Diane Coyle on Cogs, Monsters, and Better Economics
May 23 2022

cogs-monsters-194x300.jpg Mainstream economics, says author Diane Coyle, keeps treating people like cogs: self-interested, rational agents. But in the digital economy, we're less sophisticated consumer and more monster under the influence of social media. Listen as the economist and former UK Treasury advisor tells EconTalk host Russ Roberts how, for economics to remain relevant, it needs both more diverse methodologies and more engagement with the broader issues of the day.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Gregory McIsaac
May 26 2022 at 9:41pm

Russ Roberts said: “…a certain group of people decided that we would not allow prices to adjust to solve that problem, which meant that it persisted for a long time.”

The prices of masks and personal protective equipment rose substantially:




Russ Roberts: “…public health officials said masks were not effective. They said that because they wanted to make sure that they [masks] were available for medical personnel. And I think by doing so damaged their credibility.”


The effectiveness of masks depends on several factors: the type of mask, how it is worn, and the context in which it is worn. In health care facilities where contagious patients are congregated, high quality masks properly worn can be very effective. The same mask is unnecessary in settings where there is little or no CoVid 19 in circulation. I think this is very obvious, and in my experience was clearly communicated by public health officials. The claims that I have seen that the public was purposefully misled about masks have been based on misrepresentations of the original public health comments.

Russ Roberts
May 27 2022 at 3:26am

The price of PPE may have risen in some places. But in many places, government officials threatened and charged people with the crime of “hoarding” “profiteering” and so on. Here is one example of government decree and here is an example of enforcement. Just google “arrested price gouging ppe” and you’ll find plenty more.

Fauci admitted that he downplayed the efficacy of masks to make sure there would be enough masks for health care providers. I think that was a terrible mistake. And maybe he had a different motive. This article covers the issues well. Whatever his motives, he reduced the trust people have in expertise.

Gregory McIsaac
May 29 2022 at 10:07am

Thank you for the reply and links. The Presidential Order that did a number of things to address PPE supplies including restricting PPE prices to “prevailing market prices” went into effect March 25, 2020.  By that time, prices had already risen substantially. The study I linked to of PPE prices in Chicago noted that the price of gowns peaked in the first week of March. Much of the PPE purchased in the US had been manufactured in China, and those supplies were likely reduced in January and February due to demand in China. Allowing higher prices in the US after March 25 might have ended the shortage earlier. But, the shortage turned out to be relatively short lived; the largest US manufacturer of PPE, 3M, was able to substantially expand its production of PPE at the prevailing prices.


The Slate article by Powell and Prasad is a partial example of the mischaracterization that I referred to. In their first sentence, these authors accurately characterize Fauci’s 60 Minutes interview (aired March 8, 2020) as saying that community masking was unnecessary at the time, which is not the same as saying that masking is ineffective. In early March 2020 there were less than 1000 reported cases in the US, so community spread was thought to be low, in part because the role of asymptomatic spread of the virus was not well established. In the 60 Minutes interview, Fauci stated that masks were important (and therefore effective) for people sick with covid to prevent transmission to others, and for health care workers who are interacting with Covid patients. He also explicitly stated his concern about mask shortages for health care workers in that interview, so Powell and Prasad’s alleged “discovery” of that concern in later interviews or in prior emails is a mischaracterization of that aspect of the 60 Minutes interview.

A few weeks later, the guidance of the CDC and Fauci changed to advocating community masking.  In a July 2020 interview, Fauci gave two reasons for his change on community masking: 1) the mask shortage was not as bad as expected; and 2) the role of asymptomatic carriers in spreading the virus appeared to be much greater than initially thought.


The degree of asymptomatic spread of the virus is still an actively debated topic among researchers


May 28 2022 at 8:58am

Moral Hazard is greatly overrated.  Do you somehow think that bankers spend their day saying let’s just add risk asset upon risk asset because in the end the Gov will bail us out?  Foolishness and a reflection of a lack of understanding of how bankers go about their business. Better to look at incentives for behavior which after all is most economics should be concerned with.  And therein lies the issue: Compensation to bankers in terms of bonuses and stock compensation was absurdly high with rewards for just booking more and more business.

And the Fed failed in its role of regulator of the industry. Don’t you think Greenspan could have( and his book clearly pointed out lots of leverage in the system) told the heads of banks to raise more capital or sell assets to lower leverage levels that would have resulted in far fewer loans to questionable credit quality borrowers? In doing so maybe harm would have been avoided- the GFC- or the destruction far less.

And lets now leave out the politicians and a macro environment that had lenders around the world seeking higher yielding assets. The roots can be traced back to expansion of the community reinvestment act under Clinton that promoted lots of loans in areas and to borrowers of questionable credit quality. That was a Faustian bargain entered in to by BC with Sandy Weil that allowed for Glass Steagall to go by the wayside.

The bankers clearly played a role in the GFC, but they were mere actors following incentives and not the underlying cause for its taking place.

While I have some issues/thoughts on other parts of the discussion I will pass on presenting them

Overall very nice discussion/podcast.


Best regards



Ruth Fisher
Jun 4 2022 at 3:54pm

I believe recent (since Covid) supply chain problems have been due to two fundamental issues:

1. Massively interconnected global supply chains. I think the degree of interconnections have been underestimated and not well-understood.

2. Constant exogenous shocks to the system as governments kept changing (and continue to change) their policies.

The worst thing for businesses is uncertainty. Governments have ensured rampant uncertainty throughout their handling of the pandemic.

Ruth Fisher
Jun 4 2022 at 4:18pm

The issue of using GDP or utility as measures of well-being have been increasingly problematic as intangibles have played larger roles in society, as discussed. I believe a large part of the problem is “you manage what you measure.” Tangibles are much easier to measure, so that’s what society focuses on (i.e., gets managed). And because that’s what everyone focuses on, most people completely lose site of the fact that it’s not tangibles, but intangibles, that are the real issue. Occasionally, people consciously recognize that intangibles are important (as Russ does regularly — kudos to him!), but most people don’t.

