Tyler Cowen: Economics, politics and the life during COVID-19

Hi everyone, this is Hashem of Psiconomics or Hashem Fakhsadiyateh. Today our guest is Tyler Cowen. Welcome, Tyler.

Hello, thank you for having me.

Tyler Cowen is professor of economics at George Mason University. He's also a faculty director at Mercatus Center. Tyler Cowen is a co-author of the most popular economics blog, Marginal Revolution, and he is a co-author of Marginal Revolution University's online teaching platform for economics. Tyler is an author of a dozen of bestselling books. More recently, he wrote a book called Big Business: A Love Letter to America's Antihero. Tyler writes regularly for the Bloomberg Opinion. I really recommend you read him there too. Tyler, today I invited you to talk about coronavirus and its effects on economics and especially developing economies. So my first question is, what do you think will be the biggest consequence of coronavirus in the developing world?

I think we need to disaggregate the developing world into several parts. So we see a number of countries that have, for whatever reasons, handled coronavirus really quite well, in some cases remarkably well. Vietnam, for instance, claims zero deaths. I don't know if zero is the right number there, but I think it's generally accepted it has not been a major problem for them, even though they're right next to China. In Cambodia, as far as we can tell, uh, things seem fine. Again, very sketchy data there. Uh, if you compare that, say, to India, if you look at Mumbai or Delhi, uh, there's a fair amount of carnage happening and there's not enough of a public health infrastructure. And I think a lockdown is both not feasible and people starve through the lockdown, and the lockdown just means you push them into crowded spaces in very crowded cities. So what we're seeing so far is that you have a tier of countries such as India where it clearly will be very, very bad for both the economy and for public health. A number of countries, often Asian, that seem to have virtually avoided the problem altogether in a manner which I find puzzling. And then if you take most of Africa, they seem to inhabit an intermediate space where often we as outsiders don't know yet which box they'll fall into. They may themselves not know. Latin America generally has been going in the wrong direction, Uruguay being a notable exception to date. So it's a big "it depends," and I wouldn't necessarily assume that those differential fates are how the whole thing will end up either.

Thank you. But what do you think whether— do we have a correlation between, say, a GDP per capita and, say, how bad coronavirus hit the country?

My understanding is if you adjust for age, that age does pretty well in predicting fatalities, and a lot of poorer countries tend to be quite young, of course, and then coronavirus is much less likely to be fatal, that once you adjust for age, the influence of GDP really is not there, at least based on the data we have to date. But again, we're in what's sometimes called the second inning. Of the pandemic and don't assume that what we see so far is going to be the final story.

Do you think we have any understanding about how climate affects coronavirus? Meaning, are warmer countries having an easier time than colder countries?

Well, there were some earlier papers around the time of April that found some positive effect to being in a hotter country. And at that time, those numbers seemed to hold up. But those numbers are looking worse over time. So the performance of Latin America, much of which is quite hot, has been fairly bad. Even within a country, if you look, say, at Ecuador, Guayaquil has been the worst-hit city. That's one of the hottest parts of the country. The much cooler Quito, which has higher altitude—may or may not be a factor—has has been hit far less. So the advantages from heat seem to be disappearing. And then within the United States, the states right now that are being hit hard, at least anecdotally, it seems to be the states that are hot enough where you seek out air-conditioned inside spaces, and inside spaces are worse than outside spaces. So at the very least, that's going to make the once positive effects of heat non-monotonic, and at very hot temperatures, it might get a lot worse. Okay, thank you.

Now, let's talk about institutions in the developing world. Do you think, given the pandemic, institutions such as United Nations or the World Bank will gain more prominence in the world, or the opposite will happen and the anti-globalist rhetoric will prevail?

I think the multilateral institutions will have far less impact and influence. For one thing, travel will be problematic for quite a while. Whether it's the legal restrictions or just the difficulty of the quarantine or just employees, especially older employees, not wanting to go. It'll be harder to do anything internationally for quite a while. That will limit, say, the World Bank. But also, if you look at their pandemic response or that of the United Nations, uh, WHO, I don't think it's been so overwhelmingly, uh, positive. I don't think they've been difference makers. WHO early on made some big mistakes. I don't actually think President Trump will defund them, but obviously that's a blow to their prestige. And the most likely heroes at the end of this all will be the biomedical establishment and the scientists, which is a, an international community to be sure, but they're not multilateral institutions. And right now their ability to operate is badly bruised and perhaps permanently so, or for a long time.

But in the developing world, a lot of governments are looking at the World Bank and IMF to help them, you know, weather the storm. And in that notion, I was thinking whether IMF and World Bank and the UN will gain more prominence in very, very poor countries, or do you think that's not the case?

