William D. Nordhaus of Yale University and Paul M. Romer of the Stern School of Business in New York were awarded the 2018 Nobel Prize in Economics. (Source: Nobel Prize official website)

Nobel Winner Vows ‘Zero Tolerance’ for Lazy, Untested Economics

(Bloomberg) -- Paul Romer, who shares this year’s Nobel Prize in economics, vows to keep calling out his colleagues for lazy thinking that lacks intellectual honesty.

“If I think it might be wrong, it is my job to say it is wrong,” the New York University professor told reporters Monday after learning he’d been honored by the Royal Swedish Academy of Sciences together with Yale’s William Nordhaus. “We have to preserve a culture where that’s OK.”

Nobel Winner Vows ‘Zero Tolerance’ for Lazy, Untested Economics

Romer blistered the economics profession in 2016 with his scathing critique “The Trouble with Macroeconomics,” arguing the field has gone backwards for years with economists focused on esoteric models that are “pseudoscience.”

Reflecting back, Romer said Monday he thought after publication the paper might have been “too harsh,” but his peers have done nothing to make him change his mind.

“What has surprised me is I haven’t gotten any critiques back that are responsive to the things I said,” Romer said, adding that he wasn’t backing down.

‘Lack of Vigor’

“We have to be very strict with ourselves and our colleagues and adopt a zero tolerance attitude for anything that even hints at a lack of intellectual integrity,” Romer said. “This is not like fraud like someone trying to fake the data, but it’s a lack of vigor in pushing to see is this really right.”

Nobel Winner Vows ‘Zero Tolerance’ for Lazy, Untested Economics

In Romer’s view, central banks and other policy makers rely on models that are flawed. The idea that consumers and businesses always make rational choices pervades mainstream economics. Romer argued in his 2016 paper that that’s not only wrong, it may lead to the misleading conclusion that government action can’t fix big problems.

Macro models in the 1970s were not working, and “the situation is now worse,” Romer wrote in 2016. “Macro models now use incredible identifying assumptions to reach bewildering conclusions.”

The critique was made in the wake of the 2007-2009 recession, the deepest U.S. downturn since the 1930s, which most economists failed to see coming with disastrous consequences for the country. It also appeared during a U.S. presidential campaign in which Republican candidate Donald Trump argued that the era of globalization and free trade wasn’t benefiting many Americans.

Romer told the reporters he had seen colleagues earlier in his career obsess over the possibility of winning the Nobel prize and promised himself not to fall into the same trap -- notwithstanding the irony of the New York University website in 2016 wrongly announcing he’d won it that year.

Nor did it prevent him from accepting the prize this time around, though he initially ignored two telephone calls early Monday morning because he thought they were spam. Asked how he would celebrate, Romer said “I promised my girlfriend we would go out to dinner.”

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