Ep. 77: Tyler Cowen – Unearthing the GOAT, Tech Progress in the Post-Great Stagnation Era and SEZs

Today is December 22nd, 2023, and my guest is Tyler Cowen. Tyler needs little introduction. Professor of economics at George Mason University, host of the Marginal Revolution blog, founder of the Emergent Ventures grant funding program, podcast host of Conversations with Tyler, and author of more than a dozen books, including The Great Stagnation, a book we talked about on this show several times. Today we are going to have a wide-ranging conversation about many different topics and ideas of Tyler's that influenced me or intersect with my work, starting with his new book, GOAT: Who Is the Greatest Economist of All Time and Why Does It Matter? Tyler, welcome to the show.

Happy to be here. Hello everyone.

Tyler, let's start with the GOAT, G-O-A-T, greatest economist of all time. I have a lot of very specific questions about the book, so let's get the basics out first. Why did you write this book and what impact do you hope it will have?

Well, first, let me say this book is free and it's online. You can just Google Tyler Cowen Goat and get right to it. Now, the story behind the book really is the story of the pandemic. So the pandemic came, I was stuck at home. Libraries were hard to access. And there aren't many books you can write during a pandemic, but I didn't want to be too bored or frustrated. So I thought, well, here's a book I can write. At the time, one didn't know how, how long it all would last. And even if it took years for the book to come out, you know, it wouldn't be stale because it's about the past. And that's why I wrote it. No grand plan.

Great. So how did you decide, or what were decision criteria of who could be the GOAT?

Well, the people I consider at length are Milton Friedman, John Maynard Keynes, Friedrich Hayek, John Stuart Mill, Malthus, and Adam Smith. Uh, the person cannot have been too wrong. They needed to have original contributions, be historically important, have done some mix of both micro and macro, and done some mix of theory and empirical work. Now, those are pretty stiff standards. They actually rule out most people, but that was my starting point.

So how did you— is there a greatest economist of all time? Can you reveal that, or do we have people— do people have to read the book?

People have to read the book. You know, the book is also loaded into GPT-4. So in addition to just reading the book in the normal way, you can ask GPT-4 questions about the book. This is on a website. And if you ask GPT-4 repeatedly, who does Tyler Cowen think is the GOAT? Each time it gives you a different answer. And I think that's the correct way for, for AI to be handling this matter. So there's a case for Adam Smith. He's the first. There's a case for Milton Friedman. He's the best economist of the lot. Uh, my personal favorite is probably John Stuart Mill. Uh, but they're all in the running.

Yeah. The book reminded me a bit of Joseph Schumpeter's The Ten Great Economists. Have you heard about that book? Have you read it?

Oh, of course. Yes. I read that when I was quite young. And, uh, Schumpeter was one of the best-read economists of all time. I think he read 9 languages and his own very long book, History of Economic Analysis, has been an influence on me.

Yeah, it's what I found. The parallel that I see is the Tributeist book is about these economists on the surface, but what it actually is, the lasting impact is the insights on Schumpeter's thinking. So do you feel there's something about that in the book as well? And what did you learn about your own thinking by writing the book?

Oh, of course. And if you look at Keynes's essays and biography, They're biographies of other people, but most of all, it's a book about Keynes, right? So doing history of economic thought, you could say, is one way of being a narcissist. Uh, these were also books I had read as a teenager for the most part, and I just wanted to go back and see, you know, what had I learned in the meantime? So I felt I've learned a lot, so I felt good about myself. Uh, that's maybe the way in which it's about Tyler Cowen.

Okay. And what specifically did anything change in your perception, or what was the biggest change in your perception of any of these economists, or also kind of discovering some of your own ideas and how they influenced you going from your teenage age to now?

Well, they're all considerably smarter than I had thought even a few years ago. When you study them systematically and read through their work as a whole, which is not usually done. Even if you read it all, you read it spread out over time. Uh, how carefully they thought about everything and tried to fit it into a general picture, uh, based on principles. And economists aren't that way anymore. So I would say Smith and Mill and Malthus, the early ones, went up the most in my eyes, actually. Very sophisticated thinkers. And not easy to classify any of them.

So they, because they touched on different areas and they covered so much ground.

If you read Mill's, I think it's 32 volumes of collected works. Well, he writes about antiquity and he writes about the French historians. He writes about women. He writes about Ireland, India, the land problem, taxation, uh, poetry. He had an amazing grasp of so many different topics at a very, very high level.

So what do you feel gives these thinkers that are very wide-ranging, like John Stuart Mill or Joseph Schumpeter, what gives them an edge? Is that they have command over like a specific area, sort of the microeconomics or the math or epistemology or something like that?

I think they have many edges, also some drawbacks. So the earlier ones are growing up in a time where there's no peer review in the sense that we know it now. So no one can tell you no. It's simply a question, can you in some way support yourself doing this? So if no one can tell you no, that gives you higher variance. There's more speculation. Uh, there's not an equivalent of having to convince a referee. So it's easier to get away with false propositions. But over time, you know, we reject the false propositions. And see the value of the true ones. So the lack of peer review for earlier thinkers, it was a problem for them. It's not so much a problem for us. And also, if you think about Smith, Mill, and Malthus, they were only partially economists. Mill had a very general education, you know, Smith taught rhetoric and literature. So they're not trying to be only economists. They're simply trying to be thinkers. And that's going to give them a big advantage in exactly doing that, being thinkers.

