Nobel economics prize 2025: What's the big idea?

Summary

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More or Less: Behind the Stats

Episode: Nobel economics prize 2025: What's the big idea?

Date: October 18, 2025
Host: Tim Harford; Guest Host: Lizzie McNeil

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Episode Overview

This episode explores the winners of the 2025 Nobel Memorial Prize in Economic Sciences—Joel Mokyr, Philippe Aghion, and Peter Howitt—focusing on their groundbreaking work explaining "innovation-driven economic growth." Using clear analogies and real-world examples, Tim Harford and Lizzie McNeil break down why economic growth happens, how innovation plays a central role, and why understanding these mechanisms matters to us all.

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Key Discussion Points & Insights

1. What Does "Innovation-Driven Economic Growth" Mean?

• Tim Harford explains (02:18): Economic growth isn’t just about having more people; it’s about people enjoying a higher standard of living—“more money, better medicine, bigger houses, better transport, but just better everything.”
• The classic models (like Bob Solow’s) emphasized accumulating capital (roads, factories, tools), but science and technology’s true roles were left vague.

Notable Quote

"In fact, one Nobel laureate in economics once said, once you start thinking about economic growth, it's hard to think about anything else."
— Tim Harford [02:31]

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2. The Recipients: Who Are They? (03:47)

• Joel Mokyr: Economic historian, originally from the Netherlands
• Philippe Aghion: French economic theorist
• Peter Howitt: Canadian economic theorist

Distinction:

• Mokyr brings historical perspective on growth patterns.
• Aghion and Howitt created influential mathematical models of growth.

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3. The History Behind Growth: Why Did Innovation Suddenly Ignite?

• Lizzie’s question: Our era of ongoing growth is surprisingly recent; why didn’t earlier innovations cause it?
• Tim’s answer (04:22):
  • Innovations existed for centuries—printing press, the heavy plough, windmills—but didn’t spark sustained prosperity.
  • Between 1200 and 1700 in the UK, income per person scarcely rose; growth was only in population.
  • Mokyr’s insight: The breakthrough came with the “self-reinforcing process” during/preceding the Industrial Revolution. Scientists and engineers started to collaborate more closely, blending theoretical advances (propositional knowledge) with practical know-how (prescriptive knowledge).

Notable Quote

"It’s not until the Industrial Revolution... that you get this interplay between scientists... developing new theories and... practical people developing new things. And that process really takes."
— Tim Harford [05:19]

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4. Creative Destruction and Economic Models

• Lizzie introduces “creative destruction,” which Tim calls "quite punk" (06:14).
• Tim explains (06:22):
  • The idea (popularized by Joseph Schumpeter) is that new ideas destroy the old—“each time you come up with a new idea, you’re destroying the old.”
  • This process drives productivity and growth, but also causes disruption—workers in obsolete sectors must adapt.
  • Societies need to foster a culture that embraces this cycle for progress to continue.
• Aghion and Howitt’s Contribution:
  • They translated these ideas into mathematical models (published in 1992), linking economic growth directly to research, innovation, and incentives.
  • Their model accounts for both household savings (funding research) and firm behavior (the race for patents and market dominance).
  • These models are foundational in macroeconomics today and shaped how economists understand growth dynamics.

Memorable Moment

"There’s this sort of ladder of top dog firms and they're making the most money. But then all the other firms... are also trying to invest and get their own patent..."
— Tim Harford [07:46]

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5. Has the Model Stood Up?

• Lizzie asks (08:45): Has the Aghion-Howitt model been proven?
• Tim responds (08:53):
  • “Proof in economics is a funny thing.” The model is influential, widely used, and has stood the test of time.
  • By the mid-90s, their approach was already part of the mainstream in academic economics.
  • No model fully predicts the real world, but their framework is invaluable to economists.

