Paul Romer leaves the World Bank

25 Jan, 2018 at 11:00 | Posted in Economics | 1 Comment

Outspoken chief economist Paul Romer is leaving the World Bank “effective immediately” after just 15 months on the job, the bank’s president told staff on Wednesday in an internal announcement seen by the Financial Times.

Mr Romer, one of the US’s most celebrated economists, had been engaged in a running battle with staff economists at the bank almost since his high-profile arrival in October 2016. Areas of dispute have included everything from Mr Romer’s diktats on grammar and brevity in reports to serious questions about methodology …

In a message to staff sent on Wednesday, Jim Yong Kim, the World Bank’s president, said Mr Romer had told him he had decided to step down and return to his position as a professor at New York University.

Financial Times

Romer is one of the pioneers of endogenous growth theory and has for years now been mentioned in discussions of possible candidates for the ‘Nobel Prize’ in economics.

After having delivered the following attack against mainstream economics establishment, his chances of receiving that price, however, hasn’t exactly increased …

A key part of the solution to the identification problem that Lucas and Sargent (1979) seemed to offer was that mathematical deduction could pin down some parameters in a simultaneous system. But solving the identification problem means feeding facts with truth values that can be assessed, yet math cannot establish the truth value of a fact. Never has. Never will.

In practice, what math does is let macroeconomists locate the FWUTVs [facts with unknown truth values] farther away from the discussion of identification … Relying on a micro-foundation lets an author say, “Assume A, assume B, …  blah blah blah …. And so we have proven that P is true. Then the model is identified.” …

Distributional assumptions about error terms are a good place to bury things because hardly anyone pays attention to them. Moreover, if a critic does see that this is the identifying assumption, how can she win an argument about the true expected value the level of aether? If the author can make up an imaginary variable, “because I say so” seems like a pretty convincing answer to any question about its properties.

Paul Romer