Tyler Cowen — Hayek, Keynes, & Smith on AI, animal spirits, anarchy, & growth
Dwarkesh Patel (host), Tyler Cowen (guest), Narrator, Narrator
In this episode of Dwarkesh Podcast, featuring Dwarkesh Patel and Tyler Cowen, Tyler Cowen — Hayek, Keynes, & Smith on AI, animal spirits, anarchy, & growth explores tyler Cowen Ranks the GOAT Economists, Markets, AI, and Anarchy Tyler Cowen discusses his book GOAT, using Keynes, Hayek, Smith, Mill and others to probe how great economists thought about investment, risk, markets, and institutions.
Tyler Cowen Ranks the GOAT Economists, Markets, AI, and Anarchy
Tyler Cowen discusses his book GOAT, using Keynes, Hayek, Smith, Mill and others to probe how great economists thought about investment, risk, markets, and institutions.
With Dwarkesh Patel, he revisits classic ideas—animal spirits, central planning, decentralization, prediction markets, NIMBYism—and applies them to modern finance, AI, and state capacity.
Cowen argues that risk-taking is highly context-dependent, markets are powerful but imperfect discovery processes, and that both economic history and internet-era writing now carry big-picture thinking.
He is moderately optimistic about AI’s economic impact, wary of geopolitical and technological X‑risk, and skeptical that either anarchism or pure technocracy can bypass deep constraints of decentralization and institutions.
Key Takeaways
Risk preferences are context-dependent, not simply risk-averse or risk-seeking.
Drawing on Friedman and Savage, Cowen argues that people both buy insurance and gamble; they manage moods and contexts, so Keynes’s ‘animal spirits’ and standard risk aversion each capture only part of human behavior.
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Most entrepreneurial investment has skewed returns; a few win big while many overinvest.
Echoing Smith and Keynes, Cowen notes small business owners are often over-optimistic and barely break even, while a small share of innovators and entrenched VCs capture outsized gains and create large positive externalities.
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Passive investing is not inherently dangerous as long as margins remain contestable.
Cowen is more worried about a few giant asset managers inducing implicit collusion across firms than about under-monitoring; overconfident active traders may privately overtrade but socially help price discovery.
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The financial sector looks less bloated when measured against wealth, not GDP.
Finance in the U. ...
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Markets are discovery processes that survive by ‘getting to tomorrow,’ not solving full equilibrium.
Cowen leans on Hayek to say neither markets nor planners compute global general equilibria; they muddle through with partial signals, selection (bankrupting bad firms), and local improvements that sustain progress.
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AI will likely create its own markets, currencies, and property regimes.
Cowen predicts AI agents will trade and coordinate via crypto-like instruments (Bitcoin, NFTs or successors), forming parallel but interconnected economies that vindicate Hayek’s view of emergent decentralized orders.
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Big-picture, cross-disciplinary ‘internet writing’ is increasingly where grand theories live.
He thinks academic economics has become narrower and more technical, while blogs and online essays (e. ...
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Notable Quotes
“Risk aversion or risk-loving behavior, it doesn’t really exist. Almost everyone is context dependent.”
— Tyler Cowen
“Scientism is great. It can be abused, but we all rely on scientism.”
— Tyler Cowen
“The firm is the market. The firm is always making contracts, and the market is subject to market checks and balances.”
— Tyler Cowen
“The market’s not solving for a general equilibrium. It’s just solving for something that gets us into the next day.”
— Tyler Cowen
“The next me won’t be like me. In that sense, I’m the last. But I don’t think it will disappear.”
— Tyler Cowen
Questions Answered in This Episode
How should we reinterpret Keynes’s ‘animal spirits’ in light of modern behavioral economics and AI-driven trading?
Tyler Cowen discusses his book GOAT, using Keynes, Hayek, Smith, Mill and others to probe how great economists thought about investment, risk, markets, and institutions.
Get the full analysis with uListen AI
If AI agents develop their own markets and currencies, how should human regulators and central banks respond?
With Dwarkesh Patel, he revisits classic ideas—animal spirits, central planning, decentralization, prediction markets, NIMBYism—and applies them to modern finance, AI, and state capacity.
Get the full analysis with uListen AI
To what extent can prediction markets and decentralized information systems meaningfully improve governance without creating new fragilities?
Cowen argues that risk-taking is highly context-dependent, markets are powerful but imperfect discovery processes, and that both economic history and internet-era writing now carry big-picture thinking.
Get the full analysis with uListen AI
Does the fragmentation and specialization of modern economics fatally weaken its ability to guide policy on big existential risks like AI and cheap destructive energy?
He is moderately optimistic about AI’s economic impact, wary of geopolitical and technological X‑risk, and skeptical that either anarchism or pure technocracy can bypass deep constraints of decentralization and institutions.
Get the full analysis with uListen AI
How might our current treatment of children and future generations look, from the perspective of superintelligent AIs judging us as we judge past societies?
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Transcript Preview
... this is a fun book to read-
Oh, good.
... 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?
Yeah.
You just like... (laughs)
It's a book written for smart people.
(laughs) Um, okay, so let's just jump into it.
Okay.
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-
Alfred Marshall?
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."
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.
Okay. Well, you know what I'm going to ask now.
(laughs)
(laughs) Um, so what should we make of Tyler Cowen citing Keynes, uh, using this quote? A quote that also applies to Tyler Cowen.
I don't think it applies to me. Uh, what's the exact list again? Am I a statesman? Did I-
Sure, surely. Yeah.
... play a role at the Treaty of Versailles or something comparable?
I don't know. You were in Washington. I'm sure you talked to all the people who matter quite a bit.
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.
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?
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.
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