Conversations with Tyler - Paul Romer on a Culture of Science and Working Hard

Episode Date: May 20, 2020

Paul Romer makes his second appearance to discuss the failings of economics, how his mass testing plan for COVID-19 would work, what aspects of epidemiology concern him, how the FDA is slowing a better response, his ideas for reopening schools and Major League Baseball, where he agrees with Weyl's test plan, why charter cities need a new name, what went wrong with Honduras, the development trajectory for sub-Saharan Africa, how he'd reform the World Bank, the underrated benefits of a culture of science, his heartening takeaway about human nature from his experience at Burning Man, and more. Read a full transcript enhanced with helpful links, or watch the full video. Recorded May 13th, 2020 Other ways to connect Follow us on Twitter and Instagram Follow Tyler on Twitter  Follow Paul on Twitter Email us: [e-mail] Subscribe at our newsletter page to have the latest Conversations with Tyler news sent straight to your inbox. 

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real world problems. Learn more at Mercadis.org. And for more conversations, including videos, transcripts, and upcoming dates, visit Conversationswithtyler.com. Hello, everyone. Today I am chatting once again with Paul Romer, who needs no introduction. Paul, welcome.

Good to be here. You have a recent article in the period. foreign affairs about the failings of economics. And let me try to defend the economics profession. Tell me what you think. If I look at the big catch-up winners over the last few decades, it seems to me it's Poland and Ireland. And they basically followed a neoliberal recipe.

They more or less did what economists told them to do. What's the failure in that? Yeah. So what about China? I mean, China caught up pretty well, too. But they followed some of the basic insights from economics. And the solar model. Yeah.

But so the origins of that article were that I read some books that said, economists got a lot more influence and things got worse in the United States. And this was a really troubling argument for me because it's not easy to dismiss. What I concluded in that article is saying, we should do a cost-benefit analysis. Look at the big things that economics has done well, the things it may have done badly, and just see how it works out. The point you're alluding to is something that my colleague Peter Henry has also made, which is that one of the areas where economics may really have been helpful

is in the development process or the catch-up phase of growth. So that should go on the plus side, I think, on the benefit side, on the cost-benefit analysis. No question there. And there, I think, there's some other ones that belong there, too. My point was that there may have been some things that have also been significant negatives, and it's time to do the numbers and see what the net is. So if I ask myself, what do I think has been the biggest negative? I suppose I would say around 2008, economists, for the most part, did not understand the importance

of the shadow banking system. So what seemed to be a kind of ordinary real estate bubble, like the early 1990s, was far, far worse. and we totally missed that. That seems to be a defect of institutional knowledge. But you tell me what you think the greatest problem has been. I think this problem is an interesting one. I put a slightly different spin on it, but I think it's in the class of things of a failure to understand.

And I don't think that's necessarily, there's like incomplete understanding. I don't think that's a sign of a science that's failed. That's a sign of a science which is just making progress. There's some things that knows, at things it doesn't know. And so I don't view this one as a sign of a systemic problem that we're not doing it right in a sense. For what it's worth, we can come back and talk about this, but I think the lesson from the financial crisis, which we're learning again now, is one about the fragility

of extensive interconnection. And so we've paid attention to optimize efficiency with massive reliance on specialization and these kind of complicated supply chains. But the growth, the proliferation of connection means that our system is more fragile than we realize. So a shock comes and things happen that, you know, we didn't anticipate. But again, that's part of learning about a very new type of economy, which is changing in real time. The ones that struck me as being, you know, particularly worrisome. We're first, I think the negative effect that economists have had in terms of protecting competition. We've, you know, through the law and economics movement, we ratified this notion that big is okay as long as you can make some case that it's efficient.

And the upshot is that I think because of technical economics and the arguments of economists, and I trust is much more tolerant now of dominant firms. And if we believe that competition's good, in a whole bunch of ways, this could actually be very, very harmful. But doesn't Amazon look pretty good right now in the midst of the pandemic? I mean, do you wish we had split it up into different parts? Yeah, you know, my sense is that we'd be better off if we had five Amazon's instead of one. And I don't see why we couldn't have five Amazons. If we as voters say, this is the kind of society we want to live in, let's just aim for that.

And same thing. I think the kind of the more worrisome positions are those of very, the tech firms that are so deeply connected now to many aspects of our lives and where there's really very little competition and a lot of opacity about what these firms actually do. Let me try to defend the economics profession a bit more. If we look at climate policy, a lot of economists have recommended a carbon tax, not quite a consensus, but a very common view. Now, of course, we haven't done it, but it seems to me the profession, in some manner is essentially correct there.

So you would side with the profession on that. Yeah, yeah. And again, part of the main, in some sense, the main point of the article that I'm making is that economists need to accept that our role is that of the technical advisor. We can say, if you apply a carbon tax, carbon emissions will go down,

here's what other effects we think they'll have. But it's up to you, the voters, to decide whether you want to follow that policy or not. So if the voters don't follow us, I think to a first approximation, that's not really our, you know, our responsibility. And what I'm critical of is this tendency for economists to assume the kind of the responsibility of philosopher king and saying to voters, well, we know better what a society should be like, what society should do, listen to us, we'll tell you the way things should be, will tell you what you should do. And, you know, in truth, I think we get into that mode a lot more than we realize. Certainly some members of the profession get into that mode. And I think they've done really quite a bit of harm when they did that.