Well, I think you have to look at it institution by institution. Institution. So if you take the WHO, for many poor countries, that is their public health authority de facto, even though it's not de jure. I think we'll see better performance from the WHO than we saw earlier on in the crisis when we were told that masks were not very important and that there was no person-to-person transmission in China. There's enough negative publicity thrown their way, they're afraid of losing American money. I do think they'll do better. That will help developing nations. If you look at the IMF, to me that's really the big question mark. So the IMF was designed— the quotas, the resources in the IMF— under the presupposition that at any point in time, the number of developing country crises would be fairly limited. And even in 2008-2009, stretching through 2011, that number was capped enough, and you had enough positive Chinese growth, that the whole thing held together. But I suspect now, you have so many countries that will have fiscal problems, balance of payments problems, credit problems. It's a real test of the IMF, and frankly, I don't think anyone knows how well they will do in this new environment. Again, without really having positive Chinese growth, to be a difference maker. The World Bank, I just think, at the margins, you know, will help a bit, but it's just not going to matter. And the poorer countries that have done well, such as Vietnam, Cambodia, they didn't at all do well because of the World Bank. So I think they will find their own models, and you will find a number of developing countries that will use cheap labor to develop low-tech but effective means of test and trace noting those societies often have low levels of privacy anyway, so they can do things Western countries can't. Cheap labor, low privacy to begin with, low-tech test and trace. I think we're going to see over time a lot of poor countries that do it pretty well.

Okay, thank you. But overall, what I was observing is that in many parts of the developing world, especially say in Central Asia, countries and governments were helping each other in these trying times, right? You know, Uzbekistan is sending masks to Afghanistan or Tajikistan and stuff like that, and Belarus is helping us with some medical equipment and so on. And what I thought is that the fact that countries are helping each other in these trying times, would you think this will change the world order in a way that we didn't anticipate? Because I think that the weakest link in this pandemic is as strong as the strongest one. So—

I see more cases of countries not cooperating very well. So, if you look at the European Union, it has not been very effective in the current crisis. Now, some of the member nations have done fairly well; it's not that it's all been terrible, but not to the credit of the EU. If you look at America's relationships with its allies, no matter which parties you blame, but I don't feel many of those relationships have gone very well. Will you see a number of very specifically local cases where new friendships are built, as you mentioned? I think we will, but in the GDP-weighted sense, I think we'll find just overall lower levels of cooperation across most of the world. A lot of good local partnerships at lower GDP levels, I'm all for that, but I feel more despair than hope on all of those issues.

I see. Let's say hypothetically—

not meaning to get you down, by the way, you know. I don't mean it that way, but you asked, I'm going to tell you.

No, I mean, you know, you could be right in terms of advanced economies, but my question was primarily about poorer countries in which I observed a lot of cooperation, especially in Central Asia, because, you know, I didn't expect that much cooperation among those countries. I mean, ex ante, but now I see there is a lot of help.

I would say, just to be clear, Central Asia is the part of the world I probably know least about. If you look at, say, India-China, cooperation has gotten much worse. India-Pakistan is, I think, hard for me to judge, but I don't see obvious big cooperative moves there. So population-weighted, those are highly significant cases. If you look at Nigeria, possibly they are being hit somewhat hard. I'm not aware of meaningful cooperation on a large scale that they're doing with their neighbors. Things happening I don't know about. So Latin America, again, mostly a bad record. I don't mean to necessarily blame these countries. They just have a hard enough time dealing with their own problems and very binding budget constraints, and travel is difficult.

Okay. I mean, I think you're right. But let's talk about specific case. Let's say you are in charge of economics in middle-sized developing country, let's say like Uzbekistan, you know, we have 30 million of population because of the lockdowns, everybody lost their sustenance. Most of your workforce doesn't work in the, you know, are not legally employed and remittances from the migrants dried up. So what kind of things that you have in your toolbox that you can ease the difficulty right now?

Well, I think there's good evidence that masks work, and masks are very cheap, and virtually every country can do a lot of masks fairly quickly, if only through home production. So I would start with that. Again, I've never been to Uzbekistan, I'm reluctant to speak to the details of Uzbekistan, but it would seem to me, from what I know, there's enough traditional structure and hierarchical relationships that your ability to do test and trace on a very local level and in villages and through village and small town authorities is— there's a chance it's really quite good. So I would at least, uh, look into that. And then some of the treatments we're finding, like the cheap steroid treatment that seems to lower fatalities for extreme coronavirus patients, uh, that's something you can afford and can do, and it's fairly easy to administer. So, I'm by no means totally pessimistic about a lot of these lower to middle income countries.

So, but you're talking about the effect of pandemic and how to reduce it. I think Central Asia and Eastern Europe did particularly well on that. But my question was more about economics, like, because of the strict lockdowns and mask wearing policy and so on, people are losing their sustenance. They basically can't feed their families right now and so on. What are economic tools that they can use to get out of it? Should they borrow more from the IMF or should they, you know, increase taxes? Like, how should they think about developing in this situation?

