David Friedman - Dating Markets, Legal Systems, Bitcoin, and Automation

1. 0:00 – 12:15

   Dating market

   1. DPDwarkesh Patel0:00

      Today, I have the pleasure of interviewing Dr. David Friedman, who is a famous anarcho-capitalist economist, and most recently, the author of Legal Systems Very Different From Ours. So, my first question is this: Is the dating market efficient, uh, i- in the sense that does it maximize net value? I- i- it's not a competitive market because I'm not substitutable for another bearded 20-year-old Indian man, uh, so I'm, I'm curious if you think... how efficient you think the dating market is.

   2. DFDavid Friedman0:27

      Oh, boy. Uh, I've been puzzled for quite a while on why online dating doesn't work better than it does. That in principle, a lot of dating is a sorting problem, that not only are you not identical to, uh, another bearded Indian man of the s- Indian or ethnic man of the same, uh, age, uh, your potential dates have different tastes. So that it's really... I actually discuss some of this, I've got a chapter in my price theory text, which is really on what I think of as the marriage market, although it applies to dating more generally. And I have one model, which is the really simple economic model, in which, in effect, everybody is identical, uh, and you have a market in which there is an implicit price in terms of the terms of marriage: uh, how much the husband agrees to do, to what extent the wife gets to make decisions, things like that. And, uh, you then, uh, allocate people. Uh, you then have an equilibrium price. And the real point of that section is that I'm arguing that the effect of polygyny or polyandry is the opposite of what people expect, that if you legalize polygyny, you allow it, make it legal for a man to have multiple wives, the result is to benefit women and maybe to harm men. Because if men can have multiple wives, that's gonna bid up the price of a wife. It means that some men can, in effect, go on the market and try to bid for two wives instead of one. And that then means that the ordinary monogamous man still ends up getting a wife but on worse terms, he's gotta do more of the dishes, uh, and women either get all of a husband on better terms or half of a husband on terms good enough so that they prefer half of that husband to, uh, to all of another. Uh, and that's sort of a fun argument. And of course, if you legalize polyandry, you allow a woman to marry multiple husbands, you have the same effect in reverse. So, that's the easy, the easy model. And then the harder model is the sorting model, and even then, I, I only have a simple sorting model. My sorting model is one in which everybody's value as a spouse varies, but it's the same to all potential s- uh, partners. And the real one is one in which not only do people have different, di- not only is your value as a spouse different from somebody else's, your value as a spouse is different to some people than to someone else's. Uh, the way I like to put it is that the woman who I eventually concluded was about a 1 in 10,000 catch was not in fact being pursued by anybody else at the time. Because other people had weird tastes and did not recognize what a desirable partner this was from my standpoint. I should say we're still married. That was 38 years ago or so that we got married. Uh, so that's a really hard problem, and I'm not quite sure... The problem is that a lot of economics ignore search costs, uh, because it, we don't have a very good way of handling them, and yet search costs are really central to the pro- to the dating problem. And I would have thought that things would get a whole lot better, uh, with computer dating because you can take all of the characteristics that are sort of objective and measurable, tell them to the computer, uh, have each person search, search a million, uh, profiles, find the subset of that who meet the easy characteristics, and then interact with each other to find how well they do. But as far as I can tell, it hasn't happened. I don't think that marriage has worked better, uh, since computers came in. Uh, the people I know who tr- have been trying to use, uh, computer dating haven't found it very successful and so forth. And, uh, and in fact, the story I'm told is that OkCupid, which is one of the most successful of these things, has gotten worse over time, that it was originally designed by enthusiasts who did clever things and then taken over by businessmen who did less clever things. Uh, now, it may be the people I've talked to are just sufficiently different from the mass of the, of the market, so that what looks, what works for other people doesn't work for them. But my, that's my impression, so, so is it efficient? Compare... If there's efficiency, you've got to compare it to some alternative. Uh, it's certainly inefficient compared to the ideal of a world where a perfectly wise, benevolent person paired us all up, uh, but we don't have any of those people around. Uh, and it's... I guess the interesting question is, does it worth, work better than the system where parents choose your spouse for you? Uh, a, quite a long time ago, one of the most interesting conversations I've had, I was in Bombay waiting for a plane to Sydney, and I got into a conversation with a woman from Southern India, and we ended up sitting next to each other and talking a good deal of the way to Sydney. And she was so- flying out to join her husband, who was a physician. Uh, she was from Southern India. Her husband had been chosen for her by her parents. Uh, she would have had a veto. It, it required her consent, but the actual search was done by, by, by her parents, not by her. She was still happily married. My first marriage had broken up-So the evidence from our little tiny sample was in favor of her system. What was really fun about it was that here was a intelligent modern person, a contempor- an educated contemporary from an entirely different society in terms of that set of institutions. And it's a lot harder to say, "Well, obviously the way we do it is right," when you've actually got someone real there defending the alternative. So I really don't know whether the modern American system, modern Western system, uh, of courtship works better or worse than the traditional system where the parents find a potential partner, then the partners get to decide whether they approve of each other or not. Uh, 'cause, you know, there is the argument that there's hardly anything farther from the economist model of rational choice than a man in love.

   3. DPDwarkesh Patel6:53

      (laughs) Interesting. I, I wonder if, um, to the extent that, you know, arranged marriages sometimes work better than non-arranged marriages, I wonder if that's because of just the social structure where y- y- that maybe makes you happier while you're in marriage versus whether your parents are better at choosing a mate for you.

   4. DFDavid Friedman7:15

      Huh. What do you mean? You mean it makes you happy 'cause you don't feel as though it's your fault that you've, if you've messed up, that you should have done better?

   5. DPDwarkesh Patel7:22

      Or maybe those cultures are just better at, um, in making wives and husbands, uh, more, you know, stay together and feel happy about their

   6. NANarrator7:28

      (instrumental music)

   7. DFDavid Friedman7:28

      In a sense, in a sense, what you'd really want to look at and what exists, though I'm not sure there are data on it, would be people from India, in particular, I'm not sure if it's true of all of India, but at least Southern India, who, who live in the US.

   8. DPDwarkesh Patel7:41

      Mm-hmm.

   9. DFDavid Friedman7:42

      So that my impression is it's not all that uncommon for somebody, you know, a young adult maybe in the tech industry, to, uh, migrate to the US, then go back to India to marry the wife that his parents have chosen for him, or maybe in some cases that arrangements are made here, and then live in America. So that's as close in a sense as you can come to a controlled experiment of separating out quality of choice versus, uh, the degree to which the culture supports your marriage, so to speak. And, uh, which would be interesting. Now, the other way you could do it, but it would be much harder, is that what you would like the, the computer dating people to do, but I don't think they've really done, is really serious research on what observable characteristics match with what, that you'd like... And in principle you could do it, what you'd like to say, "All right, here are all the things somebody tells us about themself," 'cause that's really all you, all you've got in practice. Let's take all pairs who ended up married or maybe all pairs who dated, who, who made the first try of having a date, and which s- how do you figure out from the characteristics of the two parties whether they'll have a second date? And you would think they'd want to do that. And then ideally, you follow that through and you say, "Which ones got married? Which marriages lasted?" So ideally, you could actually get sort of statistical data (laughs) saying, "Here's how to pair people up." And if you had that, you could then look at couples who were produced by, uh, American courtship institutions and couples who were paired up by their parents and see which one came closer to matching what the computer told you you ought to get together. That would be a really neat project, but it would be very hard to do.

   10. DPDwarkesh Patel9:35

       (laughs) Yeah, that would be interesting. Yeah, in, in Hidden Order, when you talk about efficient markets, you, um, you, you explain it in terms of could a bureaucrat god improve on, uh, the market-

   11. DFDavid Friedman9:44

       Yes.

   12. DPDwarkesh Patel9:45

       ... by like changing the allocation or production or quantity, uh, produced. And in this case, it's funny, in a, in a sense, the parents are that bureaucratic god.

   13. DFDavid Friedman9:52

       Except the, the parents... In those societies, the parents have almost enough authority, that is to say they, they could be rejected but usually aren't, but they aren't perfectly wise. Uh, but yes, no, no, the bureaucrat god basically is my attempt to make sense of what economists mean by economically efficient, because there are two issues with regard to economically efficient. One of them is what's an improvement? Uh, and there, as you know, I go with Alfred Marshall's view of it rather than the more conventional Pareto, Hicks, Kaldor, for anybody who knows these terms in economics approach, which I regard as a way of pretending not to make interpersonal comparisons when you really are doing it. Uh, but, but once you've got your way of comparing, then when you say this is efficient, efficient compared to what? Uh, and as far as I can tell, the closest I can come is to say, "What's the best you could, best outcome you could imagine by this criterion?" And that's my bureaucrat god, that's if you imagine a omniscient, omnipotent, benevolent actor who is controlling everything. And then I say, "Well, of course nothing will come up, it won't live up to that," but some things will come close, and in particular, the standard sort of price theory efficiency theorems tell you that a competitive market that doesn't have certain specific problems, such as public good problems and externalities, will ac- would actually produce the efficient outcome. And you never quite have that, but that's a whole lot closer than if you try to imagine other institutions such as a centrally planned system where the central planner has neither the right incentives nor the information nor the power that it, uh, that the competitive market has all the power you want because each person controls themself, so that's control over everybody, just in a decentralized form. And a central planner never has that, of course. So I think it's a useful concept, but, uh, it, you have to recognize that once you get to a fully realistic picture of any system, you're not going to achieve it. Uh, all you can do is say, "Well, in the, in this approximation, you would achieve it," and then you have some feel to how much breaking the approximation messes it up.

