Economics Nobel: Paul Romer and William Nordhaus

by reestheskin on 10/10/2018

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Paul Romer and William Nordhaus, were awarded this year’s ‘Nobel’ for economics. I first came across Romer in the David Marsh book, Knowledge and the Wealth of Nations. Since then I have read quite a bit of Romer’s more public work. Nordhaus pens great articles for the New Your Review of Books, too.

The FT writes of Romer:

One of his first big contributions was to show that “ideas” were the missing ingredient of economic growth, contributing as much as the traditional inputs of labour, skills and physical capital — and that this could help explain the big variation in growth and living standards between otherwise similar countries.

He went on to show that rules, or policy interventions — around patent law, competition law or subsidies for research and development — are vital to encourage actors in a market economy to produce the ideas needed to drive long-run growth.

The second paragraph is something I failed to fully appreciate before middle age.

But Romer has also said some very sensible things in this context about higher education (as readers of my web pages will know).

“In the old model, a teacher had to be so engaging that he inspired students to put in the effort that is necessary for learning,” Romer explains. “The problem is that that is not a scalable model [emphasis mine]. There simply aren’t enough inspiring teachers and inspirable students.”

“What we have right now is a reputational model for universities rather than an outcome model,” Romer says. “The presidents at the elite institutions know that if the competition were to be based on some credible measure of output or value added, they would lose.”

For me the key issue here is ‘scalability’ (first para). I wrote at that time:”Romer’s solution, a company he founded called Aplia is, I think, the direction we should be going in.”

I think there is a lot more that needs to be said about this. We are living though a world of massive expansion in higher education, driven by institutions that have failed to get to grips with the fundamentals that underpin their own value proposition.