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.

Comments

Very well, but does Romer mention "PATENTS"? If not, he's not worthy.

Bonus trivia: logistic growth - S-shaped curve--is simply dy/dx = y(x) (1-y(x)). That's all you need, that extra 'minus' term, to get the "S-shape" vs unlimited exponential growth.

Test

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So I didn’t curse him after all. Nice.

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Logistic growth has an asymptote, but growth in the economy doesn't. The constraints move with time and circumstances.

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Don't forget his contribution on charter cities!

It’s always cute how TC signals his distaste for Trump - that way the tribe knows where he stands:

“(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!)”

"What the **** are you talking about? The Tribe is not the issue here, Dude. I'm talking about drawing a line in the sand, Dude. Across this line, you DO NOT... Also, Dude, Tribe is not the preferred nomenclature. Gang, please."

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I must admit that for a long time I thought that Paul Romer and David Romer were the same person.

Which Romer is it who thinks NFL teams should not punt on 4th and 3 on their own ten yard line?

I would hope it would be all of them. Including Christine.

Which Romer is it who wants to make like William Walker in 1860 and bring civilization to Honduras?

http://www.unz.com/isteve/charter-city-setback-who-could-have/

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Make that "Christina". I really should know better than to post comments without having yet had any coffee....

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"Romer is also an advocate of regularizing the spelling of the English language"

It's funny how that was a huge fad in the first half of the 20th Century, attracting people from left to right, such as George Bernard Shaw, Andrew Carnegie, and Colonel McCormick. I was really into this subject in 7th grade.

But this is the first time I've heard of anybody living being interested in this topic in years.

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It's very well deserved. Although it hasn't yet been noted, Romer's willingness to risk career suicide by identifying deficiencies in the work of several very well known and established economists inspired our Examples of Junk Science series, where we featured part of his story in the conclusion to the series, Theoclassical Economists.

We reached out to him to do a follow on piece, but alas our timing was awful, where it coincided with his departure from the World Bank. And then, we moved on to other projects. Perhaps we'll follow that up after things quiet down!

@Ironman- entertaining site, but you are trying to label as "junk science" an op-ed. I recall the Romer piece was more opinion than "junk science". For example, the Rational Expectations crowd in the 70s and 80s specifically ignore money illusion, but the Behavioral crowd of today says it's a real, measurable thing, so is the former 'lying'? No, just their assumptions are biased. Likewise, there's hoary tradition of name calling in economics, just look at the works by the Austrian economists like Murray, the monetarist like Friedman, and today's Paul Krugman.

I think Ironman has come here to praise Paul Romer not to bury him.

Yes, sorry, apparently P. Romer is the hero of that piece but both sides are simply engaging in op-ed exercises. An internally consistent model need not be defended, anymore than a model that the earth is flat be defended. If it doesn't work, that's the ultimate proof it doesn't work. I think Prescott--from memory--is of the "real business cycle" school which says the tiniest real change sometimes gets amplified into a boom or bust. It's untestable, but no more wrong than the "natural interest rates" of Friedman, also metaphysics, or "animal spirits" of Keynes, Shiller ,or the "Keynesian multiplier" and so on. It's all bunk to a large degree. My own theory of economics is as good as theirs: "stuff happens". Recall during the Vocker era the Fed raised interest rates and inflation rose, then lowered them and inflation fell, the opposite of monetary theory (but you hear soundbites today on how he 'beat inflation'). You can square this circle by introducing lags and so on, but in the end you're just massaging the data.

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@Ray Lopez: I appreciate your points - it was an editorial selection on my part, where I was seeking to avoid dropping too many links into the comment. There is more than one part of the series that references the controversy that Romer initiated (Models of Mathiness is the main one of interest), which is linked from the concluding piece we did link.

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It’s always heartening when a prominent economist comes out against scientism. That rarely happens.

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As Cowen points out, Paul Romer coauthored the paper on ski-lifts with Robert Barro. The two are known for their expertise in development economics, so I suppose it isn't surprising they would collaborate (although it was a long time ago). What I'm reminded by Cowen is that economists (and people generally) are not as different as their disagreements seem to indicate. In my Googling this morning to learn a little more about Paul Romer, I picked up on some pieces on David Romer and his spouse Christina Romer. One may recall Christina's and Barro's disagreements about fiscal stimulus in 2009 (when she was chair of the CEA). What I learned about these two Romers is that the best man at their wedding was Greg Mankiw, and that after she left CEA she wrote an op/ed for the NYT promoting NGDP targeting, citing for support Scott Sumner, Greg Mankiw, and Robert Hall. Again, my point is that that differences are often exaggerated.

Well said counselor, it's a small world in economics, and they tend to 'close rank' when an outsider tries to depict them as frauds. I'm sure our own host--who is NOT a fraud--is similarly well connected. Economics is fashion, is polemics, is politics, is not a science anymore than history or art is a science. But like voodoo, it's well respected in certain circles and let's face it, politicians are solidly sold on Keynesianism, I doubt it goes away unless we have another worldwide depression and governments go bankrupt trying fiscal and monetary stimulus (neither of which work).

