#39 Tyler Cowen: Thinking About Thinking

I don't know anyone who thinks well.

Hello and welcome. I'm Shane Parrish, and this is another episode of The Knowledge Project, a show exploring ideas, methods, and mental models that will help you expand your mind, live deliberately, and master the best of what other people have already figured out. You can learn more at fs.blog/podcast. My guest today is economist and New York Times bestselling author Tyler Cowen. His blog, MarginalRevolution.com, is one of the most read economics blogs in the world and the one I regularly visit for knowledge and insight. In this conversation, we talk about how average is over, how technology is helping and hurting us, virtual tourism, the future of newspapers, How we're becoming more complacent, and so much more. I hope you enjoyed this as much as I did. I loved your book, Average Is Over. Can you explain what that phrase means and the implications of it?

Average Is Over is both a book about the present and the future. It refers to a world where there's a fundamental divide across workers. Is the computer enhancing your productivity, in which case you'll do pretty well, or are you competing against computers and smart software, in which case you're likely to lose? So I suggest this is already the case in the world, and more and more it will be the case that you either acquire those necessary skills and talents or you don't. And this is sometimes considered a pretty bleak prognosis. But I actually think there will be some positive features of this world that people don't realize. So the world will be a lot more productive because of automation and smart software. And this will give us a lot of consumer goods for free. So we'll have this super sharp divide between the rich and the poor in terms of income. But in terms of actual consumption, the poor will do better than we might expect. So it's a kind of mixed pessimistic, optimistic message on where we're headed.

Could we geek out on that for a second? Like, how do you see that playing out? What type of jobs are going to lose out? What type of people are going to gain? And what could we be doing now that would allow us to better position ourselves?

Well, think of old-style manufacturing jobs. You work in a factory. You didn't need a college education. Sometimes you didn't even need a high school education. You had to work pretty hard and apply yourself. But those jobs built a middle class that was great for America. But that's mostly a past era. So if you think of current and future jobs, you need to work with information technology, you need to work with software. Those technologies, they change all the time. So you need to retrain yourself, say, every 3 to 5 years. And retraining yourself is very hard for a lot of people. So the skills you need are both a lot of things you were never taught in college but had to learn on your own anyway.. And then you need to stay current. So the people who have a very strong work ethic, who are very conscientious, they will do extremely well in that new setting. And people who are good at tech. The other group of people who will do well are those with wonderful people skills. So there's always room for sales, for marketing, for management, including in the distant future. Computers will not be doing that for us anytime soon. And I think in terms of practical advice for a person, you need to ask yourself, like, am I a tech person? Or am I a sales marketing persuasion manager person? And be one or the other. If you can be both, you know, that's someone like Mark Zuckerberg, then of course you'll do very, very, very well. But for the most part, I think that's where job markets are headed.

Do you think the nature of how we sell things will change?

Of course, it's much harder to get everyone's attention, most of all people who have high incomes because there are so many demands on their time. But there's your email flow, there's Twitter, there's Facebook, there's being texted. And that's just the beginning. You know, virtual reality may be coming. Television is much better than ever before. So it's a far more competitive environment. A lot of media companies, of course, have lost out. So it rewards people who in some way are authentic or dedicated or can target a niche and do something really interesting. You see this on television, like what are the top best shows? They're not really quite mainstream products. They're the reflection of some kind of individual vision of a director or creator like The Sopranos or The Wire. And they have some kind of cultural currency, but you can't just put slop out there anymore. You know, it's not 1974.

You're not just trying to fill the airways with material. What do you think the implications at the cultural and perhaps country level would be of this?

I'll handle country level and then ask you what you mean by cultural. I think countries and also regions within countries— we won't see so much convergence. We'll see a lot of divergence. So it used to be in America, in the postwar era, America's poorest cities were essentially catching up to the wealthier cities. But nowadays, say, poorer parts of Louisiana and Mississippi, they're not catching up to Silicon Valley. They're falling somewhat behind. And I think that will be the trend looking forward. You get these clusters of creativity where people interact. The rents are very high. Many people want to live there. Not everyone can afford to live there.. And you'll either be in one of those clusters or you won't. So you can call this regional averages over parts of the world such as Eastern Europe. You know, Poland maybe is catching up to the West, but most of it is being depopulated and emptying out. And it basically will never catch up. And that's a harsh awakening. It's a kind of shock because economists had predicted, well, if you free up these economies, they'll converge. We don't see that happening. So tell me a bit more what you mean by cultural.

Well, cultural, I meant if we have more leisure time or we have more time to explore the arts, would that, how would that change culture and what would the implications of that be? And also, like if we were to add to that just one more thing, the implications perhaps culturally of having city-states almost competing for people at the wealthy end of resources and people not necessarily having physical access to those states in the way that they've had it before.

I worry about the future of some face-to-face creative interactions. So I'm doing this interview from a hotel room in Manhattan, and Manhattan has become so expensive. Most artists, writers, they don't live here anymore unless they're already well established. So, well, some of those clusters move to Brooklyn, but Brooklyn, the nice parts of it, or even the livable parts, they're now also quite expensive. So I think there are gains to clustering artistic talent and we're losing some of those. Downtown San Francisco, tech aside, I'm not sure artistically it's such a creative area. It just costs too much. So I think that's the big loss. The big gain is just how easy it is to access everything. So you mentioned having more time for culture. We do have somewhat more time, uh, but I think the real gain is we don't need as much time to get to culture. So if I want to hear a song, I go to Spotify or I go to YouTube. It really just takes me a few seconds. If I want to watch Netflix streaming, you don't have to go out and do culture as much. So you can pack more in. In some ways, the quality is lower because there's less live performance, but the information is denser and you just know about many more things. And I think that's both the present and future of our cultural lives.

