E39: Tyler Cowen – Economist and Master Generalist on: Economic Outlook, Social Change, and Future Cities

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Episode Summary:

Tyler Cowen is an American economist, academic, and writer. He is the author of books like The Great Stagnation, Average is Over, and The Complacent Class. His newest book is Stubborn Attachments. It took him almost 20 years to write.

Tyler occupies the Holbert L. Harris Chair of economics, as a professor at George Mason University, and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen also serves as faculty director of George Mason’s Mercatus Center, a university research center that focuses on the market economy.

Listen to the full episode on iTunes (and please leave a rating to help the podcast reach more people): E39: Tyler Cowen – Economist and Master Generalist on: Economic Outlook, Social Change, and Future Cities

3 practical tips by Tyler:

You should re-read the best books; you should have hobbies that make you think more, and you should argue for what you think is correct, but also understand it’s likely that you’re wrong.

And another quirky tip is “The Rational Sidewalk Strategy”.

Keep to the right, look ahead, and make eye contact.

If you insist on using your smart phone, stand still whilst doing it.

Tracking food:

Food is culture, food is a form of economic exchange, food reflects immigration. If you want to understand the trends in your country, tracking food is one very good way to do it.

What are the new restaurants, which ones are good, why are they good. Food is also a wonderful way of studying management. Which ones are staying in business, which ones are going bankrupt, what do you learn about real estate price trends in your city, which cities are dynamic in your country and on and on and on. Food is a mirror into all of these.

Tyler sees growth as coming in spurts

Economists tend to see growth as fairly steady, and it is true that for a lot of American history there’s been a growth rate of a little more than 2%. But I think there are special periods of big breakthroughs such as the Industrial Revolution or the era of introducing fossil fuels in the late 19th century, and right now we’re probably seeing one of those bursts with the Internet.

We haven’t actually gotten a lot of the productive fruits from it yet, but it is changing our life in many many ways. I think in the future we’ll look back and see today’s time as the beginning of another big growth spurt. But I don’t think we’re really yet seeing the growth.

Are the low-hanging fruits plucked?

I don’t feel at all that growth is over. But there are periods where growth is quicker and slower. For the last 40 years and much of the West, growth has been slower. But I think with the internet, artificial intelligence, Internet of Things, autonomous vehicles, we’re seeing the glimmerings of this new era of future breakthroughs.

We are still adapting to a computerized society

Ludvig: Would you classify these as general-purpose technologies to come?

Tyler: I think the computer is the general purpose technology, and we’ve had computers, of course, basically since World War Two, but they were slow and they were large. Now, we’re finally in the setting where so many people can own computers, program them, do things with them, and we’re figuring out how to build the rest of society around computers. But that takes many decades. It’s not nearly as quick a process as you might think.

On Chinese GDP growth:

Much of what China is doing is a kind of catch-up growth, they’re copying technologies and institutions. They were growing at 10%, now they’re growing maybe at 6%. It’s great that they can catch up so quickly, that was not possible in previous times because there wasn’t enough information technology, but you shouldn’t think of China as doing better on growth than the US. They’re growing at 6% to 7%  because they’re copying what Western nations have already done.

8 Cities Tyler is bullish on:

Tokyo, London, Stockholm, Manhattan, Washington DC; Berlin, Lagos, and Bangkok.

A synopsis of 5 important economic thinkers:

To start with Adam Smith, he was one of the first economists I read, I read Wealth of Nations, I think I was 14 years old. It had a big influence on me. It gave me the sense of economics as an overarching science that could try to explain parts of history and parts of politics. I agree with Smith’s general approach that usually markets work well, but also you do need governments to supply public goods.

Hayek was another big influence on me. The idea that markets mobilized centralized information in an effective way using the price system. It’s still one of the most important insights of economics. John Maynard Keynes, he’s the person I think who stated most effectively the notion that negative shocks to aggregate demand will cause a lot of unemployment, and he was basically correct about that.

Bastiat was a brilliant 19th century economist who made the case for free trade very eloquently, and explained opportunity costs very clearly. That as an economist you need to think about not only what is seen, but also what is unseen, what you’re forgoing, and that’s a basic insight often voters, politicians still don’t get it.

John Stuart Mill. He’s one of the most eclectic economist. He was highly philosophical. He thought very deeply. He understood the humanities and economics as being very closely tied together. He also had a career in the real world. He served in parliament. He was a major advocate for women’s rights, anti-slavery. I consider him a very great figure that economists should admire and, in some ways, try to copy.

