Presentation Speech by Professor John Hassler, Member of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel, 10 december 2018.
Your Majesties, Your Royal Highnesses, Honored Laureates, Ladies and Gentlemen,
This year’s Prize in Economics is about long-run economic growth.
So? Is this exciting? Do a few per cent of growth here or there really matter? And anyway, in the long run we’re all dead.
Economic growth has been almost non-existent throughout most of human history – but, a couple of centuries ago, this began to change. My grandfather, Arne, was born in 1900 and saw the world around him change radically during the course of his long life. Over the decades and centuries, a few per cent of growth each year can revolutionise our standard of living.
But growth does not occur everywhere. It does not just arrive like manna from heaven, given equally to everyone on Earth. Sometimes it can even go backwards, so that living standards actually fall. Why is this? What drives growth? How long can it continue?
And can we deal with the increasingly obvious downsides of growth? Greenhouse gas emissions are changing – for the first time in our history – the climate of our entire world. Growth and new technology have given humankind the power to reshape our living conditions – and not just for us, but for all life on the planet. How should we use this power in a way that doesn’t risk the welfare of future generations?
These are thought-provoking questions – and the answers are absolutely vital! Once one starts to think about them, it’s hard to think about anything else!
This year’s Laureates, William Nordhaus and Paul Romer, have given us entirely new tools for investigating fundamental questions about the causes and consequences of growth.
Paul Romer laid the foundation of what we now call endogenous growth theory. This sees new ideas as motors for growth, but its focus is not on scientific progress like written language and mathematics, or revolutionary inventions like the compass and printing press. Of course, these ideas are amazingly important, but were not enough to start sustained growth. Instead, Romer’s theory focuses on how economic motivation drives a continual flow of new ideas that are created by entrepreneurs and businesses. But ideas are not like other goods: many people can use one and the same idea at the same time. Still, the problem is that if an idea is freely available to anyone, then you can’t earn money from it. Romer’s growth theory shows how intelligent market regulation – a patent system – creates the right conditions for sustained global growth.
William Nordhaus realised that a broad analysis of climate change – and what to do about it – requires us to bring together insights from physics, chemistry and economics. This was how he built the first integrated assessment model for global warming. It describes how economic activity causes greenhouse gas emissions, how these gases spread through the atmosphere, how this changes the climate, and – to close the circle – how the climate influences the economy and welfare, now and in the future.
Nordhaus’ model explains the best way for us to approach the climate problem, namely by putting a price on emissions, such as through a carbon tax. High enough emissions prices also steer technological development towards more sustainable power provision, linking together the contributions of Nordhaus with those of Romer.
It is probably in human nature to think about and plan for the future, even after our own lives have ended. This is a good thing, because if we do not think about our future we can not have one.
Dear Professor Nordhaus, Dear Professor Romer.
Your research has given us deep insights into the causes and consequences of climate change and technological innovation. The tools you have developed broaden the scope of economic analysis, allowing us to think about the future in new and better ways. It’s an honour and a privilege to convey to you, on behalf of the Royal Swedish Academy of Sciences, our warmest congratulations. I now ask you to receive your Prizes from his Majesty the King.
Their work and discoveries range from the formation of black holes and genetic scissors to efforts to combat hunger and develop new auction formats.
See them all presented here.