When you as a voter judge policies, what normative or philosophical standard do you use? Well, I think all of us have some notions about self-interest and then well-being of those around us. everything else equal. Like if our position is the same, we're somewhat happier if those around us are happier as well. Different of us have either a bigger or smaller circle of those we care about. So there's some mixture of making sure everybody is doing okay and then making sure I'm doing okay. That's the first thing that I look at is a voter. But I also look at, this is I think a little bit of a tangent relative to your question. But I also look at the kind of the question of what's, what direction will this policy take our norms, our beliefs about right and wrong? I think those

change. I think there's some beliefs about right and wrong, which are better in an objective sense, in the sense that we economists think of in terms of efficiency. If everybody thought this was the right thing to do, then we would actually all be better off in some objective sense. So those issues weigh heavily in my thinking about policies. Economists have been a little slow to take those up, but I don't know that that's, I mean, I think that's, frankly, I guess that is a part of the problem, I think, with economic analysis, because many of the arguments about, say, like, allowing the market to run and giving people more freedom make more sense if when you do that, you don't change

norms. But if when you do that, you encourage norms that are destructive, that kind of more laissez-faire approach can be harmful. Let me take a trivial example. Suppose laissez-faire, the promulgation of laissez-faire makes everybody feel like it's okay to litter. Okay. So we used to have a norm that we shouldn't litter because it was inconsiderate and it was just wrong. Lese-fair convinces us, I can litter if I want to. It's somebody else's problem to deal with the litter. That kind of let's say fair, would be bad because we'd live in a world that was like full of trash all over the place. And I think in more important areas, economists have been inattentive to the effects that their policies have had on norms.

But if you take, say, litter, why wouldn't the economic approach be, A, either create a private property right, which we do sometimes, other times that's not possible. So we want something like a Pigouvian tax or cap and trade. And your view then is not really far from the standard economics view, if at all. But I think there's actually, there's enormous value in norms that are kind of self-enforcing. So suppose people think litter is bad. Suppose they think it's bad when other people litter, so they'll kind of scold or, you know, criticize when they see somebody litter.

Then without police powers, without courts, without taxes, you actually get the outcome we want, which is we live in a world with no litter. And if we lost those norms, we've got to overlay these more heavy, expensive kind of governmental solutions. Let's look at macroeconomics. If I look at the current crisis, which is turning into a depression, it seems to me we were on the verge of a financial implosion in March. The Fed acted to limit that.

The macroeconomic response to me from the Fed seems to be quite good. So isn't all well in macroeconomics? Yeah. You know, when I was talking about this cost-benefit exercise, one of the positives we mentioned was in the sphere of development and catch-up. I think another is in stabilization policy. The kind of practical macro policy as practiced at the Fed is much better now than it was during the 1930s, and we get real benefits from that. So I think it's good that the Fed is trying to make sure that we don't have this cascade of bankruptcies. So there's no question that economists

have learned something and contributed to society. Just as a side, note, I've been critical of the kind of the more theoretical, rational expectations macro, but set that aside because that really hasn't had that much impact on policy. So macro policy is practiced at the Fed or as practiced by the Congress right now is, I think, a reflection of things we've learned relative to, say, the 1930s, and that's good. But let me kind of come back to what are the minus sides of this balance sheet. So I talked about antitransmit. And I talked about, trust and the failure of competition policy. The other one is in regulation. And if you ask me, who's my, you know, my representative of somebody an economist who overstepped, overreached,

and did real harm, it's Alan Greenspan. Greenspan was this tireless advocate for cutting regulation. He was quoted at one point saying he's never met a regulation that he thought was valuable. And he played a very important role in deregulating the financial system in the run-up, you know, for decades running up to the financial crisis. That financial crisis cost us an enormous amount worldwide. And it's because we unwound systems of regulation that kept our financial system from being as fragile as it's become. And I think you look across, you know, across the board at other types of regulation. we've failed to support the kinds of regulations that we need alongside of Peruvian taxes. There's some bad things that people do bad in the sense they're inefficient.

We can try and tax them. Other times you just use regulation, but one way or the other, we collectively want to stop people from doing things that are harmful. But if you look at the profession as a whole, wouldn't most economists agree that say tax preferences for owner-occupied housing are a bad idea and various other subsidies, built into the system for housing are a bad idea. And if they had been

listened to on that, well, we still might have had a crisis of some kind, but it would have been far smaller. Scott Sumner has argued if we had targeted nominal GDP, the crisis would have been milder. So you're picking a bit on the one thing the Greenspan got wrong, but there's many other things

economists have said that would have made it much better. Yeah, but we still should have been saying, given the choices that voters are making, which reflect your preferences as voters, like supporting an owner-occupied housing, the regulatory choices that we are recommending as economists are actually exposing us to just massive, massive harm. And I don't remember the number off of the top of my head. Haldane did some calculation where, you know, the cost, the worldwide cost of the financial crisis was, I think, in that,

like the hundreds of trillions of dollars. So this is a really huge, huge mistake. So, and we're still, I think, exposed to a financial system, which could just blow up on us at any point in time. It's part of why the Fed has to be so active right now with providing funds. So deregulation, especially of financial markets, I think was harmful. And competition policy was a failure. And then the bottom line is you just look at one of the most basic ways to measure progress. How long do people live? People in the United States are not living as long as they used to.

