Greg Rosalski
Appearances
Planet Money
A Nobel prize for explaining why there's global inequality
That's because the way they saw it, the death rates of colonizers was this kind of random independent factor determining which places got growth-friendly institutions and which places did not. This was the natural experiment the economists were looking for.
Planet Money
A Nobel prize for explaining why there's global inequality
But it turned out not to be ridiculous. In fact, it ended up being Nobel Prize winning research, Mr. Distinguished Economist. Yeah.
Planet Money
A Nobel prize for explaining why there's global inequality
When Simon shared this first round of results with Daron, he was like, wait, what?
Planet Money
A Nobel prize for explaining why there's global inequality
This unlikely relationship between the rate of colonizer deaths and economic outcomes centuries later, the economists argued that the explanation for it could only be institutions. And here is a summary of the argument they made. Basically, where European colonizers were more likely to die of disease, they couldn't settle en masse.
Planet Money
A Nobel prize for explaining why there's global inequality
They instead set up institutions aimed more at exploiting the indigenous population. Those institutions led to lower economic growth in the coming centuries. But where Europeans were less likely to die, they moved in and set up settler colonies with more democratic and growth-friendly institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
This paper made a huge splash. It showed other economists this really cool new way of doing research on big questions using knowledge of history, the tools of statistics, and a bit of cleverness.
Planet Money
A Nobel prize for explaining why there's global inequality
So the economists went to work on their next blockbuster paper, aiming to shut down these sort of geographic arguments for why some nations are rich and others are poor. And they document this startling fact in the data. They call it a reversal of fortune. Before European colonization, the richest parts of the Americas were actually what is today Mexico and parts of South America.
Planet Money
A Nobel prize for explaining why there's global inequality
That's where the Aztec and Incan empires were.
Planet Money
A Nobel prize for explaining why there's global inequality
And they encounter some pushback.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah, like in general, why are some institutions so good for economic growth and other institutions so bad?
Planet Money
A Nobel prize for explaining why there's global inequality
Okay, so inclusive and extractive institutions. This is at the heart of the theory they lay out in their book. Inclusive institutions are institutions that serve a wide swath of society. They kind of spread opportunity around, incentivizing and empowering people to succeed in a free market economy. And that's why James and Duran argue inclusive institutions are good for economic growth.
Planet Money
A Nobel prize for explaining why there's global inequality
Or think of like how good public education systems give everybody an opportunity to learn skills and become more productive. Or how antitrust laws prevent monopolization of the economy.
Planet Money
A Nobel prize for explaining why there's global inequality
And sort of the ultimate inclusive political institution, it's democracy. James and Duran have found in the research that democracy, generally speaking, it's good for economic growth.
Planet Money
A Nobel prize for explaining why there's global inequality
Of course, this is a big sprawling theory. And to this day, not everyone is convinced. For example, some have pointed to India and China as contradicting their theory. Back in 1980, their economies were neck and neck. They both had roughly the same GDP per capita, about $300 per person per year.
Planet Money
A Nobel prize for explaining why there's global inequality
This one very prominent example doesn't fit so neatly in Duran and James' theory. But they argue, of course, there are nuances to all this.
Planet Money
A Nobel prize for explaining why there's global inequality
But in the early 2000s, there were these three economists who pointed out something was missing from that picture. Something massive that a lot of people in their field were overlooking. Their research, it triggered a revolution in economics. And this year, those three economists, they won the Nobel Prize. We recently met up with one of them on Zoom. Hello. Hello. Yes, this is James Robinson here.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah, there are still some big questions about this theory. Some have poked holes in their methodology. Others aren't quite convinced that you can boil down all institutions into two categories. Even the Nobel Prize Committee, when it announced their award, they made it clear that their theory is not the final word on why some nations are rich and other nations are poor.
Planet Money
A Nobel prize for explaining why there's global inequality
The research provides this kind of hopeful message that we can build a fairer society and a better economy through the hard work of improving our institutions. That could mean like working to improve schools or keeping government officials accountable or like, I don't know, participating in an election or social movements.
Planet Money
A Nobel prize for explaining why there's global inequality
Unlike past theories, which say a country is rich or poor because of its geography or its culture, this is a theory that gives us some agency over our nation's destinies.
Planet Money
A Nobel prize for explaining why there's global inequality
And I'm Greg Rosalski. This is NPR. Thanks for listening.
Planet Money
A Nobel prize for explaining why there's global inequality
Wow. Punctuality, sir. I feel like winning a Nobel Prize, you wouldn't have to show up on time anymore.
Planet Money
A Nobel prize for explaining why there's global inequality
Now, it's one thing to win a Nobel Prize. It's another to win it with your friends.
Planet Money
A Nobel prize for explaining why there's global inequality
An emoji. Of course, being hard-hitting journalists, we had to verify this fact with Duran himself. So we called him up.
Planet Money
A Nobel prize for explaining why there's global inequality
Good, drone! How, well, you know, we talked a few weeks ago, uh, and I wasn't nervous, but somehow I, I'm, I'm nervous now with a man of you.
Planet Money
A Nobel prize for explaining why there's global inequality
So James Robinson told us that he did send you a smiley face emoji.
Planet Money
A Nobel prize for explaining why there's global inequality
This trio of economists won the prize for a monumental insight, one that helped economists understand this kind of mysterious X factor that can determine the success or failure of a nation's economy. Hello and welcome to Planet Money. I'm Greg Rosalski.
