Tyler Cowen on Big Business
Aug 19 2019

bb1-197x300.jpg Author and economist Tyler Cowen of George Mason University talks about his book, Big Business, with EconTalk host Russ Roberts. Cowen argues that big corporations in America are underrated and under-appreciated. He even defends the financial sector while adding some caveats along the way. This is a lively and contrarian look at a timely issue.

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Philosopher Elizabeth Anderson of the University of Michigan and author of Private Government talks about her book with EconTalk host Russ Roberts. Anderson argues that employers have excessive power over employees that we would never accept from government authority. Topics...
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.


Aug 19 2019 at 3:22pm

I really enjoyed the episode. I agree with Cowen’s assessment that big business is a good thing. Just thinking in my own life. I am self-employed but my internet business wouldn’t exist without big business. The computer (Apple) and my software (Apple, Tableau, Microsoft). Then there is the internet, yes DARPA got the ball rolling, but look at the contribution of Xerox Parc (https://www.parc.com/about-parc/parc-history/).


Aug 19 2019 at 4:09pm

I always love when Tyler Cowen is the guest.  Outside of Paul Krugman and maybe Jeff Sachs, he’s the most well known economist among the public.


I was particularly fascinated to see his rejection of Bryan Caplan’s signaling theory(I wish Bryan were around to offer a retort). I myself am pretty convinced by the Signaling theory, especially when study after study shows that students retain basically nothing once the class is done. I don’t know anything about Singapore’s education system, so Tyler’s remarks have caused me great pause.


On the one hand, if education is a signaling system – then it must remain boring, tedious, and dull to achieve its intended effects. If, on the other hand, it truly does create/build conscientious students, then my above statement is wrong. I’m not quite sure where I stand on this.

If anyone familiar with Singapore(or Finland) can comment on what education is like in those countries and how it differs from the American system, I would love to hear about it.

Sep 1 2019 at 4:09pm

I am an economics student from Finland, we used to be quite high up in the PISA rankings but have lost some ground lately. Not that I know how serious you should take those tests, having written one myself, and seeing with how little motivation people generally wrote it.

Compared to many countries we value high school teachers quite a lot, it is still a job that is recognised as quite important, compared to for instance in Sweden and USA. That means we have better people applying and studying to become teachers (It is a 3+2 years degree I think).

I think one distinction is that I had barely any homework the first 9 years of my education. I have heard it is different abroad from friends. School also starts when you are relatively old, that is around 7 years old.

University as all other education is free of charge, so it is a very good deal for anyone remotely fit for it. You even get around 650 euro a month + 900 euro artificially low interest loan guaranteed by the state. In addition they pay back 35% of the loan if you finish the grade in the normal time + 1 year or earlier. You also have almost no real expenses as books are in the library, and the food an transportation is subsidised. There are also quite a lot of money in student housing. I would presume we have one of the most if not the most subsidised education systems in the world. It is normal to get a master’s degree at once, and few only get a Bachelor’s degree. The terms are also quite short (Sep-Dec, Jan-May).

I can’t tell you much about quality though. Except that I am happy with my own small university, but it’s nothing extraordinary.

Aug 20 2019 at 7:44am

Russ said, around time mark 64 minutes:

“…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…”

I’m sure there’s potential for a very good and long discussion about this, especially whether people do or do not know what “Socialism” means. And I’m not innocent of this. As a young man, I did believe once that Socialism was indeed what we now call the Nordic Model, until I learned more about Marxism and its interpretations and the difference between economic policies and social policies.

Nowadays, we have people calling “Socialism” everything they like if they’re on the left, and everything an inch left from radical anarcho-capitalism on the right. It’s frustrating to want people to call things by their names, since it seems like definitions are no longer valuable and everyone wants to have an infinity of truths.

Aug 20 2019 at 10:41am

I’m a daily reader of Tyler Cowen’s blog and I am pretty familiar with his views (have not yet read the book but have listened to a number of interviews he’s done on it).

I agree for the most part with the ideas that the present is better than the past, but I would love to hear his opinion on the obsession over the last 20 years with security and what this implies about the current state of the world.

For example, when I was a kid in the 80’s, I’d go to a baseball game and I just walked up, gave them my ticket, and I was in. Now, I have to wait for 10-15 minutes in a security line, and have all my items searched. I personally find it an invasion of privacy, but even if you don’t it’s a hassle and a nuisance. It’s definitely not an improvement on the game experience (you can add to that stricter ushers and a growing distance between fans and players. When I was a kid you could walk up to the gate and ask for autographs- much more difficult if not impossible now).

So today, people feel safer. But why do they feel that need? Something must have been better back then- either people were less scared (which strikes me as a good thing) or the world was simply safer and people didn’t need to worry as much about security. I don’t actually believe the world was any safer 30 years ago, so why all of a sudden the fear and risk aversion? The current push for netting from foul pole to foul pole at baseball games is a similar example.

TC brings up the example of pre-check when traveling, but you have to pay for that! This used to be free. I suppose if you travel often, the $100 is worth it but still all of these comforts come with a price. You also have to have a smart phone with the accompanying $50/month charges to even get into most sporting events now. Again, an added cost that has become nearly mandatory.

So, although technology (Uber, FB, Amazon, etc.) has brought us many conveniences, I’m struck on a nearly daily basis by the inconvenience and hassle that added security has taken away from daily activities. Does he see an improvement in this regard looking forward?

Todd Kreider
Aug 20 2019 at 2:59pm

Tyler Cowen said:

“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.”

But Cowen said in 2010 that he thought it wouldn’t be until the 2040s until productivity would pick up again. That was very pessimistic but maybe he has changed his mind. (The average labor productivity for the past 2 1/2 years has been 1.6%.)

He added:

I think the real weird period was like the 1980s and 1990s when everything felt right and orderly and that was an illusion, the bubble’s been burst.

Then again, in the early 80s there was a real fear of nuclear war, there was a harsh recession, the violent crime and murder rates remained high in the 80s and climbed even higher until 1995 before reversing. Young people were also afraid of contracting AIDS from 1986 to 1996. Oh, and 63 people died with another 2,400 injured during the L.A. riots in 1992.

Russ mentioned the high suicide rate among young people, and it has climbed to where it was in the mid 1980s.


