Economics

Mr. Romer’s Cow

Eric Falkenstein has written a couple of thoughtful posts about the new Kling and Schulz book From Poverty to Prosperity. In his latest, he pours some cold water on one of the thinkers whose work we discuss and whom we interview in the book, Paul Romer.

Then Romer seems really happy about noticing that productivity is not merely more stuff, but stuff differently arranged. He notes there’s a machine that using carbon, oxygen, hydrogen and a few other atoms that is smaller than a car, renews itself, fixes itself, and creates valuable output. What is it? A cow! See, all we have to do is arrange atoms into cow-like things, and the future of robot maids, jetpacks, and holodecks will finally arrive. I don’t see this kind of insight rising above the fantasies of your average comic book reader.

I see what Erik is saying, but I think he misses the point. Romer is trying to jar people’s imaginations to get them to think about rearrangement and recombination in the context of innovation and technical change over time. I happen to think it works. The cow analogy may not do much for Erik, but I suspect that’s because he’s one of few people who for much of his adult life has thought deeply about the economics of technical change.

Much of the recombination Romer talks about will always be hidden or invisible to people. And yet even though we don’t see it, it is profoundly important, it’s happening all the time and it’s happening more frequently in some places than others. These small, subtle but persistent tweaks to existing matter and arrangements add up a lot over time. And we should spend a lot more time thinking about the institutional mix that promotes this dynamic since it’s what drives new technology and resultant productivity growth. To that end Romer’s work is critical for understanding which countries are at the technological frontier and why.

Falkenstein says “Romer’s big idea seems best addressed by much less mathematical analysis; his model is sterile when applied to the real world.” I don’t think Romer would claim his model is the sum total of his thinking, and he’s spent a lot of time on less mathematical analysis of the same problems. But he is an economist and I think he’d say building the model helped refine his thinking about growth over time.

Either way, my sense is most people who come across Romer’s work don’t look at the world the same way afterwards (and don’t think of the history or future of technological change in the same way). That’s a huge achievement.

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