Tyler Cowen on Big Business 8/19/2019

Welcome to EconTalk, part of the Library of Economics and Liberty. I'm your host, Russ Roberts, of Stanford University's Hoover Institution. Our website is econtalk.org, where you can subscribe, comment on this podcast, and find links and other information related to today's conversation. You'll also find our archives, where you can listen to every episode we've ever done, going back to 2006. Our email address is mail@econtalk.org. We'd love to hear from you. Today is July 18th, 2019, and my guest is polymath economist, columnist, speed reader, author, blogger, and now podcaster Tyler Cowen of George Mason University. He blogs with Alex Tabarrok at Marginal Revolution. His podcast is Conversations with Tyler. He writes a regular column for Bloomberg. This is his 11th appearance on EconTalk. Our topic today is his latest book, Big Business: A Love Letter to an American Antihero. Tyler, welcome back to EconTalk.

Thank you for having me, Russ. Always a pleasure.

Now, my list of your skills and activities left off the word provocateur. And I want to start by asking why you would write a love letter to big business. It strikes me as a really bad idea. I've spent much of my career fighting people who confuse business with capitalism, and you've set me back a number of years with this book. Defend your love letter.

Well, I guess I'm glad I've set you back. I think whether we like it or not, we're living in a world of identity politics, and markets are to some extent identified with big business. So if, say, people complain about Amazon getting local subsidies to relocate, which I would oppose, I suspect you oppose, but the net upshot of that is not that people end up being anti-subsidy. Quite the contrary, they end up being anti-business. So I think for people to be more sympathetic toward markets and capitalism, they need a better understanding of business and big business in particular. And I would go further and say on the global stage, people identify capitalism with America. That's quite unjust in many ways. But we're not dealing in a sphere where the analytical arguments exist on their own. Ideas are carried forward in particular instantiations. And in our world, it's big business in America that carry forward the ideals of capitalism, whether we like it or not.

Well, I'm not sure I like it.

I don't completely like it either, but I think at some point one just has to jump into that new battle.

Yeah, well, there's certainly new battles here that we weren't fighting, any of us were fighting 5 years ago or 10 years ago. At one point you suggest that business is more virtuous than government. Virtuous struck me as a strange word. It's certainly a lot more profitable. Why would you say they're more virtuous?

Businesses, at their essence, do not coerce their consumers. Sometimes they may defraud them. That to me makes them more virtuous. Being in a business cultivates the habits of learning how to cooperate with people, learning how to persuade people. Those I regard as virtues. So I think on that you see correlations between more virtuous societies and societies with more commerce. You can debate there how the causality runs, but I think we have a lot of fairly good reasons for identifying commerce and business with some amount of virtue.

What about the argument that, uh, to succeed in business you have to not just be good at, say, understanding what consumers want, but be good at exploiting them, finding margins for, uh, price discrimination? A lot of people today are worried about what appear to be— what appears to be a, a large increase in the profitability of, of American business, in the share going to capital rather than labor. What are your thoughts on empirical, uh, claims?

Well, there's so many different issues, uh, put into that, but let's just take one. Uh, businesses defrauding people. I think on average people are more likely to defraud others when they are not working within the context of a large organized business. There are some exceptions to that claim, but I think business, again, on average at least, is making human nature somewhat better, that you care about reputation.

And to walk into a Walmart or McDonald's, it is one of the most predictable, reliable experiences you can have in the entire On the retail level, certainly when you go into a Walmart or a Target, your confidence that there's going to be stuff on the shelves is, of course, complete. You're never worried they're going to be out of stuff. I've always found that remarkable. But I think your point about brands is very important. There's a strange phenomenon that's happened over my lifetime, which is that contrary to the, I think, the standard view that business is constantly trying to exploit us, we often exploit business. Of course, we pay for that. And what do I mean by that? The ease with which we return stuff that we decided we don't want, and whether it's usable or not in its form after I've, quote, tried it. And of course, sometimes this is actual fraud. People, you know, I've heard that people will buy an outfit, wear it one night, and then return it because they wanted it for that night. But I'm just talking about, you know, I buy a pair of shoes, I try them on, they seem comfortable, but after a week or two, they're not. And I call the customer service number and they say, "Oh yeah, just return them." I said, "But I've worn them outside." They say, "We don't care. We want you to be happy." That's an extraordinary, just an extraordinary thing if you grew up otherwise, which I did, in a world where that wasn't possible. And of course, we pay for it in the form of higher prices, but the prices don't seem very high for many retail items in this crazy world.

That's right. If you also look at the rate at which people lie on their resumes when they apply for jobs, even the rates people will admit to seem remarkably high, higher than, you know, what you might take to be the rate of business fraud. So, you know, I don't think all business is heroic. I don't think all human beings are close to honest., and in some ways it's a pretty close call, but again, I think you see somewhat less fraud in the business context. There's one point in the book, I present a comparison between for-profit and nonprofit hospitals, and statistically speaking, it's really hard to tell them apart from each other in terms of what they do, how they act, what they charge, and so on.

Yeah, I'm not sure what that label nonprofit means on a hospital, actually, it's, uh—

There's self-seeking behavior in any case, right? Yeah, yeah, and there's residual claimancy of some kind in any case, but I think that gets to the point We just can't get rid of selfish incentives. We want to constrain them in some way. Big businesses are often, but not always, one of the better ways of constraining selfish incentives and stopping them from being destructive.

I just want to clarify this point about the big part and my point about returning stuff. I think the brand name that large businesses have and their willingness to conserve that brand name and make sure the brand— make sure it's still valuable is important. It's also a question I think is often forgotten that when an organization gets large, it has to become formalized in certain ways. Certain rules have to be formalized rather than things being done on a case-by-case basis. I find that in my experience, and maybe it's biased, that that often protects workers and consumers from what we might call opportunistic behavior.

I agree, but I think maybe the best criticism of big business in America today is that it's overly bureaucratized. And it's not always innovative or dynamic or responsive in many cases.

Fair enough.

And in part, it's overly bureaucratized to limit fraud, which is fine. But nonetheless, you know, if you're on a helpline or trying to deal with a large company, it sometimes can feel worse than dealing with your local DMV.