Earl Rodd
Aug 20 2019 at 6:27pm

This was good listening – lots to think about. There was one issue raised as a minor point in the discussion I would like to hear more about. There was a discussion of how people can do better economically by moving to cities where they have so many more choices. In this discussion (and others like it), I’ve never heard much about the middle sized cities. I think this is important because so  many of them seem to have diversity of opportunity, maybe not like Atlanta or Chicago, but far more than a small rural town – yet the price of living, especially housing, can be quite moderate. I live in Ohio and am thinking of Akron/Canton, Youngstown, Toledo and even some smaller towns which have some diversity of non-trivial employers.

Aug 20 2019 at 11:34pm

Mr. Cowen said:

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.

Talk about a cliffhanger. I found this remark alarming and would very much like Mr. Cowen to expound on this. I want to know what he is afraid of.

Al McCabe
Aug 29 2019 at 1:41am

Exactly.  Today you click on a website you never knew about until today, ordering hundreds of dollars of stuff, even from halfway around the world from people with a different language and different currency.  And you trust it and hardly think twice about it.

We trust business and legitimately routed websites more than we trust that guy across the street or guy who stops to help you change a tire.

George Balella
Aug 21 2019 at 1:52am

To leave finance out of the list of crony capitalism offenders is unreasonable. In 2008 the crash caused by them previously lobbying for massive deregulation, capturing the regulators, abusing their new freedom with a world of leveraged toxic assets and then getting bailed with literally trillions of dollars was a crime against humanity. No one was arrested. The big banks are as big as ever and still heavily subsidized.  Many of their victims were foreclosed and lost everything and since then they have blocked all reasonable reform.

Kevin Ryan
Aug 23 2019 at 7:37am


I agree with most of what Tyler said – even on this subject.  But I do think he was a bit prone to overgeneralising.  One can believe that venture capital is doing a good job, but this doesn’t mean that all other parts of the financial sector should be lauded because of this.

Also I believe that equity holders in banks were bailed out – the ones in the banks that were not allowed to fail because support was given, or it was assumed would be given if they needed it

Chase Eyster
Aug 21 2019 at 12:45pm

A wonderful episode, and a rare show of support from Dr. Cowen for big business.  I enjoyed the “where are the flying cars” banter, and it reminded me of the “GoFly Prize” (goflyprize.com) competition one of our clients supports.  Personal flying devices are coming soon, and unmanned delivery drones are already here!

Robert McGregor
Aug 25 2019 at 6:32pm

“Personal flying devices are coming soon”

Maybe they will be cheaper, since more and more people are not able to afford the 19th century invention, the automobile.


Todd Kreider
Aug 26 2019 at 6:31am

Percentage of households without a car:

1960 22%

1970 17%

1980 13%

1990 12%

2000 10%

2010 9%

2015 9%

Households have also gotten smaller over time.

Doug Iliff
Aug 21 2019 at 10:27pm

A great conversation between my two favorite podcasters.

The transcription hasn’t made it to health care reform as I write, but I think I remember that Tyler gave a modest thumbs-up to a single-payer system.  With deep reservations, fearing that the government would screw it up, I think he’s right.  After all, it’s about as screwed up as it can get right now.

Here’s what I would do, once assigned to the dictatorial and inviolable position of Health Commissar.  My recommendations are based on five years in the Army Medical Corps at Ft. Bragg, NC (about as socialized as you can get), six years as an ER doc for a hospital (about as corporate as you can get), and 33 years in solo family medicine under a number of schemes to rein in costs, one of which worked (about as free market as you can get).

I would create a single-payer system for catastrophic expenses, as Tyler suggested, starting at a $10,000 individual deductible.  Policy coverage would be uniform, and written in plain English.  No exclusions for anything recommended by the United States Preventive Services Task Force, which rigorously and conservatively examines the literature for what is “proven” and unproven.  And no exclusions for pre-existing conditions.  Everyone’s in.

Now to let the free market work its magic: up to $10K per person per year, it’s on the consumer.  But I would give them a $3,000 health savings contribution to their personal account every year, regardless of income status.  Now they have skin in the game.  It belongs to them, to hoard or squander.

My experience, as a family physician, is that poor people are not stupid; in fact, in their own way, they can be uncannily shrewd.  Maybe, for the first time in their squandered lives, they are seeing growth in an asset which can only be used for an approved purpose— wisely or unwisely, true, but limited.

This is what I’ve personally lived with for ten years, ever since I rebelled against an obscene Blue Cross policy tariff.  Granted, my experience is not typical.  First, I’m a physician; but more important, I take good care of my body through diet and exercise— the stuff I preach every day, with little effect.  As a result, my wife and I have $66,000 in our HSA.

Imagine what would happen to individual choice, once moral hazard and price transparency became ingrained in the American experience.

Would this cost less than our present 18% of GDP?  You betcha.  Would the labor market now be unchained from employer-provided insurance, and free to move about the country?  Uh-huh.  Would perverse tax incentives be deep-sized?  Yep.  Could we retrain Americans to think like consumers, while protecting everyone against financial ruin?  And depriving Democrats of the moral high ground?

Just a thought.




Kevin Ryan
Aug 23 2019 at 7:16am

Interesting idea!

Would you give any transitional relief to older people who would have missed out on the opportunity to build up a large balance when they were younger and healthier (on average)?

Doug Iliff
Aug 23 2019 at 3:29pm

You’d have to start with everybody below 50 and transition them in.  “Medicare for all” or extension of the status quo above that.  50 is where things start to get pricey.

Aug 24 2019 at 5:08pm

I very much agree with your suggestion. Did you happen to catch the EconTalk episode with Ed Dolan from January of this year? He discussed the details of a similar plan that he calls Universal Catastropic Coverage.

Doug Iliff
Aug 25 2019 at 9:34pm

I did, and my comment in the conversation did not address your question.

I think Mr. Dolan’s proposal would be a big step in the right direction, as was mine.  He seemed to be skeptical about the effects of high deductible/HSA programs, but I think the problem lies with retraining the population.  My patients who have HSAs are asking the right questions.

Universal Catastrophic Coverage would also work, and would require the same retraining.

Marilyne Tolle
Aug 22 2019 at 7:51pm

Big Business is clearly topical. This week’s edition of The Economist has an article on “What companies are for”, warning against the pitfalls of “collective capitalism” or when Big Business pursues social goals with the government’s backing:

“Regardless, the popular and intellectual backlash against shareholder value is already altering corporate decision-making. Bosses are endorsing social causes that are popular with customers and staff. Firms are deploying capital for reasons other than efficiency: Microsoft is financing $500m of new housing in Seattle. President Donald Trump boasts of jawboning bosses on where to build factories. Some politicians hope to go further. Elizabeth Warren, a Democratic contender for the White House, wants firms to be federally chartered so that, if they abuse the interests of staff, customers or communities, their licences can be revoked. All this portends a system in which big business sets and pursues broad social goals, not its narrow self-interest.

