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[Applause] [Music] [Applause] [Music] conversations with Tyler is produced by the mercada center at George Mason University Bridging the Gap between academic ideas and real world problems learn more at marcus.org and for more
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conversations including videos transcripts and upcoming dates visit conversations withth tyler.com I'm here today with my friend and colleague Garrett Jones Garrett has a new book coming out called 10% less democracy why you should trust Elites a
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little more and the masses a little less and Garrett of course being my colleague is right here at George Mason University Garrett welcome thanks for having me as usual the opening question comes completely from Left Field let's say we
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had a government that were just strictly run by its Bond holders uhuh what would the biases and that Arrangement be and how good or bad would it be at solving which problems well one problem is that they would care just about the profitability of the government and
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not the productivity of the economy so it's easy to imagine great Horrors happening in exactly that situation the bond holders uh are running the government then they're going to only care about the gap between government revenues and government costs and in
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some parts of the economy that would probably lead to them imposing things like slavery massive restrictions of personal freedoms not carrying whether uh the poorest and least productive diet high rates that would be the definite
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downside the upside which is much smaller I want to emphasize would be that uh the government would actually care about when you care about paying your bills on time you care about having a good solid Revenue stream that comes
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in reliably and dependably and you would get firms operating much more like a government you you would get governments operating much more like firms except firms that don't have to compete very much against other firms do IMF programs
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for countries on average help them or harm them I think on average they help them um that's a bit like having your government run by a bond holder right but it's it's a bit like having the bond holders be a check on the voters rather
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than being a 100% alternative to voters that's really the difference here Bond holders can be a good check on government just as voters can be a good check on the abuses of government itself but giving them Monopoly Powers is uh
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far too much for any of the kind of government systems we care about how about a government just run by the land holders right would that lead to an Optimum outcome um again you get the same problem which is that if it's completely ruled by them those who are
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weakest in the bargaining situation might just get wiped out completely so I think that's the real concern is 100% voice to any one group is a bad path and something more like a stakeholder Theory the state where there's a lot of people
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who have a voice that's a that gets us better results but if you look say at the cities that have more or less maximized land value uhhuh Manhattan maybe San Francisco uh Dubai city state Singapore city state London mhm they seem really extremely well-run right
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exactly yes and but part of that is that they they face some kind of global competition I mean cities face huge competition for labor and the extremely valuable freedom to leave means that a city can't get rich by just um telling
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its most productive workers you're not allowed to go anywhere you have to stay here now you argue in your book that not every County should elect its dog catcher so to speak yes to cite one example of many what do you think are
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the conditions where voters are likely to have better judge ments than experts uh it could be the most natural cases is cases where there's an academic indoctrination that's completely opposed to reality um so isn't that more and
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more the case these days I mean I think we can see it happening now because it's what's happening all around us but in earlier times um there's always been some kind of Illusion that the elites are have foisted upon them and that the
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mass has just roll their eyes at I mean the early 20th century it might have been communism which was uh the opiate of the intellectuals for quite a few days decades but American Elites didn't fall for communism the academic ones did true but true American Elites were
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pretty Centrist right absolutely yeah should we elect prosecutors um no I think not why not yeah I think because the short-run incentives to uh those it's those campaign ads where the person brags about how many uh people they
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convicted and here are some scary faces on TV and let me show you how I convicted these people um that's the kind of the emotional that's triggering that sort of uh short run hyper discounting impulsive thinking that the behavioral economists have warned us
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about and that ends up having I think far too much influence in the United States other than the implied super majority rules already in in place through checks and balances are there policy choices where we should impose new super majority rules like a
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two-thirds vote in the senate or the house yeah I mean I I think that uh the uh in a way the balanced budget amendments that have been proposed in my lifetime have always been equivalent to that they weren't saying that you could
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never run a deficit at any point in time they were saying if you wanted to run a deficit you had to pass some special resolution and get it uh passed through a 2/3 or 34s majority I think that's a classic example of something that would
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be very wise but those seemed completely irrelevant right deficits have just ballooned and those constraints seem not to matter Finland has a two-thirds rule I think for tax increases uh they have very high taxes isn't it just ultimately
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about culture and the will of the voters public opinion seeps through the system no matter what constraints you put on the the voting system within the government yeah that's the best comeback to all of this right is that the voters
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are ultimately have Sovereign power and anything that's even sort of like a democracy so any of these uh rules we impose are second order compared to who your voters actually are but it does appear that across the US states uh I
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mean balanced budget amendments seem to work and um it's not just the will of the voter the will of the voters can be held back it's just a it's a it's it's basically one Dyke that can hold back the tie just a little bit it's sometimes
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argued that proportional representation systems they give Elites more power because after the election there's a second or third round of bargaining to establish the Coalition are those systems in your view better than parliamentary systems such as we find in
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the UK or used to find in New Zealand this is something I thought about a lot when writing the book I was wondering whether I should have a chapter on PR versus first pass the post and It ultimately becomes very difficult to
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decide which of those is more democratic I mean PR feels more democratic to the citizens and so they probably have higher levels of voter engagement in the political process and that counts for something so that's a plus that makes PR
