April 12, 2021

Tyler Cowen: Economic Growth and the Fight Against Conformity | Lex Fridman Podcast

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Key Takeaways

• Wisdom is in the coming together of different ideas
  • No one individual or idea holds all the wisdom
  • The greatest philosophy works are interactions among thinkers
• Weird people are those who push science forward
  • Academia tends to encourage conformism and mediocrity
  • The internet allows us and encourages us to embrace our weirdness
  • The US is one of the best countries to be a weirdo
• Tyler doesn’t think that cryptocurrencies will replace fiat for transactions
• Competition is not good or bad per se
  • It can be highly destructive or fruitful
  • “What really matters is how good your legal framework is” Tyler Cowen
• Large businesses were crucial in helping us deal with COVID-19
• Given enough time, even a low probability event, like a nuclear war, is going to happen
  • The probability increases as weapons of mass destruction become cheaper
    • The Osama Bin Laden of tomorrow may have access to those weapons
  • Tyler thinks that at best we have 700 to 800 years
• Advice for young people
  • Get as many mentors as you can for the things you want to learn about
  • Build small groups of peers with common interests
• Love is the highest form of human connection
  • It is part of the highest realization of who you can be

Key Books Mentioned

• Capitalism: The Unknown Ideal by Ayn Rand
• The Use of Knowledge in Society, essay by Friedrich Hayek from his book Individualism and Economic Order
• The greatest philosophy works are interactions among thinkers
  • Life of Johnson (biography of Samuel Johnson) by James Boswell 
  • Dialogues of Plato (dialogues between Plato and Socrates)
  • Complete Works of William Shakespeare
• Books by Tyler Cowen
  • Big Business: A Love Letter to an American Anti-Hero
  • The Great Stagnation: How America Ate All the Low-hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better

Intro

• Tyler Cowen (@tylercowen) is a professor of economics at George Mason University, host of Conversations with Tyler, and co-maintainer of the Marginal REVOLUTION blog
  • Tyler is also the author of The Complacent Class and Average Is Over

• Host: Lex Fridman (@lexfridman)
• In this chat, Tyler Cowen discusses economics, risks of mass destruction events, crypto, weirdness, and much more

Economics, Game Theory and Nuclear War

• Economics is a bit like Art, Science and even Magic
  • Magic: sometimes it allows us to make everyone better off
  • Art: its models are not very exact
  • Science: occasionally propositions are falsified
• Economics doesn’t have strong predictive power
  • Its usefulness is in helping us ask better questions
• For example, Game theory never predicted if the US would have a war with USSR
  • Nevertheless, it is a useful lens to think about strategic conflict
  • Game theory can help us understand why nuclear war is a low probability event
• Given enough time, even a low probability event, like a nuclear war, is going to happen
  • The probability increases as weapons of mass destruction become cheaper
    • The Osama Bin Laden of tomorrow may have access to those weapons
  • Tyler thinks that at best we have 700 to 800 years
• Tyler sees humans mostly as collaborative and good
  • But the presence of outliers like Hitler makes mass-destruction events possible

The American Dream, and Influence on the World

• The idea of the American Dream is mostly still there, but it was never perfect
  • The highest immigrant earners are from India and Iran
    • Despite possible discriminations they may face, these groups managed to be successful
  • Among US nationals, intergenerational mobility has stalled in the past 40 years
    • New generations are not richer than the previous ones
• There is still strong inequality of opportunities
  • There are too few opportunities for the bottom half of Americans
  • But it has been getting better as women and people of color are getting access to more opportunities
    • Over time, injustices get smaller and smaller
• Why does the US have so much influence over the World (movies, podcasts, music, etc..)?
  • In the US entertainment and humor really matter, even in science
  • There’s a tendency to be direct, getting to the point, and connecting to the audience
  • US culture and tax structure also attracts lots of top-talent

Pros and Cons of Capitalism in America

• Capitalism takes a different form in each country
• Pros of Capitalism
  • Businesses drive most of the innovation and get things done
  • Companies tend to serve consumers’ needs
  • Larger businesses tend to pay the higher wages
  • The US is a better country to be a weirdo
    • This encourages creativity
• Problems with Capitalism in the US
  • Racial discrimination
  • Land-grabbing and oppression of Native Americans
  • Life is more precarious than in other countries
    • Less social security
    • Weaker communities

Competition, Law, and Anarchy

• Competition is not good or bad per se
  • It can be highly destructive or fruitful
• “What really matters is how good your legal framework is” Tyler Cowen
  • In nature, competition for food leads to constant conflict
  • If you have laws defining property rights and preventing violence, competition can work well
    • More competition in healthcare would improve the quality of service people receive
• The term free market is not well defined
  • We need a legal order to interfere with the market and preventing it from turning into a “mafia-run system”
• Some people in tech today are taking free markets to an extreme and embracing anarchy
  • They hold we should get rid of centralized governments
    • People can agree in a decentralized way on financial transactions, healthcare, security, etc…
  • Tyler doesn’t share these ideas but he’s eager to learn from them how we can improve our current society
    • Every society has some form of anarchy
    • The goal is pushing that anarchy in the right corners, where it can be most productive

Do Large Businesses Benefit Society?