   14. DPDwarkesh Patel12:11

       Gotcha.

   15. DFDavid Friedman12:12

       It's a useful way of thinking about economics, in my view.

2. 12:15 – 27:30

   The future of reputation

   1. DFDavid Friedman12:15

      (laughs)

   2. DPDwarkesh Patel12:15

      Mm-hmm. I wanna ask you about, uh, futurism now. Uh-

   3. DFDavid Friedman12:19

      Sure.

   4. DPDwarkesh Patel12:19

      ... you talk in your book, Future Imperfect, about how, uh, contracts will be enforced in the future. And you see, uh, because of the rise of-

   5. DFDavid Friedman12:27

      I do not talk about how they will be enforced in the future. One of the things I try to be con- careful about in that book is to say, "I'm not making predictions." I am saying, "If this technology develops in this way, this is what will happen." But I don't know which technologies are gonna develop in which way. So in the case of contracts, what I think you're thinking about is my discussion of how a world online works, where you have complete privacy, wh- what, what I refer to as a world of strong privacy, that encryption potentially could give you a world where I can do business with you and no third party can observe what we're doing. Uh, and that includes making money. And then the question is, in that world, how do you enforce contracts? And I- I'm saying, if that happens, if you end up with that future, here is a plausible way in which contracts could get enforced using ultimately reputational mechanisms. Uh, and but I don't know that world is gonna happen, that... You know, the National Security Agency has been doing its best for decades to keep that world from happening. Uh, and you can see from there as, as I- as I try to make clear in the book, there are downsides of that as well, that world as well, uh, as well as, as well as upsides. Uh, and we're in fact seeing one of the downsides already because one of the things I think I discuss... I think I discussed in Future Imperfect, is the possibility for, um, crypto re- for, for cyber-ransoming, for, uh, getting onto somebody's computer, uh, encrypting the whole contents of the computer and then say, "I'll sell you the key back to decrypt it." And that's a bad thing, and you can think of other bad things, that if you kidnap people, at the moment in the real world, the hardest part of being a successful kidnapper is how you collect the money 'cause that's where you're likely to get caught. We can solve that problem, all right? With, with, with, with, with good, uh, cryptocurrency and an- and a world where, where you've got enough encryption so that people can't follow who's pa- who's, who's sending messages to whom now. So, so that world has downsides as well as upsides. Now, I happen to think that on net, governments, uh, do more harm than good, would be the sort of simple way of putting it. And that therefore, a world in which governments h- find it harder to control people, although we'll have the disadvantage that some of the things governments do are good and won't be done, we'll have the- have greater advantages. But, but in any case, so all I'm saying is I d- I'm not predicting that that world will happen. I'm saying that world could happen. We... there's the technological possibility for that. We've, that we've known for, I guess, decades at this point. Well, Bitcoin is newer than that, but, but, uh, cryptocurrencies are the only new part of that world. I wrote up... I wrote this up long before cryptocurrencies existed. Uh, and so we could have that world, and it's a really interesting world, which is part of why I talk about things like how you enforce contracts in it. But I'm not predicting it's gonna happen. And similarly for my- the various other things that I discuss that... You know, the one I most want is to solve the aging problem 'cause at the moment, it is very... It is ad- under current circumstances, the probability that I will be alive 30 years from now is very close to zero. Uh, I would like to be alive 30 years from now. I like living. Living is a lot of fun. Uh, so the particular future that I would- I'm most in favor of is the one where they solve the aging problem, where I get, at worst, to stay at something like my present age, which is a little bit creakier than I used to be, but tolerable, and ideally get to run it back a couple of decades. Uh, that world will have its own features. Mo- mostly good, but not all good, because after all, if that had b- happened, you know, a few decades earlier, it would have been Stalin who presided with nuclear weapons over the breakup of the Soviet Union, and he might have had a different view of it than people (laughs) who were in power. Uh, Sp- Spain would still be- being ruled by the dictator who ruled it from the end, from, what? I guess sometime in the- whenever the Spanish Civil War was over in 1940 or so, until a few decades ago, Franco. So there would be bad things about a world where people didn't get old, but I think on net, there would be good things. So, so all of these futures have positive and negative features, and I'm not predicting which ones will happen. I'm only- I was only trying to explore for each of those futures. And there's a reason I called the book Future Imperfect. That was partly a grammatical pun, and partly the fact that none of these futures is perfect. Uh, one of the e- early cypherpunks, who were people who were exploring the encryption stuff before anybody else was, his line was, "Encryption is not your friend," right? Technologies are not your friend. Technologies are what they are.

   6. DPDwarkesh Patel17:28

      Yeah. Uh, so okay, fair enough. Uh, assuming... Le- let's say if, if, um, if we move to a system where, uh, m- more contracts are enforced by reputation rather than the traditional-

   7. DFDavid Friedman17:39

      Yes.

   8. DPDwarkesh Patel17:39

      ... legal system. Uh, I wanna ask you, what are the social consequences of that? For example, will we see a return to honor culture? And is for- is the rise of, uh, political correctness maybe a consequence of us turning to a culture that depends more on reputation? Because now whether you are woke or not, um, w- either way says something about your reputation, and that signal matters more than it did in the past to your employer or to potential clients.

   9. DFDavid Friedman18:05

      That's interesting, 'cause the obvious problem is that for some people, woke is a positive sh- signal, and some a negative signal. Uh, certainly for me it's a negative signal, for... uh... And...The thing is that the reputation you want is an online reputation, which does not have to be linked to your real space identity. And in the kind of world I was discussing, wouldn't be linked to your real space identity. That partly it's the fact that it's not linked that means you have to depend on reputational. But of course, it's also true that reputational enforcement has been important for a very long time. Uh, that most... I would have guessed that most of what makes, uh, stores behave themselves, act well, is not the legal threat at all. It's the threat of bad reputation that, that, you know, I've had the experience of, uh, I was having problems with the people who were putting in the battery for my solar system, and I put up a very negative review online, and I immediately got a response from them basically like, "What can I do to, to help things?" And, and they ended up, uh, giving me a $500 discount to apologize for the month during which they had turned off the solar system that already existed when they installed the battery. Uh, so, uh, and I think there are a lot of other examples you see nowadays, which, which doesn't... don't even depend on, on, on the transactions being online transactions because companies care about their reputation, and they have an online reputation even for real space transactions that, that, uh... So, but, but the question is, is there any particular reason why you would trust somebody who agreed with your politics more? And it seems to me that, you know, my impression is that woke people quite often fight with each other and, you know, attack each other for... can't try to cancel each other because they're the wrong version of, of woke, so to speak. Uh, so, so I, I... it seems to me you might have... what you might get... you might get the pattern, which, which you do already have, where you've got groups of people who have something in common. And they... so one of the sort of odd patterns you get is some particular market niche, say, donut shops, being dominated by some particular ethnic group. I don't... I think there's a real... I think donut shops are a real example, but I don't remember which it is. Uh, and I know from my own experience that running motels is dominated by Indians in the US. I don't know why, but that's an observed pattern. Uh, so... and part of what may be happening there is that you have an ethnic group. Uh, you don't want to offend somebody who you... your son might wanna, might wanna court his daughter. Uh, that there are a bunch of, of, of li- social links within the ethnic group. And even aside from that, you don't want to offend somebody who knows people who know you. Uh, I remember observing a long, long time ago online, back in the days of Usenet, if you're familiar with that, which was really before the web. And one of my hobbies is a group that does historical recreation called The Society for Creative Anachronism, and it had a Usenet group, and it was a whole lot more polite than most Usenet groups that I observed. And I think the reason was that if you made... i- if you behaved, uh, really badly on there, if you went around insulting people for no good reason and being unreasonable, even if the person you were being nasty to would never meet you, he probably knew somebody who would meet you, and you didn't want to have your reputation... your real space reputation messed up. Uh, so in that respect, I think there is... but I think that's an effect which will go... which will become smaller in the future world because in the future world, we've got an online version of that. So that in the future world, at least as I've described it, I don't have to know you in real space, and most people I'm interacting with, I won't. Many of them won't even be on the same continent I'm on. Uh, I've, in fact, interacted with a number of dealers in India (laughs) who I've never met, uh, but who I'm willing to trust to deliver what they say they'll deliver 'cause they've done so in the past. Uh, and so it seems to me th- that if anything, the internet means that reputation is less tied to real space interactions and more to online interactions, and we have better mechanisms for keeping track of reputation than we used to, that, that eBay, for example, as you may know, when you have any eBay transaction, you get the opportunity to report to eBay on how it went, and when you're considering dealing with s- something, one of the things you see is what's their eBay reputation. How many people have said that they fulfilled what they said they would fulfill? Uh, uh, and you get the same thing if you buy something from Amazon that is not actually being sold by Amazon 'cause Amazon also funds as the middleman, books are the context where I'm most familiar with this. And one of the things you see is, well, this seller has it at this price, and here is what his rating is. Here is what people who've dealt with him say. So it seems to me that... I, I, I don't think I would ex-... I would expect... in a sense, I think of what you're calling honor culture as more the real space version of doing this. Uh...