Life expectancy is declining, and life expectancy hasn't been keeping up with other nations around the world. Sure, but is that a failure of economists? Well, I think partly when the pharmaceutical firms that were trying to make money off of Oxycontin and these opiate-based painkillers, when they went to Congress to try and stop the DEA from shutting them down, what they used was the language of economics. You have to have innovation. You've got to let the market proceed. There'll be some creative destruction, but you have to let us do our thing.

You can't interfere. It'll be bad for growth. And so to the extent that we lent cover indirectly for those kinds of arguments against regulation, so firms could make money killing people, you know, we really did something bad. But again, there are people out there who have misused your ideas or misrepresented them.

Maybe they've done the same with mine. I don't blame you at all for that, right? So if something bad happens with a charter city, I don't say, oh, Paul Romer gave them cover. I say no, it's the fault of the people who did it. So I would say economists were pretty much not to blame for the opioid crisis. Yeah, you know, there's a speech Greenspan gave where he doesn't cite me, but he could. It's all about, you know, we can't have regulation because we got to have growth. Growth comes from innovation.

Regulation slows innovation. It'll stop creative destruction. We just have to live with creative destruction. So I feel like, yeah, some of my ideas could have been used to support bad policy. But instead of like asking, you know, whether I'm personally to blame or personally a bad person, what I'm stepping back and asking is, did we create a system that let someone like Greenspan make recommendations under the cover of science? Like, I'm a scientist.

I'm telling you how it should go. But those recommendations were really based on kind of a worldview he got from a novel by Ayn Rand. There was no technical scientific basis for them, and they turned out to be really incredibly harmful. So we need to make sure that this system that we're building isn't misused in that way. Do you think there should be an obsession with math GREs scores when admitting people into graduate programs and economics? Huh. And we know there is, right? Yeah.

Yeah. Well, it's not the only how we need to do it. It's not the only thing I think we should be looking at. And I'm not sure what are the other predictors. But I don't think just kind of practice in math is going to lead to a successful career in economics. You've been interacting a lot with epidemiologists to impart to your arguments for testing. What's your opinion of that field? Well, you know, there's actually an interesting parallel in epidemiology with a technical

kind of issue in economics. In macro, we shifted towards model-based reasoning about macroeconomics. So representative agent, the whole rational expectations movement was a kind of a shift towards let's see what the models say rather than let's see what the data says. In epidemiology, there's a very well-established model, this SIR model that is behind a lot of these predictions. but there's an alternative that the Institute for Health Metrics and Evaluation, which has this model that's been very influential, widely watched these days, the IMHE is using a much more data-driven approach, kind of a curve-fitting approach.

It's almost like old-style Keynesian macro, where you just say, well, let's just kind of fit something to the numbers and see what comes out of that, without imposing a lot of theory onto the estimation process. And I just found it interesting to see that tension in another field. From the outside, the way it looks to me is it's good to have both of those wings active in a discipline. And it's good to have them kind of in contention with each other. And if I have a criticism of macro and economics, it's like the criticism in epidemiology.

We may have biased things a little bit too much towards the models. and we're not giving enough weight to just the facts themselves. And I think that's because it's actually easier to do models than to look at data. So we need to have a little bit of collective pressure to, yeah, yeah, that's what your theory says. But let's look at the numbers. Many people have supported mass testing plans. Of course, you've been in the lead here. Why do you think they're not getting more support?

Because the benefit cost ratio, if you can pull it off, seems to be quite high. Yeah, I've actually been working oddly. you know, mind you, this is, I'm the, I'm the theorist criticizing the use of models. So, you know, go figure. But what have I been doing recently? I've been using a model to try and figure out what is actually the value of an additional test relative to its cost. So models definitely have their role, but you got to just, you got to stick to the idea that a fact beats a theory every time. I think it's just very clear that a test is worth a lot more than it would cost, it costs us to provide. Why aren't we delivering more? I think there's a genuine confusion and

puzzlement about how to increase the supply of tests. And because people don't know how to go about increasing it, they say it's not possible. They treat it as if it's just something beyond our control. I think we have to look carefully at what changes should we make in policy to increase the the supply of tests. And one part of that, as I've been saying, is we just have to pay for them. If we put up enough money, we can get tests. So I've been saying, if we spent about twice as much on tests as we spend on soda, we could have all the tests we need, like, you know, 23 million tests a day. So first, you've got to provide money. Because tests are a public good, this has got to be money that comes from the government. It's hard to get there with having consumers pay. So, but the

Congress has allocated $25 billion. There's a proposal now for another $75 billion from the Democratic plan. So we're getting there on the money. The other side, which frankly, I'm in this position, thinking about what I was saying before, I'm generally in the position of defending regulation. The more I've looked at the role of the FDA in holding back progress in testing, the more I've concluded this is a case where we have to say, as economists often say, this regulation is just getting the cost-benefit tradeoff wrong. It's way too. restrictive. There's little harm from tests that, I mean, tests don't hurt people. It's not like a vaccine or a pharmaceutical agent. So the FDA is just needlessly slowing down innovation that could otherwise flourish.

So pay some money and then get the FDA out of the way. And then all of these very clever researchers and university labs all across this country, they could give us all the tests we need. Germany has done a great deal with testing, as you know, but at least now, as we're speaking, as if I think May 12th, there R is still over one. Does that worry you? Does testing really get you into the promised land if you're not a small island? It does worry me. And I don't think that, you know, as well as they've done, actually remember, let's just pause for saying, because this is a little tricky. If R is equal to one, that means that the number of deaths, the number of infections, will stay constant over time.

