485 - The State of Big Business: Tyler Cowen's Contrarian Economic View

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I thought I would just write down about big business the things that no one else was saying, and I wrote what I call a contrarian book which ought not to be contrarian. Right.

What is the general stance against big business?

I think we're in a grumpy time period, so people are upset at politicians, at Congress, somewhat at the church. There's a loss of faith in many institutions. There's a sense that whatever is perceived as having power has to be taken down, and I think big business is caught up in that. We also tend to judge businesses as if they should be people or our friends, and by that standard, they will always disappoint us, right? But if you treat it like, "Oh, they left me waiting on the helpline for 13 minutes, that's unjust, that's outrageous," you're going to hate companies which for the most part are doing you enormous amounts of good. And the goal of my book is just to calmly go through the facts.

Right, it's very calm. So what I like about your books and this one is, again, you have this different way of looking at things, which makes me feel calmer about all of these things that people have labeled problems. And yet, you know, you come, you have a whole bag of new problems that you talk about on the podcast. So what should I be thinking about? Yeah, but you know, it's an interesting— almost— let's start the podcast and we're going to get to your book.

This could be the podcast. I've been recording.

Okay, so I'm on with Tyler Cowen, who he's been on before. Thanks for coming up again.

My pleasure.

From DC. You wrote this book, which is a great book. I'll tell you why I like this book. It's called Big Business, and the subtitle is a love letter to an American— oh, the overtitle is A Love Letter to an American Antihero: Big Business. And you have such a very simple way. I just admire the voice and the logic. You have a simple way of describing both the pros and cons of big business, but ultimately, you know, veering toward the side of, you know, big business has been— and capitalism in general has been good for growth, health, the world economy, the American economy, the people of America, the people who work in big businesses and small businesses. We'll get to that in a second. You made an interesting point, which is we both are chess masters. You're rated a little bit higher, but you stopped at the age of 15. You're rated 2350. If, if people don't know, the average tournament player is about 1500. The average player walking on the street, I would say, is like 1,000 or 1,100 ranking, rating.

That sounds right.

And a standard deviation, meaning, um, if you're one standard deviation in strength above another, uh, you'll beat them 2 out of 3 times, roughly. So that's about every 150 points. So you're like a standard deviation above me, and we're both many, many standard deviations above the average tournament player, who is many standard deviations above the average player who knows, who walks around on the street and says, oh, I was good as a kid. Stuff like that. And you made a point, you stopped playing at 2350 when you were age 15 because you knew you would not be world champion. And so the question I have there, we're going to get to your book in a second, but if you enjoy something, you love something, you're so good at it that you could appreciate for the rest of your life the subtleties and nuances and the artistry of it, why stop just because you can't be the absolute best in the world?

I enjoyed economics and philosophy more. I saw they had a career path. They're broader, they're more diverse, they're more all-encompassing. And chess is beautiful and fascinating, but obviously a limited world unto itself. And I just thought, this is not the rest of my life. I want health insurance, I want a job, I want to travel the world and not just be locked inside a room, and I'm gonna be an economist. And, uh, I've never regretted that.

So at the age of 15, you said, I'm not gonna have health insurance, like, I can't— I can't picture a 15-year-old like thinking like this.

Well, at 13, I was getting into economics and philosophy and playing chess, and there was a kind of rivalry. And I always figured economics would win out, and I just saw no reason to continue with chess. And the idea that people who played chess then, they were quote-unquote bums. I saw that in New York.

Yeah, it's very true.

Unless you're in like the world top 10, you're like a bum.

I mean, even grandmaster-level people, like, I'm sure we know all the same people. They literally barely live above homeless level. That's grandmasters, like, the top players, previously the top players in the country, um, until lately it's just a handful of, like, beginning teenagers who are the best players in the country. But, like, really top grandmasters often, you know, and if below top grandmasters, if you're a professional chess player, you are probably homeless or hustling in the park or whatever.

And all your friends are your rivals. So the social element of the game, which is in a funny way present, but it's not that much fun, right? So with economists, I go out, we talk, we joke about economics.

Right, it's more relaxing.

I'm not really competing against them. I mean, kind of my doing well and their doing well are compliments, if anything.

And tournament chess is very stressful. You're playing a game, you're trying to literally, in a mental way, kill the person on the other side of the board. I would always shake during a tournament. I would get— so nervous, particularly when I was a kid. Um, but when did you hit 2200, the master level?

Maybe I was 13, a little before 14.

So kind of one of the youngest at that time.

At that time, yeah.

How old are you?

Uh, 57 now.

So at the time, you were close to like, well, you know, U.S. record level for youngest master, right? Like Michael Wilder hit like at 11 or 12.

Michael and I were good friends. Michael had much more talent.

Michael and I were good friends. We lived right next to each other.

And I thought like, gee, this is Michael Wilder. Like, My rating was then, like, about as good as his, but I could tell he had much more talent and was smarter. And that was, like, a reason not to do this.

That's so funny. How can you tell that?

You just know. Like, he and I would analyze positions. He would see further, deeper, better, quicker. And I could keep up in tournaments. Maybe I worked harder or I was more organized, but it's like, I can't match this guy's talent. And there are people more talented than Michael, as you know.

Well, it's funny because— I was about 18, and I was taking lessons from him. He had just become, or he was about to be the US champion. And I would just go over his house 3 times a week, and we'd play for 2 or 3 hours and analyze positions. And that's kind of how I made my growth to masters, just by playing him over and over. And he was very, obviously very talented, worked hard. But even in that time, you know, he went to, he had just graduated Yale, Joel Benjamin. Was clearly a little more talented than him, and he couldn't kind of surpass Joel Benjamin. So when he became US champion, he hit that level. I think that's the last tournament he ever played in. He said, screw it, I cannot— no chess player can make a living. He went to law school, and now he's just a— he's a lawyer in Phil— I shouldn't say just— he's a lawyer in Philadelphia. I'm sure a successful lawyer, but he's never played chess again.

He's a partner. He earns a lot of money. One of the key things I learned from chess early on is that there's always someone quite a bit smarter than I am, and that's a great thing to learn.

So funny, though, that how you would— we both knew Wilder so well.

That's right.