How would you kind of think about the pros and cons of like virtual tourism, like say the difference between putting on a headset and walking around the Vatican and actually going to the Vatican and experiencing it in a different way.

I'm still a curmudgeon, I have to admit, on this, and it could be I just haven't seen the product yet. But before I owned a smartphone, I thought, well, this is going to be great. And I got an iPhone on the first day. Virtual reality, I worry it will make me dizzy, and I worry it will substitute for other kinds of experiences. So I'm not looking forward to doing that. I may do it so I can write about it and think about it, and it may turn out it's really, truly wonderful. My current life, I'm able to spend maybe a quarter to a third of my time on the road and get to a lot of different places, and I'm pretty happy with that. But if I'm, you know, ill and stuck in bed and I'm 81 years old, virtual tourism might be a pretty wonderful thing.

Do you think it stops at tourism, or do you think we almost like— if you're projecting into the future, do we think we create this virtual world that people just inhabit that are maybe less productive than other people and that's their form of entertainment. I think there was a Disney movie about that, like WALL-E or something.

Yes, there's quite a few movies in that direction. You know, I think bandwidth is still a problem. So virtual worlds, to be interesting, they have to be pretty thick. And you know, we're doing a Skype call, but we're not even having our images be sent back and forth because that can interrupt or interfere with the quality of the Skype call. So if just my face creates a problem for Skype over a normal broadband connection, you have to wonder, well, how far away is a good enough connection for virtual reality to be cheap enough to use? I don't have the answer to that question. Some people say the killer app will be some kind of virtual sex, either with robots or people at a distance. That's hard for me to judge. I think my intuition is people like simple, boring things much more than you might imagine. I mean, people just love spending time on Facebook. And sending back and forth short, silly, or not very informative messages. And that's been the killer app for so many things. That's what's taken up more of our time, not like the truly exciting and inspiring. So I don't know. I don't think we know yet. I know so many Americans, you know, right now they could afford to take an affordable trip, say, to Central America, and they don't even own a passport. So let's keep that in mind.

This is going to be an extremely busy month. I have to watch 104 soccer games, follow the pregame, the postgame, watch game, yell useless opinions at the TV.

It's a lot.

So I knew that when it comes to screening for colon cancer, the choice was clear— the Cologuard Plus test. It can be used at home and can only take 15 minutes, so I can do it during halftime and not miss any action. If you are 45 or older and at average risk, ask your healthcare provider about screening for colon cancer with the Cologuard test. You can also request a prescription at cologuard.com.

Need a laptop that's built to perform and designed to last all day? Select Windows 11 PCs starting at $499.99 99 are now at Best Buy. Learn more at bestbuy.com.

Best Buy, imagine that. I think it was Average Over, uh, I exerted the quote because I wanted to read it back to you, but I forget which book I pulled it out of. You said, in today's global economy, um, you know, every value will go towards what's scarce. And here's what's scarce: quality land and natural resources, intellectual property or good ideas about what should be produced, and quality labor with unique skills.

Yes.

Has your thinking on that—

I would stand by those words.

Has it evolved any since you wrote those?

Well, it's become a lot more extreme. So land prices in top cities, including London and Paris, they've kept on going up. Uh, the top earners have more and more global markets to export to. You know, I say good for them. Uh, but still, the old days when if you had a product that was a big hit, you might sell it to Western Europe and maybe Japan. That's been replaced by a global setting where you can sell to billions of people across more than 100 countries. And that really will increase those rewards to the scarce factors.

Do you think that there's a movement away from national newspapers and more regional news?

I think there's a movement away from both. So as you know, younger people don't read newspapers much anymore. They may read articles from newspapers online. From, say, Facebook or possibly Twitter or email recommendations. But it's not the same as reading a newspaper. I don't think you can fund most papers by ads. I think they will end up as ventures owned or supported by the very wealthy. New York Times and Wall Street Journal, I think, will be profitable. I'm very happy with, you know, my employer Bloomberg. I write for Bloomberg View. But newspapers as we knew them, I think, are mostly already gone or about to disappear.

What do you think will replace them, or do you think nothing will replace them?

I wouldn't quite say nothing. I think our Daily Flow is replacing them, and the Daily Flow again has some pieces from newspapers. There'll be a lot of local reporting on blogs or blog-like entities, and if you want to find it, it will be there. So if you uncover a scandal about some local official, the world will find out. I'm reasonably optimistic about this, but I don't see why you should bundle it all together. Like the classified ads, the sports page, the local news, the international news. Like, who really wants that as their bundle? When you think about it, it was always crazy. And in a way, thank goodness we've moved away from it into something more efficient for the user. I don't want that bundle.

And the same—

why, like, buy 5 books bundled together unless it's like a 5-volume set, 5 different books? No, I pick and choose the books I want. News is the same way. It's only natural.

You also wrote a book called The Complacent Class, which kind of highlights that there's a lot of changes going on which get a lot of attention, but our reaction to those changes is sort of neglected. Can you expand on what these changes are and how our seemingly well-intentioned decisions today may not have the desired effects?

Well, the key idea behind The Complacent Class is that Americans have become quite risk-averse They move around the country at much lower rates. They're much more paranoid about how they raise their children. They medicate themselves at higher rates. Our economy has less churn. It's less dynamic by many different measures. Rates of productivity growth have been down outside of the tech sector. So a lot of these decisions to settle in and be safe and comfortable, they're individually rational. Like, it's, it's good to be safe, right? Stress is a bad thing. But when our society collectively makes this decision, there are ways in which we're all worse off because we live in a much less dynamic country. Our rate of economic growth is slower. It's harder to afford the federal budget. We end up with screwy politics. Those are the basic themes of The Complacent Class.