That sounds nice, but collective capitalism suffers from two pitfalls: a lack of accountability and a lack of dynamism.”

Aug 23 2019 at 12:08pm

I felt at first, on listening to this podcast, that Tyler Cowen had finally grown into his potential. I thought perhaps he had fully embraced freedom. I wanted to celebrate his growth in this comment. But, on review, I was mistaken. He is simply a more fluent conversationalist than in previous interviews, possibly thanks to his new role as a podcaster. He is still a socialist at heart. He is just a glib socialist now.

Tyler Cowen in this conversation proposed that we invest more in education. He said that increased investment in education will lead to a healthier society with higher economic growth. Ironically, immediately after making that statement, he said “I don’t think regulating is the answer.” I can’t understand what he meant by that clarification. Because in the US, the K-12 educational environment is administered almost exclusively as a state enterprise. Given that reality, in the US anyway, educating IS regulating.

Later Tyler’s said, “So, I, in some circumstances, favor bailing out banks. I think the macro consequences of not doing so are too severe.” He is arguing, obviously, for using taxpayers as collateral against bank failure. But he doesn’t seem to realize—even after Russ pointed it out—that such a bailout policy is a surefire way to substantially increase the probability that large bank failures occur in the future. People respond to incentives, both positive and negative. Positive rewards make repeat behaviors more likely. Punishments make repeat behaviors less likely. Guaranteeing banks—or anyone—against failure reduces the punishing aspects of loan default but leaves the rewards for making loans intact. Hence, offering higher risk loans becomes less risky from the perspective of the banker. But those same loans are now more risky from the viewpoint of the taxpayer. Guaranteeing banks against failure is a net negative for society. Even so, taxpayers–who are now on the hook for the losses–are not in a position to influence bank loans except through coercive government regulation. But even if they can create and enforce regulations on banks, they are generally not in a good position to judge what is good banking practice since most taxpayers are not bankers. Taxpayer input, therefore, is likely detrimental to the efficient management of banks. Even so, how can taxpayers ignore the banks when they have to pay for bank failures? It’s a mess. A recipe for stagnation and failure, not to mention encouraging or even requiring crony relationships between bankers and their government regulators.

Tyler Cowen makes the same mistake again when discussing healthcare. “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.” By advocating for a “single payer for catastrophic expenditures” he is supporting use of all taxpayers as collateral against medical costs. Not all medical costs, obviously, only the most expensive! Want to smoke? It’s risky. But don’t worry about that. Lung cancer surgery, stroke intervention, heart surgery, oxygen tanks, disability payments, home adaptation, transportation, and inpatient rehab is paid for by non-smokers. Considering heroine? You might not want to. Heroine can stop your breathing and lead to infections of your skin and even your heart valves. But you don’t have to worry about that. Everyone else will pay for the valve replacement surgery and the Narcan reversal agent and the helicopter ride and the emergency room visit to save you.

It is extraordinary that Tyler then marries the make-everyone-pay-for-the-mistakes-of-a-few position with an endorsement of “full price transparency.” Because when human beings—and I am speaking from experience here—who are in situations where they are covered under the umbrella of some kind of insurance, recognize that prices are irrelevant. All they want to know is, “is it covered?” Price transparency is irrelevant when a centralized rationing system is in effect because government enforced rationing is an alternative to price rationing. Both cannot be in operation on the same resource at the same time.

And that is the true problem of socialism [and by socialism I mean the use of coercion to manipulate property rights of others rather than individuals rationing their own property rights through trade]. Socialism is rationing by something other than market produced prices. And that is an issue because rationing with prices determined through free trade is the most efficient way to ration resources and information that we know of.  By far! Think East vs. West Germany, North vs. South Korea, Communist China vs Free Trade Zone China, India vs. Free Trade Zone India. These were, and are, natural experiments proving the immense disparity in outcomes between individual price rationing and collective central rationing.

Tyler Cowen speaks out of both sides of his mouth while he laments the US healthcare system. He notes, “High prices. Hospital consolidation. Patients are not well-informed. Prices are not transparent. There’s massive third-party payment.” All of the predictable outcomes of monopoly/coercive rationing!  But then he advocates for increased monopoly/coercive rationing through a single payer [government] system for catastrophic expenditures even as he lauds the outcomes of “a lot of out of pocket expenditure” [which is individual price rationing through trade] and “full price transparency” [a necessity for individuals to ration through prices] in Singapore.

I am now, as in the past, tremendously frustrated with Tyler. He is saying, now as then, that using prices to ration is fine and desirable and even ideal when everything is status quo, but when the crap hits the fan, we should abandon price rationing in favor of centralized allocation. But that does not make sense. Either individuals’ rationing their personal property is better or it isn’t. Perhaps he thinks something about turbulent times and rapid change undermines or interferes with the outcomes of individuals’ rationing personal property, in which case we should abandon freedom in favor of dictatorship during alarming episodes. Unlikely. Price rationing during catastrophe is still optimal. See Mike Munger’s interview on Price Gouging for a gentle introduction to the model.

A smarter approach—and I recognize Tyler Cowen is smart, which is why I can’t understand why he continues to adhere like a barnacle to the ship-of-state when it rains—would be to apply the independent competitive price rationing tool to all trade decisions at all times, especially when unexpected events are in evidence. Prices produced in a freely competitive market adjust instantly to new information. No bureaucracy in all of history can make that claim. In fact, more often than not, when we explore the causes of said “unexpected” events in the economy, we find that the price rationing system was broken down because of infiltration of coercive rationing. Price fixing, whether enforced by government or cartel, leads to surpluses and shortages. When we see surpluses or shortages, it is a safe bet that something—usually the government—is using coercion to prevent prices from working. [Currently my local hospital pharmacy is reporting national shortages of Epi-pens (for reversal of anaphylaxis), lidocaine (for topical numbing of procedures), dextrose (for rapidly increasing potentially fatal low blood sugar), and sodium bicarb (used to reverse acidosis in septic shock), among others. Shortage = Market failure = Government involvement]. Tyler’s proposal of legitimizing said central interference in the form of government enforced policy whenever someone declares an emergency is, therefore, the same as proposing using gasoline to put out gas fires. Madness. He is saying, then as now, if I may paraphrase, that we have two rationing tools, and one is clearly better than the other. But when things are really confusing, scary, and up in the air, we should use the inferior.