Well, most poor countries cannot afford extended lockdowns. You might want an initial lockdown at first just to figure out what's going on or develop a concrete policy response. But it's not possible or feasible or desirable to have the lockdown for a long period of time because you will kill more people through starvation and poverty than you will save. Beyond that, I think having good public health measures is the best thing you can do economically. The demand for your exports likely is going to fall. You can't do much about that. Don't assume that whoever has had a good response so far is not in any trouble. So right now cases are rising in Japan, cases have been rising in parts of China that did not have problems previously. From the evidence we have, it seems one rational Bayesian update is that the thing can be dormant for really quite a while and then it can hit you hard. So you're never in the clear. You shouldn't say, "Well, we've solved the public health problem. Now we've got to fix the economy." The best thing you can do for your economy is to keep on solving the public health problem. And that's very, very, very hard. It's even possible, and this is more speculative, it's possible there are different strains of the virus and that some countries have had the less contagious strains and that over time the more contagious strains might come to them. That is again not confirmed. If that's possible, there are really quite great dangers ahead. And getting the public health front right is again for me the top priority.

Alright, let's talk about advanced economies. Do you think— Which economies? Sorry. Advanced economies, rich countries, advanced economies and rich countries. Do you think as a result of this virus, people in advanced economies, voters, will become more nationalistic?

Like, would they— Well, they already have. They were already becoming more nationalistic anyway, so this is speeding up that tendency. In my view, this is quite unfortunate; it's very bad for Central Asia, I might add. And immigration across most of the world is completely shut down. And even if the virus were to go away fairly soon, what we will need to do legally, institutionally, in terms of backlogs, civil service capabilities, to reboot it at its previous level. It could take really many years, and the ability of someone, say, from Central Asia, as you have done, to just come study in the United States as a normal matter of course— I just made the point that even if Joseph Biden beats Donald Trump, a kind of backlog effect, untangling the mess, could take at least 5 years; and if Donald Trump is re-elected, the immigration situation could be much worse yet, and this will be bad for pretty much all developing nations.

But what do you think about travel in general? And if you, if you read reports, people are yearning for, you know, getting out and hanging out together or going somewhere. And there are a lot of surveys that show that. Do you think that once the vaccine or cure will be invented, people will start traveling at a higher rate than they used to, or it's just, it's already kind of gone?

Well, they're already traveling at much higher rates than a few weeks ago. There's data on airline flights and how many people are on the planes. And I don't have the numbers in my memory, but it's really quite startling how high the rate of growth is within Europe, within the United States, not yet much across borders, but within Europe there'll be an opening in July. How dangerous this turns out to be I don't know, but I think we'll also see a number of backlashes. So as countries, highly tourism-dependent countries such as Spain and Greece, parts of Italy reopen for July and August, it's not really the travel that's the problem. It's the drinking that people do during the travel and then the ways they get together in bars or indoors. And it could be there's a big backlash and countries retreat from this. So, I don't know, the whole situation makes me very nervous, and my ability as an American to get almost anywhere is close to non-existent right now. So, I'm not sure when that will change.

But what do you think about voters in advanced countries and their beliefs about government intervention? Do you think that they will be more willing to tolerate, say, government resource allocation, price control, rationing, and so on as a result of this pandemic and healthcare crisis?

Well, I don't think most advanced economies will need price controls or rationing, but they will be much poorer. Imagine a number of countries, say 5% poorer moving forward. Right now, we're all playing a game of denial. We're not willing to specify who has to bear those costs. And it's just all borrowed money. But at the end of the day, if there are fewer resources, fewer people working effectively, you can borrow all the money you want, but the world can't just conjure up the resources. And in essence, prices will go up either directly or indirectly, and someone will get the short end of the stick. And politics will try to make up for those losses in very destructive ways with a lot of rent-seeking, high levels of deception on the voters. Voters, I think to me is ugly and disturbing and will not be done in accord with even halfway decent economics. Okay, interesting.

But I want to ask you about one thing you wrote for Bloomberg on March 9th. In your column, you wrote that, and I quote here, it is common for the US to flounder at first, then respond much later with energetic and effective outbursts. And it's too early to write off the US response as pathetic. Being a laggard is an old and dangerous American tradition. Do you think that was the right prediction?

Well, I've somewhat repudiated that column in the meantime when I gave my own country grades for its coronavirus response. And most of those grades were quite negative. But I'll say this, on the biomedical front, the response of the United States and other countries, to be clear, has been fairly tremendous and rapid and constructive. And that may be the most important front. So we can make a long list of all the stupid things Americans have done, including our leaders. I would agree with those criticisms. But if we come through on the biomedical front, you still have to say our response has been a pretty good one. So too early to tell. When it comes to coronavirus, most of all I see people engaged in premature moralizing. It's very dangerous. The criticisms of America are correct. But if we hit a home run in the one big area, well, we'll see. Okay.

But what do you think is happening here? You know, do you think that the current generation of Americans are different than those that you talked about in your Bloomberg column? Like, your main example was World War II and other crises when you're saying Americans are slow at first and then they kind of make up for for their lags. Do you think the current generation of Americans are different than the old ones?

