Paul Romer on the Unrivaled Joy of Scholarship

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. And for more conversations, including videos, transcripts, and upcoming dates, visit conversationswithtyler.com. And today I am here with Paul Romer, who just won a Nobel Prize in Economics. Hello, Paul.

It's great to be here, Tyler.

Let's start in on the topic of economic growth. Sure. Shouldn't the internet have boosted economic growth more?

Well, you would have expected it to. Maybe it did relative to what growth would have been in the absence of the internet. It's also possible that it will have an effect on output that we won't see for 10, 20 years. This is the kind of story that Paul David tells about electricity. So, and it also may be that it's giving us benefits that we're not measuring very well. But of course, other technologies in the past could have given us benefits that we're not measuring very well.

Like penicillin, right?

Yeah, yeah. So, you know, I think it's a bit of a puzzle right now that people feel both that, boy, we have too much technological change to manage, but yet we're not getting enough growth.

If we look at, say, 5-year moving averages, at least measured growth seems to be slowing down. Do you have a theory as to why that's the case?

I don't think 5 years is enough to really pull out the low-frequency or growth component. Things vary so much. Even when I was looking at the history in the United States, even decade by decade, there was a fair bit of fluctuation that I think fundamentally driven by the macroeconomic stimulus versus recession position.

So like male wage growth since 1970, doesn't that refute all theories of economic growth that it's been so flat?

Well, but then you gotta look at some of these questions about what's happened to the distribution of income.

Sure, but even say for whites, within a group it seems wage growth for men is pretty slow.

But what if you're using the average or the median?

If you pull out the top whatever percent, it again seems less than either Milton Friedman or Paul Samuelson would have predicted in the 1970s.

But then I think we're really starting to confront this question about what's going on to the distribution of income, what's happening to labor share versus profits. Those are topics that traditional growth models just haven't addressed, but they're obviously very important concerns right now.

Michael Webb at Stanford with some co-authors, he has a paper arguing that the returns to scientific effort are diminishing substantially. Substantially, and that you have to throw a lot more scientists at an idea to make progress. What do you think of that literature?

Well, if you go back to the really long-run questions that interested me, the big question was why over the centuries, the millennia, has growth been speeding up? I had one model that I eventually concluded wasn't exactly right, then my second 1990 model, which I think in terms of the foundations was strong, but it had this feature that— as the number of, say, researchers or people grew, it predicted much too fast an acceleration in the rate of growth. So Chad Jones has really been leading the push saying that to understand the broad sweep of history, you've got to have something which is offsetting the substantial increase in the number of people who are going into the R&D type business or the discovery business, and that could take the form either of a short-run kind of adjustment cost effect so that it's hard to increase the rate of growth of ideas, or it could be the more things you've discovered, the harder it is to find other ones, a kind of fishing-out effect. To fit the long-run growth and the big increase in people engaged in science and in research and development, I think Chad is right that you have to have some kind of a diminishing returns or some kind of a constraint in that rate process. You know, there's a variety of recent papers that have tried to look at that. If your question is, can we sustain a particular growth rate X or can we keep increasing growth rates at higher and higher rates, that may give you a less optimistic answer than say the initial take I had, but it may still be the case that we can have growth, that we can sustain it partly by having more and more people go into something like research because there's 10 or 11 billion people we'll end up with and we can increase the fraction of people who go into that. So we can offset some of these fishing out problems just by having more people working on it. And it also doesn't mean that we're already at the efficient or optimal level of R&D. So I think the general message is about, you know, bigger global integrated economy is going to lead to faster growth, that policy could improve efficiency by getting more research going. I think those messages will still carry through even with a kind of a slightly less optimistic perspective on how fast we could really grow.

Do you think the distinction between economic growth at the frontier and catch-up growth is always so well defined? So if you think of China, they seem to have innovations, how quickly they can build things, that they have an autocratic government, but they've managed to keep a reasonable amount of stability and keep the public on board. Isn't that a kind of innovation like a technological innovation? And their growth in a way is at some other frontier rather than just being catch-up?

Well, I think going back to the work I was part of in the '90s where we were looking at the cross-country growth regressions. I think we weren't careful enough to distinguish some kind of extremes of, say, growth at the frontier and growth catching up. I think in the case of China, it would make sense to recognize that China is in some sense different economies. Like the economy of Shanghai is very different than the economy of rural China. There may also be, in addition to this catch-up versus the leading edge distinction, which is based on essentially the level of technology in a country, there may also be a separate dimension which is something like the institutional evolution of the economy. So you could have a very institutionally well-developed economy that's still very low in terms of its technological success. That would be unexpected. You could also have— some significant technological success but still very, very weak institutions. So we'll need more than one dimension to really characterize different economies. But all of that said, I found at least when I started to think about problems, which is really the best test of a theory, that I needed a different theoretical apparatus to think about, say, the challenge in Tanzania than the challenge in— Germany.

