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

Dwarkesh Patel 0:00 ... this is a fun book to read-

Tyler Cowen 0:01 Oh, good.

Dwarkesh Patel 0:01 ... because then you just mention in there what the original source is to read to go... You know, it's like the, um, it's like the Harold Bloom of economics, right?

Tyler Cowen 0:09 Yeah.

Dwarkesh Patel 0:09 You just like... (laughs)

Tyler Cowen 0:11 It's a book written for smart people.

Dwarkesh Patel 0:12 (laughs) Um, okay, so let's just jump into it.

Tyler Cowen 0:15 Okay.

Dwarkesh Patel 0:15 The book we're talking about is, um, Goat: Who is the Greatest Economist of All Time and Why Does It Matter? All right, let's start with Keynes. So, in the section in Keynes, um, you quote him, I think talking about Robert Marshall. He says-

Tyler Cowen 0:30 Alfred Marshall?

Dwarkesh Patel 0:30 Oh, sorry, Alfred Marshall. He says, um, "The master economist must possess a rare combination of gifts. He must be a mathematician, historian, statesman, philosopher. No part of man's nature, uh, man's nature or his institutions must lie entirely outside his regard." And you say, "Well, Keynes is obviously talking about himself."

Tyler Cowen 0:50 Because he was all those things, and he was arguably the only person who was all those things at the time. He must have known that.

Dwarkesh Patel 0:57 Okay. Well, you know what I'm going to ask now.

Tyler Cowen 0:58 (laughs)

Dwarkesh Patel 0:59 (laughs) Um, so what should we make of Tyler Cowen citing Keynes, uh, using this quote? A quote that also applies to Tyler Cowen.

Tyler Cowen 1:09 I don't think it applies to me. Uh, what's the exact list again? Am I a statesman? Did I-

Dwarkesh Patel 1:15 Sure, surely. Yeah.

Tyler Cowen 1:15 ... play a role at the Treaty of Versailles or something comparable?

Dwarkesh Patel 1:18 I don't know. You were in Washington. I'm sure you talked to all the people who matter quite a bit.

Tyler Cowen 1:22 Well, I guess I'm more of a statesman than most economists, but I don't come close to Keynes in the breadth of his high level of achievement in each of those areas.

Dwarkesh Patel 1:31 Mm. Um, okay, let's talk about them, uh, those achievements. So Chapter 12, General Theory of Interest, Employment, and Money. Um, here's a quote. "It is probable that the actual average result of investments, even during periods of progress and prosperity, have disappointed the hopes which promoted them. If human nature felt no temptation to take a chance, no satisfaction, profit apart, in constructing a factory, a railway, a mine, or a farm, there might not be much investment merely as a result of cold calculation." Now, it's a fascinating idea that investment is irrational, uh, or most investment throughout history has been irrational. But when we think today about the fact that active investing exists, you know, for winners' curse-like reasons, VCs probably make on average less returns than, uh, the market. Um, there's a whole bunch of different examples you can go through, right? Uh, M&A, uh, usually doesn't achieve the synergies it expects. Uh, throughout history, has more, most investment been selfishly irrational?

Tyler Cowen 2:26 Well, Adam Smith was the first one I know to have made this point, that, uh, projectors, I think he called them, are overly optimistic. So, people who do startups are overly optimistic. People who have well-entrenched VC franchises make a lot of money, and there's some kind of bifurcation in the distribution, right? Then there's a lot of others who are just playing at it and maybe hoping to break even. So, the rate of return on private investment, if you include small businesses, it's highly skewed, and just a few percent of the people doing this make anything at all. So, there's a lot to what Keynes said. I don't think he described it adequately in terms of a probability distribution. But then again, he probably didn't have the data. But I wouldn't reject it out of hand.

Dwarkesh Patel 3:12 Mm. A- another example here is, uh, this is something, uh, your colleague Alex Tabarrok talks about a lot, is that innovators don't internalize most of the gains they give to society. So, here's another example where, uh, you know, the entrepreneur compared to one of his first employees. Is he that much better off for taking the extra risk and working that much harder? Um, what does this tell us about, um, a- it's a, it's a marvelous insight that, you know, we're actually more risk-seeking than it's selfishly, uh, it's selfishly, uh, good for us.

Tyler Cowen 3:41 That was Reuven Brenner's claim in some of his books on risk. Again, I think you have to distinguish between different parts of the distribution. So, it seems there's a very large number of people who foolishly start small businesses. Maybe they overly value autonomy when they ought to just get a job with a relatively stable company. So, their part of the thesis is correct, and I doubt if there's really big social returns to whatever those people do, even if they could make a go of it. But there's another part of the distribution, people who are actually innovating or have realistic prospects of doing so, where I do think those social returns are very high. Now, that 2% figure, that's cited a lot. I don't think it's really based in much real. It- it's maybe not a crazy seat-of-the-pants estimate, but people think like, "Oh, we know it's 2%," and we really don't. So, you look, look at Picasso, right? He helped generate cubism with Braque and some other artists. How good is our estimate of Picasso's income compared to the spin-offs from Picasso? We just don't really know, right? We don't know it's 2%. It could be 1%. It could be 6%.

Dwarkesh Patel 4:51 How different do you think it is in art versus, uh, I don't know, entrepreneurship versus different kinds of entrepreneurship? There's different industries there as well, right?

Tyler Cowen 4:59 I'm not sure it's that different. So, say if some people start blogging, a lot of people copy them.

Dwarkesh Patel 5:05 Right.

Tyler Cowen 5:05 Well, some people start painting in a particular style. A lot of people copy them. I'm not saying the numbers are the same, but they don't sound like issues that, in principle, are so different.

Dwarkesh Patel 5:15 And 2% overestimate or underestimate? It might be wrong, but in which way is it wrong?

Tyler Cowen 5:19 Um, my seat-of-the-pants estimate would be 2 to 5%, so I think it's pretty close. But again, that's not based on anything firm.

Dwarkesh Patel 5:26 Uh, here's another quote from Keynes. Uh, "Investment based on genuine long-term expectation is so difficult as to be scarcely practicable. He who at- who attempts it must surely lead much more laborious days and run greater risk than he who tries to guess better than the crowd how the crowd will behave." Um, is, so one way to look at this is like, oh, he just doesn't understand, uh, efficient market hypothesis. I- it's like before random walks or something. But, uh, th- there's things you can see in the market today where, uh, you know, are the prospects for future dividends so much higher after COVID than they were immediately after the crash. Um, e- how, how much of market behavior can be explained by these sorts of, uh, claims from Keynes?

Tyler Cowen 6:08 I think Keynes had the view that for his time, you could be a short-run speculator and, in fact, beat the markets. And he believed that he did so. ... and at least he did for some periods of his life. That may have been luck, or maybe he did have special insight. Uh, it probably wasn't true in general, though we don't really know. Did efficient markets hold during, you know, Britain at that time? Maybe there just were profit opportunities for smarter-than-average people. Uh, so that's a view I- I'm inclined not to believe it, but again, I don't think it's absurd. Keynes is saying, for people who want money, this is biased towards the short term.

Dwarkesh Patel 6:47 Right.

Tyler Cowen 6:47 You can get your profits and get out.

Dwarkesh Patel 6:49 Mm-hmm.

Tyler Cowen 6:51 And that's damaging long-term investment, which in fact he wanted to socialize. So, he's being led to a very bad place by the argument. But again, we shouldn't dismiss it out of hand.

Dwarkesh Patel 7:01 W- uh, why is not easy to retrospectively study what... uh, how efficient markets were back then? Uh, in the same way we can study it now, in terms of like, oh, you look at, um, uh, the price to earnings ratios, and then h- how, what were the dividends afterwards over the coming decades for those companies, uh, based on their stock price or something?

Tyler Cowen 7:17 I don't know, uh, how many publicly traded firms there were in Britain at that time. I don't know how good the data are. Things like bid-ask spread, at what price you actually executed trades can really matter for testing efficient markets hypotheses. So, uh, probably we can't tell, even though they, there must be share price data of some sort. At what frequency? Well, is it once a day? Is it once a week? Uh, we don't have the sort of data we have now where you can just test anything you want.

Dwarkesh Patel 7:46 Mm. He, he also made a, uh, interesting point, is like, not only is it not profitable, but even if you succeed, um, it, it, society will look at the contrarian in a very negative light. Uh, y- you'll be like doubly punished for being a contrarian. But that doesn't seem to be the case, right? Like, if somebody like Warren Buffett or Charlie Munger, people who do beat the market are actually pretty revered. They're not punished, uh, in public opinion.

Tyler Cowen 8:08 And they pursued mostly long-term strategies.

Dwarkesh Patel 8:10 Right.

Tyler Cowen 8:10 But it, again, trying to make sense of Keynes, if you think about long-term investing, and I don't think he meant Buffett-style investing, I think he meant building factories, trying to figure out what people would want to buy 25 years from that point in time, uh, that probably was much harder than today. So you had way less access to data. Your ability to build an international supply chain was much weaker. Uh, geopolitical turmoil at various points in time was much higher. So again, it's not a crazy view. I think there's a lot in Keynes that's very much of his time, that he presents out of a kind of overconfidence as being general. And it's not general. It may not even be true. But there were some reasons why you could believe it.

Dwarkesh Patel 8:55 Mm. Uh, another quote from Keynes, uh, I guess I won't read the whole quote in full, but basically he says over time, as investments go, uh, or markets get more mature, more and more of equities are held basically by passive investors, people who don't have a direct hand in the involvement of the enterprise. Um, and you know, the, the share of the market that's passive investment now is much bigger. Should we be worried about this?

Tyler Cowen 9:16 As long as at the margin people can do things, I'm not very worried about it. So there's two different kinds of worries. One is that no one monitors the value of companies. It seems to me those incentives aren't weaker. There's more research than ever before. There's maybe a problem not enough companies are publicly held. But you can always, if you know something the rest of the market doesn't, buy or sell short and do better. The other worry is those passive investors have economies of scale and they'll end up colluding with each other. And you'll have, say, like three to five mutual funds, private equity firms owning a big chunk of the market portfolio, and in essence, directly or indirectly, they'll tell those firms not to compete. It's a weird form of collusion. They don't issue explicit instructions, like say the same few mutual funds own Coke and Pepsi. Should Coke and Pepsi compete or should they collude? Well, they might just pick lazier managers who in some way give you implicit collusion.

