The Nobel Committee Honors the Economics of Market Failure

John Cassidy:

At first glance, the research of the two scholars who won this year’s Nobel Prize in Economics has little in common. Bill Nordhaus, a longtime professor at Yale, was honored for creating, in the early nineteen-nineties, a mathematical model of how climate change affects the economy. Since Nordhaus developed his model, ones like it have been adopted by many interested parties, including the United Nations Intergovernmental Panel on Climate Change, which has just published a report warning of dire consequences if current trends are allowed to continue. Paul Romer, formerly of Stanford and now at New York University, is a specialist in the forces driving long-term economic growth. The papers that earned him the award, which were published in 1986 and 1990, stressed the importance of knowledge and knowledge generation.

As far as I know, Nordhaus and Romer have never collaborated with each other, and neither of them is associated with any particular school beyond the broad category of neoclassical, mathematically intensive economics. Like most Ivy League economists, they are generally supportive of free-market capitalism. Indeed, they have both written about how the ongoing process of competitive innovation that is intrinsic to modern capitalism generates enormous material benefits, some of which aren’t captured fully in statistics like the gross domestic product.