   10. DPDwarkesh Patel23:41

       Interesting. Um, yeah, I, I wonder what the consequences of tearing down the walls between communities that perhaps make reputation in mo- uh, some ways more salient. Uh, for example, um, with the example of the Indian motels. I, I've lived in small town- many different small towns across the US, and, you know, you might have, like, at most, like, 10 people who are of Indian o- origin, which isn't a big deal for me, but for my parents, you know, that, that's a very big part of their, um, social community. So losing status or, uh... in, in that community is a big deal, and the reputation matters a lot more. Um, and similarly for your Usenet group, uh, for the SCA. When you have, um... wh- when you have communities that aren't isolated in that way, for example, when you have, like, a Twitter user, um, th- then is the... is the value of reputation or the capacity of reputation to tamp down on bad behavior, is that reduced once-

   11. DFDavid Friedman24:31

       So it... but it depends a whole lot on whether you are interacting with people where your reputation costs you anything. So that if, if, i- i- if somebody... if, if, if I become part of a Twitter mob online, first, the-Insofar as I have an online identity, uh, that online identity is not doing business with anybody. It's not probably in- involved in any interactions which, where, where people trusting it matters. So it's free to behave as badly as it wants. On the other hand, if I am interacting, as I do, uh, on a blog or a forum, where there is a, maybe 100 people who are regular posters to it

   12. DPDwarkesh Patel25:16

       Yes.

   13. DFDavid Friedman25:18

       ... and who are... In that case, reputation does matter, that if I behave in a way that shows me to be an unreasonable person, people won't take what I say very seriously. It's not as serious as he will not be willing to sell to me or, or buy from me, but it's still a, a real cost. Uh, and, uh, so anyway, the... You know, what... how this is gonna pan out is very... is, in, in, in general, the internet is going to ha- is having and is going to have non-obvious, uh, effects. I'm reminded, I just saw somebody online who quoted a bit that, that Heinlein, science fiction writer, wrote, where he was talking about the influence of automobiles. And he was saying that there were people who as- when the early automobiles came out, suggested that this would end up entirely replacing the horse. But he doesn't know anybody who had realized how it would affect courtship behavior, that the existence of closed automobiles meant that there was now a place where couples could, uh, make l- make out where their parents wouldn't be seeing them, uh, and where they could be 15 miles away from anybody who knew them, so as to reduce the chance of reputational costs and so forth. And somebody else online quoted somebody w- 30 years before Heinlein, when this was just happening, who was commenting on this effect and quoted as judge, who in some, I don't know, some rural area probably, who said that of the last 30 women who had come before him charged with sexual offenses, which I presume just means having sex, though he didn't be clear it, 19 of them had committed them in an automobile. Uh. And, uh, so that was an interesting case where you have a technological change and it has some obvious effects, but some less obvious effects. Uh, and similarly here. So I don't know what the, what the final results are going to be. I, I don't know how much the whole woke Twitter mob cancellation, that set of phenomena, how much that's only happening because of the internet, uh, or how much it's just due to other, you know, ideological changes over time, which is very hard to know.

3. 27:30 – 35:35

   How Friedman predicted bitcoin

   1. DFDavid Friedman27:30

   2. DPDwarkesh Patel27:30

      Yeah. Speaking of unexpected developments, um, you have a chapter in Future Imperfect on e-cash.

   3. DFDavid Friedman27:36

      Yes.

   4. DPDwarkesh Patel27:36

      And the book is published in 2008, which is the same year that, uh, Satoshi Nakamoto writes his white paper on Bitcoin. Um, in, in many ways, it was, uh, prophetic, the chapter he wrote, but in some interesting ways, and this is in the context of you being very right, in some interesting ways, um, th- what Bitcoin actually was, was just a completely different paradigm than-

   5. DFDavid Friedman27:58

      Yes.

   6. DPDwarkesh Patel27:58

      ... what you imagined e-cash being-

   7. DFDavid Friedman27:59

      Correct.

   8. DPDwarkesh Patel28:00

      ... uh, specifically in the sense that you imagined that it would be some centralized institution, like a private bank or company-

   9. DFDavid Friedman28:05

      Yes.

   10. DPDwarkesh Patel28:06

       ... instituting money based... that is, um, that is underwritten by either dollar denominations or commodity bundles.

   11. DFDavid Friedman28:12

       Yes.

   12. DPDwarkesh Patel28:12

       But in fact, you have a completely decentralized currency.

   13. DFDavid Friedman28:15

       Correct.

   14. DPDwarkesh Patel28:15

       I'm curious, in retrospect, uh, wh- what do you think you missed? How do you think you got it so right to be ?

   15. DFDavid Friedman28:20

       Well, I couldn't, I couldn't have predicted Bitcoin. I'm... You know, uh, Nakamoto was a very smart guy. And, you know, I've done computer programming. I've kept an eye on encryption issues because they interested me, but I was never at that level of, of expertise to, to realize what he could do. It was a very, very clever idea. Uh, and, no, the version I was thinking of was Chaumian digital cash, uh, the math of which had been worked out by Chaum maybe a couple of decades before I was writing, something like that. Uh, and in a sense, that is... The, the biggest difference is that because Chaumian digital cash requires an issuer, it hasn't happened, because you need an issuer, which is a reliable institution, which means it almost has to be in some developed country or at least some country with, with sort of reasonably well functioning legal institutions. But also... But, but one effect of digital... of anonymous digital cash is that money laundering laws become unenforceable. Governments very much dislike that, in part for good reasons and part for bad reasons. Consequently, the... no country of the sort you would need existed that was willing to put up with it. That's at least my interpretation of why it never happened. And the, the beautiful thing about Bitcoin is there's no issuer and it does not require... you know, it's just happening invisibly online as it were, which is very clever. The, the problem with Bitcoin, but not with cryptocurrency in general, not necessarily, is that the pr- the, the value of a Bitcoin is very unstable over time. And that's not too much of a problem if you want it as a speculative investment. I, in fact, have some Bitcoin. Uh, but it makes it rather inconvenient if you're using it for day-to-day transactions, because if a price is set in Bitcoin, the seller doesn't know what value he's going to get for his good. Uh, the buyer looking at the price in Bitcoin can't easily compare it to what somebody else was selling the same good for, uh, a month earlier because the price of Bitcoin could have changed 30% over that period of time. Uh, so Bitcoin is really not very good for a money for transactions, and that means that you want somebody to produce a stable coin that's easy to use, and there are various projects of that sort. I've got one of my blog posts in which I sketch out one mechanism by which you could get a stable coin, which would be stable in, say, dollars or in something else. Uh, so...And I'm sure there are other ways, that is, you could... In a sense, one of the things that ought to be doable, but I'm not, again, e- enough of an expert to know quite how you do it, is to have a Bitcoin where every time the value of Bitcoin goes up, you get a new subdivision with, with the same value. So in effect, as the value of Bitcoin goes up, instead of having 100 units, you now have 112 units. Uh, if it goes down, instead of 100 units, you now have 90 units, and then the units themselves could be fixed to the dollar. And I haven't... Uh, in a sense, I tend to write more than I read in a sense, so I haven't really made a serious effort to keep track of the various projects for stable coins other than the one that I invented and I'm not doing anything with it that I discussed on my blog. Uh, but I think if you had a cryptocurrency that both had a reasonably stable value in terms of dollars or euros or Swiss francs, in terms of something whose exchange rate to other things didn't change very rapidly, which is what you want. Ideally, of course, you do it in terms of commodity bundle, but I'm not sure how easy that's gonna be to, to set up. Uh, that if you had such a thing, uh, and if there was an... if it was easy to make transactions in it, which again, I think is not yet true of Bitcoin, though I've... since I've just held it rather than try to use it. I could be that by now they've made it easier, uh, that, uh, then it would become a serious alternative to conventional currencies, uh, and if you could do it in a way which proofed it against inflation, which means you don't lock it to the dollar, maybe you lock it to the average of the dollar, the Swiss franc, and the euro or something, uh, then the problem is you... as you probably know, I don't know how much you know about cryptocurrencies. The basic problem is you need an oracle. You need a way in which the software can find out what the exchange rate is, uh, and I, I know of some clever ways that, uh, the... some of the people, not, not, not Bitcoin, but with, with, with the, the second most popular currency have some interesting ideas about that because I discussed it with them a few years ago. Their ideas, not mine. But I don't really know at the moment to what extent people have oracles that they can trust because you need some way in which the software (metal clinking) can determine facts of the real world. And of course, m- the more you... the more the software can determine facts of the real world, the more neat things you can do with it. Because, you know, as you may know, there's this old idea of smart contracts where you have a, a... I make a bet with you and the bet is in effect built into the, um... i- in effect programmed into the money in such a way that if I win the bet, you suddenly have some less money and I have some more money and vice versa if you win it. And there are ways of doing that, but it ha- but it requires that the, the, that, that the, the... m- this is Ethereum, is the one I'm familiar with which does this sort of stuff. It requires that Ether can find out who won the bet, and that's sort of an interesting, an interesting project which requires, uh, ingenuity, uh, uh, to solve. Uh, but no, I think... So anyway, I think, I think the... and I should say my ideas on cryptocurrency are partly because I was interacting with some of the cypherpunks very early, and it was really a case where one of them had stolen a bunch of ideas from me, reprocessed them, and I then stole back his version from him. Because I had the discussion in machinery of how a stateless market society would work, and he had then said, "Well, what happens with those ideas if you have strong encryption?" And had worked out some neat stuff, uh, and then, then I read his stuff and, and, and, and borrowed it back. So, so I, uh... I can probably claim a little bit of credit, but, but it's not like I thought up the... these ideas of, of, of the f- digital clash all by myself. I was partly a part of people who were interacting over that. I was... I wasn't really a part of the cypherpunks, that is... I was on the mailing list for a while and I met some of them once, um, but I, I, I knew what they were talking about and it was neat stuff.