So you can have R equal to one at a low level of infection and low rate of death, which is where Germany is. We have R about equal to one at a higher rate of death. But in any case, it is worrisome because what we want for suppression is R significantly less than one. And Germany is not testing at the scale that I would propose, and I'm afraid that the way to get there

is that even Germany is going to have to do more testing, including more testing where you're just kind of fishing for people who are infected. You just test people who are asymptomatic. You've got no indication that they were a contact, but you test them anyway because that's the only way to find some of the people who are currently infected. Do you worry that some of the countries that have done the best with testing have combined it with forced quarantine and that maybe you need forced quarantine for testing to work? I think, again, I was critical.

It's been very funny to go from that kind of this angst, almost, like crisis of the, you know, the review I wrote of what economists have done, but then to shift into economist mode where I think we can actually provide some real benefit and some clarity in these conversations. So the way I frame this on testing is first, ask what would be the value of a particular piece of information? What's just, what, how valuable would it be if we know who's infected and who's not? Then, given that information separately, let's think about what's a good way to use that information. And I think there's some open questions about how best to use this.

I have some colleagues who I've written a paper on because they were also promoting this idea of test everyone. Their view is that one of the ways we might do this is just at home, get devices that can test you at home. So everybody finds out if they're infected or not. Their attitude is that may be all you need to do. Because once people know they're infected, they'll take decisions. take actions to protect their colleagues, the people they know. Most people are responsible. Most

people don't want to inflict harm on others. They may well just self-isolate. So maybe that with enough testing, we just let everybody know, are you infectious or not? And that's all we have to do. You could go to the other extreme and have some government system where the test system has to report every positive and the government forces quarantine on people. I don't think you need that. I don't think you get that much benefit out of that. And it's going to a lot of, I think, potential costs. So let's get that information. And then let's use it very gently.

First, just let people know and let them adjust. Second, maybe give someone like, I keep talking about, like, recovery means I can actually go back to the dentist. Okay. So maybe my dentist will say, Paul, I don't want to be working in your mouth and you can't be wearing a mask when you're in the dental chair unless you get a recent, you have a recent test that shows that you're not positive, then fine, you can come on in and I can work on your teeth. So we might give other people the right and the ability to say there's

certain things you can't do, certain services you can't have access to unless you can show that you've got a negative. So restaurants might offer sit-down meals, but say you can only get a reservation. If you can show us, you've got a negative test result in the last, you know, a couple days. So we can use this information in ways that I think aren't very oppressive, aren't very risky, that could let us go back to going to the dentist and having restaurant reels and do it without big risks, I think, to our freedoms. Take the people who test positive. It seems that at some point they're likely to be immune and in a sense they're more valuable as workers. But when do we give them the clear? So I read papers, oh, you can be infectious for up to five weeks, maybe more.

We're in a very risk-averse society. Don't you run the risk by getting a test at all, that in essence you end up locked out of polite society? Well, again, this is where I'm defending science and economics as science. Here is really the science of medicine. We need to help everybody know, here's what the facts are. Based on these kind of signals or this elapsed time, you can be confident that a person is not infectious any longer. And then people may still have some emotional, aversive reactions, but I think if we can just credibly provide the facts, then that will start to

change practice, and practice will start to change some of those kind of deeper, those deeper emotions. Should there be a liability waiver for businesses that test their employees? We all know there are false negatives and positives, in fact. So say your business tests you, they tell you you don't have it, it turns out you do have it, you infect your spouse. Should there be a liability waiver to encourage this testing? You know, for vaccines, we created a special compensation mechanism so that instead of litigating

somebody who's harmed by taking a vaccine, because there's a small fraction of the population that has a negative side effect, there's a separate compensation mechanism. I think there are many reasons to think that our judicial system is an ineffective way to address a harm or to provide insurance and that it slows down many important things that we need to do. But I'd be more in favor of a broader look at ways to improve the functioning of the judicial system

rather than just do... I mean, actually, I don't have a strong view on this. It may be that to move quickly, we want to have a special patch related to what firms do with test information. But I don't think we should stop there. we really should be asking, how can we tune the judicial system to make it work better? But could it be that litigation is the ultimate reason why America is so slow in testing,

that any big push for anything, someone can raise their hand and object, someone could sue, well, this violates the Health Insurance Privacy Act. I'm not even sure it does, but you would need a ruling. Someone sues on disabilities regulation. Oh, I need to have this app. I can't read it. Someone sues about masks. Well, I can't do lip reading.

the actual solution, something we're far from, and that's to clear away all this emphasis on litigation in American policy. And economists have been mostly right about that, too, or not. Yeah, yeah. Well, so my kind of dive into testing has persuaded me that the FDA is far more important as a force that's slowing down progress there. There's been speculation about lawsuits, but there's really little indication that those will materialize. And the people I talked to who can't do things they want to do in testing are failing to do it because of the kind of concern about the FDA. So I don't think the facts support litigation is the big threat here.

And also, in terms of moving quickly, one of the things we could leverage, because this is a public good, is the sovereign immunity of the states. I think the states can actually just purchase the test, say with money they get from the feds. and then even give instructions about here are ways to use these tests. Those could even be regulations. Here's what you have to do. If you're a restaurant, if you know, if your employees test negative, you can open. You have legal permission to open.

