The evening before the Royal Swedish Academy of Sciences announced this year’s Nobel Prize winners, Peter Howitt, BA’68, was blissfully unaware in his North Carolina home of what was about to unfold.
The Guelph, Ontario native watched the Toronto Blue Jays – in the midst of their thrilling playoff run – on television, and went to bed, not bothering to charge his lifeless phone.
“I knew that the Nobel was going to be announced the next day. But I was also quite confident that I wouldn’t be getting the call,” says Howitt, an emeritus professor of economics at Brown University.
Hours later, Howitt learned that he and Philippe Aghion were jointly awarded half the Nobel Memorial Prize in Economic Sciences “for the theory of sustained growth through creative destruction.”
Howitt is the 13th member of the McGill community, including faculty and alumni, to win a Nobel Prize. He earned his honours undergraduate degree at McGill, where Howitt says: “I first learned to love economics.”
We spoke to him in the wake of the exciting announcement.
What was your reaction to hearing the news?
At first, I thought this must be a practical joke because I have heard about similar jokes being played on people who’ve been waiting for the call for years. But the journalist soon managed to persuade me that this was for real. I looked at my phone and saw lots of other congratulations coming in. I was just completely in a state of shock. Later that day we had a wonderful party with a lot of friends and neighbours.
As a kid growing up in Guelph in the early ʾ60s what led you to McGill?
I was not a particularly good student in high school. But a friend of my father’s who owned a wool brokerage, importing wool from around the world and selling into textile mills in Ontario and Quebec, took me under his wing, offering me a job in his office after school and on weekends.
I used to be fascinated by how the prices that would come in on this teletype machine would go up and down – prices coming from South America, South Africa, Australia, from all over the world, and for different types of wool. And I remember asking him, ‘Why are they bouncing up and down?’
He started talking about supply and demand and suggested, if I’m really curious about this, I should go study economics. McGill looked like a really good place to do that. I signed up for the honours program in economics and political science. It was a great experience for me. By the time I was finished, I was head over heels in love with economics.
Can you explain your economic thesis and the role it has played in helping economists understand how growth works?
The term “creative destruction” was coined by an Austrian-American economist Joseph Schumpeter in the 1950s. The idea is simply that ultimately economic growth is driven by new technologies that provide us with new products, methods of production, ideas that allow us to have more wealth, more health. But every time a new technology arrives it’s going to have a major impact. It typically renders old technologies obsolete. There are always skills, investments and opportunities destroyed by the same technologies that are enhancing economic life and providing new wealth for vast numbers of others.
What Aghion and I managed to do was to capture this force, which we think is at the heart of economic growth, this conflict that must be resolved for growth to take place without just degenerating into a mutually destructive conflict. We found a way to model it in a mathematically coherent way so that we could estimate the various forces at work, how they play against each other and see what [impact] different policies might make. Most policies have positive and negative effects on growth and we’re able to quantify those with a well-specified mathematical model.
When we think of disruptive technologies, artificial intelligence seems to be impacting just about every industry and sector. Does creative destruction carry even more weight when applied to the AI revolution?
It’s long been recognized that some of the biggest disruptive effects come from general-purpose technologies, and that’s what AI is. The IT revolution of the 20th century was very much a general-purpose technology, which altered the way we do things in just about every sector of the economy. When they are introduced, what [seems] most obvious is that these [technologies] are going to replace various skilled professions and render obsolete a lot of human capital, in particular.
These predictions have fortunately never really come true. Unemployment was not really driven up by steam power, electricity, the computer. Particular jobs are lost. Some people never recover from it. But new jobs opened up. Some skills are made more productive by these new technologies.
For a long time, electricity did not improve productivity in manufacturing. It took further innovations that made use of this new power source. Henry Ford’s [employees] weren’t particularly skilled workers – but they made wages that were unheard of before this new mode of [assembly line] production. This is just one example of how a general-purpose technology can ultimately benefit people, but it takes awhile. No one knows at first exactly how it’s going to work out.
This conversation has been edited and condensed.