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sound more democratic but you're right the expost Coalition formation makes it uh act less Democratic and I i' never found a way to solve that and since I wanted to stick to topics in my book where I could be clear on what was more
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democratic and what was less Democratic I just set that that to the side but let's say it's the early 1990s Eastern European countries are suddenly becoming free and they ask you Garrett what electoral system should we have what do you say yeah I mean I think what I
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really would go for is uh presidential systems if you can handle it something like a first pass the post system where those people elected from local districts focused on local problems which have sort of less of a free rider
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problem involved go up to the Parliament and actually argue their case the presidential element is less important than the Parliamentary the idea of the single District voting I tend to think that that uh that creates more accountability um on the part of the
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government it the presidential system does well I think the first pass the post element as opposed to PR okay let me go back to that first pass the post sort of the kind of systems you see in the UK and even the US they create a
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kind of personal responsibility for the individual politician the personal accountability and it reduces the free riter problem it reduces the ability to say oh that wasn't my fault uh you know that was somebody else's fault so that
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sort of having something that is a bit more like the organization of a modern Corporation where you can say this is the person in charge and if something went wrong I take this person to task for this that's really what you want and
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uh proportional representation Coalition governments make that much harder to to occur but in your framework where the voters can be poorly informed or irrational yeah isn't more accountability arguably a bad thing and a place like Singapore which is quite
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well-run whatever flaws it may have has relatively little accountability in part due to Jerry mandering so why wouldn't you want the system with less accountability at the margin ah no I I think that uh even the Insiders have a
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tough time figuring out what's going on and who's responsible and for that reason having a clear CLE patterns of accountability say within I mean if corporations want clear lines of accountability so that the people inside can assess the value being created by
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the 100 or 200 people they're monitoring on a regular basis then modern democracies of any type must face that problem to a much greater degree so that's why I think that this uh the idea of some line of responsibility some line
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of uh who's in charge is uh is is crucial is trial by jury a good idea uh yes this is something where I that again I thought about about um I I tend to think that trial by jury balances the ignorance of the typical person who
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might go in I mean juries are intentionally made ignorant about the case that they're um supposed to be evaluating it seems to balance that weakness against the big benefit of individual responsibility like there's a small number of people making this
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decision and I think that the incentive for becoming informed um is a greater benefit than the uh cost of having people who are quite uninformed on the particular topic are there mechanisms of accountability for politicians which do
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not rely so heavily on voters and why don't we do much more of that oh that's a good question you're right uh I mean an old classic example of this would be uh uh well now classic is something like New Zealand's contract for at Central
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Banker right where if you if you uh if the Central Bank fails to meet its inflation Target the head of the Central Bank gets fired I mean part of the reason we don't do that is that the the kind of punishments that they're willing
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to give out aren't very extreme um I think it's a little bit of a puzzle that we don't have uh the equivalent of Real Performance bonuses based on fairly objective measures for things like this so do you think other people underrate
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small open economies because they're very accountable to Global markets right oh yes that's not a voter driven phenomenon so in your view they should do better than maybe most people are expecting yes exactly I mean and I think this has been proven since the global
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financial crisis the small open economies learned their lesson in the 1997 Asian financial crisis they made their uh banking systems far more robust uh they made their regulatory systems more effective they increased their Capital requirements but you have
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Iceland Ireland right they totally blow up in the later financial crisis true the 2008 one but those were richer countries the middle- inome countries um the ones who were actually hit by the Asian financial crisis they learned
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their lesson and they stuck with it so those I mean it may If the message is that people can only uh learn from something that happened to their own country in the last 20 or 30 years that's a lesson itself but that's far
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more than most people learn their whole lives a long-standing debate from professional sports should we let the fans elect the all-star teams I mean obviously nobody takes I mean this is a great lesson in democracy right there right like all-star teams
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tend to have good players right but um they a All-Star games are low Stak so it's a little bit hard to evaluate All-Star All-Star games as versions of that actual sport for one thing so you can't evaluate that too much but coaches
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coaches get paid a lot for a reason and that ability to assemble the right team is a uh scarce resource and it's very difficult to pull off and I think it's very hard for Outsiders to know when teams work well the old Athenian system
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representation by lot right choose members of the legislature more or less randomly or the Venetian system has a random element in it the old Renaissance Venetian system good idea or a bad idea when can it work these systems seem to
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work in small polies right small governments seem to work well with uh a version of election by lot and we use versions of election by lot to trials right that you're basically selected randomly to be on a trial as a juror um and judges are assigned to cases
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relatively randomly although there's uh those are people who are already pre-selected but at the margin should we do more of it uh we could choose a departmental chairperson by lot right yes you're right we could choose it um
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the bridge club could use it no I I tend to think that for management skills when it comes to management skills which is what a lot of these governance type jobs are about that's where we really want uh some level of expertise skill at that
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particular management trait where juries are good is where the jury style selection system where selecting people randomly from the populace is most valuable is when we're trying to figure out the opinion of the populace and we
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want people to carefully think about an issue so we should be selecting from the populace uh at random when we really want the most informed opinion of a typical person that aligns the incentives well for the United States what is the most effective way in your
