look i want a small government but i want a government to be able to do what it's supposed to do at the time it's supposed to do it [Music] okay today i have the pleasure of speaking with professor alex tabrock who's the bartley j madden chair of economics at the mercado center and a professor of economics at george mason
university and of course he's the co-author of the popular marginal revolution blog with professor tyler cowan who i've also had the pleasure of talking on with the podcast so uh professor thank you for coming on the podcast yeah it's great to be here awesome okay so first i want to ask you
about uh the grand innovation prize can you explain what this is and i'd like to ask you some more questions about it sure i mean the basic issue is is that clearly speed really matters at this point in time in the midst of the pandemic we're already been too slow we've been behind the virus every single
step of the way so we want to find a way of speeding up the incentives to produce a vaccine or a diagnostic or a therapeutic and you might say well you know don't the companies for example already have an incentive to uh be quick and to some extent they do but not as much as we would like from
social incentives so think for example about a uh vaccine manufacturer uh typically most vaccines fail right they're hard to produce they're complex and most of them fail and what this means is that a vaccine manufacturer they're not going to be willing to build a factory to ramp up a factory to get the doses
flowing right until the vaccine has been proven safe and effective and it's going to be approved okay so they're not going to start moving really until the vaccine is approved so if you want them to move faster you've got to give them bigger incentives and there's a variety of ways of doing that one is to have like a
big prize you know a billion dollars to the first uh vaccine which meets a set of criteria you know it's effective at you know sixty percent seventy percent has some such safety criteria and so forth or um you could uh pay directly um for uh manufacturing costs in order to get the firm to build the factory you
can say okay we're gonna pay some of your costs and there's pluses and minuses but the basic idea of a prize or advanced market commitment or advanced market purchase or paying for at-risk capacity is the firms don't have as strong an incentive to ramp up the vaccine quickly as we
would like so we want to give them some extra juice gotcha and the incentive is even weaker because you can only sell somebody a vaccine once if it works at least right uh yeah um okay so i have a question about um how do you get money to the people i guess you could give grants for
manufacturing but if somebody has a great idea for creating a vaccine there's a billion dollar price making that vaccine uh but they don't have the initial funding to you know get that manufacturing or even testing up to par um what do you do about that right so there's a tricky set of trade-offs because
on the one hand uh the government really is not good at picking winners and losers uh we know that from industrial policy and that holds just as well for vaccine uh policy so uh that pushes you towards just having a a prize where you just you know all all all comers and another advantage of that
is we really don't know what kind of vaccine is going to be the most successful and there's a whole bunch of different types you know there's the traditional live attenuated vaccine a killed virus vaccine there are some new vaccines using mrna technologies and dna vaccines and maybe it's not going to be a vaccine
at all maybe it's a therapeutic right which could serve the same kind of purpose or maybe there's some other innovation and when you have a prize you really are opening up the field to these to the crazy ones right uh to the ones who wouldn't necessarily get through the nih uh committees right and that's of course
the classic uh longitude uh story of the longitude prize which was one not by newton but by this uh watchmaker clockmaker um however we also then have the tradeoff which is the point that you mentioned is that some firms may not have the capital and for those firms there's a greater argument for funding
them up front and here you know there's no easy solution uh in a in a pandemic um i kind of think you want to go at all all guns blazing okay you want to use almost all the tools uh that you have available to you so what i've been working on this problem with michael kramer nobel prize winner
uh who is kind of famous for um the advanced market commitment for the pneumococcus uh vaccine uh which probably saved 700 000 lives was given to millions of children and in that the primary tool was the promise of a fixed price if you were to produce such a vaccine we're more working on the covet vaccine
we're more pushing towards paying upfront for a large fraction of the manufacturer's costs for producing a factory or for repurposing capacity and it turns out it's cheaper in in our context to do that in this way we could talk more about that uh but there are all these trade-offs for sure um and right now we're kind of
pushing towards paying more for manufacturing capacity yeah that's very interesting um why can't it be the case that uh financial instruments can be created uh so that you know vc's make their living off of these sort of like high-risk high rewards right um investments maybe they can like have a
deal with the researcher that they'll find a lot of their fund their testing and manufacturing and if the vaccine works then they get half the returns of the price sure i mean absolutely when the markets are working well i mean that's what would happen it just takes a long time to set these
things up and in every single stage there are these information problems so we say that you know the the government is not good at picking winners and losers but the truth actually is that the vcs aren't that great at it either right uh they have a comparative advantage they have an advantage over
the government i mean he had skin in the game but for a vc to learn enough about vaccines and to figure out to you know you got to be on on uh on presence uh to figure out which which are the scams you know and which are a real possibility of working this takes time um so i think look here here's how i put
it to a few people i've talked with i've said you know i'm a sort of could serve as a free market economist right so i rarely if ever say things like this but what i've been telling people is now is the time to throw money at the problem okay that's not something i usually say um but the costs of the
cova disaster which are now running in the trillions right are so large that it's really going to pay as i said to kind of advance on all fronts and we're going to lose money doing this okay there's going to be waste we're going to fund some vaccines which look great and then fail the astrazeneca vaccine for example this
was early out of the gate this is from oxford it looked great they have sold pre-ordered uh like 2 billion doses so this is kind of the really the most promising vaccine a lot of countries have bought into the astrazeneca vaccine and as you might know last week the trial one of the clinical trials was
shut down because they had a negative effect they're not sure whether it was due to the vaccine or due to something else but it's a danger and that that could happen i'm not saying the astrozenica vaccine is going to fail um i hope it doesn't i hope this turns out you know to be a false alarm
but that could happen at every stage in the process so you really want to have a diverse set of uh vaccines in your uh portfolio and some of them you know pay for manufacturing capacity some of them pay uh have the price the guaranteed price uh we're gonna have some you know uh uh fast grants like tyler has been given
out uh you know take a lot of shots on goal because we don't know which shot on goal is actually going to be the one which uh succeeds okay so let me ask about uh prizes generally then so are you emphasizing prizes in this context uh because it's such an immediate and big problem that you know
we should try out different funding mechanisms or do you think prices generally are used could be a useful solution in many fields where the problem space or the solution space is big yeah exactly so the the latter i mean i think one advantage of the prize uh in the current context it's easy to
explain to congress okay um so like like just do something okay and this has been one incredible frustration to me that congress has been so lazy so slow they're they're not they're so complacent they're not doing anything i mean it took them ages to uh set up funding for testing and then they
set the funding and they haven't spent the money so it it's just incredibly frustrating um and i thought a prize because you can announce it even before you've you know gathered the funds or figured out who's going to be on the prize committee or anything like just announce the prize we're just going
to give we have this pot of money it'll be there you know a year or two from now we'll figure out who gets it that could be done fairly quickly and in fact there is uh in the code uh i think from obama's time every agency has the right to set up a 50 million dollar prize up to a 50 million dollar prize
and they can be accumulated so you could have you know two or three agencies or four agencies could right now set up a 100 million 200 million dollar prize uh just by getting together they haven't done that but they could do that so that was one thing just the speed the other point is the one which you just