Yeah, I think that's true. Of course, they have an incentive to try to do better. Now, we've switched roles, Tyler. I'm the defender, you're the attacker.

Go ahead.

Do you have anything you want to add?

Well, do you have anything you want to add?

No, I think we're good. But let me turn to the workforce aspect of big business. I got into a nice argument over on Twitter recently about monopsony. I suggested that the monopsony was a textbook idea that had no application, at least in the literal sense of a single seller. I mean, single buyer of, say, labor services outside of the so-called company town, which no longer exists in any significant sense in America. And of course, there is still the potential, despite the fact that there's no such thing as monopsony— there can, in a literal sense, a single buyer of labor services— there can still be monopsonistic power. Workers could be at the mercy of employers or could get lower wages than they otherwise might have. And I— my argument was that for low-skilled workers, they certainly had dozens, if not hundreds, of opportunities to work for, uh, someone. And the argument therefore that the employers of low-skilled labor have monopsony power strikes me as not credible. Uh, what are your thoughts on that and, um, uh, implications that that might have for, for policy issues?

Well, I think the best way to fight monopsony is to get more workers to move into cities and populated suburban areas. That's exactly what America has been doing. If anything, the crisis is rural depopulation. But when you look at sort of national or sectoral averages, it's missing that more disaggregated picture. That if you move to a populated area, the monopsony is considerably weakened. I think also some amount of monopsony, it comes from accommodation. So I teach at George Mason. I'm very reluctant to leave. They're offering me a special package that no one else is. But that's a good thing. So does it mean at the margin they could make my parking spot worse and I couldn't do anything about it? Well, it does mean that. Uh, but at the same time, that's not like a crisis of isolation or oppression. It's precisely because they have offered me a deal better than anyone else can that they have this kind of ex post market power over me. And a lot of monopsony is that too. So it's not a big worry for me, but I think in rural areas there's some of it.

But even in urban areas, some would argue that the switching costs, and it is costly to switch jobs, you could, you have a market for your services that's quite large, but it's still unpleasant to switch. And the implication is, is that George Mason could take advantage of you. And they're, they're a nonprofit university, so their zeal in doing that may be understated or relatively low. But in the for-profit world, the claim is that the cost of switching, imposed costs, makes workers vulnerable to exploitation.

Well, one way to remedy that problem is just to improve public transit or have congestion pricing. Make cities and suburbs easier to get around. And then actually it would be much easier for really many people to choose amongst a greater number of jobs. So I think it's fine to see there's a failure there. Like, "Oh, I work here. It would be really hard for me to work somewhere up in Rockville rather than Alexandria." Alexandria. But that's a very fixable problem. We just don't want to do it. So I think there's a lot we could do on the legal regulatory side to limit the power of monopsony that we should do and we're not doing.

Well, the other point I would make is that they're switching costs for firms too. If a firm exploits me and I leave, they have a high cost of training a new worker. It's expensive. So it's just not obvious to me which direction that goes.

So, you know, in terms of what is the actual problem of monopsony today, I think it's the person in a rural area who works at the Walmart, and it's not literally their only option, but the other options are not that great. They could like work at the gas station or work at some other retail outlet. And again, I do think that's a problem. I think it's part of a general problem of rural areas losing talent and population. The question, what should we do about it? Should we accelerate the losses or try to stem them? I suppose in most cases I'm an accelerationist. So, you know, I would admit the problem, but it's also a sign that the problem is being solved because people and businesses are moving out. And that's probably what should be happening. It's just the transition's a little ugly.

So you would subsidize luggage, to use the metaphor that I used to repeat often, that the problem of poverty is We just need to have more— is a luggage problem. Make it easier for people to move, move to places where opportunities are larger, higher, better. You know, the problem I worry about now is that the rents in the areas, the living costs and the housing costs in the areas where people want to move to, it's not so much the transportation costs, but the inability to approve new building that keeps rental rent and housing costs high.

I would change that too, but you can, there are still parts of the South you can move to, almost all of the South in fact, or Texas, where there's relative freedom to build and the cost of living is mostly reasonable. I would stop, say, subsidies to rural post office delivery.

Yeah.

You don't need to subsidize luggage. There's plenty you could do. Just get rid of subsidies to rural areas, farm subsidies. It's a long list in fact.

Yeah, I agree. Now, I had Elizabeth Anderson on this program, uh, who's very worried about exploitation of workers, and you mentioned her in your book, and you argue that, quote, work in contemporary America is largely a positive experience. I saw this morning that a claim that Amazon treats its workers like robots, uh, I suspect that's not a positive statement. Defend your claim that that work in contemporary America is largely a positive experience?

Well, if you look at data on people who cannot get jobs, they have higher rates of depression, higher rates of divorce, higher rates of suicide. Unemployment is very bad for people. And if you've known people who are unemployed, not of their own free choosing, the anecdotal evidence strongly supports this picture. Look, work is tough. It's especially tough if you come to the labor force without strong skills. That's in part why you're paid to do it. But people make friends at work. It's a source of social validation. It's a way of expressing yourself. Most people are happier working. It's why I think a universal guaranteed income is a bad idea. And work is a mixed bundle, but it can be protection against an unhappy home life. And for the most part, work makes us happier.

But of course, it could make us happier still. The question is whether the workforce is, you know, there are places, Elizabeth Anderson would argue, there are places where people are not allowed to take bathroom breaks, where workers are driven and pushed to human limits of menial tasks that are repetitive and demoralizing. How would you respond to that?

Well, repetitive demoralizing jobs have been going down steadily since the onset of the Industrial Revolution. The best way to make jobs better is to have a wealthier society but also makes jobs safer. I think it's a perfectly fair criticism to say, well, too many jobs today, they're still too demoralizing or boring or mind-numbing. But when you get to the, what are we actually going to do about that question, one has to recognize people chose those jobs as what they think is their best option, and they have stuck with those jobs. And we should invest more in education, and we should have a wealthier society, a higher rate of sustainable economic growth., and over time we'll make our jobs better yet. So I don't think regulating is the answer, and a lot of the remedies like a higher minimum wage, employers will respond by lowering the quality of the job. So that's moving you in the opposite direction.