So why do so few economists study entrepreneurs? Right? You do, right? So you're working together with Daniel Gross, Peter Thiel, Patrick Collison. Well, but besides some contemporaries, I can really only think of Schumpeter and Cowen.

But I think what they do is they study, they study very narrow facets of entrepreneurs. They're constrained by the datasets they have and whether they can publish papers resulting from those data. So they'll come up with a very circumscribed question and try to produce a paper that is hard to object to. And the paper might cover entrepreneurs. Plenty of people in business schools publish on entrepreneurship. Uh, but I'm not sure that academia as a whole is getting very far toward a more general understanding of what entrepreneurship is or does, say the way Schumpeter had or Israel Kirzner does.

Yeah. And today these are people like Peter Thiel or Paul Graham, not necessarily economists, but I feel have, um, sort of definitely shaping kind of an ethos, Silicon Valley and the entrepreneur, um, that I feel is not very well studied by economists. Am I missing something there?

I don't think it's well studied. Now, some of it's in business schools, of course, rather than economics. But the essays of Paul Graham, I don't know the numbers on how many people have read them, but they're probably more influential than any comparable academic research. Uh, Peter Thiel on YouTube, he has written some things, but I think most of his influence comes from live talks on YouTube. Uh, again, you'd be hard pressed to find an academic with comparable influence.

It just seems like there's this book that's not written, the history of entrepreneurship or something like that. That seems to me like a big gaping hole. I studied economics and I became an entrepreneur, right? So I feel like that's the most, um, so I see also economists that I'm reading now a bit of in a different light. So Schumpeter ranks very high for me. Um, and I just feel, um, yeah, that this is kind of the biggest, one of the biggest gaps in economics. One thing that I was surprised about the book that you didn't mention was Ronald Coase. Why did you, did, why does, did he make the list?

Well, Coase is a great, great economist, but when you boil it all down, he has a bit more than 2 papers, but he doesn't have that many important papers. He doesn't have any book. And I just don't think he's a candidate for GOAT. He's a lock to be one of the top 20 economists of all time. The 1937 paper, Nature of the Firm, I think is important, but in some ways wrong by drawing this sharp distinction between markets and firms and identifying firms with central planning. So one of his two main pieces to me is somewhat wrong. The Coase theorem piece is brilliant. That's great. But he didn't do macro. The lighthouse piece is good. His work on the FCC and property rights is very good. He's very, very important, but just in terms of span, I don't think he comes close, say, to Milton Friedman.

Yeah, possibly. But I also feel that he's gaining relevance right now in the blockchain space, right? So I think he gives good insights on how to think about governance, more centralized and more decentralized. Or like transaction costs that you could reduce through new institutions that you can build on the blockchain and things like that. So maybe that's, uh, so I think he might increase in relevance over time, potentially.

Maybe, but I'm not sure how much of that is in Coase as opposed to people who built on Coase. When you actually read Coase on governance, it's a little thin. You know, the, the firm is some magical kind of planning That removes decisions from the market. And A, I think that's wrong. And B, I don't know that we get from Coase so much of an understanding then, if that would happen. Now, he did inspire people like Oliver Williamson and many, many others to fill in those blanks.

Uh, got it.

But still, I just don't think he's close to GOAT.

Okay.

He's like Bill Walton in the NBA who had a few great years. And in those years was one of the best players ever. That's maybe how to think about it. Yeah.

Um, why do free market economists dislike business, right? So Adam Smith or Milton Friedman come to mind. They, so in what ways are they right? In what ways, um, are they wrong about business?

Well, I don't think they disliked business. Now, Smith and Friedman are quite different. So Smith did think that business people are quite intent on collusion, and he was cynical about that. I don't think he's wrong. So the question is, what do you do as a society? You learn to live with it. You remove barriers to entry. You encourage entrepreneurs. Then you can very much live with it. You might want some limited degree of antitrust. Friedman, I think, was very pro-business and pro-business people. He had the strange idea that businesses should only try to maximize profit, which I don't think is as a rule defensible, even though in most particular instances, it's a correct proposition. Uh, but he was friendly with plenty of business people. They liked him. He liked them. And he wanted America to have more of a business orientation. Why do you think he didn't like business so much?

Well, he also highlighted in many talks that being free market doesn't mean to be pro-business. Also because building on Smith, he saw businesses as colluding, as wanting kind of regulations that protect them and things like that.

But again, that's true. I don't think it's any more true for business than say nonprofits or trade unions or many other institutions. But I don't think businesses are systemically better in that way. Just at the core of the other things they do, their essence. Is quite positive.

Yeah, I mean, I, I came to think that Smith and Friedman are— or the general predisposition, um, or expectation of collusion by businesses, um, could be misplaced. It might apply in a small market, say taxi drivers for example, right, where you can see everyone and, you know, you can, you know, beat up the one who makes a cheaper pricing offer that's falling out of line. But in a bigger, more anonymized market where the barriers to entry are easy, that kind of collusion can be easily undermined by someone who just doesn't cooperate with, with the cartel.