mentioned is that prizes are particularly good when sort of the experts have kind of failed uh usually the experts are right don't get me wrong i'm not anti-expert usually the experts are are the best people to go to but then sometimes you have a problem where the experts have run against the
wall and you need to take a very broad view and you need to get the crazies in and you need to get the the out of the box thinkers and uh prize could be very useful for that so why don't we have uh prizes in other fields like why are grants the dominant way of funding research it's a good question
um i don't really know the answer prices were much more common in the 19th century and then they kind of failed failed off or trailed off in the 20th century and they've seen a little bit of a resurgence uh in more recent decades one reason perhaps is that the you know giving out money is kind of a
powerful uh job and if you're doing it you know the nih or a committee you know the people you you bring in you give out the money to the people who are giving out the money um and that's a very nice kind of job very nice can be a very nice job to have uh and a prize if it's set up correctly where you know
you have a fairly strict guidelines as to what meets it and what doesn't mean it and you only get it if you win that kind of gives less power to the prize givers and maybe that's part of it but i'm not i'm not really sure actually it's a puzzle it's a puzzle as to why grants have been used much more than prizes
um and but why don't we see evidence of the clear efficacy of prizes um because there doesn't seem to be a clear coordination problem here like just an altruistic patron could just decide to like set up prizes for not necessarily this problem but just a lot of other problems and if for many problems prices are more
effective we should see that the results from these prizes the innovations they create are just much more effective than uh the grants that are afforded in that field so why aren't we seeing like the clear evidence of the superiority of the prize well we do have some evidence on this uh for example
there are these howard hughes grants so howard hughes actually tried to set up a tax dodge and ended up found founding the you know howard hughes medical centers um which have lasted much longer than his uh his tax dodge so he had some benefits uh there um and the distinguishing feature of these howard
huge howard hughes grants is that they say okay here's a bunch of money come back to us in five years and tell us what you did with it okay you don't really have to come up with a plan or tell them what you're going to do if they're sort of like a genius grant in some ways and it turns out that those uh grants
are much more effective uh the researchers who get them uh that research tends to be much higher cited more patents and so forth and now you of course you have to control for the fact that the researchers who get these grants are different than the researchers who get other types of grants but even when you do that even
when you set up some fine some fine controls it looks like giving money with less strings attached actually is more successful we'll also see with my colleague as you know tyler cowan has given out more than 20 million dollars in covid grants and given them out incredibly quickly i think
tyler gave out 20 million dollars faster than the nih had given out a single grant um so we'll see how effective uh that have been they've already been some good returns from that um so maybe we'll maybe there'll be a resurgence uh in uh prize giving or fast grants or prize giving or however you want to call
it interesting um okay so now let me ask you about uh the bamboo effect yeah bommel yeah so um so we have these industries uh where every year just the prices just seem to keep going up and up and up and up without without fail um and uh education uh both primary and you know secondary
education as well as uh university education you know is one example where the price is sort of inexorably it seems uh go up health care um is another one um but there's other ones as well those are the ones which are big and the most common but another thing people have noticed for example is that
uh fixing things uh repairs uh seem to go up a lot a lot over time so it's much more expensive to have a pair of shoes uh repaired uh today than it used to be auto repair has been going up in price uh over time relative to other uh goods and services so much that you know for example um i had to replace the blade on my
lawnmower i didn't have to replace it the blade on my lawnmower got dull now even 30 years ago you'd probably go to a sharpener but i didn't do that i just went to amazon and ordered a new blade right no one sharpens their blades anymore you know maybe for like a 200 knife but not for a uh
a lawnmower right you just buy another one which is what i did so anyway so the question is why are these why is it that some sets of goods and services appears to be going up over time and uh william bommel is an economist uh he has an explanation for that traditional explanations of course as
you're probably familiar with say well there's something wrong with the education industry there's too much government right or there's something wrong with health care and in each case there's like some special story and the story that bomble gives which is why one of the reasons i like it it's
like one theory to rule them all okay but that's kind of the background so we have the set of industries prices appear to be going up year after year after year and the question is why what we did eric allen and i in this little book is first of all we looked at the kind of traditional story is it
like unions you know is it regulation uh and it just doesn't appear to fit it doesn't appear to fit uh so what is the bomb what is the bomba story i i explain it different ways when people ask me i think i'll explain it in a different way today i think the way to think about it is to think first of all in terms of real
goods and services just think about the bar a barter economy or uh uh forget prices for a second and just think about kind of real goods and services the real economy and you have some sets of goods and services which are increasing in productivity every year right so computers they're getting faster
uh and they're getting more you know powerful uh every year uh manufacturing right we're able to manufacture a car uh using you know less steel than ever before and in a shorter amount of time using less labor uh you know and and so forth so these goods are increasing in productivity there's some other industries which for
whatever reason um are just slower increasing productivity i mean you're bound to have some randomness or just some differences right some some industries for technological reasons are increasing in productivity faster than other industries so if you think about these two different types of industries one of
which is the progressive sector the other of which is the the slower sector the slower productivity sector doesn't have to be negative productivity just it's growing more slowly in terms of productivity so you get in the progressive sector you get a lot more output per input over
time and in the stagnant sector only very slowly does output grow per unit of input well if you think about that then it has to be the case that prices in the stagnant or less productive sector have to be going up and the simple reason is because goods trade for one another so if you can get a lot more goods in the
progressive sector well that means if you want more of the stagnant sector you have to give up a lot okay because you can get a lot right um so the kind of the classic example is the uh symphony right or the string quartet right and you think about 1826 the string quartet it takes four people 40 minutes to do a
hide and string quartet and you think about you know 2020 it takes four people you know 40 minutes to do a string quartet so their productivity hasn't gone up at all but what you can get the opportunity cost of that has gone way up so in you know 80 20 to hire four people you know for 40 minutes you were giving
up you know i don't know so like a a bicycle whatever you want to call it something's you know uh but now if you give up you know four people for 40 minutes that's worth a lot you know you can get you know the movies and a dinner out and you know two bicycles or whatever right so you're
just giving up a lot more um and that's really why the price has gone up is because of the progressive sector so to put it the other way it's not that there's a problem with the stagnant sector i mean it's not a direct problem in any case it's not that there's something wrong unions or you know regulation or
something like that what's really going on is something good uh something good about the progressive sector that's why things are getting more expensive because you can you have to give up a lot more because this sector is becoming much more productive uh let me just give you one
other way of thinking about that and that is what this implies is that prices in the stagnant sector will start to go up less quickly when the progressive sector is slowing down so this means that the prices in the stagnant sector go up much more quickly when you have a lot of growth in the productive sector
and now with the great stagnation okay as growth is slowing down we're actually seeing like healthcare prices are going up less quickly so when did healthcare prices really go up the big increase in healthcare prices when it was in the 60s 50s and 60s and that's when healthcare prices really exploded