Yeah, he was a good guy. I haven't spoken to him in 33 years, but that happens. But you can argue the same thing for any profession. Like, you're a great economist, but are you Milton Friedman level? You can argue he has a— Milton Friedman, when he was alive, had a 2700 rating of economics, you're probably a decent 2500, like grandmaster level. But he was like super grandmaster level.

But there's room in economics to do very well at a lower level, and there isn't in chess. It's not so much winner take all.

Yeah. Do you think, um, so there's this notion that success and performance are not as correlated as people think? Success, let's say, being however you measure it, financial success or publications or, or acclaim in your, in your peer group. Do you think there's a wider, wider opportunity for success in economics?

Sure. I mean, let's take a more extreme example. Let's say you're a dentist and you're the 7,000th best dentist in the United States. You're still doing fine, right?

Right.

Now, if you're 7,000 in economics, maybe you're not doing that well, but there's so much room in dentistry. There's plenty of room in economics.

I guess the least— the less attractive a profession is, the more— the lower ranked you could be to do well, which is sort of a reverse way of thinking. Like, if you think about it, if you're not in the top 100 tennis players in the world, you're probably not doing that well, right? So if you're, if you're in the top 10, you're making millions a year. And then if you're 10 to 100, you're making a great living. But below 100, you're probably not doing that well. And chess, certainly, if you're not in the top 10, You're barely making a living. Um, uh, Hollywood, you probably have to be in the top 100 actors, or, you know, you're, you're— maybe you're making a living, maybe not. Uh, but if you're in the top 100, you're gonna do great.

Maybe we should tax chess, right? It has all these smart people, they're just enjoying themselves, not being very productive. Let's get them doing something else. Get them into business.

That's kind of a funny idea. Well, okay, before we get to your book, one more question on this, because this is just a fascinating thing. A lot of, like, if you're the type of person who, like you, could be 2350 at the age of 15, so a strong master at the age of 15, a lot of people like you would go into— a lot of my friends went into first backgammon, which was a popular gambling game in the '90s, and then poker, which became the popular gambling game. And many chess masters have become world-level poker players because it's the same type of killer instinct. You know, you have to be a killer to win at these games. You have to want to destroy your opponents.

And you have to hate losing, too.

You have to hate losing an incredible amount. But then you also have to combat the sore loser phenomenon. You have to—

That's right.

You have to understand at a deep level what loss means and how you can use it to your advantage to kill again.

I didn't hate losing enough, so I enjoyed winning. But if I lost, I was too philosophical about it. And I saw that as a kind of inner weakness that would harm me in chess, but it wouldn't really hurt me in economics, and it hasn't.

All right, you, you're much more mature than, than I am. I would, I would literally cry if I lost, and I wouldn't be able to go to school the next day. Like, I couldn't. I would have nightmares all night. I couldn't, I couldn't handle it.

But that may be how it should be, right?

Maybe.

I would just, you know, move on to the next game. Like, refocus. Okay, lost that. Too bad. Next.

Well, okay, let's talk about your book, A Love Letter to an American Antihero. Big Business. Again, I thought it was really neat, like, how you would sort of dismantle in a sentence all the, you know, sort of— a lot of people argue about big business without really even understanding what it is. But I kind of like— by the way, I have folds all over here, so I might go back and forth in the book. But I like how early on you basically say, without business, we would not have ships, trains, and cars. Electricity, lighting, and heating equipment, most of our food supply, most of our life-saving pharmaceuticals, clothes for children, and on and on. And you're referring both to business because business makes those things, but also you're referring, and you bring this up more later on in the book, Wall Street, the mechanism for financing these businesses, for these businesses to either raise money through IPOs or venture capital or debt or whatever. That mechanism of the finance industry allows businesses to go to grow in an accelerated way than if they did not have that access to money, and thus creating more technological innovation and so on. So I think just that argument right there should have been enough. But why is there— what is the general stance against big business?

I think we're in a grumpy time period. So people are upset at politicians, at Congress, somewhat at the church. The media. There's a loss of faith in many institutions. There's a sense that whatever is perceived as having power has to be taken down, and I think big business is caught up in that. We also tend to judge businesses as if they should be people or our friends, and by that standard they will always disappoint us, right? Big business is a kind of impersonal entity. It often, but not always, has a harmony of interests with you. But if you treat it like, "Oh, they left me waiting on the helpline for 13 minutes," that's unjust, that's outrageous. You're gonna hate companies which for the most part are doing you enormous amounts of good. So we're applying the wrong standards, we're in a grumpy era. Our intellectual elites and media, they view big business as a competing center of power and influence. They feel they ought to take it down, even though they too are big business. All of that put together and we end up with this mess, and the goal of my book is just to calmly go through the facts.

Right. It's very calm. Like, you know, I don't know what to make of this analogy, but, you know, you point out that we expect almost perfection from businesses. We expect perfection. Like, they can't be— there has to be zero tolerance for any, like, waiting 13 minutes on the helpline, any sort of accidents, or even you know, dishonesty. Like, you point out, um, uh, 33% of some kind of fish was mislabeled in the grocery store. So that could either be accident, or maybe the boss said, hey, label it this way. Or, you know, who knows if it's dishonesty or accident. And you say, yes, that's bad. But then you point out 53% of people admit to lying on their Tinder profile.

Sure.

So we expect more from—

and that's how many admit it, right?

Yeah, that's how many minutes. So, so what you're— what you, what you point out is a business is not this robotic, invisible entity. The only way a business exists is that there's humans filling all the ranks from top to bottom. So there's humans making those— all 100% of those decisions that led to the 30. So, so you're, you're basically saying that all these people in a group with other people looking over them are actually more honest than people just operating on their own? I don't know if the analogy quite holds up. Like dating profiles versus, you know, a, a, a, a business service to millions. But, uh, you know, it was an interesting way of kind of making this comparison that sometimes we can't expect perfection from those that we're criticizing.

It depends on the business, depends on the context.

We have to expect perfection from airlines, for instance.

They can't crash, and they don't crash very much. It's the safest way to travel, right? With some imperfections. But if you go into a Donald's or a Walmart and they promise you something, I mean, you are going to get that with very, very high probability. I'm not saying it's the case for every business, but the chance that Walmart is lying to you is pretty small as experiences go.

