Each year, the Royal Swedish Academy of Sciences awards the Nobel Memorial Prize in Economics in recognition of pathbreaking ideas and research that enhance our understanding of critical issues that, directly or indirectly, affect our prosperity and wellbeing. For 2025, three laureates have won the Prize for work unraveling the nature and genesis of technological innovation and its role in fostering sustained economic growth.

Economic historian Joel Mokyr of Northwestern University was honored for "having identified the prerequisites for sustained growth through technological progress." Economists Phillippe Aghion of the London School of Economics and Peter Howitt of Brown University were cited for "the theory of sustained growth through creative destruction."

Joel Mokyr meticulously examined historical data to uncover the underlying causes of enduring prosperity which generate a "new normal" in an economy. He demonstrated that, for innovations to cascade in a self-generating and sustaining process, it is crucial to grasp the full scientific basis for each succeeding discovery. There have been many points in history (such as the era prior to the industrial revolution) when a lack of such knowledge made it difficult to fully exploit new discoveries and inventions. Another element in his work highlighted the importance of society being amenable to the implementation of new ideas.

Philippe Aghion and Peter Howitt examined the mechanisms behind sustained growth. In the early 1990s, they built a model for exploring "creative destruction," which occurs when new and better products or processes enter the market and displace their predecessors. The concept dates back to sociologist Werner Sombart over a century ago and was brought into mainstream economic thought by Joseph Schumpeter in the 1940s. I recently wrote about "creative disruption," a similar phenomenon which occurs when useful innovations bring major shifts in multiple areas. Currently, this concept applies specifically to artificial intelligence (AI), which is affecting virtually every element of the economy.

Growth is not automatic. In fact, until the past couple of centuries, stagnation was generally more prevalent. Technological advances now occur rapidly and affect individuals, businesses, the economy, and society in fundamental ways. New products and methods inevitably replace prior ones, and resultant dislocations are unavoidable.

Advances foster sustained economic growth, which in turn allows higher standards of living and better health and quality of life. AI, for example, is a major technological advance which has the potential to enhance prosperity throughout the world.

Economists have been focused on conceptualizing the growth process for centuries, and the topic has been a primary factor in several prior Nobel awards. The work of the 2025 laureates reminds us that we cannot take economic advancement for granted and that ongoing technological advances followed by creative destruction are imperatives for continued prosperity. Stay safe!