Author
Sometimes, the best way to understand an idea is to meet the people who devote their time and energy to studying it.
The Opportunity & Inclusive Growth Institute’s mission to conduct and promote research that will advance economic opportunity and inclusive growth for all Americans means engaging with scholars who approach opportunity and inclusion from many angles. This series of short Q&As spotlights those individuals, what led them to economics, and how their research connects to opportunity and inclusion. Plus: the most useful ideas in economics, interesting statistics, and life advice.
For this installment, we sat down with visiting scholar Lukas Freund, assistant professor of economics at Boston College, to discuss opportunity costs, technological changes, and the incredible life of Albert Hirshman.
What made you decide to study economics?
I always wanted to do something related to understanding big-picture questions about society. I started out studying philosophy, politics and economics (PPE) in the UK.
I think I was drawn to both philosophy and economics because they both provide, in their distinct ways, a rigorous way to think about how society should be ordered. Once you have some notion of that, what is a feasible and efficient way of achieving it?
My first year in college, I thought I was going to go into philosophy. This fundamental question—What is a fair society?—fascinated me. But over time, I came to see how rewarding economics was, being a bit more empirically grounded. I guess you can make a little bit more progress, whereas philosophy remains very open-ended. Maybe I’m too impatient.
What is one of the most useful ideas in economics?
So many, but let me say opportunity cost. Opportunity cost is the notion that when you make any decision or choice, an important cost is the potential benefit that you lose by picking that option over some other alternative. It’s such a simple idea but incredibly useful, because it imposes discipline by making trade-offs very explicit, whether that’s in our personal lives or at the societal level.
One example that’s very prominent in political debates now is industrial policy, say subsidies to semiconductor fabrication plants. One way to think about the cost is to consider the direct fiscal cost, say the $50 billion or so that was allocated in the CHIPS [Creating Helpful Incentives to Produce Semiconductors] Act of 2022. And that’s of course important. A complementary approach would be to ask, What else could we have spent that $50 billion on, and would it have created more or less societal value?
What are you studying right now, and what would you like to study next?
My current research looks at technological change. In particular, how does specialization—simply the notion that individuals and firms are good at some things and less good at others—shape the impact of technological change? And then, looking the other way round, how does specialization influence the direction of innovation?
One project I’d like to highlight is joint with Lukas Mann, who was a visiting scholar at the Minneapolis Fed last academic year. We’re looking to understand which workers will win and which workers will lose from automation due to rapid advances in artificial intelligence, or AI. The simple idea at the heart of the project is that the implications for earnings depend on which tasks are being automated. Much of the media discourse seems to presume that exposure to AI is necessarily negative. One of the arguments in our paper shows that exposure can also be positive: If AI automates those tasks of your job that you are less good at, it frees you to concentrate on those tasks you’re specialized in, which you’re best at.
To take a simple example: I spend a shocking amount of time on email. But it’s part of my job, it’s part of the bundle of tasks involved, and no other person can really do that for me. So, if emailing got automated, hypothetically, I’d be very happy and surely more productive.
A second project, joint with my former Ph.D. advisor, Vasco Carvalho, explores the origins of breakthrough innovations. Our starting point is the observation that some innovations are gradual or incremental in nature, maybe a slight improvement to a product, say Apple’s latest iteration of the iPhone. But others are radical innovations. Those are innovations that stand out because they’re especially significant on their own terms and/or because of the positive spillovers they generate, because they facilitate follow-up innovation. The question is: How do firms, in particular, decide whether to pursue more or less radical innovation? We are developing a new conceptual framework—inspired by an analogy to animals’ search for nutrition, actually—and highlight that young firms, in particular, are likely to explore ideas and come up with radical innovations.
Can you give us an example of a radical innovation?
Going to the distant past, you can think of electricity, which acted as a general-purpose technology that transformed virtually every corner of the economy. A more recent example, and slightly narrower but still exceptionally impactful, would be mRNA vaccines. They rose to public prominence in the COVID pandemic, but research into using mRNA as a therapeutic tool goes back decades, with breakthroughs in the 1990s and 2000s. Today, work is under way to apply a similar methodology to fight many other diseases, including a variety of cancers. I think that’s another great example of a radical innovation that gradually, through follow-up innovations, is building up to have tremendous societal impact.
