Prize lecture: Paul M. Romer, Prize in Economic Sciences 2018

Introduction to Paul Romer and His Work

Background of Paul Romer

• Paul Romer was born in 1955 in Denver, Colorado, and received his PhD from the University of Chicago.

• He has held positions at various prestigious institutions including the University of Rochester, UC Berkeley, Stanford University, and currently New York University.

Focus on Knowledge Accumulation

• Romer's research centers on knowledge as a resource and its advancement within market economies rather than just universities.

• He emphasizes that knowledge accumulation through new technologies is crucial for economic progress.

The Tension Between Scarcity and Innovation

Key Themes Introduced

• Romer discusses the global macroeconomics involving the tension between scarce resources and the positive forces of discovery and innovation.

• He expresses gratitude towards committee members for highlighting this connection between restraining forces (scarcity) and positive forces (innovation).

Understanding Technological Change

Personal Anecdote

• Romer reflects on his father's advice about managing expectations when explaining complex topics like technological change.

• He shares a humorous exchange with his son regarding why previous generations lacked modern technology like video cassette recorders.

The Possibility of Progress

• He aims to describe the potential for progress despite doubts during his graduate studies in 1980 regarding whether discovery could offset scarcity.

Forces Undermining Confidence in Progress

Negative Side Effects of Technology

• In 1980, three main factors contributed to skepticism about progress: negative side effects from technological advancements.

• Notable examples include discoveries related to chlorofluorocarbons damaging the ozone layer, leading to significant environmental concerns.

Economic Context

• The loss of faith in government due to rising inflation rates and economic instability during the 1970s also fueled doubts about progress.

Malthusian Theory vs. Technological Advancement

Critique of Traditional Growth Models

• Romer critiques Thomas Malthus's growth theory which posits finite natural resources lead to no sustained progress.

• Using copper as an example, he illustrates how finite resources can create a perception that limits possibilities for advancement.

The Malthusian Theory and Technological Progress

The Limits of Resource Extraction

• The speaker discusses the impending limits to copper extraction, suggesting that reaching this limit could lead to a significant societal collapse rather than just a slowdown in resource availability.

Implications of Population Growth

• The Malthusian theory implies that an increase in population leads to diminished resources per person, highlighting a grim conclusion where double the population results in half the available copper for each individual.

Human Nature and Group Dynamics

• Homo sapiens evolved during the Pleistocene under Malthusian pressures, shaping human tendencies to categorize people into 'us' versus 'them,' often viewing others as threats or opportunities for resource acquisition.

Light Poverty and Technological Access

• Donna Strickland's initiative aimed at eradicating light poverty illustrates the stark reality faced by students studying under inadequate lighting conditions, emphasizing the need for technological solutions to provide basic resources like electricity.

Environmental Concerns with Technology Sharing

• There exists a fear that providing equal access to technology (like electricity) could exacerbate carbon emissions and environmental degradation, leading to a retreat into an 'us vs. them' mentality regarding resource distribution.

The Economics of Ideas

Scarcity vs. Idea Accumulation

• The speaker critiques Malthusian Theory not for its focus on scarce objects but for neglecting the potential of idea accumulation as a counterforce against scarcity through technological change.

Defining Ideas as Codified Knowledge

• An idea is defined as codified knowledge that can be represented symbolically, allowing it to be copied and shared globally—this sharing enables collective advancement without diminishing individual access.

Measuring Progress Through Illumination

• A notable paper suggests measuring progress not by monetary value but through units recognized by physicists (lumen-hours), illustrating how much more light can be produced today compared to ancient times.

Historical Context of Illumination Advances

• The speaker references experiments showing modern work can yield significantly more illumination than in early civilizations, marking substantial progress since the Industrial Revolution.

Innovations in Lighting Technology

• Discussion includes advancements such as gas mantles which dramatically increased light output from flames; these innovations exemplify how codified ideas can lead to widespread benefits when shared effectively.

Combinatorial Explosion and Human Progress

Understanding Combinatorial Explosion

• The concept of combinatorial explosion illustrates how the number of combinations increases dramatically as more elements are introduced. For instance, with ten elements, numerous combinations can be formed, and this complexity grows exponentially with additional elements.

Peptide Creation and Discovery

• The chemistry prize awarded this year focuses on innovative methods for creating libraries of peptides from amino acids, highlighting the vast potential for discovery within these combinations.