You know, um, a lot of— I feel like, like you say, we're in a grumpy period. I think a lot of times, like when we were growing up in the '80s, to, um, to strive for wealth, um, to strive for, uh, success in business was a little bit more admired than it is today. I think since the financial crisis, people have really soured on the concept of big business. The whole notion of too big to fail, let's break these things up. You know, Elizabeth Warren, you, you know, you, you, you point out Bernie Sanders, Elizabeth Warren, they, they're— they, they even want to break up companies like Facebook, which is kind of, you know, from my perspective, ridiculous, but other people might disagree. Uh, uh, what do you think— why do you think we've never forgiven, or, or why do you think we took out all our frustration on big business? I mean, we're the ones who took out all the loans on subprime houses, and then business took, took, you know, provided those loans.

I think one thing that's going on is social media. Social media are great for complaining, and if you write a tweet or put something on Facebook praising a business, no one cares, right? Whereas if you complain, you're vociferous, you're outraged, that has a higher chance of going viral.

Why?

There's something about the bonding with negative emotions that we don't get enough of. And at the margin, we want to connect with other people through social media, and we do that more often through the negative.

You think that's an evolutionary thing? Like, that's the avoiding the lion, so we focus more on the negative than the positive?

That's some of it. There is a lot of positive on social media. So there's the famous kitten videos, right? And you share those, they're positive. They're not about business. Just to say, "I went to Walmart and I got a really cheap hammer today." Like, not a great post, is it? But if it's, "Oh, Facebook is running a big conspiracy to, you know, elect fascists," or whatever, may not be true, but people are going to notice.

Yeah. So, so a lot of this, I feel, started though, or was amplified by the financial crisis. What do you think happened then? It says 2008-2009 period.

I think the American financial sector was in large part at fault. We should not flinch from that conclusion. That's an absolutely legitimate complaint. But I would also point out that people in general were overextended. Homeowners were overextended. So those loans went bad because people borrowed more money than they could pay back. And that's the actual genesis of the crisis, that we expected we would be much wealthier than we turned out to be. And businesses were part of the chain that screwed that up.

Although businesses, you can argue, took advantage. Like, so it's true, people who are financially illiterate were being told by their financial advisor or their lenders, their mortgage lenders, oh yeah, put zero down and we'll give you this loan. Just sign on the bottom line.

But look, people are not stupid. When someone says put zero down, most people ought to know, look, there's a catch here, there's a risk. And a lot of it was people flipping homes or behaving irresponsibly or just assuming manna would fall from heaven. So it was the fault of our banks, but it also was the fault of most of us who were overextended. So I think we should not shy away from blaming business where appropriate, but also look at the bigger picture. And part of that bigger picture is America has had the best capital markets, probably the best banking system of anywhere in the world.

Yeah, I mean, and you, you kind of measure that by, A, the growth of our GDP over, over the decades, uh, the, uh, infant mortality rates, the, uh, our quality of life, various quality of life measures. And yes, it's attributed basically to I mean, government doesn't make our food or our clothes or our smartphones. Why do you think people are— and I'll play the devil's advocate to this too, but why do you think people are so in favor of, no, no, no, give the government more control over these things when government has never historically provided any of the things that we enjoy every single day? And the, and the countries where the governments were responsible for providing these things, like the ex-Soviet Union, literally ran out of money and dissolved.

There's a feeling of we must do something, this is something, therefore it must be done. Uh, government could not have created Google in the form we have it. If government were to try to tinker with Google/Alphabet, uh, probably they would make it much worse. There's not a good legal reason for splitting up Google. Uh, it is the best search service on the market.. But if you want, you can go search plenty of other places. Bing, Yahoo, there's a Chinese company, DuckDuckGo, they won't even store your data. So there is a lot more choice than people often see at first. If one company wins because it's the best and the product has a posted price of zero, odds are you should be pretty happy.

Yeah, and you know, you even make the point, like, we always say, oh well, with Google there's a privacy issue, they store all our data.. But you make the point in the book, you know, DuckDuckGo, which now I think is duck.com, they are almost as good as Google. They don't invade your privacy, they don't store your information, but they're still ranked 10th on search engines. Yeah. So it's like people probably, all of the, for all the things that the media complains about, people in general probably don't care about these things as much. Now it could be argued whether they should care or not, but On the whole, it's been pretty good so far.

Yeah, I would like people to care more about that, and until they do, trying to regulate more privacy will be very hard. But people also have this common sense view in their actual life experiences. Those who have invaded their privacy are like their colleagues, their friends, their acquaintances, you know, their relatives. So when you talk to people like threats to privacy, they don't think of Google as the main threat to their privacy, and it's not. It's other people. And the best way to get more privacy is, say, to move to Manhattan, at least some parts of Manhattan. You can have a pretty private life. If you're in rural Nebraska, very tough to be in a small town and not have everyone else know your business.

That's a good point. So do you think there's any far-reaching consequences of Google and Facebook having all your data? And by the way, I feel like it's on a daily basis that, I'm not gonna use the word privacy, I feel it's on a daily basis that Google and Facebook are getting to know me better. In other words, I feel more and more I'm having a conversation like with you, and the next time I touch Google, it'll say, what's the rankings of all chess players? It'll say the first suggestion. You know, somehow it's always listening in the background. Like the phone always is on listening in the background because it's waiting for me to talk to it. So there's some listening going on. They must be using that somehow in their cookies and in their data. And I don't necessarily think yet it's a bad thing. Like I want Google and Facebook to know my needs.

I think people should not buy Alexa, which sits in your house and literally listens to you.

But so does the Android phone. I mean, I would be uncomfortable if I say, "Okay Google," then now Google's on. I could just wait, waiting for my— it's waiting for my request.

Oh sure, but so it's listening in the background just like Alexa. Anything that can be triggered by casual speech will end up being triggered more than you think it will, and I don't think people should do that.

Why? What's the— what's that? What's the inevitable outcome? So right now Alexa has been used, for instance, in court cases. But what's— what's another possible outcome that's dangerous?

I'm not sure there's an inevitable outcome, but simply that we slide into a situation where universal monitoring is understood as the default status quo. That makes me nervous. So I would pass laws against, say, facial surveillance in most public places. And I think people—

how can that be implemented in practice? So, yes, local cameras. Are no longer allowed to do it, but Facebook is always doing it. That's not local. So if someone takes a picture of you, Facebook knows what, what your face is.

