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)

Nordhaus, Romer Win Nobel for Thinking on Climate, Innovation

(Bloomberg) -- William D. Nordhaus of Yale University and Paul M. Romer of New York University’s Stern School of Business won the 2018 Nobel Prize in Economics for bringing long-term thinking on climate issues and technological innovation into the field of economics.

The two Americans “have designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth,” the Royal Swedish Academy said on Monday.

Nordhaus, Romer Win Nobel for Thinking on Climate, Innovation

Nordhaus, 77, began working on environmental issues in the early 1970s as part of an effort to put an economic costs on global warming. In the 1990s, he created the first model that calculates the interplay between the economy and the climate.

The focus of this year’s prize comes as the United Nations issued a dire warning on the urgent need to address climate change. Nordhaus has long cautioned that it’s “unlikely” that nations can achieve the targets set in the landmark Paris Agreement and that policy delays are raising the price of carbon needed to achieve the goals.

No Chance

Uncertainty is no excuse for inaction, he said. “When the major parametric uncertainties are included, there is virtually no chance that the rise in temperature will be less than the target 2°C without more stringent and comprehensive climate change policies.”

The 62-year-old Romer, who at the start of this year stepped down as chief economist at the World Bank after a rocky term, has argued that policy makers should stop trying to fine-tune the business cycle and instead harness technology to foster growth. His work published in 1990 has served as the foundation for what’s called “endogenous growth theory,” a rich area of research into the regulations and policies that encourage new ideas and long-term prosperity.

Romer said he started investigating why economic growth was speeding up and came to realize in part it was due to the fact that more people were connected by technology. “Globalization is just not about trading stuff,” he said at a press conference in New York. “It’s about sharing ideas.”

He also issued a warning on the current political debate. “Even though I remain optimistic about technological development, we’re starting to lose our commitment to the facts,” he said.

“Both their methods and the core questions they’re addressing in the research are of the utmost importance to human welfare,” said Jakob Svensson, professor of economics and director of the Institute for International Economic Studies at Stockholm University. “I would hope that policy makers and politicians would use their findings to think about long-run global issues."

Going Backwards

Romer has been a long-time presence on the Nobel short list, and was even mistakenly announced as a laureate by NYU in 2016. But attacks on economic models and his profession have in recent years irritated many of his colleagues.

In a paper based on a 2016 January lecture, he declared: “For more than three decades, macroeconomics has gone backwards” by abandoning a commitment to facts in favor of models, Romer wrote. The “dismissal of fact goes so far beyond post-modern irony that it deserves its own label. I suggest ‘post-real’,” he said.

The 2018 awards not only coincide with the UN’s warning on the growing threat of climate change, but they come a little over a year after U.S. President Donald Trump dragged the world’s biggest economy out of the Paris climate accord.

Answering Questions

The Swedish academy said that Nordhaus and Romer “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.”

Born in Albuquerque, New Mexico in 1941, Nordhaus was an undergraduate at Yale and earned a doctorate in economics from the Massachusetts Institute of Technology in 1967. He returned to Yale to teach that year and has been at the New Haven, Connecticut-based university since, except for a two-year stint as a member of President Jimmy Carter’s Council of Economic Advisers from 1977 to 1979.

He’s also the co-author of a popular economics textbook with the late Paul Samuelson, who won the Nobel Prize in economics in 1970.

The Point

Romer, a native of Denver, is the son of Roy Romer, a former governor of Colorado. He earned a bachelor’s degree in mathematics from the University of Chicago and later a doctorate from the same university in 1983.

He studied under 1995 Nobel Prize-winner Robert Lucas, who was influenced by the free-market theories of Milton Friedman. Even so, he dismissed the university’s long-held precept that markets always produce efficient results, arguing that competition isn’t perfect and sometimes needs help.

While heading research at the World Bank, Romer came into conflict with staff for demanding they cut down on the use of “and” in their writing. He also asked for shorter emails and insisted presentations get straight to the point.

Seeing the disappointment of older colleagues as a young scholar, Romer said he promised himself to never want or expect the Nobel Prize because “it can just tear you up.”

The important thing was to commit to “something larger than yourself” that will “last beyond a life time,” Romer said at the press briefing.

Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite, who died in 1896. The prize in economic sciences was added by Sweden’s central bank in 1968.

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