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

1. 0:00 – 17:16

   John Maynard Keynes

   1. DPDwarkesh Patel0:00

      ... this is a fun book to read-

   2. TCTyler Cowen0:01

      Oh, good.

   3. DPDwarkesh Patel0:01

      ... 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?

   4. TCTyler Cowen0:09

      Yeah.

   5. DPDwarkesh Patel0:09

      You just like... (laughs)

   6. TCTyler Cowen0:11

      It's a book written for smart people.

   7. DPDwarkesh Patel0:12

      (laughs) Um, okay, so let's just jump into it.

   8. TCTyler Cowen0:15

      Okay.

   9. DPDwarkesh Patel0:15

      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-

   10. TCTyler Cowen0:30

       Alfred Marshall?

   11. DPDwarkesh Patel0:30

       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."

   12. TCTyler Cowen0:50

       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.

   13. DPDwarkesh Patel0:57

       Okay. Well, you know what I'm going to ask now.

   14. TCTyler Cowen0:58

       (laughs)

   15. DPDwarkesh Patel0:59

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

   16. TCTyler Cowen1:09

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

   17. DPDwarkesh Patel1:15

       Sure, surely. Yeah.

   18. TCTyler Cowen1:15

       ... play a role at the Treaty of Versailles or something comparable?

   19. DPDwarkesh Patel1:18

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

   20. TCTyler Cowen1:22

       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.

   21. DPDwarkesh Patel1:31

       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?

   22. TCTyler Cowen2:26

       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.

   23. DPDwarkesh Patel3:12

       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.

   24. TCTyler Cowen3:41

       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%.

   25. DPDwarkesh Patel4:51

       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?

   26. TCTyler Cowen4:59

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

   27. DPDwarkesh Patel5:05

       Right.

   28. TCTyler Cowen5:05

       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.

   29. DPDwarkesh Patel5:15

       And 2% overestimate or underestimate? It might be wrong, but in which way is it wrong?

   30. TCTyler Cowen5:19

       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.
2. 17:16 – 25:02

   Controversy

   1. DPDwarkesh Patel17:16

      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?

   2. TCTyler Cowen17:24

      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.

   3. DPDwarkesh Patel17:50

      He had a spreadsheet, right, of his

   4. NANarrator17:51

      partner?

   5. TCTyler Cowen17:51

      He had a spreadsheet. And from context, it appears he met these people very casually-

   6. DPDwarkesh Patel17:56

      Right.

   7. TCTyler Cowen17:56

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

   8. DPDwarkesh Patel17:59

      Sure, sure.

   9. TCTyler Cowen17:59

      "... 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?

   10. DPDwarkesh Patel18:12

       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?

   11. TCTyler Cowen18:30

       ... 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.

   12. DPDwarkesh Patel19:13

       Oh, interesting. S-

   13. TCTyler Cowen19:14

       And Keynes benefited from that. But again, I would stress the word selectively.

   14. DPDwarkesh Patel19:18

       Say more. What, what, what determines who is selected for this tolerance?

   15. TCTyler Cowen19:21

       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.

   16. DPDwarkesh Patel19:40

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

   17. TCTyler Cowen19:46

       Some people get away with them completely.

   18. DPDwarkesh Patel19:47

       ... yeah, exactly. Yeah.

   19. TCTyler Cowen19:47

       They say whatever on Twitter and other people get canceled.

   20. DPDwarkesh Patel19:50

       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-

   21. TCTyler Cowen19:57

       I don't think I have either.

   22. DPDwarkesh Patel19:58

       ... you have some opinions out there.

   23. TCTyler Cowen19:59

       I feel people have been very nice to me.

   24. DPDwarkesh Patel20:01

       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-

   25. TCTyler Cowen20:05

       Well, maybe I'm a statesman after all, right? (laughs)

   26. DPDwarkesh Patel20:09

       (laughs) Um...

   27. TCTyler Cowen20:11

       I think just being good natured-

   28. DPDwarkesh Patel20:12

       Yeah.

   29. TCTyler Cowen20:13

       ... helps, and helping a lot of people helps.

   30. DPDwarkesh Patel20:16

       Yeah.
3. 25:02 – 47:41

   Friedrich von Hayek

   1. TCTyler Cowen25:02

   2. DPDwarkesh Patel25:02

      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?

   3. TCTyler Cowen25:25

      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.

   4. DPDwarkesh Patel25:32

      Right.

   5. TCTyler Cowen25:33

      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.

   6. DPDwarkesh Patel26:07

      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?

   7. TCTyler Cowen26:33

      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.

   8. DPDwarkesh Patel27:08

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

   9. TCTyler Cowen27:14

      Decentralized. You have central plans for a number of things, obviously weaponry-

   10. DPDwarkesh Patel27:19

       Mm.

   11. TCTyler Cowen27:19

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

   12. DPDwarkesh Patel27:26

       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?

   13. TCTyler Cowen27:35

       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.

   14. DPDwarkesh Patel28:06

       Mm.