It's very easy not to be on Facebook, although people will swear this is not true. I have a Facebook account. I don't use it. I could delete it if I wanted to. I just don't have time for it. I have nothing against it. I do social networking through Twitter and through my blog, and if I don't like Facebook, uh, there's a lot more choice, other ways you can social network than there used to be, say even 2 years ago. Go to Fortnite, meet people there. So, uh, I am worried about a future where there's an integration of physical and data surveillance, uh, which then falls into the hands of the government. But it seems to me the key weak point in that link is the physical surveillance, facial and gait surveillance. When you walk out in public on the street the government knows it's you, as in China, and they track what you do and keep a file on you and use it to punish and reward you. And this is the case now in China. I don't want us to go there. I'm not at all blaming the tech companies for this, but if we passed some laws, as San Francisco has done, putting more restrictions on public camera surveillance, uh, I favor that. So I am concerned about privacy. I just don't think the big tech companies are the major villains right now. They are not the main threats to your privacy.

Well, in, in, if you were to say there is a villain in big business, who would you, who would you want to regulate right now?

Well, if we're talking about the United States, I think our sector that has performed the poorest is healthcare. That's by no means all business or big business, but obviously a lot of it is. Pharma companies, how they lobby government, hospitals, the deals they give people, the way they often treat, uh, users, patients, consumers, customers, whatever they are. I think there's a pretty high degree of outrage in that sector. I don't think I have the answers, but I absolutely do think we should do a great deal, including with the law, to make that much better. My book doesn't much cover healthcare. I feel that would need a book of its own.

No, but you—

That to me is our worst sector, probably, of business in this country.

Right, and you, and you mentioned, you know, you can't— it's hard to find out if Obamacare was good or bad, because was it Obamacare itself? Was it, um, you know, the opposition's kind of manipulating of the final law? You know, who knows? Uh, you know, ultimately it didn't work, and I wonder if there's any political situation that can work. And like, take pharma as an example. Some drugs are ridiculously expensive because it takes up to $2 billion to get a cancer drug through all the FDA trials. Do you think, let's say, uh, so here I wonder if deregulation is the answer versus regulation. Like, if we say no trials needed past phase 1, it just doesn't, it doesn't kill anybody, let's give it a, let's give it a go and, and then see what happens in, in real life. Do you think that might be a solution? Then, then drugs will be a lot cheaper too.

I would liberalize that process. We did that for HIV drugs. We got them a lot more quickly. Because we did that. I think that's generalizable. I think it would only solve some of our problems, but I completely agree with you. And then having greater ability to import expensive drugs from abroad, not so much protectionism. So if a drug sells for $20 in some other country and $2,000 here, you can equalize those prices to some extent.

But then the company, the company that spent billions to get the $2,000 drug on the market, they're going to lose. So they— there's less incentive for them to develop new drugs.

Well, but the price overseas would go up and the price here would fall. It wouldn't be good for every other country, or you might want to do it selectively, but it would be good for America. And it seems to me the disparity in prices is so much against our favor that we could move quite a ways toward evening it out. But of course it would mean higher prices in other countries, so people in Denmark would be worse off, right?

Yeah, yeah.

Well, it's not a free lunch, but I think overall it would be a good thing.

Well, it all depends, like, because then the companies in Denmark charging $200 instead of $20, they have employees who are Denmark citizens who will start making more income. It's always hard. It's always hard to— it's always hard to understand consequences. Like, we were just talking about the financial crisis and, you know, is— we started off at the very top level, like, is the blame on— well, let's even go higher. Is the blame on people who put together these complicated financial derivatives to make massive bets on housing, which is kind of the hedge fund/Wall Street level? Is it at the bank level where people were eager to lend to subprime borrowers? Is the— was the problem the subprime borrowers, or was it legislation made 10 years earlier that encouraged banks to lend money to lower-income people? Because the idea being the good intention that everyone should be able to own a home. Like, you can't— how far back do you go? It always starts with some good intentions that where the con— all the consequences weren't realized for maybe decades.

I agree with that perspective. I would say the actual evidence has shown derivatives are probably one institution that's not to blame. So you look at Ireland and Greece, they have significant debt crises at around the same time, and derivatives are not playing a role there at all. There's a housing crisis in Iceland, derivatives playing a minor role in that. So derivatives shift around risk They're probably not a fundamental reason why we had a crisis.

Yeah. So, okay. So, but derivatives though caused the crisis of like Lehman Brothers, for instance, which got overleveraged with derivatives. And an even 1% move down in derivatives like wiped out Lehman Brothers and some of the other major banks. So is that, is that then the bank's responsibility? Is it? It seems like whenever there's a really fast and enormous financial innovation, So mortgage-backed, you know, credit default swaps squared, you know, which is like derivatives on derivatives on derivatives for mortgages. This amazing new innovation to fuel more lending, but ended up kind of causing the, the real collapse of all the banks in the financial crisis, just like the IPO rise in 1999 or junk bonds in the '80s. Whenever there's like a fast new financial innovation, it seems like before it can get regulated, there's a boom and then a bust.

Well, again, if we look at derivatives, keep in mind home prices fell by amounts more than 2 standard deviations away from what people were expecting. So those are huge losses. They're going to turn up somewhere. What you hope derivatives do is that they redistribute those losses into highly visible and sometimes even concentrated places, where you can identify them and respond to it quickly, and maybe even do a bailout if you have to. And I think derivatives actually did that for us. They put risk in places where it was easier to see, easier to handle. You can't blame derivatives for the losses. The loss in national wealth was enormous. Derivatives put it somewhere else. They can put it in, in better or worse places, but I think you'd actually rather have a lot of your problems in institutions like your big famous well-known banks regulated by the Fed, which is still our best regulatory institution, then you can deal with it.

Yeah, you made the great point that if you break up the big banks, then the problem will get distributed to thousands of smaller banks, and then kind of figuring out what the problem is and how to solve it would be exponentially more complicated, as opposed to just putting all the 10 banks in a room and saying, okay, here's a chunk of money, solve the problem.

And it was all small banks in 1929, right? We ran that experiment. It was terrible. I suspect the same is true with, say, Facebook and social media. If you had like 20 mini-Facebooks going around with different practices, it would be much harder, I suspect, to control fake news. There's all kinds of informal social media today, you know, 4chan, uh, has a lot of terrible stuff on it, and it's less controlled than it would be on Facebook. So it's one of these be careful what you wish for scenarios, I think.