• Large businesses are usually seen negatively in society
  • The internet exposes us to more information
  • We’re able to find more things to complain about
    • Our negativity bias makes us pay more attention to negative information
• Tyler’s book, Big Business: A Love Letter to an American Anti-Hero argues that many positive aspects of large businesses go unnoticed
• Large businesses were crucial in helping us deal with COVID-19
  • Amazon, Doordash, Ubereats all helped us get stuff delivered to our homes
  • Zoom allowed us to switch our whole education system online

Thoughts on Universal Basic Income (UBI) 

• Tyler likes Mitt Romney’s idea of UBI, UBI for kids
  • Kids are vulnerable
  • Parents’ mistakes should not affect kids
• He doesn’t see automation as a threat to employment today
  • Before Covid, both Japan and the US (the more industrialized economies) were at full employment
    • We might revisit the question if things change
• New jobs will likely require higher levels of education
  • He doesn’t think UBI solves this problem
• “Cushions get in the way of progress” Lex Fridman
  • The greatest creators in history had to work really hard
  • UBI may decrease our ability to innovate

Can Crypto Replace Fiat Currency?

• Bitcoin has taken over much of the role of gold
• We don’t have a clear theory of the value of Bitcoin
  • It is hard to figure out what its value will be
  • It depends on how valuable people think it to be
    • Similar to art
• Tyler doesn’t think that cryptocurrencies will be widely used for transactions
  • Once crypto is regulated, Tyler is not sure if there will be strong demand for it to be used to transact
    • Many of crypto’s current advantages are due to regulatory arbitrage
  • Ether has a better chance than Bitcoin to become a currency used for transactions
• Fiat currencies work really well, and people in crypto underestimate that
  • It is not easy to outcompete fiat

Embracing Weirdness, The Internet and Academia

• Weird people are the ones who push science forward
  • Academia tends to encourage conformism and mediocrity
  • Young faculty members are particularly pressured to conform
• The internet allows us to embrace our weirdness
  • You can get exposed to a much wider variety of people and ideas
• Academia is lagging behind the internet, but also seems to be moving forward

Can Economic Growth Continue Indefinitely?

• In The Great Stagnation, Tyler talks about the recent decline in economic growth
• Recently he became optimistic about future growth
  • Breakthroughs in green energy, batteries, medicine, CRISPR may spur future growth

On Communism, Russia, and China

• Like Capitalism, the word Communism can mean very different things
• In the Soviet Union, it created destructive incentives which hindered progress and innovation
  • Price incentives were removed
    • Led to shortages, and corruption
  • It alienated people and created an elite that didn’t believe in the system
• Russia Today
  • The economy is way too dependent on fossil fuels
  • Putin’s incentive is to steer economic power in a small number of hands
    • In the long term, will negatively affect the economy
    • In recent years, Russia already experienced negative economic growth
  • Putin’s high approval rating is likely due to the lack of press freedom
  • Culturally and historically there’s no entrepreneurial spirit
    • This makes ambitious people leave to the US
• On China
  • China seems to encourage entrepreneurship a lot better than Russia
    • Compared to Japan, Taiwan, and Singapore, it is still doing much worse
  • The CCP made a lot of good decisions
    • Created infrastructure to attract people to cities
    • Instilled a genuine meritocracy (reward and elevate talented people)
  • Tyler doesn’t see it supplanting the US as the Global Power
    • One person holding so much authority will create tensions picking successors
    • Tyler expects serious problems to emerge in China in the future

Advice for Young People

• Get as many mentors as you can for the things you want to learn about
  • You can try mentors and maybe they’re not good for you, but you’ll surely learn something
    • Tyler learned a lot from having a mentor who was a Stalinist
• Build small groups of peers with common interests
  • Consistently interact, talk about what you care about, and try to solve problems
  • Many great achievements were made in small groups
  • Over time, small groups may split up and that’s fine

Additional Notes

• Ayn Rand was a big influence on Tyler growing up
  • He agrees with her view on wealth
    • We should valorize wealth as it creates opportunities and good lives
  • He disagrees with most of her philosophical points
  • She had excessive certainty about her ideas
  • Wisdom is in the coming together of different ideas
    • No one individual or idea holds all the wisdom
    • The greatest philosophy works are interactions among thinkers
• Tyler doesn’t think Wallstreetbets has the potential to shift financial power
  • It’s a way for people to have fun, make the headlines, and screw with some billionaires
  • In the medium term, the price of those stocks will come back to where it ought to be
• Tyler takes data on UFO sightings from the Navy very seriously
  • An issue is that the people with good equipment to collect data don’t want to get involved
  • The Government’s secrecy around the issue creates distrust and prevents more research to be done
• Love is the highest form of human connection
  • It is part of the highest realization of who you can be

Lex Fridman Podcast : economics, philosophy, politics
Notes By Giorgio Parlato