   16. DPDwarkesh Patel35:17

       Yeah. I- I've done a little bit of programming with smart contracts and one of the very interesting ideas, uh, that i- i- is that you can have contracts that own assets, so like the contract owns the Ethereum, which, um-

   17. DFDavid Friedman35:30

       Yes.

   18. DPDwarkesh Patel35:30

       ... i- in retrospect just seems like o- an obvious idea but it just, uh... what I learned about it just seemed like a very cool,

4. 35:35 – 40:00

   Prediction markets

   1. DPDwarkesh Patel35:35

      um, idea. Speaking of, uh, smart contracts, uh, I- I'm curious what you think about prediction markets. I don't know if you've... uh, I- I- I don't know your opinion on that but...

   2. DFDavid Friedman35:42

      I've known about prediction markets for longer than almost anybody else-

   3. DPDwarkesh Patel35:46

      Uh-huh.

   4. DFDavid Friedman35:46

      ... because I was corresponding with Robin Hanson back before he switched fields and became an economist. Uh, that's sort of my standard example of one of the really nice things about this world, is that it used to be that you had to be a university professor because the people you wanted to interact with had to be on a... in the same building you were, so to speak, to interact very much. Now it's no longer true. So I came across Robin very early, discovered that he had these really neat ideas and so I corresponded with him. Uh, so no, the prediction markets are a very interesting idea, uh, and I gather that they are developing. I think the ones I know about seem to have limits in the size of the bets you can make and in the amount of house cut if you want to take your money out. Uh, so I assume that will develop further, but in principle... now Robin's idea, of course, is that you want the prediction market as a way of generating information, and that was... I mean, the, the, the, the, the... a lot of the great ideas are very simple, and his idea was a stock market has as its nominal function allocating capital.And just as a side effect, it generates information, because you observe that a certain stocks are going up or down, and that tells you something about what people who are willing to bet on it believe about those companies, or those industries, or whatever. Uh, so we said, "Look. Why- how about you do it deliberately? There are things we'd like to know. What if you set up a market for that purpose?" And that was where prediction markets originated, which was Robin Hanson's idea. Uh, so, uh, so no, they're- they're- they're- they're a neat idea. Uh, and some of course have always existed. If you think about futures markets for agricultural products are a futures- are a prediction market, although they're not referred to that way yet, that if you observe that the future price of wheat is sizably larger than the present price as of a year out, you say, "Oops. Looks as though the- the smart money expects that there is gonna be a bad harvest, or something else is gonna happen that's- that's gonna do it." And that- that's- that- that's very neat. And in principle, uh, you have to... I guess it requires that there is a reason why people wanna bet on this, but people like to bet on lots of things. Uh, and so no, I think that is- that's something nice that's developing. And again, I haven't really paid enough attention. I haven't actually ever made a predicted bet, although my younger son, uh, has been betting, I think, on predictive, and says he's ahead so far. He's doing it mostly for fun, not be- because... But- but you don't- you don't wanna limit people doing it for fun, because the- the thing is if you can only make small bets, then the prices are gonna be dominated by ideologues. Uh, whereas if you can make bets of any size, then the smart money who doesn't care what's true, they only care (laughs) who- what- what bets make money is likely to take over. Uh, (clears throat) there was an interesting case back... I don't remember which election it was, but one of the US presidential elections a few presidents ago, where the relevant market very briefly surged in favor of one of the candidates, and then very quickly went back. And my conjecture was that somebody who wanted that candidate to win thought that pushing the prediction market in his favor would make people expect him to win, which would then make him more likely to win, because you're more likely to donate money to- to people who you think are gonna win, but that he- his effect got wiped out by the- by the smart money coming in on the other side when they saw that there was- were- was

   5. DPDwarkesh Patel39:33

      (laughs)

   6. DFDavid Friedman39:33

      ... this extra free money lying around. Uh, but that does require a market where you can make, uh, reasonably large bets, uh, 'cause otherwise it's the number of bettors and not the- not how strongly they feel about it, not how confident they are that- that matters. Uh, so yeah, no, prediction markets are a neat idea.

   7. DPDwarkesh Patel39:51

      Yeah. Um, I- I wanna ask is, for example, the chapter on E-cash, you talk about, uh, at the time, you thought that the burdens to E-cash were regulatory, not

5. 40:00 – 45:50

   Can regulation stop progress globally?

   1. DPDwarkesh Patel40:00

      technological.

   2. DFDavid Friedman40:01

      Yeah.

   3. DPDwarkesh Patel40:01

      But when you talk about these other fields, um, I- I wonder to what extent do you think that what stopped... Ho- what proportion of progress do you think is stopped by we just don't have the right technology versus how much-

   4. DFDavid Friedman40:11

      Yeah.

   5. DPDwarkesh Patel40:11

      ... do you think is just because the regulations of the space are just not conducive to innovation?

   6. DFDavid Friedman40:15

      Yeah. And the- the- that is my- my- my view then, and I think I may have been too optimistic, was that it's very hard for regulation to stop progress, because there are many independent countries. And the evidence against that is that as far as I know, nobody had challenged trials for COVID vaccines.

   7. DPDwarkesh Patel40:35

      Or nuclear fusion.

   8. DFDavid Friedman40:38

      Or nuclear fusion.

   9. DPDwarkesh Patel40:39

      Or n- or normally Yeah.

   10. DFDavid Friedman40:41

       ... nuclear fusion. But nuclear fusion may just be hard, but we know that vaccines aren't hard-

   11. DPDwarkesh Patel40:44

       Yeah.

   12. DFDavid Friedman40:44

       ... 'cause they produced a successful vaccine in something less than a week, right? People talk about the fact, "Isn't it wonderful that we got vaccines in- in- in- in a little under a year?" But the truth is that we got vaccines in less than a week, and all the rest of the time was the testing procedure, and s- you couldn't do it to zero. First, it would take time to get- to produce substantial quantities, but you could, as far as I can tell, have done a good enough testing so that it should have been available to anybody who wanted to take the risks in maybe two months, that what do you do? You- you do two tests simultaneously. One of them is you give the vaccine to a large random set of people, so old, young, et cetera, and you don't expose them to the disease. All you're trying to do is see does the vaccine have serious side effects? You then take 100 or 200 or 300 healthy young adults. You give them the vaccine, and you deliberately expose them to COVID. That'll tell you, uh, a month after... I- I- if- if you believe that you may need two shots, uh, a month apart, uh, but you wouldn't even have to do that in order to find out that it works, just so you can find out the best way of doing it. So- so expose them and give- give- give your people the- the vaccine. Expose them all to COVID. You have some rough idea of people who are exposed to COVID from- from external evidence, how likely they are to get it. If almost none of them get it, you know the vaccine works.

   13. DPDwarkesh Patel42:15

       Yeah.

   14. DFDavid Friedman42:15

       Now- now you- now you can keep getting better information as you go on. But that's enough, so that means that we could have had some of the vaccine in maybe two months instead of whatever it was, 10 months or 11 months. Uh, how fast they could expand production and how many people are willing to risk it and such, I don't know. But the impressive thing is not just that the US didn't do it. Uh, we know the FDA is cr- is- is crazy that way, uh, but that nobody did. Now, I don't really know for certain what happened in China and Russia, but at least of the, uh, Western countries, none of them was willing to do- to do challenge trials. And-

   15. DPDwarkesh Patel42:55

       Right.

   16. DFDavid Friedman42:56

       ... that's, I think, a case of enough common cultural elements, one of which is better to have 100,000 people die from not doing something than to have 10 people die from doing something.

   17. DPDwarkesh Patel43:12

       Right.

   18. DFDavid Friedman43:12

       And nobody would put it that way, but- but the- the-And, so that's sort of disappointing to me, uh, that you didn't, uh, you had one country which in other ways defied the rules, namely Sweden, uh, and that was a good thing. That gives you some more information, although not as good information as you'd like. They didn't do very well, but we're not sure how many other differences there are among the countries that could explain it. Uh, they did much worse than the other Scandinavian countries, but not much worse than Italy or Spain, say. Uh, I'm trying to think if they're better than Italy and Spain. I'm not sure. Uh, and then, you know, people have different explanations of, of, of the reasons for, for these different outcomes-

   19. DPDwarkesh Patel43:51

       Mm-hmm.