Oh, sure. But again, there's two questions. One is, are businesses trying to collude? And I would say often yes. And then the other question is, how often do they succeed? And that's in a much more limited number of cases. But there's various studies of sectors when you look at pricing behavior, you look at, say, the American automakers in the 1950s. There seems to be pretty good evidence they were at least implicitly colluding with each other, and that collusion kept on breaking down. But as an account of motives, I don't think Smith is so wrong. In the case of Friedman, I think some of his attitude toward business was shaped by the fact that for decades people told him he was an apologist for business. He was corrupt. He was selling out to business, and he simply wanted to say things to distinguish himself. From having been in that position.

Yeah, that's the impression I got from Friedman too. What is Friedrich Hayek's magic, right? So his writing is on the one hand abstract, like very German. But however, there's this deep truth that he feels, that I feel he's capturing like nobody else about the difference between the real world and science, like the appreciation for the complexity of the real world. What gave him that insight? Was it military service or what is it about him?

I think what's special about Hayek is he's the person who has a very, very deep understanding of the continental Germanic traditions and a very deep understanding of what is special from the Anglo-American world. And he could put the two together. So he understood the Scottish Enlightenment, uh, British thinkers, invisible hand mechanisms. But he had the depth of Menger and just general the Germanic background, Viennese philosophy, and really wielded both of those. And you can't say that about Friedman. And I think that was the source of his strength.

Great. Peter Thiel, right? So have you, or I'm trying to understand his view on monopoly. And it seems Schumpeterian to me at first glance, right? So, but I have a bit of trouble of reconciling important and true business advice, like tapping into a blue ocean market instead of a competitive market that's already overrun with competitors, with sort of his idea that monopoly is somehow good in the end. That doesn't seem right. It's still bad for consumers. And the winning strategy that works for businesses to get a monopoly is to lobby for government regulations. And that seems to me something that's generally not good for, for the world.

First, I would say about Peter, what I said about Hayek a moment ago. He's— Peter is also one of the few people who blends continental and Anglo-American traditions very well. Peter, of course, was born in Germany. He's fluent in German. Uh, the thinker he'll talk about the most typically is René Girard. If you look at a Peter reading list, there'll be people on it like Carl Schmitt, uh, plenty of continentals. Yet Peter's growing up in Silicon Valley, which is a very Americanized environment, very competitive. Uh, so I think that's the source of strength for Peter too. But to address your question, I'm not sure the word monopoly is always that well defined, but I read Peter in the book, which is, as you know, filtered through lecture notes. He's just saying that in his world of Silicon Valley, there's a bunch of very successful companies that don't have direct competitors. So one would be Facebook, now Meta. Now they face plenty of competition in the sense they have to compete against every other thing you might do with your time. That's the most extreme competition. Or was it Reed Hastings of Netflix? I think he said something like, Well, our main competition is sleep, you know, or people taking a shower, or that's actually very stiff competition, but there's not a place you go that is like your Facebook page. Uh, you know, MySpace, Yahoo earlier, people, and, you know, Facebook has for the most part taken that space. TikTok does something a bit different. You could say there's direct competition between Instagram Reels. And TikTok, but you have these outposts of what companies are doing and they're highly profitable. And I, I read Peter as saying, try to be one of them. But of course, with Facebook, Google, the price is zero. So it doesn't fit a traditional monopoly model. There's no price above marginal cost. There's no deadweight loss. They want as many people as possible to be using the product. So there's no restriction of output. So I don't, I don't want to call it a monopoly, but there's something unique and standalone about some of these services.

Yeah. The network effects is commonly mentioned as the main advantage that they have. But yeah, from a monopoly theory, these should be easy barriers to entry to build a similar business. What I'm a bit worried about during the discussion was like that. Yeah.

Not, not anymore, but early PayPal, it was like, well, if you buy something online, you know, you would use PayPal. That was the end of the story for a while.

Yeah. Yeah. I mean, um, something we mentioned before also in the collusion argument, right? And you're saying, oh, we need limited antitrust. That's just something that's coming up now again, right? So should these tech monopolies be regulated, right? Do you have a view on the debate?

Well, right now they're already regulated by all of the laws in existence. So I don't think it makes sense for someone to say they shouldn't be regulated. Uh, I would add to that, I think in most ways they are currently unfairly regulated. The FTC is not run on the basis of the rule of law. It pursues arbitrary cases against big tech companies. Because some of the people involved simply hate tech. It's unpredictable and unfair. And even a lot of the staffers at the FTC have thrown up their hands in despair because they think it's very badly run. So the influence of the FTC on the tech sector, I think, should be way, way smaller. Uh, if you look at the European Union, GDPR is a regulation of tech. It seems to me like it raises costs, limits entry. And it's basically just a bad idea. It's not even a gain for the user. But I don't think it makes sense to say the correct answer is zero regulation. If tech products harm people in particular ways, regular laws should apply. Yeah.

I mean, the question is the big question also of this podcast and my work is how to do it, right? Because we're seeing that more often than is not the case that these regulations are actively harmful to innovation and consumers. Right. So there is a theoretical, right, this kind of minimalist regulation would be better than no regulation, but in practice, that's not what we get.

Correct. We get the FTC.

Yeah. And I'd like to talk a bit more about regulation and to set up that, can you, let's talk a bit about your book, The Great Stagnation, because I would, I'd like to know what's is the thesis of the book and where are we today? Do you see signs of it abating? Would you rewrite some of it?