If you're called into a White House and asked to give advice, how could the United States promote innovation? What might you say? I know it's a big long list, but where would you start?

The way I constrain people with that question is, okay, what's your first priority? Or if you go into the office on Monday, what are you gonna work on on Monday? I think I'm really opposed to these long list kind of policy exercises because it tends to become this political thing. It's like, oh yeah, this is why, The World Bank used "and" so much. It's like, "Well, we're in favor of technological change. Oh, but and we're in favor of this and this." And every interest group gets on the list.

We can search this transcript for how many times we each used the word "and." Oh, that'll be embarrassing, yeah.

But my number one recommendation is to invest in people. Humans that are well trained are the inputs into this discovery process. There's big opportunities still, I think, to do a better job of investing in people. The policy I actually worked on— we got to the point where we had a bill that was ready to be introduced in Congress on this— was one that was designed to make it much more attractive to go into graduate school and to give students who go into, say, STEM careers in graduate school, to give them much more freedom and control over what they study and where they work, basically moving the money that now goes through of professors as the principal investigators who hire research assistants, move that to money that goes directly to promising students who could go into graduate school.

Do you think the bottleneck is on the student side or that there are a lot of STEM graduates who don't get great jobs and there are paths to STEM without going to graduate school such as through computer science?

Yeah.

Where's the actual bottleneck in that process?

Part of it is that, first, we should always remember that the —education business is one of the ones that has the biggest problems with asymmetric information. So people who— like a young person who pays somebody to educate them is very dependent on the decisions that the educator makes about study this, go in this direction. So we always have to be careful not to treat this as like a perfect information competitive market. I think that The problem in higher ed is that the institutional incentives don't provide the kind of training that would maximize the opportunities for the students or for that matter maximize outcomes for the nation. I think there's, for example, much too much persistence in kind of disciplinary lines and modes of inquiry. If you go back to the first half of the 20th century in the United States, universities invented whole new schools and training programs like chemical engineering, electrical engineering. The universities have not been as innovative or responsive, I think, in the last— the post-World War II period. The only big change has been computer science, and that was really driven by the Defense Department and the U.S. government rather than kind of the universities responding to demand. So I think it'd be very helpful if there were a lot more students looking at the far future saying, "Where are the big opportunities? What do I really want to learn about to have an exciting career?" Those students controlled tuition resources that universities were competing for. I think the universities would be more responsive to the changing landscape. So it's lengthening the time horizons of potential graduate students. Well, it's really putting them in the driver's seat. We subsidize graduate education through money that goes to professors, but we let the professors make the decision about the problems they work on and then therefore the things the students are trained in. And I'd rather let the students be the ones who decide, "Yeah, I don't really want to work in high-energy physics. It's kind of dead end. I think there's something much more exciting in condensed matter physics." So it's— I mean, if you really want to push the analogy, it's kind of like vouchers for graduate school. But I think it would have the same benefits that people anticipate when they talk about it in other contexts, which is it would force more competition between the different educational institutions.

Do you believe in the notion of general-purpose technologies?

I do, but actually, let me come back on one other thing on growth. So my number 2 on human capital would be to think about skills throughout the whole kind of skill and income distribution. Especially if we're worried about inequality, as we are, there's lots we could be doing to take students when they enter school who have a certain amount of inequality in their preparation and their makeup, take that inequality and make sure our school systems damp that inequality instead of doing what they currently do, which is to substantially amplify that inequality. I think an example of this would be to pay a lot more attention to students who have trouble learning to read. There's a kind of— —set of conditions seem to be—have some genetic component that we call dyslexia. Too many of those students don't become effective readers and then miss the whole kind of feedback loop of learning to read, learning to master concepts, learning to enjoy learning. And so a little more attention to the kind of instruction that would make sure that they get caught up with their peers who find it easier to start to read, that could substantially reduce the inequality in educational outcomes., and then eventually reduce inequality in the labor force.

Now you've stated you're a dyslexic yourself. Yeah. Do you ever think that for you in some ways it's been an advantage? Maybe not for everyone, but for some people?

I don't see an obvious advantage with dyslexia, but—

You learn how to delegate better? You learn what you're really good at? You focus more?

Eh, to be honest, I don't see it. There's—

You have won a Nobel Prize, right?