Also mentioned by Tyler: Swedish economist Gunnar Myrdal.

Re-read books to keep important info top-of-mind:

Mikael: Can you explain how you can review these names so brilliantly just off the cuff? I hardly could do that with my friends.

Tyler: Well, I’ve read them all and I work with these ideas basically every day. Actually, I’ve re-read them all. Someone like Keynes or Adam Smith, I would guess I’ve read those books four or five times; Hayek, maybe more than that. A lot of Mill, I’ve read maybe three times. The Autobiography is one of my favorite books. Look, this is my job, my hobby, right? I should be able to do it.

Average is Over (a great book)

In the future, I think we will see more and more careers where people either do really very well or they don’t do so well at all. The key question will be: “Are computers and the internet augmenting your productivity, or are you competing against computers?” If you’re competing against the computer, I would say sooner or later the computer will win. If I look at income statistics from, say, the United States, there’s like a top 10 or 15% doing really very well. For a lot of other categories, wages have been pretty sluggish.

Read this again: “Are computers and the internet augmenting your productivity, or are you competing against computers?” You want a talent and set of skills that grow in synergy with increased computation power.

3 Things Scarce in Today’s Economy

Ludvig: Most of the things that you wrote in Average is Over have come true, or are coming true. It’s really, really accurate. I think this book is extremely good. I read it a couple of years ago. I recently read it again. I recommend everyone who’s listening to read that book. One thing you say in it, is that there are three things scarce in today’s economy: land and natural resources, intellectual property, and unique skills.

Tyler: That’s correct. By land, I really mean quality land. So, there’s plenty of empty land, say, in the American west, but no one wants to go there. But urban land where productive labor is clustered just keeps on going up in value, and I don’t see that changing anytime soon.

Mikael: Would you add something else to that list today?

Tyler: No, intellectual property- you look at a tech company, some of the value of the tech company is patents. Other parts are intangible, such as brand name or processes or reputation for recruiting talent. But you can think of those as intellectual property in the broad sense. That’s so much more important than like physical assets or, “We own this factory.” It’s striking how much intangible capital has become important.

Envy is local

People grow the most envious of those who are close to them, not the very wealthy. If someone makes 10% more than you do, you’re more likely to envy them, say, than Bill Gates.

-And social media like Facebook exaggerate that:

“Oh, my goodness, what a wonderful vacation she had,” these lovely photos, and they’re staged, but still the vacation happened and you envy that.

Tyler’s new book: “Stubborn Attachments

It’s a book about economic growth and human rights. I argue the stubborn attachments we should have are two notions: economic growth and human rights. We should pursue those values much more.

Why compounded economic growth is important:

Economic growth compounds over time. If your economy grows, say, 7% a year, you double in per capita wealth every 10 years. That’s amazing. If your economy grows, let’s say, 1% a year, you double in wealth basically every 70 years. That’s a very slow process. If you play out higher rates of growth over decades and centuries, you end up with much, much wealthier societies that are clearly just better to live in and freer, and have more opportunity and more creativity.

Countries should prioritize growth over redistribution of wealth:

Growth and human rights are the two things, I think, we should focus on. I really do mean at the macro level focusing only on those. If your choice is to grow or redistribute, you’re better off growing. We should still redistribute some wealth, but we should do it in growth enhancing manners, and the idea that this becomes an obsessive focus of our societies, that’s the main argument of my book.

European Problems:

I think the biggest push-back I’m getting on the book is from western Europeans actually, which is a part of the world that doesn’t believe that strongly in economic growth anymore. They’re not doing it very well. They’re trying to tell themselves it’s not important. There’s a big wave of problems coming their way that they’re largely in denial about. Rather than growing at, say, 1.5% a year, Western Europe needs to be growing at 2.2% a year. Over time it’s going to make a huge difference.

Some of these problems include:

Paying for pensions would be a huge problem. Taking care of your working classes better. Having a positive agenda so that social democrats become more than 18% of the electorate in a lot of your countries. That requires having money to spend, which is in turn based on economic growth. Taking care of the current and forthcoming wave of immigrants and refugees from Sub-Saharan Africa and northern Africa, even parts of Europe itself. Making budgets work, just being more innovative. All that requires resources, and Western Europe- it will do okay, but it could be a much, much better place than it is right now.

I worry that the EU is in some ways dissolving, not on paper, but in practice. It’s not handling Brexit very well. It didn’t handle the allocation of the Syrian refugees very well. The Italian fiscal constitutional crisis. Again, another problem that needs more money, it’s not handling very well.