   20. DFDavid Friedman43:53

       Uh, but, uh, but it would, but, but I, but, but I, in a sense, I wish the world were less uniform in that sense.

   21. DPDwarkesh Patel43:59

       Right.

   22. DFDavid Friedman43:59

       Uh, and if I think about aging, for example, I can easily imagine the FDA e- at least requiring all sorts of lengthy testing for, uh, medical treatments to, to stop aging, and maybe even trying to block them. Because after all, one of the effects of ending aging is that the Social Security system goes bankrupt, all right? Very quickly. Uh, unless you are willing to stop paying Social Security to very old people or something. Uh, and there are gonna be other respects in which there's gonna be prejudice b- b- So I could certainly imagine that some countries would see ending aging as a bad thing. Find it hard to believe that all of them would. Uh, and there are obviously a lot of politically powerful people and a lot of wealthy people who are old and would very much like not to die of old age. So my guess is that can't be stopped. But as I say, I would have guessed that, that somebody would have done a better job on, on COVID than they did.

   23. DPDwarkesh Patel45:02

       Right. Uh, Robin has an interesting theory about this, I don't know if you've seen this. But, um, he, he thinks that nuclear power could have been much, uh, much more technically proficient by this point were it not for regulations. And the way he explains how it's been globally curtailed is, he has a blog post titled, World Forger Elite ) or, uh, something like that, and I, I had him on my podcast for, if people want to listen to that part of the conversation. But his idea is that the elites, uh, across the world who control regulatory agencies and policy-making, they talk to each other, and just like any, any profession, they're deeply imitative and coveting of each other's approval.

   24. DFDavid Friedman45:37

       Yes.

   25. DPDwarkesh Patel45:37

       Um, just as for journalists want the approval of other journalists, intellectuals want the approval of other, uh, intellectuals, policymakers from different countries want the approval of, you know, the E- the E.U. regulators want the, the FDA regulator and s- and so

6. 45:50 – 54:20

   Lack of diversity in modern legal systems

   1. DPDwarkesh Patel45:50

      on. Anyways.

   2. DFDavid Friedman45:51

      Yeah.

   3. DPDwarkesh Patel45:52

      Um, this, this actually brings up a question I wanted to ask you about, uh, Legal Systems Very Different from Ours, which is your most recent book. You talk about the vast diversity of legal systems throughout history, and yet when I look out at the world today, uh, you know, you have some exceptions, maybe Sharia in the Middle East, um, and s- so on.

   4. DFDavid Friedman46:10

      There is, there is nowhere in, there is nowhere in the Middle East, with the possible exception of the Islamic State which doesn't rule anything...

   5. DPDwarkesh Patel46:17

      Interesting.

   6. DFDavid Friedman46:17

      ... which actually follows Sharia.

   7. DPDwarkesh Patel46:19

      Okay. So then, then the question-

   8. DFDavid Friedman46:20

      Those... The Saudis are the closest, as far as I know. But mostly, countries that talk about following Sharia have a government, uh, statutory legal system some of whose rules are borrowed from, by Sharia. But Sharia, uh, l- the real thing, uh, it's not clear actually that Sharia is the right term for it. But the real traditional Islamic legal system was not r- was not legislated by the state.

   9. DPDwarkesh Patel46:48

      Mm-hmm.

   10. DFDavid Friedman46:48

       That was a system sort of like common law in the, in, in the Anglo-American system, in which the legal rules were worked out by scholars based on religious sources. And the judges were appointed by the state, but the judges didn't even have to be legal experts. It was a good thing if they were, but they could rely on the muftis who were initially at least reputationally supported, uh, legal scholars to tell them what the law was.

   11. DPDwarkesh Patel47:18

       Yeah. Right. So...

   12. DFDavid Friedman47:18

       So, in, in principle that system had separation of state and law.

   13. DPDwarkesh Patel47:23

       Interesting.

   14. DFDavid Friedman47:23

       Uh, now there, they always, states always sort of poached on that in various ways, but, but that was the base. There's been none, n- no one, no one does that now, uh, so.

   15. DPDwarkesh Patel47:33

       Right. So, so just to finish my question then...

   16. DFDavid Friedman47:34

       Yes.

   17. DPDwarkesh Patel47:35

       What is the explanation for why, you know, you don't have any country that has marketable tort claims or where, as far as I'm aware, or where, you know, the plaintiff has to bear, uh, some risk for filing a suit if it doesn't work out?

   18. DFDavid Friedman47:48

       Yes.

   19. DPDwarkesh Patel47:48

       Um, why is it that there's so little diversity in legal systems around the world today?

   20. DFDavid Friedman47:52

       Yeah. No, but it seems to me y- e- that Robin's answer sounds like a plausible answer. Yeah, no, when I wrote the book, I... Normally when people talk about comparative law, they're talking about Japanese versus European versus US, et cetera. And I was deliberately not doing that, that the closest I came to our system was 18th century English criminal law. And that was so that I'd written an article on it, there was a bunch of really interesting stuff there. But that's really too close to our system for what I was trying to do in that, in that book. Uh, so no, you're right, that the modern legal systems all look like variants on the same thing, and I guess there's some pressure for consistency in the sense that if you're gonna be doing business with people in another country, you'd like their legal system and your legal system to be similar enough so you can make sense of them, but I think a lot of it has got to be ideology, and a lot of that is because all of these are, are state-made legal systems. So one of the interesting questions is, if you look at non-state legal systems, which there are lots in the modern world, that if you think of, you know, a, a university's rules for its students, uh, a large firm's rules and so forth, I wonder if you actually looked at those, or to take a, an example that... I should say there are two chapters in that book that I didn't write, uh, that friends of mine, uh, and their, their names are on the book. But basically, uh, I knew people who had written interesting books on other legal systems, so I asked each of them to do a chapter on it, and that's...... the n- book by- the, the- it's chapter by David Skarbeck is on- is on prison gangs, and the chapter by Peter Leeson, which is on 18th century pirates. And if you look at those systems, they aren't all that similar to the state ones, if I think about those two, at least. Uh, so I think if- my, my guess is that if you were looking at non-state legal systems, you'd find a lot more diversity, but I could be wrong.

   21. DPDwarkesh Patel49:53

       Interesting.

   22. DFDavid Friedman49:54

       Uh, and I suppose that certainly Jewish law, rabbinic law still exists not as a state system, Israel doesn't really have rabbinic law, uh, but it exists for certain areas as a enforced by people believing in a religion kind of system. Uh, and I suspect, again, that if you looked at those, you would find a good deal less unif- uniformity.

   23. DPDwarkesh Patel50:17

       Interesting. Although even when you- when I consider, uh, universities, for example, if I got out the rule book for my university, University of Texas versus the University of Tennessee or just name any random university-

   24. DFDavid Friedman50:28

       Yeah.

   25. DPDwarkesh Patel50:29

       ... if I redacted the actual name of the university there, I doubt I would be able to tell which one is which.

   26. DFDavid Friedman50:34

       But the question is-

   27. DPDwarkesh Patel50:35

       Because it's-

   28. DFDavid Friedman50:35

       ... what, is either of those very close to either criminal or tort law-

   29. DPDwarkesh Patel50:41

       Sure.

   30. DFDavid Friedman50:41

       ... uh, in the US? And I don't know about those cases, but I wouldn't assume that it was, uh (coughs) , because... but, but, but, but I think it is probably true that the, uh, sort of ruling groups in, in all of the developed world know each other and talk to each other and, and not wholly unreasonably say, "Well, you know, that country's got this rule, seems to work for them. Maybe we should do it too."
7. 54:20 – 1:01:50

   Friedman's theory of property rights

   1. DPDwarkesh Patel54:20

      to explain that theory, uh, as we answer this question-

   2. DFDavid Friedman54:23

      Sure.

   3. DPDwarkesh Patel54:23

      ... which is, why do we not apply the same, um, w- commitment strategy against the government violating our rights-

   4. DFDavid Friedman54:31

      Yeah.

   5. DPDwarkesh Patel54:31

      ... that we do to other individuals violating our rights?

