Nobel Prize winners make powerful case for optimism amid technological change

Three economists have won the 2025 Nobel Memorial Prize in Economic Science for their work demonstrating that innovation and the free exchange of ideas are the most important factors leading to lasting high rates of economic growth. The Nobel laureates’ work puts free minds and free markets squarely at the center of how societies prosper through innovation. Their ideas are fundamental to the approach to policies we advocate at Reason Foundation.

Joel Mokyr of Northwestern University provided our best answer to an economic and historical mystery of epic proportions, the early 19th century takeoff in global economic growth. Philippe Aghion, of Collège de France, and Peter Howitt, of Brown University, showed how the processes of innovation and creative destruction unleashed during that time continue to drive economic growth today. In 2025 we find ourselves in multiple ongoing examples of creative destruction. Today’s proliferation of artificial intelligence (AI) technology happened before our economy and society were finished adjusting to other recent revolutions like e-commerce and social media. The work of this year’s Nobel laureates offers a much-needed case for optimism in the wake of technological change.

The great takeoff

Economies grow for many different reasons, but something happened around 200 years ago that changed the rules. Before the early 1800s, economic activity on planet Earth grew very slowly. There were booms and busts, golden ages, and disasters. These events mattered for people of a particular time and place, but only fleetingly. Around 1820, economies in Western Europe began growing rapidly, a new normal that came to characterize the entire world. The result, when we look at global gross domestic product (GDP) over time, is known as the “hockey stick.”

Some caution is in order. Summing up world GDP hides many layers of complexity and unevenness. Even as total GDP keeps increasing year by year, modern booms and busts have been more dramatic and less predictable than ever before. Along with the takeoff of the Industrial Revolution came all of modernity’s problems. And even modern GDP is hard to measure accurately, while estimating historic figures is almost a field unto itself. But none of these common criticisms of the hockey stick take away from the importance of understanding this unique moment in world history.

The geniuses are talking

Mokyr’s combination of history and economic analysis reveals the most compelling explanation of what happened and why. The two centuries leading up to the takeoff in economic growth witnessed an equally dramatic blossoming of science and invention. Western Europe in the 17th and 18th centuries is almost overflowing with hall-of-fame scientists (Newton, Galileo), discoveries (the cell, planetary motion), and inventions (the steam engine, the power loom). We call it The Enlightenment for a reason. These great ideas and inventions surely contributed to economic growth, but Mokyr’s findings are much more profound.

What emerged in Europe and particularly England leading up to the early 19th century takeoff was the ability for many minds and ideas to interact. Mokyr noticed that, unlike great discoveries in earlier times, those in early-modern Europe appeared to build on each other—they were cumulative. One reason for this change was “the Republic of Letters.” All around Europe, the geniuses began corresponding. Through letter-writing, the building of research institutions like the Royal Society, and emerging scientific best practices, great ideas could more easily be shared. Western Europe had now assembled a critical mass of propositional knowledge—the math, science, and other basic understandings of the world needed before one can learn other things.

Mokyr next provides an elegant explanation for the exact time and place where all of this core knowledge made the leap to prescriptive knowledge—how to make and do useful things. Through most of history, craftsmen and artisans—the people who made things—occupied a place in society just above rural peasants. By the turn of the 19th century, Great Britain had bucked this trend, with a growing skilled middle class as well as wealthy and educated entrepreneurs. They were increasingly able to put the knowledge created by the Republic of Letters to productive use. Inventions like the steam engine, power loom, and cotton gin formed the foundation of early factories, kicking off the Industrial Revolution.

In the Enlightenment and Industrial Revolution, Mokyr finds more than just innovation-driven economic growth. A critical mass of knowledge and innovation during this period caused a lasting change in the rules of how economies grow.

Why do economists, who usually look for hard numerical proof of new ideas, find this explanation so compelling?  Mokyr’s story explains why the change embodied in the hockey stick happened when and where it did, first in Britain, then Western Europe and North America, and ultimately spreading worldwide. Ideas work differently than other goods: They are not consumed after being put into use. Hockey-stick growth in poorer parts of the world requires improvements in education, governance, and integration with the world economy, but not recreating the Republic of Letters from scratch. This explains why, at the highest level, we do not appear to switch back to the low-growth rules that applied for most of history. No other explanation of the hockey stick comes close to explaining what we observe. 

More creative destruction

The other two 2025 Nobel winners, Aghion and Howitt, demonstrate that fresh rounds of innovation and creative destruction continue to fuel high rates of modern growth. Unlike Mokyr the historian, Aghion and Howitt work with the mathematical growth models of macroeconomics. This alone is an achievement, one of the best examples of economists fitting innovation into quantitative models. They provide mathematical economics with evidence in its own terms of the importance of innovation to the growth of modern economies.

Aghion and Howitt’s argument elegantly captures many features of economic growth missing from other explanations. Underneath the apparently smooth hockey stick, we find booms, busts, creative destruction, and upheaval few people expect until it happens. Economist Brian Albrecht writes:

“We had almost 8 million jobs created in the last quarter of 2024. Think about that number. Eight million new employment relationships formed in three months. But here’s the kicker: we also had over 7 million jobs destroyed in that same period. Firms constantly enter and exit. Workers move between employers. Products get launched and discontinued. The labor market churns.”

High overall growth rates aside, modern economies often feel at the mercy of unexpected and uncontrollable technological forces. Aghion and Howitt show that these forces are once again the result of ideas and innovations percolating from the bottom up, indeed unpredictable but harnessed to great benefit by free minds and free markets. Albrecht continues:

“In any single sector, you get sudden jumps when breakthroughs happen. Netflix enters and destroys Blockbuster’s profits essentially overnight. The iPhone launches, and BlackBerry’s market share collapses. Creative destruction is violent and discontinuous in a single industry at a single moment.”

Today we have large and diversified economies with many sectors. This allows unpredictable innovation many opportunities to take hold but also hedges against too much destruction at once. Aghion and Howitt explain the paradox between the immaculate hockey stick and the apparent chaos beneath.

“There’s no other way”

In the 21st century the pace of technological change is faster than ever. We are still in the process of learning how to adjust to a world of social media, for example, as we contemplate an AI revolution that might mean even greater change. A common thread in the work of all three Nobel laureates is that the truly meaningful innovations must involve a messy and uncertain process of adjustment. The anti-tech backlash that has gathered force in the last several years should therefore come as no surprise.

We must learn to view innovation and creative destruction with optimism and hope. The problems brought by technological change can seem impossible to solve, especially in the moment, but this is an illusion. They are not problems that one mind can solve, but we now live in a world where many minds and ideas work together without a central plan. Our record navigating the problems created by innovation is far from perfect, but our early fears do not come to fruition. This is born out time and again.

Mokyr, Aghion, and Howitt do not view the problems brought by innovation as inevitable or immune to good government policy. But innovation of the magnitude leading to creative destruction, and ultimately economic growth at the tip of the hockey stick, leads to disruption by its very nature. Our ability to keep prospering depends on a society where people are free to exchange ideas and put the best ones to use. As Mokyr said at the close of an interview after learning of his prize, “[T]here’s no other way.”

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