So then what happens is we focus on maximizing GDP/income because that’s what we are told means well-being is maximized. In the process we lose sight of the fact that we’re focusing on a proxy, not the underlying issue we want to maximize.

I think what we really need is more people like Russ stressing “It’s the intangibles, stupid!”

Dr. Duru
Jun 10 2022 at 3:05am

This is the first time I’ve heard this critique of Universal Basic Income:

“what you can’t do with an Universal Basic Income is buy collective goods. And, to the extent you care about communities and improving the chances of those who are the least well off, then it’s often those collectively-provided goods that matter a good deal–the transport network, the quality of the public schools, the quality of the healthcare that you can access.”

Is UBI supposed to not only provide a floor on income but also eliminate taxation for funding collective goods? I need some more color here. Thanks!

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TimePodcast Episode Highlights

Intro. [Recording date: April 28, 2022.]

Russ Roberts: Today is April 28th, 2022, and my guest is economist and author, Diane Coyle. This is Diane's fourth appearance on EconTalk. She was last here in April of 2014 talking about GDP [Gross Domestic Product]. Our topic for today is her latest book, Cogs and Monsters: What Economics Is, and What It Should Be. Diane, welcome back to EconTalk.

Diane Coyle: Thank you for inviting me back again.


Russ Roberts: Let's start with the title, Cogs and Monsters. What do you have in mind there?

Diane Coyle: The cogs are us, the individuals; and it's a reference to the way economics thinks about individual choice, methodological individualism, as the modus operandi in the way we do our analysis. And, the monsters is a reference to those old maps from medieval times when the areas that were unexplored, where people didn't know what there might be, were labeled, 'Here be monsters'. And, it's a reference to the fact that the characteristics of the economy, digital economy, are changing in ways that we haven't yet thoroughly explored, and there are some scary monsters out there that we need to tackle and update our economic analysis to be able to understand better.

Russ Roberts: Yeah. I think about both those questions a lot, so I think we're going to have a great conversation about them.

What's the problem with cogs? What's wrong with that? Is there anything wrong with it--thinking of us as individual pieces, individual decision-makers?

Diane Coyle: I don't think there's anything wrong with it in itself, but I think it's not the whole story, the whole picture, and we are excluding some insights into economic behavior if we don't think more about the way people interact, influence each other.

And, of course, as you'll know, economists have started to think about these things. If you think about George Akerlof and Rachel Kranton, Identity Economics, or the Narrative Economics that Bob Shiller and others have written about, thinking about Ostrom's approach to understanding social norms as ways of governing the economy. And, I guess what I would plead for is more of that because of the characteristics of the digital economy, the pervasiveness of network effects, and the influence that we have on each other's choices that way. And, also, I think the strength--the power of social norms in setting the rules of the game and the way in which people interact in the economy. And there, I would point to, for example, Kaushik Basu's work on bringing economists and analysts and policy makers into the games for which they're setting the rules.

So, it's not that there's anything wrong with methodological individualism, because of course we do act as individuals, but I think there's been an over-emphasis on that at the expense of some of these insights from social interactions.

Russ Roberts: I have a slightly different critique, and I'd be curious to hear your reaction to it. We teach our students, typically, that individuals maximize their utility. And, there's two pieces to that I think both are a little bit problematic. One is the maximize part, implying we're just calculating machines looking for this peak, this best thing. And, the second is utility, which on the surface is as generic as it could possibly be. It could contain anything--anything that makes us happy, anything that gives us wellbeing. It seems to me that as I get older, a lot of the things that I get satisfaction from are not simple things like potatoes and shirts and a night at the opera and those kind of goods that we think of that go into one's utility function, but the things that I do with other people: my family, my wife, my children, my community, sometimes my nation. And, those are really intractable.

Gary Becker spent a lot of time trying to make that consistent with the standard tools of economics, and we could debate whether he was successful or not. I'll just say that it influenced a very small group of people, other than those who thought, 'Oh, we can run some equation, run some regressions and statistical analysis of family behavior now. That's part of economics.'

But, in terms of thinking about what makes us happy--which I think is a big underlying theme in your book we're going to talk about--what's progress, what do we really deeply care about, it seems to me that, it's true we make our decisions often as individuals, but we make them in the context of how it affects the people around us and our community, and our country, our family and our friends. And, those are the sources of much of our deepest satisfactions; and we leave those out effectively when we talk about both the economist's model of the individual making decisions and also what is wellbeing.

Diane Coyle: I have a lot of sympathy with that. And, as you alluded to right at the start, you can kind of define the utility function, an objective function, to incorporate that to some degree.

The way it struck me most recently is in the discussion about Universal Basic Income [UBI], which seems the ultimate individualist kind of policy. And, it's no surprise that the individualists of Silicon Valley have been so strongly in support of that idea, because of course people need an income. And, if you're arguing for a simpler, fairer welfare system, that's all to the good.

But what you can't do with an Universal Basic Income is buy collective goods. And, to the extent you care about communities and improving the chances of those who are the least well off, then it's often those collectively-provided goods that matter a good deal--the transport network, the quality of the public schools, the quality of the healthcare that you can access.

So, a lot of these classic public goods or traditionally collectively-provided goods are very important; and you can't, with your individual $10,000 or $15,000 dollars, go and purchase those.

So, that's a long-winded way of saying that I think I completely accept what you suggest about that and think it augments the kind of answer I gave to you previously.


Russ Roberts: Yeah. I think those are interesting questions about whether those--the role for public transport, education, and health are obviously crucially important to both our individual wellbeing and our wellbeing as a whole.

I just think that we're trying to assess a central question, which you come back to many times in your book: Is this a good policy? I don't think we have the tools in economics for addressing that as well as we think we do.

And, in particular, this issue of our interactions with other people is extremely important. I mean, giving somebody a lot of money so they have large command over goods and services, but they live alone and have no friends and have no family, and don't feel connected to the rest of the people, either who live near them or somewhat near them, is a very different life than having the same amount of command over goods and services in a more meaningful social setting. And, I think economists have zero ability to think about those things.

