hello everyone and welcome back to conversations with Tyler today I am chatting with Simon Johnson he's a British American Economist a professor at the MIT Sloan School of Management he served as Chief Economist of the IMF he's worked on Russian reforms and he's
the author of numerous books but most prominently his new book co-authored with Darren assamoglu called power and progress our Thousand-Year struggle over technology and prosperity we'll be getting to that book but since we're
taping on March 21st I'd like to start with a few questions about Banking and deposit insurance for Simon who is written a book in that area as well Simon hello hi Tyler great to see you and great to see you today this is a good talk these
are good Tyler topics I would say yeah so a very simple question at what size or level is a U.S Bank small enough to fail I think we're in the process of exploring that title because previously well I actually testified to the Senate as 2015 there was a big argument you
know over many years about this I said if you let Banks go over 50 billion dollars you're going to have to pay attention to them because there could be systemic knock-on effects and I talked about long-term Capital Management which
wasn't a bank which was about 100 billion dollars and we talked about other episodes in in 2008 but I guess the consensus shifted and so the view coming out of the reforms or changes of 2018 was that 250 billion dollars total assets was where systemic attention
should start to be paid and uh Silicon Valley Bank was smaller than that Signature Bank was significantly smaller than that so you know it's a very good question Tyler whether there's a minimum size we can talk about that knock-on effects what does contagion mean in this
context uh but it's definitely worrying when you think about what has been done and for whom uh over the past two weeks many of us used to have this notion that if we only split up the banks made them smaller stop them from becoming large
they would be in a position where they're allowed to fail and it now seems to there's no size where we can let that happen so should we give up on the idea of splitting up the banks no actually I think Sheila bear nailed this actually
she nailed it in the Silicon Valley Bank weekend if you like and she wrote about it last week in the financial times which is what you could have done was have the Silicon Valley Bank um under show depositors take a haircut there the assets of that bank were
mostly high quality government uh long-term government bonds that were underwater but only because of the interest rate increase so they probably would have got about 90 cents in the dollar by reasonable estimates I think Tyler and the FDIC also pays out about
half of what they owe in in that kind of recovery process in cash after just a few days so they would have had cash they would have had a haircut but then Tyler I think the key point that Sheila makes is you should have insured all the other Banks
so that in other words uninsured deposited silica Valley Bank would have had losses that would have addressed some of the moral hazard issues that we're not very worried about and all the other Banks would have been insured so
you wouldn't get the contagion of course above 250k you mean exactly you're sorry um the actually the the Sheila bear proposal was to ensure all uninsured deposits we could talk about that I think a very sensible version of that would ensure business transaction
accounts or operational deposits as fdsc calls them basically small business um uh working capital payroll the account from which they make payroll and so on I think those are uh a real issue at the moment I think ensuring all deposits is something you
only do and you're absolutely uh desperate and hopefully we won't get to that but it seems to be that's the world moving forward if we ensure all deposits but svb then they're all insured then those banks will take a lot more risk right and the problem gets bigger and
you raise deposit insurance premium more funds move outside the banking system to say money market funds which are less regulated so doesn't it just postpone the problem and make it bigger it it made you I don't think I don't think we're going to get a consensus to
ensure all deposits Tyler for exactly the reasons you're flagging I do think that we might leave individual deposits at 250k where it is now and we might have a sensible design of an insurance scheme for small business transaction
accounts because I don't think you want I think if you have a nine person startup telling them to spend time on financial management when they're trying to build you know a new hot sauce company whatever it is it's kind of a distraction and and rather unfair so I I
think and the fgic already has this category called um transaction uh deposits operational deposits so they could use that and we can we can carve that out and and then yes you want to avoid a situation where hedge funds put money on deposit with
um crazy banks that go off and take crypto risk or other risks that are not well managed let me tell you my worry and see what your response is that once you start playing The credibility game which ultimately you can't avoid that even
letting a truly small Bank much smaller than svb fail it sends a signal and then since about half of the deposits in U.S banks are not FDIC insured it doesn't matter how small the bank is the signal is in a sense infinitely large once it
happens once is that a problem and if so how do we get around it it's a very big problem uh Tyler honestly so uninsured deposits about eight trillion dollars at the end of last year insured is about 10 trillion so like you say 50 50 and it's