Yeah, I'm sympathetic, of course, all those— your points. Uh, what's your view on the potential for actually improving education? So I like to say that a lot. I like to say just what you said, that low-skilled workers are at risk of exploitation or misery simply because they have low skills. Their alternatives are poor. It's not a question about the competitiveness of the labor market. They just have mediocre alternatives. It's not a question of market power or being exploited. And so the answer to that, you know, my standard answer is we need a better education system. We seem to be moving in— I was going to say in the wrong direction, or at least not moving in any direction that's positive, except for perhaps the expansion of the charter school opportunities that some kids have at the— we're talking about K through 12 now, of course. Uh, what are your thoughts on the potential for actually improving the education system? And where do you stand on Bryan Caplan's claim, you know, often on this program, that education is really just signaling and not much of an improver in skills? And so that whole then avenue that you're arguing for is really just a fantasy?

Well, 50 years ago— Tyler, yes, 50 years ago, Finland, Singapore, and South Korea did not have excellent education systems, and today they do. That shows it's possible. I'm not saying America can just copy those places, but one need not be fatalistic about this. And if you go to Singapore, which now, you know, is a phenomenal exporter and producer of all kinds of high-quality goods, and has engineers and people doing biotech, and is really just an economic marvel, and if you try to tell them, look, you could have done this with the education system you had 40, 50 years ago, They'll all look at you like you're crazy. So I think Bryan is wrong. I think there are natural experiments which show he is wrong. Also, if you spend any serious amount of time in a society, as I have done in rural Mexico, where basically no one has even attended high school, much less finish it, those people are not at all stupid. But you see what are the things they don't understand or what they can't do, and you see how much that holds them back. I think the marginal product of education is pretty high.

What were you doing in rural Mexico?

I wrote a book based on fieldwork. I went many times to a rural Mexican village and wrote a book on how they support themselves and export their artworks through global markets. But I know at least one part of rural Mexico really quite well.

That's cool. What book is that?

Markets and Cultural Voices. It came out about 15 years ago. It's my favorite of all my books, but I believe it's my least-selling book.

Well, not anymore.

Book, all based on fieldwork.

Yeah, not anymore, Tyler. This mention of it's going to, uh, it's going to triple at least its sales for the year, maybe more than triple. Uh, I think so. I, I think I own that book. I may have even read it, but it was a while ago, so I apologize for not remembering it. Um, what about the financial sector? A lot of folks are appalled at its growth. Do you want to defend them as well in proportion of— well, the claim that we've financialized our economy and that they have an outsized amount of political power as a result?

Well, first, I do think the financial sector has too much political power. I would like to correct that. I'm not sure it's possible, but if you just look at some basic facts, if you ask which economy country in our world does the best job of allocating more capital to new and growing areas, America is either at the top or very close to it. And that's the, the main and first thing you want the financial sector to do. Uh, does the American financial sector allow people to save in a diverse series of ways yet still be liquid? Uh, it absolutely does allow that. There's a wide variety of savings vehicles. How readily can you get a mortgage? That's intermingled with government subsidy. But again, in terms of borrowing money when you need to, the American financial system is pretty good. So we've had a number of periods of excess, which I think you can partly blame on our financial system, but you have to blame borrowers as well. You ought to blame homeowners as well. American venture capital has been a phenomenal force behind innovation. And if you look at the FANG companies, I read this morning, Facebook, Google, Netflix, Amazon, they're 1/7 of the whole value of our stock market. And those basically came about through venture capital. Israel is the only country that has anything even vaguely like that. And some of their venture capital market is kind of parasitic or dependent on ours. So mostly the record of the American financial system's pretty good. There have been bubble periods where debt is too high, And some of that has been the fault of lenders sort of pushing loans on people. I think that's a perfectly justified criticism. But you hear people saying, "Oh, finance is evil, finance is wasteful." And my book is just trying to set the record straight by looking at the facts. Some of the criticisms are correct, but the overall ledger, people are not at all looking at the full picture.

Yeah, I like the full picture point. I will say that, as I like to say on this program, The ability of the financial sector to put their hand in my pocket without my consent through the bailout process that's slowly but surely being enshrined by expectations and practice, I think, is deeply disturbing. But you do have to look at the full picture. I would make a distinction certainly between venture capital and investment banks. Venture capital is a, is a crapshoot. It's a long shot. Most businesses that that start don't succeed, and in Silicon Valley, you either make an enormous amount of money or you lose it all, and no one bails you out, ever. And I think that's the right way to treat the rest of the financial sector.

I don't think on that we agree. So I, in some circumstances, favor bailing out banks. I think the macro consequences of not doing so are too severe, and 1929 was worse than 2008., and this, this does lead to banks getting unfair benefits. I'm just not sure if there's any other way to do it.

But if you're going to believe in that, or if you're going to, um, enshrine that in expectations, if the shadow of the future is that you will get bailed out, then I think there's an argument for running some sector, some piece of the financial sector as a utility rather than as a profit-seeking enterprise, because the parasitic aspects of that To use the word you used in a different context a minute ago, the parasitic aspects, the ability to manipulate the system to their own advantages, really, I think, is not a good system.

But keep in mind, it's mainly bondholders who were getting bailed out, not equity holders. And the evidence strikingly shows that moral hazard was actually pretty weak, that the companies or the banks that lost the most, they were simply overconfident. They were holding too many of these loans. They weren't playing, you know, heads I win, tails the tax The taxpayer loses. So I think the question is how to overcome hubris, that moral hazard is much overrated compared to what you see in the data. And again, if you think about letting banks fail and having strong deflation, I think you'll get like another New Deal in the bad sense. And that's worse than what happened in 2008.

Possibly. No, what I'll concede, I don't agree that the moral hazard problem is small. I think the, the point I've tried to make is that bondholders are the, uh, people who worry about downside risk, not equity holders, because they have upside gains to offset that. And I think the bailing out of bondholders is— and creditors generally— has allowed a set of interlinking lending to each other that creates the systemic risk that is then excused by the next bailout. I think that's a very dangerous and I think the consequences of it are we don't fully appreciate where that's headed. We don't really even, I would say, we're not even sure where it's headed. You make a surprising claim to me about the tech sector. You say that it has helped bring us closer together. Defend that claim.