Bill Floyd
Aug 24 2019 at 11:20am

Great conversation! Loved Russ’s comment that Spotify was a much better future outcome than flying cars (to experience this sensation one has to be old enough to remember the cost of purchasing LPs and the burden of transporting them when you had to move). Thanks

Al McCabe
Aug 29 2019 at 1:29am

I think the point is more than Spotify.  Think how limited music was before recorded music.  And stories before movies. And stories before books.

The modern era is sooooo much more full of options than prior eras that all this “no growth in income” really rings very hallow.  Life before the internet is miles behind life with the internet, and that was only a generation ago.

We need economic models that realize that a world with cell phones and internet is not just double the GDP of life without them, it is exponentially different.  Unfortunately this podcast came close to discussing living in the future vs. the past, but then dodged all the big issues with some trivial thought about nuclear war.



Aug 24 2019 at 5:01pm

Great episode. Tyler might be my favorite Econ Talk regular (with Munger a close second). He’s a contrarian in the best sense of the word.

But he did make one contrarian comment that I wish had more follow-up from Russ:

the evidence strikingly shows that moral hazard was actually pretty weak.

I have a hard time understanding what evidence could be garnered to support this claim. Was it survey data? Moral hazard seems like such an intuitive idea that I find it hard to accept it didn’t play a role.

Todd Johnson
Aug 25 2019 at 1:41am

This is the first EconTalk I’ve heard where it felt like either I or the two of you are living in alternate universes. I usually learn a lot from listening, or at least have much to think about, but this time I just found my jaw dropping most of the way through. I think the most egregious comment is that Sanders and Warren are against big business. This is something we might hear on Fox News. In fact, Sanders and Warren are not against big business, but instead against big businesses exploiting people and the environment. Uber was held up as a positive example many times, yet story after story about Uber shows us that it was and may still be an unethical company that exploits the drivers (who they fought to ensure are not employees), and more than likely broke laws in several countries. And with all that exploitation, they are still losing money… except for those who invested early and have walked away with m/billions. Have you not read about VW, or Wells Fargo, or Purdue Pharma, or a little aviation company named Boeing? I know both of you know about CDOs.  You surely must know that Amazon fought to make sure that workers time spent going through security scans (that Amazon required) would not count as time on the job! I suspect that the scams that we hear about are just the tip of the iceberg, and this doesn’t even begin to address legislative capture and rent seeking.

And then we get to healthcare, the area I work in. Given our costs and outcomes, compared to those of other countries with universal care it is frankly unconscionable and inhumane that we have not adopted a form of universal healthcare. Cowen repeats the usual GOP mantra of health savings accounts. What world is he living in? I’m sure you have heard the survey results that 40% of Americans don’t have $400 in the bank for an emergency. How can they when businesses do everything possible to keep salaries and benefits low? According to the MIT living wage calculator 1 adult with 1 child (which seems like a fair comparison) requires a  wage of $23.92 here in Houston (Harris County), ASSUMING they work full time and have health insurance (neither of which businesses want to give many employees). This is basically subsistence living–certainly not enough to get extra education to move into a better job. We already have many citizens going without care and many deciding between food and meds, or rationing meds. To think that somehow things would be cheaper under some kind of “free market” approach seems naive at best. Businesses are all about selling more for more, but in healthcare more is not usually best. Price Transparency? That’s possible for some things, but when you need healthcare what are you going to do? “Excuse me ambulance driver, don’t drive while I check Angie’s list for the cheapest ED to fix my unknown condition.” Speaking of free market conditions, we go to doctors because they have knowledge we don’t have, so there is always information asymmetry. If they say we need a test, yet get paid more for that test, should we trust them? Will we ever know if they are scamming us? To be fair here, I know that there are for profit systems that provide excellent care at a “fair” (for our “market”) prices. They both insure and provide care, so they have skin in the game. However, if you happen to be away from them, you are back to the normal system. Shouldn’t this be the way the system works throughout the country? Recent experiments with pay-for-performance programs look promising. I’m involved with two of these right now and we are about to participate in a few more. These provide financial incentives for doing the right things (and not doing the wrong things), instead of just more things. However, this is an uphill battle because of our fractured system and many payers (each with their own metrics). Given data from countries with universal care, it would make more sense to adopt a single payer system (everyone shares the risks), with profit and non-profit all competing around risk-adjusted value based pay. Companies like Vizient already have both in- and out-patient models that individually measure a system’s performance on the individual patient and aggregate level. These models largely negate the “my patients are sicker” argument that we see to justify high cost of care. Drugs are a separate issue that must also be addressed. That is clearly another area where big business is needed, but (as guests on your program have noted) often are not providing the value we pay for because they too are scamming us.

Finally, the idea of moving to a large urban area to disrupt monopsony power (and presumably move up economically) may no longer be a good choice. In a recent NPR Planet Money episode (Episode 919: Are Cities Overrated?) David Autor claims that his research shows that by 2015 there was no advantage to moving to a big city. Job polarization  into high paying knowledge-based jobs and low-paying service sector jobs is now happening more in big cities. Those middle paying jobs that rural folks could move up to have disappeared. Autor suggests that if you don’t have a college degree you should stay away from a big city. That is 1 in 3 Americans. My personal experience, living in a suburb in Houston and working in the medical center, is that while costs here are still not at the level of SF, NY, Seattle, etc., they are still too high for that 1 in 3, even living in the suburbs. I know several people without college degrees, but with experience that helps in the job market–they basically live paycheck to paycheck and forget about healthcare, dental, vision, etc. Even those who should be doing well (eg., school teachers living in the suburbs) are struggling to get by. We really need to adopt a form of capitalism (or some other -ism)  that truly lifts all boats. The kind of low-road capitalism that we seem to have adopted, along with outright exploitation and scams by businesses are hurting too many people.

But perhaps I am living in an alternate reality where the things I see and read are different than those seen and read by Cowen.

Al McCabe
Aug 29 2019 at 1:35am

I hope Tyler and Russ realize their huge bias in favor of urban living, their very academic/intellectual view of a “meaningful life”, and very distant knowledge of what life means to very happy and satisfied blue collar workers.

Their bias is fine in these discussions, but if they don’t realize how they are debating the 0.00000001% of lives of human beings, and that most humans are very happy not being academics, then they do need to re-center their lives.