all about the signal right because if you believe that uninsured deposits are in in in Jeopardy uh which was the case um during that Silicon Valley Bank weekend then you may be looking for other places to to put your money and I think that that shift in deposits away
from if there is a shift in deposites away from let's say Regional Banks or midsize Banks towards um very large banks for example they're not going to be particularly good at replacing Regional banks in what they do in terms of lending to the non-financial
sector all across the country for example if the shift by the way is down to Community Banks that'll be interesting they might actually be able to step up and fill some of the gaps but I still think that's going to be pretty
disruptive in a lot of markets let's say you had been in charge with Credit Suisse what would you have done in advance to have eased the path of the mess we're now in because they've been poorly managed for a long time right yes absolutely and
they've had many cautions uh from from The Regulators um you know I think that the um the losses that have imposed on that convertible bonds the so-called Cocos or 80 additional tier one bonds is actually I mean it's a little we're going to see what happens but I
think if if that works and that sends a signal that these are additional actually going to be treated like Equity or more than Equity right Tyler because the equity holder's got some compensation in the purchase they got three billion dollars for a bank that
was worth eight billion dollars on the Friday before this happened but the 81 Bonds were were taken to zero that's the current position but isn't that a huge problem we're signaling the cocoa bonds don't make any sense you ought to just
buy the equity so haven't we abolished cocoa bonds as an institution moving forward at least in that context I think that's going to be a lot of repricing in that market for that reason but I think the the concern uh Taylor was that the the convertibility would
not happen that those bonds would be protected precisely because of the kind of contagion fears that you mentioned a few moments ago so at least the authorities felt confident to do that and that presumably means hopefully they know who owns those bonds and they were
not owned by highly leveraged entities that could themselves be in trouble I mean so far it's only you know it's less than 48 hours after that happened so far so good but let's see uh exactly what the linkages are between various financial sector firms in in Europe
what's the likelihood in time frame for a dollar Central Bank digitally managed currency is it ever going to happen I think it's pretty far off Tyler I mean look you mentioned money market funds a moment ago I mean one thing that could happen
of course is people might decide to take their uninsured deposits which are a claim a liability of of a bank and you know you have different views about the you know sustainability or vulnerability of that bank and you could buy
short-term government debt through a money market fund um and then you could just sit there and wait to see what happens if you had a central bank digital currency I think a lot of people would have migrated if they weren't already holding that they
would have migrated from the bank account into that Central Bank digital currency and that would be a big shift in um the ability of the banks to fund their loan book and that could have serious and difficult ramifications that appear to stress like this so it's
really I think the complications of a central bank digital currency are more apparent this week than they were a couple weeks ago so we're just going to live with privately issued uh stable coins and that will be what we use or do
we somehow abolish all attempts to make money programmable that's that's the right question Tyler I think these privately issued stable coins are pretty unstable personally they've been a number of pressures there and a number of disappointments as you
know I think that's they're not well regulated and and the systemic risk Council which I'm uh co-chair now with equilocanum from Finland uh we've sent some letters um really cautioning about that that's the main that's the main part of the crypto space that we think
has systemic implications but you're right I mean could we get programmable money should we want program money what could that look like that's that's the right question to be asking perhaps there are other better protocols that
can be developed given what we're currently experiencing regulating who or what is a bank should that be expanded well it's already pretty strenuous the regulation on that and I think supervision I mean who counts as a bank so money market funds don't count as a
bank in the same way crypto exchanges don't count as Clearing Houses in the same way Financial regulation should we extend it to more entities well I think Gary gensler's got the right when it comes to crypto exchanges I think he's got the right view which is
you know if it walks like an exchange and talks like an exchange it's an exchange doesn't matter what you call it um and I think there's a pretty clear definition of also what's the security which Gary is is following up on um I think the the bank non-bank
distinction is is a really interesting one Tyler because of course it all goes back to allowing money markets to money microphones to appear in the 1970s which in itself was a reaction to high inflation and controls and interest rates and once that Genie's been let out
of the bottle it's very hard to put it back in I I would not run around uh handing out a lot more banking licenses to things that are not Banks but also be very careful and cautious anything that provides bank-like services without a
banking license and that's exactly your stable coin so the American separation of banking and commerce does it still make sense why don't we just abolish it plenty of countries don't have it maybe their banks have been more stable than ours
