The Nobel Committee Just Reminded Us What Actually Drives Prosperity
“Economic growth cannot be taken for granted. We must uphold the mechanisms that underlie creative destruction.”
The Nobel Prize in Economics this year went to Joel Mokyr, Philippe Aghion, and Peter Howitt — three thinkers who, in different ways, tried to answer the same deceptively simple question: Why do some economies keep growing while others stall? Their answer feels less like an academic insight and more like a mirror to our moment: innovation isn’t just an economic activity; it’s a cultural system.
For decades, economists treated technology as an external gift — something that “just happens.” In the mid-20th century Solow growth models, innovation was an exogenous variable, like sunshine or rainfall. It nourished the economy, but nobody knew how to make it rain. Aghion and Howitt changed that. Their work on endogenous growth theory pulled innovation back inside the model — showing that it emerges from human behavior, from competition, from the incentives and institutions we build. It’s a feedback loop: new ideas create wealth, which funds more ideas, which in turn destabilize the old order.
Mokyr, the historian of the trio, went one layer deeper. He studied the long sweep from the Industrial Revolution to the present and found that technology thrives not just because of capital or policy, but because of belief systems. Societies that embrace experimentation, tolerate failure, and value progress create fertile ground for what Joseph Schumpeter famously called creative destruction. In Mokyr’s framing, it’s not machines that change the world — it’s the culture that builds them.
And that’s where the prize feels so timely. We live in a paradoxical age of abundance and anxiety. Artificial intelligence, synthetic biology, renewable energy — the frontiers of human capability are expanding faster than our institutions can comprehend. Yet productivity growth is sluggish, public trust is thin, and many people feel that technological change benefits the few while disorienting the many. The Nobel Committee’s choice reads as both celebration and warning: innovation drives prosperity, but only if societies can absorb it.
Aghion’s later research offers a clue to that balance. Too much market concentration, he argues, suffocates the very competition that fuels invention. But too little coordination leaves innovation unscaled, unregulated, and socially costly. Thriving economies don’t just innovate — they build adaptive systems that let creative destruction be creative rather than simply destructive.
Multiplier Effect
Professional services — accountants, lawyers, and consultants supporting startups.
Construction and real estate — housing for employees and expanded office spaces.
Hospitality and retail — cafes, surf shops, and restaurants that thrive on a higher-spending workforce.
Education and research — collaborations between local industry and UC Santa Cruz labs.
Nowhere is that more evident than in Santa Cruz, California. Over the last decade, companies like Looker, Joby Aviation, Paystand, Fullpower, Jane Technologies, and UC Santa Cruz have turned innovation into a local growth engine — not just through the jobs they create, but through the multiplier effect they unleash. Economists call it a 5x multiplier: for every tech job created, roughly six additional jobs are generated across the local economy — from restaurants and real estate to healthcare and creative services. The energy of innovation spills outward, feeding a broader ecosystem that includes UC Santa Cruz researchers, small manufacturers, and local entrepreneurs. The success of one startup seeds the soil for many others.
That’s what a thriving innovation culture looks like: when the benefits of technology radiate through a community, amplifying opportunity instead of concentrating it. The Santa Cruz experience echoes what Mokyr, Aghion, and Howitt have long argued — that economic vitality isn’t a product of luck or geography, but of systems designed to encourage discovery and reward risk.
The takeaway is not that we need more technology, but that we need to nurture the ecosystems that produce and integrate it: research universities, open trade in ideas, competitive but fair markets, and a culture that celebrates curiosity rather than fear.
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