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view that you would want us to have 10% less democracy what's the one thing you would change I would change the House of Representatives to a six-year terms and I picked that because it's not outside the range of plausibility and because I think people
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would instantly understand what it accomplishes not because it has the highest payoff but because it balances payoff with uh plausibility in democracy and you would still have them elected all together at the same time or you
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would stagger it no I think the Staggering which was built in by the founding fathers of the US um was brilliant and I think it's all the more important in our Modern Age of social media social media waves can come and go so quickly so uh balance staggering
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elections means that no one period of time has a dominant effect on how the next six years of our country turns out do you think it would raise or lower the influence of money in politics H I think it would would plausibly ra raise it a
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bit uh because being less accountable to voters to this that sort of short-run mania of voter demands would probably give a touch more vote touch more influence to uh to political investors and the reason I mean when you're
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investing in a when one election has a six-year payoff you're willing to invest more than when it has a two-year payoff let's say you can make one effective change to the governance of the European Union what's your pick that's a much tougher one yeah I
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mean they have more than 10% less democracy than they used to right yeah yeah yeah um I think I would probably uh strengthen the jurisdiction of the uh of the eu's uh Top Court I'll get its name wrong right now because there's so many
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of these European courts but um I'd strengthen their jurisdiction to be able to uh dive into the the local political systems of the countries they're overseeing make it just a little bit more like a national government if someone said we should replace the
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European Council with the true executive a single person who would be highly visible and evaluated as such and that might make the EU more accountable to voters or public opinion do you agree or disagree yeah I think that's um a I I
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absolutely agree with that because I think uh and whether it's voted on by the masses or selected by the uh the EU Council in some way the EU keeps moving toward that you can tell they're groping towards something like this um but they
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can't quite pull it off because they have so many little heads between the European commission the European Parliament and the EU Council but yeah you're right they want more accountability so that there is a clear voice and there's someone they can hold
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responsible for success and failure but do they want more accountability isn't there the risk that with an executive you can then have a highly visible direct clash with national governments and maybe the whole thing falls apart
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and the whole point of the European Council system is to make it vague and amorphous and not so transparent so you can always kick the C down the road and pretend you agree when you don't and that's what keeps the whole thing held
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together well this is this is the question right right now that if they're getting rid of the squeakiest wheel through brexit that strengthens the case for um having a tighter government among the remaining members Scott suner says
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ask gy about Switzerland the world's most democratic Nation by far this is a this is a great question people have brought this up to me over the years right so Switzerland is incredibly Democratic and it's incredibly functional and uh part of the uh it's
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hard to tell is it just that the Swiss are different is they just a sort of Swiss National culture that uh can't be you know that can't be captured it's a sort of lightning in a bottle or is it something as simple as the fact that so
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much of their um direct democracy is held at the local decentralized Canton level right sometimes even lower levels quite um the equivalent of villages levels so to the extent that it's at that very uh low level that's sounding a
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lot like the Athenian system and the Athenian system of direct democracy working okay in groups of 5 to 20,000 might be plausible um but that's not the level we're working with and and uh Switzerland is not running its national government through direct pbic sites in
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that way what about extreme federalism for more places is that a good idea right it is logically possible um no I I tend to think that it's not incredibly desirable um for the kind of reasons Glenn wild points out that basically
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there's a lot of increasing returns in the world and you want to be able to have uh feasible routine government negotiations at the highest level where increasing returns are mattering and you know it's totally plausible to have more
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federalism but uh outside of uh the problems I mean we even see this in in problems of big cities right where Metropolitan statistical areas much better capture the scope of positive and negative externalities that's where the
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bargaining should be happening but yet we have these City governments and um that are much smaller often and I tend to think that increasing returns are uh driving a lot of the successes and failures around the world positive and negative externalities of human
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interactions and so you want to have the the broadest scope possible you you want to have your equivalent of a parliament at the broad scope of negotiation because parliaments are our great Coan negotiation for it seems that more
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decisions in the US at least are being made at the city level minimum wage hikes climate change policy apart from whatever you think of those particular decisions are you in general notot happy about more decisions being made at the
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city level no I love it because it it creates more natural experiments for economists to study but that seems that variance with what you just said about wanting the externalities internalized and increasing returns being of course
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right because it's like they're they're creating these natural experiments the very local level which creates a lot of information that's beautiful in its way um but a lot of these are things that are are not that um promising by the you
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know economists aren't going to ever be that excited about massive minimum wage hikes doubling the minimum wage in the normal range of variation for most countries we've seen here's a reader question and I quote are there any
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examples of people willingly giving up some of their power to Elites there's lots of systems of indirect democracy but I can't think of any that evolved D to that point from more democratic systems oh no we've been shrinking democracy across uh a lot of the rich
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countries the biggest example is uh since the 1970s the rise of independent Central Banking politicians handing over more and more power to um people like me uh to economists to macroeconomists especially those trained in money and