why haven't that kind that form of the glass-steagall ACT yeah that's a great question I I think in the in America one of the things we're really good at is is allowing people to get really big and powerful fast so if Amazon owned a bank
or um if Microsoft don't own a bank or if Apple owned a bank would the system be more stable or or less stable would it be more fair or less Fair it's it's a very good question um I think we're not going to do it politically I think that there that
separation is something that's sufficiently ingrained and people people are accustomed to it but you're right to push them Tyler absolutely Universal banking as we've had in Japan Germany I remember the 1980s parts of the 90s people said how great it is were
they wrong and overrating Universal banking those Nations have not done perfectly since then right yes exactly so the Japanese Banks ran into big trouble end of the 80s and the 90s and subsequently have been pretty rough and the European
Banks um are also um regarded as a as an imperfect model Deutsche Bank for example is often held out as being very problematic although it's backed by the German state so they can get away with a lot of things um and um these Swiss banks that were
struggling uh this this week had Universal Bank features at some points in their history so I I think banking is banking is a difficult business and and Rife with um problems for the rest of us uh Tyler however we organize it should very small countries be allowed to have
such large Banks so if you look at Credit Suisse liabilities relative to Swiss GDP I'm not sure what the number is now but those two things are not so far apart right so it's an issue can Switzerland even bail out its own very large Banks
incredibly yeah so pretty sweet when it was in serious trouble had a balance sheet of around half a trillion dollars the Swiss National Bank has foreign exchange assets of over or around about trillion dollars so yes Size Matters
Tyler but size relative to the ability of the government to stand behind its banks including in foreign currency when they're operating not in domestic currency and I think on that score the Swiss did have that capacity but that's not always the case so Iceland for
example when Iceland had big banks that failed in 2008 Iceland could not stand behind their Banks and and that um probably should not be allowed well Switzerland now has one really big bank right bigger than it had been a week ago so the Swiss be more worried should they
split up I mean what what's the equilibrium here it's moved against the direction you want right absolutely uh so uh I think they should be very careful and supervise that bank extremely carefully of course part of why UBS is so big it has very
last very large wealth management and if wealth management is run properly it's basically a custodian with fees for uh rich people and so when you strip that out I think that total balance sheet is a bit more than the reserves at the
Swiss National Bank has but they they still have enough strong enough National balance sheet and a credible enough Central Bank let's not forget the swap lines with the FED Tyler really important in in this context to be able to support banking systems not that many
people have open unlimited swap lines so they can access the liquidity whenever they want but the Swiss do sure but if you believe in splitting up the big Banks isn't that the first place you should look and the Swiss say two months from now should turn around and split up
UBS into three four five different parts uh or do we give up on the idea of but what are you what do you consider I mean look I I've always I've always said Tyler that the U.S the strength of the U.S system uh from its Financial history
is that we've had a multitude of Banks and we're always very suspicious of big Banks the Europeans went for the big Banky model Universal banking a long time ago uh late 19th century actually in what we're seeing so there was a sort
of a Divergence there the U.S economy University Innovation U.S productivity was not built on big Banks it was not associated big Banks large Banks or banks that are large relative to our GDP are something that's developed much more recently since the 1980s and even
JPMorgan Chase which was about a three and a half trillion dollar bank is not big relative to our GDP like Deutsche or ubs's um in in Europe so I remain very concerned about the concentration of of Economic and political power in the
hands of those very large Banks but I've always said and argued that that's not the only problem to worry about you also have to worry about contagion through and weaknesses in Contagion other parts of the system given what a comeback housing prices
have made in many countries around the world or should we not think that 2006 2007 wasn't really much of a housing bubble prices were a little bit ahead of their time but the actual crash was a kind of negative bubble in the shadow
banking market and home prices then were close to rational right or wrong I think there's a lot of validity to that I mean it was obviously also a derivatives I don't know if bubble's quite the word right word but there was a there was a view and I was at the IMF
as you know Tyler in 2007 and we had a view that was completely wrong that derivatives had spread the risk around the world in fact they concentrated the risk and it was that concentration of risk in these very large financial institutions uh in the US and in Europe
that caused a lot of the panic a lot of the problems and that generated downward pressure on house prices the negative of which you're referring and certainly in some markets maybe many markets house prices did bounce back but unfortunately