Dr. Duru
Sep 1 2019 at 1:00am

While I wish there was more specific discussion of the book, I found this interview to be one of the best I have heard from Cowen on EconTalk. Professor Roberts described him as “optimistic”, but I would use the words “contextualized”, “grounded”, or “pragmatic.” And I previously also thought of Cowen as a pessimist after hearing him lament about the disappearance of productivity. Cowen has a way of dismissing extremism with large doses of history and perspective. So many things in here which made my ears perk. Just a few of my reactions:

“let’s not aggregate parties and socializing. Parties are often the antithesis of socializing” – what a great way of putting parties in proper perspective! The great upside of social media and digital gatherings is that people can feel freer to exercise *choice* in the ways in which they want to participate and contribute. You are indeed free of the pressures of social drinking, smiling at rude remarks, etc…
Bailouts as a feature and not a bug. I have been so thoroughly convinced by Roberts and others about the moral hazard critique of the financial crisis, that I have spent little time pondering what realistic and pragmatic alternatives have been presented *given* where the system was in 2007-2008. Has anyone put forth some credible counterfactuals about the crisis that did not use bailouts and led to improved outcomes (granted there are many ways and timeframes to define this).
“…work is a mixed bundle. But it can be protection against an unhappy home life. And for the most part work makes us happier.” Enough said I think. There is so much lamenting about bad jobs and bad businesses, you can sometimes think work itself is a big downside of life.

So much more I appreciated, but I will leave it there! Thanks, Cowen, for your wonderful insights and perspective here!

— Duru

Daniel P.
Sep 6 2019 at 9:22am

There is something “let-them-eat-cake” about Mr. Cowen’s valuation of parties as a form of lower grade socialization. I wonder how social science measures the role and value of parties. Mr Cowen has clearly dedicated his life to addressing big problems in order to improve the condition of humanity and the hue of its future but he does so as one very far from the social means and majority. To feel that a party should be “to get together with smart people on an intense basis and have things to talk about” is a fine idea and I share it but that is not something most of humanity values. An economist might see the indirect flights of a honey bee as inefficient but one who studies bees might provide many reasons why it improves their success as a species and that it is a false notion to prescribe something different.

Dr. Duru
Sep 1 2019 at 3:00am

I forgot to mention that “Infinite Scroll”, a podcast episode from “The Secret History of the Future” discusses how the printing press overwhelmed the readers of the time. Scholarly people worried that it wasn’t possible to read all the books being produced, and it was hard to know whether someone made the right choice in selecting a particular book to read. Tools that were invented to deal with “the flood of books” were the table of contents, indexes, book reviews, and encyclopedias.

I was reminded of this episode by Cowen’s reference to the days and years following the invention of the printing press: “There was a lot of fake news at the time. People didn’t know which books or which sources to trust.”

I highly recommend that podcast episode to anyone interested in the parallels between today’s digital information of overload and the overload brought on by the printing press.

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TimePodcast Episode Highlights

Intro. [Recording date: July 18, 2019.]

Russ Roberts: My guest is polymath, economist, columnist, speed-reader, author, blogger, and now podcaster Tyler Cowen.... This is his 11th appearance on EconTalk. Our topic today is his latest book, Big Business: A Love Letter to an American Anti-Hero.... 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 have confused business with capitalism, and you've set me back a number of years with this book. Defend your love letter.

Tyler Cowen: Well, I guess I'm glad I've set you back. I think whether we like it or not we are 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 subsidies to relocate, which I would oppose, I suspect you oppose. But then that 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. It's quite unjust in many ways. But we're not dealing in this fear 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.

Russ Roberts: Well, I'm not--I'm not sure I like it.

Tyler Cowen: I don't completely like it, either. But I think at some point one just has to jump into that and do battle.

Russ Roberts: 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 are a lot more virtuous?

Tyler Cowen: Businesses--at their essence--do not coerce. They are consumers. Sometimes they may defraud them. That to me makes them more virtuous. Being in the 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.

Russ Roberts: What about the argument that 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 price discrimination? A lot of people today are worried about what appear to be, what appears to be a large increase in the profitability of American business, in the share going, to capital rather than labor? What are your thoughts on those empirical claims?

Tyler Cowen: Well, there's so many different issues. But into that, but let's just take one. 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. 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 world.

Russ Roberts: 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 never worry that they are going to be out of stuff. I have always found that remarkable. But I think your point about brands is very important. There is a strange phenomenon that's happened over my lifetime, which is that: contrary to 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--[?] after I've "tried it,"--and sometimes this is actual fraud. I've heard that people 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 called the customer service number, and they said, 'Oh, yeah; just return them.' And I said, 'But I've worn them outside.' They said, '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.

Tyler Cowen: That's right. If you also look at the rate at which people lie on their resumes when they apply for jobs, even the rate they will admit to seems remarkably high. Higher than 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. This 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.

Russ Roberts: Yeah. I'm not sure what that label 'non-profit' means on a hospital. Actually--

Tyler Cowen: There's self-seeking behavior, in any case. Right? 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--not always, but one of the better ways of constraining selfish incentives and stopping them from being destructive.

Russ Roberts: And, 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 it's still valuable is important. But, there'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. And 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.

Tyler Cowen: 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.

Russ Roberts: Fair enough.

Tyler Cowen: And in part it's overly bureaucratized to limit fraud, which is fine; but nonetheless, if you are on a help line or trying to deal with a large company, it sometimes can feel worse than dealing with your local DMV [Department of Motor Vehicles].

Russ Roberts: 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. You have anything you want to add?

Tyler Cowen: Well, you want to laugh[?].

Russ Roberts: No, I think we're good.


Russ Roberts: But let me turn to the workforce aspect of big business. I got into a nice argument on Twitter recently about monopsony; I suggested that monopsony is a textbook idea that had no applications. At least, in the literal sense of a 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 in the literal sense of 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 my argument was that, for low-skilled workers, they certainly had dozens, if not hundreds, of opportunities to work for someone. And the argument therefore that the employers of low-skilled labor have monopsony power strikes me as not credible. What are your thoughts on that, and implications that that might have for policy issues?

Tyler Cowen: 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, it doesn't mean at the margin they could make my parking spot worse and I couldn't do anything about it. Well, it does mean that. 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.

Russ Roberts: 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 that George Mason could take advantage of you. And they are a nonprofit university, so their zeal in doing that may be understated--you know, relatively low. But in the for-profit world, the claim is that the cost of switching imposes costs on--makes workers vulnerable to exploitation.

Tyler Cowen: 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.' 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.

Russ Roberts: Well, the other point I would make is that there are 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.