And we become more segregated, too.

If you mean racially segregated, cities are more racially segregated. Suburbs are not. So that's a mixed story. But many parts of the country are becoming more racially segregated in a manner that I find discouraging.

It strikes me as odd that the pace of change, perceptually at least, has picked up. I mean, I don't know what it was like to live in the 1900s or before. We've become resistant, more resistant to change despite the acceleration. Can you expand on that?

Well, I don't think it has accelerated.. So think of my grandmother who was born, you know, very early in the 20th century. Most people didn't finish high school. There were no antibiotics. You know, there really weren't vaccines. People didn't have cars. Radio hadn't been invented. Flying was not something people did. And you can go on and on and on with the list. Then fast forward 50 years later when she's 50 in the 1950s, every one of those things is completely different. And what America looks like physically is not that different from the America we have now. So every area, everything has changed for her. Now, I'm 56 years old. If I think of my life now compared to when I was a kid, you know, age 5, computers are like one huge change. But a lot of the rest, you know, I live in a house that's from 50 years ago. I cook in a quite old kitchen. It's not a problem. I don't feel I'm really missing out on anything. My car is safer and better than cars 50 years ago, but it still looks like a car. Someone from back then could drive one of today's cars. Someone from today could drive a car back then without even needing any new advice or instructions. So a lot of the world in this country, change has slowed down.

Do you think that's in part because there's a lot to be happy about?

There's a lot to be happy about. We exhausted a lot of the low-hanging fruit. From combining fossil fuels with powerful machines and electricity and communications. And that, that's all to the better. But we've now entered a world where people find it hard to imagine a future very different from the present. And when people talk about progress, they mean something like gentrification, more nice restaurants, you know, somewhat higher level of safety. If you read science fiction from the postwar era, people imagined these radically different futures, often utopian. Today's science fiction tends to be dystopian.

And at an individual level, you— I mean, these seem to make sense. But as you broaden your horizons to communities and countries, perhaps, what do you foresee as the implications?

Well, if you go to China, China is very much a non-complacent society. It has much higher rates of economic growth in the range of 6 to 8%. It's more volatile. It's more stressful.. It's much harder to live in China. There's a much higher level of air pollution. So all things considered, on any given day, you would prefer to live in a complacent society. Uh, but that said, a country cannot remain complacent forever. And I argue that eventually, you know, something has to give. You need a way to pay the bills. You need dynamism again, and you start seeing disruptions in your complacent life. And I think already in American politics, we're seeing some of these disruptions. Things we thought like just couldn't happen coming to pass. The Trump phenomenon, obviously. So complacency is wonderful when you can keep it forever, but that's never really an option, not for the United States.

What are some of those other things that you see coming to pass that would indicate that there's cracks?

Well, the loss of Pax Americana on the global scene, I think, is the number one issue. So we now live in a GZERO world. America cannot dictate world affairs. Our attempt to redo Iraq totally failed, turned out to be a huge mistake. And other countries, you know, will do what they want, say, you know, in Syria, Iran or Russia, and they won't pay much heed to us. So, again, on any given day, this may not seem so terrible. But as our influence slowly erodes, I think we'll find decades from now that it could be really quite disastrous.

And do you think that becomes the natural kind of seesaw of life where, you know, we we start to lose our positioning, which creates an urgency, which kind of revives us. And then is this a natural or is this like a different sort of cycle?

I think it's a natural process, but that process of revival can be very volatile, very painful, very disruptive. If you look at American history as a whole, we have somewhat of a nasty history. We have these decades, the '80s and '90s, where we had so many victories and triumphs and things felt so nice. Crime rates fell. Internationally, communism more or less went away. And we're used to those decades, but they're not our historical norm. Maybe in some ways we're going back to the America of the late 19th century with polarized politics, screwy media, you know, in some ways higher levels of violence and more dynamism too. Like I said, I would personally rather live in the more complacent society, but I also realize it cannot last.

One of the other things you said in that book was we're removing ourselves increasingly from the physical world, not only through Amazon and being able to stay at home and have our laundry done and we don't have to go out, but I think you alluded to some implications on physical buildings. Can you expand on that?

Well, we've more or less stopped building infrastructure. So in New York City, significant parts of the subway lines date from the 1930s or '40s, like the signaling systems. They're still in use. It's great that they still work. It's a testament to the creativity of our ancestors. But that's a sign we're letting the physical world decay and bridges and roads we're not really maintaining or building enough of the new ones. The idea that people prefer to live in homes from, say, the 1920s or '30s or the 1950s than homes built now, you know, no one prefers, say, a telephone from that earlier era. So when it comes to building and reshaping our space, we've somewhat given up or in some ways even gone backwards. Getting around takes longer than it used to. There's traffic congestion. We haven't really addressed that problem anywhere in this country. It's basically just getting worse. And I think that's— those are signs of a kind of inner sickness to some parts of the American psyche.

Do you think that those problems should be addressed by governments or Like the— so take the car and traffic problem. Is that something that solves itself because we know in the, you know, the next 20 years there's a high probability of self-driving cars coming on the scene and we can assume reasonably that that will alleviate some of the traffic problem, maybe not fix the roads, but is that problem worth solving now or what would you have people— how would you think about that differently?