not before millions of people lost their homes so that was a really tragic set of events that we we need to we need to try to avoid in the future speaking of the IMF today how would you reform the IMF um I would remove the Russians from the
board of directors I think that having the Russians there in that role is inappropriate problematic I think the way that Russia has acted over the past year and arguably longer is outside what's acceptable for Nations and and I and I I'm very sad that this is that
this has not happened I think when autocrats behave badly and aggressively and invade other countries and otherwise mess with the world and the world economy you should not have them at the big table if they want to be better sure let them back in but I I don't think the
Russians belong with the IMF right now I'm fine with that but how would you improve the positive program for what the fund does so I I think that the um the fund has long been you know primarily engaged with emerging markets and developing
countries I understand there's a rhetoric of even-handed this is a rhetoric of the IMF should speak to truth to Authority in all countries I I think they struggle with that just given the power structure of the world um so their ability to to lend when
necessary to help people who are generally in trouble but not to get sucked into situations where deeper reforms are needed it reforms Pepsi can't help deliver on I don't have an easy easy answers Tyler luckily it's not my job anymore I I think they work hard
on it they grapple with it but um I I don't know that they there are imminent Solutions but we have Pakistan entering what it's 23rd or 24th IMF program it surely seems something about the system is broken right should there be a way we can just kick
countries out and say no more well you can I mean countries can be but we don't very much well the certain countries don't get excluded countries that have say some geopolitical significance and a good enough relationship with the G7 let's say
um sure I mean maybe there should be a special you know recovery arm of something but it's very hard to create these new institutions I mean we haven't really done it or done it well since 1944. so there isn't that much other than the IMF but I agree uh Tyler it's
extremely awkward and not clear that it's good for the people of Pakistan to continue on this sort of trajectory here's a reader question and I'm quoting ask him if Indonesia's money financed fiscal program in which the central bank
monetized national debt has worked the nation's currency has modestly appreciated the program seemed to get them through the pandemic without ill effects unquote opinion well I'm not next about Indonesia but I do think they come a long way in the
past 20 years in terms of responsible macro management and of course if you have a good reputation for keeping your budget under control there the the joke of the IMF and elsewhere is that IMF stands for it's mostly fiscal so if you're credible on the fiscal side I
think you do create space Tyler for Extraordinary operations at a time of Crisis covert was a time of Crisis pretty severe crisis in some places so let's hope that the Indonesians can can keep that going I think you've got to be
very careful when it comes to money Finance deficits anywhere and and use those kinds of measures only when there's no alternative okay now turning to your new book with Darren assamoglu power and progress could you please summarize that book for us as a high
quality gpt4 program might that's my prompt okay I haven't had a chance to ask GPT for that but it's a great question so we we are looking at um we're challenging I think some Modern techno optimism view uh which which we had to be quite prevalent Tyler which is
that technology just kind of happens it raises productivity it improves uh how people live including their health and it provides them with more opportunity and everyone benefits uh eventually well when we look back over the past thousand
and some ways we can look back 10 000 years we find it to be more complicated sometimes technology is massively beneficial absolutely the Industrial Revolution did work out well for many people eventually but eventually it took more than 100 years and so I think
getting better outcomes for more people sooner including from for example artificial intelligence right now Tyler is something we need to put our our our our minds to and and we have a number of you know recommendations about making
technology more people-centric and more about generating new tasks helping people become more productive and creative rather than displacing workers and pushing them out um you know just using automation to displace workers that is not the way we
we recommend going forward but say we take the Industrial Revolution there's a new paper by Joel mokier in the journalist political economy and he argues in the areas where you had an industrial revolution wages went up a fair amount pretty rapidly
performance in England as a hall was mixed but it was the areas that didn't have the IR where wage performance was poor so doesn't it typically happen pretty rapidly that if you have sustained advances in technology most people are much better off
so we did talk to Joe a lot about the in writing the book and he was immensely helpful to use his work a lot I think the the difference we would make on in terms just in terms of those facts is that if you look at how people lived in cities for example of Manchester in the
1830s which Engels wrote about whether or not you like Marx and Ingles that was a really good powerful description of working-class conditions it was bad uh Tyler and if you look at the conditions of Co of workers in children working in