And you have to require that people, you know, test negative. But if you do, that's fine. And if somebody who tests negative goes to restaurants and other people get infected because of that, the restaurant could actually have the protection of the mandate from the state that this is, is what you should do to protect public health. So I think the states could actually provide cover for firms to do, and individuals to do what's best in terms of how to use this test information. Let's say we make you testing, and the Romer regime is put into place. Over the first month, what percentage of Americans do you think would show up to be tested?

Well, I would try and do a calculation about where might tests be most valuable. And if the states are the ones who are buying tests and providing them, encourage states to use them for those high-valued purposes. I think frequent testing in nursing homes might be all it would take to cut the death rate in half right now. The estimates are there as many as half of the deaths are actually taking place in nursing homes. And it seems to me that there's no hope for contact tracing there.

Let's talk about rebuilding all of the nursing homes. I mean, that's not going to happen anytime soon. but if you tested everybody, initially every day, so you know exactly who's infectious inside a nursing home, test all of the staff, test all of the visitors, then we should be able to isolate the few who are infectious and really bring down the deaths in nursing homes. So I'd use those there first. Second, I think it would be great to get Major League Baseball started again. I think we should use the relatively small number of tests it would take to test all the

baseball players every day and let them start playing games in empty stadiums because you need a lot more to test the fans to have them come in. But we could be playing baseball in empty stadiums without any risk that we're increasing this, this R factor. And people enjoy baseball. It would be an important signal of how we go back to work in this regime. So I think that could be an important compliment to nursing homes. You know, there is a study out. I think it came out, May 10th or May 11th. And they did test everyone in Major League Baseball, a lot of the staff, not just the players,

and hardly any of them are COVID positive. We've tested so many of the NBA players, but given those sports are still not reopening, doesn't that mean something isn't enough? Well, nobody kind of made a plan, which says, look, if you're going to, there was an initial plan, which is like put all the baseball players in like the big dome or something and isolate them.

But, you know, obviously they don't want. want that. So they're going to be going home to their families. Some of them are going to get infected in their families. And so you need a plan for testing and retesting the baseball players if you want to make sure that one player doesn't infect another. So you need to do some calculations about, okay, how frequently do we need to test? And then also you alluded to this point before, which is how long, how do we have to respond when somebody tests positive? Like, how long should they be isolated, both from other players, but also from the general public. But if we just put together the plan, I think we could safely restart baseball and do it with confidence, knowing that we're not going to increase the number of infections.

Not under the Roma regime, but in the world we live in, can we reopen our colleges and universities for this coming fall? Well, that's one of my list of plans to actually work out. So there's major league baseball, but then universities and then K-12 education, I think, are the next two. part of the reality is that people are afraid of opening universities and K-12 education right now. If we had the tests, we can show everyone that if you test people frequently, isolate the few who are infectious, as soon as you find out that they're infectious, you can actually let people start to interact again without raising this R number. So I think it's totally possible to reopen universities and reopen schools.

universities you may make some adjustments that beyond just test and isolate. And it may be that a 300-person lecture hall, unless it's well-ventilated, is just too risky because just even one person who's infectious could infect many more. We'd have to see if that's true. So you might have to have better ventilation or not have those big lecture halls. But we could surely restart university education, restart K-12. And these would be very important things to do because we know how valuable human capital is. We know how high the returns are to those kinds of investments.

And I said before I was doing some calculations the last couple of days, the calculation I'm looking at is for each unit of testing capacity. And if we could test one more person each day, how many more jobs or how many more people could reenter their return to their previous activities? And the model suggests that it's about nine. So, like, testing one person per day throughout the year would free up about nine people who could go back to doing what they were doing before, you know, get out of, like, the shelter and place rules, and have no net effect on the reproduction number are, because the tests

depress it, more people in circulation raise it. You just set those numbers so that they balance each other out. And, you know, nine economically active people is worth a hell of a lot more than it costs to provide one test a day for a year. How does your testing idea differ from Glenn Wiles' testing idea? I think Glenn and I are in agreement that tests are very valuable. Glenn thinks that we can target the tests. I'm saying just test everybody on a regular basis. Glenn is saying you don't have to test everybody.

What you can do is target your tests at people who are more likely to be infectious. And I agree that if you can target tests effectively, then you don't have to test as many people. Because really all you have to do is find enough positives and get them into isolation. But I think Glenn is assuming that the way we're going to predict safely, reliably who's infectious, is through apps that do digital contact tracing. And I'm skeptical that that's going to be ready in time and ready in the sense that everybody will be comfortable using it. So I'm saying if we want to have a plan that we know we can execute on now,

or we know we're not going to have a kind of divisive fight and get stuck because we can't make a decision, the way to do that is just don't make the digital contact tracing, part of the critical path, just create a path where we get there whether or not that can work. And if it works, great. I'm not opposed to targeting the test. You've got a good way to do it. But don't make that a requirement for the path that protects us all. Would you ever get involved in another charter city project? Well, actually, just before I leave the testing, one of the things as economists and scientists,

I think we really can usefully bring to these debates is just quantification, just talk about the numbers. So this morning I was trying to think the best estimate, say, from New York state is that this infection fatality rate is about a half a percent. If, you know, a half a percent of the people who catch an infection die. And if you look at, we have got about 2,000 people a day in the United States who are dying. So that means there are about 400,000 people a day who are newly infected. Now, each of those 400,000 people has, say, 10, contacts, which I think is modest. It could be more. That means that there's four million people a day that you've got to go out and find with your contact tracers. And I'm not sure we've got the capacity

to do that. But the real point here is just that whether you follow Glenn's model or my model, you're already up to four million tests a day, which is 10 times the capacity we've got. So like, let's not even argue about whether Glenn's right or I'm right. Let's just get a lot more tests because both of us think we need way more than we have. Okay, Charter Cities. Would you try it again someday? Sure, absolutely. Under what conditions?