Well, yeah, you can overcome these things, but But what's interesting is that essentially everybody learns to speak. And when you make this transition to learning to read, there's this small kind of variation where there's some people who have more trouble with it. And it's, you know, the science that's emerged on this is I think very interesting about what does it take to get the brain to break a sound into letters or kind of subcomponents. But that kind of deficit I don't see a big advantage in. They're different styles. I've always been a little bit more inclined to take risks or maybe to sample a lot more ideas. I sometimes make fun of myself by saying I'm just a random idea generator and then, you know, what's needed is others who can filter out the bad ones. Then on average I could be helpful. I don't know if— you know, having a little trouble with spelling, which is the way it shows up for me, I don't know if that makes me a little bit more willing to be sample widely on ideas. In any case, even if it is true, if we put a little bit more effort into teaching kids who really struggle with reading, and by the way, the phonics-like instruction is clearly the thing that works for those kids, not whole word or these other kind of broken approaches. A little bit more instruction there could really change their educational outcomes, and there are There are school systems that focus on this as well. In Singapore, they're very careful to make sure that everybody in the class keeps up, up through about 4th or 5th grade. They test you frequently in math and reading, and if you're falling behind, you get the best teachers. You get more classroom instruction. They really invest extensively in the ones who might otherwise fall behind and then can achieve much more equality in their educational outcomes, and there's no reason we couldn't do that in our school systems if we made it a priority.

And you also think we should simplify the English language, right?

Well, there's two parts to that. One is I think in writing and communication, there should be a very high priority on clarity. And it's hard to know what's the mechanism that enforces that. There are sort of variants on English, like the English used to write the manuals people use to service airplanes, where there's a very restricted vocabulary and it's— the words are chosen so that you can't have any ambiguity because you don't want somebody servicing a plane to get confused. So there are some things you could do on writing, word choice, vocabulary, exposition. There's a separate issue which is that amongst the modern languages, English has the worst orthography, the worst mapping between spelling and sounds of any of the existing languages, and it's a tragedy because English is becoming the universal second language. The incidence of people who don't learn to read is substantially higher in English than in other languages. People have known for a long time it takes longer to learn to read in English because of the bad orthography, but what I think hasn't gotten enough attention is that there's an effect on the variants as well. There are more people who never get over this hurdle to actually learning to read. So if there were a way to do in English what they've done in other languages, which is to clean up the orthography, that could make a huge difference in this sort of variation associated with whether or not people can learn to read English.

Should China and Japan move to Romanized script? Well— Because it's very hard to learn how to read Japanese, especially a newspaper. You may not be able to do so until you're 10 years old. Japan has good schools.

I basically don't know the answer to that question, but I'll use that as a way to talk about something else, which is that the proposals for reforming spelling in, say, the US, England, and anywhere in the anglosphere have never succeeded, and there's— it's very hard to imagine a direct way to change something like spelling. But most of the people who are going to be learning English these days, I mean, the country that has the most is China. So if somebody had a big incentive to actually create a rationalized spelling, that could operate in parallel with the traditional one, it would be something like China. So they could easily introduce— just as they have the kind of Latin letter kind of equivalence for some of the Chinese words, they could introduce rationalized spelling and then use that for everybody who wants to learn English as a second language. And it would be a trivial translation problem to let some people write in one spelling form, others in the other, because it would be word-for-word translation. So I could write you an email and rationalized spelling and I could put it through the plug-in so you get it in traditional spelling. So I don't think it's— this idea that it's impossible to change spelling I think is wrong. It's just it's hard and it should, you know, we should, if we want to consider this, we should think carefully about the mechanisms.

If we pigeonize English though, does that lead to a multiplicity of Englishes and it creates a new class inequality? You see this in India. Where many people will speak a high BBC kind of English, and then there are mixes of English and Hindi, or in Singapore you have Singlish, which is highly efficient, but it's not something you're supposed to speak in a lot of workplaces. Is that the future of our language?

Well, I think this is the kind of issue you have to worry about, and it's why it's so hard to do spelling reform, because there are things like class that are signaled through either the pronunciation or spelling, and also then you could get difficulties in communication if there's dialects that differ substantially. But in this case, changing— having two different orthographies has no necessary connection with different pronunciations. So in principle, you could have a shared dialect and pronunciation even though the parties had different spelling systems. And I think there is some value in facilitating easy face-to-face communication through spoken spoken language. There's also a dialect that some people refer to as Globish. So it's the global version of English which is like slightly simplified, has slightly different uses of the definite articles and indefinite articles. There might emerge a kind of default dialect for spoken English that dominates amongst the people who learn it as a second language. They understand each other much better than when they talk to somebody like you or me because we have all these distractions in how we speak.