coal mines in the 1840s which was subject to a big investigation in in the UK it was also absolutely terrible and much worse than the conditions for children before industrial Industrial Revolution so sure Joel is right that some people had some had definitely had
some gains in some areas but I I don't think that the living standards uh taken in in any modern sense of people in and around the textile factories of Manchester or the coal mines of northumbria or town I'm from Sheffield
uh which was uh steel that was just starting to emerge at that time I don't think people really saw much by way of gains until after the 1850 so I'm our view is it took 100 years for this really to be Health now then it does pay off and Joel's right about the
importance of entrepreneurs tinkering with technology love that take on on the driving force but that wasn't enough to generate shared Prosperity it took a bit more than that so as we know until fairly recently there have been significant increases in
wealth inequality in many Western Nations but don't they coincide with the period of relatively low tfp not relatively high so productivity growth is pretty slow since 1973 income inequality goes up but the story you're trying to tell in the book is oh you
have a lot of tech advances and then income inequality goes up but we've been seeing almost the opposite of that right the problem is not enough Tech advances so wages are somewhat stagnant until later we would like more Tech advances
and more productivity growth to be clear I mean we're not anti-tech at all and you're quite right about the The Coincidence of what's happened since the 1970s what we say is that a lot of the technology that's been applied a lot of the digital technology for example Tyler
was quite disappointing in terms of productivity effects but it was nevertheless deployed for uh because management thought that it would be helpful to displace workers so that's actually so that's a you know Duran spoke to my co-author and Pascal strepto
coined the term so-so automation where you automate even though it doesn't boost productivity uh marginal worker productivity and therefore wages but you do displace workers and their favorite example is self-checkout kiosks uh at
supermarkets for example which where you shift the work onto the consumers uh you're not making the workers more productive you don't see increasing the wages in supermarkets where they adopt self-checkout kiosks so that more broadly you know it lines up with what
you just described in terms of the macro phenomenon which is technology changes doesn't become productivity growth is also consistent with widening inequality what do you think of the claims of your colleague David outdoor that now we're
entering an era of wage compression say the last four or five years uh I hope he's right David drawn and I run a little Center at MIT for the study of the future work so we talk about this a lot and and David is you know always
really sharp on the money um and into the latest data I I think he would say he does say that this you know after coming out of the pandemic it's not clear if this is going to be a last if this is a trend or a blip uh but I think some wage compression would be very
helpful at this point Tyler and if we look at wealth if we look at the very wealthiest people in this country Elon Musk Mark Zuckerberg it seems they're much less wealthy than they were two or three years ago you know more than cut in half maybe they've lost three
quarters of their wealth and if market returns or a random walk that's more or less our best forecast for the future so hasn't this problem largely fixed itself in the last few years right top wealth has really been cut down a lot yeah I've
never been bothered by the top wealth Tyler I mean it's never been a major concern of mine and what bothers me more is lack of good wages Rising wages for people who haven't completed college but say or didn't go to college I think
that's where the it's the stagnation of that since the 1970s which was quite different of course from what happened for the 30 or 40 years uh before that and I think that's um unnecessary and we we can do better but it's a very hard process to reverse it's not a new
process and it's a process of very rooted in the fact that in early in this revolution people like Henry Ford when they brought in automation also created a lot of new tasks for workers that didn't previously exist and and workers even without a lot of skill became much
more productive that productivity was shared with them through through higher wages through unions and other things we that whole mechanism has broken down more recently so I and I think with AI there's a lot of obviously huge um discussion about
all kinds of Dimensions but the piece that we really focus on and are concerned about is that um more workers may be displaced from previously well-paying jobs and without creating new tasks therefore worker productivity doesn't go up you don't pay
you may pay some people maybe the designers designers of AI algorithms uh more money but most people uh might may well be paid less in real terms you've probably seen estimates that chat GPT is the most rapidly adopted computer
application in all of human history compared to any technology now if that's the case why is it that open AI has only a market valuation of about 30 billion which is high but it's not close to Apple in a way it's remarkably low doesn't that suggest most
of the gains from AI will go to other parties and not to the people who own and design the algorithms well that's that's a great question uh Tyler I suppose we should go back and look at when exactly people start to think Microsoft was oh IBM was so
valuable Microsoft was so so valuable Google was so valuable there is certainly a lot of discussion about the value chain of AI and whether the place to be is more fundamental generative algorithm or whether it's going to be in the applications sort of the downstream