We're more complacent, we're more spoiled, we're less willing to sacrifice. If you look at World War II, there's a person, maybe you don't know his name, but Ted Williams, he was a baseball player, maybe, you know, the best in all of professional baseball. And he took off several years to fight in World War II, when maybe he didn't have to. And then in 1953, '54, he took off 2 more years to fight in the Korean War. He lost 5 years of his career to serve his country. He didn't even try to get out of it. Now today, you don't have— you have large numbers of Americans not willing to put on a mask, not willing to postpone visits, not really giving a damn how many people die in nursing homes. And I think it's been 43% of our fatalities have come in nursing homes. Like it's a story, you'll find it in the newspaper. But a lot of those deaths were just unnecessary, and it is not actually a major national scandal. And that shows a kind of moral, spiritual, and energetic decay of the American psyche, in my view. Forgive my premature moralizing, but that's what I have to say.

But do you think it's an American-only phenomenon, or do you think that other parts of the world are suffering from the same problem? Like they're more individualistic in some sense. And, you know, I take this virus as an example of public goods and, you know, common goods problem where, you know, everybody benefits from everybody staying at home, but nobody does it. Somebody on Twitter said it's like working on a group project, you know, you do all the work and nobody does it. So what's happening to the world?

Well, so far I see America as the worst wealthy nation. Brazil might be the worst nation of all; Mexico has done very poorly. It seems to me, a nation such as Denmark, amongst wealthy nations, has had one of the best records for actually doing what they're supposed to have been doing. So it's not that every wealthy nation has failed, at least so far. You have Sweden taking an unusual course, a course that might be mistaken. Mistaken, but I think their people have obeyed the instructions for the most part. So that would be a different kind of mistake than the American mistake. It seems to me Americans are saying back to their government, "No, we don't want you to solve the problem this way, by imposing privation on us; we're demanding you solve the problem some other way." And in a pandemic, that's a huge gamble to be taking. Right now, that's what I see my countrymen doing.

But if you restrict your sample to only wealthy countries, what do you think would be the single most important variable that would explain most of the variance in the rate of coronavirus infection?

Putting aside issues of age, I think social capital and how strong is your weakest link. So, a country such as Denmark what you might call the weakest link in Denmark is still relatively strong. In the United States, or for that matter Brazil, the weakest links in terms of social capital are really very weak. Germany has performed, I would say, in between America and Denmark, but overall closer to Denmark. So social capital and the weakest link test, I think, have a lot of If you look at England, and I use the word England, not UK, England is like the United States in this regard. The social capital of their weakest links, again, completely before coronavirus, was really quite poor, and we're seeing the problems with that manifest itself in England as well.

So when do you say weakest link, do you mean the economic and social inequality, meaning the the most vulnerable people are somehow more disadvantaged in the US compared to, say, Denmark, or that's not what you meant?

I don't— I think that's close to it, but it's not exactly the right way to define it. So if you look at the data, say, from my county, Fairfax County, I think about 11% or 15% of my county is Latino. But at times, two-thirds of the cases of coronavirus have been Latino, and much of that is because those are the forward workers who are more exposed. But I think some of it is the norms, the countries they come from. These individuals have grown up with high levels of risk, whether it be because of gangs or malaria or dengue, and so if they come here and are confronted with the risk, which for their age groups does not sound phenomenally high. I think they're not scared or apprehensive in the same way. And there are communal norms and high numbers of people living together and close family connections with maybe higher than average levels of hugging and kissing. And you combine that with having these frontline jobs and you've had serious problems. The fact that they are on average poorer adds to that, but I think if you start with income, you may be missing the main issue. If you take African Americans in the U.S., where also fatality rates have been much higher, per capita income for African Americans is about the same as for white French people, right? So it's not just income. Income's a factor, But there's something about relationships, social capital, hypertension, obesity, diabetes, uh, that's interacting in a way that's very toxic, and America just doesn't care about it in the right way. The elites have the luxury of telecommuting and being at home and isolating— not that they don't care at all, but it's not an urgent priority in the way that it should be for them. It's something happening to other people.

Traditionally, when they teach you what's tragedy of commons, right, where there's overgrazing in communal property or something, what the main kind of idea of that, of that problem is that in individualistic cultures where people's utility depends only on their own, then there will be overgrazing, let's say, of the public grazing fields.. But if a culture is more, say, collectivistic in which in a way that they kind of maximize the communal utility, then the problem of overgrazing can be solved because people would care about their fellow shepherds and so on. What I find surprising, and tell me if I'm wrong, is that Southern Europe to me was more kind of collectivistic where people live together, where people hang out together and they are more social. And Northern Europe was less of that, and it's more individualistic. But the death rates and infection rates are much worse in the South than in the North. And how would you explain that? If it's a tragedy of commons kind of problem where people don't care about others, Denmark should be the worst country that we would say, and the best country would probably be somewhere in the Middle East, but that's not what's happening.