Dwarkesh Patel 10:14 Hm. Maybe this is another example of the, uh, innovators being unable to internalize their gains as an active investors who are providing this information to the market. You know, they don't make out that much better than the passive investors but they're actually providing a valuable service. Uh, but there's, the benefits are diffused throughout, throughout society.

Tyler Cowen 10:29 I think overconfidence helps us on that front. So there's quote unquote too much trading from a private point of view. But from a social point of view, maybe you can only have too much trading or too little trading and you might rather have too much trading.

Dwarkesh Patel 10:42 Uh, explain that. Why, why is there... Why, why can it only be too much or too little?

Tyler Cowen 10:46 Well, let's say the relevant choice variable is investor temperament.

Dwarkesh Patel 10:50 Mm.

Tyler Cowen 10:50 So yes, you'd prefer it if everyone had the temperament just to do what was socially optimal. But if temperament is some just inclination in you and you can just be overconfident or not confident enough and overconfidence gives you too much trading-

Dwarkesh Patel 11:06 I see.

Tyler Cowen 11:06 ... that might be the best we can do. Again, fine-tuning would be best of all.

Dwarkesh Patel 11:10 Yeah.

Tyler Cowen 11:10 But I've never seen humans where you could just fine-tune all their emotions to the point where they ought to be.

Dwarkesh Patel 11:16 Yeah. Okay, so we can ask the question, how far above optimal are we or if we are above optimal? Uh, in the chapter, Keynes says that over time as markets get more mature, they become more speculative. And the example he gives is like the New York market seems more speculative to him than the London market at the time. Um, but today finance is eight percent of GDP. Uh, is, is that what we should expect it to be to, uh, to efficiently allocate capital? Is there some reason we can just look at that number and ƒ say that that's too big?

Tyler Cowen 11:44 I think the relevant number for the financial sector is what percentage it is of wealth, not GDP.

Dwarkesh Patel 11:48 Mm.

Tyler Cowen 11:50 So you're managing wealth and the financial sector has been a pretty constant two percent of wealth for a few decades in the United States, with bumps obviously. 2008 matters. But it's more or less two percent and that makes it sound a lot less sinister. It's not actually like growing at the expense of something and eating up the economy.

Dwarkesh Patel 12:09 Mm.

Tyler Cowen 12:09 So you, you would prefer it's less than two percent, right? But two percent does not sound outrageously high to me. And if the ratio of wealth to GDP grows over time, which it tends to do when you have durable capital and no major wars, uh, the financial sector will grow relative to GDP. But again, that's not sinister. Think of it in terms of wealth.

Dwarkesh Patel 12:29 ... I see. So, one way to think about it is like the, the management cost as a fraction of the assets under management or something, and then-

Tyler Cowen 12:35 That's right, yeah. And

Dwarkesh Patel 12:36 Yeah. ... in that case, 2% is not that bad. Yeah. Okay, interesting. Um, I want to go back to the, the risk aversion thing again, 'cause, uh, I don't know how to think about this. So, you know, his whole thing is these animal spirits, they guide us to make all these bets and, uh, engage in all this activity. Um, in, in some sense, it's, he's saying like, uh, not only are we not risk-neutral, but we're more risk-seeking than is, uh, than is rational. Whereas, the, the way you'd conventionally think about it is that humans are risk-averse, right? They, they have... Uh, they prefer to take less risk than is rational in some sense. Um, h- how, how do we score this?

Tyler Cowen 13:09 Well, here, Milton Friedman, another GOAT contender, comes into the picture. So his famous piece with Savage makes the point that risk aversion is essentially context dependent. So he was a behavioral economist before we knew of such things. So the same people typically will buy insurance and gamble. Gambling you can interpret quite broadly, and that's the right way to think about it. So just flat out risk aversion or risk-loving behavior, it doesn't really exist. Almost everyone is context dependent. Now, why you choose the context you do, maybe it's some kind of exercise in mood management. So you insure your house so you can sleep well at night, you fire insurance. But then you get a little bored, and to stimulate yourself, you're, you're betting on these NBA games. And yes, that's foolish, but it keeps you busy, and it helps you follow analytics, and you read about the games online, and maybe that's efficient mood management, and that's the way to think about high-risk behavior. I don't bet, by the way.

Dwarkesh Patel 14:08 (laughs)

Tyler Cowen 14:08 I mean, you could say I bet with my career, but I don't bet on things.

Dwarkesh Patel 14:12 Well, what is the way in... Uh, what's your version of the lottery ticket? What is the thing where you just, uh, for the entertainment value or the distraction value, you take more risk than, uh, than would seem rational?

Tyler Cowen 14:23 Well, like writing the book GOAT,

Dwarkesh Patel 14:25 (laughs)

Tyler Cowen 14:25 ... which is not with any known publisher. It's just online, it's free. It's published within GPT-4. Took me quite a while to write the book. Uh, I'm not sure there's a huge downside, but it's risky in the sense of it's not what anyone else was doing. So that was a kind of risk. I invested a lot of my writing time in something weird, and I've done things like that pretty frequently. So that keeps me, you could say, excited or like starting MRU, you know, the online education videos on economics. Uh, no pecuniary return to me at all. Indirectly, it costs me a lot of money. That's a sort of risk. Uh, I feel it's paid off for me in, in a big way. But on one hand, you can say, "Well, Tyler, what do you actually have from that?" And the answer is nothing.

Dwarkesh Patel 15:11 Yeah. Well, this, this actually raises the question I was going to ask about these GOAT contenders in general and how you're judging them, where, uh, you're looking at their work as a whole. Given that, uh, I don't know, some of these risks pay off that these intellectuals take, some of them don't pay off, should we just be looking at their top contributions and just disregard everything else? Uh, for Hayek, I think one of the points you have against him is that his top three articles are amazing, but after that, there's a drop-off. Uh, the top risks you take, are they the only ones that matter? Why aren't we looking at the other stuff?

Tyler Cowen 15:41 I don't think they're the only ones that matter, but I'll weight them pretty heavily. But your failures do reflect (clears throat) usually in how you think or what you know about the world. So Hayek's failures, for instance, his inability to come up with a normative standard in Constitution of Liberty, uh, it shows in some ways he just wasn't rigorous enough. He was content with the kind of Germanic, put a lot of complex ideas out there and hope they're profound. And you see that even in his best work. Now, that is profound, but it's not as if the failures and the best work for all these people are unrelated. And same with Keynes. Like, Keynes more or less changed his mind every year. That's a strength, but it's also a weakness. And by considering Keynes' really good works and bad works, like his defenses of tariffs, uh, you see that. And the best work, he also moved on from in some way. If you read How to Pay for the War in 1940, if you didn't know better, you would think it's someone criticizing The General Theory.

Dwarkesh Patel 16:41 (laughs) How, uh... Does quantity have a quality all, all of its own when you think of great intellectuals, where many of these people have, like, volumes and volumes of work? Was that necessary for them to get the great assets, or is the rest of it just a distraction from the things that really stand the test of time?

Tyler Cowen 16:56 Uh, for the best people, it's necessary. So John Stuart Mill wrote an enormous amount. Most of it's quite interesting. But his ability to see things from multiple perspectives, I think, was in part stemming from the fact that he wrote a lot about many different topics, like French history, ancient Greece. Uh, he had real depth and breadth.

Dwarkesh Patel 17:15 Hmm.

Dwarkesh Patel 17:16 If Keynes is alive today, what are the odds that he's in a polycule in Berkeley, writing the best LessWrong post you've ever seen?

Tyler Cowen 17:24 I'm not sure what the counterfactual means. So Keynes is so British. Maybe he's an effective altruist at Cambridge, and, uh, you know, given how he seems to have run a sex life, I don't think he needed a polycule. Like, a polycule is almost a Williamsonian device to economize on transactions costs. But Keynes, according to his own notes, seems to have done things on a very casual basis.

Dwarkesh Patel 17:50 He had a spreadsheet, right, of his

Narrator 17:51 partner?

Tyler Cowen 17:51 He had a spreadsheet. And from context, it appears he met these people very casually-

Dwarkesh Patel 17:56 Right.

Tyler Cowen 17:56 ... and didn't need to be embedded in, "Oh, we're the five people who get-"

Dwarkesh Patel 17:59 Sure, sure.

Tyler Cowen 17:59 "... together regularly." So that's not a hypothetical. We saw... We think we saw what he did, and, uh, I think he'd be at Cambridge, right? That's where he was. Why should he not today be at Cambridge?

Dwarkesh Patel 18:12 How did a person... Um, how did a gay intellectual get that amount of influence in the Britain of that time? When you think of somebody like Alan Turing, you know, helps Britain win World War II and is castrated, uh, because of, uh, you know, one illicit encounter that is caught. Uh, did, was it just not public? How did, how did he get away with it basically?

Tyler Cowen 18:30 ... I don't think it was a secret about Keynes. He had interacted with enough people that I think it was broadly known he was politically very powerful, he was astute. As someone managing his career, he was one of the most effective people, you could say, of all time, not just amongst economists. And I've never seen evidence that Keynes was in any kind of danger. Uh, Turing also may have intersected with national security concerns in a different way. Uh, I'm not sure we know the full A- Alan Turing story and why it went as badly as it did. Uh, but there was in the past, very selectively, and I do mean very selectively, more tolerance of deviance than people today sometimes realize.

Dwarkesh Patel 19:13 Oh, interesting. S-

Tyler Cowen 19:14 And Keynes benefited from that. But again, I would stress the word selectively.

Dwarkesh Patel 19:18 Say more. What, what, what determines who is selected for this tolerance?

Tyler Cowen 19:21 I don't feel I understand that very well but there's plenty, say, in Europe and Britain of the early 20th century where, quote-unquote, outrageous things were done, and it's hard to find evidence that people were punished for it. Now, what accounts for the difference between them and the people who were punished, I would like to see a very good book on that.

Dwarkesh Patel 19:40 Hm. Um, yeah. I, I guess it's similar to our time, right? We have certain taboos and you can get away with them-

Tyler Cowen 19:46 Some people get away with them completely.

Dwarkesh Patel 19:47 ... yeah, exactly. Yeah.

Tyler Cowen 19:47 They say whatever on Twitter and other people get canceled.