part of AI um I think it's all up for grabs personally and um I think it's also correct that we many times it's a cliche but a correct cliche that we underestimate the immediate impact we overestimate the immediate impact of technology and
underestimate the longer term impact of technology presumably the stock price would reflect people's views of the longer term impact and shares of Nvidia they're definitely up but they're not up by so much it's not become one of the world's largest companies and there
seems to be more and more evidence that AI can be commodified you have a lot of competitors there's talk of training systems on a single GPU so doesn't AI mean we've entered this new age again where the gains mostly don't go to corporations
well possibly and that I think could be quite positive of course we thought that about crypto as well at the beginning and there were many discussions that I recall I'm sure you recall around the beginning of the internet where there
were thoughts that oh this could become a more distributed model maybe a power seeps away from large corporations I think we tend to recombine things in this country in particular Tyler we tend again we get we get big quickly and and we let people get powerful quickly and I
think in the case of social media we kind of regretted that uh look I don't I think it's very hard to stand in the way in these powerful social processes like the adoption of Technology like GPT um we can maybe find some policy
adjustments along the way I think we can certainly push people to find ways to use the technology evaluate ways to use the technology that would enhance creativity enhance productivity in a distributed way so all the games don't go to corporations
um but no guarantee at all we're going to get that outcome the people who said all along that social media are more competitive than they look haven't they been proven right Tick Tock and Facebook Google competing with Bing Amazon laying people off repeatedly
right those companies have lost their their luster they don't look like unassailable giants anymore to say the least you know meta shares were down what three quarters in value not too long ago well sure the um there's definitely competition in that sector and there's
definitely been over over expansion and over exuberance I think the regret actually there Tyler is much more about the impact of social media on um political economic and social discourse the way that people talk to each other the way
um what has happened to Civility and of course there's lots of concern which is still concerned I'm not saying this has been completely established about the impact of social media on young people young people's minds young people's mental wellness and so on
I think the some some of those social media companies could have been and and should still be much more responsible and much more careful perhaps it's just a natural learning process but we have to go through this and and figure out how to
be more responsible I think there are some encouraging um uses of Technology out there and that's one thing we emphasize in our book right Tyler it's all about choices the choices that we make choices that we make socially and choices that you and I
can argue about or discuss of this kind of show that can impact what people develop and how they use it in addition to whatever the levers the government may find available that perhaps could be pulled or not pulled from my point of view it seems that you
and Darren overestimate how much Market concentration matters so there's one passage you have where you're criticizing the soft drink market for being highly concentrated Coca-Cola dominates and so on but I use Google I use GPT and everything I could find
tells me the price of soft drinks in real terms has been falling there's also a lot more choice you go to an airport you see this long array of like hideous colored things that I don't even want to touch but they're not in general put out
by Coca-Cola so varieties going up and if real price is falling compared to inflation uh why be upset about concentration in the soft drink Market oh I think that was just an attempt to illustrate what Market concentration means Tyler that's I'll go back and I'll
go back and look and see if we can need to insert some Mirage on that but I think in general we're just trying to get across the point that if concentration if concentration prevents Innovation if concentration prevents the development of varieties the
concentration keeps prices high and of course there's a long history of concentration in various sectors where some aspects of that is true then it's problematic um if it's fully satisfying the consumers and if you have enough
progress innovation in a particular sector then yes sure there's less to object to what do you think is the main thing you changed your mind on over the course of writing this book the Middle Ages how did you change well I I kind of bought into this idea that
you know you get from school books and so on about the there was a dark age of very little Innovation between the fall of Rome and the emergence of the Renaissance turns out when he looked more closely there was a huge amount of
innovation in agriculture in Commerce even in early industry um but what didn't happen it didn't filter down to regular people there was an increase in in um in wealth or money that was kind of came to the church and to the state for example in in medieval
England other parts of Western Europe but a lot of that was funneled into these massive Cathedrals that you see and actually went in and dug up some of the economics of cathedrals and cathedral building which is fascinating I never paid attention to that and you
