Tyler Cowen, economist and author, discusses the insights of Hayek, Keynes, and Smith on AI, animal spirits, anarchy, growth, and much more. They explore topics such as investments, valuing intellectual contributions, collectivism, the price system, condensed information, internet writing, subsidizing savings, declining interest rates, treating animals, ancestral worship, evaluating government institutions, lack of curiosity among economists, and social conservatism.
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Quick takeaways
Keynes' insights and contributions in the field of economics were significant.
Investment and innovation are often driven by irrational factors.
Passive investors may have an impact on company behavior, potentially leading to collusion.
Risk aversion is not easily categorized, and individuals may exhibit complex and varied responses to risk.
Deep dives
Importance of Keynes and his achievements
Keynes is discussed in the podcast and his achievements as an economist are highlighted. He is referred to as someone who possessed a rare combination of gifts, including being a mathematician, historian, statesman, and philosopher. The speaker acknowledges that Keynes was all those things and arguably the only person who encompassed all those attributes at that time. The discussion emphasizes that Keynes' insights and contributions in the field of economics were significant.
The Irrationality of Investment and Innovation
The podcast explores the idea that investment and innovation are often driven by irrational factors. It references a quote from Keynes about how investments have historically disappointed the hopes that motivated them. Examples are provided, such as active investing in the stock market and mergers and acquisitions, which often do not live up to expectations. The podcast suggests that Keynes' observation about the irrationality of investment still holds true today. It also touches on the idea that innovators may not always benefit fully from their contributions, as the gains are often diffused throughout society.
The Role of Passive Investors and Collusion
The discussion focuses on the increasing role of passive investors in the market and the potential for collusion among a small number of mutual funds or private equity firms. It is suggested that passive investors, who do not actively engage in the management of enterprises, may have an impact on company behavior, potentially leading to implicit collusion. The podcast raises concerns about the concentration of ownership and its implications for competition and overall market behavior.
Risk Aversion and Behavioral Economics
The podcast delves into the concept of risk aversion and questions conventional wisdom that humans are inherently risk-averse. It discusses the work of behavioral economists who argue that risk aversion is context-dependent, and individuals may exhibit both risk-seeking and risk-averse behavior depending on the situation. The speaker suggests that risk behavior is not easily categorized and that humans may exhibit complex and varied responses to risk.
Critique of Democratic Capitalist Model
Some critiques of the democratic capitalist model include the assertion that democracy leads to a drift toward socialism, and the concern that government programs tend to persist and grow larger over time. However, there is evidence to suggest that these concerns are not fully validated, as countries with relatively large governments like France and Sweden have not turned autocratic. Additionally, reforms and changes in government policies have been observed in various countries. While these critiques should be taken seriously, they do not necessarily indicate an inevitable decline towards socialism.
Concerns About Government Size
There are concerns that government programs tend to grow larger and are difficult to repeal, potentially leading to an overly large government. However, the evidence shows that despite the growth of government in some areas, countries like the United States have not turned towards totalitarianism or autocracy. Reforms and changes in policies have occurred in response to external pressures, indicating a degree of adaptability in democratic systems.
The Future of Economic Thinking
Economic thinking has changed over time, becoming more specialized and focused on rigorous analysis. However, there is still a demand for broader, more curious thinking that connects different ideas and explores bigger questions. While the field of economics may change and adapt, the need for this kind of thinking will persist. The rise of AI may present challenges in terms of competition and audience preference, but there will always be a place for economists who can provide unique perspectives and insights.
The Challenges of AI and Future Growth
The role of AI in future growth is uncertain, as it is unclear how much further progress can be made in areas like integration of general relativity and quantum mechanics. Additionally, there may be fundamental limits to legibility and the ability to apply more intelligence to certain problems. However, the impact of AI will likely be substantial, with potential gains in productivity and transformative changes in various industries.
It was a great pleasure speaking with Tyler Cowen for the 3rd time.
We discussed GOAT: Who is the Greatest Economist of all Time and Why Does it Matter?, especially in the context of how the insights of Hayek, Keynes, Smith, and other great economists help us make sense of AI, growth, animal spirits, prediction markets, alignment, central planning, and much more.
The topics covered in this episode are too many to summarize. Hope you enjoy!
