I Love the 2025 Economics Nobel Laureates

Joel Mokyr was interviewed for the Kling-Schulz book; Peter Howitt kindly commented on my PSST paper.

The awards for the 2025 Nobel Prize in economics were gratifying for me in a personal way.

Joel Mokyr, one of the recipients, was interviewed by my co-author, Nick Schulz, for our 2009 book “From Poverty to Prosperity” (re-issued in 2011 as “Invisible Wealth”). The interview transcript took up more than 20 pages.

Peter Howitt, another recipient, was kind enough to publish a 10-page comment on a paper that I published in an academic journal in 2011. Considering that I am close to a 0 in any index of academic prestige, that is something I wish to savor.

Howitt worked with Philippe Aghion, while Mokyr’s efforts were separate. The three were cited for work on economic growth (the causes of rising living standards). They focused on intangible factors, which was the point of emphasis for our book, one that I feel is increasingly vindicated. Mokyr zeroed in on the way that technical innovations, scientific research, and cultural change combine to produce economic growth. Another of Nick’s interviews was with Paul Romer, who also subsequently won a Nobel. And last year’s Nobel was given to economists known for their work on institutions, which is also an intangible factor that we emphasized (we included an interview with Douglass North, the icon of institutional economics, who had already won a Nobel by the time of the interview.)

Howitt and his co-author Aghion were cited for their work applying Schumpeterian dynamics to economic growth. Schumpeter’s catch-phrase was “creative destruction,” where businesses compete by innovating. You can see that happening all the time in tech these days.

In my paper, I argued for trying to use “creative destruction” to explain economic fluctuations (rising and falling unemployment). Howitt’s comment said that he agreed with taking this path. Where I spoke of Patterns of Sustainable Specialization and Trade, he preferred the more standard term of coordination.

It becomes evident in reading Howitt’s comment that he had already thought it through farther than I had. Most economists would have written in very sneering tones, but he was gentle and polite in pointing out where I had come up short.

Sadly, neither he nor anyone else pursued that trail further. It requires doing simulation analysis, which only recently has become easy to do, thanks to AI. I can imagine a scenario in which five or ten years from now¹ macroeconomic fluctuations are studied the way that Howitt (and I) were suggesting.

In 2009, when my book with Nick Schulz, From Poverty to Prosperity (since retitled Invisible Wealth) was published, 4 of the economists whose interviews with Nick appeared in the book had been awarded Nobel Prizes². Now that number is up to 6. Paul Romer’s award came in 2018, and Joel Mokyr’s this year.

The purpose of our book was to introduce to a lay audience what we saw as the new economics of intangible factors in the economy. We spoke of economic software. One factor, institutions, we called the “operating system.” The other factor, ideas and innovation, we thought of as the application layer.

If you have not read the book, I recommend it. There is a lot of meat in it. For a brief summary, see my books, essay 7 and my books, essay 8.

Some quotes from the interview with Mokyr:

if somebody put a gun to my head and said, “define technology,” what would I say? And the only answer I could come up with that really satisfied me was that it’s something in our own heads. It isn’t…the machinery the tools, the equipment…It’s really what’s happening in people’s heads.

Everything to do with production as we know it going to be defined as a recipe…But there is some background knowledge that in itself is not a recipe, but is underlying…the epistemic base of techniques.

We invent something, and sometimes we know a little bit about how it works…as we use it more, the epistemic base gets wider.

Now thermodynamics was directly and demonstrably inspired by people watching steam engines work. …”Gee this works. How could that be?” And from that is born the field of thermodynamics. Once thermodynamics is there…they can make these engines better. So from there, there is internal combustion, there is diesel, there is electricity generation…

And that’s the kind of internal dynamic within useful knowledge that drives history. That is, I think… the main message of my book

the only way that we can think about technology is in evolutionary terms. …among all the things that are possible, it really has no way of predicting what will emerge and what it will look like.

look back on what futurists and science fiction writers thought was going to happen… They all predicted a lot of space travel, which we haven’t done all that well… but the information communication revolution really wasn’t predicted.

for the economy to function well, you don’t just need good property rights, you also need what we could call, somewhat vaguely, “economic freedoms.” You need labor mobility; you need to get rid of guilds; you need to get rid of monopolies, both local and global; you need to get rid of all kinds of regulations; and above all, you need free trade.

corruption is really just a special form of what we call, in economic jargon, “rent-seeking.” …one of the things that happens in eighteenth-century Europe is a reaction against what we today would call rent-seeking… The Enlightenment… was also a reaction against mercantilism

it is clear that nobody has held technological leadership for a very long time… technology creates vested interests, and these vested interests have a stake in trying to stop new technologies…they have all kinds of mechanisms. One is regulation, in the name of safety or in the name of the environment or in the name of protection of jobs.