Planet Money
A Nobel prize for explaining why there's global inequality
Today on the show, we're chatting with James and Duran about why some countries are rich and others are poor. Why it took so long for economics to recognize the power of institutions. And what the heck is an institution anyway? For this year's winners, the path to the Nobel Prize in economics started back in 1992. The Cold War has just ended. The number two song on the charts is Baby Got Back.
Planet Money
A Nobel prize for explaining why there's global inequality
And James Robinson is just finishing up his PhD.
Planet Money
A Nobel prize for explaining why there's global inequality
That really irritating guy? That was Duran Asimoglu. who at the time was also a PhD student, we asked him to paint a picture of that first time he met James.
Planet Money
A Nobel prize for explaining why there's global inequality
That's exactly what he said. Did he say that? Oh, no. He used the word irritating.
Planet Money
A Nobel prize for explaining why there's global inequality
But as they all walk out together down the narrow streets of London... James and Daron start to chat, and with just a few words, Daron gets James' economist heart to flutter.
Planet Money
A Nobel prize for explaining why there's global inequality
North and Weingast? Of course! This was kind of a nerdy history paper looking at 17th century England, specifically how its economy was supercharged by changes to its institutions. institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
And at their very first meeting, James and Duran are already bonding over their shared fascination with institutions. For both of them, this was personal. Duran, for instance, grew up in Turkey during a turbulent time for its institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
Meanwhile, James spent much of his youth in developing countries. His dad worked as an engineer in places like Barbados and Trinidad and Tobago, places that were grappling with their colonial history.
Planet Money
A Nobel prize for explaining why there's global inequality
Right. Modern mainstream economics, it's kind of obsessed with math and data and proving things with statistics, which is why a lot of economics research focuses on small, precisely quantifiable questions. Like, I don't know, how do grain prices change with the weather?
Planet Money
A Nobel prize for explaining why there's global inequality
Which is why, for a long time, the popular economic models had focused on factors more directly associated with economic growth. Things that were measurable. Things like population growth, investment in machines and infrastructure, education of workers, technological innovation.
Planet Money
A Nobel prize for explaining why there's global inequality
All right, Jeff, YOLO. Let's do some economics research.
Planet Money
A Nobel prize for explaining why there's global inequality
Obviously, you and James are, you know, you have this bromance going. At what point does Simon Johnson come in the mix?
Planet Money
A Nobel prize for explaining why there's global inequality
Simon Johnson. He's another young economist, a statistics whiz. And together, the three economists start working on this huge project that would eventually win them a Nobel Prize, trying to prove, using the tools of economics, that institutions are the reason why some nations are rich and others are poor.
Planet Money
A Nobel prize for explaining why there's global inequality
In an ideal world, the economists could just do what scientists basically do in a laboratory. You know, randomly give some countries good institutions and other countries less good institutions, and then see what happens to their economies. But of course, that's impossible.
Planet Money
A Nobel prize for explaining why there's global inequality
So they began searching for the next best thing, a natural experiment, a moment in history where, for kind of random reasons, different countries wind up with different kinds of institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah, the era of European colonization. When starting in the 1400s, a bunch of Western powers went around the world, invading and imposing different kinds of institutions, institutions that the economists believed had lasting economic consequences.
Planet Money
A Nobel prize for explaining why there's global inequality
But there were also different patterns in how this all unfolded in different places, which seemed to create the conditions for the natural experiment that the economists were looking for.
Planet Money
A Nobel prize for explaining why there's global inequality
At the other extreme were colonies where Europeans did not settle in large numbers, places like the Congo or Bolivia. There, European colonizers set up or maintained institutions aimed at helping a small group of elites ruthlessly extract wealth from indigenous people. Instead of investing there, they sent most of their resources and wealth back to Europe.
Planet Money
A Nobel prize for explaining why there's global inequality
These are the places that tended to become poorer countries.
Planet Money
A Nobel prize for explaining why there's global inequality
So the economists began searching for some kind of random factor unrelated to a country's potential for economic growth that affected which places got settler colonies.
Planet Money
A Nobel prize for explaining why there's global inequality
Then the economists had their big breakthrough. they found a kind of random reason why Europeans put settler colonies in some places and not others. Disease.
Planet Money
A Nobel prize for explaining why there's global inequality
The economists go searching for data so they can conduct a statistical analysis of all this. They find it in a set of books by historian Philip Curtin. He had meticulously compiled records on how many Europeans died from diseases in colonies around the world.
Planet Money
Tariffs, grocery prices and other listener questions
In the last round of tariffs that the previous Trump administration launched in 2018, 2019, it turned out that the iPhone was exempted from those tariffs.
Planet Money
Tariffs, grocery prices and other listener questions
In the past five years, for example, they've been increasingly shifting iPhone production to Vietnam and India.
Planet Money
Tariffs, grocery prices and other listener questions
Yeah, so I think that given that he was planning to upgrade anyways, I think he hedged his bets and went ahead and bought it, which makes sense.
Planet Money
Is the reign of the dollar over?
Delegates from 44 allied and associate countries arrived for the opening of the United Nations Monetary and Financial Conference.
Planet Money
Is the reign of the dollar over?
These meetings are designed to promote trade in the post-war world and to create a foundation for lasting peace.