Yeah, a lot of it seems political. Like, you just mentioned 4chan, and there's also Reddit, which is far worse in terms of like just the hate spewing back and forth, the whatever you want to call it, fake news. I don't like the phrase fake news because almost every newspaper has been doing fake news for decades. But it's almost like political, like let's find somebody to blame and then use all our efforts blaming them and maybe come up with a bad solution to solve this fake blame.

That's what we're in the midst of doing right now. I think we will have suits against Facebook and possibly Google, and we will almost all end up worse than where we started off.

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You know what I love about fantasy sports is that even though I'm not going to be a great basketball player or a baseball player or a football player or whatever, I feel like I get to participate and make decisions and use my knowledge of these different leagues to, or these different sports to, to compete. So it's like I can pick my team or I can pick my favorite players and I could use my knowledge to make predictions and maybe even make money. So with the basketball season here, you can now pick combo projections across football, and basketball from the Specials League on PrizePicks. This is a league created specifically for combo projections that include 2 or more players from different sports or leagues. Want to play alongside some of PrizePicks' favorite players like rapper Meek Mill and comedian Andrew Schultz, who's also been a guest on this podcast and I've been a guest on his? You can now find community plays under the promos tab of the app to view entries from some of the biggest names in the PrizePicks community each week. Look, PrizePicks even offers a reboot policy so that your entries stay in play even if one of your players gets injured. For football and basketball games, if you have a player who exits the game in the first half and does not return in the second, that player is rebooted. PrizePicks is the only daily fantasy sports platform with an injury insurance policy. What? So I love playing it. I love anywhere where I can use analytical ability with my interests to demonstrate some skill and maybe make some money. And I like the game-like aspect. I do wish they had chess as a category on prizepicks.com, but I'll sign up for what they've got. Maybe I should make my own fantasy chess league. But in any case, I love PrizePicks. Go to prizepicks.com/james, use code JAMES for a first deposit match up to $100, That's the easiest $100 you're ever going to make. So that's prizepicks.com/james and use code James. Daily fantasy sports made easy. What do you think of this theory that Google, because Google has so much information, I mean, you address Google a little bit, you know, what's the risk of multinationals? And in fact, Google is not perhaps as multinational as we think. For instance, they were more or less kicked out of China. They're not as popular in places like Russia or other countries. But what do you think of the idea of, of— since Google has so much information about every individual, how much are they in cahoots with, let's say, government and the intelligence arm of the government?

I don't think we know the entire answer to that. Of course, Edward Snowden was upset about this. Uh, that does concern me. So one problem with the tech sector is it is interconnected with government somewhat. Um, so I would favor more separation there.

Yeah, but realistic, like, I don't think we're going to get it. Yeah, because realistically none of these solutions can, can happen because there's so much— unless you sort of regulate lobbying, but then there's always loopholes to that. Like, you know, there's always loopholes to loopholes.

So, uh, but again, the NSA is, is far from the biggest worry in my life when it comes to privacy. So if the NSA is quote-unquote reading my email through some kind of artificial intelligence, or if the Chinese are reading my email, I feel pretty safe with that actually. They don't care about me. I'm not saying they only care about bad guys, but again, as privacy risks go, it's one that's easy to sound hysterical about, but for almost all Americans, it's not that big a deal. It is not choking off free speech in this country. Your actual ability to say what you want and get an audience has never ever been higher in the United States, mostly because of the internet. I get there's some deplatforming I don't always approve, but just the trend of the last 20 years is so much more access.

So, so I like how you put it though.

What you're—

what I'm really worried about with privacy is the people actually around me, like my kids reading my email or my friends reading my emails. Yeah, stuff like that. As opposed to, to the NSA where it's a little bit more abstract. Like if they're reading 300 people's emails, then a blip. But why do people complain about this? And this, this, this is related to the general malaise against big business, you know, how much they now know about us and how— but, but so far I see my so-called lack of privacy is only a good thing. I don't want to see ads that are not related to me. I like seeing ads related to me.

And some of it, I think it's not always privacy. There's a general feeling of lack of control. Just in life, different issues like student debt or volatile incomes, right? The rise of China. There are many different forces in the world that people feel they're not controlling, and they will lash out at what is before them. It's striking to me that if you're a consumer-facing company, people typically hate you, often hate you, intellectual commentators do. But if you're a company like Boeing, which is not that much consumer-facing, They've maybe made some big mistakes lately, but they're kind of getting off in the public arena. Yeah. People aren't confronted with Boeing as Boeing, whereas Facebook— you go on Facebook, you know who Mark Zuckerberg is, you know, you've seen him on the news, maybe you liked or you didn't like him, but you're evaluating, like, him as a person somehow in a way that's not fair to the company. And the consumer-facing product lines often take big PR hits.

So, so, but again though, like, why, given what you say, you know, big business basically provides for all of our needs, the government— well, not all, but most of them. I mean, all this, all the stuff you mentioned, government doesn't make our smartphones, big business does. Google does, Apple does, whatever. Uh, big business makes our clothes, big business makes our food, uh, And you know, there's regulations, and in some cases there's some subsidizing from the government, but very rarely as a business gets more, as an industry gets more and more profitable. So what, so that's sort of, and most importantly, big business gives us jobs and pays our incomes. So what is everybody's problem?

I don't think it's everybody's problem. So America's a country full of people with common sense, believe it or not. And if you ask most Americans, "Do you hate Amazon?" they will say no. If you even poll them, "What are the institutions you trust the most?" Amazon almost always comes out in the top 2 or 3, sometimes number 1. People get that the package comes within 2 days most of the time. Uh, the people who are most critical of big business is a segment of our political class, media, and our intellectuals. That's at least three-quarters of it. So it's not that every American is out there cursing Bill Gates or the Walton family. Uh, it's just not true. But, uh, like, as I said before, they're a kind of competing center of influence. Intellectuals feel they ought to be paid more. They see big business getting certain kinds of status, or tech companies getting certain kinds of status, obviously quite extreme riches, and that to them feels unjust and they lash out. So it's a kind of war within the elites.

I see. So you think like the average— I shouldn't say average, but basically most people in America are not even thinking of these issues.