The Great Stagnation was published in 2011 and it made a very simple point, namely that since 1973, there had not been nearly as much technological progress as many people had believed. This is now a claim that has been rehashed, I think literally millions of times. But when the book came out in 2011, this was considered outrageously false and it was shocking. Uh, the book was a very successful bestseller. And I think in retrospect, the book was correct. People often forget that the last chapter of the book says, you know, within the foreseeable future, we're going to get out of the Great Stagnation, that the internet itself has already given rise to the momentum for a new wave of innovations. And the sequel book I wrote was about artificial intelligence. So Great Stagnation was not a pessimistic book. It said we're going to get out of this, but it said we've been in it now for what was then, uh, almost 40 years. And if you look back on productivity numbers, how we now interpret them, how some of them have been revised, you know, the Fed, the CBO, people have basically admitted that yes, we were in a productivity slowdown.

Um, so you're saying we are getting out of this now. What signs of that do you see?

Oh, I think we're already out of it. So first, the mRNA vaccines, which were a kind of technical miracle, uh, they've saved millions of lives. They enabled economies to have recoveries rather than staying in recession. Uh, that alone has been significant. There are now pending vaccines against malaria. Progress against sickle cell anemia. We have Ozempic and other weight loss drugs. Just on the biomedical front, in the last 3 to 4 years, we've seen incredible progress. But I think the most important thing will prove to be artificial intelligence, which, you know, I think we're only a few years away from what some people call AGI, a generalized form of intelligence coming out of a machine that is smarter than smart humans at most tasks. And all of a sudden we're on the verge of having this. That will speed up the rate of scientific advance, but it's an important service in and of itself. So the last 3, 4 years, in my opinion, we're clearly out of the Great Stagnation. And at least as we're speaking, which is very late in 2023, the published productivity numbers have been very high. Now, I would never trust any productivity numbers, you know, in the short run, you need to see Is there a longer-run trend that's going to last? But the numbers we have look quite positive. So very likely we're out of the Great Stagnation.

Yeah. I mean, I'm always reading Eli Dorado's dashboard on total factor productivity. There doesn't seem to be a change yet, but it's definitely the long-run version.

Um, keep in mind a lot of the gains we've had, they come in the form of higher labor supply, you know, N. So the vaccines mean Fewer people die, more people go back to work. Those are very large effects. They don't show up in a TFP-only measure of productivity. But if you look at any broader measures, how much more output have we produced relative to the counterfactual of no vaccines? Uh, it's a very, very large effect.

Yeah. Um, still, um, to go back to the Great Stagnation thesis, right? So your thesis of your book was that the low-hanging fruit in technology have been picked. Right? And now we're kind of bringing new technologies like mRNA and AI that could reinvigorate previous trends, right? What about the regulatory story, right? So that's something that Peter Thiel has a lot of talked about, and it seems to me the case, just if I look through industries one by one, I also had a longer debate with Alex Tauberrock about this, and he admitted many of my points that I brought up about his paper, why the prices are so damn high. Like you just go down the list, right? So nuclear energy and the NRC, you've talked about financial innovation and the impact of Sir Bons Huxley and Dodd-Frank or the SEC, right? And when it comes to biotech, you know, I still see the FDA, um, not as progressing, right? It still takes 10 years to bring a new drug to the market. And also in the case of the vaccines, all right, we had the first vaccine, but then we weren't able to iterate, right? So the biggest untold story to me is. We can produce these vaccines on a computer, like for each new successive variant, but they weren't approved on time for each new variant afterwards. So in biotech, I don't see that story yet unfolding. So the same you could bring up in education licensing or drones at the FDA. So it just seems to me that that story is still a bit sort of under, uh, undertold, but I'm sure you have thought a lot about that.

Well, I think the regulatory story is true also. And it's very important, and there's been far too much regulation. But if you look at the biomedical area, which is what you mentioned, regulation in that sector hasn't really gone down, but the pace of advances is far, far greater than it was, say, 5 or 10 years ago. So it must be the, the delta, the breakthrough has come from something other than deregulation. I would say it's come in general terms from a better and more effective use of computation is why bio is advancing so rapidly. But there's so many areas.

What number or measure would you use of that? Because the criticism is often that, hey, much of that is really just scientific news. Oh, great. We had all these breakthroughs, but where can you see it in the numbers of, say, new drugs approved, for example, right? Because Eroom's Law, um, you know, the reverse of Moore's Law is still that there's a massive downward trend in new drugs and therapies that are going to market.

But it's how good are the most important 5 drugs, right? Like Ozempic is a complete game changer. It is approved. It's ha— it has been approved. People have realized how powerful it is, and there are gonna be many other weight loss drugs, which presumably will iterate and get better. And you know, how good is the 73rd drug in the pipeline? I don't think it matters. So mRNA has a lot of potential. Probably against HIV/AIDS within the next 5 years, possibly against cancer. CRISPR has a lot of potential. And again, the anti-malaria vaccines, these will be ready for more general distribution within a few years. It's not a hypothetical. Things are going very, very well.

Yeah, I'd like to be convinced, but I'm, I think just with more restrictions with having with it still costing hundreds of millions, sometimes billions to bring new drugs to market, you have less to draw from, right? You have fewer people that are able to go through all these bottlenecks. It's, and these people are not building real companies, right? Because they're doing research most of the time. So there's no really new competitor to any big pharma company other than Moderna was one of the first ever new billion plus dollars drug companies, right? So there's just a stifling and oligopolization of the market that's been going on for decades. And that's not really changing, right? Which is also the reason why drug prices are still very high.