Dwarkesh Patel 19:50 Right. (laughs) Actually, how have you gotten away w- I, I feel like you've never been in, uh, at least as far as I know of, I, I haven't heard you being the part of s- any single controversy but, uh-

Tyler Cowen 19:57 I don't think I have either.

Dwarkesh Patel 19:58 ... you have some opinions out there.

Tyler Cowen 19:59 I feel people have been very nice to me.

Dwarkesh Patel 20:01 Yeah, what'd you, what'd you do? How, how did you become the Keynes of our time? (laughs) E- if we're comparing, uh-

Tyler Cowen 20:05 Well, maybe I'm a statesman after all, right? (laughs)

Dwarkesh Patel 20:09 (laughs) Um...

Tyler Cowen 20:11 I think just being good natured-

Dwarkesh Patel 20:12 Yeah.

Tyler Cowen 20:13 ... helps, and helping a lot of people helps.

Dwarkesh Patel 20:16 Yeah.

Tyler Cowen 20:16 And Turing, I'm a huge fan of, wr- wrote, wrote a paper on him with Michele Dawson. But it's not obvious that he was a very good diplomat, and it seems he very likely was a pretty terrible diplomat, and that might be feeding into this difference.

Dwarkesh Patel 20:30 How do you think about the long-term value of, um, and the long-term impact of intellectuals you disagree with? So do you think over the course of history, basically the improvements they make to the discourse and the additional things they give us a chance to think about, that washes out their object level, uh, the things they were object level wrong about, or...

Tyler Cowen 20:48 Well, it's worked that way so far, right? So we've had economic growth, obviously with interruptions. But so much has fed into the stream and you have to be pretty happy with today's world compared with, say, 1880. Uh, the future may or may not bring us the same. But if the future brings us continuing economic growth, then I'm gonna say exactly that, "Oh, be happy they fed into the stream. They may have been wrong, but things really worked out." But if the future brings us a shrinking population asymptotically approaching a very low level, and greater poverty and more war, then you've got to wonder, "Well, who, who is responsible for that," right?

Dwarkesh Patel 21:26 Who would be responsible for that?

Tyler Cowen 21:29 Uh, we don't know, but I think secular thinkers will fall in relative status if that's the outcome. And that's most prominent intellectuals today.

Dwarkesh Patel 21:38 Right.

Tyler Cowen 21:38 Myself included.

Dwarkesh Patel 21:39 Yeah. Who, who, who would rise in status as a result?

Tyler Cowen 21:42 Well, there's a number of people complaining strenuously about fertility declines.

Dwarkesh Patel 21:48 Right.

Tyler Cowen 21:48 Uh, if there's more war, probably the hawks will rise in status whether or not they should. An alternative scenario is that the pacifists rise in status. But I basically never see the pacifists rising in status for any more than brief moments, like after the Vietnam War maybe they did.

Dwarkesh Patel 22:04 After World War I?

Tyler Cowen 22:07 Yes. But again, that didn't last because World War II swept all that away.

Dwarkesh Patel 22:10 Right.

Tyler Cowen 22:11 So the pacifists seem to lose long-term status no matter what. And, uh, that means the hawks would gain in status, and those worried about fertility. And whatever technology drives the new wars if that is what happens, let's say it's drones, it's possible, right? Uh, people who warned against drones, which is not currently that big a thing, there are quite a few such people. But there's no one out there known for worrying about drones the way, say, Eliezer is worried about, known for worrying about AI. Now drones in a way are AI but it's different.

Dwarkesh Patel 22:44 Yeah, although Nat Friedman, Stuart Armstrong, other people have, you know, talked about w- we're not that far away from drones that can ass- I guess you have also talked about-

Tyler Cowen 22:50 And there's a famous YouTube video out with millions of views-

Dwarkesh Patel 22:52 ... that can assassinate, yeah, exactly.

Tyler Cowen 22:52 ... whoever made that would rise in status.

Dwarkesh Patel 22:53 I think Stuart Armstrong was, no sorry, uh, not Stuart Armstrong. Anyways, yeah.

Tyler Cowen 22:57 But those people could end up as much more important than they are now.

Dwarkesh Patel 23:00 Yep. Okay, let's talk about Hayek.

Tyler Cowen 23:02 Sure.

Dwarkesh Patel 23:02 Um, so I, before we get into his actual views, uh, I think his career is a tremendous white pill in the sense that he writes The Road to Serfdom in 1944, uh, when Nazi Germany and Soviet Union are both, you know, prominent, uh, players. And it, it, uh, honestly, like, the way things shaped out, uh, I mean, he would be pretty pleased that, like, a lot of the biggest collectivisms of the day have been, uh, wiped out. So it, it is a tremendous white pill you can have a career like that.

Tyler Cowen 23:30 He was, uh, not as right as he thought at the time but he ended up being too grumpy in his later years.

Dwarkesh Patel 23:37 Oh really?

Tyler Cowen 23:38 He thought, well, collectivism is still going to engulf the world. And I think he became a grumpy old man. And then maybe it's one thing to be a grumpy old man in 2024, but to be a grumpy old man in the '80s didn't seem justified.

Dwarkesh Patel 23:52 Wh- what was the cause? What, like, what specifically did he see that he...

Tyler Cowen 23:55 He thought there were atavistic instincts in the, the human spirit which were biologically built in that led us to be collectivists-

Dwarkesh Patel 24:02 Right.

Tyler Cowen 24:03 ... and too envious and not appreciative of how impersonal orders worked.

Dwarkesh Patel 24:07 Yeah.

Tyler Cowen 24:07 And that this would cause the West to turn into something quite crummy.

Dwarkesh Patel 24:11 Mm.

Tyler Cowen 24:12 I wouldn't say he's been proven wrong but a lot of the West has had a pretty good run since then, and, uh, there's not major evidence that he's correct. The bad events we've seen, like some war coming back, uh, something weird happening in our politics, I'm not sure how to describe it, I'm not sure they fit the Hayek model of sort of simply the accretion of more socialism.

Dwarkesh Patel 24:36 ... um, but in, in terms of the basic psychological urges towards envy and resentment-

Tyler Cowen 24:41 He's right.

Dwarkesh Patel 24:41 ... doesn't the rise of wokeness provide evidence for his view?

Tyler Cowen 24:44 But now wokeness, I would say, has peaked and is falling. That's a big debate.

Dwarkesh Patel 24:48 Mm-hmm.

Tyler Cowen 24:49 I, I don't see wokeness as our biggest problem. I see excessive bureaucracy, sclerotic institutions, kludge-ocracy-

Dwarkesh Patel 24:56 Yeah.

Tyler Cowen 24:56 ... as bigger problems. They're not unrelated to wokeness, to be clear, but I think they're more fundamental and harder to fix.

Dwarkesh Patel 25:02 Mm. Let, let's talk about, uh, Hayek's, Hayek's, uh, arguments. So, obviously he has a famous argument about decentralization. But when we look at companies like Amazon, Uber, these other big tech companies, they actually do a pretty good job of central planning, right? There's like a sea of logistics, and drivers, and, uh, um, trade-offs that they have to square. Uh, do they provide evidence that central planning can work?

Tyler Cowen 25:25 Well, I'm not a Coasian. So Coase, in his famous 1937 article, said the firm is planning, and he contrasted that to the market.

Dwarkesh Patel 25:32 Right.

Tyler Cowen 25:33 I think the firm is the market. The firm is always making contracts, and the market is subject to market checks and balances. To me, it's not, you know, an island of central planning in the broader froth of the market. So I'm just not Coasian. So people are Coasian, this is an embarrassing question for them. But I'll just say Amazon being great is the market working, and they're not centrally planning. Even the Soviet Union, it was very bad, but it didn't end up being central planning. It started off that way for a few years. So, I think people misinterpret large business firms in many ways, on both the left and the right.

Dwarkesh Patel 26:07 Wait, but under this argument, it still adds to the credence of the people who argue that basically we, we need the government to control... 'Cause if it is the case the Soviet Union is still, uh, not central planning, uh, people would say, "Well, that, but yeah, but that's kind of what I want," in terms of there, there's still kind of checks in terms of import exports of... The market test is still applied to the government in that sense. Uh, what,what, what, what's wrong with that argument, that basically you can treat the government as that, that kind of firm?

Tyler Cowen 26:33 I'm not sure I f- followed your question. I would say this, I view the later Soviet Union as being highly decentralized, managers optimizing their own rents, and setting prices too low to take in bribes, a la Paul Craig Roberts, what he wrote in the '80s. And that's a very bad decentralized system. And it was sort of backed up by something highly central, the Communist Party in the USSR. But it's not like the early attempts at true central planning in the Soviet Union in the 20s right after the revolution, which did totally fail and were abandoned pretty quickly even by Lenin.

Dwarkesh Patel 27:08 Mm. Uh, would you count the '50s period in the Soviet Union as more centrally planned than, or more decentralized by that point?

Tyler Cowen 27:14 Decentralized. You have central plans for a number of things, obviously weaponry-

Dwarkesh Patel 27:19 Mm.

Tyler Cowen 27:19 ... steel production. You have targets. But even that tends to collapse into decentralized action, just with bad incentives.

Dwarkesh Patel 27:26 Mm. So your explanation for why did the Soviet Union have high growth in the '50s, eh, m- is it more catch-up, is it more that they weren't communists at the time? How, how would you explain that?

Tyler Cowen 27:35 A lot of the Soviet high growth was rebuilding after the war, which though central planning can do relatively well, right? You see government rebuilding cities, say, in Germany. That works pretty well. But most of all, this is even before World War II, just urbanization. Uh, it shouldn't be underrated today given we've observed China, but so much of Chinese growth was driven by urbanization, so much of Soviet growth. You take someone working on a farm producing almost nothing, put them in a city, even under a bad system, they're going to be a lot more productive.

Dwarkesh Patel 28:06 Mm.

Tyler Cowen 28:06 And that drove so much of Soviet growth before or after the war. But that at some point more or less ends-

Dwarkesh Patel 28:13 Right.

Tyler Cowen 28:13 ... as it has... Well, it hasn't quite ended with China, but it certainly slowed down. And people don't pay enough attention to that. I don't know why. It now seems pretty obvious.

Dwarkesh Patel 28:21 Mm. Uh, but, but going back to the, the point about firms. So I, I guess I, I, I... The point I was trying to make is I don't understand why the argument you make that, well, these firms are still within the market in the sense that they, they have to pass these market tests, uh, why that couldn't also apply to government-directed production. Because then people argue that-

Tyler Cowen 28:40 Well, sometimes it does, right?