   6. DFDavid Friedman54:35

      Because any individual who did that would be worse off as a result, is the simple answer. But basically, what you're discussing is an article of mine called A Positive Account of Property Rights and it was really about rights in general. I just happened to write it for a conference on property rights. And the same material appears in the third edition of Machinery of Freedom, in a somewhat slightly different form. And the basic argument is that... starts out with, w- w- with other species. It starts out with territorial behavior in animals, which is a well-established pattern of a fair number of different species. And the territorial behavior consists of an individual, a species, somehow marking the territory he's claiming, uh, and then somehow turning a switch in his brain...... so that he will fight more and more desperately against a trespasser of his own species and sex who g-... the farther into the territory he comes. And the critical fact is that unless the trespasser is much stronger, a fight to the death is a loss for both sides. And therefore, if one side can somehow commit himself to, uh, "I will do whatever it takes to fight you," then the other side backs off. And I should say, this is something I ultimately got from interacting with Earl Thompson, who is no longer alive. But he was a UCLA, uh, economist who was again s-... and a little bit like Robin in the sense of a very bright, very original kind of person, uh, and a lot of fun. And I discuss him on my blog a little bit, uh, and a little bit more in something I've been writing. Uh, but the idea of commitment strategies is really important. And you then say, "Well, what's the human equivalent?" The human equivalent is mostly not geographical boundaries, it's boundaries in right space. It's what are the f- patterns of behavior that, uh... what are the lines such that if somebody else crosses them, I am willing to bear unreasonably large costs to fight him? That's the way of thinking about it, and that then gets into the idea of Schelling points, the idea that you can't just set your boundary anywhere. You have to set your boundary at something which both sides will see as a natural division. So, I talk about things like bank robbers who have to smit loo- split the loot and each one thinks he deserves more than half of it, but they don't want to keep arguing about it till the police show up, so they agree on 50/50. That 50/50 seems like a natural division, like what's called a Schelling point, right? I discuss that at some length, a- as I say in, in both the article which you can get from my webpage or the chapter in my third edition of Machinery. And, uh, that then what makes civil order, the reason we aren't in a Hobsian anarchy where everybody's fighting everybody else, is that we have reasonably consistent pictures of each other's commitment strategies. So, that I know that if I am your neighbor and I come and say, "I've decided to dump my trash over the fence onto your property. And look, doing anything about it legally would be more trouble than just dumping the trash... just disposing of the trash," you aren't going to accept that, that, uh, nor are you going to accept it if I say, "Look, instead of dumping my trash, pay me $10 a month." You're not gonna do that either. And in terms of a simple cost-benefit calculation, it looks like you want to surrender, but we all have a feeling for why it would be a mistake to surrender. Uh, so in that sense, you get a pattern in which people are mostly not fighting each other, uh, because each person knows, here are the lines other people have drawn. And you can't just draw the line anywhere you want. I can't draw the line and say, "All right. The deal is, I will fight as hard as I can if you don't pay me $50 a month in, in tribute," because you won't believe me. And, and, uh, you... but I will believe you if you tell me, "Try to make me pay you tribute, and I will do whatever I, what I, whatever I have to to stop you." Uh, so that's sort of the basic idea. P- people should read the article if they want the, the details.

   7. DPDwarkesh Patel58:50

      Sure. Uh-

   8. DFDavid Friedman58:50

      And then my definition of government is that organization against which we drop our commitment strategies. And if I drop my commitments, it depends on other people seeing the difference, seeing that a government is a different kind of thing. Uh, if I drop my commitment strategy against you, other people will observe that and say, "Look, he's a wimp. We can push him around too." Uh, this is my discussion of why the e- the UK was willing to send their only aircraft carrier, uh, almost to Antarctica to fight the, uh, uh, Argentina, uh, over some barren islands that nobody cared about. Because if they didn't, it might be Gibraltar next, uh, if it was clear that they were not committed to defend their territory even when it didn't seem worth doing. And on the other hand, uh, if you have a organization that is sufficiently powerful, and if other people don't see giving into it as the same thing as giving into an ordinary person, then you know that if you tried to maintain that commitment strategy, you would die, because the government's got a whole lot more power than you do. Uh, and therefore, you don't. And, uh, so I think that's the, the, the base, the basic interest. But, uh, but I really got into that part of it because the question I was trying to answer is what makes something a government? Because I call myself an anarchist. The, the society I describe in Machinery as an anarcho-capitalist society has mechanisms for enforcing law. It's not just that you can do anything you like. Why aren't those mechanisms a government? And that was the question I was starting with, 'cause some people said, "If they are, you're not really an anarchist." And my answer is, "Because those institutions are seen by people as having the same status as, as private individuals." That, uh, the, uh, the, the, the rights enforcement agencies are not a government because if they try to extort you, you will, in fact, resist, not at infinite cost, but at much larger cost than the issue seems to be worth, as would other people, whereas governments, you don't. So, that was, that was my answer.

   9. DPDwarkesh Patel1:01:08

      Right. And in fact, uh, I had, uh, Michael, Professor Michael Huber on my podcast, who has written a book called The- Uh, The Problem of Political Authority. But instead of making the, uh, positive account, he makes a normative account for-

   10. DFDavid Friedman1:01:18

       I agree.

   11. DPDwarkesh Patel1:01:19

       Yeah, yeah, sorry, um, he makes a normative account for, uh, sorry, for why we shouldn't distinguish between-

   12. DFDavid Friedman1:01:25

       Yes.

   13. DPDwarkesh Patel1:01:25

       ... um, uh, political authority and normal individuals.

   14. DFDavid Friedman1:01:27

       That's right. That- that- that book, he basically runs through all of the standard philosophical arguments for why governments have a right to do things the rest of us don't have a right to do.

   15. DPDwarkesh Patel1:01:37

       Sure, sure.

   16. DFDavid Friedman1:01:38

       Um, basic conclusion is that the only defensible one is the belief that if they don't have the right, catastrophic things will happen. And he then spends the second half of the book arguing, as I would, that it isn't true.

   17. DPDwarkesh Patel1:01:49

       Sure.

8. 1:01:50 – 1:06:25

   Charles Murray's scheme to fight regulations

   1. DPDwarkesh Patel1:01:50

      (laughs) And, uh- uh- uh, by the way, have you, uh, have you heard of Charles Murray's strategy for setting up a commitment strategy to combat government interference in his book, For The People? If- if not-

   2. DFDavid Friedman1:01:59

      Nope.

   3. DPDwarkesh Patel1:02:00

      ... you'll find this very interesting.

   4. DFDavid Friedman1:02:01

      Right.

   5. DPDwarkesh Patel1:02:01

      Okay. So the idea is this. Y- you have a few people, uh, who have a lot of money set up a fund, and he calls this the Madison Fund. And the entire purpose is whenever OSHA or the EPA comes to somebody that, you know, normal people can sympathize with, and they say, "Here are the regulations you must abide by," maybe they- they'll destroy your business and so on. Uh, but- and- maybe- maybe they're obviously unreasonable. And in these cases, this Madison Fund would go through every possible legal avenue, even though they know the end result is gonna be that they're gonna lose the case, to increase the burdens on the, uh, EPA agents and on the bureaucracies within the EPA, increase the costs that they had to bear for enforcing this rule. And so then, the government knows, "Listen, we- we can't go about enforcing this rule because it's just not effective." Uh, i- it's not-

   6. DFDavid Friedman1:02:49

      The problem is that if- if they weren't committed to do it for any- any victim, it could work. That is to say, I presume that regulatory agencies do actually look at how hard their target is gonna fight. But given that they're committed to doing it for everybody, the regulatory agency is gonna say to itself, "If we give in here, we're not gonna be able to do our assigned job assigned by Congress, and therefore we should..." And after all, the- the- the federal government has an awful lot of money available to... Much more- more money than your- your- your group of wealthy people do.

   7. DPDwarkesh Patel1:03:23

      Interesting. But if- if you started off one regulation at a time, and in each case-

   8. DFDavid Friedman1:03:28

      If you... That's right. If you could, if you could find, if you could find some way so that it only applied to 1%-

   9. DPDwarkesh Patel1:03:34

      Mm-hmm.

   10. DFDavid Friedman1:03:35

       ... of- of- of what the agency wanted to do, you might, you might be able to pull it off. That would be an interesting, an interesting project.

   11. DPDwarkesh Patel1:03:41

       Right. And then-

   12. DFDavid Friedman1:03:42

       So what- what... What's the book?

   13. DPDwarkesh Patel1:03:44

       For The People, or By The People, rather. Right, and another- uh, another variant he has on this is r- instead of, like, having somebody fund this charitably, you can have, for example, an association of dentists. They all pitch in $200 a month, and then the goal of this institution is, if the government tries to enforce this law, which we know is not effective at preventing, you know, uh, harm or anything, then we will chip into the legal cost of fighting the government tooth and nail to enforcing this rule. Um, anyways.

   14. DFDavid Friedman1:04:12

       In a certain sense, this is how a, uh, private law system like the Somali system did work. That is to say, in the Somali sys- the traditional Somali system, you have coalitions which are formed partly by kinship and partly by explicit contract of a group of people, and part of the deal is if somebody wrongs one of us, everybody in the coalition will help him, uh, use feud, basically use or threaten violence against the person who harmed him to get compensated. And when the compensation comes in, it gets divided among the members of the group. Typically, the victim gets a larger share and... It's more complicated than I'm describing, but the basic idea is that it is a group of people who are committed to- to defend each of them, uh, against wrongs by people who are members of other such groups. Uh, but it's more, even more complicated than I'm describing because it's a set of nested coalitions where if the group you are fight- you're dealing with is too strong, you expand by taking in the- the set of people, the- the set of other such groups that are sort of part of your, uh, of your tree, as it were.

   15. DPDwarkesh Patel1:05:32

       Right.

   16. DFDavid Friedman1:05:32

       Uh, so it's quite a neat system. I have a chapter on that in the legal systems book, and it was a lot of fun.

