Monday’s 2018 Nobel economics prize can be looked at in two ways. On the bright side, it is an award for long-term thinking and common sense. Less charitably, Paul Romer and William Nordhaus were rewarded for pushing pointless economic modelling in new directions.
Romer, currently a professor at New York University, is a pioneer of so-called endogenous growth modelling. The question such models try to answer is simple and fundamental: what makes economies produce more and better goods and services? Several centuries of tremendous economic growth in some countries and much less growth in others provide a good amount of data to test any possible explanations.
The answer, it turns out, is complicated. Technology, science, education, market structures, political systems, regulatory arrangements, natural resources, spending patterns and cultural values all contribute. These diverse factors interact with each other and each can change over time. People and nations are both influenced by neighbours and constrained by traditions.
With so much going on, including many variables which cannot easily be compared to each other or quantified at all, entirely mathematical models are not an obvious place to look for insight. Romer, however, was trained to use the hammer of such multivariable models, so his theoretical work approaches the onomy as a field of nails.