Thursday, April 7, 2011
Chapter 21 Pages 287 & 288
The ski lift paper presented Paul Romer with opportunity. Because of this paper and it's "take-home message," Romer was invited to present at a workshop at the University of Chicago. Founded in sound price theory and complex math, Romer's workshop and paper were appealing to those at Chicago. Just weeks after the seminar, Romer was contacted by former professor Jose Scheikman and offered a position as a full professor. This presented the boost Romer needed to go back to work on his model of growth.
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A for Jim.
ReplyDeleteBut Jim has missed the big picture.
Romer has discovered something very interesting: that prices can still be flexible when they look sticky. As in the ski-lift: the dollar cost is constant, but the real cost adds in waiting time, and is quite flexible.
The conflict that Romer is on the knife-edge of: between freshwater and saltwater, between Chicago and Boston, between new-classicals and Keynesians, is in part, about how they view price stickiness.
The freshwater/Chicago/new-classical story is basically that price flexibility solves all problems.
The saltwater/Boston/Keynesian issue is that price are often sticky because of monopoly behavior arising from fixed costs.
The ski-lift taught Romer that in a club, you could mix flexibility and stickiness together, depending on your perspective.