I might rename it. You know, I don't know that, you know, in communicating the idea, I don't know that Charter City is the best name, but I think the idea is still a compelling alternative. And unfortunately, maybe this is now my schick. It's kind of like, you know, $100 billion a year on testing. It's a kind of an unpleasant, bad idea that nobody, likes, but it's just better than the alternatives. So the same thing is true, I think, on

migration flows as on dealing with the pandemic, which is that the alternatives are so terrible. We may, the best option, maybe something that's kind of bad, but, you know, it's kind of expensive. We just do it anyway. The thing that I'm not sure we should call a charter city, but the thing I think we could do is create new cities that would solve the current impasse where you've got, you know, 750 million people who say they want to leave the countries where they currently live, and the existing countries that say we can't take, we don't want to take that many people. So I'm saying, okay, what's the middle ground here? What's the deal we could do?

Let's create some new places that are still places that people want to go to, but where nobody in existing countries feels threatened by the creation of those new places. And let's try and offer that as a solution to what seems to, like this impasse. How do you frame what happened in Honduras, conceptually? Yeah. I thought in selling this idea, to do this, you'd need both some country that is willing to volunteer or supply the location for a new jurisdiction.

And then some countries, country or more than one country, they can help establish the new jurisdiction, like it's legal systems and so forth. And administrative. All the systems. you'd need. I thought the biggest constraint on this idea was that it would be hard to find countries that would be willing to say, you could use our land to start something new. So I spent time in Madagascar, I spent time in Honduras. They were actually willing to try this. But what I think in retrospect, I should have done and what I'll do now is go first to the

countries which are willing to help set something up. Because a country like Hong Kong, Honduras was not, the reason it was willing to do something radical like a new charter city was that it did not have the internal capacity to do something like a charter city. And what went wrong was that we couldn't get sufficient participation from outside of Honduras in setting this up. And then frankly, in Honduras, there was a little bit of lack of transparency. They didn't really want outsiders either because it was kind of a small group that actually wanted to set these things up and control it internally. So I think the scarce kind of player, the short side of this market is going to be countries that are willing to say,

we will help set up a new place that people can go to. They're the ones we need to. It's the citizens of those countries, potential countries, that we need to persuade. This would be worth trying. And if they're willing to do it, then I think we can find locations where it could be done. Do you worry about a negative selection effect in the volunteers? So in a lot of your work, you're concerned with corruption, quite appropriately, I would say. And could it be the countries that want to do charter cities? Well, it's one branch of the government wants to do something a little funny without the other branches of the government seeing, and in essence cut its own deal, and that there's something intrinsically worrisome about a country volunteering to do it.

Well, I think this is one of these places where we have to be willing to just select from the feasible alternatives and not hold out for some ideal that we can't achieve. And I think it's worth sort of like being specific here. My hunch is that China will eventually realize that the way to pay for the infrastructure that is building as part of this Belt and Road program is to do urban real estate development. The transport never pays for itself. It's always the real estate that goes up in value that you use to pay for all of this. So I think that the Belt and Road project is inevitably going to turn to a kind of a version of new city, city scale real estate development to finance what they're trying to do.

I think in parallel, the United States could be offering its own version of cities around the world that are new, that there's gains in the value of the land that pay for the stuff you want to do. And then to answer your question, would I be worried if that's the way that China and the U.S. compete with each other? Actually, no, I think that would be pretty good. The Chinese wouldn't set up those cities and run them exactly the way that somebody from the United States might prefer. But I think if people who want to migrate could choose between a Chinese location and a U.S. location, that would put some pressure on both the U.S. and China to organize these new opportunities

in ways that really benefit the people who will go there. How important is religion for explaining economic development? You said, before norms are important, and charter cities in a way are identifying laws, rules, norms as a public good legal structure. So why isn't religion also a key? Well, I think it's important for us to think about what are the mechanisms that we use to try and shape norms over time. Some of them are just kind of an invisible hand process where nobody's in charge. And norms often, I think, go in directions that are beneficial and appropriate. There's a great book you may know called The Civilizing Process that looked about just,

from the Middle Ages up to the present, looked at norms about just what it means to be polite or civilized, even just table manners. And it's really a fascinating account. So some of this happens automatically, but some of it happens because of activists and organizations and structures like churches. And we should be at least mindful of what are the ways in which those different bodies can push norms? What are the ways that are beneficial to everyone, like, that increase efficiency? What are the ones that might harm efficiency? How do we get more of the ones that increase efficiency?

Say I'm a Christian missionary. I'm working in Nigeria and say I'm fairly persuasive and effective. Is it possible? I'm doing more for economic development than any economist. It's possible, but you'd really want to look in detail and see which parts of the kind of the norms that are being conveyed there are beneficial and which parts are not. And then I think one also has to be thoughtful about the fact that we should ask, are the people who are being socialized into some new norms aware of what the transaction is? And are they agreeing in some sense? Do they actually have some agency and some ability to choose? Yes, I'm okay with this or no, maybe not. And this is why I like the migration decision because it involves a more affirmative choice.