So I agree, it's far too regulated.

Absolutely.

We could have much more progress than we're having. And as AI advances, this will become a much bigger problem because the pace of drug discovery is likely to go up quite a bit because AI will do it for us. There was just a paper in, I think in Nature, came out yesterday, the day before, about a whole new class of an— potential antibiotics that have been discovered. Because of AI. Now we'll see exactly how practical that is, how well it works, but the strain this will put on regulators over time, uh, is not manageable under current institutions.

Yeah. So let's go to AI because there's again another sort of regulatory story. I had, uh, Neil Chilson on this podcast, for example, or Adam Thiera, who are very worried about new regulations coming out of Washington and the EU, of course. So, um, and it seems to me, and what worries me a bit is, uh, that, um, it is AI companies themselves, including Sam Altman, who's one of my heroes, trying to front run the regulators. And I see that rather as a risk to get more bad regulations rather than to get good regulations. Do you have any views on that?

With AI regulation, we don't know what's going to happen. So far it looks better than what I was expecting. So the EU, it does not seem, is going to ban open source, uh, AI, which is a strong positive. Partly that's because of the French. All of a sudden they have their own version of it. They want to keep it going. Uh, the EU almost certainly will overregulate AI as they do everything else, but I don't know how much that will stop progress. Now there's a very complicated Biden executive order on AI. Which I think is often misunderstood. The, the Zvi Moshevitz, uh, intricate dissection of that order is very important. So it creates a lot of potential bureaucracy, but actually a lot of the order is just about a bunch of things will be studied and we'll see how that evolves. So the United States has not yet overregulated AI. We might, but it's, it's gone very well. Progress has been incredibly rapid. You, you look at, you know, the image generators. Or video generators, what they were doing a year ago compared to what they can do today, it's jaw-dropping, the progress. And past regulation hasn't stopped that.

Yeah. So the good news is the regulators haven't done too much. That's reassuring. So do you have any views on existential risk from AI?

I think AI will lower existential risk on net. Uh, but that said, it's important that we do AI well, just as it is important with pharmaceuticals or airplanes or many other things. So people are not wrong to pursue safety and safety research. I'm all for that. But at the end of the day, to me, the greatest danger is a country like China being the AI leader and America being in thrall You know, to a Chinese-led world order. It's not an existential risk, but that's the relevant risk, and that's the one we need to worry about. And it's a reason, among other reasons, not to overregulate AI.

Yeah. In, do you observe what's going on in crypto and crypto regulation? Because it seems to me that that's an area where, mm-hmm. So it seems to me that there the United States is losing out more so than the EU actually. Yes.

Most, many other countries have better crypto policy than does the United States. But that said, as you know, as we're speaking, Bitcoin is up to about $43,000, $44,000. A lot of mainstream institutions are experimenting with crypto and blockchains. Uh, Coinbase has not been shut down. Even Binance, you know, the regulators could have tried to shut it down. They didn't. So crypto has snuck through the hole, I would say. And I think it's going to survive and it will be used. Maybe we're not sure always exactly for what, but we could have done a much worse job than we did, and we did a bad job. Crypto has survived. I think it's taken. You know, the worst bunches, and it's shown that it's robust. Mm-hmm.

Yeah, it seems to me you're generally very optimistic on many fronts from what's been happening over the last 3, 4 years.

I'm not sure how useful crypto will be in that sense. I'm uncertain about the degree of optimism, but I think it will be useful and I'm pretty sure it will survive. I'm not sure it will be a big deal in terms of raising human welfare.

How so? What do you think? What, what makes you skeptical?

Well, here's a few things I think crypto will be good for, and I, I'm happy about them, but I'm not sure how big a deal they are. So if you're in Venezuela or Argentina, for you crypto is a big deal, but tho— those uses of crypto don't apply to the United States or the EU. I think AIs will end up using Bitcoin or some form of crypto as their money to trade with each other. That will be convenient for the AIs. I'm not sure it's going to be, you know, half a percent of GDP or even that much. And then you'll have people just holding crypto in their portfolios for risk diversification, speculation. I'm completely fine with that. I don't think it's a massive improvement in human welfare. So I think we have to see what you can build on blockchains Whether those things are game changers, I don't think we know yet.

What about the monetary story that it's kind of an insurance against government abuse? It doesn't allow governments to print money anymore. That's something that's a concern that many people have also raised about the United States, right? And the Fed policy.

I don't buy that story last year.

Why not?

It's somewhat true again for places like Venezuela and Argentina. But they still are using the US dollar first and foremost. And if the dollar somehow weren't there, I think they would use the euro. Crypto prices historically have not been stable. Crypto for most people is difficult to use. So I don't think it's a, a serious currency competitor. And certainly for countries like the US, you look at all the asset prices you want, we're now back basically to 2%. Core inflation year to year. If you look at the numbers from this morning in late December, so European Union, I just don't— excuse me. I just don't see the inflation risk as being very high for many, many countries.

So what would be your bet for how long the United States or the US dollar keeps its exorbitant privilege as the world reserve currency? Do you see that not threatened in any way?

Certainly for the rest of our lifetimes, there's some time horizon after which you just can't predict anything, but I don't see anything on the horizon that would dislodge it.