Well, I would have government price the roads during rush hour or in some places such as Manhattan, maybe price them almost all the time. One encouraging sign is outside of Washington, Route 66 into Virginia, they're now charging tolls. And at rush hour, the toll can be as high as $30 or $40. It sounds terrible, but without the toll, you couldn't really use the road at all. It was just a big parking lot. So London has applied a congestion charge going into the central city. It has worked. Singapore has congestion charges for its roads. They have worked in this country. We need to do the same thing. Self-driving cars could make the problem worse, you know, because you'll send out your car, your vehicle on all kinds of errands. Oh, go to Whole Foods and pick me up some smoked salmon. I'm hungry. And there may be fewer people on the road, but the people that are there could be in much slower traffic. And it's so hard to get new roads built. There's environmental review. There's homeowners groups. It's very, very difficult in a lot of parts of the United States.

How can we prepare as individuals, or what should we be taking into account in terms of this type of future playing out? What should we be doing?

Well, I think the future belongs to people who are what I call meta-rational. That is, people who realize their own limitations. So not all the skills that you think are so valuable actually will matter in the future. Don't just feel good about yourself. But think critically, what am I actually good at that will complement emerging sectors and emerging technologies? Uh, the world of the future, even the present will be a world of algorithms. Uh, artificial intelligence will tell you what to buy and how to buy it and at what price. Uh, people who think they can beat the algorithms will make a lot more mistakes. So know when you should defer. Uh, it's easier than ever before to get advice from other people, including on podcasts, right? Or, you know, go to Yelp. When can you trust the advice of others? Having good judgment there is becoming more important than just being like the smartest person or having the highest IQ. So a kind of epistemic modesty, I think, is showing much higher returns than it used to.

How, in your opinion, do we develop good judgment?

I think having people you trust who serve as your mentors, and I mean that word in a very general way, who teach you things about different areas and teach you judgment. That's supplemented by extreme and intense online experimentation. That's the way to do it.

What do you mean by online experimentation?

Read Wikipedia, use Google creatively, listen to your favorite podcasts, read your favorite blogs, Twitter, put time into having a wonderful Twitter feed, whatever it's going to be. It is worth investing time in and do a lot of it because today is the golden age for that. For the first time in world history, there's this new thing like internet culture, the internet way of learning, internet modes of writing. Right now is to that as, say, you know, the 1780s were to classical music. So enjoy it. It's incredible. Online education as we have it is one of the world's greatest achievements ever. And we've put almost all of it in place in, say, 15 years, incredibly rapid transformation. So do that. But you cannot neglect face-to-face learning from other human beings who can, like, guide you, inspire you. Motivate you, steer you. It's really people who can combine those two things who will do well.

How do we collect the feedback for ourselves to realize our own limitations? Like, there's two problems with that. One is getting accurate feedback, and the second is kind of moving out of the way of our ego and allowing ourselves to see it. How can we be better at that?

Well, I think there's more feedback today than ever before. So many jobs, your performance is measured or can be measured in a way that wasn't true 20 or 30 years ago. You know, if you're a programmer, it's not that hard to figure out how good you are. You know, there's GitHub and you can post what you've done and the world will want to hire you or they won't.

Right.

So a lot of it's psychological. How can you accept the feedback? Because, you know, none of us are actually that great. And life is an experience of being humbled all the time. So you're either discouraged or you're re-energized by that. And I think learning how to re-energize yourself, you can always go online and see someone who's like smarter or better looking or who can lift more weights in the gym than you can, whatever the metric is. Unless it's Magnus, unless you're Magnus Carlsen in chess, there's someone better than you. And when knowledge and peer groups were more local in earlier periods of time, that wasn't usually the case. So attitudinally adopting to never being the best I think is a new tough challenge brought to us by the internet. But I see many people up to it. It can be re-energizing. It's exciting how much new stuff there is to learn. So be more internally motivated, like I want to become something, I aspire to something, and be less like, oh, I'm the best at this, I'm the best at that, because you're not.

As a parent, how did you foster that in your kids?

We have one daughter. She is now 28. And, uh, she's doing great. Uh, I don't really claim credit for her. That credit goes to her.

But as a parent, you shape the environment and, uh, you, you have, you do have some influence. I mean, was there anything that you consciously were doing in terms of building resistance and tenacity and internal motivation?

Other than the platitudes, here's what I recommend. Expose your child in teen years to as many of your friends who might be possible role models as possible. Like, at some margin, they're just not going to listen to you anymore. They're not going to watch your behavior anymore. They know what you're about. They've taken from that what they're going to. Have them meet and spend time with some of your quality friends. Show them new role models. That's what I tell people. Your influence is limited, for better or for worse.

I like that. Um, do you think that we're becoming more specialized in this kind of meta-rational world, the world of algorithms?

Most people are, but I think there's a countervailing tendency. So we have more managers. Managers almost by definition are generalists. So as more people become more specialized, there's a separate class who become more synthetic and less generalized and more almost like philosophers. The manager is like a philosopher. They need to understand the human condition, what motivates people, which people can work well together, which cannot. Those are very general forms of knowledge.

I think Charlie Munger said something last year at the Daily Journal meeting that struck with me on this, and he said that most people would be better served by specializing, hyper-specializing with 80% to 90% of their time and then using the rest of that time to become a generalist in sort of the big ideas of the world. To what extent would you agree or disagree with that?

I mean, maybe most people, but it's person by person, and for some people it should be 50/50. And certainly at the higher levels, I think generalists are important. If you look at CEOs several decades ago, most CEOs were people hired from within that sector. And now CEOs much more often are hired across sectors. So someone who, you know, worked for an oil company would then be hired to run, you know, a manufacturing firm. So that's showing some kinds of knowledge are actually more general.

To what extent do those skills transfer? Successfully?

