Nobel Noise

For more that 20 years, October has been the time when the eager beavers in the university PR department get a little too excited as they drill in preparation for the possibility that I might receive a Nobel prize.

I used to try to explain how low the odds are, but found that this was like talking to someone who has just been given a ticket for the upcoming $100 million lottery. All they can think about is how they’ll spend the money. Then I tried telling them that I’ve been through this many times and nothing happens. This does not work either. Somehow, they convince themselves that “this time is different.” Now I just try to be a good sport and let them have their fun.

Apparently someone at NYU prepared a new webpage for me that they could use on Monday. Then someone else made a mistake and released it to the production website, where it remained at least for a while. If you are curious, there is apparently an archived version somewhere that should not be hard to find.

Of course, there is zero information in this. It is the type of mistake that could have been made in any of the last twenty years. In fact, I have been through this before. At Stanford, someone working on a draft press release sent it to the wrong email address list. (Note: Autocomplete is not your friend.) I think it went to a bunch of donors. I recall getting congratulatory emails back from some of them. I replied that it was a mistake. Maybe they think I really got it and am just maintaining an appearance of false modesty. Maybe Stanford got some extra donations too.

Meanwhile, I’m having my fun in conversations at the World Bank:

Letter from an Aspiring Macroeconomist (with response)

Dear Professor Romer,

I am writing you about your recent working paper The Trouble with Macroeconomics that generated lots of reactions.

I have simple question. I am a graduate student in economics. I am going to begin a PhD program in economics next year. I always loved macro, and I will probably specialize myself in this field. My question is:
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Why It Makes Sense for an M.D. to Lead the World Bank

I lived with a surgeon for 25 years. From the decisions Ginny made, I learned that doctors are better than economists at balancing the costs and benefits of delay.

Economists teach that time is money, but we never specify the exchange rate. If delay costs $x per day per person, the total cost scales with the number of people. In my lifetime, the most important lesson economists have learned is that in countries of all sizes–small ones like Singapore, medium-sized ones like South Korea, large ones like China and India–better policy can lift people out of poverty more quickly than we dared hope. Because a billion people still live in extreme poverty, each day of delay in taking full advantage of this lesson imposes a cost that is staggering.

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Everybody wants progress; nobody wants change

Alain Bertaud once told me, ruefully, that he was part of a failed effort at the World Bank to end the implicit subsidy for car trips created by the Bank’s offer of free employee parking. This proposal generated complaints, but that does not mean that it was a bad idea. If Steve Jobs had followed a strategy of avoiding all complaints, my MacBook Pro would still have an optical disk drive. Examples like these suggest a general lesson about cooperation in large groups:

Everyone wants progress.
Nobody wants change.

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Abstraction vs. Radical Specificity

Someone asked “What if Germany ran Detroit?” This kind of what-if-pigs-could-fly question mixes abstraction and specificity in a way that I do not find helpful. What works for me is iterating back and forth between two extremes — abstraction and radical specificity — and avoiding the middle.

At one extreme, I ask abstract questions such as “Could there be gains from trade in government services like the gains from trade in private services?” Then I consider specific questions such as “Could the new authority that was formed to fix the street lights in Detroit sell its services to other cities?”

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Professionalism and the Academic Division of Labor

In my work, I have tried to avoid revealing anything about my personal political beliefs and even worked to obfuscate as necessary. When my father was visible in national politics as a Democrat, it was helpful to have a letterhead appointment at the Hoover Institution.

Although I stay away from the battles of national politics, in my role as an advocate for science as the greatest human institution, I am now drawn into the battles of academic politics. I seem to be the designated nag when Nobel Prize winners disappoint.

Ed Prescott has a new NBER paper (with a co-author I do not know) on monetary policy with negative nominal interest rates. Other economists have written on this topic. None of the work I know in this area is mentioned in Ed’s paper.

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Conditional Optimism about Progress and Climate

Last Friday at the NBER Summer Institute, Martin Stuermer presented a thought provoking paper (written jointly with Gregor Schwerhoff.) It takes an important and puzzling fact seriously, then uses some credible theory to work out the implications of the fact. In the discussion afterwards, a challenge to the paper’s apparent optimism yielded an insight that might have practical implications for ongoing policy debates. It was a wonderful illustration of how science works.

The practical insight is that there are two very different types of optimism. Complacent optimism is the feeling of a child waiting for presents. Conditional optimism is the feeling of a child who is thinking about building a treehouse. “If I get some wood and nails and persuade some other kids to help do the work, we can end up with something really cool.”

What the theory of endogenous technological progress supports is conditional optimism, not complacent optimism. Instead of suggesting that we can relax because policy choices don’t matter, it suggests to the contrary that policy choices are even more important than traditional theory suggests.

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