Yeah. Yeah. Perhaps not short-term, but maybe medium or longer term, right? And then the argument is that crypto or Bitcoin or whatever is just better and just in its attributes and that makes it censorship resistant, whatever, whatever. It can't be abused as easily. And it can also be seized and things like that. So that's what could be a long run thesis, what could make it really valuable, right? Because if you don't have governments that are able to print money like they do, that could mean less wars, for example.

There's a lot of different points packed into that. I view crypto and the US dollar-based financial system as complements more than competitors. I think what's in real danger are the currency systems of intermediate countries, which are not totally reliable. Uh, again, Argentina would be an extreme example, but that will either dollarize, you know, plus crypto or dollarize without crypto. And I think that's the trend we'll see is just fewer currencies because the, the dollar and the euro are reasonably well managed and crypto. What's the future price behavior gonna be like? And no one really has a handle on that. So why would you want to use it as a currency?

So I didn't get one part, you were cut out. What was the question? Was why would you use Bitcoin as a currency or something else?

Oh, crypto in general. We don't understand its price behavior very well, which is fine. You know, it's part of a portfolio, you're diversified, but to use it as your whole currency, given price movements are maybe intrinsically non-transparent and very frequently volatile, I don't see why it's a serious competitor as a currency.

Well, you could use stablecoins in the interim, right? That's what me and most of my friends use.

Well, that's great, but that's pegged to something else like the dollar, and it's only stable if the dollar's stable.

So it's, and that gives you the time until, you know, there is cryptocurrencies that are less volatile, right?

Well, the ones we get that are not volatile are pegged, which I'm fine with. And the ones that aren't pegged are volatile. And even when they're not volatile, like for some parts of time, Bitcoin prices don't move around a lot, but we don't have a good theory of why or why not. So with the, the dollar, you can look at the Fed or the euro, you can look at the ECB and try to understand what's gonna happen. There's no comparable set of models for crypto. Through which you can try to predict value. So again, I just don't think they're in the right—

developed already, right? So there's already crypto fundamentals analysis, and of course it's in the early stages, but once it's in a more mature stage, there's just much more data that you can use rather than Fed policy, which can be very much of a black box or intransigent.

I think the Fed is pretty easy to predict. It said it wanted to go back to 2% inflation. Because voters wanted that. We went back to 2% inflation. They made a big mistake by letting it get so high. Some of that was unavoidable due to Ukraine war, pandemic. A lot of it was avoidable. Now we're back to where we want to be. It seems to me like a, you know, a very stable, actually underrated system.

Underrated system, right? Mm-hmm. Yeah. I mean, there's other use cases, but I mean, I've shifted most of what I do to crypto. It's just easier, more user-friendly, more cross-border things are possible. Well, once you become especially an international entrepreneur and you do things across borders, you just realize how fragile many of these systems are, right? I have in the banking system, wire transfers get constantly stuck for me, right? Even though, even when I'm using US banks and with crypto, I had more than a dozen like banking problems, even data breaches, everything with crypto. I didn't have any of that, right? No breaches of data, no lost wire transfers. Like, I think people are underestimating how good the product already is in replacing many things in how the current financial system works and making it more efficient.

Oh, I agree strongly, but so much of what you do is with dollars, or some of it might be with Honduran currency or other currencies, and crypto's a complement to those, and you want to be able to use all of those to conduct your business in the most efficient way possible. And that's what I think the future looks like.

A pluralistic system. Yeah.

Yeah. But in a way, it takes some pressure off the dollar if you can do some things with crypto.

Mm-hmm. There was one thing that fascinated me about diving deeper into the crypto world, meeting and talking to people like Vitalik Buterin and reading much of his work. It's just, I think they've created a lot of progress for economics, right? So when you read anything on like free banking and free money, Hayek, before nobody believed him. And any kind of, you know, treatises on money, at least felt to me from my reading, all right, we don't really know that much about it. And now with crypto, with blockchain, with many of these innovators, it just seems to me we just have much more like real experience that informs how we can theorize about what money is and finance and things like that.

It's embarrassing how little interesting mainstream monetary economists have had to say about crypto. I would say it's basically zero. It's this huge fleet of people, often at our top schools with impeccable credentials, and they, it's been a complete strikeout. So that's embarrassing, right?

Yeah. Whereas you have interacted with, um, people in crypto with Vitalik Buterin. What did you feel you learned from Vitalik, for example?

Well, in, in a sense I could say everything, but to be clear, I am not someone who has had any original insights about crypto, but I followed it and kept an open mind. Vitalik, I think, in addition to his role in crypto, he's simply a great economist and not frequently enough recognized as such. You could quite plausibly give him and Satoshi, whatever Satoshi may be, or whoever it may be, I'll give them Nobel Prizes and it will be entirely justified. The system is not going to do that. But if you have questions about monetary economics, Vitalik's one of the people in the world you should bring them to. And he just thinks very, very deeply about decentralized systems as a whole.

Yeah, for sure. Um, let's switch topics. Um, I'm curious, um, in what ways have you encountered, thought about, or written about charter cities or private cities?