can sort of see because these were simple economies how the money was squeezed out of peasants who did who what this was not free labor obviously they were you know coerced or pressed and restricted in in their in their choices of employer so they became more
productive but they were also squeezed harder the Normans were very good at squeezing the English uh for example and those resources came to those that hire let's say five percent or three percent of society and they spent it building
Cathedrals and next time you see a cathedral next time anyone sees a cathedral think about um the think about them as as symbols of medieval Despair and increasing protein activity but the failure to create shared prosperity in a very particular
labor system that that was um that was with us not too long ago but wasn't your original view correct for at least 400 years say centuries six through nine and the Revival you're talking about like maybe that's 10th century and then for England the Normans in 1066
but if the view you held earlier is correct for four to five hundred years it's not that bad of you right uh good point yeah I think it was certainly right for several hundred years whether it started in 800 or 900 I think you know you can sort of debate
that the record's not very good um but I think the the general idea that was put around by Renaissance Scholars like petrarch was that nothing good had happened from the fall of Rome for 900 years and and that turns out not to be true
if you think about how how you read your own book and how Darren reads the book I'm not saying the two of you disagree but if you had to explain the difference in emphasis how each of you've used the book How would you present that to your potential readers
well I think Jaron spends a lot of time thinking about the future of AI he's very deeply just in discussions with that with that community and and he's pushing you know he's always looking down down the road and Duron is very good at sort of seeing
what that's what's on the horizon analyzing it and then you know putting a sort of mental structure around it I think I tend to look back at history a lot more Tyler I mean I I I'm I'm reading a lot about you know a lot more I mean I've had a lot in the book but
I'm reading more about Henry Ford I'm really more about the use of technology in World War II I like to go back and and um read some of those medieval type sources again and think about how that played out so I I find I find the book
has helped me understand a lot of things but I tend to look at the Historical experiences and try to drill down into those drones a very forward-looking person and working with Duran how would you describe what that's like obviously he's super productive as are you but he
might be renowned as the very most productive person in the entire profession so how does that manifest itself through daily interactions it's hard to keep up with Ron to be to be totally honest uh we talked about writing this book and we kicked ideas
around for about five years and then all of a sudden uh it was a pre-planned moment but all of a sudden pretty much January last year John said right let's get let's start writing you know we've got some pieces already but we work flat out for six months and that was super
intense and and then we spent a lot of time doing fact checking and uh cleaning things up and tightening text but it was a immensely probably the most intense six months of my pre of my of my working life I would say and that that's more
intense than working at the IMF during the financial crisis okay so yeah that's quite a benchmark have you and he been surprised at how rapidly AI has evolved large language models in particular surprise John has not I think drawn
again because he spends a lot of time with that community and and with computer scientists in in general I think he called this in our internal discussions pretty much pretty much right uh we were lucky that some people gave us sort of a heads up or not
exactly what was coming with GPT but we did have some let's say orientation to that so we were not taken by surprise by some of the things that surprised many people let's particularly in December of last year we took that in stride I think
it would have been quite disorienting if we if we had not um had that fairly clear in our minds already how do you feel that the progress of AI will influence your future career as an economist I'm not sure I I'm planning to have I'm planning to have quite a long future
career by the way Tyler I should change what you do right so I'm not saying it puts you out of work but you ought to want to work with it in some manner if it has big impacts as the book says it should have an impact on you maybe or maybe it should have an impact
on a lot of people and there should be niches for some of us that are less impacted by AI um I'm not sure I'm not I'm not sure Tyler it's a very good question I was working this morning on a plane uh using um editing a document that was shared
with a colleague uh over the Internet it just occurred to me that how far we'd come since the 1990s that I was actually using the internet on a plane to edit a document that was shared with a colleague on the other side of the world
I mean I didn't expect that 10 years ago let alone 25 years ago so I think it remains to be seen I I don't see the future that clearly Tyler perhaps you need to get drawn on the show as well we've had him on uh a general question what institutional Arrangements protect
a country from the middle income trap well I think um about countries that are that have really done well but not entirely broken free of being middle income South Korea is one of my favorite because my uh my wife's parents are born in in South