So general purpose technologies, do you believe in them?

Well, this raises sort of a deep philosophical concept, like do I believe in abstractions of any form? I think the general purpose technology has been a useful way to distinguish a type of innovation that you could think of as being aligned along a continuum. There are some that are have long paths of exploration that induce a lot of complementary innovation. At the other end of the spectrum, you can think of things that might just be pure one-offs, like you invent the paperclip, okay, we're done with that. And so the abstraction takes a continuum or very high-dimensional set of possible innovations and then defines a category as a discrete entity and says, These have a particular character. They're worth studying. I think this has been a helpful abstraction for thinking about things like electrification. And so I imagine that it will be helpful as we contemplate things going forward. Although the question there is, if it is a general-purpose technology, will we know it as it's unfolding or will we only see that when we look back?

Why do you think economic growth is so hard to forecast? So if you go back to development economics, say in the 1960s, a lot of people thought, well, the Philippines, Ceylon, now Sri Lanka, they'll be the big winners. They have some English language. They have nice ties with the Western world. It didn't work out that way. What is it that makes growth so hard to forecast? Oh, it involves people.

And people are just— But people are jagged, right? People are hard to predict.

Errors cancel out. There's the law of large numbers. Cultures don't change that quickly.

But there's nothing that comes off with people at odds better than, I don't know, 3 out of 5, even in big groups, which actually is interesting because there's a social interaction dimension to people that means that instead of just aggregating independent entities, you're getting correlations. So I think it's actually a pretty general phenomenon that social outcomes are hard to predict. And I think if you then drill down into the specifics, I think economists, maybe all social scientists, don't have a very rich or accurate picture yet of what really drives people, what really motivates us. Our notion in economics, well, just more is better, more stuff. That gets you some distance, but there are these subtle forces that we just put labels on, like norms about right and wrong, identity, shame, anger, guilt. I mean, there are these very powerful emotions that don't just average out necessarily when people interact and that are, I think, are important for understanding group outcomes. Let me give you one that I like. There's a book called Freedom and Fairness. I don't remember the author's name, but he's a well-known historian. What he traces is that difference in the political language in New Zealand versus the United States. He traces that back to founding populations that left England at different times. In the United States, it was at a time when people were very concerned about religious freedom. When they went to New Zealand, it was later and economic inequality and economic opportunity was the dominant force. And what's interesting is that persistence of those founding effects. You start with people who are particularly concerned and talk about an issue, and then even as, you know, huge numbers of migrants move into those places, often the same sources generate migrants who go to both places. The migrants get then socialized into the kind of the norms, the beliefs about right and wrong in these two places, and then you end up with persistent differences in the politics, not just the language, even the political decisions in these two countries. So I think that there is a— actually, I think a growing number of economists who are thinking about culture as the label for describing some of these more subtle effects that operate in our beliefs and our preferences, our norms about right and wrong, and how those interact when we work together in groups. I think these are the things that we didn't understand when we were kind of naive about predicting growth in the developing world and that we still don't understand very well.

Can a charter city work if we import good laws from the outside world but not the appropriate matching culture?

Well, you've really— you've zeroed right in on the connection that the real motivation that I had for charter cities was exactly this one that, you know, that you can see in the US versus New Zealand. So rather than thinking of the charter— and you can think of a charter city exercise This is actually the story of Maryland. We're going to create laws and we're going to guarantee freedom of religion in Maryland and it's in the laws, it's in the institutions somehow. That didn't turn out very well. Maryland had a Catholic elite but then large numbers of Protestant kind of indentured servants or workers and this kind of commitment to freedom of religion was not stable in Maryland at all. The case that's worth trying to copy is Pennsylvania where William Penn recruited large numbers of people who actually believed in freedom of religion. So the charter— the name charter, the word charter comes from the charter that Penn wrote for Pennsylvania. But it wasn't the document that mattered. What mattered was that there were a bunch of people in the founding population who were committed to this idea of a separation of church and state and religious freedom. And that's what made it durable in Pennsylvania in a way it wasn't in Maryland.

So— If culture is what really matters and the quality or the beliefs of the people you have, that seems like a lot of hard work. Your theory of growth, there's something non-rival that in principle can be spread rather readily. Does this run counter to your theory of growth that it's all hard work actually?