I'm not sure a lot of people--I mean, I'm not sure there's a better discipline than economics to think about it. But I don't think economics has much to say about that, and we should limit our confidence in our pronouncements because of that reality.

Diane Coyle: It's a really interesting observation. And, I have been thinking a lot about this question: What does it mean for a policy to make things better? I'm now a co-director of a public policy institute that's relatively new. And, although there are some things we care about--like opportunities for those who don't have them, that people are not having to use food banks, that there's enough standard economic prosperity--it's a question to which there isn't--as you say, we don't have the tools. We don't know how to answer that question in economics.

And, it set me thinking about welfare economics; and I was taught a bit of that as an undergraduate, but not very much after that. And, the texts that people still refer to date from the 1970s: [I.M.D.] Little, [Amartya] Sen, [?]. So, it seems to me it needs a kind of reboot.

I guess, one area where people have thought about citizen behavioral economics--but again, I don't think there's a good answer--there's the idea that you can set up choice architecture so people choose outcomes that are better for them, but it still doesn't answer the question of what better is. Or, it presumes that the analyst who is setting up the choice architecture knows better than the individual, and that's problematic as we know for reasons of liberal paternalism.

So, this seems to be a profoundly important question, and we ought to be spending much more time. If we are going around giving policy advice, we're in positions of influencing government, we really should have a better handle on what it means to make things better.

And, it's given urgency by the way that a lot of machine learning systems increasingly being used in the private and the public sector to make decisions that affect people's lives significantly are actually utility maximizers. They're set up to maximize objective functions or minimize loss functions. And, that literature has worked through all of the issues and social choice theory that we know as economists, and is nevertheless going ahead and implementing systems that are maximizing these functions that are selected by analysts--computer scientists often, in this case.


Russ Roberts: Yeah. And, I think it's--as I get older, it's the thing I'm most uncomfortable with. I trained at the University of Chicago; we talked a lot about efficiency. It's not the word that the English language uses. It means something slightly different in economics. But, it's not really a rule for how to decide what's good or not. For the economists, it really means making the pie as big as possible and not worrying about who gets what share--just making sure that we have as productive an economy as possible, and then taking account of concerns like externalities, taking account of concerns like public goods.

And, it's such a sterile measure of what makes being human important. I mean, let's go back to your example of Universal Basic Income [UBI].

Some people like the dignity of work: it speaks to them. And, how do you think about that? And, the answer is, 'We don't have a way to think about it.' We're happy to say, in a hand-wavy kind of way, 'Well, there might be a trade off there.'

But, does that mean it's a good idea to have a Universal Basic Income? How should it be structured? Should it be permanent? Should it be available to everybody? Should its level be set? We don't have answers to those questions. And, I think, as economists, we don't like the idea of giving politicians free reign to make those calls, so we feel obligated to have some say in them; but our say is not scientific. And, it's often, as you point out, and others, self-serving--which is even worse. And, I think it's a huge problem. I think we should be a lot more modest.

Diane Coyle: We have this pose of modesty, in a way. The kinds of analogies people make--Keynes comparing economists to dentists, Esther Duflo comparing us to plumbers--and this idea that it is like engineering and what we're doing is objectively analyzing a context. And, with the applied revolution, now we have lots of data and lots of techniques for doing a really good job with that. And so, there is this pretense of objectivity.

Now, objectivity is a good thing. If you are a civil servant, a bureaucrat, and economist, you want to have the decisions about values made by people who are elected, and that's a good division of labor. But, I think we ought to be much more clear in our own minds that there are value judgments involved in what we recommend, as well.

So, there's a balance to be struck. On the one hand aspiring towards impartiality and objectivity is obviously the right thing to do. On the other hand, we ought to acknowledge that our own modes of analysis embed values.

And, in a way, I think part of the backlash against experts is a backlash against the claim to be impartial and objective and deciding the best thing for everybody in this top-down way, when it isn't the case.

So, I'm not a macroeconomist, as you know, Russ, but thinking about unconventional monetary policy post-financial crisis, and that was very much claimed to be a decision taken by independent central banks to deliver objectively the best outcome for the economy in a context of a systemic crisis; but it had great distributional consequences, and it took a long time, I think, for the central banking community and economists to 'fess up to that. And, it has laid the groundwork for massive change in the distribution of wealth and income in our societies.

Russ Roberts: And, a political backlash--as you point out in the book in various places--just to take the most obvious example, and I don't think we think about this enough as economists: The central bank of the United States decided--the Fed decided--to bail out banks, not homeowners. Now, there's an argument for bailing out banks. There are only a few of them and there's a lot of homeowners, and there's a certain argument there. But that was an enormous, I think, blunder for a whole bunch of reasons. I think the moral hazard part is what I've emphasized as part of the problem, the run-up to the crisis. But, on just political grounds--yeah, I think central bankers maybe need to get out more. If you hang around with investment bankers and people from the finance sector, you're blinded to, I think, the consequences of your decisions in a way that you might not be if you were walking around more.

And, those folks--and it was a hard job, don't want to suggest that it was easy--but their worldview was so narrow because of who they talked to all the time, that I think a lot of the choices that might have been on the table didn't even cross their mind. It's not like they sat around twisting their mustaches, thinking sinister thoughts about advancing the interests of a small group of people who were some of the richest people in the history of human existence. It's just that that was sort of what was on the table and they didn't think about a wider menu.

Diane Coyle: Really interesting observation. So, there's something about just the framework over which you allow yourself to think about--

Russ Roberts: Yeah--

Diane Coyle: the issues, rather than going to the fundamental question of the outcomes and that point about what does 'better' mean, and what's the whole array of ways of thinking and tools that might deliver them.

Russ Roberts: Yeah, it's the old fish in water: 'How's the water?' 'What's water?' If all you do is talk to the--if you're Paulson and at the Treasury Department and your common conversational mate is the head of Goldman Sachs, it probably narrows your perspective on the world just a little, along with your history, of course, too.