I have some blog posts on charter cities, but I don't have any full standing piece on the topic. So I favor more experiments in governance. Uh, charter cities can be a part of that. Obviously there's special economic zones, uh, many other possibilities. I think that our world is just too small c conservative flat out when it comes to governance. Now, my big fear with charter cities, as with many of these other experiments, is simply governments don't want to allow them. Governments either don't want to look bad or they're just jealous of their sovereignty. And in many parts of the world, it's easier to understand that because you don't always have these fully mature, completely stable nation states, and they feel they don't want to be carved up by all these little experiments. So I'm not sure how many experiments we'll get to do. Uh, but I hope we get to do more of them. I mean, look at Greenland, especially as it gets warmer., you know, owned by the Greenlanders, indirectly by the territory of Denmark. It's a lot of wasted land up there. Uh, I hope we can in some manner start doing governance experiments on Greenland.

Yeah. And in a way you could also say some of the, um, recent history, um, makes us actually underrate, um, at least special economic zones. So Dubai, for example, or Hong Kong in a sense. Or China had much of its success due to special economic zones, something that Ronald Coase actually wrote about.

Dominican Republic, Ireland. There's many successes. They're not all successful.

Mm-hmm.

Exactly. But so the record as a whole is pretty strong. And the, the ways we do them, I wouldn't say it's a formula, but we now know how to do them properly, right? So we can do them. It's a, it's a proven thing.

Good. What gives you that impression? I'm curious. Or how did you come to that insight? Because I agree with you.

Reading about China, Ireland, Dominican Republic, other places, and visiting those places and talking to people. Dominican Republic now is one of the wealthiest countries in Latin America. That was not the case several decades ago. Special economic zones are really the main reason why there's been that growth. Now, the Chinese story's more complicated. A lot of that is just rural to urban migration, but it's, it's very clear that their experiments with special economic zones have helped them. Hong Kong, you can classify in different ways. It's had been earlier more like a charter city ruled by the British, but you can think of that also as a kind of special economic zone of its own. And that achieved, you know, an entirely Western living standard.

Yeah. Also bringing in common law, which is often seen as a great way to achieve economic growth.

And the English language. Yes.

Yeah. Yeah. What are your, what kind of experiments in governance would you'd like to see that we haven't, you haven't seen, that we haven't seen enough of yet?

Well, I don't think I've seen enough of any of it. To me, the key questions are, where will you house the thing? Is the home government sympathetic and credible? That's very tough. And then I think often you need an outside hegemon willing to protect it. So if you think about earlier Hong Kong, well, the British are ruling that and of course they're protecting it at least up until The agreement with China, you know, was due to expire. So you, you need two big prerequisites and most of the time you don't have them. So I don't think it's so much about my imaginary wishlist, but more like, can we find some number of cases, any at all, where those two conditions are satisfied? I hope we can. I hope Zanzibar in some way becomes a thing, but I don't really know anything about the internal politics. I don't have a prediction.

Yeah, I mean, there's, I think, different ways to overcome that, right? I mean, I have a lot of the experience in some of these places, but most of all in Honduras, of course, where we right now don't have a friendly government, but the architects of the special economic zone law have written in very strong legal protections, right? So they're currently being tested, but right now it looks pretty good. And if that succeeds, that can also work in other places around the world, right? Where we can tie new special economic zones once we have a friendly government to investment guarantees so it can outlast potentially less friendly governments in the future.

But I worry more than that because these are often not rule of law places. So to get true investor confidence, you might need more than a written agreement. You might need a succession of alternating governments where people see all the different sides are on board with this. And clearly Ireland, Dominican Republic, you've had that. It's institutionalized. China's more complicated, but there actually had been a lot of turnover of power and the basic system of the SEZs was not being challenged or overturned. So, you know, to rely on like US investor protection agreements and treaties, I think you need more consensus in the home country for these to really work.

Yeah, well, I think it depends on, you need to attract in the beginning, it's always a small number of entrepreneurs that are willing to try something new, right? So, and I think what Honduras did was they went further than others in providing special economic zones with these strong guarantees. And it did start with only a small number of special economic zones, but if they're successful and if they can build a track record and employ a lot of people, that makes it easier to convince future governments to keep them because, you know, there's a much higher cost of sort of public perception if you sort of go against them. So, you know, I would, I would implore sort of countries like Zanzibar, for example, that don't have a strong rule of law yet, that they get very bold, right? And offer special economic zones that can just have a very high upside for entrepreneurs that are willing to take a higher risk on that.

The status quo is often so bad. People have so many different objections to changes. But if the status quo were a change that someone is proposing and you had to look at it and evaluate it, you should see it as such a horror in terms of per capita income for, say, Honduras, Zanzibar, uh, you should be willing to make some changes.

Willing to make some changes to, yeah, to allowing for, yeah, yeah, yeah.

Um, experimentation and governance. And again, where you're going to do it is important. You shouldn't be forcing people to live there. That's one reason why I mentioned parts of Greenland. Most of Greenland is empty. As it gets warmer, you can set up new arrangements and genuinely no one is forced to accept the New Deal, but they could move there if they want. That gets harder and harder as the world is more populated. But it's not impossible.

Yeah. Yeah. No, it's not impossible. I get this very eye-opening conversation with Bob Haywood, who's been advising governments on special economic zones for more than 50 years. And his method is to just work with the law book that these countries already have and then make small tweaks that can have a big impact. So Dubai, for example, already had a free zone status, but what was really lacking is the ability to form businesses without having rules around domestic ownership of these businesses, right? So it can sometimes be sort of legal hacks in the existing systems that can unlock big changes without necessarily sort of being perceived as like a big change that can be threatening to, to people there.