It will depend how you frame the question. You can rile people up in different ways because sometimes they have been left waiting on the helpline for 13 minutes, but it's not their main grudge in life to go around cursing at, say, Microsoft. Ordinary American. Absolutely not. They use the products probably every day. They're pretty happy with them. Of course, they wish the price were lower, but they think they've gotten a good deal. And they understand what choice was like 20 years ago before the internet was a major thing, and they know they're much better off from that.

So this is, this, this is related to the issue of taxes and whether taxes should be higher or lower. So forgetting about income inequality for a second, because there's also this idea that taxes should be higher for rich, lower for poor. You know, there's, there's lots of arguments here and there, but just taxes in general. I always wonder at some point, if I give an extra dollar to the government, is it better spent than if I have an extra dollar that I'm giving to a business? If I'm buying goods, which increases the profits of businesses so they can create more jobs and do more innovation, or should I give that dollar to the government Would you say the government is not a good— as good an allocator of my dollar than the average business?

On average, I think the business does it better. But the problem is our government has so over-promised commitments to the elderly, uh, that it needs more and more money from us, and there's no way to undo that. So marginal dollars will be going to the government whether we like it or not.

So what do you think— how do you think that— I mean, the, the overall promise to the elderly through Social Security and Medicare most of all. Yeah, which will We'll hit that in 20 years or less, maybe less. What's the solution?

I don't think there is a solution. Taxes will go up, borrowing will continue to go up. You suck resources and talent out of the real economy and away from innovation. That's a big problem. We've had it for quite a while now. It's going to get worse. I don't think we either can or should break those promises. The solution is to get a time machine, go back in time and rethink what we did some time ago. That's the solution.

And, but it's just like everything, like, everybody should have a chance to go to college. Good intentions. Everyone should have a chance to buy a home. Good intentions. Everyone should have free quality healthcare. Good intentions. And I'm not arguing against any of those good intentions, but some or many of the consequences have been very negative. Again, often decades later, like, you know, Social Security, Medicare, we're going to have— that was sort of a way of kicking the can 100 years later. That where, where then suddenly there's gonna be a problem that no one knows how to solve?

You know, right now we're graduating about 38 to 40% of a cohort from college with some kind of finishing degree, but there's so many jobs out there where people don't need the degree. So you have people with a master's degree and they're bartender in New York. So I don't think everyone should go to college. I would prefer a world in the longer term where more jobs needed a college degree and people went to college to get those skills. But that's very different from just, oh, we need to send everyone to college now. I think that would be a disaster.

But, but like, again, you know, there are— since the '60s, uh, government's been backing student loans and, you know, we've been lending. And because of this good intention, uh, it allowed colleges to keep on raising tuitions faster than inflation every single year. Like, it's, it's nonstop. In the past 40 years, tuitions have gone up 10 times faster than inflation because you've got this backstop of the government. And so again, it's a good intention. And yeah, maybe it's good if more jobs needed a college degree. But what you're really saying is more jobs maybe should need hard skills. And there's probably better ways to get a hard skill than a 4-year degree.

I agree with that completely. There should be more practical training. And through some subsidies, we've had massive malinvestment in higher education. And a lot of higher education has become sluggish and unresponsive.

Yeah. So, so every one of these areas where I feel there's been, again, with good intentions, but kind of a government backstop, we've had problems. The financial crisis, the, you know, this now student loan debt crisis, you know, all the mismanagement with, with healthcare. You know, again, it could be because of political party opposition. It could be because, you know, good intentions like the FDA lead to higher and higher drug prices. Who knows? But, uh, it seems like this kind of almost government collusion with big business, like, that's almost a money transfer from government into big business.

I agree, it's terrible. Yeah, so I don't know how you solve the accountability of competition as much as possible is the solution, but we're not always willing to do that.

Yeah, it's like almost like a psychology thing, like again, taking student loans, kids feel they need to go to accredited They don't even know what the word accredited means, but they feel they need to go to accredited schools and get a 4-year degree. Even if they can get the same skill set for free, they still feel they need to take $200,000 in loans out to get the real benefits of that, of, of a, an accredited degree as opposed to a skill. And I wonder how you start changing, uh, psychology to be more responsible for their own decisions instead of relying on what society has told them to do.

There's far too much credentialism in current American society. I would actually blame business for some of that, though not mainly. And the jobs where you need a degree— like my father, he ran a chamber of commerce. He ended up doing quite well after a while. He never went to college. That would be unthinkable today, that someone would be hired to run a major chamber of commerce without a college degree. Yet had he gone to college, he would not probably in any way have done better at the job. So we need to rethink all of that, and credentials need to be an overall portfolio, like what have you learned, and not here's my single degree. I fear we're moving in the opposite direction where more and more jobs require graduate, postgraduate education. The internet's a better model. People learn incredible amounts on the internet. No one certifies them. But when I'm actually hiring someone or looking for someone to work with, I'm always like asking myself, Like, what can they show me they've learned through the internet? That's like the free college of today. It's an amazing vehicle for learning if you do it.

I almost think one solution— so of course everything boils down to supply and demand. So there's only so many accredited seats at colleges or grad schools or whatever. What if you just accredit blindly, like every online school? Not blindly, but with some bar to pass. —start accrediting online schools like Coursera or Khan Academy or whatever?

I don't know if that's the way to go, or maybe to have just less accreditation, period. Accreditation is a yes/no thing. It means within the margins you can get away with murder, so to speak, and I'm not sure that's a healthy incentive. If you have a way of tracking people and monitoring quality, it's maybe a little more like Yelp reviews, like, "How good is this really?" Maybe that's better than accreditation.

Yeah, like, um, because you make a good point. Like, you can go to a good accredited school and there's gonna be a range of students there. Some students who don't do any work and barely graduate but have the degree, and others who kill themselves to get the degree, but 10 years later no one's gonna ask what's your GPA. They're just gonna— they both are just gonna be equal. Oh, I got a degree from Harvard or whatever.

The real scandal of these students, their parents bought them into different schools. I'm sure you read about this. USC. Is the parents knew the kids would get out, so the kids were not qualified, but the parents know once my kid is into the school, they just have to show up, or maybe not even show up, and they will get through. So if it's that hard to get in, it should also be that hard to get out, like Caltech. But again, if anything, we're moving away from that model. There's the gentleman's A-. We once, I think, called it the gentleman's C.

So, so on the one hand, I mean, like you say, this is a love letter to big business, but on the other hand, you're kind of presenting a doom and gloom picture here that big business—

well, higher ed has not been big business, so to be clear about that, right?