Well, the market has rendered the judgment that they transfer more and more, and American companies are pretty well managed. And if you think, well, insiders have some kind of natural advantage in having, you know, an inside track— if companies are more willing to hire these outsiders, I think that's a clear sign that executive knowledge is becoming more general in nature, more global, more a set of skills about communicating, understanding how politics, global economy, internal management all tie together. Those are somewhat general skills. You do need to understand something about your sector too, though.

Let's switch gears a little bit and talk about a subject I've been wanting to talk to you about for years, which is reading. You used to read a few important books. You called them, I think, Quake books. And now you read many more books, almost disposable-like. Why the change?

When you're young, it's quite easy to read books that will shake everything you know, and those are the Quake books. So for me, you know, a Quake book was reading Friedrich Hayek. A Quake book was reading the early science fiction I read in my life. A Quake book was reading John Stuart Mill's autobiography. And because you don't— your worldview is not as formed, books have an incredible influence over you. Then as you get older, say, you know, by the time you hit 40, I don't mean that you never change your mind about things. You're changing your mind all the time. But it's very hard for something to have the impact, say, like the first time you heard Beethoven or the first time you, you know, picked up Shakespeare. It's just not possible anymore. So you read more history books, you read more biographies, you read more for particular facts, you read for a kind of entry into cultural anthropology of different places or different industrial sectors. And what reading is changes, and books do in a way become more disposable. Like the books I still own are, you know, Homer, Shakespeare, some basic works of economics. And I'm not ever going to give up those books, but they're not necessarily the books I'm reading now. I do reread them sometimes.

I wrote a little song to remind you Choice Hotels gets you more of the experiences you value. The Cambria Hotel's got it all, a rooftop bar, have a ball, bring a date, your squad, or even your mom.

Book direct at choicehotels.com.

Do you reread anything you've kind of read in the last 5 years?

Uh, Shakespeare I reread pretty frequently. That's probably what I reread the most, but any classic work I'm likely to reread over the course of, say, a 10-year period. So James Joyce's Portrait of the Artist as a Young Man, I'm going to reread soon. I probably haven't read it for 20 years, I would guess.

What are your rules for reading? I mean, do you read cover to cover? Do you— how do you— after you pick up a book, what's your process like?

Classics I read cover to cover, almost by definition of a classic. Most books I don't finish. Very good books I finish. Maybe one book in 10 I'll finish. But I don't mean that as any slight to the books. You've always got to think, well, you know, chapter 7 in this book, is it better than starting a new book altogether? So much of my reading now is shaped by my reading for my own podcast series to interview guests. So I just interviewed Matt Levine of Bloomberg. And he writes on law and finance. But when he was an undergraduate, he was a classics major. So I reread quite a bit of Horace, you know, the Roman essayist and poet, to try to get into the mind of Matt Levine. So that more than anything now drives my reading, reading to understand other people I'm interviewing.

So with a typical nonfiction book, are you reading introductions straight through or are you flipping around or—

I flip around, you know, I start the opening 20, 30 pages just to see, should I read this book at all? More than half of all books I get don't pass that test. Then there's plenty of books I'll read, you know, maybe half of and be quite happy with them, but still want to read something else. And then, you know, a really good book like the new Charles C. Mann book, The Wizard and the Prophet, it's about the history of debates over the environment. I read all of that. That kept my interest the whole way through. There's certainly still plenty of books like that.

Do you read mostly in Kindle or physical books?

I don't like Kindle. Sometimes when I travel, I need to use it. I can manage with Kindle. I find it hard with Kindle to turn back. And I also remember things better when I think physically what is their place in the book. Maybe that's silly, but I think, "Oh, that was early in the book," and I see where it is in my mind in the book and I remember it. And I can't do that with Kindle.

I have the same thing. It's really weird. I can remember, "Oh, I think it's this part of the page between 70 and 80," but I can't do that at all with the Kindle for some reason. That's a really strange— Do you write in the books?

Do you know what I sometimes do is fold over pages where there's something notable. That's if I own the book, not a library book. And then, uh, maybe I'll go back to it, but usually I don't. Just the act of folding over the page helps me remember it. Like, I found that notable, I'm telling myself, and then it sticks with me better. And then I'll, you know, give the book away or throw it out. A while ago, be careful about giving books away. If you give a book away, the danger is a person will read it just because it's a gift. Unless you think it's the book they should be reading, it's actually a slightly cruel act to give someone a book.

I've had that happen before where I've given people books and they've taken messages out of it like I was trying to send them a subtle message that I was never intending to give them.

Like, "Oh, you think I'm this neurotic character.

Well, I'm sorry." Yeah, that's exactly what happens and it takes a while for it to come out and it's like, "Hey, what happened?" So giving books away, it's overrated, I think..

I also get a lot of review copies because I blog, I cover a lot of books. So a typical day, I could, you know, 5 to 10 books could come in the mail. And, you know, I need some way of dealing with those. And some I do give away. And then there are people, I know them well enough, they trust me, they know my giving them the book signals nothing. And that's just like a beautiful relationship.

I usually take those advance copies, preview copies, review copies, and chuck them in the lending library right by my house, which probably has more books coming out before they're actually out. People must love being around there. One thing that you said a while ago was that you read fairly quickly, and you said to read quickly, you should read a lot. What did you mean by that?

I read nonfiction very quickly. I don't read fiction very quickly. Maybe I read it a little quicker than most people. The more you've read, the more you know what's coming in the books you're reading.. So the easier and quicker it is to read them. So like if I read a book now, you know, I'm 56 years old. I started reading when I was 3. If someone asks me, well, how long did it take you to read that book? The correct answer is 53 years. It doesn't matter what the book is. You're bringing to bear your last 53 years of reading on the book. And most of your reading, your understanding results from your prior investment. So that's the way to read well is, you know, stick around on this earth and keep on reading. That's by far the best advice, I think. Keep at it, stay alive.