I think there's also an interesting set of interactions to be coming As the world depopulates, it's still a while away, but not in all places. More and more countries will start depopulating through a mix of low birth rates and outward migration. And that's going to open up lands. Uh, but I don't think many of these lands will be entirely empty. So there'll be this question. Well, if you want a new experiment in governance, you need the consent of everyone there. What if there's 3 people on the street corner somewhere who don't like it? You know, is it coercive toward them? Do you just have to go with what's better for a clear majority of people? But we'll have to rethink a lot about political order as the world depopulates. And I hope there's one upside that it will give us some room again to experiment some more. Great.

Finally, do you want to talk a bit more about exciting ideas that come, or generally what's, what's been your experience with Emergent Ventures and the ideas that come through it, right? So you engage. On a daily basis with entrepreneurs that have big ideas and want to create very big social impact. So what are you seeing that you're excited about?

Well, we've had over about 6,000 applications and we now have over 500 winners in many places around the world. I think I'm very excited about computational biology, starting to get quite excited about robotics. Uh, energy will go fairly well. Green energy too, but just energy more generally. I think podcasts still are somewhat undervalued in a very different direction. And just the idea that in a relatively small country, you can have a lot of impact with, say, 5 to 10 quite talented people who want to change and improve things. I think that idea remains quite underrated. So those are some of the things I'm excited about.

Do you have some examples, especially for the last point, to have like a small group of people in a different country that can catalyze large change? Because it's also something that I'm very excited about.

Well, my formative example, and I lived there for over a year and a half, was New Zealand in the early 1990s, which had a population then of 3.6 million people. They did large numbers of mostly very positive reforms. They didn't keep all of them. They kept a lot of them wholly or partially, and the country's much better off and also didn't go bankrupt and had some ideas like inflation targeting that have spread throughout much of the world. Now that's a small country. I was there when much of it happened. It wasn't that there were millions of people marching in the streets demanding these changes be made. There were some number of people often at New Zealand Treasury or New Zealand Business Roundtable who had good ideas and were willing to see them through. And I think any smaller country in the world, this could happen. I'm not saying change doesn't come to larger countries, but I think it's a very different formula. India, Brazil, United States, different mechanisms. Smaller countries, I think we're going to see a lot of countries going their own way, often in bad ways, but in some good ways too.

Yeah, that's something I also have just hopes for that we do more of it, right? Because I moved to Honduras and I became a venture capitalist there and made the first institutional VC investment in a Honduran company. And, you know, you can just see there is a tech scene here and that's hungry and that's excited. And, you know, by bringing in things like, you know, my knowledge about how to do a Delaware C-Corp and how to get fundraising in my network can make a big difference. And I also saw seeds of that in Zanzibar when I was there organizing a conference. There's the same kind of potential. Right. So I think there's a lot of potential for entrepreneurs to, you know, go to these places and it could even be a better model for development than, you know, the previous development aid models or whatever to really make a difference and just doing business and entrepreneurship, especially in technology, because that's just something that's more accessible increasingly in different parts of the world through the internet. So there's a lot of entrepreneurial potential that's dormant, right? So. Back to our initial conversation, entrepreneurship seems to be something that's of a personality trait, right? So you can find that anywhere you go.

You know, I hope Latin America is an undervalued part of the world right now. I actually think it is. Not everywhere, not every place, uh, but the potential is there. And they're at a level where most parts of it actually have some resources to work with. Unlike some parts of Africa, education levels are not always terrible. It's a lot of energy, a lot of talent. Uh, most of it, not all of it, mostly it's geopolitically secure, not going to be invaded or taken over. So, you know, it, it's up to them. But, uh, Colombia, Argentina, Chile, El Salvador. I don't know enough about Honduras. I've been once. But I know less about Honduras than many other countries. Uh, there are definitely quite a few points with hope.

Yeah.

Yeah.

So, um, that's great that you're hopeful in so many different fronts. Um, and there's much to be, um, built on sort of when it comes to many of the technologies that we talked about, entrepreneurship, um, but also economics, right? So I felt as an entrepreneur, economics was very useful. And I'm ingraining an increasingly appreciation for it. Also sometimes like you going back to The Economist I read back then and picking up lessons that I missed before that I now able to appreciate with more life experience. So Tyler, it was really amazing to have this fantastic and wide-ranging conversation with you. Is there anything else you would like to give listeners on the way in terms of drawing attention to some of your work?

Well, I just wanna draw attention to the fact I'm visiting Prospera in January. We're now recording in late December. I'm looking forward to it. I'm not very well informed about Prospera or Honduras more generally, where I've only been briefly. Uh, I'll be reading more about Honduras and I'm curious and I wanna learn things. I think that's the most important thing for me to say.

Yeah. Fantastic. Happy to give you or to provide you with any of my insights or knowledge and What you're referring to in January is an event that I'm organizing, a 2-month-long biotech acceleration camp, basically similar to Vitalik Buterin's Zuzalú, right? So we're going to bring several hundreds of people, probably around 200 permanent residents, 500 people in total that are going to visit. So really looking forward to welcome you there, Tyler, and show you Honduras or show you Roatán, a beautiful Caribbean island, and what we're up to there. So Thanks so much for coming on the show, Tyler.

My pleasure. See you soon. Take care. Bye.

Bye.