Well, you and I, we can email with each other. I have plenty of WhatsApp conversations with people. I use my blog as my main method of social networking. Twitter, I keep in touch with numerous people. That brings many people into my life and helps me be in touch with what's going on. So there's a downside to social media, but I think the upside is far, far greater. And if you try to measure something like consumer surplus from Facebook, it's really quite high.

I guess the— The issue, of course, is the phenomenon of people sitting at parties looking down at their phones.

Parties are overrated. I mean, if phones are a tax on parties, bring it on.

I disagree. I think parties and socializing is extremely important.

Well, let's not aggregate parties and socializing. Parties are often the antithesis of socializing.

Why do you say that?

There's loud music, or people are drinking so often. There's a kind of ritualistic bonding, but not that many good conversations. My idea of socializing is to get together with smart people on an intense basis and have things to talk about. And that can happen at parties, but it's not really what you go to parties for. Maybe parties are great when you're young, you're looking to marry, date, you know, fine. But I think of parties as a kind of inefficient social network that's hard to get out of. Much more than say Facebook or Twitter would be. And if you're going to worry about social media, I mean, parties are much worse. All your friends go to parties, you feel you have to go, you feel you ought to drink, right? That's an actual social problem, not Facebook.

That's an awesome point, Tyler, and I'm not sure I agree about that, but I salute your panache in making it. I do think that the norms around the use of social media and technology are very much in flux, and I don't know where we'll be in 5 or 10 years.

Oh, I agree. Yeah.

And I think—

We'll get much better at it.

I think so.

It's a safe assumption, right?

Yeah.

We've got much better at using books.

In what way?

Well, there's not good evidence on what things were like right after the printing press, but arguably they helped encourage some of the religious wars of the Reformation. There was a lot of fake news at the time. People didn't know which books or which sources to trust. That's hardly all perfect today, but I think it's much further along, and I think social media will be further along as well. So the net surplus, social surplus from those would be much higher than it is now.

I recently had Andy Matushik on the program. It hasn't aired yet, so you have definitely not heard it, but he argues that lectures and books are extremely inefficient ways to convey information. And one of the ways he— one of the points he makes is that if you think of a nonfiction book that you read a year or two ago, maybe even 6 weeks ago, you'll struggle to remember anything about it. You might remember what it's about. You might remember one or two things about it. And that would be true of a lecture as well as a book. In fact, with lectures, I would say you mostly remember, if you're lucky, the topic months later. He thinks those are very inefficient ways of conveying information, and he describes them as It's not his term, I think it's someone else's, but it's transmissionism. I tell you a bunch of stuff hoping you'll absorb it. What are your thoughts on that?

I think Andy's a brilliant guy. I'm supporting him through a charitable project I'm running called Emergent Ventures. But I don't completely agree with him on that necessarily. So you don't remember much from a book, but it may be you remember what you need to., and you're then clearing the space for the next thing. And the fact that books don't exercise such a tyranny over your mind maybe is what allows you to keep on reading them. So if a book was something that really just seized control of your mind, like say, you know, LSD does, people would be afraid of books. So maybe having a somewhat superficial relationship with books is how it ought to be.

I've read books like that, by the way. That take control of your mind, that you fall in love with, you become obsessed with, right? And you, you maybe overabsorb.

Yes, it happens more often when you're young, I think, than when you're old.

Do you have any books like that in your life?

Well, Hayek, Friedman, you know, Chicago and Austrian economics as a whole, more the body of work maybe than any single book, but absolutely. And that just blew my mind when I was like 13, 14 and reading this material.

Yeah, I read Anarchy, State, and Utopia by Nozick when I was— I think I was 22, 21, 22. I just graduated from college and it just, it electrified me. You know, that's the same here. Yeah, that's the LSD part. I have not read it since. I'd like to go back to— I think it would be a very different experience, which is an interesting thing in and of itself.

I think the book holds up pretty well, and the first section trying to refute anarchy is the most interesting part, and the critique of Rawls is the least interesting part, which is somewhat the opposite of how it was received at the time.

That's for sure. Uh, he also, um, is less enamored of it than— he's gone now, but my understanding is he did not agree with, uh, the book as he got older. Is that your understanding as well?

Parts of it, at least. I've talked to him about this, and I think it's complex. He always felt the actual content of the book was underrated. And even when he came to repudiate it, he would still defend it in a way. And he thought people hadn't grasped or understood it properly. So, you know, authors have complex notions about their own work. And I'm not sure there's any simple way of expressing how Nozick felt about it as he got older. But I think toward the very end of his life, I think he came back to it much more than in sort of the middle period. That's my sense.

My memory, having read it 40 years ago or so, it's interesting because I remember the argument that economies of scale are important as a justification for the role of police. I suspect I wouldn't find that convincing now. At the time, I thought, "Oh, good. Check that off. That's done."— what I found, I think, the most exhilarating though were the thought experiments, the experience machine or whatever it was called, the parable of the slave. They were just exhilarating mental experiences and exercises.

And he was better at doing that than anyone else of his generation. Have you read his other books? Yes, I believe all of them. The one on choice theory, I'm not sure I read through, but I looked at some of it.

What about, uh, is it Philosophical Explanations? Is that the name of it?

Uh, that's correct. That's the big long book. I feel a lot of that book fails. Uh, it was a noble, brilliant effort, but I'm not sure that much of it turned out to be correct. And his whole argument about what justified belief ought to mean, which he took to be his main contribution, Kripke in fact refuted, and Nozick more or less recognized that Kripke had refuted it. So that book is maybe his biggest failure. There may be some way in which people go back to it and find new things, but he thought that would make his mark as him being truly the greatest philosopher of his time. And it didn't really do that. If anything, the opposite.

So yeah, I've not read it.

His early articles, I think, are the best Nozick. So the ones like on choice theory or on the Randian argument, or the short pieces that are in his— that collected essays volume, those are just amazing. And they even predate Anarchy, State, and Utopia.