uh they grew much more quickly like 10 a year okay and that's when productivity was going up so now productivity is slowing down and we're seeing prices are not going up so quickly in these stagnant sectors so that kind of tells you this is not a good thing right so higher prices could be a bad it
could be a good thing in some ways and you know less price inflation could be a bad thing yeah it's such an interesting explanation it just changes all of the prevailing wisdom that you hear everywhere about uh why these um why these industries are getting so much more expensive but i have a few questions about that so
uh so as you laid out one of the explanations of the bumble effect is that one of the main inputs into many of these sectors is labor and if you can get more out of labor in one sector over time and not so much in the other sector they're willing to pay more for a labor in the progressive sector and that
raises the price of labor everywhere um but how can labor be getting more expensive at a time where we keep hearing about wage stagnation about what stagnation a wage state right yeah yeah yeah right so so first of all we hear about wage stagnation so this is something which helen and i actually add
to the baumel effect um in our book because obama was exactly as you said most focused on kind of labor in general and we just give it a slight twist in our our book we say look uh it's skilled labor uh it's skilled labor which in particular has uh gone up in price because uh it's become a skilled laborer
is much more valuable in silicon valley right than they used to be and so you think about health care you think about education these are sectors which involved a lot of skilled labor okay so i have a phd uh i teach you know typically like 30 students we'll talk about online education later
but let's see i teach 30 students a semester that's a really expensive use of someone with a phd right i'm teaching 30 students and yeah you know i don't want to say like i could go to silicon valley and you know be rich or whatever but someone like me could right uh that's that is the trade-off
which we're talking about as a society not alex tavrock could you know suddenly move to silicon valley but somebody who has the opportunity of getting economics phd they can spend their lives teaching 30 students at a time or they could go work for uber which a lot of economics phds do or for amazon right and so the
opportunity cost of a phd has gone way up because now they can't be hired you know for amazon or uber and that's why but they're still doing exactly the same thing in the classroom they're still just teaching 30 students so that that price has got to be going uh it's got to be going up
does the bumble effect suggest that ai automation fears are over hyped because more and more of the economy is uh service based uh because i mean that sector isn't growing more productive so it's not growing smaller um and also that the value of labor goes up over time as the sectors that are becoming more productive
can produce more yeah yes and no um so it's definitely true that the service sector has grown over time and in general you know the stagnant sectors will grow over time because there's only so many cars you can have or want really probably right so even if when cars get uh less expensive people might have one
or two and the quality goes up somewhat but there's kind of a limit to you know revenues in that sector um so the stagnant sectors do tend to grow so education and healthcare have become a bigger part of our economy which is kind of natural now does this mean that ai is overblown i think it
means that we're not going to run out of work that's true but i do worry and as we're already seeing that certain types of labor um you know can be overrun by uh automation right so you know less skilled labor uh their wages have not been going up um and partly that uh automation uh partly that's trade
and that is only going to become more serious with remote work and as well with automation so yeah i do worry about if you can't have if you can't raise your education level you can't raise a skill level of your workers then you're in real trouble um you know people are very flexible um that is true
uh but you know i think about horses right uh you know the horse when we introduced the automobile it's not like horses all found alternative employment uh they found the glue factory right um and your horses are pretty flexible i mean you can do a lot of things with horses um but it's not like they all slotted
into different areas of the economy like the you know i mean we did have more uh you know horses for recreation and so forth uh but no overall the number of horses is down and so i worry about less skilled uh labor and how much are the greats that you mentioned the great stagnation how much
of it can be explained by just the economy over time is more and more dominated by the sectors that are growing in productivity the least yeah i think that's exactly right i mean as you shift to the service sector you see a decline in your growth rate simply because you're buying more of the
things which are growing more slowly and that's going to continue it can be part of a naturally growing um economy um there's a new good book on this uh you probably know it i've forgotten i should think of the title the author is going to be mad at me for not i'll come back to it um but there's an optimal stagnation
okay so it could be the good that uh we are growing more slowly in the sense that you have focused your spending on sectors which are growing more slowly and that's kind of a natural change now obviously what we would like is for all sectors to boom um and maybe we could do something about
that but it's not going to be easy so speaking of one of these slow growth sectors let's talk about education so you write in you write in the paper um to decrease the college wage premium and the relative price of goods and services that use college-educated workers we need to increase the educational
attainment of the us workforce now my first guess on the podcast was uh your colleague brian kaplan and he would argue probably the opposite that he'd say you're just increasing the cost of signaling if you make people have a higher educational attainment because they had a signal relative to
the other counterparts who are now more highly educated um so how would you respond to that yeah so um there's clearly brian is clearly right uh that there's a lot of signaling involved this particularly in college education that's not the only type of education that counts for example in germany and austria and many of the
european countries the invest a lot more in apprenticeships and worker training okay um so the interesting thing is is that we have this crazy system um in the united states where uh the high school graduation rate is actually quite low compared to other countries uh i think at the time i wrote my book
it was only like 75 percent for men it's gone up since then it's maybe like 80 85 percent but we still have a large chunk of our workforce which does not graduate high school but then of those who graduate high school we send a huge proportion to college way more than in europe in germany
okay so we're sending like 60 70 percent of those who graduate high school then go on to college and in germany it's more like you know 40 i can't remember the exact figures but it's something like that okay so it's like a completely crazy system and in on on and on the other hand in germany they're
almost everybody graduates high school like 97 something like that right so i think we can rebalance here um definitely more people should graduate high school um more people should be highly skilled does that mean they should be going to college no because when a lot of these kids go to college and then they take
um you know i'm gonna upset some of my uh friends then they go into journalism right which is like a terrible field or psychology right these are terrible fields to go into for for jobs um and yet these fields journalism and psychology in particular have grown the number of people shockingly going
into computer science has been like flat for like 30 years i mean you would think whatever field has grown more than computer science you would think it would be booming but actually no it's pretty flat um and what increases we have seen in people going into computer science has all been foreign students okay so
the foreign students they don't you know if you're from south korea or uh india you don't come to the united states to do a journalism degree or psychology right you know your parents aren't going to allow you to do that uh you come to get some hard science right and uh so i think the u.s students
should do more of that yeah i promise i'm not contributing to the problem i'm right here at university studying computer science uh okay so i i didn't want to make any presumptions [Laughter] but yeah i'm glad i'm glad you fit the correct uh uh the correct uh you know modus operandi you do it you're doing the
right thing yeah yeah i it would have been quite uh it would be pretty funny if i was right here starting journalism and had to hear you say that um okay you actually could be a good journalist there might be room for you so let's talk about something um that you have launched the marginal
revolution online university which is trying to uh change up the system a little bit um and so you've written about online education and how it's going to how these massive open online courses are going to select for the best teachers um uh what's going to happen to the rest of the people who are trying to teach