Well, you know, the way I think about it is, as economists, You could kind of divide the world into inside the head and outside the head. Outside, there's things like the transistor and penicillin and all these things to discover and formulas and so forth. Inside the head, we have these very complicated motivations. The usual economic model of inside the head is complex conscious reasoning but very simple kind of preferences or emotions or motivations. I think in fact the motivations are at least as complex as our ability to reason in a conscious sense. So my, I actually at one point I wrote a paper called Thinking and Feeling that was really my first venture into trying to say, okay, well, we have some sense of why growth is possible and what could determine the long sweep of history. Let's now look more carefully inside of the head at what motivates people, these feelings, because it's there that I think a lot of the action is. So to answer your question, I think to have a rich enough theory of development to explain the variety of outcomes we see in different countries and to offer useful advice in different contexts, we need to understand a lot more about culture. And as you were saying, culture doesn't spread as quickly. It doesn't change as quickly. That can be a plus and a minus. If you think about cultures that support institutions, you might want your institutions to be relatively durable. And not just collapse and change as they did in Maryland when there was trouble in England. So persistent norms are not necessarily a bad thing, but you do need to think about what if you get stuck in a situation where the norms in a population are inefficient, they're really holding you back. And then you have to ask what are the mechanisms where a group can change its norms. And this idea of letting a non-representative subgroup go off and be the founding population in a new place, then as people are kind of go in at a moderate rate from the old population to the new one, they can get socialized into the predominant culture in the new place. With that mechanism, you can actually change the whole distribution of norms in a population. In a way that might be more feasible than if you're trying to change those norms in place in the population. And I think these are the questions we should be asking about how to resolve some of the deepest challenges we face in development.

Under what conditions would you get involved again in another charter city project?

Well, just to drive this point home, let me just kind of give you an illustration of what's at stake. Imagine you wanted to try and get New Yorkers to have the same norms about pedestrian behavior that people in Zurich have. Or California.

Yeah, well, sure. Stay within the same country, yes.

Yeah, I was afraid most people didn't realize the norms are different in California. Did you get that from me or you've observed this independently?

It always stuns me in California. I walk out jaywalking and people half a mile away stop for me. I think this is a Kosean transaction, like I'm willing to just let you go, you just let me go, keep on driving.

Yeah, I actually think the norms are very different in California, but I've never read evidence to confirm that. But so, as they say, great minds think alike. But if you take the Zurich, which is a little more familiar example, where the proverbial old lady will scold you when there's no cars in sight and you cross against the sign. If you passed a law or took the existing laws and tried to have police enforce them in New York, you'd get a backlash. I mean, you could never— I don't think anybody thinks you could change this in New York. But yet, if you do move a few people to Zurich, they'll start behaving like people in Zurich, and then over time, you could move everybody from New York to a place like Zurich. The pedestrian norm— norms is, I think, a useful one because it isn't too— charged politically or emotionally, but this is the process that's in play. My— now to go back to charter cities, which I thought of as a mechanism for addressing some of these issues, I think the response when I proposed this about 10 years ago was that this was the worst idea that anybody had heard. Now if you go fast forward about 10 years, I think the response now is, "Well, that's the worst idea for dealing with migration." Except for all the others. And so that there's now some real interest from governments and a variety of actors in this space who'd like to explore something different because nobody's got a good answer to the question, what would we do if 20 million people needed to leave a country in a hurry because of something like a descent into civil war? 10 million, 10, 20. I think nobody has any delusion anymore that an outside force can invade a country like that and quickly resolve a problem like that. So I think there'll be great hesitancy to do that. This idea that we're gonna deal with migration by just not letting it happen in this case would mean, well, we're just gonna build the wall or hold them in and if they're killing each other, that's their problem.— as a humanitarian crisis, I don't think it'll be acceptable to just do nothing. But yet, there are no existing political systems that could absorb 20 million new arrivals without, I think, real risk to whatever their current political equilibrium is. And then you could scale this up, and there's hundreds of millions of people who say they want to leave, not because of immediate crisis, but just because of the lack of opportunity and the high levels of violence in many parts of the world.

Say Syrian refugee cities, aren't they a kind of charter city? But they don't have credibility, so they don't attract foreign investment, wages are very low, people are stuck there, they don't build futures. So if 10 million people need to leave, say Bangladesh, wherever, how do we set up a well-functioning credible charter city with the right commercial and legal culture?