Dwarkesh Patel 28:41 Yeah.

Tyler Cowen 28:41 Government runs a bunch of enterprises. Uh, they may have monopoly positions, but many are open to the market. In Singapore, government hospitals compete with private hospitals.

Dwarkesh Patel 28:51 Mm.

Tyler Cowen 28:51 Government hospitals seem to be fine. I know they get some means of support-

Dwarkesh Patel 28:55 Yeah.

Tyler Cowen 28:55 ... but they're not all terrible.

Dwarkesh Patel 28:58 But I guess as a general principle, you'd be against more government, uh, directed production, right?

Tyler Cowen 29:03 Well, depends on the context. So if it's, say, the military, uh, probably we ought to be building a lot more of some particular things, and it will be done through Boeing, Lockheed, and so on, but the government's directing it, paying for it, in some way, quote-unquote, planning it.

Dwarkesh Patel 29:17 Yeah.

Tyler Cowen 29:17 And we need to do that. We've at times done that well in the past. So people overrate the distinction between government and market, I think, especially libertarians. But that said, there's an awful lot of government bureaucracy that's terrible, doesn't have a big market check. But very often, governments act through markets and have to contract or hire consultants or hire outside parties, and it's more like a market than you think.

Dwarkesh Patel 29:42 Mm. Um, I want to ask you about another part, part of Hayek. So he has an argument about how it, it's really hard to aggregate information towards a central planner. But then more recently, there have been, uh, results in computer science that just finding the general equilibrium is computationally intractable. Um, and w- which raises the question, well, the market is somehow solving this problem, right? Separate from the problem getting information, making use, making use of that information to allocate scarce resources. Um, w- how, how is that computationally a process that's possible? Uh, you know, I'm sure you're aware, like, linear optimization, non-convex constraints, how, how does the market solve this problem?

Tyler Cowen 30:20 Well, the market's not solving for a general equilibrium. It's just solving for something that gets us into the next day. And that's a big part of the triumph, just living to fight another day, wealth not going down, not everyone quitting. And if you can do that, things will get better. (laughs) And that's what we're pretty good at doing is just building a sustainable structure. ... and a lot of it isn't sustainable, like the fools who start these new small businesses. But they do pretty quickly disappear, and that's part of the market as well. So if you view the whole thing in terms of computing and general equilibrium, I think one of Hayek's great insights is that's just the wrong way to think about the whole problem. So lack of computational ability to do that doesn't worry me, for either the market or planning, 'cause it, to the extent planning does work, it doesn't work by succeeding at that. Like Singaporean public hospitals don't work because they solve some computational problem. They seem to work because the people running them care about doing a good job and enough of the workers go along with that.

Dwarkesh Patel 31:21 Yeah. So related to that, I think in the meaning of competition, he makes the point that, um, that the most interesting part of markets is when they go from one equilibrium to another, 'cause that's where they're trying to fig- or th- they figure out what to produce and how to produce it better and so on, and not the equilibriums themselves. And it seemed related to the Peter Thiel point in Zero to One that, uh, a monopoly is when you have interesting things happen 'cause when there's just competitive equilibrium, there's no profits to, uh, invest in R&D or to do cool new things. Do those seem re- like related points? Am I reading <|agent|><|en|>

Tyler Cowen 31:49 Absolutely.

Dwarkesh Patel 31:50 ... zero... or yeah!

Tyler Cowen 31:50 And Hayek's essay, Competition as a Discovery Process-

Dwarkesh Patel 31:53 Yeah

Tyler Cowen 31:53 ... or Procedure, uh, makes that point very explicitly.

Dwarkesh Patel 31:56 Yeah.

Tyler Cowen 31:56 And that's one of his handful of greatest essays, one of the greatest essays in all of economics.

Dwarkesh Patel 32:00 Mm. Is there a contradiction in Hayek, in the sense that the decentralization he's calling for, uh, results in the, uh, results in ha- specialists having to use the very scientism and statistical aggregates that-

Tyler Cowen 32:13 Of course.

Dwarkesh Patel 32:13 (laughs)

Tyler Cowen 32:14 Hayek underates scientism. Scientism is great.

Dwarkesh Patel 32:17 Yeah, yeah.

Tyler Cowen 32:17 It can be abused, but we all rely on scientism. If you have an mRNA vaccine in your arm, well, how do you feel about scientism and so on?

Dwarkesh Patel 32:25 Mm. How much should we worry about, uh, this opening u- uh, of the whole system to fragilities if there's, like, no one mind that understands large parts of how everything fits together? People talk about this in the context of if there's a war in China and the, the producers didn't think about that possibility when they put valuable manufacturing in Taiwan and stuff like that.

Tyler Cowen 32:43 No one mind understanding things is inevitable under all systems. This gets into some of the alignment debates.

Dwarkesh Patel 32:49 Right.

Tyler Cowen 32:49 If you had one mind that understood everything or could control everything, you have to worry a great deal about the corruptibility of that mind. So legibility, transparency are not per se good. You want enough of them in the right places, but you need some kind of balance. So I think, uh, supply chains are no longer an underanalyzed problem. But until COVID, they were, and they're a big deal. And the Hayekian argument doesn't always work because the signal you have is of the current price and that's not telling you how high are the infra-marginal values if you get, say, cut off from being able to buy vaccines from India because you're, you know, at the bottom of the queue. So that was a problem. It was the market failing because the price doesn't tell you infra-marginal values. And when you move from some ability to buy the output to zero, those infra-marginal values really matter.

Dwarkesh Patel 33:42 Mm. What would Hayek make of AI agents in the p- uh, as they get more powerful? You have some market between the AI agents. Uh, the, there, there's some sort of decentralized order as a result. What, what insights would he have about that?

Tyler Cowen 33:55 Well, a lot of Hayekians wrote about these issues, including at George Mason in the 1980s. And I think some of those people even talked to Hayek about this. And my recollection, which is imperfect, is that he found all this very interesting and in the spirit of his work. And Don Lavoie was leading this research program. He died prematurely of cancer. Uh, Bill Tulloh was also involved and some of this has been written up, a- and it is very Hayekian. And George Mas- George Mason actually was a pioneer in this area.

Dwarkesh Patel 34:25 Mm. Well, what do you make of AI agents? The market between them and the sort of infrastructure and order that would, uh, that you would need to facilitate that?

Tyler Cowen 34:31 They're going to replicate markets on their own is-

Dwarkesh Patel 34:33 Mm.

Tyler Cowen 34:34 ... has been my prediction. And I think they're going to evolve their own currencies. Maybe at first they'll use Bitcoin, but there'll be an entire... Property rights will be based, at least at first, on what we now call NFTs. I'm not sure that will end up being the right name for them. But if you want property rights in a so-called imaginary world, that's where you would start, with Bitcoin and NFTs. So I don't know what percent of GDP this will be. At first it will be quite small, but it will grow over time and it's going to show Hayek to have been right about how these decentralized systems evolve.

Dwarkesh Patel 35:06 Do you anticipate that it'll be sort of a, a completely different sphere and that th- there, there's like the AI agents economy and there's a human economy and they, obviously they have, uh, links between them, but it's not intermixed, like they're not on the same social media or the same, uh, TaskRabbit or whatever? It's like a, it's a very separate infrastructure that's needed to, uh, for the AI agents to talk to themselves versus talk to humans.

Tyler Cowen 35:26 I don't see why we would, we would enforce segregation. Now you might have some segregated outlets, like maybe X, Twitter. Well, we'll keep off the bots. Let's say if you can even manage to do that. But if I want to hire, you know, a proofreader, I'm going to deal with the AI sector and pay them in Bitcoin and I'll just say to my, like, personal AI assistant, "Hey, go out and hire an AI and pay them with whatever," and then just not think about it anymore and it will happen.

Dwarkesh Patel 35:53 Maybe because there's like much higher transaction costs with dealing with humans and, uh, interacting with the human world, whereas they can just send a bunch of vectors to each other. I- i- it's much faster for them to just, uh, j- just like have a se- separate dedicated infrastructure for that.

Tyler Cowen 36:05 And, but transactions costs for dealing with humans will fall because you'll deal with their "assistants," right?

Dwarkesh Patel 36:10 Mm-hmm.

Tyler Cowen 36:11 So you'll only deal with a difficult human when you need to. And people who are very effective will segregate their tasks in a way that reflects their comparative advantage. And people who are not effective will be very poor at that, and that will lead to some kind of bifurcation of personal productivity.

Dwarkesh Patel 36:27 Mm.

Tyler Cowen 36:29 Like how well do you, will you know what to delegate to your AI? I'll predict you'll be very good at it. You may not have figured it out yet.

Dwarkesh Patel 36:35 Mm-hmm.

Tyler Cowen 36:36 But say you're like AA+ on it and other people are D. That's a big comparative advantage for you.

Dwarkesh Patel 36:42 Hmm. Um, so, you know, uh, uh, we're talking, I guess, about, like, GPT-5.0-level models. When you think in your mind about, like, okay, this is GPT-5.0, what happens with GPT-6.0, GPT-7.0? Do you see it, uh, uh, uh, just do you still think in the frame of having a bunch of RAs, or how, does it seem like a different sort of thing at some point?

Tyler Cowen 36:59 I'm not sure what those numbers going up mean, or what a GPT-7.0 would look like, or, or how much smarter it could get. I think people make too many assumptions there. It could be the real advantages are integrating it into workflows by things that are not better at GPTs at all. And once you get to GPT, say, 5.5, I'm not sure you can just turn up the dial on smarts and have it, like, integrate general relativity and quantum mechanics.

Dwarkesh Patel 37:27 Why not?

Tyler Cowen 37:27 I don't think that's how intelligence works. And this is a Hayekian point. In some of these problems, there just may be no answer. Like, maybe the universe isn't that legible. And if it's not that legible, the GPT-11 doesn't really make sense as a, you know, a creature or whatever.

Dwarkesh Patel 37:43 Hmm.

Tyler Cowen 37:44 So-

Dwarkesh Patel 37:44 Is, isn't there a Hayekian argument to be made that, listen, you can have billions of copies of these things, uh, imagine the sort of decentralized order that could result, the amount of decentralized tacit knowledge that billions of copies talking to each other could have? That in and of itself is an argument to be made about, uh, the whole thing as a, as a emergent order will be much more powerful than w- we're anticipating.