   15. TCTyler Cowen28:06

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

   16. DPDwarkesh Patel28:13

       Right.

   17. TCTyler Cowen28:13

       ... 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.

   18. DPDwarkesh Patel28:21

       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-

   19. TCTyler Cowen28:40

       Well, sometimes it does, right?

   20. DPDwarkesh Patel28:41

       Yeah.

   21. TCTyler Cowen28:41

       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.

   22. DPDwarkesh Patel28:51

       Mm.

   23. TCTyler Cowen28:51

       Government hospitals seem to be fine. I know they get some means of support-

   24. DPDwarkesh Patel28:55

       Yeah.

   25. TCTyler Cowen28:55

       ... but they're not all terrible.

   26. DPDwarkesh Patel28:58

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

   27. TCTyler Cowen29:03

       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.

   28. DPDwarkesh Patel29:17

       Yeah.

   29. TCTyler Cowen29:17

       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.

   30. DPDwarkesh Patel29:42

       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?
4. 47:41 – 52:41

   John Stuart Mill

   1. TCTyler Cowen47:41

   2. DPDwarkesh Patel47:41

      Interesting. Um, let's talk about, uh, Mill, uh, John Stuart Mill.

   3. TCTyler Cowen47:47

      John Stuart Mill, right? Not James Mill.

   4. DPDwarkesh Patel47:48

      Yes, yes.

   5. TCTyler Cowen47:48

      But he was interesting too.

   6. DPDwarkesh Patel47:49

      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?

   7. TCTyler Cowen48:09

      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.

   8. DPDwarkesh Patel49:25

      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.

   9. TCTyler Cowen49:34

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

   10. DPDwarkesh Patel49:41

       (laughs)

   11. TCTyler Cowen49:41

       That's why I think Mill is the greater thinker of the two.

   12. DPDwarkesh Patel49:44

       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?

   13. TCTyler Cowen50:03

       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.

   14. DPDwarkesh Patel50:37

       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?

   15. TCTyler Cowen50:49

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

   16. DPDwarkesh Patel50:54

       Mm.

   17. TCTyler Cowen50:54

       So I'm not sure how important it is.

   18. DPDwarkesh Patel50:56

       Mm.

   19. TCTyler Cowen50:57

       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.

   20. DPDwarkesh Patel51:04

       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.

   21. TCTyler Cowen51:24

       Right.

   22. DPDwarkesh Patel51:25

       Does he have a, does he have a point with regards to the quality of the population?

   23. TCTyler Cowen51:29

       Well Mill, as with women, he thought a lot of improvement was possible.

   24. DPDwarkesh Patel51:32

       Yeah.

   25. TCTyler Cowen51:33

       And we shouldn't overly generalize from seeing all the dunces around us-

   26. DPDwarkesh Patel51:37

       Yeah.

   27. TCTyler Cowen51:37

       ... so to speak. Uh, maybe the, the book is still out on that one.

   28. DPDwarkesh Patel51:41

       (laughs)

   29. TCTyler Cowen51:42

       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.

   30. DPDwarkesh Patel51:48

       Right.
5. 52:41 – 58:31

   Adam Smith

   1. DPDwarkesh Patel52:41

      Mm. Let's talk about Smith. Uh, Adam Smith.

   2. TCTyler Cowen52:44

      Yeah. (laughs)

   3. DPDwarkesh Patel52:46

      (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.

   4. TCTyler Cowen53:29

      Strongly agree. And this is in a way Smith being like Mill.

   5. DPDwarkesh Patel53:32

      Yeah.

   6. TCTyler Cowen53:32

      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.

   7. DPDwarkesh Patel53:48

      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?

   8. TCTyler Cowen54:19

      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.

   9. DPDwarkesh Patel54:51

      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?

   10. TCTyler Cowen55:08

       ... 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.

   11. DPDwarkesh Patel55:25

       Yeah.

   12. TCTyler Cowen55:25

       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.

   13. DPDwarkesh Patel55:39

       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?

   14. TCTyler Cowen55:47

       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?

   15. DPDwarkesh Patel56:01

       Right.

   16. TCTyler Cowen56:01

       Especially in Europe. It's not wheat versus corn.

   17. DPDwarkesh Patel56:04

       Yeah.

   18. TCTyler Cowen56:04

       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.

   19. DPDwarkesh Patel56:15

       Yeah.

   20. TCTyler Cowen56:16

       That, those are the best estimates I know and I trust those.

   21. DPDwarkesh Patel56:18

       Mm-hmm.

   22. TCTyler Cowen56:18

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

   23. DPDwarkesh Patel56:22

       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

   24. TCTyler Cowen56:32

       It doesn't make sense to me.

   25. DPDwarkesh Patel56:34

       Yeah.

   26. TCTyler Cowen56:34

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

   27. DPDwarkesh Patel56:39

       Yeah.

   28. TCTyler Cowen56:39

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

   29. DPDwarkesh Patel56:48

       Yeah.