Personalization over Party

Maybe globalization went faster than we can digest, and then you have this weakening of parties, both in Europe and in the United States and, say, in Germany like the center thinning out and people moving to the fringes, the greens replacing SPD, IFTA… The loyalty is to Trump more than to the Republican Party from his supporters.

So, there’s a personalization going on. But what I find most negative is loss of faith in the center, maybe the internet lets people see too easily how factless some of their elites are. Again, I think we don’t understand it yet.

Is Director’s Law still working?

I think that was true when Aaron Director said it, I don’t think it’s true now. You see in a lot of our countries– I don’t know the Swedish data– but in the US, the middle class has actually been the big loser. Right now, it seems to me the elderly are doing the extorting from the young rather than the middle class.

The elderly tend to vote at higher rates, and I think they’re more cynical voters, in a way less idealistic, so they vote for who will give them benefits: pension, social security, medicare, and those are important programs. But there do need to be checks on them.

In the United States, we’re spending past the point of the checks and balances that people are taking much more out than they’re putting in, and we’re just postponing the day of reckoning. I do blame elderly voters for quite a bit of that and politicians who cater to them.

What might future cities look like?

It’s interesting, if you go back even to the 1980s, which was not that long ago, and you look at sketches of how people thought cities would look in 2015. They have these wild radical futuristic visions with flying cars and gleaming skyscrapers and basically a bunch of things that never happened.

My best forecast is cities won’t look that different 30, 40 years from now. They’ll be nicer, they’ll have better education systems, they’ll be more gentrified, maybe more walkable, better transit. But I don’t think we’re going to revolutionize how they look or how they work. I think we’re settled into certain urban modes that right now are quite hard to change.

How to improve education:

We should take greater care to fire bad teachers, and we do know who they are. We should pay the good teachers much more, we should raise the status of teaching as a profession. We should experiment more with charter schools. Those are some things I would start with. We should make homeschooling much easier and more acceptable, and treat it better at the level of college admissions.

Any Particular Future Skill Forecasted by Tyler?

It’s something quite general–and that’s the ability to retrain yourself. You can always cite a particular skill that is important right now and that may be true, but software changes, hardware changes, just businesses change. Twenty years from now, you need to have learned something else some other way. Retraining yourself is actually not very easy. Most people can’t do it. They don’t even do well being trained in college. Most people don’t even go to college or finish college. So, I think that’s the tough problem.

How Tyler Retrained himself:

Mikael: Are you thinking about retraining yourself for a second career, or are you immune?

Tyler: I retrain myself all the time. Those online economic videos that we talked about a few minutes ago, I had to train myself how to make videos, for instance. I also had to train myself how to raise the money to get those videos funded since we don’t charge people or have advertisements. So, I try to always be retraining myself. But it’s very hard and it’s strenuous.

Will the future favor generalists or specialists?

Ludvig: Going back to what you said earlier about there possibly being an increase in demand for common sense morality, at the root of that is talent for generalism or being able to piece together eclectic knowledge. If you look at the trend of specialization versus generalization, where do you see that going in the future for different kinds of professions?

Tyler: I don’t know that specialization and generalization are opposites. What I see is most people become more specialized, but that opens up room for generalists at the same time. CEOs are typically generalists, and more and more CEO are being hired outside of their original sector of expertise, and CEO pay has been rising. That, to me, suggests that not everyone can be a generalist, but if you’re good at it, it’s really a very promising future.

Advice to young person wanting to become a master generalist:

I started at age 13, 14. I think if you’re 25, I don’t want to quite announce to you that it’s too late, but you’re at a big disadvantage. At 20, probably it’s still possible. Buy a time machine, go back in time and start as early as you can, that would be the big advice I would give to anyone.

Learn more from Tyler Cowen here:

And check out his new book Stubborn Attachments.

 


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5 comments

  1. Very true that envy is local, and politicians use this to their advantage. I don’t agree with the emphasis on simple quantitative GDP growth. The time is long past when one could say that 2% growth in the economy meant a 2% increase in the national wealth or productive capacity. We need to know how our assets and our ability to meet basic needs are actually changing. The most important asset, right now, is probably competence in technical fields, and that isn’t figured into GDP in any way whatever. Neither is our environmental carrying capacity.

    A 2% increase in GDP could mean more output of luxuries and frivolities, or 2 points of unreported inflation, or more government spending on military adventures, or more spending on healthcare due to increasing cancer rates, or the re-employment of existing capacity, etc. etc. This tells us nothing about our future ability to provide anything important – no amount of stupid aps can substitute for food, living space, and electricity.

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