Tyler Cowen 38:04 Well, I think it will be highly productive. What tacit knowledge means with AIs, I don't think we understand yet. Is it by definition all non-tacit, or does the fact that how GPT-4.0 works is not legible to us or even its creators so much? Does that mean it's possessing of tacit knowledge, or is it not knowledge? See, none, none of those categories are well thought out, in my opinion. So we need to, to restructure our whole discourse about tacit knowledge in some new, different way. But I agree, these networks of AIs, even before, like, GPT-11, they're going to be super productive. But they're still going to face bottlenecks, right? And I don't know how good they'll be at, say, overcoming the behavioral bottlenecks of actual human beings, the bottlenecks of the law and regulation.

Dwarkesh Patel 38:50 Hmm.

Tyler Cowen 38:51 And we're going to have more regulation as we have more AIs, right?

Dwarkesh Patel 38:53 Yeah. When you say there'll be uncertainties, I think you made this argument when you were responding to Alex Epstein on Fossil Future, where you said, "Uncertainties also extend out into the domain where there's a bad outcome or a much bigger outcome than you're anticipating."

Tyler Cowen 39:05 That's right.

Dwarkesh Patel 39:05 So, can we apply the same, uh, argument to AI? Like, the fact that there is uncertainty is also a reason for worry.

Tyler Cowen 39:12 Well, it's always reason for worry, but there's uncertainty about a lot of things, and AI will help us with those other uncertainties. So, on net, do you think more intelligence is likely to be good or bad? Including against x-risk. And I think it's more likely to be good. So if it were the only risk, I'd be more worried about it than if there's a whole multitude of risks. But clearly there's a whole multitude of risks. But since people grew up in pretty stable times, they tend not to see that in emotionally vivid terms. And then this one monster comes along, and they're all terrified.

Dwarkesh Patel 39:42 What would Hayek think of prediction markets?

Tyler Cowen 39:45 Well, there were prediction markets in Hayek's time. I don't know that he wrote about them, but I strongly suspect he would see them as markets that through prices communicate information. But even at the, like around the time of the Civil War, there were so-called bucket shops in the US and New York where you would bet on things. They were betting markets with cash settlement, probably never called prediction markets, but they were exactly that. Later on they were banned. But it's an outstanding thing.

Dwarkesh Patel 40:11 Hmm.

Tyler Cowen 40:12 There were betting markets on lives in 17th century Britain, different attempts to outlaw them, which I think basically ended up succeeding. But under the table, I'm sure it still went on to some extent.

Dwarkesh Patel 40:22 Yeah. The, the reason it's interesting to think about this is because his whole argument about the price system is that you can have a single dial that aggregates so much information. But it's precisely for this, and that, for that reason it's so useful to somebody who's trying to decide, you know, based on that information. But it's precisely for this reason that it's so aggregated, that it's hard to learn about any one particular input to that dial.

Tyler Cowen 40:42 But I would stress it's not a single dial. And whether Hayek thought it was a single dial, I think you can argue that either way. So people in markets, they also observe quantities, they observe reaction speeds. There's a lot of dimensions to prices other than just, oh, this newspaper cost $4. Uh, the terms on which it's advertised. So markets work so well because people are solving this complex multidimensional problem. And the price really is not a sufficient statistic the way it is in Arrow and Debreu. And I think at times Hayek understood that, and at other times he writes as if he doesn't understand it. But it's an important point.

Dwarkesh Patel 41:17 Hmm. Uh, somewhat related question. What does it tell us about the difficulty of preserving good institutions, good people, uh, that the median age of a corporation is 18 years, and they don't get better over time, right? Decade after decade, what corporation... There, there's very few corporations that continue improving in that way.

Tyler Cowen 41:34 Well, I think some firms keep improving for a long time. So there are Japanese firms that date back to the 17th century, right? They must be better today or even in 1970 than they were way back when. Uh, like the leading four or five Danish firms, none of them are younger than the 1920s. So Maersk, uh, you know, the firm that came up with Ozempic, the pharmaceutical firm, uh, they must be much better than they were back then. Right? They have to be. So how that is possible to me is a puzzle. But I think in plenty of cases it's true.

Dwarkesh Patel 42:09 Can we at least say that the, um, the best firms in the world aren't ones that have been improving over time. Uh, you know, if you look at the biggest companies by market cap, it's not like this is what it takes to get there is hundreds of years of continual refinement. Uh, what does that tell us about the world? Or just to-

Tyler Cowen 42:27 Well, not hundreds of years, but again, don't be overly biased by the US experience and the tech sector.

Dwarkesh Patel 42:32 Mm.

Tyler Cowen 42:33 There's around the world plenty of firms that at least seem to get better as they get older. Certainly their market cap goes up. Some of that might just be a population effect. Maybe their productivity per some unit is in some ways going down. Uh, but that's a very common case. ... and why the US is such an outlier is an interesting question, right? Israel clearly is an outlier. In a sense, they only have pretty young firms, right? And they've done very well in terms of growth.

Dwarkesh Patel 43:01 Can it be explained by the fact that in these other countries, it's actually just harder to start a new company, not necessarily the older companies are actually getting better?

Tyler Cowen 43:08 Uh, possibly, but it does seem the older companies are often getting better, right? Like in Denmark. So, you know, take China is pretty much entirely new firms because of communism. Uh, Japan in particular seems to have a lot of very old firms. I don't know if they're getting better, but I, I don't think you can write that off as a possibility.

Dwarkesh Patel 43:26 Mm. Um, this is Hayek in Competition as a Discovery Process, and it seems like he predicted NIMBYism. So he says, "In a democratic society, it would be completely impossible using commands that could not be regarded as just to bring about those changes that are undoubtedly necessary, but the necessity of which could not be strictly demonstrated in a particular case." Uh, so it, it seems like he's kind of talking about what we today call NIMBYism. Uh,

Narrator 43:52 Oh, sure.

Dwarkesh Patel 43:53 Is this-

Tyler Cowen 43:53 ... and there was plenty of NIMBYism-

Dwarkesh Patel 43:54 Yeah.

Tyler Cowen 43:54 ... in earlier times. Yeah, yeah. I mean, you look at the 19th century debates over restructuring Paris-

Dwarkesh Patel 43:58 Mm.

Tyler Cowen 43:59 ... Haussmann, and putting in the broader boulevards and the like. Uh, that met with very strong opposition. It's a kind of miracle that it happened.

Dwarkesh Patel 44:06 Yeah. Uh, is this, is this a thing that's inherent to the democratic system? I, recently I interviewed Dominic Cummings, and obviously planning's a big issue in the UK. It seems like every country has, every democratic country has this kind of problem.

Tyler Cowen 44:17 And most autocratic countries have it too.

Dwarkesh Patel 44:19 Mm-hmm.

Tyler Cowen 44:19 Now China is an exception. They will probably slide into some kind of NIMBYism, even if they stay autocratic. Uh, just people resist change, interest groups always matter, public opinion, à la David Hume, always matters. And, uh, it's easy to not do anything on a given day, right? And that just keeps on sliding into the future.

Dwarkesh Patel 44:39 Mm-hmm. So, but n- nothing that, I guess-

Tyler Cowen 44:42 India has had a lot of NIMBYism. It's fallen away greatly under Modi and especially what the state governments have done. But it's, can be very hard to build things in India still.

Dwarkesh Patel 44:52 Mm-hmm. Although it is a democracy. I guess the China example, we'll see what happens there.

Tyler Cowen 44:57 That's right. Uh, but it would be very surprising 'cause the Chinese government is highly responsive to public opinion on most but not all issues. So, why wouldn't they become more NIMBY, especially with a shrinking population? They're, they're way over bill, right? So the pressure to build will be weak.

Dwarkesh Patel 45:14 Right.

Tyler Cowen 45:14 And in cases where they ought to build, I would think quite soon they won't.

Dwarkesh Patel 45:18 Mm-hmm. Um, how, how much of economics is a study of the, uh, the systems that human beings use to allocate scarce resources and how much is, is just something you'd expect it to be true of aliens, AIs? Uh, it's interesting when you read the eco- history of economic thought, how often they make, uh, um, they make mention of h- human nature specifically. Like Keynes is talking about the, people have high discount rates, right? Uh, w- what, yeah, but w- what are your thoughts here?

Tyler Cowen 45:44 My former colleague Gordon Tullock wrote a very interesting book on the economics of ant societies and animal societies. And very often they obey human-like principles, or more accurately, humans obey non-human animal-like principles. So I suspect it's fairly universal and depends less on "human nature" than we sometimes like to suggest. Maybe that is a bit of a knock on some behavioral economics. The logic of the system. Armen Alchian wrote on this, Gary Becker wrote on this. There was some debates on this in the early 1960s, and that the automatic principles of profit and loss and selection at a firm, firm-wide level really matters, and it's responsible for a lot of economics being true. I think that's correct.

Dwarkesh Patel 46:30 Actually, that, that raises an interesting question of, uh, w- within firms, the, the sort of input they're getting from the outside world, the ground truth data is profit, loss, bankruptcy. It's like very, uh, very condensed information. And from this, they had to make the determination of who to fire, who to hire, who to promote, what projects to pursue. Uh, y- you know, h- how do we make sense of how firms disaggregate this, this very condensed information?

Tyler Cowen 46:54 I would like to see a very good estimate of how much of productivity gains is just from selection and how much is from, well, smart humans figure out better ways of doing things. And there's some related pieces on this in the international trade literature. So when you have freer trade, a shockingly high percentage of the productivity gains come from your worst firms being bankrupted by the free trade. And Alex Tabarrok has some MR posts on this. I don't recall the exact numbers, but it was higher than almost anyone thought. And that to me suggests the Alchian-Becker mechanisms of evolution at the level of the firm, enterprise, or even sector, they're just a lot more important than human ingenuity. And that's a pretty Hayekian point. Hayek presumably read those pieces in the '60s. I don't think he ever commented on them.

Dwarkesh Patel 47:41 Interesting. Um, let's talk about, uh, Mill, uh, John Stuart Mill.

Tyler Cowen 47:47 John Stuart Mill, right? Not James Mill.

Dwarkesh Patel 47:48 Yes, yes.

Tyler Cowen 47:48 But he was interesting too.