Tyler Cowen: 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. The other options are not that great. They could work at the gas station or work at some other retail outlet. And again, I do think it's a problem. I do think it's part of a general problem of rural areas losing talent and population. The question, what should we do about it: We accelerate the losses or try to stem them. I suppose in most cases I'm an accelerationist. So, uh, I would admit the problem; but it's also a sign that the problem is being solved, because people in businesses are moving out; and that's probably what should be happening. This is--the transition is a little ugly.

Russ Roberts: 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 to places where opportunities are larger, higher, better. You know, the problem I worry about now is 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 a new building that keeps rental, rent and housing costs high.

Tyler Cowen: Oh, sure. I would change that, too. But there are still parts of the South you can move to. Almost all of the South, 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--

Russ Roberts: yeah--

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

Russ Roberts: I agree.


Russ Roberts: Now, I had Elizabeth Anderson on this program, who is very worried about exploitation of workers. And, you mention in your book and you argue that "work in contemporary America is largely a positive experience." I saw this morning that a claim that Amazon treats its workers like robots. I suspect that's not a positive statement. Defend your claim that working in contemporary America is largely a positive experience.

Tyler Cowen: 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 are 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 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.

Russ Roberts: But, of course, it could make us happier still. The question is whether the workforce is--you know, 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?

Tyler Cowen: 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; it also makes jobs safer. I think it's a perfectly fair criticism to say, 'Well, too many jobs today are 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 as their best option, and they have stuck with those jobs. And we should invest more in education, and we should have a healthier society, a higher rate of sustainable economic growth; and over time, we'll make our jobs better yet. 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.

Russ Roberts: Yeah; I'm sympathetic, of course, to all your points. 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 is, my standard answer is we need a better education system. We seem to be moving in, I was going to say, in a 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--we're talking about K-12 [kindergarten through 12th grade] now, of course. What are your thoughts on the potential for actually improving the education system and where do you stand on Bryan Caplan's claim, often on this program, that education is really just signaling and not much of an improver in skills--and so that whole avenue that you are arguing for is really just a fantasy?

Tyler Cowen: Well, 50 years ago--

Russ Roberts: and shame on you, Tyler.

Tyler Cowen: Yes. Fifty years ago, Finland, Singapore, and South Korea did not have excellent education systems, and today they do. And 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 is a phenomenal exporter and producer of high quality goods, and has engineers and people doing biotech; and it's really just an economic marvel. And if you try to tell them, 'Look, you could have done this with the education 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 the 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.

Russ Roberts: What were you doing in rural Mexico?

Tyler Cowen: 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.

Russ Roberts: That's cool. What book is that?

Tyler Cowen: 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.

Russ Roberts: Well, not any more.

Tyler Cowen: But it's my [?] empirical book, all based on fieldwork.

Russ Roberts: Yeah; not any more, Tyler. This mention of it is going to triple at least its sales for the year, maybe more than triple.

Tyler Cowen: I think so.

Russ Roberts: I think I own that book. I maybe even read it. But it was a while ago, so I apologize for not remembering.


Russ Roberts: What about the financial sector? A lot of folks are appalled at its growth. Do you want to defend them as well--the claim that we've financialized our economy and that they have an outsized political power as a result?

Tyler Cowen: 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 were asked which economy 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 main and first thing you want the financial sector to do. Does the American financial sector allow people to save in a diverse series of ways yet still be liquid? 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 FANGs [Facebook, Amazon, Netflix, Google] companies--

Russ Roberts: Facebook, Apple, Netflix--

Tyler Cowen: I read this morning they are now one seventh--Facebook, Google, Netflix, Amazon--they are one seventh 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 is pretty good. There have been bubble periods where debt is too high. And some of that has been the fault of, you know, lenders 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.

Russ Roberts: Yeah; I like the full-picture point. I will say that, as I like to say on this program, is that the ability of the financial sector to put their hand in my pocket without my consent, through the bail-out 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 crapshoot. It's a long shot. Most businesses that start don't succeed. 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.

Tyler Cowen: 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 does lead to banks' getting unfair benefits. I'm just not sure if there's any other way to do it.

Russ Roberts: But if you are going to believe in that, or if you are going to 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, to use the context of a minute ago--the parasitic aspects, the ability to manipulate the system to their own advantage is I think really is not a good system.

Tyler Cowen: 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 over-confident. They were holding too many of these loans. They weren't playing, you know, 'Heads I win, tails the taxpayer loses.' So I think the question is how to overcome hubris: that moral hazard is much over-rated compared to what you see in the data.

Russ Roberts: I disagree, but--

Tyler Cowen: Again, if you think about letting banks fail and having a strong deflation, I think you'll get, like, another New Deal, in the bad sense. And that's worse than what happened in 2008.

Russ Roberts: Possibly. No; what I'll concede--I don't agree that the moral hazard problem is small. I think that the point I've tried to make is that bond holders are the people who worry about downside risk. It's not equity holders because they have upside gains to offset that. And I think the bailing out of bondholders, and creditors generally, has allowed a set of interlinking lending to each other that is, that creates the systemic risk that is then excused by the next bailout. And I think that's a very dangerous--and I think the consequences of it, 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.


Russ Roberts: You make a surprising claim, to me, about the tech sector. You say that it has helped bring us closer together. Defend that claim.

Tyler Cowen: 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 is 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.

Russ Roberts: I guess the issue, of course, is the phenomenon of people sitting at parties looking down at their phones. And that--

Tyler Cowen: Parties are over-rated. I mean, if phones are attacked on parties, bring it on.

Russ Roberts: Hah, heh, heh, heh. I disagree. I think parties and socializing is extremely important.

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

Russ Roberts: Why do you say that?

Tyler Cowen: There's loud music, or people are drinking so often. There's a kind of ritualistic bonding, but not that many good conversations. But 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 are young: You are 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 are going to worry about social media, I mean, parties are much worse.

Russ Roberts: Hah, heh, heh, heh.

Tyler Cowen: I mean, all your friends go to parties. You feel you have to go. You feel you want to drink. Right? That's an actual social problem--

Russ Roberts: Hng, heh, heh--

Tyler Cowen: not Facebook.

Russ Roberts: Eh, it's an awesome point, Tyler. And I'm not sure I agree. But I salute your panache in making it. 26:59 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--

Tyler Cowen: Oh, I agree. Yeah.

Russ Roberts: And I--

Tyler Cowen: We'll get much better at it.

Russ Roberts: I think so.

Tyler Cowen: [?] We've gotten much better at using books.

Russ Roberts: In what way?

Tyler Cowen: 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, some 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.