right now or already teaching yeah so i think the long run is pretty bad um for teachers uh you know we always complained that uh you know look how poorly we teach our teachers you know we pay them less than our sports stars right you know you know basketball or something like that and what's gonna happen
is we're gonna pay our teachers more like basketball stars and and baseball stars but there's just gonna be a lot fewer of them right because when you teach online uh you know i said earlier i teach 30 students but with marginal revolution university i can teach 300 students and i do
um so hundreds of hundreds of thousands of students so like why [Music] you know then there's i mean frankly uh people like me if not me um are gonna drive a lot of people in the teaching business out of business and that actually would be a good thing um because you know why should you the problem is education has always been
difficult to scale right uh it's such a one-on-one kind of business and if you're able to scale education is actually we're being forced to uh because of the pandemic but if you're able to scale education there are huge huge massive returns that are possible there so whoever cracks that nut
i don't think it's been cracked entirely uh you know i think we've gone a long way marshall revolution university but we're only the beginning uh whoever cracks that nut is going to do incredibly well because you go from one person teaching 30 students at a time to literally you could teach the entire
world and you time this goes back to the bomb effect if you can tie uh education to a progressive sector right instead of tying it to a labor intensive sector you tie it to technology which is a progressive sector then you know all bets are off everything can change really really quickly
so artificial tutors artificial tutors are already as good in randomized controlled trials as real tutors okay uh and uh you your homework assessment systems i mean so what a uh an ai uh can do is look at hundreds of thousands of student responses on a test for example and then it can figure out looking at
you've written some tests and it'll see your pattern of errors and it says aha okay machine learning i could see the machine will be able to see what concept you're not grasping and so instead of just repeating you know the lesson okay the artificial tutor can pinpoint and direct the student exactly to that piece of
knowledge oh you're using the quadratic formula incorrectly this is what you need to know okay it can direct them exactly to that piece of knowledge which they need to unlock um the key the key to learning so the students can advance much more quickly so i think there's huge huge possibilities
for artificial intelligence and for you know video online learning and so forth so you give out these optimistic scenarios of how education is going to change but a pessimist might say well listen we've we've gotten these sort of uh predictions back since edits and said that the motion picture is gonna
change education forever and the same thing happened with the radio with books with uh television so what's different this time how is it this is going to disrupt the system that's been around for a thousand years yeah you're absolutely right you would think that with books right you know oh you can get all this
knowledge you know in this book and then you can carry it around with you you know you can read it at night whenever you want to you know this is much better than having to talk with some professor guy um yeah the book has a lot of the advantages which i claim for online education so this makes me uh
um i don't know i worried or humble or modest or or i could be wrong it's it's for sure um you know i do i tend to think though that so you know it's it's it's it's bad to say this time is different but it is interesting how a group of technologies uh come together which uh seemingly uh small differences
can make big effects so i think for example about the apple newton okay so the newton was basically a uh a cell phone it was basically a portable computer kind of a but it was just it for it just it wasn't quite fast enough it wasn't connected to the internet enough um so it just the newton never took off and yet really
just it's really just a small step from the newton to the iphone and yet the iphone was huge okay but technologically there's very little difference between the newton and the iphone the noon was a failure the iphone was a huge success so i think just in kind of the speed at which things can be done
online um and just the the quality of uh the animations the music the artificial intelligence all of these things advancing you kind of reach a threshold and then you get and then things boom and i can tell you that my students um you know i teach a bunch of students online at george mason university
a lot of them surprising even to me tell me that they prefer uh online uh they prefer at least my class uh uh online and you know this makes sense because students have different methods of learning and the kind of the classroom kind of sucks right i mean you something you can't hear the professor
uh you know you have to be there at a certain time at a certain place you can't pause you feel you can't ask questions with online something you didn't quite hear you didn't understand you just pause it you know and you rewind right or uh think about podcasts um you know i think a lot of us are very
familiar with listening to podcasts at you know 1.5 or 1.25 speed right because then you just slow down when there's something new and you speed up when there's something not new and that's like a huge advantage okay so i can learn a lot more with the podcast uh just because i'm in control of the
speed you know and um so this means that online students can go at their own pace uh so there's a huge number of advantages and this idea of tying it to a progressive sector i think it's important as well this is an example i give which which we discovered purely by accident is that we captioned
all of our videos in english okay and then we discovered you know that youtube automatically takes the english captions and translates them into dozens hundreds of other languages and what this means is that every improvement in deep mind right every improvement in artificial intelligence automatically turns into an improvement
in our product because periodically you know the captions they get better without us having to do any work right uh just the youtube algorithms you know improves the captions over time and so our product is becoming better even without us making any changes but uh i don't want to speak for brian
kaplan here but maybe somebody might say uh what if you're just solving the wrong wrong problem that people aren't really giving up four years of their life to get a better education i might just be speaking for myself here but uh your videos are much better as far as an economics course goes than
my high school economics course and you know i still have to attend my high school economics course and my uh college economics course um and so unless we can figure out a way for people to signal their uh intelligence and conscientiousness through online courses people are not going to substitute this
for what college provides right so so this is why i think that um the online uh the moocs as it were you know coursera and things like that they're not gonna replace universities but universities are gonna go online right so you still need that stamp um you still need we haven't cracked that nut uh maybe we will
either you know um there are some ways of doing it in in some fields right now like computer science uh but you're right we haven't cracked that nut but that's why universities will be the ones who go online they're not gonna be and not all of them are going to make the transition you know we're seeing
this right now with the pandemic a lot of universities are falling by the wayside but the ones which can um have a reputation a high reputation they're going to be able to go online and they're going to be able to expand their market now some of them you don't want to like harvard does not want to
expand its market but a place like george mason where i teach okay has a decent reputation in the world okay and we'd be very happy to expand our market uh we'd be happy to have tens of thousands of students uh all over the world uh georgia tech has done this probably as you know uh better than anybody
georgia tech has the largest computer science program in mass masters program in the world has something like out of 7000 online students the online students are treated exactly as the residential residential students they're graded in exactly the same way the professors don't even know which is
online which is not online um it is a hugely success it graduates i think like seven percent of all the computer science masters uh in in the world so it's a hugely successful program and they're only able it's a quarter of the price less than a quarter of the price online than it is residential so that i think is a
a trailblazer or a warning sign depending on your point of view but georgia tech has taken a on a master's degree in computer science and successively brought it online to the entire world and that is a mark for the future uh now tell me if this is too optimistic a scenario but is it
or if it's precluded by baumel's effect as well but is it possible that the people who would have been teachers otherwise but now are being out-competed by the best teachers in the world they will just end up being personal tutors and then we can get back to like a sort of older model of one-on-one instruction