I'm gonna do something which is probably bad form, which is like talk about an idea before I've even written it down, but so be it. I find it's a way to refine ideas. I think we should talk about a trilemma for migration, which is 3 things and we can only have 2 out of the 3. I think the 3 we'd like to— you think of the kind of the liberal democracies. What would we like as a response for say large numbers of people need to go someplace. If it was a— you know, there's some political jurisdictions. One of the things we want is local democratic accountability for the officials in the government. The second would be equal treatment under the law. And the third is, in this jurisdiction, the ability to absorb large numbers of migrants. You know, potentially numbers that are bigger than the existing population. So picture one of these places when there's a million people there. But you'd like it to be able to accept another 9 million. All 3 of those things are things that most people would support and you just can't have all 3. So the 2 we pick in most existing jurisdictions, we just don't allow large-scale migration. And there's— you can see some logic to that. If you're one of a million people and you kind of like the equilibrium and you're contemplating bringing in another 9 million and you're committed to equal treatment under the law, The system's gonna basically be the one that all the new arrivals are gonna vote for, not the ones that you like. And the new arrivals might be coming for the thing that you like, but still collectively they might vote for or put in place something that isn't the one they're seeking out. So there's a reason why democratic systems can't absorb huge numbers of migrants. You could violate equal treatment and say, okay, well we're gonna let large numbers of people come in, but they're not gonna become citizens. Have a different legal status and that I think because of these, the norms that evolve in these conditions of inequality, I think that is just gonna prove to be a very damaging approach in both the migrants who arrive and the people in the existing society. So I don't think equal treatment's a very useful option. And the Hong Kong-like solution I think we should consider is to say we're committed to large-scale migration for a period of time. We're gonna treat everybody, gonna give everybody equal treatment under the law, but we'll make the transition to local democratic accountability when we've basically reached our maximum population and the migration process is over. And this is, I think, the way to describe Hong Kong under the British. The governor there was still accountable to a democracy. It wasn't like an autocrat. They changed periodically. Some were better than others. But it was an offshore democracy in England. And people in Hong Kong were really quite happy with that system under British rule. The pressure for democracy only came when it became apparent that the British would leave and there was a concern about, well, who is going to kind of guarantee our system? So I think we could consider Hong Kong-like arrangements where an existing democratic system an existing system of government helps create the frame for a new jurisdiction. Then large numbers of people can move in and then once you get full, it basically makes the transition to local democratic control. It's a very unfamiliar approach but the thing— and it has features that are unattractive but the thing to realize is we just don't have an answer at all if we're facing this kind of a very large-scale crisis of migration. We don't have an answer to either the chronic problem of people who really want to leave the places— hundreds of millions want to leave the places they're currently in— nor do we have an answer to the immediate crisis. What would we do if when within the space of a year, you know, like tens of millions of people needed to get out of an environment that was going to descend into violence?

Speaking of cities, you're now a New Yorker. Do you have more sympathy for Jane Jacobs or Robert Moses? If I had to pick, definitely Jacobs rather than Moses. But you love infrastructure, high fixed cost, low marginal cost.

He's the mastermind of infrastructure. My colleague Alain Bertaud is a big proponent of this idea that, go back to this idea of abstractions to simplify things. You need in a city both some design which you can think of as kind of like top-down, and then some market-like or decentralized kind of forces. So you can't have a successful city without some level of design. I think the problem with Moses was that he didn't actually understand the right design for the kind of the givens, the infrastructure that everybody relied on. Moses was of this generation that was too enamored of the car, and this is where I think Jacobs was at a better intuition. The challenge or the dichotomy I would pose would be Jane Jacobs versus Gouverneur Morris. Morris was the guy who drew the grid that laid out the rectangular street map for Manhattan. And I think it's important to understand how incredibly valuable it was for someone like Morris to establish that foundation, which really all it was was an assertion that Here's this 2-dimensional grid of public space so that the public authorities will be able to make decisions in the future about how you use it for vehicles, for pipes and wires, and it was the foundation for connecting everybody in New York. And if you don't have that foundation that like a public entity can use later for, you know, bike lanes or buses or whatever you want, you can't— it's almost impossible to get it if you don't start out with it. We're never gonna see, I don't think, another like Hausmann who can bulldoze, you know, new streets as in Paris. So if I had to pick between Morris and Jacobs, I'd go with Gouverneur Morris. But, you know, I wouldn't go with Moses because he just was too big on this superhighway thing, which isn't— that's not— that's just not a good design of a grid to connect everybody up.

Now unlike a lot of academics, you've had success in the private sector. Founding and running Aplia, that experience with your company, what did you learn about managerial economics and what did you learn about behavioral economics?

Well, perhaps because it's more recent, what's immediately coming to mind are questions I had about management from my time at the bank. Because there I went in as a senior vice president. I had about 400 people who reported to me. Sometimes I kind of play this game with myself. Which is like, OK, if I'm going to be reincarnated, what would I do as a new young person? And for a long time, I actually wanted to be a software developer. And there's still an itch there I want to scratch.