I think there are many puzzles about the cross-sectional distribution. Of both fatalities and even just cases that we don't understand. So Kosovo seems to have done pretty well. They have such great governance? I don't know. North Macedonia seems to have done pretty well. Greece, within the European Union, is one of the better performers. The Netherlands is one of the worst performers. And you would not have predicted any of those in any obvious way up front. Could it be the Eastern nations have this tradition of a certain kind of obedience still in the culture? Or could it be their kind of vaguely weird paranoid planning for pandemics in communist times? There are still leftover authorities and procedures and processes they've benefited from? Is it just timing that they got the virus from Italy at a later date and were more prepared? Is it just that we're in the second inning And after the whole history is over, maybe what appears to be the current winners won't have done so great anyway. For how long, you know, can Kosovo keep up such a good record? I genuinely don't know. I would just say, this to me is a very significant social science puzzle, and I've asked many people in epidemiology about it, and also in the biomedical area, and I don't feel they have good answers. I don't feel they claim to have good answers. We will see. We will learn more. To me, this is gruesome but fascinating. Let's talk about economic recovery.

Imagine in 2021 we have a vaccine. How do you think the recovery will happen? Do you think the rate of the recovery will be faster than in, say, after 2009 crisis? I mean, I'm just talking about the rate, not, not, not the level. Or do you think we have fundamentally crushed the economy so that will be a long, you know, depression coming next 5 years?

Well, on the economic side, if the virus were magically gone, I absolutely think we could still have a V-shaped recovery in virtually every country. There's no logical reason why we can't. But of course, the problem is that the virus isn't gone. My view is that vaccines will help less than people think. You present, you know, if we have one in 2021, but that's a certainty. We have vaccines now. The Chinese are vaccinating some of their troops now. It's probably not a very effective vaccine. There's a good chance it helps some number of people. But imagine a vaccine that gives, say, 40% of the people 40% protection. And the older people who are most vulnerable arguably will be the ones who are protected least because vaccines in general don't work as well on old people because it's harder to stimulate that immune system response. So a vaccine might just be another part of the toolbox that lowers deaths a bit. Of course, we're all for that. But the odds of there being a fix-all, cure-all, now this thing is done vaccine anytime soon, possibly ever, they're really not that high. But any vaccine at all, it's not just coming, it's really in a rudimentary way here and there will be something this winter. It just probably won't be that good.

So you're saying vaccine is not a magic pill that can solve all this corona problems. And I guess my question was more—

Unless we get very lucky, right? We could get very lucky.

Okay. Or— I guess my question was more stylized, meaning what if we had this magic pill? What if we had this magic? Do you think there is some damage to the economy that is irreplaceable, like managerial capital or something that it really takes time to recover? Being 6 months at home might have some irreplaceable damage to the economy. And if you think there is something like that, can you share that?

Well, World War II was pretty terrible, and nations did bounce back if they had any kind of sensible policies. I do think moving forward, what you would call the, the built-in psychological risk premium will be much higher. People will always be wondering, when is the next pandemic? That will limit investment. It will limit particular kinds of commitment. Probably the single biggest problem would be the fiscal holes for governments, especially state and local, which typically cannot borrow so easily. So they will be underinvesting in public goods for quite a few years to come. A lot of kids will have lost a year, depending how things run, say a year's worth of schooling. That's a permanent loss. Not the end of the world, but you will see significant longer-term losses from these fiscal holes at the state and local level.

Okay, but, you know, do you think like entrepreneurship generally is pro-cyclical or counter-cyclical? I want to ask you this question first and then I'll ask you something later.

Just let me— there's a big, there's a big debate over this in the literature. Some people have argued innovation is counter-cyclical, that when unemployment is high, there's more tinkering, more experimentation, experimentation. I don't dismiss that, but I think the numbers are not clear. I suppose my intuition is there's some truth to it, but I think it's overrated by the people who promote it, and the fact that when you look at the data, it's hard to find an unambiguous story. There's pluses and minuses. A lot of people, their human capital deteriorates, rising incidence of mental health problems, parents who have to look after their children, so it cuts both ways. I wouldn't be optimistic about it except in a few areas like telework. We are going to do better, already the case. Online education, we are going to do better. And anything biomedical, we're going to see phenomenal advances in that particular part of the economy, but it will cure other people of other things later on.

Okay. I also agree with you that I think high-growth entrepreneurship is more of a pro-cyclical. As far as I understand the data right now, it's really hard to make a case that high growth and high technological advanced entrepreneurship is actually countercyclical overall, with exceptions of what you have said. Yes. My question is about kind of longer-term effect of the time that we're living. If you read literature, you know that people who grew up in Great Depression were less likely to take risks or start business when they become adults. What do you think would happen to the kids right now, or people in their formative years, or people in college? Would they be —less willing to take risks in the future, and therefore the rate of technological advancement of the U.S. and the world will slow down?