Notable Quote

"Whether a few equations are ever really going to tell you how the real world itself is going to advance... I don’t think that's something these economists would ever promise."
— Tim Harford [09:32]

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Notable Quotes with Timestamps

• "Economic growth is the process by which we get richer... higher standard of living. More money, better medicine, bigger houses, better transport, but just better everything." — Tim Harford [02:18]
• "You create a new idea and it's going to destroy what came before it." — Tim Harford [06:27]
• "Economists think that sort of thing is tremendously clever." — Tim Harford [08:27]
• “It was already influential then. So in that respect it stood the test of time.” — Tim Harford [09:13]

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Important Timestamps

• [01:52] Introductions; overview of the Nobel prize subject
• [02:18] Economic growth explained in simple terms
• [04:08] The emergence of sustained economic growth and Mokyr’s theory
• [06:14] “Creative destruction” and Schumpeter’s influence
• [07:50] Structure and significance of the Aghion-Howitt model
• [08:53] Discussion of model influence and “proof” in economics

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Summary

This episode brings clarity and context to the Nobel economics prize of 2025, spotlighting how innovation, historical shifts, and sophisticated modeling help us understand why economies grow—and why it matters. Tim Harford’s accessible explanations and historical analogies make the mathematical and theoretical work of Mokyr, Aghion, and Howitt both tangible and relevant, illustrating how their research continues to shape economic thinking today.

If you're curious about why some societies get richer, how new technologies disrupt economies, or how economists try to capture these realities in their models, this is an essential listen.

Transcript

[Tim Harford]

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[Lizzie McNeil]

Hello and thanks for downloading the More or Less podcast. We're the programme that looks at the numbers in the news, in life and in this very year's Riksbank Prize in Economic Sciences in memory of Alfred Nobel 2025 and I'm Lizzie McNeil. It's that time of year again. The time when the Royal Swedish Academy of Sciences inspired, respects the world's economists and decides who among them deserves 11 million Swedish kroner. That's just over a million dollars. For their work this year, they've awarded the Nobel Memorial Prize in Economics to Joel Makia, Philippe Aguillon and Peter Howitt. For, in the Academy's words, having explained.

[Tim Harford]

Innovation driven economic growth, as is our.

[Lizzie McNeil]

Annual tradition, we've turned the tables on our illustrious presenter, Tim Harford, an economist himself, no less, to to explain why it matters. Hi, Tim.

[Tim Harford]

Hello, Lizzie. Love me some Nobel Memorial Prize?

[Lizzie McNeil]

Oh, yeah, yeah, yeah.

[Tim Harford]

It's like Christmas anyway. Yeah, obviously.

[Lizzie McNeil]

Right, Tim. So tell me, what does having explained innovation driven economic growth mean for us less economically fluent individuals?

[Tim Harford]

Fair question. So economic growth is the process by which we get richer. So economies grow, you get more people, but also those individual people in the economy are enjoying a higher standard of living. More money, better medicine, bigger houses, better transport, but just better everything. So it has some downsides, but that's kind of an important thing. In fact, one Nobel laureate in economics once said, once you start thinking about economic growth, it's hard to think about anything else. But the mystery is, why does it happen? And the classic economic model that goes back to Bob Solow decades ago was that basically, economic growth is this process of accumulating capital. So you build more roads and you build more cars, you build more factories, you build more buildings, and as you accumulate more and more of this stuff, more and more tools, your economy gets more productive. And of course, everybody knew even at the time, that kind of science and technology and ideas must also have something to do with it. But in Bob Solow's original model, that was kind of shuffled off to the side like, oh, and also, by the way, there's science, but I don't have anything useful to say about it. And more recent economic models have tried to get to grips with advancing science and advancing technology and how that interacts with the process of economic growth. And that's what the three Nobel laureates have been doing.

[Lizzie McNeil]

So tell me about these guys. Who are they actually?

[Tim Harford]

So they're a multinational group of researchers. So Joel Makir is originally from the Netherlands, Philippe Aguillon from France, Peter Howitt from Canada, and Aguillen and Howitt are basically their economic theorists, whereas Joel Mulcia is an economic historian.

[Lizzie McNeil]

Okay, let's get into the history first. So what's interesting is that our current era of constant economic growth is. Well, I mean, it's relatively a recent thing, isn't it? Which is weird, because we didn't start inventing things in the Industrial Revolution.

