Nobel Econ Award Goes To Two Economists Who Have Greatly Shaped My Thinking On Economics Of Innovation

from the good-to-see dept

Let's get this out of the way upfront: if you're one of those people who pedantically feels the need to sneeringly point out that the economics Nobel is "not a real Nobel Prize," shut up: no one cares.

Now, let's get on to the point: for basically the last decade, I've been specifically waiting for Paul Romer to finally win this prize and each year I've been disappointed when someone else did. Finally, this year he won it and did so with William Nordhous, which is even better, as I'll explain shortly. Both Romer and Nordhous have greatly influenced my thinking on many of the things I write about here at Techdirt, specifically when it comes to the economics of innovation, and, more specifically, the economics of information and so-called "non-rivalrous" goods (I prefer to call them "infinite goods"). I've reference Romer multiple times in the past, specifically in discussing how innovation creates economic growth in powerful ways. One of my favorite Romer quotes is as follows:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

I have also regularly recommended an absolutely brilliant book by David Warsh, called Knowledge and the Wealth of Nations: A Story of Economic Discovery and I'll do so again here. I've long recommended it to people who are interested in the economics of innovation, because the first half of it is a very entertaining and wonderful history of the economics of information, and the second half is the story of Romer coming up with his own theory of endogenous growth. The book, at times, comes off a bit "hero worshipy" of Romer, but it's totally worth it, as it puts into place an economic model that helps explain so much of why innovation remains so important. My one disappointment with it is that for nearly the entire book I was nodding in agreement with Romer, except for some stuff on intellectual property, where I felt that Romer gets his own model backwards.

Either way it's great -- and doubly so that Nordhaus is similarly rewarded. Warsh's book about Romer also talks about Nordhaus, including a section on Nordhaus' incredible paper on the cost of light throughout human history, which is a stunningly wonderful work of economics that shows just how innovation leads to economic growth. In fact, thanks to Warsh's book about Romer, and its section on Nordhaus -- as well as a few other mentions -- that made me go out and pick up a copy of The Economics of New Goods, which is a collection by the National Bureau of Economic Research (NBER) of some of the absolute best papers on economics and innovation. The two books have sat for years next to each other on my bookshelf, and I have revisited Nordhaus' paper (which is the first in that collection) numerous times in trying to better think through ways to explain the economics of innovation.

So I'm delighted to see Nordhaus and Romer both honored at the same time. And it is doubly timely, seeing as it's happening just at the moment when we're facing so much backlash against technology and innovation, and many people trying to argue that the harms from technology somehow outweigh the gains. Reading and understanding the work of both Romer and Nordhaus hopefully will help people get past that belief, and back to recognizing how much overall good comes from innovation. Congrats to both.


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  1. This comment has been flagged by the community. Click here to show it
    identicon
    I M O'Kay, 9 Oct 2018 @ 3:48pm

    I'm no pedant and am contemptuous not merely sneering, so okay!

    one of those people who pedantically feels the need to sneeringly point out that the economics Nobel is "not a real Nobel Prize," shut up: no one cares.

    Sheesh. Getting a bit tetchy, Msnick?

    I just bet you DO agree with those globalists / fascists.

    Skull and Bones Member William D. Nordhaus Wins Nobel Prize in Economics For "Integrating Climate Change Into Macro-Economic Analysis" https://nalert.blogspot.com/2018/10/skull-and-bones-member-william-d.html

    SO NOW you're openly supporting one of the 300 or so living "Skull and Bones" members, same "frat" as George W Bush AND Al Gore! The 300 in 7 billion, or 0.0000043% elite.

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, 9 Oct 2018 @ 4:02pm

    Re: I'm no pedant and am contemptuous not merely sneering, so okay!

    Yes, we know you hate intellect.

    reply to this | link to this | view in thread ]

  3. icon
    OldMugwump (profile), 9 Oct 2018 @ 4:08pm

    Re: I'm no pedant and am contemptuous not merely sneering, so okay!

    Hah, that's nothing.

    I'm a member of a secret society that consists of just ONE person.

    It's so secret that you've never even heard of it.

    And 300 times more exclusive than "Skull and Bones".

    The 1 in 7 billion, or 0.000000014% elite!

    reply to this | link to this | view in thread ]

  4. identicon
    Anonymous Coward, 9 Oct 2018 @ 4:21pm

    Re: I'm no pedant and am contemptuous not merely sneering, so okay!

    Can't attack the actual economics or points Mike raised, so you go with guilt by association? How shockingly transparent you are.

    reply to this | link to this | view in thread ]

  5. icon
    Stephen T. Stone (profile), 9 Oct 2018 @ 4:38pm

    globalists

    Jeez, how many anti-Semites do we have on this site?

    reply to this | link to this | view in thread ]

  6. This comment has been flagged by the community. Click here to show it
    identicon
    Saint Girldick of Trannyvania, 9 Oct 2018 @ 4:46pm

    The economics Nobel is not a real Nobel prize.

    reply to this | link to this | view in thread ]

  7. identicon
    Anonymous Coward, 9 Oct 2018 @ 5:52pm

    Spit it out, Mr. Masnick

    “My one disappointment with it is that for nearly the entire book I was nodding in agreement with Romer, except for some stuff on intellectual property, where I felt that Romer gets his own model backwards.”

    Why not elucidate on your non-Nobel winning thoughts?

    reply to this | link to this | view in thread ]

  8. icon
    Toom1275 (profile), 9 Oct 2018 @ 6:11pm

    Re:

    Depends. Do they still count as individuals if they all reside in the same otherwise hollow skull?

    reply to this | link to this | view in thread ]

  9. identicon
    Anonymous Coward, 9 Oct 2018 @ 6:59pm

    Re: I'm no pedant and am contemptuous not merely sneering, so okay!

    Now -that- is what an argumentum ad hominem is.

    reply to this | link to this | view in thread ]

  10. icon
    Gary (profile), 9 Oct 2018 @ 7:47pm

    Re: Draconian Trolling

    Is there any explanation for this "Globalist" label that isn't anti-semitic?

    Blue lies, Nazi's suck.

    reply to this | link to this | view in thread ]

  11. icon
    Stephen T. Stone (profile), 9 Oct 2018 @ 10:43pm

    Re: Re: Draconian Trolling

    Is there any explanation for this "Globalist" label that isn't anti-semitic?

    There is, although the term is bandied about by anti-Semites enough that it can safely be considered a dogwhistle for “Jewish person(s) with money and power” (e.g., the Rothschilds).

    reply to this | link to this | view in thread ]

  12. identicon
    Anonymous Coward, 11 Oct 2018 @ 5:22pm

    What it really looks like is that Romer's just given a bunch of rhetorical ammo to the uber-rich, who'll just point to it and go "See!? Our continued pillaging and financialization of the world in an endless pursuit of GDP and profits is okay, because growth is infinite and because innovation!"

    reply to this | link to this | view in thread ]


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