Warsh gives a brief history on Romer's mentor Russell Davidson. Warsh then describes when Romer is taught by Davidson about the Von Neumann model or the Minimax theory, which was an early predecessor to the Solow and Keynesian models. The Von Neumann model held technology consist, to which Romer's responds was "But that's stupid!"(pg 199).
Romer then decided that he was going to build a better model that took into account the change of knowledge. Which he found to be a bigger problem then he anticipated and helped him to become a true economist.
A for Sue.
ReplyDeleteVon Neumann invented many models. The minimax model is not the one Warsh refers to. If you go to this section of the Wikipedia page on Von Neumann, minimax is the first paragraph, while the uncited paper that Warsh is referring to is in the third. No, it's not something most of you are going to get a lot out of, I'm just pointing you in the right direction.
Page 201 indicates that at some point while in Kingston, Romer recognized that including increasing returns would get him growth. It's not clear how much he knew about Krugman's work at this time. Warsh also doesn't mention that just using increasing returns to produce growth would be a no-no: it's kind of like assuming the solution. Increasing returns will dominate everything in an economic model, which clearly isn't realistic, so the trick is how do you have them in there without having them dominate everything.
BTW: Notice that guys as big a deal as Romer take off 2 years between schools and do economics and math at home for fun just to get ready for the next round. They aren't like you and me.