Russ Roberts: But, while we're talking about the financial crisis, what do you think are the failings of the economics profession in that area? I, personally--you mentioned this one, and I don't think it's a fair critique. I think a lot of people say, 'Well, economics failed because it didn't predict the crisis.' I'm not sure that's really a reasonable expectation of our discipline. It's certainly--it's true. Most economists failed to predict it. But, do you think that should be the goal of economics, to anticipate that kind of problem? Should we have seen it coming? And, if so, what should we be teaching our students, and how should we be thinking about economics going forward to reduce the chances of the next one?

Diane Coyle: I don't think you can reasonably expect economics to forecast. I think we have to do it to some degree to serve macroeconomic policy, but I wish people were more aware that forecasts of that kind--macro forecasts of that kind--are quite stylized tools for thinking about what might happen rather than actual predictions. We might do better if we even called them scenarios rather than forecasts.

It's really interesting about the financial crisis. I was a consultant at the time, and one of my jobs was doing quarterly outlooks for an investment bank. And, looking at the data, the things like the ratio of house prices to earnings, how that was rocketing, looking at liquidity in the markets, looking at some of the strains that were evident in volatility indicies, I remember saying to them, 'Well, either all of these strains will resolve themselves over time gradually, and so we can predict the direction of change for some of these indicators, or there'll be a crisis.' And, we all then defaulted to talking about the slow resolution rather than the crisis.

Russ Roberts: Yeah.

Diane Coyle: And, you sort of had to have, as some people did, a kind of strength of character almost to say, 'No, no, we're going to have the crisis outcome here rather than--.'

So, the point I'm making is that there were signals flashing of strains, and it was the character of the attention that got paid to them, and by whom, that meant that nothing was done in advance to avert to the crisis. Because if you remember, there were signals for a good year before September 2008, that something was going very badly wrong, but nobody then thought, 'Well, let's intervene in the housing market. Let's intervene in these derivatives markets to try to avert it.'

Russ Roberts: I think the reason for that, and there were a lot of reasons, one of which is the one you mentioned, which I think is an incredibly powerful human urge, which is that, 'I'd rather not think about really unpleasant things, so I'm going to be drawn to the alternative.' But, I think about--I wrote a book on the crisis that argues that moral hazard was a huge part of the encouragement to people making bad bets and being reckless. And, what was true, was certainly true, is that after each bailout of the 20 or so years before the crisis, people said, 'Well, this is going to encourage irresponsibility.' And, a lot of people at the time said, 'Yeah, oh, no, no, but we've got to avert--got to make sure there isn't--this bank can't go out of business. That will lead to systemic dominoes.' But, there were always people who said, 'Gee, this is a bad precedent. This is going to discourage prudence. This could encourage recklessness.' But nobody said, 'And, therefore, in four years, there will be a disruptive--', etc.

And, a lot of people were aware that the housing market was not healthy and that banks had invested in it, but they presumed: 'Well, there'll be a correction.' The full set of linkages were not fully understood. I don't think they're fully understood now.

And so, I think for me, when I think back on the lessons, I don't think we have a very good understanding of complexity, the full set of interconnections between different parts of the economy. And, then I would just add that, for me--and you hint at it in your book--the role that finance plays in the macro economy was grossly underappreciated by almost all economists, even most macroeconomists. I mean, I wasn't trained that way. When people would come give talks on finance in the departments I was in, it was like, 'Oh, yeah. I guess that's economics.' But, the idea that there's this deep connection between the financial sector and the real economy was not appreciated, wasn't taught, and I think still is--it's just not part of the mainstream conversation in the classroom, and so on.

Diane Coyle: I completely agree with you. And, although macroeconomists have incorporated the finance sector in economic models used for forecasting to a much greater extent than before, like you, I'm not too sure that we understand the extent to which risks are being diversified or concentrated, and the channels of connections.

In a way, actually, we don't know also the supply-side networks. We've seen that with the emergence of worries about supply chain bottlenecks just recently. That deep wiring, whether it's on the production side or the finance side, I don't think we have the data or a good way of understanding what that implies for collective outcomes, for aggregate outcomes in the economy.


Russ Roberts: Well, let's talk about the pandemic, now. You mentioned supply chains. Similar question: What have we learned from the pandemic, and what have we failed to learn--as economists, not as public health? You can--talk about that if you feel like it, but there's a much longer list. For everything that's wrong with economics, I think epidemiology, to my view, is very similar to economics in its careless and imperfect understanding of complexity in data and causation. But, what do you feel--if it's somewhat behind us, which, of course, who knows?--but, what are your thoughts on what the profession of economics should be taking as lessons from these last two years?

Diane Coyle: That's a great question. I'd be interested to know what your list is, as well. So, the first, just to pick up where we left from the last bit of the conversation, is this point about supply chains: understanding the connectivity, both within national borders and across national borders.

In a context of changing geopolitics, changing trade in international investment environment, I think we have learned that we need to understand that better. And, the challenge there is that we don't have a good data collection system for understanding that. And that's a big task, one that I think lots of economists are now turning their attention to.

Another lesson is actually about integrating different kinds of knowledge. At the start of the pandemic--I think in many countries, but certainly here in the United Kingdom--the economists did their forecasts, and the epidemiologists did their forecasts. It took a while for them to combine forces.

And, for all the limitations of each approach to forecasting--actually, you needed that combination, that there are clear interactions between them. And, that lesson, I think, is now firmly embedded, and there's a lot of very good work being done on the border between the two subjects.

I suppose the third lesson was that governments can do things--that kind of sudden and large intervention that governments made. And, there were some mistakes, and there were some things that worked well; but simply the fact that that could be done. And, that had been, I think, outside the universe of the possible in much policy thinking beforehand.

And, then the importance of the social, I suppose, is the other. And, let's see how long that sticks, if the pandemic really is over.

But, I think the debate about work/life balance, working from home, how much of that is going to stay around all the way through to the welfare, the benefits that we get from community and being with other people, the debate about key workers--we're just going to have to wait to see how all of that plays through the labor market, the decisions that people make about where they're going to work, the success that low-paid workers have in building on the evident need for them that emerged during the pandemic.

So, I don't want to make strong predictions. I know some people have strong views, one way or the other, about how all that will turn out. I don't think we know yet.

