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Paul Romer, economist
How do you weigh the economic benefit of the thoughts in Bill Gates' head? The sand on a beach can be measured, but how do you calibrate the value of the idea that turned those silica grains into silicon microchips? Though they sound like questions from a Mensa parlor game, they're actually from the work of economist Paul Romer, and his answers may just revolutionize the study of economics.
A sage for the silicon age, Romer is upgrading the dismal science to keep pace with the digital revolution. Economists have long known that when growth goes up, so do salaries, employment and standards of living. What has changed, argues Romer, is the long-term causes that make all those good things happen. The economic model of the smokestack age says labor and capital (inputs) are the only two ingredients that can increase production (outputs). Thus a company can either hire more people to crank out the widgets, or spend money to increase the efficiency of a plant to move product out the door at a lower cost. Romer, 41, argues that technology which can simply mean a new "idea" for doing something is not a mysterious outside force, as economists thought in the past, but an internal one that can be cultivated to increase growth. "The emerging economy is based on ideas more than objects," instructs Romer. Develop a new way to design a microchip, and you can process twice the information in half the time.
For his work in this field of "new-growth theory," the Stanford economist has been called "the most influential theorist of the 1980s" by the equally prominent MIT economist Paul Krugman. Listen to a venture capitalist talk about investing in "knowledge industries" and promoting "idea-driven growth," and you hear Romer's work speaking. Luminaries like management guru Peter Drucker speculate about Romer's chances of winning the Nobel Prize for Economics the way sportscasters handicap a fleet-footed freshman's chances of grabbing the Heisman Trophy.
Having challenged the way economists view the world, Romer is eager to work on the public, to trade in his gangly equations for accessible metaphors. What role does government play in promoting the efficient allocation of ideas? he asks. (Perhaps he should ask his father, Colorado Governor Roy Romer.) What role do companies play? Skeptics say that only by finding workable answers that generate the robust growth his theory promises will Romer live up to his advance Nobel billing.
Conservatives wave his work to argue for nixing the capital-gains tax, and liberals say he is really calling for more "investment" by government. Speaking for himself, Romer dumps on the liberal spending gambits and, to conservative grumbles of "Stalinism," allows that gains may accrue from collective activity. Says Romer: "I'm quite happy to offend everyone."