In this engaging conversation, Paul Romer, a prominent economist, discusses the shortcomings of economics, the necessity of mass testing for COVID-19, and the potential for reopening schools and Major League Baseball.
He also shares his thoughts on charter cities and his proposed reforms for the World Bank.
Economists as Technical Advisors
Economists should function as technical advisors, offering insights and potential outcomes, but leaving the final decision to the voters.
The profession has often overstepped its role, leading to negative outcomes such as the failure to understand the shadow banking system and the tolerance of dominant firms.
Macroeconomic Response to Crises
The macroeconomic response to the current crisis by the Fed has been commendable, reflecting lessons learned from past economic crises.
However, theoretical rational expectations macro has had little impact on policy.
I think frequent testing in nursing homes might be all it would take to cut the death rate in half. – Paul Romer
The Importance of Data-Driven Approach
There is too much emphasis on models and not enough on the facts themselves in both economics and epidemiology.
A balance between theory and data is needed in these fields.
If we spent about twice as much on tests as we spend on soda, we could have all the tests we need. – Paul Romer
The Role of Government Funding
Tests are a public good and should be funded by the government.
If the government were to invest more in testing, we could have all the tests we need.
Significance of Norms
Norms and beliefs about right and wrong play a crucial role in policy-making.
Economists have often overlooked these, leading to policies that have negatively impacted societal norms.
For instance, policies that have led to a tolerance of dominant firms have undermined the value of competition.
The Role of the FDA
The FDA’s regulations are too restrictive and are unnecessarily hindering innovation in testing.
These regulations need to be reevaluated to allow for more rapid progress in testing.
The Failure of Competition Policy
The failure of competition policy and the lack of support for necessary regulations have led to harmful actions, particularly in the context of the opioid crisis.
Economists should have been more vocal in advocating for regulations.
The Deregulation of Financial Markets
The deregulation of financial markets, particularly the role of Alan Greenspan in advocating for reduced regulation, led to the financial crisis and has made our financial system more fragile.
Reopening Businesses and Institutions
Frequent testing could allow for the safe reopening of businesses and institutions.
For instance, testing everyone in nursing homes could significantly reduce the death rate from COVID-19.
Similarly, frequent testing could allow for the reopening of Major League Baseball and colleges.
Charter Cities
Creating new cities could be a solution to the current impasse on migration flows.
These new cities could be places that people want to go to, without threatening existing countries.
Reforming the World Bank
The World Bank needs to be reformed to better serve developing countries.
It should focus more on providing technical advice and less on providing loans.
It should also be more open to new ideas and less bureaucratic.