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Somewhat related to Romer and development economics, with yesterday’s election news it seems like Brazil is going to be the next country in the global south to experience mega growth.

What? They had an election, where Lulu let somebody stand in for him (he being in prison) and I haven't even Googled the results, but how is that related to mega growth? If your comment is "TR" bait or sarcasm you should end your post with a smirk like so: ;-)

Brazil has all but elected an Administration which intends to implement radical pro-growth policies. Happy days are here again.

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Yep. Fantastic right? The markets are already rallying. The Brazilian Real has appreciated about 3%. Brazil's people have singlehanded prevented a communist takeover and elected a pro-business, pro-free-market, pro-democracy Administration. Mr. Guedes, Representative Captain Bolsonaro's economics expert has estimated that Brazil can get two-third trillion dollars in 2019 by selling state assets.

Looks like my posts were effective. And you people made fun of me.

ribby;
who do you think
cucked the canucks
car movie title
built not bought?

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Not at al. That is a Brazilian victory. While America cut and run and lead from behing for fear of antagonizing Red China's totalitarism, Brazil's people singlehandedly defeated Red China's puppets.

You need to check your typewriting behavior at the door.

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"pro-democracy" just means you've either never paid attention or you're outright lying. Based on your other statements it's obviously the second.

Throughout his political career, Bolsonaro has made a number of admiring comments about the Brazilian military dictatorship which ruled the country from 1964 to 1985. He said in 1993, eight years after the return of democracy, that the military regime had "led to a more sustainable and prosperous Brazil". Bolsonaro has publicly referred to the military dictatorship as a "glorious" period in Brazil's history, and that the under the military dictatorship, Brazil enjoyed "20 years of order and progress." In December 2008, Bolsonaro said that "the error of the dictatorship was that it tortured, but did not kill."

Bolsonaro has also repeatedly made admiring comments about a number of other Latin American dictatorships. He praised Peruvian president Alberto Fujimori as a role model for his use of military intervention against the judiciary and legislature. In a 1998 interview with Veja magazine, Bolsonaro praised the Chilean dictatorship of Augusto Pinochet, and said the Pinochet regime, which killed over 3,000 Chilean citizens, "should have killed more people."

In a TV interview with Câmera Aberta in the 1990s, Bolsonaro said that if he ever became President, he would use this as an opportunity to shut down the National Congress and instigate a military coup himself:

"I have no doubts – I would begin the coup on the very first day! And I am sure that at least 90% of the people would commemorate or give me an ovation. The Congress today is good for nothing, they only vote in favor of the president's projects. If he is the person who makes the decisions, who calls the shots, who laughs at the Congress, then start the coup at once, and let's make this a dictatorship"

https://www.wikiwand.com/en/Jair_Bolsonaro#/Views_on_the_Brazilian_military_dictatorship

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I do think that the low IQ of the Brazilian people puts a limit on how much Brazil can really see growth, but as Paul Romer showed governments closely run by the military tend to see much higher growth. Developing nations need a strong iron fist to see any results, that's one of Romer's biggest contributions to devleopment economics.

Actually, there is good reason to believe Brazilian IQ is among the highest. Brazilian cranial capacity is about 35% higher than American Caucasian's. The Brazilian male brain is about 40% heavier than its American caucasian counterpart.

Brazil will not be run by the military. Representative Captain Bolsonaro has vouched to run a narional salvation goverment comprised of technical personnel. The days of dividing up Ministeries high-ranking jobs in exchange of kickbacks are over. Representative Captain Bolsonaro'-s motto is, "Brazil above everything; God above everyone".

Now that's ridiculous. If Brazilian brains were that much heavier there would be something you could link to about it. Are Brazilian brains heavier than American black people? How about Canadian caucasians?

I am comparring Caucasians to Caucasians. I guess that American Caucasians are similar enough to European Caucasians, Canadian Caucasians, etc.

Brazil's last Emperor Pedro II spoke several languages. Recent research has showed that the Brazilian brain is way bigger than the average.

Is this research available online? Where did you see it?

I have read on the newspapers. Brazilian scientists made craniometric measurements.

How did they weigh the brains, were they using cadavers? Did the Brazilian scientists fly to the US to weigh the American caucasian brains, or did they ship them to Brazil? What was the sample size? If they only measured 1 or 2 American caucasian brains how can you be sure of your results?

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Brazillians are pretty dumb thought, even the "elite" Brazillians. Still it does seem as thought they are on the right path, they might be able to top-out at Mississippi levels of development if they really try hard.

It is sad that you use Mississippi to slight Brazilians. I am actually told around here that it is richer than Germany and Sweden. Something about PPP.