…I think about that every time I look at what’s happening in the United States. I see signs that the system may turn against innovation in one form or another, and I always worry.

…the more open the world is—the more free trade, the more ideas and people can move from one country to another—the less likely it is that technological progress will come to an end.

Entrepreneurs, innovators and inventors will try to make their fortune and fame wherever they perceive the rewards to be most promising…Commerce, innovation and finance, or plunder, extortion and corruption.

there is an arrow, a causal arrow, going from belief, ideology, convictions, ideas…to institutional change

if you change the institutions but don’t change the culture, you’re not going to change the institutions.

I’ve been told…that something like 90 percent of all Jews who go to synagogue are really atheists… the reason they go to synagogue is that they want other people to believe in God, because they think that’s good for society.

religion is a statement about your relationship with earlier generations… every act of invention is an act of rebellion. It’s an act of disrespect against earlier generations, right?

over the last 1500 years, why are there so few inventions associated with Jews until the beginning of the nineteenth century, when Jews became more secularized

our secularization has been accompanied by a total loss of respect for the wisdom of earlier generations…It isn’t obvious that it’s an entirely good thing, but it’s happening.

Mokyr shares this year’s Nobel with Philippe Aghion and Peter Howitt, who are known for developing a mathematical model of the process of creative destruction as articulated by Schumpeter. The emphasis of the Nobel Committee is on the application to economic growth.

But among Howitt’s papers, I have a particular favorite, for personal reasons, that deals with the issue of macroeconomic fluctuations. It is Howitt’s comment on my paper that tried to lay out the framework of Patterns of Sustainable Specialization and Trade. He deals with me gently, but I infer that he found my paper rather long on rhetoric without contributing enough analytical apparatus with which to work. For his part, he writes,

a recession can be created by the coincidental failure of a large number of firms, or even the failure of a small number of very large firms; from the macroeconomic perspective, business failure is cumulative. The failure of one firm can start a cascade of failures, because those people who were counting on the first firm to buy their specialized labor services may remain unemployed until a successful entrepreneur replaces the firm or the person manages to locate another firm interested in hiring that kind of labor service. Meanwhile the loss of income on the part of the unemployed will lead them to curtail expenditures with other firms, thus raising the likelihood of further failures, and so forth. When such a cascade takes place there will be a cumulative contraction of economic activity. Eventually, as a coherent pattern of trading facilities emerges, this will come to an end, but the process of competitive entrepreneurship is a messy one. With many new businesses fighting to dominate a market that has been vacated by the failure of an incumbent, that market will undergo a disorderly shakeout period. Not all of the contenders will survive, and when contenders do fail there is a heightened risk of a secondary cascade. Meanwhile, intensified price competition in the markets undergoing shakeout will reduce the profitability of firms in competing markets, putting firms there at greater risk of failure.

…The problem that needs to be resolved when there is a cascade of failures is not that someone has made a pricing mistake but rather than some organizational capital has been destroyed, in the form of transaction facilities, and there is no way of replacing that capital other than allowing the disorderly process of entrepreneurial competition to continue until a new coherent pattern of facilities eventually emerges.

These paragraphs fit well with the PSST story, and I particularly like the second one. Howitt’s verbal speculations were, unlike mine, buttressed by exercises using agent-based modeling. I can see agent-based modeling having its moment, now that computer simulation has become easier using AI.

Hollis Robbins wryly remarks,

Technological progress is fragile, easily arrested. University leadership could start creating conditions for progress tomorrow. We could train faculty, connect them with students who already know how to drive, build the feedback loops that Mokyr showed sustain innovation. Or everyone can keep riding horses, defending a system calibrated for a world that no longer exists, while their students drive into the sunset.

substacks referenced above: @

The Faculty are Riding Horses

1. That is probably optimistic. At the rate of one funeral at a time, progress is a long way off.

2. Robert Solow (who I helped interview), Robert Fogel, Douglass North, and Edmund Phelps. We also included Nick’s interview with William Baumol, who was considered worthy of a Nobel, but never was awarded one. The other economists Nick interviewed were William Easterly, William Lewis, and Amar Bhide.