That is possibly the case, but I think this is a unique data point, and our past does not apply in a simple way. So if you simply have a big recession or depression, that makes people more cautious in the future. And clearly, to some extent, we're having that right now. That's a terrible event, but we're also seeing a higher level of background risk. So people getting used to the idea, "Well, this thing can kill me," and I'm not sure what the effect of that is. You might think, well, the effect is everyone becomes super risk-averse, right, and just retreats. But even in the data right now, when the risk is pretty high and it could kill you within, say, 3 weeks, we're not seeing people retreat as much as had been expected.— so it could be that at a higher level of background risk, you recalibrate your relationship to risk and think these other marginal risks are not such a big deal, and that could encourage more risk-taking. So I don't know which is the net effect, but I wouldn't assume that the effects of previous depressions will be like the effect of this one.

Okay. Let's talk about the effect of this depression to the thing that you care a lot, discount rates. So in your book, Stubborn Attachments, you argue that we should care about future generations a lot. How would you think people's preference with respect to discount rates and investment to the future would change? Let's say not entrepreneurship, but generally in terms of tax and fiscal policy.

Although borrowing rates are quite low, negative often in real terms, I think socially discount rates have gone up rapidly. People want to have fun now. This is related to the increase in mental health problems. People want to do something somehow with their herd to feel an alleviation of their anxiety, and this will get them both to take more risk and to think less about the future, because in some ways they feel more desperate or less in control. So that to me is a big negative, and it's the reason why in so many places you see individuals behaving in these foolhardy manners and not producing these local public goods of mask wearing compliance and other safety-preserving measures.

Okay, let's talk about healthcare and education. I think this is the two things that you write a lot about, and the first question that I have is that what do you think are the strengths and weaknesses of the U.S. educational system? I mean higher education, not the primary education, with the rest of the world, and how those strengths and weaknesses would affect the way that education will be shaped in the future?

Well, I think the US for a long time has had by far the best system of higher education in the world. We're right now seeing what I think will be hundreds of schools go out of business. They're typically not the famous places you've heard of. We're seeing a lot of consolidation. We're going to see shrinkage. Schools in remote areas that rely on out-of-state students or foreign students will be hit very hard, and they will not come back in their previous form any time soon. So higher education to me is one of the big losers, but I think cheaply priced state schools near population centers will be pretty robust. And then the very wealthy schools—Harvard, Princeton—I mean, they're going to be safe no matter what, but it will be much harder for them to operate for at least a year, possibly more. They will be less effective. They're not going to go away at all, ever, but a big hit for them as well. So these are big negatives. Germany, in a sense, is more protected because Germany never relied as much on its higher education system to begin with.

Okay, interesting. But, you know, when we think about creative destruction or the way that things will change after the crisis, do you think that education will be the the main source of the creative destruction for the future in the economy or not?

Well, I think the performing arts will be hit very hard, tourism will be hit very hard, already the case of course. I guess I don't see higher ed as the single biggest loser, but in the top half dozen as a loser. And again, it depends when is it possible to recreate a reasonably safe classroom experience I don't have a prediction. I don't think anyone has a good prediction, but it will depend on that. If we can do it by January, that's very different than if all this runs on for yet another year.

But what's your take on education overall? Do you think education is like a— I mean, higher education, I mean college— is more of a Spensian type of signal of capability, or it's a human capital improving exercise, or it's a combination of both?

It's a combination, and the two reinforce each other. And even if it's signaling, if your economy has less efficient signaling, that's bad for your longer-term growth as well. But people learn things, they form bonds, they develop social networks. Just the fact that for young people, their ability to build a social network right now, it's close to completely frozen. That is an underreported catastrophe. And higher ed is only part of that picture, but just how you can meet people at a cocktail party or whatever you might do, it's gone. And again, there could be an okay vaccine, say by end of winter, let's just say. I'm not sure that the older people you want to meet are just all going to suddenly flock out to these cocktail parties to meet young people. They have other things they'll want to catch up with, or who knows. But I wouldn't just think everything will bounce back. So the ability of, say, you to meet older people you want to meet will be much harder, I think, for really quite a while.

Yeah, I see. So I guess I was asking this question, if part of the education, higher education in the US is, say, human capital, and if we stop investing it and people stop investing in their human capital for for a while, let's say for a year, in a worst-case scenario where people stop going to college or investing in college. I was wondering how that would affect the future because, you know, quality of human capital is really important in my opinion. So underinvestment—

if it's just a year lost, my tears are moderate. But if this drags on for 2 or 3 years with high uncertainty, and young people not building up their networks, then I think it's terrible. But if it's truly over in a year, and then by May everything's fixed, and the next fall universities will be just as they were, and at Auburn and Nebraska they have football and whatever, a year lost of learning we will make up. It's really the danger of persistence and ongoing risk and never quite being sure when things will snap back to normal. And that's probably a likelier scenario than thinking it'll all be done and over, you know, by next May.