Actually, Brazilians are pretty bright. Our last Emperor spoke Hebrew, French, English and Greek among other languages. He used to visit Victor Hugo and write to Pasteur and Gobineau.

We invented the airplane, the typewriter, the Zepellin, radio transmission, the Walkman and the caller ID. The Urca Effect was discovered in Brazil. A Brazilian discovered the pion. The Luzia skull is the oldest in the American continent.

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Sounds like Romer got paid for that Aplia thing, but the business is struggling to grow now:

"In 2015 several employees were asked to gather in the main conference room where a tactic of "psychological divide and conquer" separated the employees into the first of many days and weeks of learning that not only was their job being sent overseas that they would be shadowed by their replacement whom they would train."

Good one BD. A lot of these economists come across as arrogant pricks (not TC however). I saw a Michael Moore type documentary on the Great Recession where Columbia biz school dean R. Glenn Hubbard started off like a nice guy, then turned on the interviewer and man did it go south fast, his demeanor was of a real jerk. Also some scuttlebutt in a book I'm reading by Wessel in "Fed We Trust" where it's mentioned, among some other people, that Paul Krugman's students didn't like him. Some of these economists are unhinged. I recall reading one "Chicago school" economist, along the lines of a 'freakonomics' type (not sure if it was the original freakonomics guy or not), who devoted a whole chapter of his book, complete with a letter to the principal, complaining about some trivial school related activity for his son that was mildly socialist. Airing such dirty laundry to the general public does not win sympathy IMO. Ideologues, right, left and center. Carnival of Ideologies like a great mural in Guadalajara says.

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Aplia was way ahead of its time then it got sold to a publisher who promptly cut all the things that made it special to save money. For example instructors could propose and put free assignments up in an online library that any other instructor could add to their course. There was a dedicated 24/7 hotline for instructors to get tech problems on the spot. The software was constantly being upgraded although the user interface was kept consistent. Etc ....

Yeah....but in the end it is like I've always thought; Paul Romer is kind of the cuck of the econ world.

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"Paul once tweeted to Ben Bernanke that 'Rich is over-rated.' It is too hard to convert money into satisfaction."
A sentiment often expressed by those who have never been on the left side of the distribution

I've been rich and I've been poor...rich is better.

Bonus trivia: from the same South Carolina small town Ben Bernanke was raised in, population 7000, we get the following luminaries, if not Illuminati. Coincidence? Author Dan Brown says there are no coincidences: Ben Bernanke, chairman of the Federal Reserve from 2006 to 2014[9]; Alfred W. Bethea, farmer and businessman, member of the South Carolina House of Representatives from 1961 to 1966; American Independent Party gubernatorial nominee in 1970[10]; John Chavis, defensive coordinator, Texas A&M; Johnny Davis, two-time PKA kickboxing world champion; Derrick Hamilton, football player; Rufus R. Jones, professional wrestler; Willie Jones, Major League Baseball player; Kenneth Manning, professor of rhetoric and of the history of science at the Massachusetts Institute of Technology; Kevin Steele, former defensive coordinator, Clemson University; LSU defensive coordinator; Lieutenant General Jack C. Stultz, former Chief, Army Reserve; former Commanding General, U.S. Army Reserve Command; Robin Tallon, former member of Congress; Andy Hubbard, Professional Drummer, Nashville TN; Judge James E. Lockemy, South Carolina Court of Appeals

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I came of age in the late 1960s so I vividly recall the Byrds. David Crosby played rhythm guitar. Yes, that David Crosby. As for Clarence White, he died very young (killed by a drunk driver), but there's not a top band/musician of his era for which he did not play. The Byrds big hit was Mr. Tambourine Man, but my favorite is Turn, Turn, Turn, written by Pete Seeger. It's an ode to classical economics. What? Here are the lyrics:

To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to be born, a time to die
A time to plant, a time to reap
A time to kill, a time to heal
A time to laugh, a time to weep
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to build up, a time to break down
A time to dance, a time to mourn
A time to cast away stones, a time to gather stones together
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time of love, a time of hate
A time of war, a time of peace
A time…
To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time to every purpose, under heaven
A time to gain, a time to lose
A time to rend, a time to sew
A time for love, a time for hate
A time for peace, I swear it's not too late

It was written by Koheleth, translated into English by somebody, set to music by Pete Seeger, and played incomparably (there are other versions but they're not very good) by the Byrds. Thanks for the nice post, but what is the connection to classical economics?

There is a season. https://www.youtube.com/watch?v=TYeVQzTVyLk

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Hopefully none of this goes to Paul's head, since it'd be nice to have a conversation (recorded) with Tyler.

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"ands" do not add much. But in the whole language "and" is the fifth most frequent word. Up at the top is the "definite article" "the". Ninety percent of "the"s could be eliminated with no damage to sense or sound. Same goes for the indefinite article.

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Models show everything except the risk of being wrong. Bad data produces bad results.

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