[Tim Harford]

There's been scientific advances before, but they haven't really seemed to lead to economic growth. So you've got the printing press in the 1400s, you've got the heavy plough thousands of years ago. You've got the windmill. That's an important innovation. You've got innovations in shipping technology. You've got better sails, you've got better rudders, you've got the stirrup. There's stuff, people invent stuff, but you don't really, for some reason, have this sustained process of economic growth. So if you look at the income per person for hundreds of years, it's not really going anywhere. So, for example, in the UK, really, between 1200 and maybe 1700, nothing's really happening. People aren't really getting any richer. The only economic growth you have is population growth. So Mukir is saying, okay, why do you suddenly get this takeoff in economic growth in incomes in 1750, 1800, and just goes and goes and goes and goes, and we're just incomprehensibly richer than people were in, say, 1750? Why does that happen when you had innovation before. And Merciers basically describes this self reinforcing process. So he has this idea of something called prescriptive knowledge, which is basically practical knowledge. And there's also propositional knowledge, which is basically scientific theories. And it's not until the Industrial revolution or just before the Industrial Revolution that you get this interplay between scientists and the boffins developing new theories and then you've got the engineers and you've got the practical people who are developing new things and the new things lead to better theories and the theories lead to better things. And that process really takes. And that is one of the key contributions that Mokir makes.

[Lizzie McNeil]

Yeah, and this ties into Aguillon and Howitt's work, who were working on something called creative destruction, which sounds quite punk, quite like it.

[Tim Harford]

Yeah. I mean, creative destruction is most famously associated with the Austrian economist Joseph Schumpeter. I believe the phrase was coined by Werner Sombart, who's a German kind of sociologist. But anyway, the whole idea of creative destruction is you create a new idea and it's going to destroy what came before it. You create a better computer chip and you wipe out all the companies that made the old fashioned computer chips and before then, just the transistors and before the transistors, those funny valves that used to blow up all the time. Each time you come up with a new idea, you're destroying the old. And the whole process of, say, productivity growth, the whole process of people getting richer involves people in less productive jobs, losing those jobs and being out of work and then having to find some new way to make a living. So that's a very important idea in general, and you need a culture that can accept it if you want technological progress and economic growth. What Aguillon and Howitt did is quite different from Joel Mokey's scholarly works of economic history was to produce a mathematical model. And this is the kind of thing that economists really like is mathematical models. So they're trying to describe a model that on the one hand generates economic growth. So you're describing an economy that's getting bigger and bigger and bigger and also links that economic growth to the amount of research and development that's being done in the economy. And on top of that is describing the incentives of different players in that economy. So you've got households who might save and their savings provide the resources to do research. And then the Aguion and Howard model also describes the decisions of firms. They might want to spend money on research in order to get a patent. And if they get a patent, they kind of climb to the top of the. There's this sort of ladder of top dog firms. So they climb to the top of the ladder of top dog firms and they're making them most money. But then all the other firms on the other rungs of the ladder are also trying to invest and get their own patent and then they will get to the top of the ladder. All of this is going into the mathematical modeling that Agion and Howitt are doing. And economists think that sort of thing is tremendously clever.

[Lizzie McNeil]

And has this model been kind of proven? Because it's all one thing coming up with a model, it's another thing to actually run the model and see what the effects are.

[Tim Harford]

I mean, proof in economics is a funny thing. Let's just say it stood the test of time in that it's been influential. Economists like it. Economists have found it very useful. I studied this, the Ageon Howitt model. So it was published in 1992. I was doing my Master's degree in Economics in 1996 and Aguirre and Howitt had become fundamental to the way economists thought about macroeconomics and growth. So I was having to kind of figure this model out as a young economist. It was already influential then. So in that respect it stood the test of time in terms of whether any model, these models, they're complicated, but they can be expressed in a few equations and whether a few equations are ever really going to tell you how the real world itself is going to advance. I mean, I don't think that's something that these economists would ever promise.

[Lizzie McNeil]

Well, thank you, Tim.

[Tim Harford]

My pleasure.

[Lizzie McNeil]

It's been very nice sitting in your chair. Nice cushion. That's it for this week. If you've seen a number in the news that you think we should take a look at, email us at more or lessbc.co.uk we'll be back next week. Until then, goodbye.

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[Lizzie McNeil]

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[Tim Harford]

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