0:00:01.060,0:00:02.569 today we're going to be talking about 0:00:02.569,0:00:04.980 paul romer 0:00:04.980,0:00:08.339 all romer talk for a long time at stanford university 0:00:08.339,0:00:11.439 more recently he moved to new york university 0:00:11.439,0:00:15.030 and he's most famous for being one of the architects 0:00:15.030,0:00:16.800 of new growth fearing 0:00:16.800,0:00:21.730 two more recently he's becoming famous for his work in development economics 0:00:21.730,0:00:23.849 fact for his entrepreneurship 0:00:23.849,0:00:25.640 in development economics 0:00:25.640,0:00:29.189 warned that soon 0:00:29.189,0:00:32.889 rollers most famous papers called and dodges technical change 0:00:32.889,0:00:35.840 this is a monumental paper a foundational paper 0:00:35.840,0:00:37.950 in new growth theory 0:00:37.950,0:00:41.750 and it is led to a huge outpouring of work 0:00:41.750,0:00:43.300 in growth theory 0:00:43.300,0:00:46.490 will be able to discuss the paper and much detail but let me just give you an 0:00:46.490,0:00:48.200 essence of where it came from 0:00:48.200,0:00:50.280 let's remember the solo model 0:00:50.280,0:00:52.449 and this all along all output 0:00:52.449,0:00:55.060 is a function of ages ideas 0:00:55.060,0:00:58.460 and a combination of capital and labor 0:00:58.460,0:01:02.460 now solo made to assumptions about ideas eg 0:01:02.460,0:01:04.630 first ideas were a public good 0:01:04.630,0:01:07.840 who are freely available to anyone in the world 0:01:07.840,0:01:08.900 second 0:01:08.900,0:01:13.659 the growth in ideas was gigs argent studies outside the model 0:01:13.659,0:01:18.470 ideas just kind of accumulated over time 0:01:18.470,0:01:19.780 in some ways 0:01:19.780,0:01:21.500 this is not situation 0:01:21.500,0:01:24.130 terrible assumption particularly the first part 0:01:24.130,0:01:27.860 so lot of ideas already public good so for example 0:01:27.860,0:01:31.590 a force is equal a mass times acceleration the pipetter npr_ news a 0:01:31.590,0:01:32.640 public goods 0:01:32.640,0:01:34.340 available to everyone 0:01:34.340,0:01:37.840 however the second assumption is really problematic 0:01:37.840,0:01:38.970 because 0:01:38.970,0:01:41.570 growth is about new ideas 0:01:41.570,0:01:43.700 and if you look around in the world 0:01:43.700,0:01:48.590 most research and development is produced by for-profit firms 0:01:48.590,0:01:51.929 growth ideas are not coming out of the ether 0:01:51.929,0:01:54.260 they're not just arriving 0:01:54.260,0:01:55.450 magically 0:01:55.450,0:01:58.210 they happen in some places and not in other places 0:01:58.210,0:02:00.030 and they happen for a reason 0:02:00.030,0:02:01.479 the happened because 0:02:01.479,0:02:06.420 most of the time someone is out to make a profit in developed economies 0:02:06.420,0:02:09.360 sixty to eighty percent of research and development 0:02:09.360,0:02:13.439 is privately produced by for-profit firms 0:02:13.439,0:02:17.349 so however made these assumptions for a reason 0:02:17.349,0:02:21.549 he made these assumptions because the made the model much much simpler 0:02:21.549,0:02:26.219 because with these assumptions ideas are freely available literally free 0:02:26.219,0:02:27.619 they're not priced 0:02:27.619,0:02:31.879 that means that capital and labor can be sold in competitive markets 0:02:31.879,0:02:34.450 the candidates receive their marginal product 0:02:34.450,0:02:38.200 the product itself can be sold a competitive markets and the payments to 0:02:38.200,0:02:39.450 capitol labor 0:02:39.450,0:02:43.679 