But, but, but that's where big business is hiring from. And when you're stuck with $200,000 or $100,000 in student loans, you can't— it's not as easy for you to move to Silicon Valley and take risks and start businesses and create innovation. Meanwhile, in China, you know, a third of the kids now getting college degrees are in engineering, only 7% in the US. So when does this, when does this really become a problem? It's been a problem for quite a while.

You look at the wages of males in the US, they haven't gone up that much for a long time.

Yeah, for since like 1992.

There's different ways of measuring it. You can debate the year, but it's a terrible performance either way. And I think we need to make higher education more like business in some critical ways. Not necessarily run through for-profits, but the real innovation in higher education I've seen has come from Apple and Google and actually the tech companies. They may not even call it education. You mean just in our ability to learn new skills? Absolutely, which you, you've done, you know, as much as anyone.

Well, let me ask you this. You make an interesting point. Trump is not as pro-business as people think. In fact, he might be somewhat anti-big business in his actual policies, like kind of the stand— you know, big business is always in favor of both legal and illegal immigration. I shouldn't say always, but they want cheap workers coming in. And, you know, middle America and Trump are very much against this. It's a very anti-big business stance. What other stances do you see as kind of being anti-big business? How do you, how do you feel about this current tariff situation?

Big business mostly doesn't want that to happen. Big business wants a predictable president. Which I think is a reasonable expectation. Uh, the whole idea that you start a trade war against China without having your allies on board or a clear endgame— I would admit China's done a lot of things wrong. We should be reacting in some way, but Trump is harming the interests of business there. Business is very worried about what's happening, including American business. That Trump tweets against CEOs— Jeff Bezos or anyone who might be outsourcing— You get personally called out and attacked by the president, and you wonder, like, what kind of retribution might there be someday. That's nerve-wracking. It's terrible. It's not pro-business. Yeah, and—

but okay, on the tariff situation, the average tariff China had on our goods was about 10%, and the average tariff the US had on Chinese goods was about 3%. And so do you think it's reasonable or unreasonable that Trump's trying to make that more fair.

I don't think it's just the tariffs, it's about the non-tariff barriers. So like Google can't really operate in China at all, as you mentioned before. Yeah. It's not called a tariff, it's like in essence an infinite tariff. So, so many American companies either are not allowed in, or if they come in, their intellectual property rights are stolen and they're subject to massive espionage. I think Trump is correct that that's a problem that deserves attention, and Obama had neglected it. I completely agree with that. But I don't think we've addressed that in a sufficiently predictable, reliable, effective way. So how do you think we can address that? We should have first gotten our allies on board, not started, you know, parts of a trade war with Europe, presented more of an allied front, resolve NAFTA in advance, which actually Trump tried to do, partly the Democrats I would blame for that one. We should have signed up for TPP as a kind of phalanx against China. And then with all those pieces in place, made some pretty well-specified demands that were forecastable in advance and stuck to those, and then had a president who was on other issues quite predictable, making therefore his actions on this pretty credible and predictable. That's what I would have done.

And, uh, you know, what other, what other Trump, what, what else would you recommend to Trump right now, given kind of the, the global situation in the US's sort of precarious spot as world leader, but who knows about 20 years from now?

It's the biggest issue in the world right now, and the day we're speaking, the big issue is Trump trying to take down Huawei, the Chinese company, as a company. So it seems it's the explicit policy of the United States to drive one of China's biggest companies literally into the ground. Uh, that will have a lot of unintended consequences. I don't pretend to know what they are. But if you're looking to track one news story right now, to me, that's the one. There's more at stake there than probably anything else on your front page.

So, so just to summarize, Huawei is the telecom company. They essentially dominate 5G, which is like 1,000 times faster than, than 4G, uh, which is what in America we all use right now. And the con— the immediate consequence is that when you have access to 5G, there's so much more you can do with technology in China than American companies can do here, including automation, uh, managing, you know, faraway resources and so on. So what's— again, do you let Huawei in when there might be problems with them and espionage and so on? Or do we subsidize 5G development here? Like, what, what do we do?

I wouldn't let Huawei in. That would be like saying, you know, in the 1980s, well, the KGB is going to run our phone system, right? Maybe they'd even just run it just fine, but I— you just can't do certain things if you're responsible for a country. But that's very different from trying to make the whole company go away. I'm very disappointed in our allies. They seem quite willing to allow Huawei to run, you know, the piping systems of their next generation, whether 5G or not. But to respond to that by trying to kill the company, it would be as if China tried to kill Google, say. It seems to me it will escalate and ultimately not prove useful. But again, I'm not trying to predict the detailed outcome. I'm just saying that to me is number one issue in the world right now.

And because, I mean, China did effectively try to put Google out of business as much as they could by simply eliminating Google's access to China.

But Google can do what it wants in most of the rest of the world. It would be as if China said to all the countries which deal with China, well, if you deal with us, you can't deal with Google. And that's what we're trying to do to Huawei. And there are just a lot of demands. The Chinese, I think, will not back down. They will do something to retaliate. They have many ways they can retaliate against the global world trading order or against Taiwan or with further espionage. And I foresee a dramatic escalation which will probably last the remainder of our lifetimes and has already led us to a new Cold War, a highly tense global situation. Some people, not myself, but predict a recession. There's a lot going on.

Why don't you predict a recession?

I don't quite think the chokepoint effect on trade will be big enough. It's definitely an economic negative, but like European Union seems to be growing a bit more rapidly than we thought it might be 3 months ago. Uh, China, the debt levels are not yet unmanageable. US economy is doing fine. We've been growing some quarters at close to 3%. I just don't quite see a recession. But the background level of uncertainty is up, a chance of a recession is higher, and the chance of geopolitical catastrophe. All these countries caught in the middle. You're Singapore, you're South Korea, you're Pakistan. All of a sudden you've got to pick and choose. It's a very unpleasant situation for them. Don't think they're all going to make the right decisions. A lot of this is China's fault, yes, but our reaction has been suboptimal.

