Nobel Memorial Prize in Economic Sciences Awarded to William D. Nordhaus and Paul M. Romer
Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018 has been jointly won by two American economists: William D. Nordhaus, “for integrating climate change into long-run macroeconomic analysis” and Paul M. Romer, “for integrating technological innovations into long-run macroeconomic analysis”, as announced on October 8, 2018 by the Royal Swedish Academy of Sciences. Nordhaus and Romer have designed methods that address some of our time’s most fundamental and pressing issues: long-term sustainable growth in the global economy and the welfare of the world’s population.
Nobel Memorial Prize in Economic Sciences is the creation of the Swedish central bank, designed to bring some glamour and recognition to the oft-criticised sphere of economics. It is not one of the original awards endowed by Alfred Nobel. The money doesn’t come from the Nobel family profits from armaments trade. The prize has recognised some of the biggest names and brightest ideas, since Ragnar Frisch and Jan Tinbergen shared the first award in 1969.
Economics deals with the management of scarce resources. Nature dictates the main constraints on economic growth and our knowledge determines how well we deal with these constraints.
Nordhaus and Romer have significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge.
Technological change: Romer demonstrates how knowledge can function as a driver of long-term economic growth. When annual economic growth of a few per cent accumulates over decades, it transforms people’s lives. 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. Romer solved this problem by demonstrating how economic forces govern the willingness of firms to produce new ideas and innovations.
Endogenous Growth Theory: 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.
Climate change: 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.
The contributions of Romer and 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.
William Dawbney Nordhaus, 77, born Albuquereque, New Mexico, is an American economist and Sterling Professor of Economics at Yale University, New Haven, USA, best known for his work in economic modelling and climate change. Nordhaus is the author or editor of over 20 books. He is co-author of the most important economic textbook ever written: Samuelson’s “Economics”, currently in its 19th edition and has been translated into at least 17 other languages, the original editions of which were written by fellow Nobel Laureate Paul Samuelson.
William Nordhaus’s has been a pioneer on the vital issue of climate change – using models to show that policymakers are failing to measure the true impact of global warming. Nordhaus’s DICE computer model has made a huge difference. It: “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.
Paul Michael Romer, 62, born Denver, Colorado, is an American economist, NYU Stern School of Business, New York, USA, a pioneer of endogenous growth theory, who founded the modern innovation-driven approach to understanding economic growth. Has authored books: krugman Aplia Activation Car, MORE
Paul Romer said at the press conference announcing his Prize in Economic Sciences, “It is entirely possible for humans to produce less carbon… Once we start to try to reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated.” “The danger with very alarming forecasts is that it will make people feel apathetic and hopeless. It is ‘totally doable’, even now, to start bringing down carbon emissions…while also improving standards of living and sustaining growth. If we do the right thing, everything can keep going better. It is time to do the right thing.”