Dwarkesh Patel 47:49 Um, so his arguments about, uh, the law of force against, uh, women and how basically throughout history that, that the state of, uh, women in, in his society is not natural or the wisdom of the ages, but just the result of the fact that men are stronger and have codified that. Can we apply that argument to today's society against children and the way we treat them?

Tyler Cowen 48:09 Yes. I think we should treat children much better. We've made quite a few steps in that direction. It's interesting to think of Mill's argument as it relates to Hayek. So Mill is arguing you can see more than just the local information. So keep in mind when Mill wrote every society that he knew of at least treated women very poorly, oppressed women, women because they were physically weaker or at a big disadvantage. If you think there's some matrilineal exceptions, Mill didn't know about them. So it appeared universal. And Mill's chief argument is to say you're making a big mistake if you overly aggregate information from this one observation, that behind it is a lot of structure and a lot of the structure is contingent, and that if I, Mill, unpack the contingency for you, you will see behind the signals-So Mill is much more a rationalist than Hayek. It's one reason why Hayek hated Mill. But clearly, on the issue of women, Mill was completely correct, that women can do much better, will do much better. It's not clear what the end of this process will be. It will just continue for a long time. Uh, women achieving in excellent ways. And it's Mill's greatest work, I think. It's one of the greatest pieces of social- social science and it is anti-Hayekian. It's anti small C conservatism.

Dwarkesh Patel 49:25 Uh, his other book On Liberty is very Hayekian though, right? In the sense that the free speech is needed because information is, uh, is contained in many different people's minds and yeah.

Tyler Cowen 49:34 That's right. And I think Mill integrated sort of you could call it Hayek and anti-Hayek better than Hayek ever did.

Dwarkesh Patel 49:41 (laughs)

Tyler Cowen 49:41 That's why I think Mill is the greater thinker of the two.

Dwarkesh Patel 49:44 Mm. But, but on the topic of children, uh, what, what would Mill say specifically? I, I, I guess he could have talked about it if he wanted to but, g- I don't know, if he was in today's world. We send them to school, they're there for eight hours a day, most of the time is probably wasted. How, how ... And we just like use a lot of coercion on them that we don't need to. How, how would we think, how would he think about this issue?

Tyler Cowen 50:03 There's Mill's own upbringing which was quite strict, and by current standards, oppressive. But apparently extremely effective in making Mill smart. So I think Mill very much thought that kids should be induced to learn the classics. But he also stressed they needed free play of the imagination in a way that he drew from German and also British romanticism. And he wanted some kind of synthesis of the two. Uh, but by current standards, Mill, I think still would be seen as a meanie toward kids, but he was progressive by the standards of his own day.

Dwarkesh Patel 50:37 Do you buy the arguments about aristocratic tutoring for people like Mill and, um, there's many other cases like this but the, you know, since they were kids they were taught in the, taught by one on one tutors and that's, that explains part of their, uh, uh, greatness?

Tyler Cowen 50:49 Uh, I believe in one on one tutors but I don't know how much of those examples is selection, right?

Dwarkesh Patel 50:54 Mm.

Tyler Cowen 50:54 So I'm not sure how important it is.

Dwarkesh Patel 50:56 Mm.

Tyler Cowen 50:57 But just as a matter of fact, if I were a wealthy person and just had a new kid, I would absolutely invest in one on one tutors.

Dwarkesh Patel 51:04 Mm. You talk in the book about how Mill is very concerned about the quality and the character development of the population. Uh, wh- wh- but when we think about the fact that somebody like him was elected to the Parliament at the time, the greatest thinker who's alive is elected to uh, the, to uh, what, to, to government, and it's hard to imagine that could be true in, with today's world.

Tyler Cowen 51:24 Right.

Dwarkesh Patel 51:25 Does he have a, does he have a point with regards to the quality of the population?

Tyler Cowen 51:29 Well Mill, as with women, he thought a lot of improvement was possible.

Dwarkesh Patel 51:32 Yeah.

Tyler Cowen 51:33 And we shouldn't overly generalize from seeing all the dunces around us-

Dwarkesh Patel 51:37 Yeah.

Tyler Cowen 51:37 ... so to speak. Uh, maybe the, the book is still out on that one.

Dwarkesh Patel 51:41 (laughs)

Tyler Cowen 51:42 But it's an encouraging belief and I think it's more right than wrong. There's been a lot of moral progress since Mill's time.

Dwarkesh Patel 51:48 Right.

Tyler Cowen 51:49 Not in everything, but certainly how people treat children. And, or their wi- how men treat their wives. And uh, even when you see negative reversals, Steven Pinker so far seems to be right on that one.

Dwarkesh Patel 52:04 Mm.

Tyler Cowen 52:04 But you do see places, you know, like Iran, how women were treated seems to have been much better in the 1970s than it is today. So there are definitely reversals.

Dwarkesh Patel 52:13 But on the specific reversal of somebody of Mill's quality probably wouldn't get elected to Congress in the US or Parliament of the UK. Is it, how, how, how big a deal is that?

Tyler Cowen 52:22 But Mill type advice may get through the cracks due to all the local statesmen who wisely advise their representatives in the House, right? So, I don't know how much that process is better or worse compared to, say, the 1960s. I know plenty of smart people who think it's worse. I'm not convinced that's true.

Dwarkesh Patel 52:41 Mm. Let's talk about Smith. Uh, Adam Smith.

Tyler Cowen 52:44 Yeah. (laughs)

Dwarkesh Patel 52:46 (laughs) Um, uh, okay, so one of the things I find really remarkable about him is he, so he publishes in 1776 The Wealth of Nations and basically around that time, Gibbon publishes The Decline and Fall of the Roman Empire, yep. Um, so he publishes The Decline and Fall of the Roman Empire and one of his lines in there is if, if you were asked to, uh, state a period of time when man's condition was at what is its best, it was, you know, during the reign of Commodus to Domitian, uh, and that's like 2,000 years before that, right? So there's basically been, at least it's like plausible to somebody really smart that there's basically been no growth since, for 2,000 years. Uh, and in that context to be making the case for markets and mechanization and division of labor, I think is like even more impressive when you, when you put it in the context of he has like basically been seeing, you know, .5% or less growth.

Tyler Cowen 53:29 Strongly agree. And this is in a way Smith being like Mill.

Dwarkesh Patel 53:32 Yeah.

Tyler Cowen 53:32 Smith is seeing the local information of very small growth and the world barely being better than the Roman Empire, and inferring from that with increasing returns, division of labor, how much is possible. So Smith is a bit more of a rationalist than Hayek makes him out to be.

Dwarkesh Patel 53:48 Right. Now, I, I wonder if we use the same sort of extrapolative thinking that Smith uses of we haven't seen that much growth yet but if you apply these sorts of principles, uh, this is what you would expect to see. What would he make of the potential AI economy where we see 2% growth, uh, a year now, but you have, you know, billions of potential more agents or something. Would he say, "Well, actually you might have 10% growth because of this." Like this is a, you would need more economic principles to explain this. Or that just adding that to our list of existing principles would imply big g- gains?

Tyler Cowen 54:19 It's hard to say what Smith would predict for AI. My suspicion is that the notion of 10% growth was simply not conceivable to him, so he wouldn't have predicted it because he never saw anything like it. That to him, 3% growth would be a bit like 10% growth. It would just shock him and, and bowl him over. But Smith does also emphasize different human bottlenecks and constraints of the law, so it's quite possible Smith would see those bottlenecks as mattering and checking AI growth and its speed.

Dwarkesh Patel 54:51 Mm. But a- as a principle, given the change we saw pre- uh pre-Industrial Revolution and after 1870, um, does, does that ... does to you it seem plausible that you could go from uh, the current regime to a regime where you have 10% growth for decades on end?

Tyler Cowen 55:08 ... uh, that does not seem plausible to me. But I would stress the point that high rates of growth decades on end, the numbers cease to have meaning, because the numbers make the most sense when the economy is broadly similar. Like, oh, everyone eats apples and each year there's 10% more apples at a roughly constant price.

Dwarkesh Patel 55:25 Yeah.

Tyler Cowen 55:25 As the basket changes, the numbers become meaningless. It's not to deny there's a lot of growth, uh, but you can think about it better by discarding the number. And presumably AI will change the composition of various bundles quite a bit over time.

Dwarkesh Patel 55:39 So, when you hear these estimates about what the GDP per capita was in the Roman Empire, do you just disregard that and think in terms of qualitative changes from that time?

Tyler Cowen 55:47 Depends what they're being compared to. So, there's pieces in economic history that are looking at say, 17th, 18th Europe, comparing it to the Roman Empire. Most of GDP is agriculture, which is pretty comparable, right?

Dwarkesh Patel 56:01 Right.

Tyler Cowen 56:01 Especially in Europe. It's not wheat versus corn.

Dwarkesh Patel 56:04 Yeah.

Tyler Cowen 56:04 It's wheat and wheat. And I've seen estimates that, oh, say by 1730, some parts of Western Europe are clearly better off than the Roman Empire at its peak, but like within range.

Dwarkesh Patel 56:15 Yeah.

Tyler Cowen 56:16 That, those are the best estimates I know and I trust those.

Dwarkesh Patel 56:18 Mm-hmm.

Tyler Cowen 56:18 They're not perfect, but I don't think there's an index number problem so much.

Dwarkesh Patel 56:22 Mm-hmm. And so when people say we're 50% richer than an average Roman at the peak of the empire, you, you, but this, this kind of thinking doesn't make sense to you

Tyler Cowen 56:32 It doesn't make sense to me.

Dwarkesh Patel 56:34 Yeah.

Tyler Cowen 56:34 And a simple way to show that, let's say you could buy from a Sears Roebuck catalog of today-

Dwarkesh Patel 56:39 Yeah.

Tyler Cowen 56:39 ... or from 1905 and you have $50,000 to spend. Which catalog would you rather buy from? You have to think about it.

Dwarkesh Patel 56:48 Yeah.

Tyler Cowen 56:48 Right? Now, if you just look at changes in the CPI, it should be obvious you would prefer the catalog from 1905. Everything's so much cheaper. That white shirt costs almost nothing.

Dwarkesh Patel 56:59 Right.

Tyler Cowen 56:59 At the same time, you don't want that stuff. It's not mostly part of the modern bundle. So even if you ended up preferring the earlier catalog, the fact that you have to think about it reflects the ambiguities.