Let's talk about online education. You launched Marginal Revolution University. What do you think its effect has been so far? Do you think it changed the way people think about economics in the world, or it's really hard to measure it?

It's hard to measure. It's the number one economics education site in economics. It had been getting 6 million or more unique visits a year. That's now gone up radically since the lockdown. I don't know exactly the current numbers. I think that will be permanently much higher. It's used in hundreds of classes around the country and around the world. George Mason now has an online class fully automated based on those videos. It's done very well. I taught it this spring. It was scheduled before COVID-19. A lot more schools will do that. I'm scheduled to teach principals again in the fall, fully online. The videos make that possible. So I, I think a revolution will come to education where maybe 20% of classes move online. To me, that's a good thing. I fully believe in face-to-face and it's important importance. But I think you'll get a better face-to-face experience if you can cut out the worst fifth and do it online with flexible time, better material, avoid the worst professors, pay less money. It's because I believe in face-to-face that I also believe in online.

So it's sort of a specialization argument where face-to-face will be specialized in a very narrow set of things and other boilerplate things that what you can teach online will be online. Is that how you think about it?

Yes, but in my ideal vision, face-to-face is still 80%, so it's not that narrow. It's still most stuff. But if you could cut out the worst fifth of your education and replace it by the best online material, isn't that just an obvious win for you? And you'd also have more flexibility with your time and could use that to do networking, meet interesting people, take trips, and it could cost you less if we do it right. It just seems to me fully win-win. The only question is when we get there.

Okay. Let's talk about healthcare. I see in the data that a lot of healthcare procedures are being delayed and people are not getting their, you know, dental appointments on time, or some surgeries are being, you know, appointed for a later time. And there is some data that some people in the medical field are being laid off. What do you think, could this crisis also be partially explained through the underconsumption of medical services and how we should think about that?

Well, for a typical hospital, elective surgery is a profit center. So many people have postponed elective surgery and treating COVID patients, they do at a loss. Or at best break even. So they're far less profitable. Uh, but actually elective surgery has gone up very rapidly the last few weeks, and it seems hospitals have managed to do that safely. So it's possible that trend, if not quite over, is being reversed. Uh, but I do think in the longer run we'll see from the data, like, how bad was this for people? You know, which maladies killed them? They couldn't get, you know, these back and knee operations. Did that even matter? Maybe in some cases that would be a good thing. So it will help us rethink everything in healthcare. We might just screw it up worse, I get that, but I'm somewhat hopeful that we will, in America at least, go on a bit of a healthcare diet, and use healthcare when healthcare is appropriate, and not just overconsume across all margins. We'll see.

Yeah, I think it's a great instrument and a lot of papers will be written on that, you know, just a temporary stop on consumption. But what's your take on the future of healthcare? I have some— which one theory that I think— sorry, I have one theory and I want to hear your opinion. I think that people will be more tolerant towards government-provided healthcare and will be more prone to support ideas of, say, single payer and so on because of the pandemic. What do you think?

Well, I think it depends a lot on the country. So if you're in the United States and you have private insurance, I'm not sure you're more likely to support single payer because you will lose your privileged place in line. And that now feels more important than it used to because of COVID-19. In general, do I think that effect will be true in the world? Probably. Do I think it will be true in the United States? I'm not so sure. Because the elites now have stronger reason not to want single-payer.

Okay, interesting. Yeah, I guess that's one take, because now being first in line matters much more than it used to, probably.

It could be the real lobby now is to improve long-term care. Including nursing homes. As you know, 43% of American COVID-19 deaths in nursing homes. That's just awful, but I think it has to mean those nursing homes are doing other things wrong too. Older people vote. They don't necessarily vote ideologically. So I may be more inclined to think America will address long-term care in a major way that wouldn't have happened otherwise. But that's not easy to do, right?

Yeah. What do you think of regulation in healthcare? FDA and others have been criticized recently, and do you think that we'll see less, less of regulation in healthcare and pharmaceutical fields?

I think we will very selectively deregulate. The FDA will speed up approval processes for drugs. The FDA has scandalously held up a lot of testing for for no good reason, but not a general deregulation. I just think new biomedical advances will come much more quickly than they used to. This will be a good thing. It's one of the changes we should be most optimistic about. And I think our understanding of immunology, virology, so many areas will be so vastly improved from this weird experiment of everyone rushing to we can fix COVID-19 so quickly. I think there'll be phenomenal payoffs at the end of that.

What about the cost of healthcare? Would the cost of healthcare overall and insurance will go up and the proportion of healthcare in GDP will go up in the US?

It's hard to say. As you probably know, this year it's gone down because people are postponing elective surgery. So to the extent hospitals remain truly strained, counterintuitively, that could limit healthcare costs, but also by limiting healthcare. If you just think we should have less healthcare, even though of course it won't be good for everyone, this may help us get there, but it's a very, very painful way to get somewhere we should have been all along.

