This year’s winners of the Nobel Prize for Economics are William Nordhaus and Paul Romer, recognized for taking macroeconomics to a global scale to tackle some of the world’s biggest problems, the prize committee said.
“The contributions of Paul Romer and William Nordhaus are methodological, providing us with fundamental insights into the causes and consequences of technological innovation and climate change. This year’s Laureates do not deliver conclusive answers, but their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth,” the Nobel Prize committee said.
Yale economist William Nordhaus is being recognized “for integrating climate change into long-run macroeconomic analysis.” Nordhaus sees “energy-cost myopia” as a prime reason the government should regulate markets for appliances. In his book The Climate Casino, he compared regulations that require efficient products to those that require cars to include airbags.
The committee said: “Nordhaus’ findings deal with interactions between society and nature. Nordhaus decided to work on this topic in the 1970s, as scientists had become increasingly worried about the combustion of fossil fuel resulting in a warmer climate. In the mid-1990s, he became the first person to create an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. His model integrates theories and empirical results from physics, chemistry and economics. Nordhaus’ model is now widely spread and is used to simulate how the economy and the climate co-evolve. It is used to examine the consequences of climate policy interventions, for example carbon taxes.”
Paul Romer of the Stern School of Business at New York University is being recognized “for integrating technological innovations into long-run macroeconomic analysis.” His work is fundamental to endogenous growth theory, which holds that investments in human capital, innovation and knowledge are significant contributors to economic growth. He was chief economist at the World Bank from 2016 to 2018, and is credited with the quote “A crisis is a terrible thing to waste.”
The committee said: “Romer demonstrates how knowledge can function as a driver of long-term economic growth. When annual economic growth of a few percent accumulates over decades, it transforms people’s lives. Previous macroeconomic research had emphasized technological innovation as the primary driver of economic growth, but had not modeled how economic decisions and market conditions determine the creation of new technologies. Paul Romer solved this problem by demonstrating how economic forces govern the willingness of firms to produce new ideas and innovations.
“Romer’s solution, which was published in 1990, laid the foundation of what is now called endogenous growth theory. The theory is both conceptual and practical, as it explains how ideas are different to other goods and require specific conditions to thrive in a market. Romer’s theory has generated vast amounts of new research into the regulations and policies that encourage new ideas and long-term prosperity.”