While I have you, I want to continue to go off the rails here away from your book. We'll come back in about 30 seconds. But what's your thought on Rawls? On the veil of ignorance part of Rawls?

He was a deep thinker who could assemble more behind a particular view than almost anyone else. And I find that extraordinarily impressive, the depth of it. But that said, the actual strength of the arguments for anything he said, I find pretty weak. So I think the veil of ignorance ultimately has to beg the question. You need to sneak in other value judgments to determine what people will choose. The Maximin principle, much misunderstood, but I also don't think it's—

Explain those two things quickly, because I should have explained the veil of ignorance and the Maximin principle.

There's different versions of the veil of ignorance, but in one of them, you don't know sort of whose life you'll be born into. And then you want to set out some principles for society, knowing that you don't know who you will be. So it's a way of trying to impose an impartiality condition. And Harsanyi was one of the first to come up with the idea, but Rawls deepened it, made it more philosophical.

And— And the Maxi Man.

—once you debate what people are going to choose, you have to turn to some other theory of choice and ethics. And then the veil of ignorance ends up begging the question. And then maximin is the notion, well, for Rawls, the first principle is the principle of liberty. Maybe that's fine. And the second is you want to worry about the lot of the worst-off person. And maximize that. That's right. It's a form of the Pareto principle. You need to make sure that everyone will agree to the rules you're choosing. And if you know the worst the worst-off person finds this acceptable, then kind of by definition everyone must be agreeing. It's not about extreme risk aversion like people sometimes claim. It's a funny version of the Pareto principle.

I agree.

But again, operationally, and Rawls even has, well, the size of the least well-off group, that is also endogenous to the veil. Again, I think it ends up being question begging. I wish I could like it more than I do because it's a beautiful, impressive, wonderfully written book, deeply philosophical at all devils. It's just not true.

So I'm going to bring this back to Tyler Cowen. Um, I recently— a listener recently sent me a piece by Kevin Kelly which has a different kind of veil of ignorance. So the veil of ignorance in this case is, I'm going to give you a choice. It's a time machine. I'm going to send you back into the past to any year you'd want, but you don't know who you're going to be in that year. Or I'll send you to the future would you go to the past or the future, not knowing what your lot would be in that case? And I thought of you when I was reading that because in your book Stubborn Attachments that we talked about in a recent episode of EconTalk, you made the case for growth as a welfare, human flourishing— not requirement, but advocating for it. And you make a very powerful case for it. I'm a little bit skeptical of it, but you make a great case.— and I think that mental experiment makes your point. Because almost no one goes to the— I don't know anyone who would go to the past.

Well, I'd be still okay with being born in 1962, frankly, because I know those have been good years. If it's the near future, yes, I'll prefer the future. But I'm not convinced how long civilization will last. So if it's a uniform distribution across the whole future, I'd definitely rather be born in 1962.

Yeah, it's, um, he talks about that, of course, Kevin Kelly, because he's a smart person. He says if you go too far into the future, there might have been a nuclear holocaust and you'll be, you know, there'll be no Earth to, to walk around on. It reminds me of a cartoon I've mentioned a long time ago on the program. Uh, the Boston Globe cartoonist when I was growing up there was a guy named, um, I think it was Paul Zepp, I think his name was. He had a cartoon of a, of a person walking in a desolate landscape that clearly had been the— was the aftermath of a nuclear holocaust. And he's got a small television under his arm and he's holding the plug out and he's forlorn as he searches for a viable technological solution to his desire to watch TV. And we could imagine a similar catastrophe going too far forward, I guess.—

It might not just be me anymore. So say in 600 years, everyone's genetically engineered and very different, but much enhanced. Either I'm a total loner, or they enhance me, but I'm so different, I'm just a different person.—

Yeah, well, that's one of the challenges with any of these veil of ignorance examples. You bring your sensibilities, you know, from your present life experiences, and those are unavoidably real to you, and you really can't step outside that in any meaningful way to assess. You know, I've been talking a lot on Twitter about being a parent. Being a parent is a, is a weird thing. It changes who you are. So much of life is like that. You go through an experience and you have no idea what it's going to be like, and when it's over, you're not the same person. And so telling someone what it's like to travel to rural Mexico or travel around the world or have children or drop out of life for a year. All those things transform you. And as a result, to try to gain information about what that's like by asking people about it is a very mixed bag. It's not a reliable scientific approach. So let's go back to your book. Sorry, that was a great digression, but I want to go back to—

It never really left the book anyway, but go on.

Yeah, I know. I want to ask you about surveillance capitalism, a term Shoshana Zuboff uses in also an episode coming up soon on EconTalk that's been taped but hasn't been released yet as we're recording this. And she's very worried about, as many are, about the way that big tech and big business in this part of the world of Silicon Valley have taken my information and used it to their profit, one, without my knowledge, and two, with effects I don't fully understand. You worried about that?

So far, I don't see that it's harmed people very much, if at all. The biggest threat to your privacy remains the local gossip, the envious colleague, uh, you know, the grasping brother-in-law. But I don't dismiss the concern. So I think facial and gait surveillance, as they now have in China, uh, it worries me greatly. I worry— did you say gait surveillance? —that's right, GAIT, how you walk, they can tell who you are. Even if you cover your face with a mask, that won't really solve the problem. So I think we should consider banning that in many cases, and I worry that what is taken in by the private sector can be subpoenaed by the public sector or hacked away. So I think it's a real concern, but it's much overrated how much harm has come to date. I never find that the people who have this concern are worried about privacy more generally. Like, they're not part of campaigns to eradicate or limit social gossip, for instance. They just don't seem to care. So it seems to me more of an anti-tech thing, or a control issue. I don't think it's actually about privacy. There's not like an actual privacy movement where you have people sit down at a table and debate, what are the biggest threats to my privacy today? It just doesn't happen. It's all like anti-tech, anti-corporate.

