Alex: No! I was right! ….A year ahead of time. Clearly, I was just predicting the future. Paul Romer is a Nobel Laureate for “integrating technological innovations into long-run macroeconomic analysis.” Remember when I talked about the impact of innovations in South Korea in our 2017 predictions? How they were on the cutting edge with dancing robots and freaky horror movies? I totally knew Romer would be getting a Nobel soon…even if I got the year wrong. Want to bet my choice for this year – Kevin Murphy – receives the prize in 2019?
But my imperfect prophetic skills aren’t nearly as interesting as the fact that Romer and Nordhaus were granted this award together. Why were these two economists grouped together for a prize? What brings a climate change economist that advocates for the carbon tax together with an economist who contributed to the Solow growth model?
It’s because of how their individual works together impacted government policy.
Romer argued that innovation has a huge impact on economic growth. But how do we foster innovation? Intellectual property rights can be used to incentivize more market investment in R and D projects. However, if property rights prevent potential entrepreneurs from entering the market they can actually strangle future innovations. For example, Romer looked at the impact of health insurance on medical innovations, trying to determine whether governments are underinvesting in the market for scientists and engineers, and what alternatives exist for fostering innovation.
Romer didn’t stick to just writing about fostering innovation though. In 2000, he created the company Aplia to improve students interactions in the online classroom through homework and courses. This was later sold to Cengage Learning.
Kenzi: So I was wrong as well, but after reading about William Nordhaus, I think the Committee chose well. Nordhaus won the Nobel Prize for his work on the economics of climate change. Who knew there was such a field? Let alone that it is revolutionary enough to win the prize. Really, this should not come as a surprise to us because #economicsiseverywhere. Nevertheless, his work made a great impact in cost-benefit analysis of the diminishing ozone layer, global warming, and all things #green.
Nordhaus created the Dynamic Integrated Climate-Economy model which “integrates in an end-to-end fashion the economics, carbon cycle, climate science, and impacts in a highly aggregated model that allows a weighing of the costs and benefits of taking steps to slow greenhouse warming.” His model is used by the Environmental Protection Agency to craft better policies for clean energy in the least costly way to producers and consumers.
Fascinating side note: Nordhaus was the first economist to study the economic significance of the light bulb. He started with the prehistoric way of creating light, a wood fire. He documents the cost of each method to study how prices change over time. He ended his experiment with the modern light bulb. Tim Harford summarizes his findings writing, “A thing that was once too precious to use is now too cheap to notice.” I love economics.
Kathryn: I mean…I said I was going to be wrong when I made my prediction, so no real surprise there. But I also think that the committee was right to recognize the timeliness of Romer’s and Nordhaus’s work. Both Romer and Nordhaus developed models that analyzed the interaction of the market within its broader context of government regulation, business incentives and even nature. The Royal Swedish Academy of Sciences press release stated these two economists were selected as they had both “designed methods addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth.” From patents to light bulbs, the research of Romer and Nordhaus aims to illuminate how economics and policy impact the world around us and how we can best achieve prosperity and human flourishing.
Which is exactly what we here at ReasonablEconomics try to do as well by bringing you blog posts aimed at revealing the hidden economics in your world! So where’s our Nobel prize, Royal Swedish Academy of Sciences? (Perhaps they’re waiting for the mean author age of our site to increase just a little…don’t want to give out a lifetime achievement award too early!)
Still, maybe if Alex puts us on his list of future Nobel prize winners we’ll win…eventually.