where is this going to be too expensive yeah some of that will will happen so i think uh you know what what is the real not to crack um a lot of it right is uh i'm going to sound contradictory because i'm going to say psychology right not that you need a degree in psychology but um people are going to need coaches
right so you know life coaches which people laugh at because only the rich and famous you know have a you know a life coach or whatever right um but that is a large part of uh education i think is going to be more like sports people people in sports they all have coaches so why shouldn't you and i have coaches
so i think there will be a industry for life coaches somebody to encourage you somebody to try and map out your skills kind of like what the high school advisors are supposed to do you know you're this sort of person you should go to this you know there'd be a lot more of that um
so education will be de-bundled right um the kind of traditional lecture part of it sage on the stage or all that that transmission of information that part will go online and a many a much smaller number of teachers will teach many more people but the coaching part of it uh that the possibly the tutoring uh
will be spread out um because they'll be much more hierarchical um actually so you know one guy at the top will have this kind of hierarchy of tas and things like that i mean that's kind of how college works anyways a little bit a little bit already yeah but uh even more so right like we you're absolutely we have
it already where you know michael sandell you know teaches you know 400 students or whatever in his philosophy class and has a bunch of tas but you multiply that by a factor of 10 or a factor by a hundred and so i think the model will which have already started tyler and i have already
kind of started this but oops um the model will be kind of uh you you you teach online right and then you show up at different places around the world for like guest appearances okay so i've been to india a couple of times i go and i teach there and the old students all know me right which is kind of weird
right but the they're all oh professor tavrak you know they all they're already familiar with me you know how he teaches so forth and then i just show up in the class so i can kind of see a model um like paul erdos you know the famous mathematician who would just go around the world and
co-author with different mathematicians i never had to fix the dress i can see some teachers doing that just kind of going around the world and uh they teach a few days in south korea and a few days in india and kind of it builds up this community most of the teaching is online but then
you know you get to meet the person occasionally uh but with the biomole effect uh we shouldn't i expect that um because if education now becomes a progressive sector because of the substitute then it's gonna exasperate uh you know the increasing cost and uh things like tas or coaches or whatever
else that you know yeah so we're so yeah we're never going to um as so there are two effects going on at the same time which obama nicely has both of them and that is you know why is the stagnant sector becoming a higher price well it's becoming a higher price because the progressive sector
is is growing more productive but that means you're also getting richer so there's a substitution effect and there's an income effect okay um so that's an interesting thing about uh education and healthcare um is that even as the price has gone up we're spending more on these goods right and that's really bizarre from
just about the perspective of just about any other theory because if you think that the problem is a lack of negative productivity or regulation or something like that right well then if education is becoming more expensive because of costs are going up well then you want to consume less
right so then why would you be consuming more when the price is going up you need like two theories to explain this one theory to explain why the price is going up and then you need like another theory well we're becoming more credentialed or whatever to explain why people are consuming more of this good in baumel
the you're pushing out the production possibility frontier as it is becoming um more curved at the same time so the price is going up but you're also becoming richer so bommel explains both of these things very very nicely it's not contradictory at all in vamos theory that you would spend more on a good even as the price is
going up because the reason the price is going up is in part because we're becoming more generally richer over time right and so it's becoming more affordable uh but then you also point out in the paper that even though we have more teachers per capita now math scores really have an increase right um so
shouldn't we expect like if teachers are going up it's not just a cost per teacher it's also the amount of teachers we have shouldn't that at least increase the outcomes we get yeah so you're absolutely right um and if you were dealing with kind of a fixed uh set of students um i think that would happen
um but we are as i mentioned you know many many more people are going to college than ever did before and that just means like that the standards are going down and the students the uh i mean frankly the students just need a lot more hand-holding today um than they did um in the past because in the past
i i mean you just had the elite which was going to college right and uh these people could kind of take care of themselves they came from wealthy families and could kind of take care of themselves and now we're just having many a much wider variety of students are coming to college and they do need a lot more input
now now there is another factor uh which is tied with the great stagnation which is very worrying is that we seem to be needing a lot more input per unit of output in even in the progressive sectors like i mentioned computers are becoming much more faster and so forth but if you look at the number of
researchers in the computer sector like yeah yeah kind of you know guys figuring out i'm not talking about computer scientists i'm the guys who are working on the chips right uh the electrical engineers i suppose okay you need many more electrical engineers to get the same growth rate
today than you did in the past and the same thing you know i work a lot on pharmaceuticals i tend to you know focus on the fda and the fda kind of slows things down but even putting aside that the amount of research and development budget which goes into creating a new pharmaceutical is much higher today than in the past
and it's not just a regulation effect uh you also have just many more scientists uh it seems to get the same you know life expectancy uh increase from a pharmaceutical than you did you know in the past it was more low-hanging fruit in the past right yeah as you know and as tyler cowan wrote about nicholas bloom
and uh others wrote a paper where they they talked about this like there's we need 18 times as many semiconductor engineers just to uh get the same more swap oops sorry about that uh the same moore's law doubling of uh transistors every two years yeah exactly it's very worrying um so
kind of one hopes that maybe we will see kind of some quantum leap in some technology um you know you kind of get a quantum leap right and then you get diminishing returns and then you get another quantum leap so i'm hopeful that you know maybe it's quantum computers i don't know quantum leap but
uh you know hopefully we'll see some some you know uh grow some sector will explode uh otherwise those facts which you just mentioned are kind of really disturbing yeah they mentioned that it was uh every 13 years you need to double the amount of resources to get the same growth so we could just have every pair
of 13 year olds just have four research kids yeah yeah and it's it's disturbing because right um because you would have predicted that with many more researchers research as a public good uh you know ideas are free they flow everywhere that you would have had much much more advance and it just seems that we've
only barely been able to keep pace um if that you know i am optimistic sort of you know that with china and india becoming richer that you get a lot more scientists and engineers in the world as a whole um and that'll give us a boost um but so far you know it's not it's not the huge gain that one would
have hoped for yeah yeah um i i just plugged those numbers into like uh uh into some code and it turns out that if if the if you know research productivity declines every 13 years or a house every 13 years you plateau it like 40 increase or something like that um but if it doesn't in the next century
you could get like 600 growth uh otherwise right right so there's a so there's a small possibility of a very big gain if we get lucky but the trend is not good yeah um oh so so let me ask now about um dominant assurance contracts uh before i ask you some more questions about it when we get in the weeds do you
want to explain what that is sure um so uh so dominance it's kind of interesting um this maybe is my most important paper but it's kind of overlooked um except recently it's grown a little bit but this solves the public good problem uh that's a little bit of an exaggeration but uh you know paul samuelson said this
problem was impossible to solve and for a long time it looked like you know you couldn't solve this public good problem the public good problem right is that um for a good which benefits everybody you know non-rival uh non-excludable okay uh there's gonna be a free rider problem