I like that. What would you say is the way to think well?

I don't know anyone who thinks well.

I think you wrote a piece a while ago, or I seem to remember this, which is The Work Required to Have an Opinion. I think you alluded to writing an article from the point of view of someone else.

Yes, there's a basic dilemma from what's called Bayesian statistical theory. Why should you ever hold an independent opinion? Like on almost any matter, maybe any matter, there's someone out there who knows more about it than you do. So you should, in a sense, just find other people's opinions to copy. But then how do you judge who's the person who knows the most or understands it the best? There's a paradox in that, because if you don't know the right answer, it's hard to judge who is the best judge. So one implication is we should just be far less sure about a lot of our opinions. But also this point, I referred to it earlier, the wisdom in knowing how and when to defer is like the key wisdom of 2018, of our time. And this is underpublicized.

What do you mean, the wisdom to knowing how to defer or when to defer?

Well, you can Google to such a high percentage of the world's information. And again, this is pretty new. So when you know how to judge the quality of something on the internet— sometimes said, you know, the internet makes smart people smarter. And stupid people stupider. So it gets back to averages over like, which category do you want to be in? Be epistemically modest, but also be a critical reader and just having a general knowledge of how to evaluate sources. Getting back to being generalist versus specialist, if you're going to be a generalist, one of the best things to be a generalist in is evaluating the quality of sources in your Twitter feed, online, everywhere. That is so important and it's skyrocketing in significance. Most people, they're not getting that much better at it.

How do you think about that? How can we improve our ability to judge?

I think, again, it's this triangulation with really good face-to-face people you trust and who know something, and then intense use of the internet to, like, cross-check and investigate things and just kind of bounce back and forth and do that around and around in a circle as much as you can, as quickly as you can. And, uh, you get better. And don't think you know it all. You know, if something offends you, don't assume it's wrong. I would also recommend— I'm not saying it's right, but if you dismiss it, you won't learn from it. So try to be able to learn from almost everything.

So when you read something that disagrees with your thoughts or opinions, how do you, how do you process that information?

Uh, I try to be happier about it. It's not always possible. We're all imperfect creatures, but I would say a lot of times I succeed. Overall, I'm more interested in reading books I disagree with than books I agree with. A lot of books I agree with, they could be quite good, but they tend to bore me. And that's one thing about myself I feel good about. Books I agree with tend to bore me. I view that as some kind of minor, tiny victory I've achieved in life.

I think that's a pretty big victory. Do you have a mental state before you read the book, as in, like, this is my position, and then after a book you maybe disagree with? View how your position has changed?

I don't know. I think I'm more blasé than that. Like, there's a pile of books on the floor, and probably my wife thinks the pile is too large, but if I put them away, I'll forget where they are. So I want the pile to be smaller, and I'm more focused on very mundane things than like the grand ideological struggle of our time, whatever. And, uh, you know, to focus more on the mundane things maybe is also helpful for reading the books. 'Cause you don't get too caught up in being offended or like, oh, I've heard this person doesn't know this or that and I can dismiss them. There's an intellectual move which I call devalue and dismiss. And, you know, try not to do devalue and dismiss. You learn much less. And it's always justified, right? Again, unless it's Magnus Carlsen playing chess or maybe a computer program playing chess, you can always devalue and dismiss. 'Oh, that person, he didn't understand this event 10 years ago. He or she doesn't know very much.' Always possible. Don't do it.

Are we doing that to discredit them or relatively position ourselves better?

I think both, but mostly the latter. People want to feel good about themselves. They want a kind of easy path to virtue, to truth, to feeling in control. We love to feel somewhat in control.

Speaking of your wife, I think in one of your books you brought up fighting with your spouse over a bed or something. I think the context was you like the bed 10% better, and so you fight about it and you win and you're a bit happier, but it costs you a lot because your spouse is unhappier. Can you expand on how we can think about this and how we should bring that to our own relationships?

Well, this gets back to epistemic modesty, and not just with your spouse, your children, your friends. But in fights, both people can't be right all the time. On average, maybe you're right half the time, I would say on average you're right less than half the time because there's so many fights where both sides are wrong. So trying to be right or establishing being right or proving being right is usually a mistake. Most of the time you're wrong. And it's hard to keep that in mind if you have a disagreement or fight in the workplace. But it's true. Most of the time you're wrong in this fight. And if you can carry just like 10% of that realization and internalize a bit of it emotionally, I think you can do a little bit better. No one like can really truly believe that. We all actually think we're right, but you can sneak a little bit of it into your consciousness.

I used to witness a similar phenomenon when I worked for the government, which was people would come in and they would have to present project plans and they would present these plans and the person would have 100% conviction because it would be their plan. And then the people around the room would try to add value to that plan and they would inevitably say the plan was 90% complete and now it's 95% complete. But the end result was actually worse because the motivation of the person who brought that plan had gone from 100% to 50% because it was no longer their plan.

Yes. Morale is increasingly important in our world, this idea of reenergizing yourself in the face of setbacks. I think it influenced me a lot that I was a chess player very early in life because you learn pretty quickly in chess, like, you don't really have excuses for losing. And most of the time you're making the wrong move. Maybe your moves are better than your opponent's, but you go back, you study your game, like most of your moves are in fact wrong compared to the perfect moves. And I sort of learned that when I was 12, and that's always stuck with me. So that was formative.

