/2023)…

Aghion (with Acemoglu and Zilibotti) showed that the right growth institutions depend on how close an economy is to the global frontier: early‑stage economies may need investment‑based strategies; frontier economies require selection, entry, and competition to sustain innovation. With Howitt, he integrated this into a unifying framework for “appropriate growth policy,” organizing the roles of competition, education, macro stabilization, and finance. This perspective reframed convergence and policy sequencing debates…

“Missing Growth from Creative Destruction” quantified how standard price imputation understates growth when new products replace old ones; their estimates suggest roughly ½ percentage point per year of “missing” US growth in 1983–2013. This reframes productivity‑slowdown diagnostics and national‑accounts practice…

Beyond specific papers, Aghion has built a field: the textbooks (Endogenous Growth Theory; The Economics of Growth) trained a generation of researchers; the policy synthesis (The Power of Creative Destruction) carried the ideas to cabinets and agencies; and his research group at the Collège de France continues to push on environment, productivity, and mobility. These are classic signs of Nobel‑level influence: a unifying paradigm that reshapes inquiry and policy across domains.

Right now Aghion is speaking to the committee and telling them that Europe should not be so dependent on tech advances from America and China.  Here are his books.  Here is the Nobel Committee on his work.  Here is GPT-5 with a detailed presentation of the Aghion-Howitt model, apologies for any errors but I could not do it better.

The case for a Nobel to Peter Howitt

by  Tyler Cowen in

He was born in Canada, by the way.  Here is the GPT-5 coverage.  Excerpt:

Operationalizing Schumpeter: the Aghion–Howitt model (1992).
With Philippe Aghion, Howitt built a tractable model in which vertical, quality‑improving innovations drive growth but also destroy incumbents’ rents—formally embedding creative destruction in general equilibrium. The model delivered falsifiable predictions (e.g., cyclical equilibria, no‑growth traps, intertemporal “business‑stealing” incentives) and a normative agenda (balancing innovation incentives with obsolescence costs). It re‑centered long‑run growth on firm‑level R&D decisions and market structure rather than on exogenous technology.

Competition and step‑by‑step innovation.
Subsequent work integrated IO with growth by allowing “neck‑and‑neck” rivalry and step‑by‑step catch‑up. The central empirical claim—an inverted‑U between product‑market competition and innovation—reconciles Arrow‑style replacement effects with escape‑competition effects and has been confirmed on rich panel data. This literature provided a bridge from theory to measurable policy levers (entry, pricing power, markups).

Here is GPT-5 with a detailed presentation of the Aghion-Howitt model, apologies for any errors but I could not do it better.  Here is the Nobel Committee on Howitt.

Science Policy Insider

by  Tyler Cowen in

That is a new Substack by Jim Olds, here is the introduction:

How science funding really works—from someone who ran the machinery at NSF and NIH.

I’m Jim Olds, former head of the National Science Foundation’s $750M Biological Sciences Directorate (2014-2018), NSF lead for President Obama’s BRAIN Initiative, and co-chair of the White House Life Sciences Subcommittee.

Over three decades in Washington D.C., I’ve seen how science policy actually works—not from the sidelines, but from inside the decision-making rooms. I’ve reviewed thousands of grants, managed billion-dollar budgets, and worked with everyone from Nobel laureates to members of Congress.

What you’ll get here:

– The real story of how funding decisions get made

– Insider analysis of science policy debates and initiatives

– Practical insights on what makes big science succeed or fail

– Honest perspectives on the challenges facing research funding

This isn’t speculation or critique from the outside. It’s the view from someone who was in the room where it happened.

This newsletter is free

Sunday assorted links

by  Tyler Cowen

1. Poisoning LLM samples.

2. Will Germany succeed in luring researchers from America?  A new Substack by Olaf Gersemann, in English about Germany.  And a post about German deregulatory efforts and their failures.

3. The semi-global spread of bird language.

4. Decoding without pictures.

5. PC on Melville and the 19th century, recommended.

6. Will more lending be freed up by relaxing bank capital rules? (FT)

7. Andrew Batson explores Indian classical music.

How Immigration is Changing the Black-White Earnings Gap

by  Tyler Cowen in

We provide new evidence on earnings gaps between non-Hispanic White and three generations of Black workers in the United States during 1995-2024, using nationally representative data. Results reveal remarkable earnings advances among 2nd-generation Black immigrants, opposite to the well-documented widening in overall Black-White earnings gap. Among women, 2nd-generation Black workers have earnings higher than or equal to White women; among men, they earn 10% less at the median, but the gap vanishes at the top decile. The gap for 1st-generation Black men is shrinking, halving at the top decile; for 1st-generation Black women it shows initial widening then shrinking at the median. The native Black-White gap remains stubbornly high. Educational attainment largely drives 2nd-generation success, while residential patterns play a protective role for the 1st and 2nd generations. These findings provide critical data to set the record straight on the accomplishments of the highly successful and rising demography of Black immigrants and their US-born children.

That is from a new NBER working paper by Rong Fu, Neeraj Kaushal, and Felix Muchomba.