I wonder if people in China can easily access John Cleese's Ministry of Silly Walks clip on, uh, from Monty Python, which would be perhaps a way to mask one's gait. There are others, of course. I guess the thing I'm worried about, um, which is of course part of a larger problem, is the The ability to manipulate political opinion. We can debate whether that played any role in the 2016 election. It doesn't appear to have played a large role, but it could play a larger role in the future. And the challenge, I think, is the non-transparency of that process of both the algorithms that generate what I search for and what's delivered to me. And I'm not sure how to— I don't know how to solve that. Well, I know there's no way to solve it, but I'm not sure how we think about the trade-offs between regulatory solutions to that —competitive solutions, that is, emergent, under bottom-up solutions. What do you think we can do there, and should we worry about that?

My hope is we can improve the internet as a source of reliable information, and both you and I work pretty hard toward that end. But I think some perspective is needed. We have reasonably large audiences—not mega-large compared to, you know, PewDiePie—but we reach people, and I don't know if we persuade them, but I think we have real inputs into their thinking. And try to encourage them to seek truth in some way. That's a nice thought. Keep in mind, manipulation has been with us forever. So in the 1960s, my goodness, how long did it take for people to really speak up against the Vietnam War? It took years, and finally Walter Cronkite uttered that it might not be such a great thing, and people went crazy. Imagine the Vietnam War today on Twitter. People would be on it, you know, day one, hour one, and all the arguments against it would be out there in less than 24 hours. Would there be fake news on those arguments? Yes. Is that on net a better world? I strongly suspect it is. So I think on net social media are more likely to limit the risk of war than to boost it. That's the number one issue. We had generations of American intellectuals become Marxists, believe in the economic growth powers of the Soviet Union because of fake news put into books. Often those were subsidized printing presses backed by the Communist Party, as you know. That did us a lot of harm. So the notion that somehow today the fake news problem is especially large, I'm not sure we've seen a formal comparison, but it's far from obvious to me that that's the case.

You know, I used to have a reputation as an optimist. Some of that went away. 2008 with the financial crisis. Some of it went away in 2016 with the way that politics and ideology have changed around the world and here in the United States. And I'm much more unmoored than I used to be and much less confident that things are going to turn out well. But I have to say, Tyler, talking to you brings back my optimistic side. I love your contrarian nature. It's very impressive. Thank you for that.

I would just note, people have read a bunch of my books, Great Stagnation, Average Is Over. They think I'm a mega pessimist. I'm not. I've always been an optimist. I'm an optimist who thinks productivity growth has slowed down. I also think it will come back up again. I think the real weird period was like the 1980s and '90s when everything felt right and orderly, and that was an illusion. The bubble's been burst. We're now just like living in history. History, it will just be or feel chaotic from here on out. I'm not necessarily optimistic about that, but I think it's the new normal and it's been the old normal and it's more like mid to late 19th century American politics, which was awful and ugly and hideous and rude, right? And racist. But we came out of that all as the world's greatest nation. Keep that in mind. So I'm not per se pessimistic at all about the current moment. I do see it as risky. I'll quote our former colleague, James Buchanan.

And he might have been at this talk. I saw him give a talk at George Mason shortly before he passed away, where he said, "When I look to the past— When I look to the future," I think he said, "When I look to the future, I'm a pessimist. When I look to the past, I'm an optimist." And I thought, "Well, that's a weird thing to say." And what he meant was is you look to the past, when you look to the future, sure, it's scary. There's a lot of things you don't understand. You're not sure where they're headed. You look to the past and you think, is this really scarier than 1929 or 1938 when the world was about to be in an enormous upheaval of death and destruction? And it looked really bleak, but it turned out it was bleak. Horrible things happened, but we bounced back. And things got better again. It's an amazing thing.

We had slavery way back when. Yes, we did.

Right. So yeah, there are grounds for optimism. I'm much more of a John Gray fan than I am a Steven Pinker lately. I'm much more aware that the material world is only a small part of what makes life meaningful and satisfying. I'm not a fan of hunger, but I do think there are— it's easy to overstate the tangible things that have gotten better and to ignore the things that haven't changed about human nature and the reality of life.

I'm a fan of John Gray, but frankly, I'm not short the market. Say that again.

You're not what?

I'm not short the market. And what do you mean by that? Well, I own equities. I own a house. I'm not looking to sell what I have. I know how to short things. I could buy puts, whatever. I'm not close to doing that. And I suspect you're not either.

Oh, but that's just the financial side. What about the—

That's the side that matters, right? That's your actual choices with your real money that you hope will support your wife and children in the future. So that's what you really think. And that means we're both pretty optimistic.

Yeah, but my point is this. That means I'm optimistic about the ability of the US economy or perhaps the world economy. I'm not particularly diversified. I'm mainly in the United States because I trust the institutions here a little more than I trust them elsewhere. It's the tallest pygmy example. I don't think they're very good anywhere, but I think in the United States, I'm a little more optimistic about that relative to the rest of the world. The fundamental questions of the human heart and our ability to get along with each other. I don't think we've gotten any better at that. And so I'm not particularly optimistic about that going forward.

If this makes you feel better, I think about half of the revenues of the S&P 500 come from abroad. So you're probably more diversified than you think.

But what's your reaction to my point about the human enterprise generally, and that the monetary side of it is overrated?

Well, overrated by whom? It's probably overrated by wealthy American people. But I'm not sure it's overrated by the world as a whole. If you walk around like Sumatra, and just ask how obsessed are people with creating a wealthier society, I suspect it's not nearly enough. So I don't think globally, we're overrating wealth. And the question of what's a meaningful human life, it's diffuse, it's difficult. We're not going to solve it. But just the kind of lives out there that can be fully expressed, and by people who are minorities, or they're gay, or they're transgender, or whatever their situation may be. That just seems like so much richer now than when I was a kid. And are people happier? Hard to say. Are they lonelier? Hard to say. But there seems to be more reality to the real of social and interpersonal life in a way that I find deeply encouraging.

Well, it's hard to say, but there are some disturbing things, right? The suicide rates seems to have risen dramatically in the United States among young people. Sure. Some have attributed— you know, there's a thousand things you could blame that on, but social media may be part of the problem there. What are your thoughts on that?