will nicely sum up to exactly equal the price of the product 0:02:43.679,0:02:46.469 sort everything works out beautifully with 0:02:46.469,0:02:49.879 the competitive firms that when ideas are not 0:02:49.879,0:02:51.349 uh... priced 0:02:51.349,0:02:52.279 however 0:02:52.279,0:02:54.240 when ideas are priced 0:02:54.240,0:02:55.350 we have a problem 0:02:55.350,0:02:56.809 let's take a look 0:02:56.809,0:02:59.089 ideas are non rival wrist 0:02:59.089,0:03:03.169 and it cannot be sold in competitive markets because the marginal cost is 0:03:03.169,0:03:04.260 zero 0:03:04.260,0:03:08.769 so the classic example here is the pharmaceutical the first pill cost a 0:03:08.769,0:03:10.040 billion dollars 0:03:10.040,0:03:12.349 the second door cost fifty cents 0:03:12.349,0:03:14.319 that fifty cents 0:03:14.319,0:03:17.749 that can be produced the second film the third the fourth in the fifth 0:03:17.749,0:03:22.329 and the end and the and fill can be produced in competitive markets 0:03:22.329,0:03:24.120 the fifty cents comes from 0:03:24.120,0:03:27.189 payments a kaplan labor which are just enough 0:03:27.189,0:03:31.139 to cover the fifty-cent cost of the product 0:03:31.139,0:03:34.969 that doesn't lead and i think over for producing the formula 0:03:34.969,0:03:37.799 for producing the idea which made the 0:03:37.799,0:03:41.169 pharmaceutical possible in the first place 0:03:41.169,0:03:45.739 so you can't sell pharmaceuticals in competitive markets 0:03:45.739,0:03:46.739 okay 0:03:46.739,0:03:49.330 because that doesn't leave enough left over 0:03:49.330,0:03:53.050 to funded the research and development which went into producing a product of 0:03:53.050,0:03:54.249 the first place 0:03:54.249,0:03:56.999 there has to be some in our police power 0:03:56.999,0:04:00.069 either the monopoly power maybe comes from a patent 0:04:00.069,0:04:03.969 or maybe comes from being first a market or having a trade secret 0:04:03.969,0:04:07.759 or having some knowledge of being able to do things better than other people do 0:04:07.759,0:04:09.929 but you need some monopoly power 0:04:09.929,0:04:13.309 uh... to find to fund these ideas 0:04:13.309,0:04:15.589 ideas also create spillovers 0:04:15.589,0:04:19.840 even when you have monopoly power well the pattern runs out over time 0:04:19.840,0:04:23.020 the idea of the at the idea of self can be copied 0:04:23.020,0:04:24.669 not directly but can be 0:04:24.669,0:04:27.430 uh... uh... the idea comes to be useful 0:04:27.430,0:04:29.599 can still spread around the world 0:04:29.599,0:04:31.089 so what'd romer do 0:04:31.089,0:04:35.060 but what romer ddc_ created a mold growth based on ideas 0:04:35.060,0:04:38.240 which were privately produced by for-profit firms 0:04:38.240,0:04:41.100 in annapolis tically competitive markets 0:04:41.100,0:04:44.639 with spillovers 0:04:44.639,0:04:46.389 in one way that's just 0:04:46.389,0:04:50.399 following the formula bestest doing exactly what we would hope a model 0:04:50.399,0:04:51.300 should do 0:04:51.300,0:04:52.719 but bear in mind 0:04:52.719,0:04:55.370 that everyone knew this was kind of the right way to go 0:04:55.370,0:04:59.700 everyone knew this was the right model but apparel failed to create this model 0:04:59.700,0:05:02.009 samuelson failed to create this model 0:05:02.009,0:05:05.959 solo failed to create this model it wasn't until romer 0:05:05.959,0:05:08.149 that all the knots were tied 0:05:08.149,0:05:12.219 that we have all of these characteristics which we know are true 0:05:12.219,0:05:13.990 