okay and so people won't want to contribute uh to it even though it benefits everybody people say oh i'm gonna sit back i'm gonna let the other guy contribute to it and then i'll benefit without having to pay the cost and of course if when everyone does this you don't get the public good at all right so
how to produce public goods it's a huge huge problem and it looked like this was impossible to solve now i saw part of it with this dominant insurance contract uh which is easier to explain today than when i wrote the paper because uh when i before i wrote the i wrote the paper before kickstarter
okay so um kickstarter is now something almost quite similar some not quite the same but similar so in kickstarter um you contribute towards the public good and you only pay if enough other people contribute that you reach the threshold right you get over the you get over the line
and then then you have to pay so kickstarter solves one problem in that you're not worried that the other people you know just won't show up and then your your funds will be wasted okay your funds are never wasted uh your funds only are taken from you if enough people show up to contribute towards the public good
okay that's an insurance contract here's the dominant insurance contract uh it has just one simple twist it says if uh not if you don't reach the threshold then everybody who agreed to pay gets a refund bonus okay so uh therefore think about it you're thinking about whether should i contribute to this
project or not well there's really only two cases you need to consider one is if the project is successful then i get the benefit of the public good there's some uh a benefit there so that's positive good to me if the project is not successful if not enough other people contribute okay then i want to contribute
because i'll get the refund bonus and i won't have to do anything okay so either way you're actually better off contributing than not contributing so what this means is that it turns an insurance contract into a dominant insurance contract which means that it's now a dominant strategy okay in some circumstances
if uh to contribute to the public good because you benefit either either way right and so um this means it just doesn't solve all public good problems um because it solves it for kind of a public good where you know the right size so if you want to build a bridge it's usually not too hard to figure out
it should be a two-lane bridge or a four-lane bridge okay or a lighthouse okay you just have to figure out how much is it going to cost for the right size lighthouse it solves the contribution problem there are other public goods where you're not quite sure how much of it should you actually produce like defense like
should it be 100 billion 200 billion 500 billion how much do people actually want this does not solve that but it does solve the contribution problem and what some colleagues and i um uh tim cason and robert zuberkus uh what we've actually shown is this works in the lab so we've run experiments and the
dominant insurance contract is able to double the number of projects which are successful so if you could put this on kickstarter you could probably double the number of successful projects uh so it does actually work uh compared to just a normal assurance market correct correct so most projects on kickstarter fail um
we think some of them should fail some of them are just bad projects but we think some of them fail because um the insurance contract doesn't solve all of these problems but the a dominant insurance contract a it would allow more good projects to succeed that is you have some project where the
benefits are bigger than the costs um a dominant assurance contract will help you to get those good projects it will help those projects be successful yeah it's such a such a brilliant idea and useful idea because like it takes the equilibrium from being towards being a free writer
to like to actively contributing to the public good uh uh so what about projects though that are uh you you mentioned like a bridge for example right but there's like a notorious problem of the inflation of the budget over time so you know it was projected to be 10 million but now we can't build it unless we get an extra
10 million uh what do you do if that kind of thing happens well one problem at a time my friend so um yeah i i mean that that's going to happen whether it's a public good or not right um so you know you're absolutely right that there is a tendency for these big dig projects to um inflate uh in scale and
and there's a you know there's a problem especially in the united states with why uh you know subways and construction and uh tunnels why they're so expensive here compared to the rest of the world right um and part of it part of that problem is unions okay so um uh but there's a variety of reasons
uh for that unions and legalism and you know we've uh you know historical committees and we've you know we've just put on so many um uh requirements uh to build that has just become really really difficult and expensive um so dominant insurance contract does not solve all problems so it is a path for libertarian minded
people like you and me to instead of having to like convince a majority of people to adopt our ideas to just like set up alternative institutions that are based on ideas like this yeah so i mean i think that's a very progressive way of thinking about it right is that i've actually said that
it could very well be the case that we need many more public goods especially local public goods and a dominant insurance contract is a way of bringing this out of showing that this is true so if we can allow if we can create a regime under which not just dominant insurance contracts but uh you know glenn weil and vitalik
buterin and a co-author um zoe i believe uh you know they have uh they have the other schemes as well right so there are these mechanisms um some of which use the blockchains and which work on lines in which we don't work online um to produce public goods and i i would creating a market mechanism
it sounds contradictory but designing a market to produce public goods um could change you know everything right uh and i think that would be a very kind of a progressive way of thinking about things instead of saying you know the government's doing it wrong all the time um let's create an alternative
institution which can do things better yeah yeah the optimistic scenario here is um elias rudowsky wrote a book called inadequate equilibria as i'm sure you know and then he detailed three ways in which like a civilization can feel asymmetric information which and you wrote an article with tyler
cowan and how that's becoming a smaller problem um decision maker is not a beneficiary which is not a problem because of uh dominant assurance contracts and also um in optimal nash equilibria which is also not a problem because of dominant insurance contracts is this so is this just like the future is this
is this how we solve a bunch of the problems coordination problem whatever else this is there are uh well we'll i guess we'll see um try to get the paper uh you never know until the paper gets out into the world right um so uh hopefully i do think that you know democracy itself is a is a mechanism is
a it's a it's a mechanism to both um collect and aggregate preferences and to um kind of exclude dictatorial um it's to improve governments it's it's a governance mechanism right and uh we've now had you know 200 250 years of experience and we know it works well in some cases and less well in in other cases it's not
a great preference aggregation mechanism it is actually a pretty good way of limiting government um there are things which democratic governments don't do democratic governments do not starve their own citizens that's a very low bar but it's a low bar which many governments fail to meet
right um so democracy has a lot of benefits but it's not the end of the story either there are different types of democracies there's different ways of shaping preference different mechanisms and particularly as we go online and as we live online much more i think many more of these mechanisms
are going to become viable and the nice thing about online is that it satisfies the taboo conditions uh taboo conditions are local public goods where that is you can move from world to world to world to world very easily at low cost online so it's much less costly to set up a new type of government
um you know every new blockchain project has got its own governance system most of them are terrible most of them are going to fail but when before in human history have we had as many experiments with governance mechanisms as we are today it's really quite extraordinary like tasos has got its mechanism and you know
ethereum has got its mechanism and so we're doing much more experimentation in how to organize collectively right um this is glenn weil and his radical exchange project so the collective organization and is an unsolved problem right uh how do we act collectively to solve public good
problems without becoming uh dictatorial without becoming uh you know uh with without falling under rent seeking you know without falling under all of the problems of collective action right uh if we can crack that nut that's a huge thing and the plethora of online worlds and experiments is i think
one way which we're going to do this and it's it hasn't been done all right the last time we did this was transitioning to democracy uh basically after world war ii you know world war ii i think there was like eight democracies in the world at the end of the world at the end of the war and now we have hundreds so we've got
