The latest on the Nobel prize in economics.
The basics: Who are they?
William Nordhaus of Yale University is a pioneer in the economics of climate change. He won for his work on integrating climate change into long-run macroeconomic models.
Does it make sense?
Individually, both Nordhaus and Romer are stalwarts in their fields. Whilst it is surprising to hear they won the prize together, there are commonalities in their contributions. They are both macro-economists looking at market failures; increased pollution levels and lack of innovation, and long-term sustainable economic solutions. Further, they both stress the importance of technological innovation for growth and averting climate change. It is nice to see economic fields not siloed but viewed more holistically. Yes, we cannot tackle climate change without re-thinking our growth strategy.
On Nordhaus: In the wake of the mounting toll of climate change and the UN’s 12-year ultimatum, Nordhaus’ award is a signal that all of us should take climate change seriously (finally!). That climate change isn’t an area limited to scientists but is of interest to economists, policymakers, central bankers, practitioners, and everyone alive.
On Romer: Given that the world is re-drawing trade barriers and agreements, and in the wake of automation and AI, Romer’s award is timely. We need to re-think our growth models and Romer’s suggestion that technology is at the heart of it is important. Previous macroeconomic research had emphasised technological innovation as the primary driver of economic growth, but had not modelled how economic decisions and market conditions determine the creation of new technologies.
I like that both Nordhaus and Romer are not traditionalists and are vocal about their discontentment with modern economics. Nordhaus is a critique of conventional income measures of welfare and growth. Romer has written about the trouble with macroeconomics, as well as stirred up a storm as Chief Economist at the World Bank.
On the flipside, both Romer and Nordhaus’ work is theoretical and methodological with no tangible solutions offered to tackle climate change crisis or the changing global economic framework. Also, I wish a female economist had won, it’s not that there is a dearth of worthy candidates.
Overall the economics community seems happy.