Apr 23, 2019

Romer on the economics of objects vs. the economics of ideas

On EconTalk (a), at the beginning of the interview:

Roberts: You contrasted the economics of objects and the economics of ideas. What do you mean by that distinction?

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Romer: There's an external world which is usually characterized by physical objects. I think of that as kind of the world of Malthus. I think it was also the world that we evolved in as a species in, you know, the Pleistocene Era.

So, there's scarce objects; we are rivals for the use of those objects. There's some food resources that one group of people can have or another group of people can have; and we're going to be fighting over it: there's a zero-sum game. And, I think the most important implication of that world of objects is if there's more people, it's worse for everybody on average, because with a fixed set of objects, there's fewer objects per person if you have more people. It's just like this iron law, inescapable.

Now, the world we live in, especially since the Neolithic Revolution when we settled down and started discovering things is a world with both objects and ideas. Ideas are insights about how to rearrange the objects – to transform them to turn them from things that are less valuable to us into things that are more valuable to us. So, ideas let us get more value out of a fixed set of objects. And the really exciting implication about this to me is that, if there's more people – even more people that are remote from me: I don't know all of them, I don't like 'em – it may still be good to have them around because even though there's less total objects per person, they might discover something valuable. And this is where the difference between objects and ideas surely matters. If they discover something valuable, then I can use it; they can use it at the same time.

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So, that's the fundamental difference between objects and ideas: this notion of everybody can share it or it's only one person who can use it.

It does have this implication that if you keep discovering more ideas, you can keep getting more value, so we'd get growth. But I've recently gotten more excited about the, you know, the broader implications about this – about how we treat other people. So that we start to see other people as allies, at least, not as foes. And I think, in some ways, what's happening is we're learning to live in a world of ideas with a mentality that's carried over, you know, from the Malthusian Pleistocene.

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