that ideas are produced by 0:05:13.990,0:05:18.529 monopolistic firms that idea is a really important in growth 0:05:18.529,0:05:23.150 ideas have spillovers all of these ideas combined in a model 0:05:23.150,0:05:24.369 that was really is 0:05:24.369,0:05:27.219 romer response a prima congressman 0:05:27.219,0:05:31.050 in this paper of nineteen ninety 0:05:31.050,0:05:34.210 i said the model is a real technical achievement 0:05:34.210,0:05:35.439 that's true 0:05:35.439,0:05:39.159 but the really important aspect is that a common solvent on start to think about 0:05:39.159,0:05:41.660 things until we have a model 0:05:41.660,0:05:43.279 and what romer did 0:05:43.279,0:05:46.669 is he put ideas at the heart of growth theory 0:05:46.669,0:05:51.189 and once you do that you start to open up and start thinking about a lot of new 0:05:51.189,0:05:51.919 things 0:05:51.919,0:05:53.650 back in the solo model 0:05:53.650,0:05:56.709 it's all about the economic should capital 0:05:56.709,0:05:59.300 once you have ideas at the heart of the model 0:05:59.300,0:06:02.679 you start thinking about things like patents and intellectual property 0:06:02.679,0:06:04.729 you starting about universities 0:06:04.729,0:06:09.740 bug capital markets like venture capitalists and having a capital market 0:06:09.740,0:06:14.669 strong capital markets have been on two printers can take their firms 0:06:14.669,0:06:16.510 he's talking about human capital 0:06:16.510,0:06:19.450 and whiny might not have enough human capital 0:06:19.450,0:06:20.699 in research 0:06:20.699,0:06:22.949 why research might be under-funded 0:06:22.949,0:06:27.150 because we get spillovers because that's a monopolistic industry 0:06:27.150,0:06:29.560 you start asking yourselves questions about 0:06:29.560,0:06:31.569 why do some ideas 0:06:31.569,0:06:35.680 uh... how do ideas transmit themselves across the world how to be flow across 0:06:35.680,0:06:36.849 the world 0:06:36.849,0:06:38.350 where two ideas begin 0:06:38.350,0:06:40.789 why is it takes some ideas a long time 0:06:40.789,0:06:41.949 to transmit 0:06:41.949,0:06:45.270 and other ideas move across the world quite quickly 0:06:45.270,0:06:47.439 you get a whole new perspective on trade 0:06:47.439,0:06:49.569 and the importance of market size 0:06:49.569,0:06:50.319 as 0:06:50.319,0:06:53.940 generating the incentives to produce rnd_ 0:06:53.940,0:06:55.250 you begin to think about 0:06:55.250,0:06:57.199 differences in times of ideas 0:06:57.199,0:06:58.830 by technologies 0:06:58.830,0:07:02.209 these seem much more amenable to be communicated across 0:07:02.209,0:07:03.479 different countries 0:07:03.479,0:07:04.919 then do rules 0:07:04.919,0:07:08.849 rules by rules i mean things like how do people interact 0:07:08.849,0:07:10.349 rules on boat 0:07:10.349,0:07:13.789 uh... 0:07:13.789,0:07:15.939 rosalie had a greater corporation 0:07:15.939,0:07:17.969 how to create honest government 0:07:17.969,0:07:20.130 rules like 0:07:20.130,0:07:21.119 democracy 0:07:21.119,0:07:22.599 the rule of law 0:07:22.599,0:07:24.150 uh... honest judges 0:07:24.150,0:07:26.930 judges and separated from 0:07:26.930,0:07:29.599 uh... politicians the separation of powers 0:07:29.599,0:07:33.220 much harder to transmit these ideas and have these ideas adopted 0:07:33.220,0:07:36.259 than it is to have ideas about 0:07:36.259,0:07:39.030 how to create an engine for an ample 0:07:39.030,0:07:42.289 you also begin to think about where ideas are current 0:07:42.289,0:07:45.419 what is necessary to