Russ Roberts: I recently had Andy Matuschak on the program. It hasn't aired yet, so you have definitely not heard it. But, he argues that 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 will 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 are 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, but 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?

Tyler Cowen: I think Andy is 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 maybe you remember what you need to. And then you are 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, LSD [Lysergic acid Diethylamide] does, people would be afraid of books.

Russ Roberts: Hng, heh, heh, heh.

Tyler Cowen: So, maybe having a somewhat superficial relationship with books is how it ought to be.

Russ Roberts: I've read books like that, by the way--that take control of your mind. That you fall in love with. That you become obsessed with. Right? And that you maybe over-absorb.

Tyler Cowen: Yes. It happens more often when you are young, I think, than when you are old.

Russ Roberts: Do you have any books like that in your life?

Tyler Cowen: 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.

Russ Roberts: Yeah: I read Anarchy, State, and Utopia by Nozick when I was--I think I was 22. Twenty-one, twenty-two. I'd just graduated from college, and it electrified me. You know, that's the--

Tyler Cowen: Same here. Yeah.

Russ Roberts: That's the LSD part of it. I have not read it since. I'd like to go back to it. I think it would be a very different experience. Which is an interesting thing in and of itself.

Tyler Cowen: 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.

Russ Roberts: That's for sure. He, also, is less enamored of it--he's gone now, but my understanding of it is he did not agree with the book as he got older. Is that your understanding as well? [?]

Tyler Cowen: I spoke with him about this, and I think it's complex. He always felt that 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, like, grasped or understood it properly. So, 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. 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.

Russ Roberts: My memory of having read it 40 years ago or so is 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, it was called; the parable of the slave. They were just exhilarating then, the experiences and exercises.

Tyler Cowen: And he was better at doing that than anyone else of his generation.

Russ Roberts: Have you read his other books?

Tyler Cowen: 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.

Russ Roberts: What about--is it Philosophical Explanations? Is that the name of it?

Tyler Cowen: That's correct. That's the big, long book. I feel a lot of that book fails. 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 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.

Russ Roberts: Yeah; I've not read it--

Tyler Cowen: His early articles I think were the best Nozick. So, the ones like on Choice Theory or on the Randian argument or the short pieces that are in that collected essay volume--those are just amazing. And they even pre-date Anarchy, State, and Utopia.


Russ Roberts: 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.

Tyler Cowen: 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 sensible.

Russ Roberts: Explain those two things quickly. Because I should have explained the Veil of Ignorance and the Maximin Principle.

Tyler Cowen: 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, that Rawls deepened it, made it more philosophical.--

Russ Roberts: And the Maximin is--

Tyler Cowen: Once you debate what people what people are going to choose, you have to turn to some other theory of choice, say, and ethics; and then the Veil of Ignorance ends up begging the question. And then Maximin is the notion, well, for Rawls, 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.

Russ Roberts: And maximize that.

Tyler Cowen: That's right. It's a form of the Pareto principle. You need to make sure that everyone will agree to the rules you are choosing. And if you know 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.

Russ Roberts: I agree.

Tyler Cowen: 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 levels. It's just not true.


Russ Roberts: So, I'm going to bring this back to Tyler Cowen. 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: 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 are 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.

Tyler Cowen: 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.

Russ Roberts: Yeah; it's--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--there'll be no earth to walk around on. It reminds me of a cartoon I mentioned a long time ago on the program, a Boston Globe cartoon--when I was growing up there was a guy named, I think it was Paul Szep, I think his name was. He had a cartoon of a person walking in a desolate landscape that clearly 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 for his desire to watch TV [television]. And we could imagine a similar catastrophe going too far forward, I guess.

Tyler Cowen: It might not just be me any more. So, say, in 600 years everyone is genetically engineered and very different but much enhanced. Either I'm a total loner, or they enhance me; but, I'm so different, just a different person.

Russ Roberts: Yeah; well, that's one of the challenges with any of these veil-of-ignorance examples. You bring your sensibilities 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 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 are 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.

Tyler Cowen: Yes.


Russ Roberts: So, let's go back to your book. Sorry. That was a great digression, but I want to go back to--

Tyler Cowen: It never really left the book, in a way. But go on, yeah.

Russ Roberts: I know. I know. I want to ask you about surveillance capitalism--a term Shoshana Zuboff uses in a--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, big business in this part of the world of Silicon Valley have taken my information and used it to their profit: 1) without my knowledge, and 2) with effects I don't fully understand. You worried about that?

Tyler Cowen: 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, 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--it worries me greatly--

Russ Roberts: Did you say 'gait surveillance?' G-a-i-t?

Tyler Cowen: That's right. G-a-i-t. How do 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. It'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.

Russ Roberts: I wonder if people in China can easily access John Cleese's "Ministry of Silly Walks," a clip 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, which is of course part of a larger problem, is the ability of manipulative political opinion. We can debate whether that played any role in the 2016 election--I don't--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--both the algorithms that generate what I search for and what's delivered to me. And 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 tradeoffs between regulatory solutions to that, competitive solutions--that is, emergent under bottom-up solutions. What are--what do you think we can do there, and should we worry about that?

Tyler Cowen: You know, 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.

Russ Roberts: It's a nice thought.

Tyler Cowen: 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.

Russ Roberts: You know, I used to have a reputation as an optimist. Some of that went away in 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 maybe the optimistic side. I love your contrarian nature. It's very impressive.

Tyler Cowen: Thank you for that. I would just note: People who have read a bunch of my books, The Great Stagnation, The 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 1990s when everything felt right an orderly. And that was an illusion: the bubble's been burst--where they have just been living in history it will just look 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.

Russ Roberts: 45:01 Well, I'll quote our former colleague James Buchanan--and you [?] 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'--I think he said, 'When I look to the future, I'm a pessimist. When I look to the past, I'm an optimist.' I thought, 'Well, that's a weird thing to say.' What he meant was: 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 that really scarier than 1929? Or 1938? When the world was about to be, an enormous upheaval of death and destruction?' 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.

Tyler Cowen: We had slavery way back when.

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

Tyler Cowen: I'm a fan of John Gray, but frankly I'm not short[?] the market.

Russ Roberts: Say that again? You're not what?

Tyler Cowen: I'm not short the market.

Russ Roberts: And what do you mean by that?

Tyler Cowen: 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.

Russ Roberts: Oh, but that's just the financial side. What about the--

Tyler Cowen: But that's the side that matters, 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.


Russ Roberts: Welll, you know: but my point is, what that means is that means I'm optimistic about ability of the U.S. 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, which is the tallest pygmy example: I don't think they are 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. But 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. So I'm not particularly optimistic about that, going forward.