Dwarkesh Patel 57:10 Mm-hmm. Uh, when you read the contemporaries of Smith, other economists who were writing at the time, uh, were his arguments just, uh, clearly, given the evidence at the time, much better than everybody around? Or was it just that ex-post he was clearly right, but given the arguments at the time it, it could have gone any one of different ways?

Tyler Cowen 57:29 Well, there aren't that many economists at the time of Smith, so it depends what you're counting. I mean, the two fellow Scots you could compare Smith to are Sir James Stewart, who published a major work, I think in 1767. On some matters, Stewart was ahead of Smith. Not most. Clearly Smith was far greater, but Stewart was no slouch. And the other point of comparison is David Hume, Smith's best friend, of course. Uh, per page, you could argue Hume was better than Smith. Certainly on monetary theory Hume was better than Smith. Now, he's not a GOAT contender, he just didn't do enough. But I wouldn't say Smith was ahead of Hume. He had more and more important insights, but Hume was pretty impressive. Now, if you're talking about, oh, like the 18th century German camera lists, uh, well, they were bad mercantilists. But there's people, say, writing in Sweden in the 1760s analyzing exchange rates who had better understandings of exchange rates than Smith ever did. So it's not that he just dominated everyone.

Dwarkesh Patel 58:30 Mm-hmm.

Dwarkesh Patel 58:31 Um, let, let me offer some other potential nominees that were not in the book-

Tyler Cowen 58:35 Sure.

Dwarkesh Patel 58:35 ... for GOAT, and I want your opinions of them. Um, Henry George, in terms of explaining how land is fundamentally different from labor and capital when we're thinking about the economy.

Tyler Cowen 58:45 Well first, I'm not sure land is that fundamentally different from labor and capital. A lot of the value of land comes from improvements. And once an improvement can be quite subtle, it doesn't just have to be, you know, putting a plow to the land. So I would put George in the top 25. A very important thinker, but he's a bit of a... Not, not a one-note Johnny. His book on protectionism is still one of the best books on free trade. But he's circumscribed in a way, say, Smith and Mill were not.

Dwarkesh Patel 59:14 Mm-hmm. Uh, today as he, uh... With, with, does his status rise? We see rents in big cities-

Tyler Cowen 59:20 Status is way up for this reason.

Dwarkesh Patel 59:22 Yeah. Right.

Tyler Cowen 59:22 Because of YIMBY, NIMBY.

Dwarkesh Patel 59:23 Yeah.

Tyler Cowen 59:23 And I think that's correct. He was undervalued. He's worth reading very carefully. A few years ago, we're recording here at Mercatus, we had a, like, 12-person, two-day session with Peter Thiel just on reading Henry George. It's all we did. And people came away, uh, very impressed, I think.

Dwarkesh Patel 59:41 Mm-hmm. Uh, and for people who are interested, they might enjoy the episode I did with Lars Doucet, uh, who-

Tyler Cowen 59:46 Oh, I don't know about this. He's a Georgist?

Dwarkesh Patel 59:48 Oh, yeah. He's, uh, he's, he's a really smart guy. He wrote, uh... Basically he, he wrote a book review of Henry George that won Scott Alexander's Book Review Contest.

Tyler Cowen 59:57 Oh, I know what this is now. Yeah, yeah.

Dwarkesh Patel 59:58 And, and then he's, he's turned it into a whole book of his own, which is actually really good. Uh, um...

Tyler Cowen 1:00:02 And I think there's something truly humane in George when you read him that can be a bit infectious that's positive.

Dwarkesh Patel 1:00:08 Mm-hmm. Um, and, uh, uh, some insane... There was some insane turnout for his funeral, right? Like he was, he was very popular at the time.

Tyler Cowen 1:00:14 That's right.

Dwarkesh Patel 1:00:15 He wrote, yeah.

Tyler Cowen 1:00:15 Yeah. And that was deserved.

Dwarkesh Patel 1:00:17 Yeah. Uh, I guess you already answered this question, but Ronald Coase, in, in terms of helping us think about firms and, you know, property rights and transaction costs?

Tyler Cowen 1:00:25 Well, even though I think the 1937 piece is wrong, it did create one of the most important genres. He gets a lot of credit for that. He gets a lot of credit for the Coase theorem. The FCC Property Rights Piece is superb. The Lighthouse piece is very good. Again, he's in the top 25. But in terms of, like, his quantity, its own quality, it's just not quite enough. There's no macro. Uh, but of course he rated very, very highly.

Dwarkesh Patel 1:00:51 How about your former advisor, Thomas Schelling?

Tyler Cowen 1:00:55 He is a top-tier Nobel laureate, but I don't think he's a serious contender for greatest economist of all time. He gets the most credit for making game theory intuitive, empirical, and workable, and that's worth a lot.... uh, economics of self-command, he was a pioneer. But in a way, that's just going back to the Greeks and Smith. Uh, he's not a serious contender for GOAT. But a top-tier Nobel laureate, for sure.

Dwarkesh Patel 1:01:20 You have a, uh, you have a fun quote in, uh, in the book on Arrow, where you say, "His work was, uh, Nobel Prize-winning important, but not important-important." (laughs)

Tyler Cowen 1:01:29 Well, some parts of it were important-important, like how to price securities. So I think I underrated Arrow a bit in the book. If you ask, like, what regrets do I have about the book, I say very, very nice things about Arrow, but I think I should have pushed him even more.

Dwarkesh Patel 1:01:42 What, what would Arrow say about prediction markets?

Tyler Cowen 1:01:45 Well, he was really the pioneer of theoretically understanding how they work.

Dwarkesh Patel 1:01:49 Yeah.

Tyler Cowen 1:01:49 So, uh, he was around until quite recently. Uh, I'm sure he had things to say about prediction markets, probably positive.

Dwarkesh Patel 1:01:57 Mm. Um, uh, you, so one of the points you make in the book is economics at the time was really a way of carrying forward big ideas about the world. What discipline today is where that happens?

Tyler Cowen 1:02:09 Well, internet writing. It's not a discipline, but it's a sphere, and plenty of it happens more than ever before. But it's segregated from what counts as original theorizing in the academic sense of that word. Is that a good or bad segregation? I'm not sure. Uh, but it's really a very sharp, radical break from how things had been. And it's why I don't think there'll be a new GOAT contender, probably not ever. Or if there is, it will be something AI related.

Dwarkesh Patel 1:02:35 Hm. Yeah, that, that sounds about right to me. Um, but w- within the context of internet writing, obviously there's many disciplines there, uh, e- economics being a prominent one. Yeah, uh, when you split it up, is there a discipline in terms of... I don't know, people writing, uh, in terms of computer science concepts or people writing in terms of economic concepts? Who is-

Tyler Cowen 1:02:53 So now I feel-

Dwarkesh Patel 1:02:54 ... today, ... I think you'll have good ideas?

Tyler Cowen 1:02:55 ... the discipline ceased to matter, that really good-

Dwarkesh Patel 1:02:57 Mm.

Tyler Cowen 1:02:57 ... internet writing is multidisciplinary. When I meet someone like a Scott Aaronson, who's doing, like, computer science, AI-type internet writing on his blog, I have way more in common with him than with a typical research economist, say, at Boston University. And it's not because I know enough about computer science. Like, I may or may not know a certain amount. But it's because our two enterprises are so similar. Or Scott Alexander, he writes about mental illness also. That just feels so similar, and we, we really have to rethink what the disciplines are. It may be that method of writing is the key differentiator for this particular sphere.

Dwarkesh Patel 1:03:35 Yeah.

Tyler Cowen 1:03:35 Not for everything.

Dwarkesh Patel 1:03:36 Scott Aaronson was my professor in college-

Tyler Cowen 1:03:38 Oh, that's great.

Dwarkesh Patel 1:03:38 ... for a couple of semesters. Yeah.

Tyler Cowen 1:03:39 Yeah.

Dwarkesh Patel 1:03:40 Yeah, um, th- that's where I decided I'm not going to go to grad school, 'cause you just see-

Tyler Cowen 1:03:45 That's also great.

Dwarkesh Patel 1:03:45 (laughs) 'Cause you just see, like, two standard deviations above you easily. Uh, you know, j- might as well just choose a different game. (laughs)

Tyler Cowen 1:03:51 But his method of thinking and writing is infectious, like that of Scott Alexander-

Dwarkesh Patel 1:03:55 Right.

Tyler Cowen 1:03:55 ... and many of the rest of us.

Dwarkesh Patel 1:03:56 Yeah.

Tyler Cowen 1:03:57 Yeah.

Dwarkesh Patel 1:03:57 Um, so I think in the book you say, uh, you were raised as much by, uh, economic thought, or the history of economic thought, as you are by your graduate training.

Tyler Cowen 1:04:07 More. Much more.

Dwarkesh Patel 1:04:08 Mm.

Tyler Cowen 1:04:08 Not, it's not even close.

Dwarkesh Patel 1:04:10 Uh, today people would say... I, I was talking to Basil Halperin, who's a, a young economist, and he said he was raised on Marginal Revolution-

Tyler Cowen 1:04:16 He's great, yeah.

Dwarkesh Patel 1:04:16 ... on, in the same way that you were raised on the history of economic talk, uh, thought. How, how do you... Uh, does it seem like a good trade? Are you happy that people today are raised on Scott Alexander and Marginal Revolution?

Tyler Cowen 1:04:26 At the margin, I would like to see more people raised on Marginal Revolution.

Dwarkesh Patel 1:04:30 (laughs)

Tyler Cowen 1:04:30 I don't just mean that in a selfish way.

Dwarkesh Patel 1:04:31 Yeah.

Tyler Cowen 1:04:31 But the internet writing mode of thinking, I would like to see more economists and research scientists raised on it. But the number may be higher than we think. Like, if I hadn't run Emergent Ventures, I wouldn't know about Basil per se, maybe would not have met him. And it's infectious. So it might always be a minority, but it will be the people most likely to have new ideas. And it's a very powerful new mode of thought, which I'll call internet way of writing and thinking. And it's not sufficiently recognized as something like a new field or discipline, but that's what it is.

Dwarkesh Patel 1:05:02 Mm. I, I wonder if you're doing enough of that when it comes to AI, where I think you have really interesting thoughts about GPT-5 level stuff. But as, as somebody with your sort of, uh, polymathic understanding of different fields, I, if you just like extrapolate out these trends, I, I feel like you might have a lot of interesting thoughts about when you think just, just in terms of what might be possible with something much further down the line.