And so, but you mentioned the US economy is doing well. We have in some cases, you know, annualized 3.8% GDP growth. We have the best employment levels in decades. Wage growth doing, doing very well in the 3%, you know, overall wage growth. Meanwhile, you know, we have kind of this corporate tax repatriation in, you know, companies are being more incentivized to bring back the trillion dollars they have abroad back into the US, which would massively stimulate the economy. Uh, you have a deregulation of smaller banks that weren't really, you know, involved in the problems of the financial crisis overall. Do you think that's too much money that's, that's getting almost artificially pumped into the U.S. economy, and that could have like a back— a bad effect a couple years from now? I don't see it. It'll have a good effect now, but maybe bad later.

I don't see that yet. So our rate of price inflation is still below 2%. What—

why is that, given, given the massive stimulus? Is that because productivity, like, is getting so much higher, or— I don't think there's such a massive stimulus.

So all Trump's talk about bringing money back to the US is him either not getting it or him lying. So imagine that there's money held in a bank, typically, you know, a bank that's a New York bank, and that money is labeled like funds in Ireland or funds in London, so it's not taxed. And then Trump does tax return There's not like money shipped on a set of trains or put on a boat. It's just the same dollar. The company could relabel it as dollar in the US, but it's just an electronic bookkeeping entry. Like nothing has changed. There's no like more money here. There's no new money here.

But you don't think when the money's back here, they spend it more on innovation here and employees and so on?

Maybe a little bit, but—

Which is why employment is at record highs and—

Investment's doing okay, but not spectacular. Like things are fine, but this massive influx of funds and big major new investment, It's not in the data. Again, I'm not saying investment's a problem, but—

but you point out, though, in the book that, like, venture capital investment is at a huge amount. Like, we're doing, you know, venture capital money is— is— which is the main fuel of new tech innovations. You know, venture capital, I guess, is like near at or near an all-time high.

That's mostly foreign money. So more foreigners are getting in on it. You have SoftBank as the biggest player in the game. All these people earning money elsewhere, they don't know where to put it. They want to put some in Silicon Valley. Arguably, there's even too much money in venture capital right now. Too many stupid players who are not getting in on the first round of the best companies. But look, it's their money to lose. It helps us. Let's take more chances, more failure. That's okay. We'll also have more successes. I'm not worried about that, uh, but I would say the main reason is just the rest of the world is wealthier, and you can't do the same in a place like China for legal reasons. And so people do it here.

Yeah. And it's, it's, you make an interesting point about the trade surplus. So everyone always gets worried about, or the trade deficit, everyone always gets worried about, oh, we're, we're buying from foreign countries much more than we're selling. But, you know, I think what that means, the other way of stating that though, is that there's sort of a dollar surplus in other countries and they have, and the only way they can't spend US dollars in Korea, for instance, they have to basically buy our T-bills to, you know, get their currency out of it. They, they, the money always has to come back here at some point, and usually we're getting higher returns on our investments there than they're getting on their investments here, which is a great way of looking at the trade deficit. Ultimately, it's a net positive for us in many situations, which is, yeah, helps us consume more.

If you took our sales of T-bills and relabeled them exports of American rule of law and predictability, our trade deficit would go away. Right. Why don't— In a sense, that's what they are. Not in every case, but in a lot of them that are sold.

So what I like about your books and this one is, again, you have this different way of looking at things, which makes me feel calmer about all of these things that people have labeled problems. And yet, you know, you come, you have a whole bag of new problems that you talk about on the podcast. So where, where— what should I be thinking about? Like, okay, I'm not worried about big business, but— and I do think a dollar allocated to me buying products from a business does better than me spending a dollar where it disappears into the government through taxes. But, uh, uh, you know, is there a point where, um— so, so two questions. A, what should I be worried about? And B, uh, at what point does regulation become important? So let's say the role of government is to help those who can't help themselves. I'm making up that definition, but That's a reasonable definition. Uh, at what point do we need regulation versus business solving a problem?

Two big and very different questions. For me, the main worry is always about ourselves. How can we keep ourselves in a mode which is analytical and problem-solving? And it's always so easy to say, oh, the problem's the other people, but the problem is us too. And the main thing to work on and worry about is whether we're sticking to that. Are we being analytical and problem-solving? Ask yourself that every day. Uh, the answer is, for most people, no.

Well, it's a mix, right?

But we want to improve at the margin, and let's work hard on that. And then the question, when do we need regulation? I think the analytical problem-solving answer is, that is case by case. But there are some parts of the economy, most notably the banking system, that if they failed altogether would wreck all of our lives. So there is some kind of backstop. Even if you think that backstop was unwise, it's very hard to see how we can take it away now, and we need to work to keep the backstop but limit the ability of banks to abuse it, which they do at times. It's a tough problem. I think actually with the financial crisis still somewhat close in time, we're pretty well positioned because people are still scared, uh, and they shy away from too much risk. We have this momentum behind us that we're not that much aware of. So I think to deregulate a bit will go fine now. I'm not sure you want to stick exactly there 30 years from now, but, you know, memories of trauma can be a useful thing.

And so, so, you know, I guess as a final thing, why did you— what compelled you to write, write the book? And again, because I sort of feel like you present so many positives of kind of the American way of doing things, the way we you know, have big business, the way we treat multinationals, the way we deal with other countries. And I guess there has been some criticism of big business and the economy, but you very quickly and easily sort of solve the problems that people bring up.

I thought I would just write down about big business the things that no one else was saying. And I wrote what I call a contrarian book, which ought not to be contrarian. And that's the genesis of my book, Big Business.

Well, Tyler Cowen, uh, author of A Love Letter to an American Antihero: Big Business. This is not really just a book about big business, but a really good primer on, you know, what economics means right now in America, uh, post-financial crisis, uh, under President Trump. In this world with China starting to loom, getting bigger and bigger. I think this is a great understanding of so many different issues in economics. Thanks for writing this. Again, I love— and people could argue for like a whole 30 pages about a problem, and then in one line, you dismantle it. Like, I like your argument with Nicholas Carr, who wrote The Shallows, saying that companies like Google are making us less intelligent because all the information in the world doesn't have to be in our brain. We can just, like, find it online. And you asked him, well, let me ask you this, did you use Google to prepare for this debate? Debate was over. So you do that throughout the entire book. And I think it's worth reading just to see also how you think about things, because it's, you know, you have such a cool, calm way of addressing major issues and problems. But again, for me, it just— your ways of looking at all these different issues in economics was, was fascinating. So thanks for writing this and coming on the podcast.

Thank you for having me on. Excellent. Thanks.

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