   30. TCTyler Cowen56:48

       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.
6. 58:31 – 1:08:07

   Coase, Schelling, & George

   1. DPDwarkesh Patel58:31

      Um, let, let me offer some other potential nominees that were not in the book-

   2. TCTyler Cowen58:35

      Sure.

   3. DPDwarkesh Patel58:35

      ... 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.

   4. TCTyler Cowen58:45

      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.

   5. DPDwarkesh Patel59:14

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

   6. TCTyler Cowen59:20

      Status is way up for this reason.

   7. DPDwarkesh Patel59:22

      Yeah. Right.

   8. TCTyler Cowen59:22

      Because of YIMBY, NIMBY.

   9. DPDwarkesh Patel59:23

      Yeah.

   10. TCTyler Cowen59:23

       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.

   11. DPDwarkesh Patel59:41

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

   12. TCTyler Cowen59:46

       Oh, I don't know about this. He's a Georgist?

   13. DPDwarkesh Patel59:48

       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.

   14. TCTyler Cowen59:57

       Oh, I know what this is now. Yeah, yeah.

   15. DPDwarkesh Patel59:58

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

   16. TCTyler Cowen1:00:02

       And I think there's something truly humane in George when you read him that can be a bit infectious that's positive.

   17. DPDwarkesh Patel1:00:08

       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.

   18. TCTyler Cowen1:00:14

       That's right.

   19. DPDwarkesh Patel1:00:15

       He wrote, yeah.

   20. TCTyler Cowen1:00:15

       Yeah. And that was deserved.

   21. DPDwarkesh Patel1:00:17

       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?

   22. TCTyler Cowen1:00:25

       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.

   23. DPDwarkesh Patel1:00:51

       How about your former advisor, Thomas Schelling?

   24. TCTyler Cowen1:00:55

       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.

   25. DPDwarkesh Patel1:01:20

       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)

   26. TCTyler Cowen1:01:29

       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.

   27. DPDwarkesh Patel1:01:42

       What, what would Arrow say about prediction markets?

   28. TCTyler Cowen1:01:45

       Well, he was really the pioneer of theoretically understanding how they work.

   29. DPDwarkesh Patel1:01:49

       Yeah.

   30. TCTyler Cowen1:01:49

       So, uh, he was around until quite recently. Uh, I'm sure he had things to say about prediction markets, probably positive.
7. 1:08:07 – 1:13:16

   Anarchy

   1. TCTyler Cowen1:08:07

   2. DPDwarkesh Patel1:08:07

      Mm. Let's talk about anarchy.

   3. TCTyler Cowen1:08:09

      Anarchy.

   4. DPDwarkesh Patel1:08:09

      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?

   5. TCTyler Cowen1:08:29

      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.

   6. DPDwarkesh Patel1:08:48

      Right.

   7. TCTyler Cowen1:08:48

      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.

   8. DPDwarkesh Patel1:09:40

      Uh, do your arguments against, uh, anarchy, do they apply at all to, uh, Web 3.0, crypto-like stuff?

   9. TCTyler Cowen1:09:48

      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?

   10. DPDwarkesh Patel1:09:57

       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.

   11. TCTyler Cowen1:10:16

       And the exchanges have ended up quite centralized, right?

   12. DPDwarkesh Patel1:10:18

       Yeah.

   13. TCTyler Cowen1:10:19

       Uh, and that's an example of clearinghouses and exchanges-

   14. DPDwarkesh Patel1:10:22

       Right.

   15. TCTyler Cowen1:10:22

       ... 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.

   16. DPDwarkesh Patel1:10:50

       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.

   17. TCTyler Cowen1:11:07

       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.

   18. DPDwarkesh Patel1:12:30

       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)

   19. TCTyler Cowen1:12:36

       Right.

   20. DPDwarkesh Patel1:12:36

       Therefore we're in a state of anarchy in some sense.

   21. TCTyler Cowen1:12:39

       In, in a funny way that argument's correct.

   22. DPDwarkesh Patel1:12:41

       Yeah. (laughs)

   23. TCTyler Cowen1:12:41

       We would revolve something gover- like government and Haiti has done this but in very bad ways-

   24. DPDwarkesh Patel1:12:47

       Right.

   25. TCTyler Cowen1:12:47

       ... 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.

8. 1:13:16 – 1:23:18

   Cheap WMDs

   1. DPDwarkesh Patel1:13:16

      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-

   2. TCTyler Cowen1:13:29

      Well, not uncritically. You, you need more argument, but just as a starting point.

   3. DPDwarkesh Patel1:13:32

      Yeah.

   4. TCTyler Cowen1:13:33

      It's like, if more intelligence isn't gonna help you, you have some really big problems anyway.

   5. DPDwarkesh Patel1:13:37

      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?

   6. TCTyler Cowen1:13:53

      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.

   7. DPDwarkesh Patel1:14:16

      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.

   8. TCTyler Cowen1:14:34

      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 all of this." But that's not how you should view broader history.

Episode duration: 1:42:21