create new ideas you think about cities 0:07:45.419,0:07:49.800 you think about density of getting people close together to transmit 0:07:49.800,0:07:51.919 knowledge do you think about networks 0:07:51.919,0:07:53.050 so all of these 0:07:53.050,0:07:56.509 ideas about ideas were introduced 0:07:56.509,0:07:58.250 by the romer model and put 0:07:58.250,0:08:03.630 at the center of grocery bipolar world 0:08:03.630,0:08:07.020 so in the late nineteen eighties romer could produce a number of papers in new 0:08:07.020,0:08:08.249 growth theory 0:08:08.249,0:08:11.389 culminating in this great nineteen ninety paper 0:08:11.389,0:08:14.809 many people thought he was on the tracked for nobel prize 0:08:14.809,0:08:17.830 which he may yet winds are really in my view 0:08:17.830,0:08:20.740 and then something strange happened 0:08:20.740,0:08:22.680 romer disappeared 0:08:22.680,0:08:24.819 or at least it seemed that way too 0:08:24.819,0:08:27.669 many people in the economics profession 0:08:27.669,0:08:29.759 romer actually gave up tenure 0:08:29.759,0:08:31.410 he gave up tenure at stanford 0:08:31.410,0:08:34.610 he took an extended five-year leave of absence 0:08:34.610,0:08:36.000 from stanford 0:08:36.000,0:08:37.220 to do what 0:08:37.220,0:08:39.950 well romer created startup 0:08:39.950,0:08:41.670 he created an applicant 0:08:41.670,0:08:47.880 which long before it became a buzzword that it is now aplia was the beginnings 0:08:47.880,0:08:50.160 of online education 0:08:50.160,0:08:54.980 out there was a homework solution professors could assign quizzes could 0:08:54.980,0:08:59.980 grade all ur homework online could you experiments online in economics they 0:08:59.980,0:09:02.720 could shift a demand curve students could shift in anchorage 0:09:02.720,0:09:04.210 and supply curves 0:09:04.210,0:09:06.060 you know it was a fantastic 0:09:06.060,0:09:09.320 fantastic uh... device 0:09:09.320,0:09:10.730 and very successful 0:09:10.730,0:09:11.459 uh... 0:09:11.459,0:09:15.139 uh... roma ran out the effort that seven years and then so look for a lot of 0:09:15.139,0:09:16.470 money to send age 0:09:16.470,0:09:20.670 out they are still going strong today 0:09:20.670,0:09:23.940 did a rumor leave new growth theory 0:09:23.940,0:09:26.920 did he take the lessons of new growth theory 0:09:26.920,0:09:28.829 the importance of ideas 0:09:28.829,0:09:32.800 the importance of ideas to create new ideas to increase productivity 0:09:32.800,0:09:34.690 in dat apply those lessons 0:09:34.690,0:09:36.500 to a great start up 0:09:36.500,0:09:37.850 i think the latter 0:09:37.850,0:09:42.180 and romer story was not yet 0:09:42.180,0:09:46.620 most recently rumors come up with a startling new idea for development 0:09:46.620,0:09:48.040 charter cities 0:09:48.040,0:09:49.070 what is this 0:09:49.070,0:09:51.140 well let's go back to the problem 0:09:51.140,0:09:54.430 the problem is the iron rule of rules 0:09:54.430,0:09:56.610 well i mean my this is 0:09:56.610,0:10:00.940 that we saw that some rules things like the rule of law things like 0:10:00.940,0:10:04.150 anti corruption things like honesty in government 0:10:04.150,0:10:07.430 these types of rules are hard to transmit 0:10:07.430,0:10:09.240 now why the hard to transmit 0:10:09.240,0:10:13.210 well they may be hard to transmit because the require a lot of interaction 0:10:13.210,0:10:15.000 and a lot of coordination 0:10:15.000,0:10:16.620 it's kind of like getting everyone 0:10:16.620,0:10:20.540 from driving on the left hand side of the road to switch to