Russ Roberts: Well, one of the best things I've learned from the pandemic, a silver lining of sorts, is how eager--it's not unrelated to our earlier conversation--how eager I am to explain what's going to happen and how early I was right. 'Oh, by fall of whatever [inaudible 00:27:51]. I'm looking at the data, and I see it's diminishing steadily.' And, a lot of people ask you, 'Oh, so what's going to happen?' And, now I just say, 'I have no idea.' Which took a long time, surprisingly long, perhaps.

So, one of my lessons from the pandemic is to be even more agnostic about what I know is than I was before.

Diane Coyle: One change I have observed that I think will stick is a broader public questioning about what the point of all these policies is going to be--

Russ Roberts: Incredible--

Diane Coyle: and, in my area of research, that feeds into the debate about beyond GDP. What is it we're measuring? And, should we not be doing a better job of measuring? What's happening to natural capital? What's happening to human capital, to social contacts[?], and so on? So, I think that had been around for a while, for 10 years or so, but I really think that momentum is unstoppable now.

Russ Roberts: And, most of it is not measurable, which is a problem. I think we've become, excuse me, aware of how important all those things are, especially for children. I think a lot of people feel we've made a terrible mistake over the last two years in how we treated children in this crisis. Will it be irrevocable damage to them socially that, during formative years, they only saw people wearing masks, could only see their eyes, became suspicious of other people, told to keep away from them?

So, I don't think these questions are answerable, but it's very clear that people are very concerned about that impact for their families.


Russ Roberts: But, coming back to economics: It's funny, the supply chain aspect of this strikes me as somewhat similar to the role of finance in the previous crisis, which I think is how you got into that segue.

It's something that economists sort of just treat as a black box, that's going on somewhere else, and eventually there's stuff in the store. And, that's what we care about: there's stuff in the store, and people buy it, and the prices adjust--that're called markets.

And, for me, as a pretty hardcore Hayekian, the inability of prices to adjust in response to these shortages is--there's nothing like it in my lifetime or any lesson I know from me from economic history. Shortages like we are dealing with today, which are not just sporadic, but fairly widespread in many, many areas--bird feeders strange, weird stuff--those took price controls to get those things to happen. They don't happen on their own. Markets solve those problems. The prices rise. There's an incentive to produce more of it. And then the prices come back down; and there's innovation and people find alternatives. And, a lot of those mechanisms either didn't happen or couldn't happen.

And, one answer is: there's social pressure not to adjust prices in the time of a crisis. That's my side's kind of standard argument.

The problem I have with that is that we've got inflation all of a sudden. Prices are going up--great, now that money is sloshing around in large amounts--and somehow the social pressure to keep prices down hasn't kept inflation from happening. So, why do we have these supply chain crises?

And, some of it may be the nature of global relations and reliance on China or other very specific aspects of the problem. But I don't think we have--we have a terrible understanding of this. And it is such a crucial thing. You think it'd be the main focus of our field, actually. When you think about it, it's kind of central. And, it's sort of like, 'Eh, that's too detailed for me. I'm going to stay out of that.' It seems kind of important for human wellbeing and to understand what's going on. I don't know. It's a mystery to me.

Diane Coyle: So, one of the issues, it seems to me, is about time and time lags and the inability of quantities to adjust as quickly as one might hope. So, if you thought about it in terms of something like the old cobweb model for agricultural output, I worry that we might be in a divergent context rather than a convergent context, because the physical limitations mean that those quantity adjustments aren't happening. And that's why you're seeing some big price changes but not a response to them. And, understanding much better where those bottlenecks are, seems a really urgent issue to me. And, of course, we know about some of them--so now the European Union is planning to try and build its own semiconductors in a multi-billion euro ambitious project, and who knows if that will succeed. But there are lots that we don't know about.

One of the shortages here was of carbon dioxide. When gas prices started to go up--there are two factories that make fertilizer and they reduced production dramatically because of the cost of gas. It's very energy-intensive. And, the byproduct of that is carbon dioxide, which they sold on into the food chain. They didn't know they did that. They had no idea that their byproduct was a crucial input into food packaging and food preparation. And, if the people running the companies don't know that, then it's probably no surprise that economists don't know that; but we certainly want to be asking about it.

There was a wonderful Peterson Institute study of the supply chains, vaccine manufacturer. And, there, I suppose you'd be a bit more optimistic because the adjustment to the need to create complex supply chains--to manufacture at scale the new kinds of vaccines--that happened incredibly quickly. And, for all kinds of personal relationship reasons and the urgency of the new structures that were set up by governments, that happened.

So, we could fix some of these shortages, but we need to know where they're going to be.


Russ Roberts: Yeah. I mean, in the early days of the crisis [the COVID crisis, not the financial crisis of 2008--Econlib Ed.], there was this question of availability of masks. And we, of course--'we'--a certain group of people decided that we would not allow prices to adjust to solve that problem, which meant that it persisted for a long time. I'm pretty confident I have this right; I might be wrong. People have challenged it. But I think it's correct that public health officials said masks were not effective. They said that because they wanted to make sure that they were available for medical personnel. And I think by doing so damaged their credibility.

A lot of this is tied in, as you mentioned in the book in a number of places, to the death of expertise, the lack of trust in healthcare officials, the lack of trust in economists.

Let me bring in another issue, because you're in a better place than I am obviously to talk about it in most ways, which is Brexit. And Brexit was, in theory, a social engineering problem. We just have to--we're going to--if England makes this decision, it's going to have financial consequences, and those consequences were predicted.

And, I think a lot of people had two thoughts: 'I don't believe the predictions.' And the second thought was: 'I don't really care about the predictions. It's not what's at the heart of the matter for me.' Back to the book by Roger Scruton that he wrote called Where We Are [corrected book title, versus Where You Are,--Econlib Ed.]: People felt their home wasn't the home they wanted it to be. 

