Nobel econ prize winner Paul Romer thinks people give up too easily

The thought of potentially irreversible climate change often makes people fatalistic and resigned. The overwhelming nature of the problem provokes shrugs of it’s too late, too hard, too expensive, and too impossible for politicians to handle.

But this year’s Nobel economics prize winner Paul Romer, who won along with William Nordhaus, says this is wrong and dangerous.

“We tend to get used to problems and think there’s nothing we can do,” he told Yahoo Finance over the phone, a few weeks after the call came from Stockholm. “We get apathetic. There is no excuse for that.”

Much of Romer’s work has been about innovation and the conditions required to produce it. He has fought against the idea that big, paradigm-shifting things fall from the sky — rather, he says, these types of events emerge from a set of conditions that made it possible.

It doesn’t take much to transpose this thinking to problem solving. Like innovations, solutions to seemingly impossible problems are not deus ex machinas, falling from the sky. Instead, they too can be engineered by a set of conditions.

“First, it helps to think of examples where things went well,” Romer said. “The global response to the threat of the ozone hole is an example, and a helpful one. There was a lot of alarmism that was about how costly it would be. Like, how would western society survive if I can’t use chlorofluorocarbons on my underarms?”

This, Romer pointed out, turned out to be an overblown issue that was easily solved by not “using Right Guard out of a can and using sticks.”

“There have been times where we rose to the challenge and it wasn’t that disruptive,” he said.

In a version of the maxim how do you eat an elephant (“like anything else; one bite at a time”), Romer addresses the question of fomenting mass change as a form of “what ifs.” These, he says, are much better than “shoulds,” which academics like him should steer clear of to retain credibility.

“What ifs” also help get things done, because it helps position people’s understanding of the problem by putting the action first. (For example, what if we stopped using chlorofluorocarbons?)

Much of this involves a heavy dose of realism, as Romer notes that people correctly understand that they, in their own personal actions, can’t make much of a difference. But it also shines light on what actually would need to happen for change to occur — through a political process.

“The market has been incredibly successful to extract more oil and gas at low cost,” Romer said. “But if the goal is to reduce total carbon in the atmosphere, making more oil and gas available at lower cost isn’t helping. What would be good would be if we steered tech to improving photovoltaics, storage, but without committing that solar is the right solution.”

One way to do that, he said, would be for the government to gradually increase taxes on carbon-emitting fuels.

Many countries have carbon taxes — the U.S. is not one of them, though certain states, counties, and municipalities have them. In fact, actions by the Trump administration have pushed back on carbon reduction.

“What that would do is create incentives for people to come up with solutions,” Romer said.

In that case, he said, there could be lots more energy for far more people on earth, which would be a “huge win for everybody.”

This is a type of nudging regulation, Romer said, that’s probably most suited to innovation.

“On most things, it can work really well if you take this high-level approach to steer things but you don’t try to micromanage the details,” he said.

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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, retail, personal finance, and more. Follow him on Twitter @ewolffmann.