many experiments in democracy some of them have worked well some of them haven't um but now with online worlds we can have thousands of experiments uh with new types of governance mechanisms that's so fascinating uh by the way what do you think of robin hansen's idea of a future where prediction markets decide
which policies are stopped right so you know robin's idea is remarkable um you know i often you know tell my students look in the whole history of the world okay you can kind of say there's really only been like maybe four types of government there's you know uh there's the monarch
the dictator there's rules by the aristocrats oligarchy right uh and democracy um so there was aristotle understood all three of those then you had like maybe kind of some uh rothbardian uh anarchism okay rothbardian and david friedman style anarchism so that maybe made four kind of governance systems and then
robin has his a new one which is incredibly rare right so that makes five which is futarki it's an entirely original uh idea for governance by futures markets um and he's created a lot of uh powerful arguments uh in favor of it so i am hugely um i'm a huge promoter of futarki uh to run experiments uh with it i would
love to see many more experiments with few turkey with dominant assurance contracts with kind of some of glenn wilde's radical exchange ideas um you know i want to see a lot more experimentation in these big ideas than we've had in the past and online worlds may be one way of doing that
well can we consider your idea of dominant insurance contracts as a sixth former government with like actual consent of the government it's pretty good yeah it's pretty good i wouldn't i wouldn't quite put it up there with you know uh monarchy or democracy um but it's a mechanism it's a mechanism i'm not sure i can run
the whole government with dominant insurance contracts um so uh so i'm gonna give robin his uh his for uh creating the fifth the fifth governance system that's pretty amazing yeah yeah um uh so let me ask you about uh though the different ways in which you've been creating content so
you write papers you write books you've written a textbook with tyler collin um and of course you did the online videos uh with marginal revolution university which have you found to be the most effective way of communicating information to your audience well it's pretty amazing when i get emails from students
like around the world from you know india and pakistan and you know south korea and so forth and you know these they say you know thank you professor you know i was i was able to pass my class because of you and of course i don't know who these people are right um but so it's amazing that i have students
that i i i've never met i never probably never will meet um sometimes when i do travel i get to meet some of these students which is great right so this idea that a teacher can you know teach thousands and hundreds of thousands of students millions of students is pretty remarkable
um and i'll tell you kind of a secret tyler that you know between tyler and i our goal is to teach more people economics than anyone has ever thought in the entire history of the world so we are right now we're behind adam smith okay we're behind we're behind marshall okay um we're behind mill
we're catching up to mancu okay so i think we might overtake mancu um which would make me very very happy um so and that's like possible it's i'm not saying it's gonna happen but that's like that's a conceivable dream that tyler and i could teach more people economics than anybody else in the history of the entire world
that is actually possible i don't know what's gonna i'm not saying it's gonna happen um but we're climbing the ranks oh i i don't know haven't uh have you not already done this because i don't know how many copies of the wealth of nations have sold and much less how many have been read but like
i can imagine that marshall revolution university has had more views than uh there have been reads of the wealth of nations wealth of nations has been around for a while it was pretty bestseller in its time um so i think we have a while to catch up uh with adam smith indeed the world has the world would do would
do itself a favor by learning it's adam smith which it still hasn't done so adam smith still has some lessons to teach um so we're catching up but we're not there yet yeah also lessons that can be learned through your videos as well though uh true true yeah so okay so to close out this interview which has been really
fascinating um oh actually before i ask the final question i want to ask so you have all these ideas uh dominance insurance contracts prizes for increasing innovation during pandemics uh tons of other other ideas right uh virulation from robert is it frustrating to be an economist and
you're putting all these ideas out there but like very few of them are adopted by the government and you know how useful they would be uh what is it like to be an economist putting out all these ideas out there yeah it's frustrating at times for sure um like i just said you know the world
has not caught up with um adam smith let alone with dominant assurance contracts i do think that in economics we are very fortunate that the skills which we are taught as a profession are widely applicable to a large range of fields they're very they're very general and widely applicable to a large range of fields
and um we do have credibility in uh policy and with the administration um so while i don't feel that you know uh you know i'm super listened to or whatever um but uh you know i found myself talking with people at the white house and the council economic advisors me and michael cramer um so i don't know you know operation
warp speed i don't know how much they listened um but uh maybe it's you know in part being in washington um i feel i'm certainly not you know uh at the heart of things but i you do feel in washington that you're sort of close to the uh pedestals of power uh in some ways um you know coast said that
uh that a an economist could earn his entire lifetime wages just by stopping one bad idea okay so i guess i feel i've done that and that's but maybe that's maybe that's enough to justify i i find that very comforting that you're being consulted with because all i see is paul romer just uh getting incredibly upset at
how little his advice is listen to and then i feel bad that if other advice isn't listened to as well no i absolutely i mean and you know romer has been pounding on testing right from the beginning and he's been absolutely right and yeah i've been incredibly frustrated talking with people in congress and
they're just and they're always like well nothing's gonna happen in this bill but maybe in the next bill it's i don't understand it it does seem that um uh we it it does seem something is wrong to be frank it seems that something is wrong and um i we haven't solved that problem but it
it yeah i hate to end on a negative on a negative note but uh yeah there's something wrong what can you expand on that well look um this is a part of what you know tyler called state capacity libertarianism okay and what is that this is something that i've written about i didn't use that term but i've talked a
lot about is look i want a small government but i want a government to be able to do what it's supposed to do at the time it's supposed to do it okay and even i was shocked like the cdc their entire reason data right their entire reason for existing is to stop a pandemic and yet they
completely failed they botched the first test okay and then the fda came in and said oh private companies you cannot use your testing you have to apply to us to do you know to get approval from us to do your test and that slowed everything down at the beginning of the pandemic uh until the virus got ahead of us right
and it just seems like you know in the past uh the government might have been smaller but it was able to do things um sometimes bad things for sure but the way we ramped up for world war ii you know um is a remark was a remarkable achievement and it just seems that and it's not all trump's fault
okay uh trump is terrible whatever you know you blame him as much as you want okay but you cannot blame the failures of the cdc and the fda uh all at trump's doorstep you know congress has completely failed as well right congress is the one supposed to be passing the law where's congress's testing plan
where is congress's uh vaccine plan why is it that the the only good thing that has come out of the administration on the pandemic is operation warp speed you know why didn't congress do that that's actually congress's job okay so congress is completely failed as well and there's a lackadaisical uh attitude
there's a complacent attitude which given that some of them are getting the virus i i completely fail to understand you know uh like boris johnson you know he actually got the damn thing you think he would want to solve this problem um and so it seems that not only are we not getting the
government that we paid for right we're getting less okay i at least want to get you know something from what for what i pay for it and you know pandemic um assistance or pandemic responding to a pandemic responding to a war um they're high on my list like i'm worried now like the way i would never was before that
you know we would lose a war with china or something like that okay um you know that never even occurred to me that the united states you know the greatest military superpower in the history of the entire world right um the by far the largest economy highest per capita you know incomes and so forth to think that we
