Tyler Cowen — Hayek, Keynes, & Smith on AI, animal spirits, anarchy, & growth

Drawing on Friedman and Savage, Cowen argues that people both buy insurance and gamble; they manage moods and contexts, so Keynes’s ‘animal spirits’ and standard risk aversion each capture only part of human behavior.

Echoing Smith and Keynes, Cowen notes small business owners are often over-optimistic and barely break even, while a small share of innovators and entrenched VCs capture outsized gains and create large positive externalities.

Cowen is more worried about a few giant asset managers inducing implicit collusion across firms than about under-monitoring; overconfident active traders may privately overtrade but socially help price discovery.

Finance in the U.S. is roughly 2% of wealth over time; as wealth-to-GDP rises, finance’s share of GDP rises mechanically, which Cowen argues is not automatically sinister if management costs per dollar of assets stay modest.

Cowen leans on Hayek to say neither markets nor planners compute global general equilibria; they muddle through with partial signals, selection (bankrupting bad firms), and local improvements that sustain progress.