What age did you start playing chess?

Uh, 10, and I quit by about 16. But for about 5 of those years, I played very intensely and in competitive tournaments and put in a lot of time. And it's one of the biggest things that has shaped how I think.

How has that shaped how you think?

This idea, again, that most chess moves are mistakes, even if they're made by very good players. The idea that, you know, you can't blame other people for your own problems, even though some of your problems maybe are their fault.

Right.

But you need to face up to your own imperfections as a player and try to work on them. And that habit is rewarded. And chess is brutal.— you talked about, you know, measuring your own results or talent. In chess, there's this thing in numerical rating and Elo rating, and it really does measure how well you're doing remarkably exactly. And you wake up in the morning and you know where you stand in the pecking order, and you can either be discouraged by that or re-energized. And for as long as I was playing, I was re-energized. At some point, I guess I wasn't re-energized anymore, and it just seemed to me like economics and other social sciences were more interesting than chess.. But then I tried to transfer some of my learning techniques from chess to those other areas.

What were your learning techniques? How did you go about learning chess?

There was a book written by Alexander Kotov called How to Think Like a Grandmaster, and it argued like just reading chess books maybe had some use, but the really useful thing to do is to try to analyze a game and write out your analysis and then compare that to a really good analysis by a top grandmaster so you could see how rotten yours was. And it suggested you needed to get used to that process emotionally, and the people who did that would improve. And in intellectual spheres, there's the same thing. You want to really figure out what are your mistakes. You're like most of the time not making the best chess move, intellectually speaking. And if you face up to that, you'll improve. If not, at some point you'll ossify, and you can play devalue and dismiss, and there will be people stupider than you or more wrong than you, and you can lord it over them and, you know, try to make a career out of that.. But again, at some point you're going to stop improving.

But if you—

another way to think about it is the value of compound interest. I refer to it as the value of compound learning. Like, just keep on learning. Let the years pile up in your favor. Learn X% a year. It will compound and stay alive on this earth and maybe you'll get somewhere.

And part of that learning process is putting yourself out there to opening yourself up to either criticism or other people making your work better.

Sure. And just learning from them, like what have they done that has made them, you know, successful or smart or talented.

I think the internet has opened so many doors in that respect.

Absolutely.

Would you change the education system to include chess for all students, or how would you go about changing the education system?

Garry Kasparov has a foundation devoted to spreading more chess education throughout the world. I think that's a very worthy project. I wouldn't want to make it mandatory for everyone or in all countries, but I think we should have much more of it. Uh, I mean, the good thing— we're living in a world where there are more games and a lot of gamification, and that's mostly a positive development. It doesn't necessarily have to be chess. Maybe some games, they're addictive in bad ways, that it's somehow the virtual world of the game that pulls you in rather than the intellectual parts of the game. Uh, but the internet gives you a lot more access to gaming, and that's a big positive too.

I have to ask you a different question, changing gears a little bit here, and then I want to get to some Twitter questions before we go. But, uh, why do you only watch one TV show at a time?

Uh, sometimes it's zero, and occasionally it's two. Just time. I would like to watch more TV. Uh, the show The Americans and Westworld are right now the two that we watch, and if neither is running, we're not watching anything. If both are at the same time, we watch both. I love The Sopranos. I'm a big fan of Curb Your Enthusiasm. Most TV shows bore me. I think movies are actually much better than TV. TV now is a bit overrated and movies underrated, uh, but a great TV show is a wonderful thing. You can do it in short bits, do it at home, and you look forward to it all the time.

What would be your equivalent of like quake movies or movies that you absolutely love?

Bergman movies from Sweden, you know, starting in the late '50s, but his entire career, all of those for me were, were, were quake movies. Uh, Star Wars, I saw the premiere on opening night. I guess that was 1977. I had never seen anything like that. I knew, you know, in the first few minutes, like, I'm a fan of this for life, even though I don't like the recent ones so much.

What don't you like about the recent ones?

I think they're okay, but of course they're Disney-fied, both literally and figuratively. They feel less serious. There's so much repetition of themes. The idea of suspense about the story is drained away, and maybe story suspense is just hard to pull off in 2018 with social media. But like when I saw Empire Strikes Back, the second installment, which I guess now is called Part 5, and when Darth says, Luke, you know, I am your father, everyone watching it was shocked. This was an incredible moment. I don't think we can do that anymore. Like, what could they tell you now in installment number, you know, 19 when it comes along that really can have any kind of equivalent meaning? Like, oh, I'm the third cousin of, you know, Darth Sidious? You know, who would care?

And how do you prevent those spoilers, if you were to create them in the cinema, from reaching you?

I don't know how to do that other than by being walled off, which I cannot manage. But I think if you watch a lot more foreign films, they rely less on that kind of revelation. And now is a wonderful time to watch films from South Korea or Iran or Latin America, all sorts of places. And Hollywood is in a bit of a dry spell. Too many tentpole franchises, too many superhero movies. Black Panther, though, I'm very excited about. I love the preview. I will see it right away. I expect to like it very, very much.

I'm excited about that one too. One of the questions we got on Twitter was What do you think about the long-term implications of interest rates being near zero? So anybody who's basically under 40 at this point has never experienced interest rates above, I don't know, 5 or 6% in their lifetime.

It's much harder for millennials to save, and I fear they will have impoverished retirements, especially since the fiscal budget on the federal side is problematic as well. And I think those rates staying so low is a sign that there's all this wealth out there in the world— Russia, China— but not really that many safe places to put it. So they buy U.S. government securities, which is perfectly understandable. But it lowers our rates for reasons which are somewhat artificial. And I don't know that that's going to change soon. The real remedy would be for China, Russia, Argentina to become like truly safe, predictable countries. That seems to me somewhat far away.