So if some missionaries set up a city and said, here's how this city will work, you're welcome to come. And people could choose to go to that city or not and could choose to leave if they don't like it when they get there. I'd be a lot more comfortable with it. How optimistic are you more generally about the developmental trajectory for sub-Saharan Africa? You know, there's a saying I picked up from Gordon Brown, which is that in establishing the rule of law, the first five centuries are always the hardest. I think some parts of this development process are just very slow. And so I think, you know, if you look around the world, all the efforts since World War II that's gone into trying to like build strong, effective states to establish the rule of law in a functioning state, I think. I think external investments in building states have yielded very little.

And so we need to think about ways to transfer the functioning of existing states rather than just build them from scratch in existing places. So that's really a lot of the impetus behind this charter city's idea. It's both you select people coming in who have a particular set of norms that then become the dominant norms in this new place. but you also protect those norms by certain kinds of administrative structures, state functions that reinforce them. And I think if we don't pay attention to that and just keep doing what we've been doing in development assistance, I'm still fairly pessimistic about how many will make the kind of

radical transformation that China made. if you could reform the World Bank, what would you do? That's an interesting question. I think the bank is trying to serve two missions, and it can't do both. One is a diplomatic function, which I think is very important. The World Bank is a place where somebody who represents the government of China and somebody who represents the government of the United States sit in a conference room and argue, should we do A or B,

and not just argue, but discuss, negotiate. On a regular basis, they make decisions, and it isn't just China and U.S., it's a bunch of countries. I think it's very good for personal relationships, for the careers of people who will go on to have other positions in these governments, to have that kind of experience of basically diplomatic negotiation over a bunch of relatively small items, because it's a confidence-building measure that makes it possible for countries to make bigger diplomatic decisions when they have to. So that, I think, is the value of the World Bank right now. The problem is that that kind of diplomatic function is inconsistent with the function of being a provider of scientific insight. The scientific endeavor has to be committed to truth, no matter whose feathers,

get ruffled. And, you know, there's certain kinds of, you know, like convenient fictions that are required for diplomacy to work. You start accepting convenient fictions in science, and science is just dead. So the bank's got to decide, is it engaged in diplomacy or science? I think the diplomacy is its unique, you know, comparative advantage. So therefore, I think it's got to get out of the scientific business. It should just outsource its research. It should try and be a research organization, and it should just be transparent about what it can be good at and is good at. And do you regret the time you spent there, or what would you have done differently?

Well, I was brought in to reform the research group. People in the bank could tell that research was dysfunctional there. But shortly after I arrived, the number two, who I think had been behind this initiative, left to go take a position back in the finance minister in Indonesia, and a different number two came into the bank. And, you know, in retrospect, what happened was that that number two decided we're not going to reform research. We don't want any noise.

Because, you know, you reform things, you're going to get noise. You're going to get complaints. All other parts of the bank had been reformed research hadn't. But so I wasted, you know, like 16 months talking to the number two and the number two. the number one and saying, you understand if I'm really going to reform the research group, there's going to be noise and it's going to be a little contentious. You really want to do this, right? And yeah, no, no, absolutely. Full speed ahead. We're totally, we're 100% behind you. We totally agree with each other. And they were just lying to me. And so I would go out and try

and do something and they would just like undercut every simple thing I tried to do. So what I regret is the dishonesty of the leadership in failing to just say what was what was true, which is, We changed our minds. We don't want to reform research anymore. So I spent months and months doing really simple things, like trying to move two direct reports who reported to me, who didn't have the integrity to have the kind of responsibility that they had. But I was being, not only facing a bureaucratic system that opposed moving these positions,

I'm not even talking about firing them, just moving them out of the critical position so other people could fill those roles and do them correctly. I faced not only internal bureaucratic delays, but, you know, my bosses were undercutting me and stopping me from doing this. So I finally figured it out, said I was going to resign. They told me, oh, no, I'd do enormous damage to the bank if you resigned. And, you know, I still took what they said seriously. So then I went out and just got myself fired.

I gave an interview in the Wall Street Journal, which I knew would make them mad. And then they said, okay, well, you know, you broke the rules. So we have to have an investigation. I said, no, no, you don't have to have an investigation. I broke the rules. They said, okay, well, then we have to put you on administrative leave and you have to sign this agreement where you won't say anything without our approval. I'm not going to do that.

And then they said, okay, well, then you have to resign. And I said, well, that was what I tried to do on Thursday. I resigned. And that was the end of it. Why are you interested in the American philosopher Charles Sanders first? Oh, oh, right. P-E-I-R-C-E. Oh, is that how you pronounce this last one?

People say it Pierce sometimes, but first is. I was thinking peers. Correct. The pragmatist, yes. Yes, yeah. Oh, well, because I'm really interested in science, and I think he was a very deep thinker about science from this kind of pragmatic perspective of how does it work? What does it accomplish?

How can we get more of that? I was Tim, Tim Besley, actually. Another economist pointed me to him. And I have to say, it's heavy going to read his stuff. but I'm still quite interested. If you go back to what we were saying before about, what could an existing successful society bring when it sets up a new one?