Tyler Cowen: If this makes you feel better, I think that about half of the revenues of the S&P500 [Standard and Poor's 500] come from abroad. So you are probably more diversified than you think.

Russ Roberts: Hmmm. Well, what's your reaction to my point about the human enterprise generally and that the monetary side of it is overrated?

Tyler Cowen: 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 just creating a wealthier society?' I suspect it's not nearly enough. So, I don't think globally we're over-rating 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.

Russ Roberts: Well, it's hard to say. But there are some disturbing things, right? With--the suicide rate seems to have risen dramatically in the United States among young people. Some of it is attributed--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?

Tyler Cowen: 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 wellbeing, what percentage of the variation in wellbeing 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.


Russ Roberts: I want to add to your optimism or cheerfulness about technology in that--I think I saw--recently somewhere you were referring to the argument that you hear sometimes: Where are the flying cars? And this argument is that, back in the old days, the 1960s, we imagined a future with flying cars. And, they are probably coming, by the way. So: Just be patient, out there. But, there are people who make fun of the tech sector saying that, 'We wanted flying cars and we got Alexa.' 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 would get from a flying car.

Tyler Cowen: My version of flying car is Uber. And PreCheck. So, if you go to the airport, and you take a flight, you are 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. It's different than a flying car. But, 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.

Russ Roberts: It'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 the potential there is enormous.

Tyler Cowen: I think we had, like, 40 years of stagnation in travel. In the last 5 years, we are seeing more advances--probably more to come. There's a lot of talk of vertical flying devices--

Russ Roberts: Yep. I mention it--

Tyler Cowen: [?] 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.

Russ Roberts: I agree. Maybe the boring company--Elon Musk's underground transportation system will come to life. You know, it's his--mostly his money. Not always his--it's my money, too. But, people are doing some very innovative things.

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

Russ Roberts: Yeah; that's a fascinating point.

Tyler Cowen: It's also lowered the impact of monopoly. I think I make this point in the book, Big Business, that you can always--not health care, 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 going to go home and read the Internet.' You know: 'Get lost.'

Russ Roberts: Yeah. I wrote, I was actually, when I [?] this question, when 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--it might be both.

Tyler Cowen: It's both, I think. But, nonetheless, if a supplier tries to make an experience unpleasant for me, including a high price--again, health care is quite different; I get that--but I just walk away. It's like, 'Gee, my default is so much fun.'--

Russ Roberts: Yeah. Twitter--

Tyler Cowen: 'I don't need this.' Yeah.

Russ Roberts: Twitter. YouTube. Of course, it's--my issue there is--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 Twitter 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've got--I'm going to be interviewing Ryan Holiday soon on his book, Stillness Is the Key. And stillness is way down. We are struggling with that. We do--the advantage of this entertainment--zero price, direct price--it's not zero, but the direct price out-of-pocket is zero for us to consume these resources right now--is extraordinary.

Tyler Cowen: But, is solitude down? I'm not even sure. So, in the old days, if I just stayed at home two 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.

Russ Roberts: Well I think the challenge there is that intermittently--I'm sure you've experienced this--but 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. It's a--I have a compulsive problem, in glancing at it. I don't know if you deal with that.

Tyler Cowen: 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 don't--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. But I'm not sure it's harming productivity. Maybe for some people.

Russ Roberts: Yeah. Well, we've got to fix that 24-hours-in-a-day thing. They promised us flying cars and then 28-hours a day, and they've failed on both of them so far.


Russ Roberts: You mentioned health care in passing. It was something I was going to ask you about. You suggest in the book that the monopoly problem is most serious problem in health care. What is worrying you there?

Tyler Cowen: High prices. Hospital consolidation. 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 is a mess. And we pay huge amounts: like, 18% of GDP [Gross Domestic Product]. And so often we are treated poorly, and we are hurt or crushed or broken and frustrated. And something is badly wrong with American health care.

Russ Roberts: And I totally agree; and I recently had a horrific experience with health care approval for a procedure. Not so much that they rejected it, but 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 our actions with providers. And, I think a lot about the lack of skin in the game, feedback loops 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 of thinking about it, of course. 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 health care could be in a different world?

Tyler Cowen: It depends how many things I'm allowed to change. I am a fan--

Russ Roberts: Well, you can't change human nature. I'm going to leave that out. But other than that, I'm going to let you be pretty free.

Tyler Cowen: 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 going to give up. We're going to make it worse: we're going to 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 health care system. But, American big business as manifested through our health care 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, if not all cases, the evidence suggests business is doing pretty well by us.


Russ Roberts: One of the issues that comes up is political influence of business. I 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 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?

Tyler Cowen: 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 health care 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 are a little blown out of proportion. You have a lot of libertarians who want to posture as being 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, health care 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.


Russ Roberts: So, I sometimes like to argue when I'm in a--I don't know, an argumentative mood, or provocative mood--that the parts of our economy that work the worst would be the housing market, the health care market, and the education market--college. And that those are the places where government is most involved. A fair response to that would be, 'Well, they have to be, because otherwise it would have been worse. But I certainly am horrified when people say that, 'The health care market shows that capitalism can't run health care because look how horrible it is.' And my answer, of course, is there's not much capitalism in there. There's not much free market. And that would be true of housing as well. People will blame, actually blame capitalism recently, for the high prices of, say, housing in San Francisco or New York, 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. So, react to that argument. And, in particular, you are singling out health care as the place where things don't work well in the large--in 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 parts of American industry through a government's relentless hand in pricing and in subsidizing, through Medicare, Medicaid, and then the subsidy to employer-provided insurance?

Tyler Cowen: It somehow--how that interacts with human irrationality and health care 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, 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 half this country or so, we might have the best health care system in the world. Now, half isn't enough. But, you know, one also has to be balanced. It's not a complete failure. We are 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 someone who is HIV [Human Immunodeficiency Virus] 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. It would be such a big advance. So, again, crony capitalism can be a lot better than some of the alternatives. Sometimes.


Russ Roberts: 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 to the side, there's definitely a lot of anger about the current American economic system. Where do you think we're headed, there?

Tyler Cowen: 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, you know, the center of the American public is still pretty sane. And if you look at people's actual choices, they are trusting big business more than ever before. So, people just get into an Uber ride--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, you know, 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 smart phones--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 is going to crash and break open. And I hope we don't anything crazy. I'm afraid we might.

Russ Roberts: 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.

Tyler Cowen: Russ, thank you.