Now, you can debate whether they should feel that way, or they it's better to feel a different way, but I think that was an important decision for people. Again, I don't think that's--it doesn't fall into the model so easily for economists. You could shove it in the utility function, say people care about where they live and the nature of that, but it's kind of separate from it. And, what are your thoughts on what we've learned from the aftermath of Brexit? Or is it just too early to tell?

Diane Coyle: The aftermath is manifesting itself in the collapse in export volumes, and it looks like those earlier predictions of a 4% loss of GDP will prove pretty accurate.

I think it was a bigger shock to economists in the United Kingdom than the financial crisis, actually. Because after the financial crisis, we thought: why were those finance people not warning us about this? Most of us hadn't thought about it. But the profession thought a lot about Brexit, and there was a very strong consensus that there would be economic damage caused. And, voters said, 'We don't care.'

And so, it is a great lesson, I suppose, that economic criteria are not always the most important criteria when people make decisions.

Having said that, there were clearly economic elements to voting patterns, and the Brexit vote was stronger in what are called in political jargon here, the left-behind areas--those places where there had not been increases in living standards in incomes for many years, actually, since the financial crisis. They were often post-industrial areas where job prospects hadn't been great anyway. It wasn't where the high-growth, high-wage jobs were being created. They were also places where the footprint of public services had been shrunk.

And so, if you're living in one of these towns or outskirts of the industrial cities, you'd seen the fabric of the place you lived deteriorate. The local libraries closed. The Magistrates' Court is closed. Hospitals got centralized, so you had to go into the big city to get your treatment. Bus services got cut.

So, they felt like shrinking places. And, that, to my mind, helps explain a lot the vote.

Now, of course, the European Union hadn't caused those things. A whole range of factors contributed to it. But it was what got the blame, and that was what drove the successful Brexit campaign.

Russ Roberts: I think your optimism about that prediction being right--about four percent--is going to be hard to tease out of the data, given that it didn't happen right away. You might not expect it to happen right away, but certainly it's complicated greatly by COVID coming on top of it. And, there'll be a lot of papers written about it. I don't know if [inaudible 00:39:05], but there's going to be a lot of journal articles trying to untangle those two things.

It is a--speaking purely as an old-fashioned economist, to me, the question always was, how easily can England reconnect to the rest of the world economy in the aftermath of Brexit?

You can still trade. You're not going to actually be cut off from the world just because you're not part of the EU [European Union] in a formalized way. You can still trade with France, you can still trade with Germany, you can trade more with the United States. There are obviously ways to avoid the concerns. You can mitigate some of the concerns, the financial aspects of Brexit. My suspicion is not much of that has happened bureaucratically, in which case, maybe we can't assess it yet, but--and--yeah. Go ahead.

Diane Coyle: There are a few clear data points. One is that trade export volumes in the United Kingdom have not recovered as much as export volumes from other OECD [Organization for Economic Co-operation and Development] countries, and the transactions costs of trading have increased.

And, for small businesses, that's a big burden. So, you're right, of course: we can't disentangle the pandemic, and now the conflict in Ukraine. So, there'll be a ton of papers written about that. But, I think we do know that there has been some damage done from Brexit.


Russ Roberts: And then it would be a question of--to come back to our earlier question, let's turn to it now--but: What's a good policy? That doesn't mean Brexit was a mistake, obviously because we don't just care about our material wellbeing. And, as you point out, material wellbeing is unevenly distributed. So, people who maybe got hurt by Brexit are not the people who voted for it, because they weren't seeing the benefits that have now been lost--they didn't have them to start with. So, it couldn't be very rational for them to vote for it.

But, it also could be rational to vote for it if it did hurt you financially, because it changes the way you see yourself as a citizen, as a human being in a physical landscape that matters to you. I was speaking to Marc Andreessen yesterday, an episode I think will come out before this one. But, there's a group of people--I'm one of them, he's one of them. I don't know where you fit on this [inaudible 00:41:36]--but home is a little bit complicated for us. We moved a lot in our lives. We've sought out professional opportunity in lots of different places. And we don't have a sense of place the way that somebody does who grows up in one town, lives there their whole life, stays there, is connected to their family, to their friends. It's a different experience to be moving around. And you'd expect those two types of people to act differently when faced with policy, and they're going to have a different response in how they're affected by it.

Diane Coyle: I think it plays into one of the big divides that we're seeing in all of our societies, which is that most people don't move very much, want to live in a place that's nice--so, that has good public services and the high street looks good.

And so that, the lesson I take from that for economics is that sometimes you override efficiency criteria to make sure that everybody has that. And that's just part of living in a democracy.

But, the divide that's emerging is between highly educated people who are more mobile and go and live in the big cities where all the high-skill jobs are now congregating, and the majority of people who stay rooted where they are. So, this is not just a UK/Brexit problem. This is a kind of Western economies problem, really.


Russ Roberts: So, facing this question head on, a good policy--I don't think the word 'utilitarian' is in your book. Is it? It could be, but I don't remember it.

But, I would argue that most economists are trained to be fundamentally utilitarians--to believe in some idea about the greatest good for the greatest number, to believe that you can make interpersonal comparisons by looking at the financial impact of one policy versus another, and just add them all up. And, of course, the efficiency criterion that I mentioned earlier is a fundamentally utilitarian one. And, as I've gotten older, I've found utilitarianism less and less attractive. It's not irrelevant, but as a guide to living, I think it's horrific. What are your thoughts on that?

Diane Coyle: Well, I've been pondering this also. You're absolutely right. We're trained as utilitarians and that's what comes naturally. But, of course, it seems quite unnatural to many people because it does reduce everything that you care for to one dimension.

And so, our presumption that you can find a metric, and we use money--the money metric--and pile everything into that one number to get a no-go decision about an investment proposal or whatever, seems alien to many people.

I mean, doing some work at the moment looking at cultural and heritage assets and how to think about the value of those, and it's just a real lesson for me in that very different way of thinking that people have, who think about an array of dimensions that matter if you're thinking about value. And, it's a fundamentally different worldview.

My urge is always to try to put these into a framework where making assumptions about shadow prices or whatever, we can come up with a number that's of value for them. And, they're very strong resistance to the idea that the aesthetic value, and the spiritual value, and the identity value cannot be considered separately.