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time series and they just let people people I went to grad school with these folks just kind of run the central banking system so that's a voluntary seating of massive Financial power to people who are quite unelected have long terms and are essentially impossible to
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fire if we just think of government as a check on the very worst outcomes in the way that I think Carl poer suggested just get rid of the worst people the very worst decisions don't expect too much from the actual decision-making
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capacity does that then make democracy look better and we want more democracy whereas if you think of government as a calculating mechanism well of course you want the elites but if it's just about throwing out the worst cases doesn't
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democracy then make a comeback you know that's why the chapter one of my book is entitled the big benefits of a small dose of democracy I mean avoiding the very worst outcomes is the least we can hope for from governance and it turns
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out that democracies are great at eliminating the very worst outcomes so democracies regardless of how how measured even a moderate dose of democracy is associated with um no famines and negligible numbers of massacres of a country's own citizens
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and probably starting fewer Wars and hard to get from correlation causation that's why I have a chapter on it but it does seem as though a moderate level of democracy gets us uh the chance to avoid the greatest tragedies that have
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occurred in modern governance Dominic Cummings as you probably know recently wrote a blog post saying that in the United Kingdom for their reforms they want a lot of super smart weirdos who know a lot of math maybe can do some programming to change things and shake
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up the Civil Service does that idea make sense or is it going to destroy itself as a general rule for all the Civil Service it destroy itself but as the idea of a sort of Skunk Works that could uh if if kept in a box for 2 to three
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years could generate great ideas that could be pushed into the right sectors of a government that seems quite plausible my guess is that in in any of the rich democracies now there's probably 5 to 15% of the government that
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where there's just enough of a culture that's open to radical reform and it probably takes a year or two to figure out where those sections of the government are and the right weirdos could come in and re knew that just like pretty much like any kind of corporate
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or reorganization if you could be benevolent dictator of any country or region on Earth where could you have the greatest 50-year impact they do what you say they do what I say and you get 10 years in charge and then you leave yeah
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yeah yeah yeah I would like to think that it'd be Rwanda so I mean they uh Paul kagame has done uh has made quite a number of reforms um other economic political social leaders across uh subsaharan Africa have paid a lot of attention there are of course real
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weaknesses and what's been going on there as well but uh I think that it could be the case that he just doesn't need my advice that he's really just you know following uh the lequan up paath to the best of his ability but I think the
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idea of having a a populace that's basically open to uh moderate levels of Reform and leaders who are open to uh to some some degree of technocratic governance while making life great for the masses that's that's something that
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could happen there why is political polarization in America gone up if indeed it has I mean I think a lot of it has to do I mean some of it is the rise of social media right it is sort of the federalism of the internet um and part
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of it is uh the rise in ethnic diversity across the US and uh you know there's a reason why we use the term ethnic conflict when studying uh a lot of Wars across history and at a much lower level people often disagree with each other
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when they come from different cultural backgrounds sometimes seems like the worst shouting is rich white Elites at each other right that a that's true but often but that's partly because the rich white Elites are are signaling are
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acting as the self-appointed representatives of other individuals and groups in society so I think there's that feedback between those two but since they're not actually representing those other groups wouldn't these squabbles have happened anyway and if
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one group of the wealthy white Elites claims to be speaking for you know the L TI NX people well maybe that's absurd but that's a kind of excuse and they would fight about something else no I think it's easier to have it's easier to
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have arguments when people can point to some substance I mean both sides in debates over political issues each side tends to pay some kind of respect to the to the raw existence of the other side's issues so if there is no existence of
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the issue if you're talking about folks who are 0.003% of the population then it's much harder to create a broad social movement um worrying about that problem you went said on Twitter that one of the books that influenced you most was Gary Miller's managerial
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dilemas the political economy of hierarchy what did you learn from that that book why is it important oh it's it's great because it applies classic public choice to the questions of the organization of the firm uh so one version of it uh one early Insight is
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that arrows and possibility theorem applies to any kind of decision within a firm so if you have three managers uh three top managers who are trying to decide the strategy of the company and they disagree slightly on where the
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company should be taken wow that can lead to Classic preference cycling a classic Condor set Paradox and so corporations can face the same difficulties of making rational decisions um whether it's because of the problems of voting the problems of
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paying people their marginal product when real life is a team effort and ultimately Gary Miller says the only thing that can solve this problem is to realize that firm culture is basically an equilibrium to a repeated prisoners
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dilemma a longrun cooperation game and so once he once he pointed out in sort of the climax of the book that longrun cooperation uh focusing on some kind of cultural norm and infusing that throughout the system was crucial to firm success and
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that failed firms would be what those often that failed to coordinate on a good equilibrium I decided that was Central to seeing not just how firms work but how societies work as a whole let's try some questions related to your first book hive mind here's a reader
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question quote the term hive mind is often thought of as a science fiction term first used in 1950 in a short story second night of Summer by James Schmitz about alien intelligences in the Cold War era this was frightening and of
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course there's the Borg from Star Trek next Generation do you think the term hive mind is now fully thought of as a good term rather than a concept that strikes fear yeah it's a great question I have to say the um the Wall Street
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Journal very kindly wrote an entire article and the Heart of it the heart of the article was how I picked the title of my book and it was about this very theme that Hive mine used to be a negative idea but now people routinely on social media at least treat it as a