New archaeology tranche for Emergent Ventures

by  Tyler Cowen in

Just apply at the normal site.  Here is a description of what we are up to and what we are looking for:

  • We are giving archaeology-specific EV grants
  • Emphasis on projects enabled by tech (AI/CV, lidar, synthetic aperture radar and hyperspectral imagery, open source data, etc)
  • Flexible on cost or duration of projects
  • All circumstances encouraged (grad student funding a project she’s working on, swe wanting to take a few months off to work on something, high school student side project, etc)
  • Ideas below are by no means comprehensive or the edges of the search area – just starting points for exploration for people interested in the field that don’t have a specific idea in mind yet

Examples of ideas:

For these notes I thank Mehran Jalali, a former EV winner in this area, who also will serve as one of the referees.  When you apply, just indicate that your request is for archaeology.  Soon this will be a formal category on the application itself, if somehow you are already ready to apply tomorrow a.m., just use the word in your project description.

We thank Yonatan Ben Shimon for his generous support of this tranche.

What matters for central banks?

by  Tyler Cowen in

This study examines the drivers of inflation levels, inflation variability, and growth variability collectively representing long-term central bank performance across 37 advanced economies in the Great Moderation era. A key finding is that central bank performance is consistently linked to the overall quality of institutions, while central bank-specific factors such as independence, exchange rate regimes, or inflation targeting show no significant impact. The analysis is extended to the 2022 inflation resurgence, using pre-2022 country characteristics. The results indicate that reliance on imports from Russia (likely gas) and its interaction with post-COVID GDP growth are the primary determinants, suggesting that the inflation surge was not a reversal of the Great Moderation.

That is from a new research paper by Livio Stracca.

What should I ask Brendan Foody?

by  Tyler Cowen in

Yes, I will be doing a Conversation with him.  He was a Thiel fellow, now CEO and co-founder of Mercor, I believe he is still only 23 years old.  GPT-5 gives this summary of Mercor:

Mercor is a San‑Francisco–based startup that runs an AI‑driven talent marketplace: companies building frontier models use it to source, screen (via automated AI interviews), and pay domain experts and engineers for contract or full‑time work. Beyond traditional recruiting, Mercor supplies specialists—doctors, lawyers, scientists, and software/AI engineers—to help train and evaluate AI systems for top labs (TechCrunch reports OpenAI is among its users), charging an hourly finder’s fee. Founded in 2023 by Thiel Fellows Brendan Foody, Adarsh Hiremath, and Surya Midha, the company raised a $100M Series B in February 2025 at a ~$2B valuation, following a $30M Series A in September 2024.

Here is Brendan on Twitter.  So what should I ask him?

China understands negative emotional contagion

by  Tyler Cowen in

China’s censors are moving to stamp out more than just political dissent online. Now, they are targeting the public mood itself — punishing bloggers and influencers whose weary posts are resonating widely in a country where optimism is fraying.

The authorities have punished two bloggers who advocated for a life of less work and less pressure; an influencer who said that it made financial sense not to marry and have children; and a commentator known for bluntly observing that China still lags behind Western countries in terms of quality of life.

These supposed cynics and skeptics, two of whom had tens of millions of followers, have had their accounts suspended or banned in recent weeks as China’s internet regulator conducts a new cleanup of Chinese social media. The two-month campaign, launched by the Cyberspace Administration of China in late September, is aimed at purging content that incites “excessively pessimistic sentiment” and panic or promotes defeatist ideas such as “hard work is useless,” according to a notice from the agency.

Here is more from Lily Kuo from the NYT.  If you are spreading negative emotional contagion, there is a very good chance that, no matter what you are saying, that you are part of the problem.  A more fundamental division these days than Left vs. Right.

Ian Smith’s memoir *Bitter Harvest: The Great Betrayal*

by  Tyler Cowen in

Yes he used to run Rhodesia, and yes it is costly to buy this book because no one wants to reprint it, for obvious reasons.  Nonetheless it is a fascinating look into an era and its dissolution.

Smith is a wonderful writer, and remarkably erudite, more so than virtually any politician today.  He also is delusional almost beyond belief.  As the title of the memoir indicates, the story is all about the different parties who betrayed him.  The British, the South Africans, and also some of his fellow Rhodesians.  He blames almost everybody else, without considering the possibility that the Rhodesian system of “one white for every seventeen blacks, and without equal rights” (as was the ratio circa 1960) simply was never going to work.

He calls the Rhodesian human rights record “impeccable,” but you will find another perspective from GPT-5.

He loves to inveigh against South African apartheid, which he considered very bad publicity for the broader project of civilizing the southern cone of the African continent.  He insisted that Rhodesia had nothing similar.

Unlike many contemporary writers, he often is willing to tell you what he really thinks, for instance:

Hilgar Muller certainly put on a good performance, full of drama and emotion, the kind of thing these foreign-affairs types have got to perfect if they are going to do their job.  He need not have bothered as far as I was concerned, for I am far too experienced and down to earth to be influenced by such tactics.

The closest he ever comes to blaming himself, his party, or his decisions is when he writes:

Our crime was that we had resisted revolutionary political change.

Or he writes:

I myself certainly prefer having dealings with some of these honest-to-goodness black people, than with the two-faced liberals of the Labour Party or the Fabian Society.

“Recommended” is not exactly the word I wish to use here, but I can report that I read the whole thing.