driving on the 0:10:20.540,0:10:22.190 right-hand side of the road 0:10:22.190,0:10:25.500 everyone must agree to coordinate on the new equilibrium 0:10:25.500,0:10:27.300 and that's really hard 0:10:27.300,0:10:28.940 there may be forces 0:10:28.940,0:10:31.920 you can you do it you know halfway in halfway steps 0:10:31.920,0:10:33.819 he can do it a little bit of the time 0:10:33.819,0:10:35.890 you've gotta go all the way or nothing 0:10:35.890,0:10:37.700 and that is very very difficult 0:10:37.700,0:10:40.300 sweden by the way we actually managed to do this 0:10:40.300,0:10:42.200 in the nineteen seventies 0:10:42.200,0:10:45.740 so in just the same way that it's hard to get people to coordinate 0:10:45.740,0:10:48.130 on switching from the right hand side to that 0:10:48.130,0:10:50.130 left hand side or vice versa 0:10:50.130,0:10:52.419 it may be hard to get people to coordinate 0:10:52.419,0:10:54.520 out of the corruption trap 0:10:54.520,0:10:56.600 once you become 0:10:56.600,0:10:58.769 on known once once the rules 0:10:58.769,0:11:00.320 of helping out your cousin 0:11:00.320,0:11:04.420 of helping out your try member once that rule becomes laid down 0:11:04.420,0:11:07.380 a single person breaking from that rule 0:11:07.380,0:11:10.850 is going to have a really hard time they're going to be squash right back 0:11:10.850,0:11:12.960 down again if you don't help by your cousin 0:11:12.960,0:11:14.560 you can read thrown out of the family 0:11:14.560,0:11:17.780 it's really hard to break out of these coordination traps 0:11:17.780,0:11:19.450 so how do you do it 0:11:19.450,0:11:22.260 told the solution is startups 0:11:22.260,0:11:27.530 or a big push in ideas this is like the big push idea coming back to us again 0:11:27.530,0:11:28.959 but now it's and ideas 0:11:28.959,0:11:30.440 well i mean exactly 0:11:30.440,0:11:33.160 well what i mean what rawr means is 0:11:33.160,0:11:35.550 to start up a new city 0:11:35.550,0:11:38.399 and new city on on occupied land 0:11:38.399,0:11:40.280 with a charter of new 0:11:40.280,0:11:41.870 rules 0:11:41.870,0:11:44.170 toys he has in mind for these new rules 0:11:44.170,0:11:46.640 well he wants the rules to come from outside 0:11:46.640,0:11:48.810 to launched this new equilibrium 0:11:48.810,0:11:52.370 so for example you take a unoccupied piece of land 0:11:52.370,0:11:54.060 in a developed country 0:11:54.060,0:11:55.889 and you would turn on a knockout 0:11:55.889,0:11:57.780 unoccupied piece of land 0:11:57.780,0:11:58.840 over 0:11:58.840,0:12:00.119 to uh... 0:12:00.119,0:12:01.390 uh... canada 0:12:01.390,0:12:03.260 over to great britain 0:12:03.260,0:12:07.280 uh... and have them apply this new set of rules and then have people 0:12:07.280,0:12:09.720 voluntarily enter the city 0:12:09.720,0:12:13.060 voluntarily put themselves under the new set of rules 0:12:13.060,0:12:14.500 hong kong here 0:12:14.500,0:12:16.390 is the classic example 0:12:16.390,0:12:18.870 remember it was hong kong 0:12:18.870,0:12:20.160 which is actually 0:12:20.160,0:12:22.620 completely revolutionized 0:12:22.620,0:12:26.050 and that's what rumors hoping start up a new city 0:12:26.050,0:12:26.940 created 0:12:26.940,0:12:28.490 not only as a 0:12:28.490,0:12:31.550 and in itself is a demonstration project 0:12:31.550,0:12:36.360 new city of ten million people are so operating under completely new rules 0:12:36.360,0:12:39.170 new rules which have been successful elsewhere 0:12:39.170,0:12:41.220 bring them to the new city 0:12:41.220,0:12:44.720 now romer