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positive idea yeah the idea that that we can grab ideas from a lot of other people and synthesize those ideas and get to use the business cliche Synergy where the whole is greater than the sum of its parts this is something that
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people can see on a regular basis now in a way that was much more theoretical 50 or 75 years ago so I think the idea of a hive mind or collective intelligence is it still has this the scary downside and it should U but the positive upside is
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way too visible for people to ignore in the 1970s Irish IQ measured as lower British IQ yeah and people worried about this as a problem these days Irish IQ measures as higher what should we learn or infer from this development yeah and
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something similar happened in East Germany um after the end of Communism right where there was this sort of 10ish Point IQ gain within about a decade decade and a half of the collapse of Communism so I think it's a sign that uh
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substantial amounts of national or Regional intelligence cognitive skills are really shaped by the culture that we're that we're marinating in so this is part of my hive mind ideas that uh it's I I take the Flynn effect very seriously and what Flynn and Dickens
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pointed out in their famous paper and what Flynn has emphasized in his own work the IQ researcher who's a philosopher by training is that when our environment change most of us get to choose our own environment as adults but
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some of us have our environments as adults forced upon us um through basically the culture or Society we're living in and that has a huge effect on how we use our minds and I think that really does show up in substantive intelligence not just some sort of non
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intelligence but what's the key environmental lever so whatever Ireland did it's not that people were starving right that we understand so why don't we do more of whatever they did whatever was done to the east Germans everywhere
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exactly but what is that lever why don't we know I mean I would say that thing is the thing we call capitalism right capitalism is a big huge thing not all of capitalism makes us smarter so yeah that's the thing is figuring out which
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things within capitalism what what is it about living in a free Society with competitive markets where you at least in our youth and middle age we feel a need to sell ourselves as valuable creators there's something about that that probably is what's most valuable
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for boosting cognitive skills it's a sort of demand side desire to just to try to use our minds in socially productive ways I communis we smarter so that's what that's what I would say yeah I think there's some version of this I
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mean there is a push pull element too right when you're in a network of people who are trying to do that for you you end up trying hard to decipher signals as well when other people are trying to present themselves as oh look I'm a
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cognitively sophisticated person I'm trotting out these ideas you're trying to process their signals so you can fit into their world and so this there's a Synergy here it's not just a one-way Story one of the key themes of your book
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is that the social returns to intelligence and groups are much higher than the private returns uh if that's the case why don't we see increasing returns in the economic data almost everywhere oh it's because this is it works essentially like a level effect
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not like some sort of increasing returns to scale so if my estimate from my early work was that uh one IQ Point raises your private marginal product about 1% but it raises your society's marginal product in the long run by about 6% so
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that's a level effect and so I wouldn't expect to see the some sort of uh massive agglomeration showing up in the wealth creation process but firms are larger than before at least in the US cities are larger our population is
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growing we're better at sorting Talent so why doesn't the economic data look like what Paul are expected in 1990 where there were literally increasing returns to scale growth rates go up uh you see increasing returns almost everywhere it seems we do in a few super
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firms in a handful of cities but otherwise not I mean I think the answer to why Paul romer's world didn't turn out to be true comes from uh his co-author Chad Jones um Chad Jones's uh semi-endogenous growth Theory basically
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says yeah yeah yeah it's great to have a lot of people more people searching for ideas but there's diminishing returns to the idea research process just like there are diminishing returns to Capital and once you add in uh diminishing ideas
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to the search return process a sort of if once you grab the low hanging fruit it's more expensive to grab the harder ideas to invent then you get something you get back to something that's a lot like the solo growth model where the
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world's level of growth in new ideas ends up becoming kind of a constant a constant value there might be some shifts in the relative level but ultimately because new ideas are pretty hard to find new valuable ideas you end up right back at your whatever the long
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run number is maybe that's 2% maybe that's 1% in your view why are smarter groups of people more Cooperative on average I think partly uh it's for reasons that come out of axle Rod so axle rods um evolution of cooperation really had a huge influence on how I
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think about the hive mind and the three traits that turn out to be especially crucial are what I call the three PS of the repeated prisoners dilemma the RPD and uh it turns out that intelligent people are more patient they are more
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pleasant and they are more perceptive so and in order to get good cooperation in groups it helps to have people who are focused on the long run who are willing to like take a little risk today in order to get back some return to their
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cooperation in the future so they need they need more patient they need to be more pleasant they need to be more willing to start off cooperating to take a chance on cooperation early in the game it turns out experiments show that
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they in fact uh do that on average and they need to be more receptive they need to sort of keep track of the fact that they're playing a game and they that there are payoffs happening remembering the history of a game and life is a game
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in many ways is important to generating cooperation so smarter people have tend to have all three traits in Greater degree more patient more perceptive more pleasant and those three PS of the repeated prisoners dilemma are crucial
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for group cooperation in some studies the personality psychology tra called conscientiousness doesn't seem to predict cooperation at all why is that how do you make sense of that result partly it's because it's none of the three PS of the RPD but to go beyond
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that to real substance it's that uh cooperation is pretty dangerous so uh a person who's conscientious and trying to make sure that they're watching out for themselves or their loved ones should be a bit reluctant to just jump into a uh
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pro-social pro- cooperation relationship because a lot of people get ripped off so a prudent person who isn't able to tell whether you're dealing with someone who's trustworthy should best respond in an untrustworthy way right if I'm if I'm