And so how does that change in terms of a democracy if you have a large voting bloc of people who maybe don't save and view the social system as being a safety net now? How do you foresee that playing out over the next, I don't know, 20, 30 years?

Well, you become more dependent on foreign capital. The nation is in some regards mortgaging its future. People expect things from governments that governments cannot always deliver upon. And I think it's a very precarious situation, and we have become very, dare I say, complacent about this state of affairs.

What do you— what are your— what's your take on minimum wage increases and the implication on not only the people receiving them, but in terms of the broader economy in general? And do they have an effect? What is that effect?

Minimum wage increases put people out of work. Sometimes it's a small number of people. Sometimes it's a large number of people.. But I think jobs are very important and I would look for different ways to raise wages, which we do need to do.

What would be the productivity would be the ways.

I mean, it seems to me productivity is cumulative. A minimum wage increase is not. It's one-off. You know, ultimately it will be chipped away by inflation or other factors. You need something cumulative. It gets back to the power of compound interest, compound learning. If I look at a policy, I just ask, does this policy really involve compound learning of some kind. And if it doesn't, like, it still might be good, but I'm probably not going to be that enthusiastic.

Do you think minimum wage increases improve the quality overall of the people receiving them, or is it just net neutral and then there's a smaller labor pool?

No, I think when people get a minimum wage increase, they probably work harder and they're somewhat more conscientious. And that is an argument in favor of the policy. I don't think it makes up for the lost jobs, but I do think there are some positive effects. If they have a criminal record, they may be less likely to end up in prison, say.

I guess that presumes that they're— and I don't know the answer to this, so I'm really asking, like, does it actually benefit or does it work out as a wash? Like, because minimum wage goes up, so you get a higher wage, and then you start paying more for all of your goods because, like, do you end up ahead?

Oh, a little bit, but not as much as it looks. So if you raise minimum wages say that raises food prices. There's good evidence for this. And other poor people have to pay more for their food. And a lot of those apparent first-round gains get given back and they dissipate. So that, too, is another reason not to be super enthusiastic about boosting minimum wages.

What advice would you give to somebody under 40 who's never been rewarded for saving? I don't know.

I mean, can I say don't listen to me is the advice? I think the people who save well have methods and systems almost like a religion. You know, our daughter, there was recently a week ago a Marketplace article about her and her husband and how much they saved. And I was very, very proud to see that. And their method is to treat it like fixed rules, almost like a religion.

Hmm. I think that that's really good advice. What I tell people is usually live off your first job. And then if you can be happy living off that wage, then anything else you can bank and you'll live a long life. And if you do your 20s right, you're set up for life.

And especially with the internet, there's so much free fun. Like, what do you need to spend all that money for anyway? And you know, I'm at a point in life, I have a reasonably high income, but I don't buy a nice car. My car is a piece of crud, you know, that's fine. It drives, it gets me there, it doesn't break down.

Where do you think money will go for returns in the future? Is it going to be the same classes that we've had before which is fixed income, equity, and maybe property, or do you think that that changes to somewhere different?

I think private equity is a wave of the future, already the present. They take over firms and improve how they're managed. There's so much low-hanging fruit for improving management. Now, ordinary investors cannot easily get in on private equity, real estate, but in select areas, areas that a lot of people already can't afford to buy into. So I think this is a big problem. How do you save? Where do you put your wealth? It's one reason why there's so much interest in Bitcoin, which I would not recommend for that. But it's a sign there aren't too many other good options for a lot of people out there.

Do you own any Bitcoin?

No, I do not. Obviously, that was one of the many, many mistakes I've made, just like all those mistaken chess moves.

Well, have you looked into Bitcoin? What do you think about the idea of a currency that is non-government regulated?

Well, I don't think it's a bubble. I think it serves some useful functions. I don't view it as a currency. It's not convenient to spend. It's a store of value, a bit like gold or maybe a work of fine art, part of the portfolio, a protection against risk. I think it's a perfectly legitimate asset that will endure and have a high value. I'm not sure its value is going to go up any at this point, but it's for real and it's not a bubble.

And do you differentiate that from the blockchain? Do you know much about the blockchain? I don't. What would be the implications about blockchains that you foresee?

The blockchain is a way of organizing information where you can verify and can confirm things without needing a boss. I don't think we found killer apps for the blockchain yet other than Bitcoin, and we've had blockchain for 10 years. Could we use it to register property titles? Maybe. But the other methods we have actually don't seem that bad, at least if your quality of government is good enough. So I would say the blockchain is actually more unproven than Bitcoin at this point.

Is there— the transaction costs seem high if I'm understanding this correctly in terms of the energy costs to verify the work.

Right, but even just people understanding the system. So any institution, you have to ask, do people need to understand this to use it? Sometimes the answer is yes, sometimes the answer is no. But I think with blockchain, at least some critical mass of people have to understand it, and that understanding is hard to come by. Lawyers cannot easily understand blockchain unless they specialize in it. Most economists I know don't understand blockchain. So I think there are still quite a few hurdles before it's some kind of proven innovation.

Hey guys, this is Shane again. Just a few more things before we wrap up. You can find show notes at farnamstreetblog.com/podcast. That's F-A-R-N-A-M farnamstreetblog.com/podcast. You can also find information there on how to get a transcript. And if you'd like to receive a weekly email from me filled with all sorts of brain food, go to farnamstreetblog.com/newsletter. This is all the good stuff I've found on the web that week that I've read and shared with close friends, books I'm reading, and so much more. Thank you for listening.