But, this is a sort of core dilemma, I think. If you're in the world of policy, you've got to make decisions. And, thinking about many dimensions, that's fine, but you need a framework that narrows down the funnel, so that in the end, you can make a decision about, do you go ahead with the investment or not? Do you do that or not? And, I haven't come up with a way of reconciling those two very different approaches.

Russ Roberts: But, I think--part of the problem is that, as human beings, we like scalars. A scalar is just a number, as opposed to a matrix, which is a collection of scalars, a bunch of different numbers. So, I might like--thinking about your world for a moment: Should we take the Churchill War Rooms, which is one of my favorite museums in the world, and convert them into a high-rise apartment complex that would [inaudible 00:46:02]--let's make it a little more interesting: affordable housing for people who have had a hard time. That's not an answerable question. It's not just that, 'Oh, economics can't answer it.' I don't think anything can answer it.

But we want to answer it.

So, we could try to find ways to put those two very, very disparate things onto a similar scale and reduce them to a number that we could then say, 'Oh, that number's bigger than this number, so therefore we should do that--or not do it.'

And, I think that's a fool's errand. I think, in fact--I think it's--the urge to find that framework is actually unhealthy. I understand we all have that urge, but maybe it's better to confront it, honestly, that it can't be done in a mathematical way.

Diane Coyle: I use a similar example with my students, teaching cost-benefit analysis, and propose to them that we move Stonehenge from the middle of the countryside to the exhibition center in Birmingham, in the center of the country. Great transport connections, many more visitors, that are obviously going to have much better economic value, but also more people will get to see it, and that will be marvelous in terms of the aesthetic- or heritage-value as well. And, the lesson I want them to draw from that, of course, is that economics isn't always the answer. Which I think is exactly the point that you're making.

Russ Roberts: Well, I think about the Elgin Marbles at the British Museum, which are the equivalent of Stonehenge moved to Birmingham, right? They took these incredible things from Greece, the British army or military did at some point, or Mr. Elgin [Thomas Bruce, Earl of Elgin--Econlib Ed.], and brought them to the British Museum. Where they have been preserved beautifully and can be seen by lots of people. Slightly problematic. And, it may be that, without that, they wouldn't be visible to anybody. There's lots of--unfortunately, a lot of heritage, cultural heritage--artifacts that have been lost because they weren't taken care of by the native local provider of it or steward. So, it is a little tricky, but it's a beautiful example. I like that a lot.

Diane Coyle: These are questions I would like economic students to think about. And, not necessarily formalism or social choice theory, but there are real dilemmas here, and we'll turn them into better economists if they think about some of these very deep issues.

Russ Roberts: Yeah. I'm not sure it's much different for personal choices. I first started thinking about this because of my colleague, Dan Klein, challenged me to think about it. When you decide what movie to see on a Saturday night, you might be choosing, say, between a comedy and a tragedy. And, they're not really comparable--at all. Now, we make them comparable, and we choose. We go to one. We choose one over the other, and we might regret it afterwards, or we might be thrilled, but we don't pretend in advance that, 'Well, this comedy is a seven, and this drama's an eight, so I'm going to go to the drama.'

We make a weird--I'm not even sure I want to call it a guess. And, when we remove that kind of incomparability--noncomparability--from that personal level to the societal level about what to do with Stonehenge, we've magnified the philosophical challenges by a factor of thousand or a million.

And, I don't think there's any framework. I mean, the political process itself is that framework, right? The politician who makes that choice and says, 'This is my choice, and I stand by it, and therefore you can vote me out if you want, or honor me with reelection.' That's as close as we get. And, I'm not sure we can do better than that. It's not very good, by the way; but I'm not sure we can do better.

Diane Coyle: Well, I think people are well aware that their own preferences for things they do day-to-day in their lives are distinct from things that they might want for their society. To take the the media example, the TV example, people will choose to watch soap operas or movies that get shown on TV, but they want there to be religious programming and children's programming, even if they're never going to watch it themselves. They're good things to have. Similarly, people want Stonehenge to be in the place where, for whatever purposes, people put it all those thousands of years ago. It isn't--even if they're not going to go and visit it themselves, they're going to go to the local cinema instead.

Russ Roberts: Yeah. That's a great point.


Russ Roberts: The other related question that economists do try to answer is: What is progress? You raise in the book--the digital economy makes that, as you've written in a number of places, really hard to assess. But, how should we think about progress? On the one hand we have Steven Pinker who says everything's getting better, and on the other hand, we have John Gray who says the human heart hasn't changed much--people still have despair and anger and a lack of meaning--or a sense of meaning. But, most of those things don't change much over time. Human nature doesn't change. So, is it just an illusion? What are your thoughts on that?

Diane Coyle: It's the big question, isn't it?

Russ Roberts: Yeah.

Diane Coyle: And, I'm sure there are philosophers who could give more articulate answers than I can.

It seems to me, it becomes a salient question when things are changing. And so, accepting that human nature doesn't change all that much and that there are periods or decades when things get better bit by bit--but, there are no huge changes in the structure of production, there are no huge geopolitical changes. Then, you don't need to worry about it that much. And, having a standard metric like: Is GDP growing? are there incremental gains in people's life expectancy--that's good enough. And we know that we're making good-enough progress.

It becomes a pressing question at times like now, when the technologies are bringing about quite dramatic changes. They're general purpose technologies, so that's restructuring people's jobs and consumption opportunities; it's changing the distribution of income quite dramatically.

And, then we've also layered on top of that, pandemic and geopolitical change.

Then it becomes very hard to think about: What does progress mean? And, how much do I fret about policies for small tweaks to the tax structure that will bring about small changes versus these really big picture questions, which I guess in the end, in a democracy, we do want politicians to take for us.

And, then we have to ask, 'Well, what's our role as economists in that?'

So, that's a little bit inarticulate. And, I guess for thinking about the economics, it's focusing on our knitting and going back to the welfare theorems and the welfare economics, which is where we started a while ago. And, given that we haven't revisited that since the 1970s and we've had these very dramatic changes in--as production that means the assumptions of those theorems don't hold--it's surely about time we had some people think about that again.