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if I know that if I don't know whether I'm surrounded by Scoundrels or Saints it's probably a little safer to assume that I'm surrounded by Scoundrels and a person who is conscientious will be more likely to just notice that fact when I
32:43
tell smart people including bosses and Venture capitalists how relatively weak is the correlation between individual IQ and wages typically they're surprised yeah you may have found the same yes does that mean that we as a society the
32:56
elites are over intelligence um it does I mean if what you're saying is true higher stup people yeah yeah it's that um I think the the correlation is is just high enough for you to keep it on your radar but it's just low enough that
33:09
you should always do the job interview um and not just higher on the SAT score so yeah the and especially the link between IQ and income is weaker when you just look at IQ and wages right a lot of the numbers that people look at are
33:24
often looking at the link between IQ and total income for people in late middle age and by that time people have you know a lot of people at least in the sample will have some non-wage income some Financial flows coming in and that's driven by intelligence as well to
33:36
some degree um smarter people seem to be behaved better in the stock market for instance so yeah when you look at the link between IQ and wages the market just isn't paying all that much for the boss will pay something for it but there
33:47
seems to be a lot of other things that are worth more I think part of this is that um it the way jobs are constructed is that uh jobs are constructed to be in many ways full proof so that a person can't screww it up that much and so the
34:00
being being the very smartest um person in a particular in a particular job category might might not make you that much more productive than being the worst person in the job that job category but that's partly because that job category was created so people
34:13
couldn't screw it up that much so let's say I do interviews and I've decided I Will Wait intelligence less what should I wait more instead I think an ability to adapt to what the group needs at any point in time because I tend to think
34:25
that that that a version of openness social flexibility social flexibility yeah women tend to have more of that in some studies right I I believe that yeah yeah so if we viewed intelligence properly we would actually want to hire
34:38
more women than is currently the case yeah I think so yeah I think this the idea of social flexibility um openness to new experience which and and that latter is correlated with IQ weekly but but positively those are traits that for
34:50
non-routine jobs especially uh which probably what we're thinking about here for non-routine jobs whether manual or uh mental it's it's openness is a trait that's going to be more valuable are you game for some overrated versus underrated yes as long as we're clear about who who it is overrated or underrated compared to what is the standard sure but you can make that clear that yeah I will make that clear okay the Harry Potter novels overrated or
35:16
underrated I have not read any of them but I tend to believe they're overrated I tend to to think that they're uh you must if you haven't read them right yeah exactly yeah yeah retirement underrated yeah because I think people
35:29
can uh people can do great things in retirement and and keep using their mind and their body and developing them in great ways Manhattan overrated or underrated oh still underrated it's just a wonderful place yeah there just so many there are so many individual
35:44
universes inside of there and even Outsiders who've been there quite a quite a lot uh don't get to explore it enough it's uh it has many communities and it has an underratedly high level of Social Capital Nathaniel Hawthorne
35:57
cannot comment too ignorant to to speak the original Star Wars movies oh um the first three yeah yeah I know what you mean yeah so four through six no I think they're appropriately rated I mean people have the right rank order that episodes four and five really did
36:13
interesting new things and took big risks and in a way they updated old ideas for the 21st century and repurposing the best ideas in a substantive way is is very helpful what is perhaps that's what the Harry Potter novels did mhm what is the most
36:30
underrated Cuisine H French why yeah I still think that the regional varieties across France are not sufficiently appreciated in other rich countries it often gets boiled down to a few cliches and that's because they're not exported
36:45
or people have bad taste or what's the underlying mechanism yeah I think people have bad taste it's that it it gets boiled down to the cliche versions of it that they've seen the Potted history versions of it so yeah and which are the
36:56
most underrated wines I tend to think that Regional Italian wines are still wildly underrated so um there are so many people doing excellent things in uh Sicily and the Northwest uh in the northwest of Italy in the pedmont uh with the sort of second and third tier
37:12
grapes that uh there's just a lot of great things going on Lenin or McCartney Oh McCartney I don't know enough of the history to assess well but my impression is that McCartney has a reputation for being the guy who just did sort of
37:26
schaly Love song stuff but uh my my limited understanding is that he really had a lot of the biggest weirdest ideas and his link with lenon was was real but he was he was bringing the weird but he was presenting himself as the Schmaltz
37:41
guy Buchanan or TK that's so hard I'd say Buchanan because he like tullk had more weird ideas right and and um Buchanan took the time to do something that I personally am not that uh skilled build out and not that interested in
37:57
which is building an intellectual Empire um building an organization and a culture that shares those ideas and that's really how you get uh important ideas into an ecosystem is by taking the time to build an organization to build a culture to work with people and
38:13
buchanana did that and that that gave him a power that to couldn't quite have Napa or somoma somoma um only only because of the wines that I've appreciated from there most recently uh where I think there's the land prices aren't quite so high so it works a
38:28
little bit more like what the what you think about restaurants where you're going to find the best restaurants and strip malls because that's where the most Innovation can occur similarly in Sonoma there's enough inexpensive land
38:37
that people can still take big risks uh nobody's taking a risk and nap anymore Seinfeld or Larry David uh Larry David so because he can basically break out of the he can take he can take the sort of Buchanan style experience and Legacy of
38:50
an organization and he can play with it he can spend that reputation on toying with these ideas ideas and ways you couldn't in a big corporate sitcom who's your favorite American painter let me see I'm going to go with Grant Wood
39:03
right now I got to see American Gothic just a couple of days ago and uh it was it really did say something about America that few would have I think the nerve to say in a lot of ways macroeconomics why is Thomas Sergeant your hero because he marries uh the best
39:18
of Time series thinking with the best of dynamic General equilibrium thinking and he's willing to make the tough choices that it takes to um to marry data with Theory and he doesn't just go off into the La La Land of pure Theory and he
39:32
doesn't just take an agnostic approach to theory that some of the time series people do that's a tough synthesis and he dove into that over for quite a few decades why do sergeant and Prescott at least to me seem to have lost influence
39:45
with younger economists ah it's because of the rise of uh Micro Data the rise of Big Data the lack of interest in finding Grand synthetic stories I think that that's what I keep running into in the last say 10 years is that we're in a
40:00
world in macro now where people have some sort of vague overall story that they're willing to use but it's essentially a new Keynesian story which is a way of saying ah there's some nominal stuff ah there's some real stuff we really don't know what's happening
40:12
and we're in a world that's a lot like the 60s in macro where people are studying micro foundations but they're not synthesizing them into a macro story uh sergeant and Prescott were both wedded to Big macro stories stories that
40:24