   17. DPDwarkesh Patel1:05:37

       As a, as a computer science student, I really enjoyed that chapter because it- it just appeals to my, uh, uh, my... It appeals to my h- uh, you know, the aesthetic of recursion-

   18. DFDavid Friedman1:05:47

       Yes.

   19. DPDwarkesh Patel1:05:47

       ... when you are looking at the most common ancestor or the most recent common ancestor.

   20. DFDavid Friedman1:05:51

       Yes.

   21. DPDwarkesh Patel1:05:51

       Um, anyways. Okay, so I want to ask you about, does this-

   22. DFDavid Friedman1:05:54

       What I, what I like about it, of course, is not the kinship part, although that's very important in that society, but the fact that it's also by contract, by explicit contracts.

   23. DPDwarkesh Patel1:06:04

       Mm-hmm.

   24. DFDavid Friedman1:06:05

       So that you can have what they call a pile of shields, which is a coalition which is entirely by contract rather than by kinship. And apparently, that was the term they used for NATO.

   25. DPDwarkesh Patel1:06:19

       (laughs)

   26. DFDavid Friedman1:06:19

       That... Because it wasn't like we were kin, but we had all agreed to-

   27. DPDwarkesh Patel1:06:23

       Right.

   28. DFDavid Friedman1:06:23

       ... defend each other.

   29. DPDwarkesh Patel1:06:24

       Yeah, yeah.

9. 1:06:25 – 1:09:07

   Property rights of the poor

   1. DPDwarkesh Patel1:06:25

      Interesting.

   2. DFDavid Friedman1:06:26

      Pile of shields.

   3. DPDwarkesh Patel1:06:26

      Yeah. Um, and okay, so I want to ask you, does this theory imply that the poor are the least likely to have their property rights safeguarded? Because the point of a commitment strategy is the other person knows that, um, in- in some sense, you're protecting this property, which is not worth the cost of retribution.

   4. DFDavid Friedman1:06:44

      And, and, but the flip side of that is that the poor also has less- have less valuable stuff to steal.

   5. DPDwarkesh Patel1:06:48

      Sure, but if in- if-

   6. DFDavid Friedman1:06:49

      On one hand, the poor... Uh, and poor is, poor is- is too narrow a statement. Whoever has less of the resources relevant for conflict. So that it might well be that a poor lawyer, uh, would be in a pretty good position because conflict in our society might well be lawsuits and his time is available for him.... whereas a somewhat better off person with no expertise in law might not be. Uh, and after all, I- I- I discussed this in the context of the Icelandic system 1,000 years ago, and then while money was u- w- while wealth was useful, the main thing was how many of your kin were competent warriors, uh, how many of your friends were, so it was really the relevant, the relevant power in that was not mainly money. It was mainly alliances. Uh-

   7. DPDwarkesh Patel1:07:39

      Sure. But then, then we get-

   8. DFDavid Friedman1:07:40

      But it's true that anybody, th- that, that in such a system, how well you are protected partly depends on how much of whatever resources are used for, for, for, for conflict, uh, you can command. But at the same time, how much protection you need depends on how much stuff ... on how strong other pe- their, other people's reason to wanna violate your rights are.

   9. DPDwarkesh Patel1:08:04

      Right. But, uh, yeah, so, um, uh, uh, where I was gonna go with that was, um, not necessarily that you have less resources for retribution, although that's part of it, but another is, you just have less stuff that the aggressor could keep aggressing upon. Maybe you just have one location where a property is housed so that once it's taken, there's no reason for the aggressor to expect you to do retribution because you have no... there's nothing that your commitment strategy is further helping you protect, right?

   10. DFDavid Friedman1:08:29

       Well, except you've got a future. It's-

   11. DPDwarkesh Patel1:08:32

       That's true.

   12. DFDavid Friedman1:08:32

       It's protecting other things you accumulate.

   13. DPDwarkesh Patel1:08:34

       Mm-hmm.

   14. DFDavid Friedman1:08:35

       And if people are too worried about that, you will then get, uh, coalitions, you will get what you had with kinship in Iceland, you will get groups of people who agree as, as in Somalia, that we will, uh, if your rights are violated, we will help you fight as it were, and we will then get a share of the compensation.

   15. DPDwarkesh Patel1:09:00

       Mm-hmm. Interesting. Um, okay, so I, I wanna talk now about just some general questions that are, uh, relevant

10. 1:09:07 – 1:16:00

    Automation

    1. DPDwarkesh Patel1:09:07

       to this discussion. Uh, one of the, uh, one of the ideas that's been going around in the, kind of, the people I talk to is this essay by this venture capitalist named Sam Altman, and it's titled Moore's Law for Everything. And the idea he has, which is relatively common, is that we're going to have stupendous levels of wealth created by automation and AI, and this wealth is going to somewhat arbitrarily flow to very few agents, uh, to the detriment of everybody else because they're gonna lose their jobs. And then what's necessary then is some sort of wealth tax or some sort of land tax in order to, uh, redistribute the income.

    2. DFDavid Friedman1:09:41

       But to begin with, is it detriment to other people or only that other people don't get the large gain? Because sort of-

    3. DPDwarkesh Patel1:09:49

       The unemployment is the detriment.

    4. DFDavid Friedman1:09:49

       ... my first, my first approximation response to all of these stories is, why can't you have a subset of the population who are doing the same things they were doing before with the same technology trading with each other and are about as wealthy as they were before? Now, maybe you can't because maybe all the capital gets bid away from them, but they'll have whatever their own capital is. So it, it's hard to see how they are worse off than Hong Kong in 1950, uh, than any society which doesn't have a lot of wealth, but has people who... productive people. Uh, so I think it's-

    5. DPDwarkesh Patel1:10:27

       Sure, yeah.

    6. DFDavid Friedman1:10:27

       ... I think it's entirely plausible, uh, and may already have happened that technological change will result in some people being a lot better off and some people being a little better off. So if you think about... there's evidence, I've never, haven't really looked very carefully at the whole issue of whether wealth in the US is becoming more unequal. People claim it is, it might be true, but it's sort of complicated because you've gotta look at, at household versus individual, and if households are getting smaller, then household income would go down even if individual income didn't and so forth. But, but putting that ass- supposing it's happening, one explanation is that technological progress means that the value of intelligence is increasing more than the value of strength. That's the sort of simplest way of putting it. And therefore, even if the value, even if strength is still useful, uh, it would then be the case that the pe- that, that, that sort of smart techies will get r- a lot richer than, than other people. And that could easily be happening and maybe what has been happening. I'm not... but not just techies. Doctors, lawyers, people, other people of that sort. So, so that may be what has been happening over the last 20 or 30 or 40 years. I'm not sure. And that could certainly keep happening.

    7. DPDwarkesh Patel1:11:43

       But, uh, so, uh, so in this scenario, I mean, if it was just that the w- wealthier get more, you know, can produce more, that would in fact be good for, uh, the poor people because now if more can be produced because of AI, then it's cheaper for them to buy the things that they would wanna buy. I'm talking about a scenario where automation makes their jobs useless and we're talking about large segments of the population

    8. NANarrator1:12:03

       (background voice)

    9. DFDavid Friedman1:12:03

       I don't understand. Their jobs are useless only in the sense that there is another way of doing the same things.

    10. DPDwarkesh Patel1:12:13

        Yeah.

    11. DFDavid Friedman1:12:14

        But that other way is... costs are relative, right? Why? Uh, they can still do the same things as before in an hour of time.

    12. DPDwarkesh Patel1:12:29

        Right.

    13. DFDavid Friedman1:12:30

        So why can't they still produce the amount of stuff? So you can imagine stories where they can't, stories where somehow the people who are... can produce enormously more are no longer available to them to work with them in producing their things. But there's... it's not obvious that you would expect that to happen. Uh, and at the same time, the usual sort of comparative principle, comparative advantage rule is that the more different the people you're trading with are, the greater the gains to both sides of trading. So if the result is that the thi- that certain things, uh, individuals who can do them are 100 times as productive and certain things only twice as productive, then someone who can't do those things can do the, the, the-... twice as productive ones, uh, and trade for the other stuff and get much more than they could before. So, so, it's, it, it doesn't seem to me that it's the pattern you would expect, except if what matters to you is relative income. If what matters to you is relative income, then it's the pattern you would expect. But if its absolute income, it isn't impossible. But I don't, again, I don't see why, why can't the non-techies keep running a non-techie, uh, economy as it were for themselves, and then have that non-techie economy trade with the techie economy, uh, on much more profitable terms than it could have traded with anybody before because the techie economy, even it's better at some things, it's much more better at some things than others. That seems to me-

    14. DPDwarkesh Patel1:14:05

        But-

    15. DFDavid Friedman1:14:05

        ... the right first guess on that. I should write this up-

    16. DPDwarkesh Patel1:14:08

        But-

    17. DFDavid Friedman1:14:08

        ... in a blog post 'cause it interesting.

    18. DPDwarkesh Patel1:14:09

        Oh, that, that's an interesting idea. But then, uh, uh, I mean, uh, w- would that analysis apply? Could you say a horse, well, a horse will retain some comparative advantage over a car, but that doesn't-

    19. DFDavid Friedman1:14:19

        That-

    20. DPDwarkesh Patel1:14:19

        Uh, like if we're talking like 100 years ago, right? Uh, just consider a horse versus a car. It's not as if when the car came in that like o- by definition-

    21. DFDavid Friedman1:14:26

        Yeah.