I used to think a lot about, and this economist we talked a lot about, you know, like the rule of law. And as law is in some sense the basis for things like honesty and trust. I'm starting to think that science may have actually been more important for the West in developing a culture where a reputation for integrity and telling the truth, became something that was valued, science may have actually been more important than we realize for that. I very much agree with that.

And engineering, right? Yep. It was a broader branch of science. And if you look today at software engineers who have to make things work, they tend to be blunt people who will frequently speak the truth. Yep, yep. So I think, you know, when you think about this level of norms, a commitment that it's a good thing to be honest,

it's a good thing to be disapproving of people who are found not to be honest. That's very helpful because it helps build trust. And trust is an important part of social interaction. But so I think we may have underestimated the value of science. And so it's all the more important to support it. So it isn't just that it gives us some facts that feed into a discussion. It conveys norms about integrity. And also there's a harsh side to this.

that when you are found to have misled people intentionally, those norms say you're no longer taken seriously. You're excluded. You're not respected or listened to anymore. But those kinds of things are critical, I think, for supporting trust. And I think that we should learn how to protect science and get it to do its job better in building those norms and encouraging trust. What do you find most interesting in French fiction?

Well, actually, let me just gore on for one minute about this. Sure, sure. One of my predecessors at the World Bank as chief economist, Justin Lin, has a very interesting paper on this puzzle of, you know, why didn't China develop the industrial revolution? And his argument is basically that China, because there were so many people looking and discovering, they discovered a lot of things like, you know, gunpowder, steel, printing, and so forth. But what China didn't do was invent the social system we call science.

So they had some knowledge and some technology. They didn't invent science. And what was different in Europe was the invention of science. So I found that argument really compelling. And I've taken it one step further and think that, you know, part of what the West benefited from were notions about integrity and individual responsibility for what we say that fostered trust and that science indirectly gave us those things. So I think, you know, for any country around the world, it's worth thinking about

if you're short on that, if there's a tendency for a lot of people to cheat on their taxes, to lie about what's true, you know, if there's kind of norms that hold a society back in those ways, I think it would be good to think about how do we rebuild a system where we respect and admire people who consistently tell the truth and where we look down on, disapprove of people who are found to have intentionally misled us. Do you think the evolution of science in the West has much to do with Christianity and Christian norms, which do emphasize some of those values? And science evolved in the West, right?

Yep. And out of the church. That's a very good question. I speculated in one group meeting about there's a difference between the kind of the Old Testament version of Christianity and the New Testament version. And my conjecture was that some of the old Testament norms were closer to the ones that matter for science. You know, Christianity really succeeded by competing with other religions, partly because it brought in redemption, forgiveness.

You know, it was a softer, the kind of the New Testament version of Christianity was a softer, kinder form of Christianity. It may be the older form of Christianity, you know, which is a tradition shared with Judaism, where there was kind of a little bit more strictness about truth and integrity and more harmful consequences from violations of that. It may actually be that earlier tradition that the one that was most beneficial. I tried to say this about kind of Old Testament values, and somebody accused me of being anti-Semitic. And I was talking about Christianity, and I was actually saying it was good, so I don't really quite understand. But one has to be a little careful when you when you talk about these issues. French fiction. What do you find most interesting in that area?

Oh, you know, we have a division of labor in my house. My wife is the one who you should ask about French fiction. She's right now, her goal is to get me to read any fiction at all. I'm heavily biased towards nonfiction, and she's trying to broaden my horizons a little bit. But fiction is arguably one of the best ways to understand the norms of a society, right? Yeah, yep, that's true. That's true. And of course, no, so what am I going to cite to support that? A piece of, a piece of nonfiction. There's a colleague of mine at NYU who'd served as dean for many years. So he looked at a large sample of promotion cases, and he then tried to generalize, what are the differences between the humanities and the sciences? What makes these things tick? What are they, where are they similar, where are they different? And he wrote a really

nice book called The Geography of Insight that talks about what's distinctive about humanities as opposed to sciences and how they both contribute to a better understanding of the world that we live in. Last question, Thread. What did you learn at Burning Man? Oh, sometimes physical presence is necessary to appreciate something like scale. The scale of everything at Burning Man was just totally, totally unexpected. It's a total surprise for me, even having looked at all of these pictures and so forth. That was one. Another thing that really stood out, it's not really, not exactly a surprise, but maybe it was a surprise in that group. If you ask, what do people do, if you put them in a setting where there's supposed to be no compensation, no quid pro quo,

and you just give them a chance to be there for a week, what do they do? They work. You know, what people do at Burning Man is they go there and they work. They'll do a different job, like they'll work as, you know, part of the volunteer police force, or, you know, they'll help just maintain sanitation. They'll work to set up something which offers a service to other people. But there's enormous satisfaction that we draw from accomplishment and production and the provision of the output that we produce, making it available to others. So if somebody asked me, well, what's a post-scarcity society going to look like?

Somebody actually said this to me there. It's like, what does post-scarcity society look like? People work hard because they like it. They work on things that they care about. They think others will care about. And that's kind of an encouraging insight, I think, about people. We can leave it at that. Paul Romer, thank you very much.

Hope we can do this again someday. Good. My pleasure. Thanks for listening to Conversations with Tyler. You can subscribe to the podcast. in iTunes, Stitcher, or your favorite podcast app. And if you like this podcast, please consider rating it on iTunes

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