The market and science differ in their treatment of property rights, but they're similar in that they rely on individuals who are free to operate under essentially no constraints by authority or tradition. It took a special set of historical circumstances to persuade people that things could work if you freed people, within certain institutional constraints, to pursue their own interests. This is where Ming China was very far away from modern notions.
Part of the answer to this big question about human history has been the acceptance of relatively unfettered freedom for large numbers of individuals. It's something we just take for granted, but if you described it in the abstract to the people of 50,000 years ago, they would never believe it could possibly work. They were conditioned to systems where there was the head man or the chief, and as numbers got at all large, there was a sense that you had to have somebody with kind of dictatorial control. It was a deep philosophical insight and deep change in the whole way we viewed the world to tolerate and accept and then truly celebrate freedom. Freedom may be the fundamental hinge on which everything turns.
reason: You often cite the combinatorial explosion of ideas as the source of economic growth. What do you mean by that?
Romer: On any conceivable horizon -- I'll say until about 5 billion years from now, when the sun explodes -- we're not going to run out of discoveries. Just ask how many things we could make by taking the elements from the periodic table and mixing them together. There's a simple mathematical calculation: It's 10 followed by 30 zeros. In contrast, 10 followed by 19 zeros is about how much time has elapsed since the universe was created.
reason: Of all those billions of combinations, the vast majority are probably going to be useless. So how do you find the useful ones?
Romer: This is why science and the market are so important for this discovery process. It's really important that we focus our energy on those paths that look promising, because there are many more dead ends out there than there are useful things to discover.
You have to have systems which explore lots of different paths, but then those systems have to rigorously shut off the ones that aren't paying off and shift resources into directions which look more promising. The market does this automatically. The institutions of science could tip either way. In American science, we have vigorous competition between lots of different universities, which leads to a kind of marketplace of ideas. You can think of other institutions of science that aren't nearly as competitive. In the national laboratories, people are in the worst case civil servants: They're there for life, and there's always more funding for them.
reason: Does New Growth Theory give us some new insights on how to think about monopolies?
Romer: There was an old, simplistic notion that monopoly was always bad. It was based on the realm of objects -- if you only have objects and you see somebody whose cost is significantly lower than their price, it would be a good idea to break up the monopoly and get competition to reign freely. So in the realm of things, of physical objects, there is a theoretical justification for why you should never tolerate monopoly. But in the realm of ideas, you have to have some degree of monopoly power. There are some very important benefits from monopoly, and there are some potential costs as well. What you have to do is weigh the costs against the benefits.
Unfortunately, that kind of balancing test is sensitive to the specifics, so we don't have general rules. Compare the costs and benefits of copyrighting books versus the costs and benefits of patenting the human genome. They're just very different, so we have to create institutions that can respond differentially in those cases.
reason: You have written, "There is absolutely no reason why we cannot have persistent growth as far into the future as you can imagine." Your Stanford colleague, the biologist Paul Ehrlich, disagrees. He believes that economic growth is an unsustainable cancer that is destroying the planet. How would you go about convincing people like Ehrlich that they are wrong?
Romer: Paul seems singularly immune to being convinced. He has been on the wrong side of these issues, so I wouldn't set that as my standard of persuading anybody. However, if I took a neutral observer who might listen to me and Paul, there's a pretty easy way to explain why I'm right and why Paul misunderstands. You have to define what you mean by growth. If by growth you mean population, more people, then Paul is actually right. There are physical limits on how many people you can have on Earth. If we took peak population growth rates from the '70s at 2 percent per year, you can only sustain that for a couple of hundred years before you really run into true physical constraints.
reason: I would remind you that Ehrlich said that there would be billions of people dying of starvation in the 1980s.
Romer: He got the potentials wrong and the time frame wrong, but it's absolutely true that population growth will have to come to zero at some point here on Earth. The only debate is about when.
Now, what do I mean when I say growth can continue? I don't mean growth in the number of people. I don't even mean growth in the number of physical objects, because you clearly can't get exponential growth in the amount of mass that each person controls. We've got the same mass here on Earth that we had 100,000 years ago and we're never going to get any more of it. What I mean is growth in value, and the way you create value is by taking that fixed quantity of mass and rearranging it from a form that isn't worth very much into a form that's worth much more. A canonical example is turning sand on the beach into semiconductors.
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