Post-Scarcity Prophet: Economist Paul Romer on Growth, Technological Change, and an Unlimited Human Future
Bailey, Ronald, Reason
"One of the 25 most influential Americans," pronounced Time. "His ideas may just revolutionize the study of economics." Newsweek included him in its roster of "The Century Club," a "list of 100 people for the New Century." He is a perennial short-lister for the Nobel Memorial Prize in Economics. His work has been lauded by business guru Peter Drucker and Nobel-winning economist Robert Solow. He is the STANCO 25 Professor of Economics at Stanford University's Graduate School of Business and a senior fellow of the Hoover Institution. He was recently elected a fellow of the American Academy of Arts and Sciences.
As one of the chief architects of "New Growth Theory," Paul Romer has had a massive and profound impact on modern economic thinking and policymaking. New Growth Theory shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress. Along the way, it transforms economics from a "dismal science" that describes a world of scarcity and diminishing returns into a discipline that reveals a path toward constant improvement and unlimited potential. Ideas, in Romer's formulation, really do have consequences. Big ones.
Before New Growth Theory, economists recognized that technology contributed substantially to growth, but they couldn't figure out how to incorporate that insight into economic theory. Romer's innovation, expressed in technical articles with titles such as "Increasing Returns and Long-Run Growth" and "Endogenous Technological Change," has been to find ways to describe rigorously and exactly how technological progress brings about economic growth. As Robert Solow told Wired in 1996, "Paul single-handedly turned lithe study of economic growth] into a hot subject."
The 46-year-old Romer, son of former Colorado Gov. Roy Romer, received his Ph.D. in economics from the University of Chicago in 1983, six years after earning a B.S. in physics at the same school. Before joining Stanford's faculty in 1996, he taught at a number of schools, including the University of Chicago, the University of Rochester, and the University of California at Berkeley. He and his wife, Virginia Langmuir, a medical doctor, live in Portola Valley, California, and have two children.
In June, reason Science Correspondent Ronald Bailey interviewed Romer poolside at his house, which overlooks a huge expanse of rolling ranchland owned by Stanford University. For more information on Romer's theories, turn to his Web site, www.stanford.edu/~promer.
reason: In terms of real per capita income, Americans today are seven times richer than they were in 1900. How did that happen?
Paul Romer: Many things contributed, but the essential one is technological change. What I mean by that is the discovery of better ways to do things. Inmost coffee shops these days, you'll find that the small, medium, and large coffee cups all use the same size lid now, whereas even five years ago they used to have different size lids for the different cups. That small change in the geometry of the cups means that somebody can save a little time in setting up the coffee shop, preparing the cups, getting your coffee, and getting out. Millions of little discoveries like that, combined with some very big discoveries, like the electric motor and antibiotics, have made the quality of life for people today dramatically higher than it was 100 years ago.
The estimate you cite of a seven-fold increase in income--that's the kind of number you get from the official statistics, but the truth is that if you look at the actual change in the quality of life, it's larger than the number suggests. People who had today's average income in 1900 were not as well off as the average person today, because they didn't have access to cheap lattes or antibiotics or penicillin.
reason: New Growth Theory divides the world into "ideas" and "things. …