could explain the whole world that's part of what drew me into social science in the first place was the fact that I want to be around people who take micro and build it up to a macro story they tried hard to do that um with the rise
40:34
of Big Data um and the rise of little stories that has faded models of nominal wage stickiness how convincing do you find them as an explanation of sustained unemployment not of sustained unemployment at all so I I tend to think
40:49
that the most recent work uh you know the new John Bates Clark Medal winner um Nakamura she uh I saw her speak just a couple days ago go I mean you know when you look at the research that she's done on nominal wage stickiness and trying to
41:01
plug it into Real Models you know sure she she definitely finds real evidence that there's genuine nominal nominal price stickiness and um other workers find nominal wage stickiness these things can't explain 10 years of unemployment the Invisible Hand
41:15
is more powerful than wage stickiness in the long run so what's the missing factor for explaining unemployment over sustained periods of time some of it is some version of Technology shocks um where they just it's people find it very
41:30
expensive in real terms to move out of certain sectors of the economy whether there's a regional stickiness to live in a certain area because of family ties for instance um whether it's generous unemployment benefits which are
41:40
certainly well worth justifying on their own right because starvation as a motivation to work isn't great it's these real side factors like social safety nets real costs of adjustment shocks that can uh a person's human capital for a decade or more um I
41:57
think these are more important for explaining that kind of long run stuff Sergeant Sergeant list work on the European unemployment dma I think captur some of that what's the biggest mistake found in Twitter macroeconomics just people looking for
42:10
simple answers I mean you see this more than I do of people saying like wow we should just have a lot more uh nominal expansion and we could have we could have eliminated unemployment a long time ago yeah the belief that more spending
42:21
early on in the Great Recession could have obviously had a huge multiplier effect seem wrong the the folk versions of Larry Summer's secular stagnation Theory um and even Summers secular stagnation Theory itself these are really under evidence theories it's not
42:38
that they're under theorized that's its own problem but they're under evidenced given that fiscal deficits are so high why don't we see more crowding out or do you think we do well I mean partly it's because uh we have a global
42:49
economy and a lot of people are willing to invest in the US you know financial markets are a lot more open than they were 40 years ago and so one nation's deficit uh shouldn't have nearly as much of an effect but yeah I do think that
43:01
there's uh plausible that that that some degree of crowding out is happening I think if we had uh macroeconomic budget balance in the US maybe a third of that would show up in higher higher investment I know it's hard to get there
43:13
but do you think ideally we should have budget balance now uh yeah this is the kind of time you should be doing it right yeah how useful is it to have this liquid safe asset known as treasury Securities which perform many functions collateral for instance
43:26
don't you want a deficit of some percent of GDP if you're the United States well we have a huge stock of of these treasury assets out there so that that stock would still be there if we were running budget balance right now so and
43:39
that's that's worth keeping in mind a huge there's a huge stock there um it's also totally easy for the treasury to create bonds and just use that money to invest in something like to to pick a popular example of sovereign wealth fund
43:52
but yeah the uh the fiscal capacity of the US government is a superpower um the high credit rating of the United States is a superpower and that gives firms and organizations individuals the ability to make credible promises to each other that's super
44:08
valuable um but we've got a big stock of assets out there Germany's close to budget balance by some metrics should shouldn't they be borrowing more um H they can borrow a very low rates sometimes NE negative nominal yeah
44:22
that's a good question I mean they they face the problem of a lot of the rich countries which is this uh demographic demographic Decline and they have a lot of uh elderly who are going to be coming along and those F those future fiscal
44:33
problems are going to be haunting the rich countries for the next uh 30 years so it seems as though you know the story that we were teaching as macroeconomist 20 years ago and that I was learning 30 years ago as an undergrad are true today
44:47
which is that um we needed to get ready financially for the Baby Boomers we did sort of a mediocre to just below mediocre job of that and now we're kind of reaping the the regime that you'd expect in that world which is more intergenerational tension a few
45:00
questions about your past what's the biggest danger facing the future of the Mormon church today oh this is a big problem they uh they've really lost uh male participation in a substantial way over the course of my lifetime I was a
45:14
Mormon missionary in 1989 I quit I've kept friendly relations up with uh with uh LDS folks since then and uh the LDS church for decades for over a century been able to maintain high levels of male engagement in their religion which
45:29
is a a problem for a lot of religions right um and uh why have those returns Fallen um it does does appear that partly it's uh that men men are drawn more into into the appeals of secular life partly it's that they're learn on Google they're learning about the
45:45
history of the church and they're learning things they weren't taught in church church leaders apparently are wrestling with this they're just being exposed to ideas that had been outside the purview of the church I think that's
45:53
a fairly important part of it I think it's it's also a version of it as just the general uh difficulties that non- col educated white men have had across the US the Mormons are having their own personal version of that and there's a
46:05
much more of a basically a lot of people can spend their time playing fortnite and that keeps them away from going to church so it's fortnite and Joe Rogan yeah yeah should non- Mormons move to Salt Lake City uh yeah I think the quality of life there is very good um
46:19
for non- Mormons it's uh you know you're maybe at a bliss point now or you know the top of the laugher Curve where uh the you you get these great benefits of the high LDS social capital and yet there are enough non-lds people that you
46:33
can have a rich social network that uh where people might you be able to go to go to a a nice wine dinner on a Friday or Saturday night yeah plus uh you know Brigham Young P picked a great place in the mountains should non- Mormons move
46:45
to Provo Utah yeah that's a little tougher right because I mean I love it there it's a good fit for me because I in a way speak the vernacular that's a little harder case to sell uh because that it is built closer around LDS culture
46:58
and so people who non- Mormons who moved there will probably feel quite a bit more isolated and which occupations should we expect to find Mormons over represented oh I mean the places where they are which is like places like the
47:09
FBI and the CIA um places where being able to speak a foreign language is incredibly important and being able to pass a drug test is incredibly important and being able to show you can keep secrets is important and Mormons are great at all three now you've never
47:21
written about this as far as I know but there's something to me quite special or unique about the Garrett Jones vision of America that I've never quite seen you spell out that you get something about America that most other people do not do
47:33
you have any sense of what that might be I mean there is this case that America at its top 20 percentile of experience is you know it was a it's been a nation that's been built on a kind of hope and vision this sort of not American
47:49
exceptionalism in that and that it's something you're endowed with but it's an American exceptionalism in the sense that it's something that people create and sort of a sense of adventure that is Central to the American Experience it's
48:03
a mixture of a pioneering spirit with an element of uh strong Social Capital so to me of course the Mormons then are the the sort of embodiment of this right you know they've got this strong Social Capital strong enough to stand up to other people but they're at the same