You know, I think for teenage girls, there's some good evidence that social media are making a significant subset of them more miserable. I think that's probably the single biggest cost of social media. The rest of the evidence I don't find very convincing. And if you ask the question and try to measure it, like what percentage of well-being, what percentage of the variation in well-being comes from social media, that still seems really quite small, probably less than 1%. Why is the suicide rate up? I don't know. I do find it a matter of concern. But there are many other social trends, social indicators for young people which are positive. So I don't think we're just flat out losing that battle by any means.

I want to add to your optimism or cheerfulness about technology in that I think I saw you recently somewhere, you were referring to the argument that you hear sometimes, where are the flying cars? And that, you know, this argument is that, you know, back in the old days, '60s, we imagined a future with flying cars. And they're probably coming, by the way. So just be patient out there. But there are, you know, people who make fun of the tech sector saying that we wanted flying cars and we got Alexa. And that's a, you know, that's a bad deal. We got the opportunity to turn our lights on from a distance. But I would argue that for me, and this is always a personal preference, for me Spotify alone almost makes the tech revolution worthwhile, and it dwarfs the pleasure I'd get from a flying car.

My version of flying cars is Uber and PreCheck. So if you go to the airport and you take a flight, you're not in the same vehicle, of course, but you can work or email in the back seat from Uber, And then you kind of sail on, you know, to your flight. PreCheck is easy. And then while you're waiting for your flight, you can read on Kindle. Uh, it's different than a flying car, but, uh, maybe in some ways it's better to split it up into different parts. So we've seen progress with transportation finally, and that would be Uber plus the iPad.

That's nice. I think there's a lot more coming. A lot of money is being spent. Around the world to make transportation better. It's an example that I think it's like negative white noise. It's something we don't really notice much when we're not in it. When we're in traffic, we're very aware of it. When we're in the line, we're very aware of it. The rest of the time, we don't think of it as one of our major problems. A lot of people, I think, don't. They think of other more dramatic things. But I think we can make some progress on that in the next 10 years, and it's, uh, the potential there is enormous.

I think we had like 40 years of stagnation in travel, and the last 5 years we're seeing real advances, probably more to come. There's a lot of talk of vertical flying devices, a bit like helicopters. We'll see how that pans out, but there's a lot of things that could happen pretty soon that I'm optimistic about. Yeah, I agree.

Maybe The Boring Company, Elon Musk's underground transportation system, will come to life. You know, it's mostly his money, not always his money. Sometimes it's my money too, but people are doing some very innovative things.

And just, you know, waiting in line and waiting has ceased to be such a cost. So you have an iPad and a Kindle and maybe other things. It's actually fun.

Yeah, that's a fascinating point.

It's also lowered the impact of monopoly. I think I make this point in the book, "Big Business," that you can always— not healthcare, not like a hard operation, but a lot of things out there, if a monopolist tries to sell them to you, you just say like, "No, I'm gonna go home and read the internet." You know, get lost.

Yeah, I wrote, I was actually gonna make this question. I said, I can't tell whether that's the cleverest argument I've heard in a long time or completely silly, but it's— Might be both.

It's both, I think. But nonetheless, I find if a supplier tries to make an experience unpleasant for me, including a high price— again, healthcare is quite different, I get that— but I just walk away. It's like, gee, my default is so much fun. Yeah, Twitter. I don't need this.

Yeah, Twitter or YouTube is, uh, uh, of course it's, you know, my, my issue there is, um, I used to spend a lot more time staring off into the distance. I now do the New York Times crossword puzzle or go on Twitter on my phone or read a book on my phone, which is— that's where I do a lot of my Kindle reading when I'm commuting, which I rarely do, but occasionally do. And solitude has been greatly reduced for whatever— for that reason. And it's a mixed bag. I'm gonna be interviewing Ryan Holiday soon on his book, "Stillness Is the Key." And stillness is way down. We're struggling with that. We do, the advantage of this entertainment, zero price, direct price, it's not zero, but it's the direct price out of pocket is zero for us to consume these resources right now.— is extraordinary. But is solitude down?

I'm not even sure. So in the old days, if I just stayed at home 2 days straight, I'd feel very lonely. I wouldn't have contact with anyone. If I do that now and I'm intermittently emailing or chatting with people, it feels kind of social. So maybe we're subsidizing solitude. Well, I think the challenge there is the intermittently.

I'm sure you've experienced this, but— or maybe not, I'll let you answer. But for me, when I write now, if I'm writing an essay or a book, I find it hard to do it for long periods of time without intermittently checking my email, even if I don't respond to it. I have a compulsive problem in glancing at it. I don't know if you deal with that.

I have not checked my email during this podcast, for your information, though I could have. I do that too. But the thing is, I'm no less productive in my writing because I spend more time writing. It's more fun. So I write just as much, I get as much done, and I check my email. Maybe something else is suffering here. I get there's only 24 hours in a day, uh, but I'm not sure it's harming productivity. Maybe for, for some people.

Yeah, we got to fix that 24 hours in a day thing. That's— they promised us flying cars in the 28-hour day, and boy, they failed on both of them so far. Um, you mentioned healthcare in passing. It was something I was going to ask you about. Out. Um, you suggest in the book that the monopoly problem is most serious probably in healthcare. Uh, what, what is worrying you there?

High prices, hospital consolidation, uh, patients are not well informed, prices are not transparent, there's massive third-party payment, which by the way doesn't have to be bad, but when combined with these other features, it's very harmful, and the system's a mess. And we pay huge amounts, like 18% of GDP, and so often we're treated poorly and we're hurt or crushed or broken and frustrated, and something is badly wrong with American healthcare.

I totally agree and recently had a horrific experience with healthcare approval for a procedure. Not so much that they rejected it, but that they— the ability to deal with what came next the lack of transparency, the ability to talk to a human being, talking about bureaucracy, we were talking about it earlier, was just— it's something you never experience anywhere else in your interactions with providers. And I think a lot about the lack of skin in the game, feedback loops, the things that make the rest of our economy, I think, work pretty well. So on one foot, what would you do if you could to make that either better or fixed? And fixed is the wrong way to think about it, of course, but just the challenge here is that fixing one thing doesn't always make things better. It can make them worse because of the perverse incentives that are operating in the rest of the system. Do you have a vision of what healthcare could be in a different world?