might you know lose a war um it just never would never have occurred to me but now i just think things are so dysfunctional that anything is possible um and it's well i am worried yeah i'm i'm worried and it's not just about the pandemic but i think that is just the canary in the coal mine
which tells us that this government is not working and it's not all going to be uh the danger is that where they abide in an administration you know the liberals will be so happy that all thought of fundamental change will uh end which is what happened for example under obama in under bush there was a big anti-war
effort right okay you know big anti-war um protests and movement and obama came into power and that all went away and the war kept going right so you know we're still in afghanistan we're still in iraq still you know bombing uh countries around the world so the obama did not solve the problem but
the protests went away and if biden is elected that's not going to solve the problem of complacency that's not going to solve the problem that the government is driven with uh legalism and bureaucracy and inefficiency and slowness but it may take some of the force for change uh take the wind out of the sales and
that is a concern wow okay what's the way we make our government more effective is there is there some solution you know i don't have a solution but one thing which i think is going to be helpful is actually competition with other countries uh such as china and india you know like what really made
us why did we go to the moon okay we went to the moon because we were competing with the soviet union because they kicked our butts by putting somebody into space and made us look like fools made us look like technological laggards so we got our act together and we devoted a huge amount of money to
innovation right to nasa a huge amount of the budget um like 12 at the height 12 of the us budget was going to nasa which you know you can complain about whatever okay but it was going to innovation so one of the things that i've said you know my book launching the innovation renaissance is what we have today is a warfare
welfare state okay we do two things we invest a lot in the military and we invest a lot in various forms of welfare by which i'm including you know medicare and medicaid and redistribution and whatever and i'm not even going to say that it's bad or whatever okay but what i would like to see us be
is an innovation state and as the warfare and the welfare state have grown as a share of the budget the innovation state has shrunk so we're investing much less in research and development federal dollars in research and development than we used to um and i would like to see it to shift us
away from warfare and welfare and towards innovation and when we see china start to kick our butts where china is developing new pharmaceuticals china's developing artificial intelligence china's developing genetic engineering like what are we going to do when the first chinese with you know super iqs of you know 160 plus
you know start marching out of their factories okay um you know hopefully that will will kick us into gear and we'll say okay we've gotta we've gotta you know respond so uh you know i'm not one i'm much more about cooperation than i am about international competition i don't think we're at war
literally with other countries i think our interests actually align but in terms of um igniting the passions of a nation towards innovation and away from complacency competition in the sense of the olympics a good kind of competition if we can keep it if we can keep it to that kind of competition and not
to you know blowing each other up um that kind of competition i think would do uh would do a lot of good uh in reigniting america to become kind of a uh the leading nation of the world not just in terms of innovation but also in terms of freedom and liberty and you know uh racial and sexual equality all of these
things which in many respects not not all by any means but in many respects we have led um in the past and uh to kind of reignite that you know to say like bring all people from hong kong let's bring them to the united states let's bring the uyghurs to the united states okay let us be that shiny beacon on the hill
that's what i would like to see the united states be yeah yeah i had the pleasure of interviewing caleb watney which who made a similar point as you that the path dependence of technology is very important and so it's important that it happens a free country uh now that you mentioned the launching
of the innovation rentals do you mind if i ask you a question about the book sure if your audience can take it i can um so you you you explained that uh both the supply of innovation in terms of global talent will be increased because of globalization and also the demand because we'll have a
global market um so then how do we explain the great stagnation which happened during the same period as the time of greatest globalization right yeah so this um so so all of these trends should be very very positive right um because you know the way i like to put it is that uh as china becomes richer they're all
gonna be looking for a cure for cancer too right okay this is a problem which affects everybody um and so you have a much larger market a much bigger r d market um and you already see in china um leading technologies at 10 cent and so forth baidu and things like that so they're already
investing a lot in these technologies which are public goods artificial intelligence is another one so i think we have a lot to gain by this increased budget devoted to r d um what i didn't what i uh didn't uh realize i suppose is that there is this countervailing wind which we now know from the bloom and van renin
work uh we talked a little bit about earlier that it does seem there were a bunch of low-hanging fruit and we are having to devote more and more resources to get the same uh output now whether that's a fundamental technological factor whether it's a regulatory factor um whether that's a temporary factor in
response to these quantum leaps and technology like we got electricity we've got the internal com combustion engine and it takes 50 years to kind of grind everything out we can out of them now we've got computers it'll take some time to do that maybe biology is the next one or as i said
quantum computers i don't know what it's going to be but there may be a next technology where again that gives us kind of a a leap who knows what i can say is that the globalization has been good for um research and development uh we would be much worse off if we didn't have that okay good uh and the final question
which i'll ask all my guests is what advice would you give to a 20 year old or to yourself when you were 20 or just a generic 20 year old yeah well i have a generic 20 year old i got two of them um so uh look uh the world is changing faster um so probably my advice is becoming you know the advice of older people is
becoming less useful over time you know don't play those video games and now like video games you know you could be you know you can earn a lot of money playing video games right so i guess i got that one wrong i should have told my kids you know learn how to play this video game and be
a sports star if you're an esports store um look the return skill is going up so um education is continues to be extremely important uh get an education in a uh in a sector which is complementary to technology okay so you don't want to be competing against technology you want to be racing with the machine
uh to use eric brynjelson's uh and uh mcafee's uh term you'll be racing with the machine so if you can get educated in a sector like electrical engineering computer science or economics as well but in a sector which is complementary to technology data um data science so if you're able to
like what is increasing in the world faster than data so if you're able to analyze data um that is going to be a incredibly beneficial um skill because that's we're getting a lot more of it right and extracting meaning from data is very difficult um and making it accessible to human beings
so if you have some skills uh which come out of economics you know causal inference but also out of data science machine learning and so forth if you have some skills to extract information from data that's going to be very valuable in the world going going forward so uh it's not these are areas where i
have some sort of expertise in it's not all that um you know marketing is going to continue to be important oddly enough right you would think that that's going to go no that's marketing things like that it's going to be important design right so what is apple apple's just a great design company
right just an absolutely fabulous design company so and that's complementary to technology right so you want to take the technology and find a way of putting it in human hands which is creates a delightful satisfying experience right that's very airy fairy and yet that's an incredibly valuable skill so it's not just
hard science but if you have an artistic impulse then i would say that's fine that's also going to be valuable if you could combine it with a technological field right so an artistic impulse in design um that is going to take you much much further than in like just poetry let's say okay
uh so you want to combine these things oh okay very good advice uh and thank you so much for being on it it's an incredible privilege to get to ask questions to somebody of your expertise so uh thank you so much for your time oh great uh great being here and uh you ask great questions so thank you very much [Music] you