Economics Nobel prize 2018 : neoliberalism with a human face

I would like to share this reddit thread about the nobel awards which shares many different resources about the topic :

The 2018 Nobel prize awarded to Paul Romer and William Nordhaus.

Paul Romer: the endogenous growth theory

A brief comment: the choice of the two laureates is not surprising. The endogenous growth theory of Paul Romer is a pillar of growth theory today. It was a major contribution to economics by showing how R&D increases the global productivity of the factors. A major consequence is the gap between developed and emerging countries could never tighten. Richer countries can invest more in R&D and thus get more productivity gains.

Paul Romer has been chief economist of the World Bank. He left because he disagreed with the macroeconomic models used by the institution. He denounced several times the mathiness of economics (Romer is a Math major who made highly mathematical models) which is bad maths to show absurd things. Romer is also quite controversial for the concept of “charter cities”. As sum up by Wikipedia : “In his model, a host country would turn responsibility for a charter city over to a more developed trustee nation, which would allow for new rules of governance to emerge. People could “vote with their feet” for or against these rules.” The idea has been criticized by detractors who say it would be neocolonialism.

William Nordhaus : integrating (slightly) climate change in economic analysis

The contribution of Nordhaus is crucial too. He integrated environment in macroeconomic models. He highlighted the importance of the issue of the discount rate.

The discount rate measures the preference for the present. Higher is the discount rate, lower will be the weights of the cashflows in the future.

Therefore lower is the the discount rate, higher will be the weights of global warming in future in your final computation of global welfare.

The Stern review used a very low discount rate based on ethical considerations. At the opposite, Nordhaus preferred to chose a higher discount rate more compatible with market interest rates (the cost of capital financing). Thus, the optimal path of Nordhaus is less environment-friendly because future outcomes of global warming are less weighted.

According to Nordhaus, fighting climate change is good but not too much, it would harm markets.

Hits: 439

Add Comment

Required fields are marked *. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.