You are a software developer.

Well, I've been teaching myself Python. So I've learned I can scratch that itch a little bit. But I think there's some really interesting questions about management that, as academics, we don't understand very well. I think, as practitioners, most practitioners don't understand very well. And it's hard because it really does involve people who are complicated and correlated behavior. But it's intellectually, I think, interesting and I think practically could be quite relevant.

What do you understand about management that, say, most academic economists would not?

Well, you said something about behavioral. One thought I had at the bank is that we've We've now got behavioral economics of the individual and behavioral outcomes in a market. But if you think about the theory of teams, we don't have an analysis where we have these kind of agents with more complicated motivations and you think about teamwork. So I think thinking about behavioral or broader motivations in teams is the way to go. The most interesting practical thing I learned, and in a domain like this, how would you make progress? I wouldn't sit down and make some assumptions, like come up, here are the axioms of management. What I'd do is go out and look at the evidence. And I think some of the most interesting evidence about management actually came out of Toyota, who applied principles from Edward Deming. But there's this one mechanism called Kanban at Toyota. That was used to manage things on the production line, which has now been taken up by people in software development. And it has, I think, some really interesting principles. One is that transparency is very helpful in teamwork because when people don't know what others are doing, they tend to have a bias towards the negative. They think something bad is happening. So transparency is actually a good way to build trust. So part of what Kanban does is try and make it clear what's everybody doing. The other more subtle observation is that too much work in progress can really impede the flow-through of a system so that you limit— it's kind of like congestion on the street. You limit the amount of work in progress to avoid the effects of task switching and distractions. And that, again, Kanban is a way with kind of visual cards that you can limit work in progress and coordinate people. And the most interesting thing I read about reform of a somewhat dysfunctional team was basically an IT service team in a large company where they were able to use these two principles of limiting work in progress, watching for things like rework that was inefficient, but building trust.— and it wasn't just trust within the team. The typical situation of an IT team or like a research unit in a place like the bank is that there's this almost unlimited set of requests you get of which you can process only a subset. And so you need some transparency about how is it you're selecting the things you actually work on given the many things people want. And if that's transparent enough to other people and there's some rational process for making those decisions, you just get much better outcomes than if it's kind of COVID and influence, you do things because one of your friends asks you to do them. So I thought the first thing to do on management is just like proceed empirically and see where reforms have worked in organizations like this. Then I think you would start to build a theory about why is it that trust is is so important when you have a team of people.

What's your favorite song by Acústica Tuna? Oh yeah, "A Man's Fate." "A Man's Fate." I would say "Hesitation Blues." Oh, would you? Yeah. Oh, interesting.

And maybe "Death Don't Have No Mercy." Yeah, oh no, on that one, I really like the Grateful Dead version, actually. On Live Dead, there's a great kind of solo that Garcia does in "Death Don't Have No Mercy." "Man's Fate," You know what I like there is the parallel or symmetry between the acoustic and the bass. They take turns, and that kind of role reversal, I guess, is like what Clarence White did when kind of turning the guitar into the lead instrument analogous to the fiddle. So I mean, I think that kind of innovation in music, in the kind of the structure or interplay, is wonderful. And I must say, I just love the bass guitar of Jack Cassidy.

And why is Clarence White still underrated as a guitarist?

I don't know. I've run into enough people— like, there's somebody else at NYU I bumped into who's from Virginia who knows of Clarence White. I think his reputation is growing. And, you know, YouTube is, I think, a big part of this, because you can find a surprising number of, you know, videos or recordings of Clarence playing.

What's your favorite performance of Clarence White with the Byrds? Which song? For me, it's "Have You Seen Her Face," I think.

Well, I was actually going to say, that's exactly the period where he was bringing in these kind of country-ish licks, you know, either just on his regular guitar or with this bender, the B-string bender. But when he would bring in those just those countryish flavored notes that he would bend on the birdsongs of that era, I thought that was just, you know, just a genius mashup. My partner and I have this kind of longstanding debate about who's better, Gram Parsons or Clarence White, and it's this ongoing sort of battle at home. No, Clarence White's really the one who was responsible for country rock. No, no, no, Gram Parsons. It's one of those battles you— it's one of those few places where you're not trying to achieve consensus. This is not like science. This is just we like going back and forth on that one.

What's your favorite novel and why? A couple.