Tyler Cowen 1:05:21 Well, I have a whole book with AI predictions, Average is Over.

Dwarkesh Patel 1:05:24 Mm-hmm.

Tyler Cowen 1:05:25 And I have about 30 Bloomberg columns, and probably 30 or 40 Marginal Revolution posts. Uh, I can just say I'll do more.

Dwarkesh Patel 1:05:32 (laughs)

Tyler Cowen 1:05:33 Uh, but the idea at which ideas arrive at me is the binding constraint. I'm not holding them back.

Dwarkesh Patel 1:05:40 Um, speaking of, uh, Basil, he had an interesting question. Should, um, should, should society, uh, or government subsidize savings so that we're in effect having, uh, it leads to basically a zero social discount rate? So, is, people on average probably have, you know, uh, th- they're, they're prioritizing their own lives, they have discount rates based on their own lives. Uh, if we're long term, should the government subs- be subsidizing savings?

Tyler Cowen 1:06:07 I'll come close to saying yes. First, we tax savings right now, so we should stop taxing savings. Absolutely. I think it's hard to come up with workable ways of subsidizing savings that don't give rich people a lot of free stuff in a way that's politically unacceptable and also unfair. So I'm not sure we have a good way of subsidizing savings. But in principle, I would be for it if we could do it in the proper targeted manner.

Dwarkesh Patel 1:06:32 Hm. Although I, you had a good argument against this in Stubborn Attachments, right? That over the long term, if the, if economic growth is high enough, then the savings of the rich will just be, uh, dissipated to everybody below.

Tyler Cowen 1:06:45 Well, I'm not sure to whom it's dissipated. It does get dissipated. The great fortunes of the past are, are mostly gone. Uh, but they may not go to people below. And the idea of writing into a tax system subsidies on that scale, in essence subsidies to wealth, not, not GDP, but wealth is, say, six to eight times GDP, I just think the practical problems are quite significant. It's not an idea I'm pushing. But there may, at margins, be ways you can do it.... that, say, only benefit, uh, people who are poor, ways you can improve like the workings of local credit unions through better either regulation, deregulation that are a kind of de facto subsidy without having to subsidize all of the saved wealth. There's got to be a lot of ways you can do that and we should look for that more.

Dwarkesh Patel 1:07:31 Uh, relatedly, uh, I, I think a couple of years ago, Paul Schlemming had an interesting paper that if you look from 1311 to now, uh, interest rates have been declining. The- there's been hundreds of years of interest rate declines. What, what is the big-picture explanation of this trend?

Tyler Cowen 1:07:46 I'm not sure we have one. You may know Cowen's third law. All propositions about real interest rates are wrong. But simply lower risk, better information, higher buffers of wealth would be what you'd call the intuitive economistic explanations. There's probably something to them but how much of that trend do they actually ex- explain is like a percent of the variance? I don't know.

Dwarkesh Patel 1:08:07 Mm. Let's talk about anarchy.

Tyler Cowen 1:08:09 Anarchy.

Dwarkesh Patel 1:08:09 You, you, you wrote papers about this I hadn't read the last time we talked and they're really interesting. Um, so maybe you can restate your arguments as you answer this question. But how much of your arguments about how network industries lead to these cartel-like dynamics, how much of that, uh, can help explain what happened to social media, Web 2.0?

Tyler Cowen 1:08:29 I don't view that as such a cartel. I think there's a cartel at one level which is small but significant. This is maybe more true three, four years ago than today with Elon owning Twitter and other changes. But if someone got kicked off social media platforms three, four years ago, they would tend to get kicked off all or most of them.

Dwarkesh Patel 1:08:48 Right.

Tyler Cowen 1:08:48 It wasn't like a consciously collusive decision but it's a bit like, "Oh, well, I know the guy who runs that platform and he's pretty smart and if he's worried, I should be worried." And that was very bad. I don't think it was otherwise such a collusive equilibrium. Maybe some dimensions on hiring, uh, social, you know, people, software engineers, there was some collusion, not enough bidding, but it was mostly competing for attention. So I think the real risk protection agencies aside of network-based collusion is through banking systems where you have clearinghouses and payments networks and to be part of it, the clearinghouse in the absence of legal constraint can indeed help everyone collude. And if you don't go along with the collusion, you're kicked out of the payment system. That strikes me as a real issue.

Dwarkesh Patel 1:09:40 Uh, do your arguments against, uh, anarchy, do they apply at all to, uh, Web 3.0, crypto-like stuff?

Tyler Cowen 1:09:48 Do I think it will evolve into collusion? I don't see why it would. I'm, I'm open to hearing the argument that it could though. What would that argument go like?

Dwarkesh Patel 1:09:57 Well, I guess we did see with crypto that you have, uh... In order to just have workable settlement, you need these centralized institutions and from there you can get kicked off those and the government is involved with those. And you can, you can maybe abstract the government away and say that they will need to collude in some sense in order to facilitate transactions.

Tyler Cowen 1:10:16 And the exchanges have ended up quite centralized, right?

Dwarkesh Patel 1:10:18 Yeah.

Tyler Cowen 1:10:19 Uh, and that's an example of clearinghouses and exchanges-

Dwarkesh Patel 1:10:22 Right.

Tyler Cowen 1:10:22 ... being the vulnerable node. But I don't know how much Web 3.0 is ever going to rely on that. It seems you can create new crypto assets more or less at will. There's the focality of getting them started but if there's a real problem with the preexisting crypto assets, I would think you could overcome that. So I would expect something more like a to and fro, waves of centralization, decentralization and natural checks embedded in the system. That's my intuition at least.

Dwarkesh Patel 1:10:50 Does your argument against anarchy prove too much in the sense that globally different nations have anarchic relations with each other and they can't, uh, they can't enforce coercive monopoly on each other but they can coordinate to punish bad actors in the way you would want protection agencies to do, right? Like, we can sanction North Korea together or something.

Tyler Cowen 1:11:07 I think that's a very good point and very good question but I would rephrase my argument. You could say it's my argument against anarchy and it is an argument against anarchy but it's also an argument that says anarchy is everywhere. So within government, well, the feds, the state governments, all the different layers of federalism, there's a kind of anarchy. There's not quite a final layer of adjudication the way you might think. We pretend there is. I'm not sure how strong it is. Internationally, of course, uh, you know, how much gets enforced by hegemon, how much is spontaneous order, even the different parts of the federal government, they're in a kind of anarchy with respect to each other. So you need a fair degree of collusion for things to work and you ought to accept that but maybe in a Straussian way where you don't trumpet it too loudly. But the point that anarchy itself will evolve enough collusion to enable it to persist, if it persists at all, is my central point. My point is like, well, anarchy isn't that different. Now given we've put a lot of social political capital into our current institutions, I don't see why you would press the anarchy button but if I'm North Korea and I can press the anarchy button for North Korea, I get that it might just evolve into Haiti but I probably would press the anarchy button for North Korea if at least someone would come in and control the loose nukes.

Dwarkesh Patel 1:12:30 Yeah. And this is related to one of those classic arguments against anarchy that under anarchy anything is allowed so the government is allowed. (laughs)

Tyler Cowen 1:12:36 Right.

Dwarkesh Patel 1:12:36 Therefore we're in a state of anarchy in some sense.

Tyler Cowen 1:12:39 In, in a funny way that argument's correct.

Dwarkesh Patel 1:12:41 Yeah. (laughs)

Tyler Cowen 1:12:41 We would revolve something gover- like government and Haiti has done this but in very bad ways-

Dwarkesh Patel 1:12:47 Right.

Tyler Cowen 1:12:47 ... where it's drug gangs and killings. It doesn't have to be that bad. There's medieval Iceland, medieval Ireland. They had various forms of anarchy clearly limited in their destructiveness by low population, ineffective weapons but they had a kind of stability. You can't just dismiss them and you can debate how governmental were they but the ambiguity of those debates is part of the point, that every system has a lot of anarchy and anarchies have a fair degree of collusion if they survive.

Dwarkesh Patel 1:13:16 Oh, actually, so I, I wanna go back to much earlier in the conversation where you were saying, listen, over, uh, it seems like intelligence is, uh, is a net good. So just that being your heuristic, you should call forth the AI. Um-

Tyler Cowen 1:13:29 Well, not uncritically. You, you need more argument, but just as a starting point.

Dwarkesh Patel 1:13:32 Yeah.

Tyler Cowen 1:13:33 It's like, if more intelligence isn't gonna help you, you have some really big problems anyway.

Dwarkesh Patel 1:13:37 But I don't know if you still have the view that we're, we have like an 800-year timeline for human civilization. But that, that sort of timeline implies that intelligence actually is gonna be the... 'Cause what, the, the thing, the reason we have an 800-year timeline, uh, presumably is like some product of intelligence, right?

Tyler Cowen 1:13:53 My worry is that energy becomes too cheap and people at very low cost can destroy things rather easily. So say if a nuclear, if destroying a city with a nuclear weapon cost $50,000, uh, what would the world look like? I'm just not sure. It might be more stable than we think, but I'm, I'm greatly worried and I could readily imagine it falling apart.

Dwarkesh Patel 1:14:16 Yeah. But I, I guess the bigger point I'm making is that, uh, the, in this case, the reason the nuke got so cheap was, uh, because of intelligence. Now that, that doesn't mean we should, uh, stop intelligence. But it just that, and if, if that's like the end result of intelligence over hundreds of years, that doesn't seem like intelligence is always, uh, a net good.

Tyler Cowen 1:14:34 Well, we're doing better than the other great apes, I would say, even though we face these really big risks. And in the meantime, we did incredible things. So that's a gamble I would take. But I, I believe we should view it more self-consciously as a sort of gamble, and it's too late to turn back. The fundamental choice was one of decentralization, and that may have happened hundreds of millions or billions of years ago. And once you opt for decentralization, intelligence is gonna have advantages and you're not gonna be able to turn the clock back on it. So you're walking this tightrope and my goodness, you'd better do a good job. I mean, we should frame our broader history more like that. And it has implications for how you think about X-risk. Again, I think if the X-ris- X-risk people, a bit of them, it's like, "Well, I've been living in Berkeley a long time and it's, it's really not that different. My life's a bit better and we can't risk