How does your research relate to economic opportunity and inclusive growth?
These two themes are pretty much at the core of all my research. We just talked about a research project on ideas and innovation. Over the long run, that’s really what’s driving economic growth, which in turn is so fundamental for improvements in living standards across the globe. That’s true in monetary terms, but also in terms of health—we just talked about vaccines that have emerged or are emerging through innovation—and living standards and so much more.
At the same time, the benefits of technological change are often very unequally distributed, and if we understand that, as a society we’ll want to make sure that everyone has a chance to participate in the gains or soften the losses. My work on AI is directly connected to these themes.
What’s an important economic statistic that you think people should know?
I think one fact that is not widely known is the improvement in living standards that’s come with economic growth over the past centuries, as I just hinted at.
To put a rough ballpark number on that, since the early 1800s, global GDP per capita, the average income in a year across all individuals living at any point in time, has gone up more than tenfold, from around $1,500 in 1820 in modern day prices to something like $20,000. That figure is obviously considerably less than the average person earns in the U.S.; it’s averaging across all economies, to be clear. Over the same time period, life expectancy has gone up from below 40 years to over 70. So, even though obviously there’s lots of unevenness in progress and there are important challenges that we as societies need to confront, the scale of improvement in material well-being and health over the last 200 years is so significant that it should inform any debate about growth and sustainability.
If you could talk to any economist for an hour, who would it be and what would you talk about?
That would probably be Albert Hirschman. He’s not as famous as some other candidates, not a Nobel prize winner, but he had the most fascinating life and ideas, so I’d love to talk with him about that.
He was born in Germany in the early 20th century. In the first decades of his life, he fled Nazi Germany, fought in the Spanish civil war, and helped Jewish refugees in occupied France escape from the Nazis. Actually, a couple of years ago, a popular Netflix series called Transatlantic touched on Hirshman’s role in those rescues.
As if that weren’t enough, after those years, he worked at the Federal Reserve Board of Governors and then taught at Yale, Columbia, and Harvard. He made some influential contributions to macro development on themes like unbalanced growth and political economy. I’m really curious how his dramatic, almost hard-to-imagine, awe-inspiring early life experiences shaped his research.
What’s the best advice you’ve read or received?
In the early stages of my Ph.D., I was a little bit stuck trying to come up with a job market paper. I had an idea, but it was so complex, I didn’t know how to fit it into existing research.
My Ph.D. advisor said something like, when you are working on truly novel ideas, that’s fundamentally different in terms of the mental attitude you need to take compared to working on a problem set for a relatively simple paper. These new ideas take time. They torture you in your sleep, when you’re awake, when you’re in the shower, and they have to torture you until you find the right angle to unlock whatever vague idea you have in some part of your brain.
That was so useful for me, because it clarified, or sharpened, the notion that research progress can be incredibly nonlinear. I think in many domains of our life we’re like, oh, I’m going to study language and if I do my 10 minutes of Duolingo every day, then every day I get a little bit better.
When you work on radical or novel ideas, then you shouldn’t have that expectation. You can wander around in the dark for ages. But if you persist, then suddenly you’re going to unlock something. I think that gave me license to sometimes be unsure and confused and try more angles for longer.
If you had your own news station, what would you report on?
So much of news reporting revolves around current domestic political affairs—things that are happening right now. And that’s understandable.
But there are trends that happen more slowly that are just as fundamental to understanding how the world works—I mentioned some examples relating to living standards, health, and innovation earlier. So if I had my own news station, or maybe program, I’d like to run a segment every day that does a deep dive into one of those major, slow-moving trends, whether it occurred over the last 30 years, 100 years, or 1,000 years, and how to think about how that trend shapes our modern society and how it can inform our thinking about current challenges.
This interview has been edited for length and clarity.