I loved the intricacy of Tinker, Tailor, Soldier, Spy by Jean le Carré and the subtlety of the emotions and the manipulation of the emotions in this kind of spy story. I also was very taken by Catch-22, but even more so the Vonnegut book. Oh no, I'm forgetting.

What was the— Player Piano, Slaughterhouse-Five. Slaughterhouse-Five, yeah.

Slaughterhouse-Five, partly because of the insight it gave you into him and the story he tells of being in Dresden during the bombing in World War II, and the book is his attempt in some ways to try and cope with experiencing this really amazing tragedy. I actually like those kind of stories where there's a kind of a meta element where the— you know, you can see a little bit more transparently the author trying to work something out in the story itself. With my kids, I actually like The Muppet Movie partly because it's like Kermit is going to Hollywood, but it's really the story of Jim Henson, and that was I think the part that made that a more touching story.

What's your favorite country to travel to and why?

Oh, actually, before we leave reading, I may just mention, somebody sent me just within the last 2 weeks a reference to a philosopher in the US named Peirce. Charles Sanders Peirce, yeah.

Brilliant man. A polymath.

I had never even heard of Peirce.

He's a bit like you in some ways.

Well, that's a little worrisome. The latter half of his career didn't turn out so well, but you know, He, I think, ended up penniless and destitute and abandoned home, but he did have wide-ranging interests. And deeply curious. Yeah, and it turns out things he was thinking about, you know, I was referring before to abstraction and how we use abstraction to communicate. He was very thoughtful about that and I think had a much more sophisticated sense about kind of how science proceeds than say the sort of the positivist sort of machine that people describe. But one of the joys of reading— that's not a novel— but one of the joys of reading and the, to me, like slightly frightening thing is that there's so much out there and that, you know, like 100 years later you can discover somebody who has so many things to say that can be helpful for somebody like me trying to understand how do we use abstraction, how do we communicate clearly? How do we— he started this field of semiotics, of like this connection between the sign and the concept and the distinction between those two. That I think is— instead of— I used to think things like that were kind of academics worrying about angels on the head of a pin, but this I think is actually a really profoundly important distinction to pay attention to, but the joy of Scholarship, I think the joy maybe of any life in the modern world is that through reading we can get access to the thoughts of another person and then you can sample from the thoughts that are most relevant to you or that are the most powerful in some sense. And that's really the foundation for the transmission of knowledge and growth and this whole process. So I think I should read probably a little bit more widely in fiction, but I find somebody like Pierce, my reaction is, "God, I'm gonna quit everything else and just go read kind of the nonfiction stuff 'cause there's so much out there that I didn't even know about." Two last questions about you.

First, you grew up in the mountains when so many of the powerful people are on the coasts. How has that shaped your life and thought?

I don't know, but it seems like an interesting question to ask. Bill Nordhaus is from New Mexico, and there's these striking parallels between Bill's career and mine. We both, I guess, graduate students wanted to understand endogenous technological change. He was working 10 or more years before I did, but I've wondered if there was something about kind of the Mountain West that then moving to the East Coast that made us both willing to kind of take on things that weren't the kind of the accepted consensus about what were the most important things to work on. When I get a chance to talk with Bill, I want to ask him about that. But the problem is from introspection, I don't know if I can ever figure out what effect those things had. But I think there's a slightly different culture in the Midwest compared to the East Coast. And there's enough of a difference so that when you go from one to the other, you have maybe a little bit of a sense of being an outsider. So maybe those things have filtered into my work.

And we all know your father was governor of Colorado, active in the world of policy, but what did you learn from your mother?

Well, my mother, she raised 7 kids. I told her just recently that, you know, this prize is for her. Because there's this formative period when you're a very young child where the kind of the care and affection and just warmth, the emotional warmth with the mother is I think a big influence on the rest of your life. She started in the '60s I guess a preschool in Colorado. She was not only raising kids but she started a preschool because she was so convinced at how important this early childhood nurturing kind of environment was. So what I got from her I think were the kind of the emotional capacities that you get if you can grow up in a supportive environment. So she's going to come. She's 89. She's going to come to Stockholm. And I'll bring the rest of my— my whole family. We'll max out my whole, you know, kind of allotment of people I can take. But it'll be a kind of a family event in Stockholm.

Paul Romer, congratulations on the Nobel Prize and thank you very much.

Thanks, and I look forward to coming back another time.

Great to be going. Great to have you again. Thanks for listening to Conversations with Tyler. You can subscribe to the podcast in iTunes, Stitcher, or your favorite podcast app. And if you like this podcast, please consider rating it on iTunes and leaving a review. This helps other people find the show.