    22. DPDwarkesh Patel1:14:26

        ... the horse has some comparative advantage in terms of, you know, some-

    23. DFDavid Friedman1:14:29

        Yeah, but a horse-

    24. DPDwarkesh Patel1:14:29

        ... you know, some benefit you can get out of it.

    25. DFDavid Friedman1:14:30

        ... has a much more restricted, uh, set of things it can do than a human being does and a horse doesn't own himself.

    26. DPDwarkesh Patel1:14:38

        Right. And so to the extent that AI can do a lot more of the things that humans can do, then could it-

    27. DFDavid Friedman1:14:43

        But th-

    28. DPDwarkesh Patel1:14:43

        ... get worrying in that sense?

    29. DFDavid Friedman1:14:47

        Well... I don't know. I should think more about this question. But, uh, you know, I'm certainly familiar with the scenario, kind of scenario that you were talking about. I don't know what particular author you're talking about, uh, but it does seem to me that... It seems to be much more plausible that the poor people will be better off, just not nearly as much better off. Because there have got to be things that the computer is not better at. You know, people might like personal servants, and personal servants, uh, are... It's very hard to make a computer a real full substitute for a personal servant. They might like, uh, people, uh, mm, to, nannies for their kids. Uh, they might like live entertainment is something people value. It seems to me there are gonna be an awful lot of things even if like 80% or 90% of things computers can do much better. If there's 10 or 20% of things they can't do, even if they can do a little bit better, uh, better is, is a relative term. And, and you can then keep doing those things and trade them for the others. So-

    30. DPDwarkesh Patel1:15:58

        Interesting.

11. 1:16:00 – 1:19:00

    Economics of medieval reenactment

    1. DPDwarkesh Patel1:16:00

    2. DFDavid Friedman1:16:00

       Yeah.

    3. DPDwarkesh Patel1:16:00

       Okay. Uh, but I just want to... Uh, I wanna be respectful of your time. Just two more questions.

    4. DFDavid Friedman1:16:04

       Yeah.

    5. DPDwarkesh Patel1:16:05

       First of all, uh, what have, what have you learned about economics from the society, uh, for creative anachronism?

    6. DFDavid Friedman1:16:10

       Huh. I've gotten a little bit more s- a more sympathetic attitude to gift cultures.

    7. DPDwarkesh Patel1:16:17

       Okay.

    8. DFDavid Friedman1:16:17

       Because... Now, I also pick up that, uh, from, from reading Icelandic stuff, that is, medieval Icelandic stuff. But it is cl- I have... In a sense, I should've b- I, I should've realized it earlier even without that because there are certain parts of our ordinary life which are gift cultures. And the standard example I give is that you have some friends over for dinner, and they feel as though they ought to have you over for dinner. And if they can't have you over for dinner, they should take you out to a restaurant. And it would never occur to them to say, "Well, you took me out for dinner, why don't we g- pay you 20 bucks and we're even?" So, that's a gi- an old, uh, a gift culture embedded in our ordinary system. But certainly in the SCA, uh, partly because I'm playing the role of a medieval person, and at least in some medieval cultures, you have the idea that nobles don't work for money. Uh, that it's sort of th- the... Anyway. Uh, but also sort of the feel of it is that I feel as though it makes sense to do favors and not to do things for money. Now, it isn't entirely true. I, I have... My wife and I have a medieval cookbook and we sell that. Uh, and... But generally when I, when, when I... Long before that, I put together a collection of source material on medieval cooking, uh, which I reduction Xeroxed four pages to a page to make it really cheap. And I was selling that for cost. And it somehow s- didn't seem appropriate in terms of my interaction with other people with a hobby, hobby to be doing it for money. And similarly, one of my hobbies is lapidary work, cutting gem, cutting semi-precious gemstones. And I do it for fun, I cut more stones. I also do some jewelry making but not very much. I cut more stones than I have a use for. So, quite a while ago, I put up an offer on Facebook to other SCA people that if somebody was making jewelry actually based on medieval jewelry, I would donate gemstones for them. And again, it just felt more nearly right to me to do that as a donation than to say, "I will sell them, them, them to you." And I'm not quite sure why, but except in terms of my emotional feelings that, uh, that, that, that having participated in gift cultures, it's making it easier to have some feel for why people... But I still don't really understand economically. I mean, the very interesting question, maybe someone else has looked at more carefully, why you sometimes have gift cultures and why you don't. Why they-

    9. DPDwarkesh Patel1:18:48

       Interesting.

    10. DFDavid Friedman1:18:49

        Ooh, per- Yeah. Anyway.

    11. DPDwarkesh Patel1:18:51

        Uh, yeah, I would love to hear, read an explanation of that just as you made an explanation for pro- uh, property rights.

    12. DFDavid Friedman1:18:57

        Yeah.

    13. DPDwarkesh Patel1:18:57

        A similar thing would be very interesting. Um, 'cause

12. 1:19:00 – 1:23:19

    Advice for futurist young people

    1. DPDwarkesh Patel1:19:00

       to forego the convenience of, uh, you know, money as an exchange-

    2. DFDavid Friedman1:19:04

       Yes.

    3. DPDwarkesh Patel1:19:05

       ... uh, uh, if we're keeping track of favors, it's very interesting why that's done. Uh, final question.

    4. DFDavid Friedman1:19:09

       Yes.

    5. DPDwarkesh Patel1:19:10

       Given, you know, the sort of futurism that you've done and the different technologies you've looked at, if you were 20 today, what field would you decide to go into in a hope to, uh, either, you know, increase innovation in that pla- space or maybe to make a profit and start a successful company?

    6. DFDavid Friedman1:19:28

       Yeah, I'm not sure I'd be very good at starting up a successful company. Uh, I mean, the obvious interesting area at the moment is sort of encryption and stuff, and-

    7. DPDwarkesh Patel1:19:39

       Mm-hmm.

    8. DFDavid Friedman1:19:39

       ... cryptocurrencies and so forth. But the problem is, this is the usual problem, because it's an interesting area, a whole lot of smart people go into it.

    9. DPDwarkesh Patel1:19:47

       Yeah.

    10. DFDavid Friedman1:19:48

        So I started out, uh, getting a doctorate in theoretical physics. And part of what happened was that I was less enthusiastically interested into the subject than some of the other people, but I was smarter than the people I was interacting with, uh, as a graduate, even as a graduate student at Chicago. And there was, that was enough of an advantage. Then I was a postdoc at Columbia Physics Department, and I wasn't smarter than the people I was interacting with. They were the professors, and they were much more interested. And it occurred to me that what had happened in theoretical physics was that because at the time I went into it, it was sort of the elite field that was being subsidized and everybody knew was the high-status, important thing, although it hasn't really produced as much since then as it was expected to, that therefore it was overpopulated with high-IQ people. Uh, and that was one part of the reason that I eventually left that field and became an economist instead, uh, because-

    11. DPDwarkesh Patel1:20:45

        (clears throat)

    12. DFDavid Friedman1:20:45

        ... there were certainly some very smart people in economics, but there weren't as many of the ki- of that kind of people, as it were. It wasn't as dense, so I wa- it was more likely that I was smart enough to say original and interesting things in that field. Uh, so again, the temptation, partly 'cause computer programming is a lot of fun, I've done it, though not professionally, uh, it would be tempting to go into computer programming. And in effect, I guess what w- w- th- the thing I would enjoy, the thing I like thinking about, and I don't know if I can pull it off or not, would be independent computer programming, to do the equivalent of inventing Tetris, uh, of... and maybe to do something where you can carry it far enough so somebody will pay you a whole lot of money to take over your project and then doing it really right. Making machines that work is something that human beings really enjoy.

    13. DPDwarkesh Patel1:21:39

        Mm-hmm.

    14. DFDavid Friedman1:21:39

        And it's a whole lot easier with programming than it is with engineering. Uh, and I have ideas. Uh, I have ideas for computer programs to help teach economics, three of which w- went with my price theory textbook, I actually wrote, but I've got lots of ideas for more. And I think what would be fun, uh, assuming I could tr- support myself doing it or maybe do it along with some other things, would be to be taking clever ideas, like what I was saying before about how you ought to be running, h- how you want to do computer dating, uh, things like that, and some mixture of writing the programs myself for simple things and getting other people involved in such projects where the project requires more than one person, uh, for accomplishment. And that, that, that's probably the activity that most strikes me as being fun. Now, I've also written a few novels, and it's possible that if I had started writing novels very early, I would have been good enough to sort of be able to support myself and do good stuff. But my guess is not, that my impression is that the people who are really good at that have talents I don't have. Uh, and so I think I would only do that as I do it for my own fun. I write novels that some people enjoy, uh, so it's not worth doing. But even if I compare it to my younger son, who is a would-be novelist, and he just thinks about it a whole lot more carefully than I do and has, uh... I sort of do it by intuition, and he does it by some mixture of intuition and theories of how to write novels, and he's much better than I am, uh...

Episode duration: 1:23:53