Okay, now I want to talk a very little bit about you and how do you consume and produce information. And so first question, can you share a little bit how in the time of pandemic where people are overwhelmed with data, with news, with information, how do you keep your information hygiene?

I'm overwhelmed like everyone else. So many of my days, there are two things I do. One is exercise and the other is sit on the couch and absorb information. And really nothing else. So, what you would call social life, for me it was always kind of the same as my professional life. That has mostly vanished. I live with my wife, obviously, still see her, I have a daughter and her husband, but socializing is almost completely gone, travel is completely gone. So I have more time to absorb information, The information is outracing me, but every day I do my best to keep up with the flow. I've gotten many fewer books read, but never done as much reading as I'm doing right now. Reality has become too interesting, I would say. I do not prefer it this way. Oh, but how should it be that 2020 is more interesting than Thucydides? That should not be the case. But to some extent it is, and this is the tragedy of our time, and my information diet reflects that.

How do you decide what to think about? Like, there's a lot of rabbit holes you can go on in terms of epidemiology, for example, or macroeconomics, or, you know, world travel. There's a lot of ways you can spend your entire life thinking about, but how do you decide on that in margins? Where do you stop?

I'm not sure I decide, so I don't have this grand glorified view of my own free will. So the question we mentioned earlier, like why has the Netherlands done worse than Greece or North Macedonia, it just struck me and the puzzle didn't go away, so I keep thinking about it. I think in a sense I'm a victim of the flow directed at me, and maybe I'm not good at deciding what to think about.

Interesting. And one more question about Tyler Cowen that I really like is that you're a big enthusiast of food and you wrote about how to look for a restaurant and so on. How has been your gastronomic experience so far in the time of lockdown? You can't possibly go to the strip mall restaurants anymore. So how do you decide what to order? You told us how to choose a restaurant, but you never told us how to order food.

I've eaten very well, though I've also lost weight, which has been a good thing. I have 10 favorite restaurants, local, that are open where you can dine outside, and it's wonderful. And if you show up early, the best chef is cooking only for you. So my variety, overall choice is way down, but quality of my median meal is not down. It might even be up a slight amount. I'm also a very good cook. I've cooked a great deal. It's hard to get a lot of scarce ingredients, or hard to get them with certainty, so maybe I've been cooking a lot of comfort food. I've gotten even better at cooking, and that's been fun to rediscover that. So my food life has remained rich and rewarding, albeit much narrower than it used to be.

Actually, speaking of comfort food, I talked to one person who manages food delivery service. And he told me that they had a manyfold increase in orders of comfort food, not exotic food. And also I read some article that the same thing happens in the US, like people are cooking more comfort food and ordering more comfort food. What is the deal with eating comfort food at times like this?

Well, it could be this mental health issue, but for me personally, and I've not felt so stressed, If I want to cook like an exotic South Indian dish, and I need exactly these 7 ingredients, if I try to order them for tomorrow, maybe only 6 of them will come. And then that disturbs me, I don't want to make the dish. Whereas if I have a comfort dish, and the ingredients are onions, garlic, you know, butter, particular kind of curry, or I know, Sichuan peppercorns, I know I have it in the house. I'm gonna go ahead and plan on that with confidence. Confidence. So I end up with more comfort food, but believe me, I'd gladly have the exotic, learn new dishes. It's just harder to do right now because if you're missing one ingredient, the sort of eating perfectionist in you is pissed off and it's like, oh, without, you know, the right kind of methi. By the way, one of the best outside restaurants right now is our Uzbekistan restaurant in Arlington, Virginia, Rus Uz. They have a wonderful outdoor dining patio. So for those Uzbekistan fans on the podcast, it's a great place to go at the moment. All right. I cook pelmeni at home, by the way. My pelmeni are excellent, better than my wife's, and she was born in Moscow.

But I think, you know, Uzbeks have a type of pelmeni called chuchvara, and there is a difference between Russian type of pelmeni and say Central Asian type of pelmeni. We have a thinner dough than they.. And for us, like, Siberian pelmeni looks very, very big. So there's quite a bit big of a difference.

I go to the Russian grocery store and I get beef dumplings, and then I have a particular kind of Indian yogurt, and then frozen but thawed blueberries. Super simple dish. It's phenomenally good. I recommend it to you all. Make sure you use the frozen, not the fresh blueberries. And the right kind of yogurt. High-quality plain yogurt, none of this nonfat stuff, real yogurt, please.

Okay, in your 10 restaurants, do you have any Afghan food? Because I think North Virginia Afghan cuisine is the best Afghan cuisine I ate in the United States. Or maybe it's false, but how do you think about it?

I agree with your assessment. I actually haven't tried my favorite Afghan places yet, to see if they have outside dining. It is on my to-do list. I haven't had any in a while. I've heard one of them is open outside, Arakozha Bistro, and I plan on going there soon.

All right, this was Tyler Cowen. Thank you for your time and see you soon, Tyler. Thank you.

My pleasure. Thank you.