Knowledge Codification and Resource Management

• Knowledge about properties derived from a nearly infinite set of possibilities allows for better resource management. This understanding suggests that new discoveries could counterbalance resource scarcity highlighted by Malthusian theories.

Expanding Our Circle of Influence

• By increasing educational opportunities (e.g., providing more light for students), we may foster scientific discoveries that outweigh the costs associated with carbon emission mitigation. This perspective encourages viewing others not as rivals but as allies in progress.

Historical Models of Growth

• Bill Rote's 1969 model and Ken Arrow's 1962 work suggest that integrating diverse regions into a global system enhances growth rates through idea exchange. However, skepticism remains regarding whether increased population truly benefits society.

The Role of Population in Technological Advancement

Discoveries Driving Population Growth

• Research indicates that from the Neolithic to Scientific Revolution periods, human evolution was propelled by discoveries leading to food production increases, which subsequently supported larger populations.

Exponential Growth Dynamics

• The growth observed during these periods is characterized not just by exponential growth but an acceleration in the rate of growth itself—an important distinction in understanding human development until the Industrial Revolution.

Regional Variations in Progress

• Differences in initial population stocks and carrying capacities across regions influenced technological advancement rates. Some areas experienced rapid technological progress while others lagged due to geographical isolation.

Defining Human Progress Beyond Material Wealth

Distinguishing Types of Progress

• A critical distinction is made between material progress (growth in living standards post-Industrial Revolution) versus human progress—improvements in our moral perspectives towards others and sentient beings.

Moral Progress as a Priority

• Emphasizing moral progress involves recognizing others' value beyond mere resources or competition. This shift is essential for fostering alliances rather than adversarial relationships among people.

Challenges to Moral Reasoning

• While moral reasoning advocates for treating others positively, practical realities often complicate this ideal; individuals are more inclined to view others favorably when they perceive mutual benefits arising from collaboration.

Human Progress and Urbanization

The Role of Population in Human Progress

• Growth indicates that having more people is beneficial; they become allies and part of society, challenging the notion of being overly optimistic about human progress.

• A fundamental shift in human nature is occurring as society increasingly recognizes women as full members, moving towards greater equality in respect and dignity.

Advancements Through Collaboration

• The progress made does not require self-interest; it is driven by the understanding that contributions from diverse individuals enhance collective well-being.

• Notable discoveries by figures like Marie Curie highlight the advantages of including more contributors to scientific ideas, benefiting everyone.

Urbanization as a Catalyst for Interaction

• Cities should be viewed as opportunities for interaction, especially in developing regions, where social connections can lead to smarter communities.

• The upcoming century will see unprecedented urban development; planning cities effectively from the start can minimize costs and maximize benefits.

Planning for Future Urban Spaces

• Proper city layouts that prioritize public spaces and connectivity are crucial; proactive planning is far less costly than retrofitting disorganized developments.

• There exists a unique opportunity to establish successful urban environments over the next hundred years, which could significantly enhance societal learning.

Science and Idea Generation

• As population growth stabilizes post-century, increasing participation in science becomes essential for continued idea generation.

• Historical data shows a significant rise in Nobel Prize winners from the U.S. due to investments in education; this trend illustrates how commitment to science fosters innovation.

Addressing Global Challenges through Decision-Making

• Climate change presents a decision-making challenge rather than a resource scarcity issue; effective choices are necessary for progress.

• Encouragement is offered to young scientists and economists about exploring broader notions of human nature within their fields.

Conclusion: Embracing Broader Perspectives

• Young economists are urged to consider deeper aspects of humanity—such as love, honor, compassion—in their work to make economics more relevant and impactful.

Nobel Prizes and the Enlightenment

The Significance of Nobel's Legacy

• The speaker expresses appreciation for Alfred Nobel's system of prizes, highlighting its role in celebrating various forms of intellectual inquiry.

• Emphasizes the importance of the Enlightenment period, suggesting that it laid the groundwork for modern intellectual pursuits.

• The phrase "let there be light" is invoked to symbolize enlightenment in daily life and within our spirits.

• Suggests a broader cultural and philosophical impact stemming from the values established during the Enlightenment era.

• Reinforces the idea that recognition through prizes fosters continued exploration and innovation in diverse fields.