It depends how many things I'm allowed to change. I am a fan of—

You can't change human nature, I'm gonna leave that out. But other than that, let's be pretty free.

But the Singapore system where you have forced savings, a lot of out-of-pocket expenditure, single-payer for catastrophic expenditures, and full price transparency, I'm all for that. I can't imagine how we would get to that from where the United States is now. So we have to do things incrementally. There are some movements going on right now for greater price transparency. Most of what we've got, we're not gonna give up. We're gonna make it worse. We're gonna dig in on it. And we just have to hope technology brings us enough good things, like a cure for cancer, that we'll be happy enough with our healthcare system. But American big business as manifested through our healthcare system, it does not deserve the defense of other parts of big business I give in my book. And I say as much in the book. The book is not pro-business per se. The book is pro-evidence.. And I think in many but not all cases, the evidence suggests business is doing pretty well by us.

One of the issues that comes up is the political influence of business. And recently had Mike Munger on EconTalk, who worried as I do that— I like to say that I'm in favor of capitalism, not crony capitalism. The left's response to that is, well, there's no such thing as capitalism, it leads to crony capitalism. And you, you write, the basic view that big business is pulling the strings in Washington is one of the big myths of our time. Why do you say that? And are you not worried about the political influence of business, especially big business?

I'm worried about it, but I think in large part the left is correct that if you have capitalism, you will get a fair amount of crony capitalism. There's no way you can write it into the Constitution that you won't get it. Most or all of that crony capitalism is bad, but I think it's much overrated as a source of our problems. I think by far the worst examples of it come in the healthcare sector, where I would agree with the critiques of the left and also the right to a large extent. But a lot of the other examples, I think they're a little blown out of proportion. You have a lot of libertarians who wanna posture as being like very egalitarian or in favor of the little guy, so they thunder against business. But all these bad policies like the farm subsidies, which I'm against, Export-Import Bank, yes, I'm against it. Add them all up, again, healthcare aside, and ask what's their deadweight loss? It's just not that large. So I think that's an exaggerated issue, which now is being used as a weapon against business, not a weapon against government subsidy.

So I sometimes like to argue when I'm in a, I don't know, a argumentative mood. Our provocative mood, that the parts of our economy that work the worst would be the housing market, the healthcare market, and the education market— college— and that those are the places where government is most involved. Uh, a fair response to that would be, well, they have to be involved because otherwise it'd be even worse. But I certainly am horrified when people will say that the healthcare market shows that capitalism 'cause look how horrible it is. And my answer, of course, is that there's not much capitalism, there's not much free market. And that would be true of housing as well. People will blame, have actually blamed capitalism recently for the high prices of, say, housing in San Francisco or New York. And because obviously that shows that greedy landlords are exploiting people, as opposed to the fact that the regulations are making it hard for other greedy landlords to bring the price down. Tyler Cowen. So I'm reacting to that argument, and in particular, you're singling out healthcare as the place where things don't work well in the large and big business. Would you use the argument that I make somewhat tongue-in-cheek but somewhat seriously that it's one of the most corrupted argument— one of the most corrupted parts of American industry through government's relentless hand in pricing and in subsidizing through Medicare, Medicaid, and then the subsidy to employer-provided insurance.

It's somehow how that interacts with human irrationality and healthcare purchases, not wanting to see the truth, not wanting to face up to mortality, and how it interacts with the incentives of private businesses. So there are government-run systems which, you know, at least in some ways work better than ours, We have this weird mix where you get a lot of the worst of human irrationality, private sector incentives, government incentives, and we blend them all together. But that said, you know, I think for, you know, half this country or so, we might have the best healthcare system in the world. Now, half isn't enough. Yeah. But, you know, one also has to be balanced. It's not a complete failure. We're by far the world's leading center of medical innovation. The pharmaceutical sector has done phenomenal things at relatively low expense. Frank Lichtenberg estimates that to save, you know, another year of life through pharmaceutical drugs, it costs $12,000 a year. And maybe that number is off, but if you think that, say, someone who's HIV positive today has a completely normal life expectancy, that's phenomenal. So American system is very mixed. On crony capitalism, I would say this. Wouldn't you be delighted if we had more crony capitalism in real estate markets? The big developers would get together with the San Francisco Board of Supervisors and mayors and could have paid them off to allow more building, and it would be unfairly allocated and corrupt, but a lot would get built. I mean, that would be wonderful. That'd be such a big advance. So again, crony capitalism can be a lot better than some of the alternatives sometimes.

Let's finish with just your general thoughts on where attitudes towards business are going. We're in a time where famously a lot of young people are eager to embrace socialism. I'm not sure what that word means to them or to others who answer those questions on polls. I think it's just a way to get people to click through. But putting that aside, there's definitely a lot of anger about the current American economic system. Where do you think we're headed there?

Tucker Carlson recently gave a speech, and I think he called it like, big business is the enemy of your family. And he, of course, is a right-wing commentator. On the left, you have Bernie Sanders and Elizabeth Warren, very, very anti-business. I think the center of the American public is still pretty sane. And if you look at people's actual choices, they're trusting big business more than ever before. So people just get into an Uber ride, correct? Correct? It's not that they trust the individual driver. They trust the ability of the company to come up with a system that is likely to keep serial killers away from them. If there's like a new food craze that's out, people will just try it. They sort of trust that the business won't poison them. People spend, as you mentioned before, all this time with their smartphones. That's like with Apple and Facebook. So demonstrated preference, trust in business has never been higher. Rhetoric trust in business has not been lower for a long time. There's a contradiction there. It is hurtling through time and space at a rapid rate, and it's going to crash and break open. And I hope we don't do anything crazy. I'm afraid we might.

And we'll close on that note of semi-pessimism from a very optimistic author and economist and friend. Tyler, thanks for being part of EconTalk.

Russ, thank you.

This is EconTalk, part of the Library of Economics and Liberty. For more EconTalk, go to econtalk.org, where you can also comment on today's podcast and find links and readings related to today's conversation. The sound engineer for EconTalk is Rich Coyette. I'm your host, Russ Roberts. Thanks for listening. Talk to you on Monday.