introduced this idea only in two thousand and ten or so it's very 0:12:44.720,0:12:51.100 recent and yet incredibly he's already had some success in pushing the idea 0:12:51.100,0:12:52.600 uh... around the world 0:12:52.600,0:12:55.330 so what still hung juries for example 0:12:55.330,0:13:00.510 has indicated that it will create in fact has created 0:13:00.510,0:13:05.330 unoccupied piece of land where these new rules could be put in place right now 0:13:05.330,0:13:06.020 uh... 0:13:06.020,0:13:08.970 romer is looking for a third party 0:13:08.970,0:13:10.500 to come in and help 0:13:10.500,0:13:14.230 run the new city that canada is one possibility 0:13:14.230,0:13:18.950 he's got the judges from outside also being willing to come in and apply the 0:13:18.950,0:13:20.380 new rules 0:13:20.380,0:13:22.850 now bear in mind here something really important 0:13:22.850,0:13:27.270 and that is that the world is organizing and he really fast rate 0:13:27.270,0:13:31.650 so take india for example a scud eight hundred million people are settled still 0:13:31.650,0:13:36.260 living a rulings instance but it's clear over the next twenty to thirty years 0:13:36.260,0:13:39.960 hundreds of millions of these people are going to be coming to cities many of 0:13:39.960,0:13:41.650 them new cities 0:13:41.650,0:13:44.880 so now is a great opportunity 0:13:44.880,0:13:50.600 to create fresh new cities sees not beholden to the old rules 0:13:50.600,0:13:51.920 cities for example 0:13:51.920,0:13:54.840 were cast would no longer be recognized 0:13:54.840,0:13:56.490 that releases the hope 0:13:56.490,0:14:02.190 will roar be successful who knows but it's a bold idea his revolutionized 0:14:02.190,0:14:05.670 economics education he revolutionized new growth theory 0:14:05.670,0:14:10.010 perhaps this idea is gonna take off as well 0:14:10.010,0:14:13.750 here's a couple places you can find out more about pablo mur 0:14:13.750,0:14:17.860 particularly about this new idea of charter cities a rough roberts hasn't 0:14:17.860,0:14:22.670 excellent interviewer econ talk you can also look at romer sp ted talk 0:14:22.670,0:14:24.960 alone also close to the following 0:14:24.960,0:14:27.570 nicely paul romer is a lot like 0:14:27.570,0:14:29.110 uh... coasts 0:14:29.110,0:14:33.500 tonight coast in the right very much to produce only a handful of papers but 0:14:33.500,0:14:36.580 those papers were absolutely revolutionary 0:14:36.580,0:14:38.580 and romer is the same way 0:14:38.580,0:14:42.380 he hasn't written a lot but he what he has written has been very deep has been 0:14:42.380,0:14:46.980 very fundamental has been much more important than a lot than most other 0:14:46.980,0:14:49.600 work which goes on in economics 0:14:49.600,0:14:54.150 indeed when i think about the economist which of most influenced me 0:14:54.150,0:14:56.650 when i think about the ideas which i 0:14:56.650,0:15:01.210 think about most on an everyday basis which are used to interpret the rule of 0:15:01.210,0:15:02.450 the the world 0:15:02.450,0:15:06.500 ideas which i used to interpret the world a lot of them about growth theory 0:15:06.500,0:15:11.620 about the importance of ideas about trade about markets they're coming from 0:15:11.620,0:15:12.990 paul romer 0:15:12.990,0:15:15.760 so indeed if you want to take a look at my tent up 0:15:15.760,0:15:17.510 taba rocks ted talk 0:15:17.510,0:15:20.970 uh... you'll see that's really an introduction to the ideas of paul romer 0:15:20.970,0:15:22.600 in many ways 0:15:22.600,0:15:23.410 so thanks very much 