From Economic Principals:
The Contest between Macro and Growth
It was about a year ago that Paul Krugman asked, “[W]hatever
happened to New Growth Theory?” The headline of the item on the blog
with which the Nobel laureate supplements his twice-weekly columns for The New York Times telegraphed his answer: The New Growth Fizzle. He wrote:
For a while, in the late 1980s and early 1990s, theories
of growth with endogenous technological change were widely heralded as
the Next Big Thing in economics. Textbooks were restructured to put
long-run growth up front, with business cycles (who cared about those
anymore?) crammed into a chapter or two at the end. David Warsh wrote a book touting
NGT as the most fundamental development since Adam Smith, casting Paul
Romer as a heroic figure leading economics into a brave new world.
And here we are, a couple of decades on, and the whole thing seems to
have fizzled out. Romer has had a very interesting and productive life,
but not at all the kind of role Warsh imagined. The reasons some
countries grow more successfully than others remain fairly mysterious,
with most discussions ending, as Robert Solow remarked long ago, in a
“blaze of amateur sociology”. And whaddya know, business cycles turn out
still to be important.
Krugman’s post raised eyebrows in my circles because many insiders
expected that a Nobel Prize for growth theory would be announced within a
few weeks. A widely-noticed Nobel symposium had been held in Stockholm
in the summer of 2012, the usual (though not inevitable) prelude to a
prize. Its proceedings had been broadcast on Swedish educational
television. Romer, of New York University, had been the leadoff speaker; Peter Howitt, of Brown University, had been his discussant; Philippe Aghion, of Harvard University and the Institute for International Studies, the moderator of the symposium.
Knowing this, I let Krugman’s gibe pass unchallenged, even though it
seemed flat-out wrong. These things were best left to the Swedes in
private, I reasoned; let the elaborate theater of the prize remain
intact.
Then came October, and a surprise of a slightly different sort.
Rather than rousing one or more of the growth theorists, the early
morning phone calls went to three economists to recognize their work on
trend-spotting among asset prices and the difficulty thereof – Eugene
Fama, Robert Shiller and Lars Hansen. Fama’s work had been done fifty
years before; Shiller’s, thirty-five. Two big new financial industries,
index funds and hedge funds, had grown up to demonstrate that the claims
of both were broadly right, in differing degrees. Hansen had
illuminated their differences. So old and safe and well-prepared was the
award that its merit couldn’t possibly be questioned.
What happened? It’s well known that, in addition to preparing each
year’s prize, prize committees work ahead on a nomination or two or
even three, assembling slates of nominees for future years in order to
mull them over. Scraps of evidence have emerged since last fall that a
campaign was mounted last summer within the Economic Sciences Section of
the Royal Swedish Academy of Sciences, sufficient to stall the growth
award and bring forward the asset-pricing prize – resistance to which
Krugman may have been a party.
These things happen. The fantasy aspects of the Nobel Prize – the
early-morning phone call out of the blue – have been successfully enough
managed over the years as to distract from the “hastily-arranged” press
conferences that inevitably follow, the champagne chilled and
ready-to-hand. Laureates, in general, are only too happy to play along.
Sometimes innocence may even be real. Simon Kuznets, on his way to
visit Wassily Leontief in New York in 1971, told friends that he
overheard heard only that “some guy with a Russian name” had won, before
stepping into the high-rise elevator that would carry him to his
friend’s apartment. It was, he said, the longest ride of his life....MUCH MORE
