Once favorite tech economist, Paul Romer is now a thorn in his side
Paul Romer was once Silicon Valley’s favorite economist. The theory that helped him win a Nobel Prize – that ideas are the turbocharged fuel of the modern economy – has resonated deeply in the world’s wealth-generating ideas capital. In the 1990s, Wired magazine called him “an economist of the technological age.” The Wall Street Journal said the tech industry treated him “like a rock star.”
Today, Romer, 65, remains a supporter of science and technology as the engines of progress. But he’s also become a fierce critic of the tech industry’s biggest companies, saying they are stifling the flow of new ideas. He championed new state taxes on digital ads sold by companies like Facebook and Google, an idea Maryland adopted this year.
And he is hard on economists, including himself, for having long provided the intellectual cover for non-intervention policies and court rulings that have led to what he calls “the collapse of competition” in technology and other industries.
“Economists have taught, ‘It’s the market. We can’t do anything, ”Romer said. “This is really so wrong.”
Romer’s current call for government activism, he said, reflects “a profound shift in my thinking” in recent years. It is also part of a broader reassessment of the technology industry and government regulation among prominent economists.
They see the markets – research, social media, online advertising, e-commerce – not behaving according to free market theory. Monopoly or oligopoly seems to be the order of the day.
The relentless rise of digital giants, they say, requires new thinking and new rules. Some were members of the Obama administration, tech-savvy. In congressional testimony and research reports, they bring insight and credibility to policymakers who want to master big tech companies.
Their policy recommendations vary. They include tighter enforcement, giving people more control over their data and new legislation. Many economists are backing the bill introduced this year by Senator Amy Klobuchar, D-Minn., That would tighten the brakes on mergers. The bill “would effectively overturn a number of flawed Supreme Court cases in favor of the accused,” wrote Carl Shapiro, an economist at the University of California at Berkeley and a member of the Obama administration’s Council of Economic Advisers. , in a recent article. presentation to the American Bar Association.
Some economists, including Jason Furman, a Harvard professor, chairman of the Obama administration’s Council of Economic Advisers and UK government adviser on digital markets, recommend a new regulator to enforce a code of conduct for Big Tech companies that would include fair access to their platforms for competitors, open technical standards and data mobility.
Thomas Philippon, an economist at the Stern School of Business at New York University, estimated that monopolies in industries across the economy cost American households $ 300 a month each.
“We’ve all changed because what really happened was an expansion of the evidence,” said Fiona Scott Morton, an official in the antitrust division of the Obama administration’s Justice Department, an economist at the Yale University School of Management.
Of all the economists who are now taking on Big Tech, however, Romer is perhaps the most unlikely. He earned his undergraduate and doctoral degrees from the University of Chicago, long the high church of free market absolutism, whose ideology has guided antitrust court decisions for years.
Romer spent 21 years in the Bay Area, primarily as a professor at Berkeley and then Stanford. While in California, he founded and sold an educational software company. In his research, Romer uses software as a tool for data mining and discovery, and he has become an adept Python programmer.
“I enjoy the solitary exercise of building things with code,” he said.
His son, Geoffrey, is a software engineer at Google. His wife, Caroline Weber, author of “The Duchess of Proust”, Pulitzer Prize finalist for biography and professor at Barnard College, is a friend of his Harvard classmate Sheryl Sandberg, chief operating officer of Facebook. Romer has never consulted for Big Tech companies, but there are friends and former professional colleagues.
“The people I love are often unhappy with me,” he says.
Romer, who joined the faculty at New York University ten years ago, said preparations for his Nobel lecture in 2018 prompted him to reflect on America’s “progress gap”. Progress, he explained, is not only a matter of economic growth, but must also be seen as a measure of individual and social well-being.
In the United States, Romer has experienced worrying trends: declining life expectancy; increase in “deaths from desperation” due to suicides and drug overdoses; declining work participation rates for adults in their prime working years, aged 25 to 54; a growing wealth gap and growing inequalities.
Such problems, of course, have many causes, but Romer believes that one of the causes was an economic profession that downplayed the importance of government. His new growth theory recognizes that government plays an essential role in scientific and technological progress, but primarily by funding basic research.
In retrospect, Romer admits to being caught in the “little government bubble” of the time.
“I have greatly underestimated the role of government in sustaining progress,” he said. “Real progress requires both science and government – a government that can say no to things that are bad.”
For Romer, economics is a vehicle for applying the independent rigor of scientific thought to social challenges.
Urban planning, for example. For years, Romer argued that new cities in the developing world should be a mix of government design for such basics as roads and sanitation, and primarily let markets take care of the rest. During a brief stint as chief economist for the World Bank, he had hoped to persuade the bank to support a new city, without success.
In the Big Tech debate, Romer notes the influence of progressives like Lina Khan, Columbia Law School antitrust scholar and Democratic Federal Trade Commission candidate, who see market power itself as a danger. and examine its impact on workers and suppliers. and communities.
This welfare perspective is a broader lens that appeals to Romer and others.
“I totally agree with Paul on this,” said Rebecca Henderson, economist and professor at Harvard Business School. “We have a much broader problem than the one that falls within the limits of current antitrust law.”
Romer’s specific contribution is a progressive digital advertising tax proposal that would apply primarily to the largest advertising-backed internet companies. Its premise is that social networks like Google’s Facebook and YouTube rely on keeping people on their sites for as long as possible by targeting them with eye-catching ads and content – a business model that inherently amplifies misinformation, rhetoric. hate and polarizing political messages.
While digital ad revenue, Romer insists, is a fair game for taxation. He would like to see the tax encourage companies to move away from targeted advertising towards a subscription model. But at least, he said, it would give governments the tax revenue they need.
In February, Maryland became the first state to pass legislation that embodies Romer’s digital advertising tax concept. Other states, including Connecticut and Indiana, are considering similar proposals. Industry groups have filed a court challenge to Maryland’s law, claiming it was an illegal exceedance by the state.
Romer says the tax is an economic tool with a political purpose.
“I really think the much bigger problem we face is the preservation of democracy,” he said. “It goes way beyond efficiency.”