September 30, 2023

Paul Romer was once the most popular economist in Silicon Valley. The theory that helped him win a Nobel Prize – that ideas are the turbo-charged fuel of the modern economy – resonated deeply in the global capital of ideas that create wealth. In the 1990s, Wired magazine called him “an economist for the technological age”. The Wall Street Journal said the tech industry treated him “like a rock star.”

No more.

The 65-year-old Romer still believes in science and technology as the engines of progress. But he’s also become a heavy critic of the biggest tech companies, saying they stifle the flow of new ideas. He campaigned for new state taxes on digital ads sold by companies like Facebook and Google, an idea Maryland adopted earlier this year.

And he’s tough on economists, including himself, for having long provided the intellectual cover for the hands-off guidelines and court decisions that have led to what he calls the “collapse of competition” in technology and other industries .

“Economists taught: ‘It’s the market. There is nothing we can do, ”said Mr Romer. “This is really just so wrong.”

Mr Romer’s current call for government activism reflected “a profound change in my thinking” in recent years. It also fits in with a broader reassessment of the technology industry and government regulation among prominent economists.

You see markets – search, social networks, online advertising, e-commerce – that don’t behave according to free market theory. Monopoly or oligopoly seems to be the order of the day.

The relentless rise of the digital giants requires new thinking and new rules. Some were members of the tech-friendly Obama administration. In statements and research reports from Congress, they bring ideas and credibility to policy makers who want to curb the big tech companies.

Your policy recommendations vary. That includes stronger enforcement that gives people more control over their data and new laws. Many economists support the bill introduced earlier this year by Senator Amy Klobuchar, a Democrat of Minnesota, to tighten up on mergers. The bill would effectively “override a number of flawed, pro-indicted Supreme Court cases,” wrote Carl Shapiro, an economist at the University of California at Berkeley and a member of the Obama administration’s council of economic advisers, recently presented to the American Bar Association.

Some economists, notably Jason Furman, a Harvard professor, chairman of the Obama administration’s council of economic advisers, and digital markets advisor to the UK government, are recommending 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 New York University’s Stern School of Business, has estimated that monopolies in industries across the economy cost American households $ 300 a month.

“We’ve all changed because what really happened is an extension of the evidence,” said Fiona Scott Morton, an antitrust officer in the Obama administration’s Justice Department who is an economist at Yale University School of Management.

Of all the economists now exploring big tech, Mr Romer is perhaps the most unlikely. He earned his bachelor’s and doctoral degrees from the University of Chicago, the long-standing church of free market absolutism, whose ideology has guided antitrust court decisions for years.

Mr. Romer spent 21 years in the Bay Area, mostly as a professor first at Berkeley and then at Stanford. While in California, he founded and sold an educational software company. In his research, Mr. Romer uses software as a data exploration and discovery tool and has become a skilled Python programmer. “I enjoy the solitary practice of building things with code,” he said.

His son Geoffrey is a software developer at Google. His wife, Caroline Weber, author of Proust’s Duchess, a finalist in the Pulitzer Prize for Biography and a professor at Barnard College, is a friend of Harvard classmate Sheryl Sandberg, Facebook’s chief operating officer. Mr. Romer has never consulted for the big technology companies, but he has friends and former professional colleagues there.

“People I like are often dissatisfied with me,” he said.

Mr Romer, who joined New York University faculty a decade ago, said preparing his Nobel Lecture in 2018 made him think about the “progress gap” in America. Progress, he explained, is not just a question of economic growth, but should also be seen in measures of individual and social well-being.

In the United States, Mr. Romer saw worrying trends: a decline in life expectancy; rising “deaths of desperation” from suicides and overdoses; falling activity rates for adults in their prime working years from 25 to 54; a growing wealth gap; and increasing inequality.

While there are many causes for such problems, Mr. Romer believes that one of the causes was a business occupation which has diminished the importance of government. His new growth theory recognized that government played an important role in scientific and technological advancement, but most importantly by funding basic research.

Looking back, Mr. Romer admits that he was trapped in the “little government bubble” of the time. “I seriously underestimated the role of government in sustaining progress,” he said.

“Real progress takes both science and government – a government that can say no to bad things,” said Romer.

For Mr. Romer, the economy is a means to apply the independent rigor of scientific thinking to social challenges.

City planning, for example. For years, Mr. Romer pushed the idea that new cities in developing countries should be a mix of government design for basics like roads and sanitation, and that the markets should mainly take care of the rest. During a brief stint as chief economist at the World Bank, he had hoped to convince the bank to support a new city, to no avail.

In the big tech debate, Romer notes the influence of progressives like Lina Khan, an antitrust scientist at Columbia Law School and Democratic candidate for the Federal Trade Commission, who view market power itself as a threat and investigate its effects on workers, Suppliers and communities.

This social perspective is another lens that appeals to Mr. Romer and others.

“I’m fully on board with Paul,” said Rebecca Henderson, economist and professor at Harvard Business School. “We have a much bigger problem than one that falls within the limits of applicable antitrust law.”

Mr Romer’s specific contribution is a proposal for a progressive tax on digital ads that would apply primarily to the largest advertising-supported Internet companies. The premise is that social networks like Facebook and Google’s YouTube rely on keeping people on their sites for as long as possible by targeting them with attention-grabbing ads and content – a business model that is disinformation, hate speech, and polarizing political Messages naturally amplified.

Romer insists that digital ad revenue is a fair game for taxation. He wants the tax to drive businesses from targeted ads to 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 embodying the concept of Mr. Romer’s digital advertising tax. Other states, including Connecticut and Indiana, are considering similar proposals. Industry groups have filed a legal challenge to Maryland law alleging it was an illegal state violation.

Mr Romer says the tax is an economic instrument with a political aim.

“I really think the much bigger problem we are facing is maintaining democracy,” he said. “That goes way beyond efficiency.”