48:17
time willing to take huge risks and endure great persecution um in order to sort of build a new world and that's that's an extreme version of what Americans have done for quite some time it's this rare blend of social capital and adventurousness um at its best times
48:35
and that's not just a 0.1% experience it's more like a 20 to 30% of the US experience and that's something that a lot of countries just never get we're now on to the Garrett Jones production function by the way in case you hadn't
48:45
noticed now you did a big America trip over the last year correct where did you go I uh drove from my house in Fairfax and I went up across the US out to uh South Dakota where I was able to see Mount Rushmore again then went straight
49:00
up to Canada and saw B which was unbelievable and from there I basically went to counterclockwise around the rest of the US and uh was able to linger for a few days at places that I'd long wanted to see or had just been able to
49:12
drive best and what was the most surprising thing you learned I mean it's that uh with not being in a hurry I was able to to see parts of beauty especially in southern Utah which I driven through many many times and I was able to appreciate it in ways that were
49:29
just un just unbelievable you know just getting up a little earlier to watch the sunrise and capture some great photos um in say Bryce Canyon and so so that's the element of beauty uh the second thing is that I thought America I expected to see
49:45
a lot more of the sort of uh detrus of civilization sort of signs of social decay in the midwest because you know the internet have been telling me for a couple of years this has been going on and yes pockets of this yes um definite
49:58
concerns about um the opioid crisis uh very real concerns you could see them displayed on billboards but at the same time um a lot of capital investment a lot of new machines and Equipment a lot of rebuilding um in quite rural areas so
50:13
it was aign to me that the Midwest has a sort of while while of course there's a there's a uh part of the economy and a part of the culture that's struggling the median part of the Heartland the Midwest and the American West just was
50:26
doing far better than I had been led to believe now you worked for some time under Senator Orin hatch yes what did you learn from that experience well I did learn something about the value of friendship and politics I mean my office
50:37
was right outside uh just around the corner from Senator Hatcher's personal office and you know when when Ted Kennedy would come in the office you could just feel it and Orin would would kind of come out of his office sometimes
50:49
and they would just hug and I say this in the book in 10% less democracy that like this wasn't just some political polite hug this was like the real thing this was like a full-on two men just very happy to see each other and that kind of camaraderie across people who
51:04
really disagreed intensely on politics that strikes me as the heart of building good political negotiation and keeping a good political culture you're studying to be a wine Steward what did that teach you about economics part of it is it
51:16
just gave me a chance to study all of this economics of wine stuff because economists are sometimes quite skeptical of the idea that uh wine differ in quality or that it's anything more than just self-perception but you know interr
51:28
reliabilities when people are doing blind taste tests when when judges are doing blind taste tests are in the sort of 3.4 range so when different people are rating the same body of the same you know 10 or 20 Wes different judges seem
51:39
to rate them you know at a three or point4 correlation and I tend to think that to some people well if it's if a relationship is is isn't unless it's nearly perfect we should ignore it but that's just the kind of correlation you
51:51
expect to see if you actually talk to Wine people like if you know what A3 or point4 Cor relation is there's something to it but it's not the whole story certainly wine people love part of the magic of knowing something about wine is
52:04
that you have the power to find you know Diamonds in the Rough to find Bargains to find something that's 20 or $30 that is as good as something that's 200 that's the superpower you acquire and in a way that's what a lot of great restaurants do is they're trying to find
52:18
wines that are inexpensive for them to buy but they give people the experience of a $200 or $300 wine and they make it up on the margin right right I think this element of search sort of searching for Diamonds in the Rough has the sort
52:29
of element of sort of you could say it's kenarian entrepreneurship in a way right you're searching searching searching for um underappreciated gems so you're you're interviewing someone to be a wine entrepreneur yeah to find these
52:41
underappreciated gems what qualities do you look for in them I mean again to go back to before I'd go back to openness but really what you need is somebody with a really good palette and a really good nose uh mine are mediocre at best
52:54
but uh the magic of being with someone who's really great at assessing Wes is that they can taste one you know once or twice and give you a good thorough description that you yourself would agree with in general like so if we both
53:07
rate it blindly I might give a 10-word description and the person who's truly great will give a 50-word description but our descriptions will overlap that's sort of what you're looking for someone who can give a more thorough assessment
53:19
of something that I can but who will broadly correlate with my assessment what science fiction did you read in high school College ah um actually Hitchhiker's Guide to the Galaxy was actually quite important to me and I often think about uh the fact that uh
53:34
the true president of the Galaxy was just some guy who didn't even know he was President right so there was a a figurehead uh president of the Galaxy zapod bibo Brocks but the person who really ran it was a guy who lived in a
53:45
like a a Hut somewhere on some planet and he didn't even actually know he was deciding things um for the entire galaxy so it was a bit like the Enders Game Theory um it's no surpris urised to me that Douglas Adams had been a writer for
53:59
Doctor Who but he took the the sort of world of Doctor Who where sort of anything was possible and he combined it with the absurdity with the Absurd humor of sort of a Monty Python and I think that was a great Fusion last two questions first what is your advice to
54:13
aspiring research economists build up enormously Broad and deep set of econometric tools um we live in the age of big data and that is the that is the way to us to speak the language of field also if you have incredibly Broad and
54:28
deep econometric tools you will never worry about going hungry and therefore you will feel more comfortable taking big risks with your career I mean that's part of the reason I was willing to engage in uh some some topics that people said might be be a little risky
54:42
IQ research in particular because I knew that at the end of the day I could I would never have to go hungry because I knew time series conom metrics finally what is your advice to aspiring quality teachers have depth in the subject
54:56
matter and find stories that you want to tell to enliven people I mean I always say this whenever I'm writing a teaching statement which is I feel like my job in the classroom is not to teach the details of any Theory my job is to give
55:09
students a reason to feel passionate enough about the topic so that they'll go home for two or three hours and study it on their own so my job is to then uh give them a few key pieces of advice a few key pieces of information a few key
55:22
anecdotes or stylized facts and uh a couple elements of deep theory that will stick in their heads and so that those will sort of work in their brain to inspire them to sit down for two or three hours on their own I think that's
55:35
the real goal of teaching at the college level it's not that I will actually give them the full piece of information the full body of knowledge in the classroom is that I Inspire them motivate them to go read it and learn it and make the
55:47
knowledge their own Garrett Jones Thank you very much and again the new book is 10% less democracy why you should trust Elites a little bit more and the masses a little less thank you Garrett thanks very [Music] much thanks for listening to
56:04
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