Russ Roberts: Well, I'm sympathetic to that, although I'm not optimistic that it'll get very far. I think it's certainly something we ought to be talking about, though. I guess--I'm going to try a different tack and you can respond to it.

So, I interviewed Tyler Cowen about his book on growth a few years ago. Tyler makes the case that's all we should care about. And, I disagree with that; but Tyler's a really persuasive guy and he made me think about it. And, I think there's something to be said for it. But I want to push and go totally in the other direction. Isn't growth just kind of a--you could argue that material wellbeing, although it's lovely--I'm a big fan of it, by the way. I'm an equally large, maybe even a larger fan of the human impulse to improve things and the innovative creative process--maybe that's even more important than the outcomes, right? That someone could create a smartphone might be even more important for human flourishing than the fact that I have one. There's something really beautiful about that.

But, isn't all of this--the economists' focus on GDP and growth and measuring progress--isn't the whole thing--can't you argue it's just an illusion? That the real things we care about--respect, dignity, connection to our friends, our family, our community, our country, the world, a beautiful spring day on an incredible hike in a gorgeous spot--aren't these the things that are more important? And, as economists, haven't we relentlessly, over the last--after Adam Smith--Adam Smith would agree with me, I'm pretty sure. But, after Smith, sometime after Smith, we sort of accepted this reductionist, fundamentally Marxist, thing of: focus on materialism. Even on the Left, which is weird when I think about it. The Left is obsessed with the material. So, is the Right. But you'd think the Left would rise above it: but they don't. They all care about stuff. And, isn't stuff overrated, fundamentally? I mean, we don't want people to starve, we don't want people to go hungry, but after fundamental needs have been taken care of, and we're past subsistence, isn't most of the tricky stuff, not material, and doesn't our profession overemphasize it beyond imagining?

Diane Coyle: I agree we've been too reductionist, but it kind of depends how you're defining growth, because if you look at the increase in the consumption of material in the advanced economies in the past 20, 30, 40 years, we haven't been consuming more stuff. We've been assigning economic value to intangible stuff. And, actually my first book about this came out 25 years ago this year, The Weightless World, pointing out that the change in GDP was all intangible. It wasn't about stuff. And of course, there are people who want 250 handbags, but most of us don't get utility from that, if you want to put it those terms.

This goes back to the point about there being a real momentum behind beyond GDP, and some of that is the obvious point about: We want growth, but it's going to be sustainable, so let's take better account. You could do net GDP, or you can look directly at what changes in natural capital. That's, I think, really important.

But, yeah--and the pandemic experience, I think, has underlying this. It is all of those points about dignity, agency. We absolutely have ignored them too much in economics.

I'm a little bit concerned about saying, 'We'll just ignore growth, and we'll go directly to measuring people's wellbeing,' which, again, I think is fraught with the dangers of productionism. And, you can end up with very well-meaning economists saying, 'We will do wellbeing to people because we know this is what's good for you, and we'll measure it on this very simplistic scale.' Equally, that's an urge to reduce everything to one dimension and one set of criteria.

But, this is a long-winded way, Russ, of saying I agree with you.

Russ Roberts: Yeah. Well, I would certainly not want to measure wellbeing and say, 'Well, that's better than GDP.' I know a lot of my colleagues have tried to make that argument. I find that, again, just an example of our need for certainty, scalers, reductionism.

I think underlying a lot of this discussion on progress in our field, in the discipline of economics--besides the urge to be important: that if we have nothing to say about it, then no one's going to listen to us, and that's of course unbearable--but I think the deeper issue is: who is responsible for wellbeing? And, I find it--I like the idea that it's me. I'm responsible.

That's not a popular idea. Governments increasingly either want to make sure I have lots of money, and even better happiness. And, I just think that's not going to work so well. I don't think governments are good at creating happiness. They might be good at creating a place for me to be happy, I mean, a playground. That's the argument that liberty, which expands agency in many cases--not always--and creates the opportunity for me to find my own dignity.

So, to come back to your book, the standard arguments of economics that, 'Oh, well if there's enough competition, everybody's going to be better off--errrrgh, first, second welfare theorem.' It's really not what it's about. World's really complicated, and we have to find our own sources of pride and meaning and dignity and connection. And, that's not what government does well. As long as they don't put me in jail and steal my house and they're not corrupt, maybe the job of government is to allow me to explore what I need for my wellbeing as I understand it, as opposed to the social engineering approach, which says, 'I know what's good for you, and I'm going to give you plenty of it.' I don't know. So, I'm getting cranky in my old age.

Diane Coyle: I'm completely in sympathy with that. And, a lot of economists do want to be social engineers, and I'm very suspicious of that ambition.

I guess the way I think of government is creating a context in which you are able to take. To use the Sen[?Amartya Sen?] language, you've got the capabilities you need to make your own happiness.

And, I've been thinking of it lately, and partly because of the pandemic, in terms of insurance: what we really want governments to do is to provide some insurance against adverse turns of fortune that we couldn't possibly have averted ourselves. And so, in the early 20th century, that was about mitigating business cycles and providing an adequate welfare state. And, now, the risks that we face may be different kinds of risks. And so, maybe it's time to think about government in a different kind of social insurance role.

Russ Roberts: Well, if you think about government as being prepared for the next pandemic, other than the vaccines--which are extraordinary and a great achievement of human creativity and public policy--I'm not sure they're really ready for much else. I'm not so optimistic. I'm a little bit nervous. How about you?

Diane Coyle: I don't think they've got their heads around it at all. And, about the sort of range of considerations from what public health system and public health warning system needs to be in place to--actually, clean air is quite important, and it isn't just about being warm and cuddly and hugging trees. Actually, clean air affects human capital and pandemic preparedness.

Russ Roberts: Yeah.

My guest today has been Diane Coyle. Her book is Cogs and Monsters. And thanks for being part of EconTalk.

Diane Coyle: Oh, thank you. As always, it's a great pleasure.