Korea I spent a lot of time talking with them and thinking about the country and talking with Korean economists I I think that you need to um spread you know an education system that really encourages creativity and really helps you break from some of the
strictures of the past I think you need more entrepreneurship I think you need a lot of integration with the world economy a lot of exchange of ideas Ireland Tyler is one of my favorite countries and a country that I would say is definitely broken free of the middle
income trap they did it with a lot of direct foreign investment you don't have to have that but they did it with an amazingly globalized people and and obviously a lot of integration into American society and other European societies and and I think
it's probably at the human capital and probably about language and probably about being able to be productive in multiple different kinds of organizational settings and cultural settings I mean you find fantastic Irish leadership all over the place
um in fact I believe the um the chair chairman of UBS which we'll talk about UBS few months ago is is Irish origin if institutions are the key to economic growth as many people have argued their own and yourself to varying degrees why
then is prospective economic growth so hard to predict so in 1960 few people thought South Korea would be the big winner it looked like their institutions were not that good it was a common view oh Philippines Sri Lanka then Ceylon you know would do
quite well they had English language to some extent they seemed to have okay education and those two Nations have more or less flopped South Korea took off it's now per capita income roughly equal to France or Japan doesn't that mean it's not about
institutions because institutions are pretty sticky yeah I think of Institutions as being part of the sort of History's effect if you can get it in a positive way that if you grow and you and you've strengthen institutions which South Korea has done
it makes it much harder to relapse there are plenty of countries that had spurts of growth without strong institutions and and found it hard to to sustain that I mean you make a very good point about the early 1960s China there wasn't that
much discussion that I've seen about institutions per se but education yes absolutely culture people made the same the sort of comparisons they said uh Confucian culture is no good or won't lead to growth and that's a problem for example for South Korea that turned out
to be wrong so I don't think that institutions of I think institutions are sticky I think they history matters a lot for them they're not predestination though you could absolutely carve your own way but the carving your own way is
harder when you have you start with institutions that are more problematic less Democratic more autocratic control less protection of property rights all of these things can go massively wrong but building better institutions and making them sustainable well like I
think Eastern Europe the parts of the former Soviet Empire that managed to escape the Soviet influence after uh 1989 1991. I think those countries have worked long and hard with very mixed results in some places um to build better institutions and and
the EU has helped them in that regard unquestionably let's say three years ago I thought incorrectly that Ethiopia and Ghana had reasonably promising Futures because they were on good tracks They had racked up a number of years of high growth rates in a row and now it seems
both of my views are wrong I mean what exactly is the predictive content of institution-based theories of economic growth like what's the prediction we would make now yeah it's a good question Tyler I think that the Institute if institutions have
some predictive value it's fairly long term I I made this something I worked on at the IMF and we looked at you know other people were interested in this as well I don't think it helps you that much think about one years two years even five years I do think it helps
take a view on whether this is a more robust system whether a system that can handle crises where the system that will suffer some sort of relapse and major economic collapse a collapse will be hard to reverse of course so I think U.S
has strong institutions they don't prevent us from having a very bumpy ride and a ride that's getting bumpier it seems about last couple of decades here's a simple and easy question about growth how do we fix Northern England oh well I think that's that's a
fantastic topic I I love the idea of more investment and infrastructure of connecting the people of northern England so I'm from a town that's sort of on the border between the Midlands and north of England and connections to other more prosperous
places uh make reducing travel time encouraging remote work uh moving uh you know the high value uh jobs of headquarters and so on to lower cost real estate places although these are these are all great ideas of course they
have been discussed many times over for decades and it hasn't happened London is still an amazing magnet for talent and that kind of swamps everything else but Manchester has two good football teams that might now that might turn things around eventually
we've had a lot of autonomous advances in work from a distance that have nothing to do with Northern England per se working over Zoom is one of many AI may prove to be another one I mean are you predicting a Resurgence in northern England
or is it just too much the case that the high Capital individuals want to leave for London in the south I would love to predict a boom for Northern England and it certainly you know it's done much better it's doing much better now than it than it did in
the 1980s when I left the north of England and you know to me it seemed easier to break in and have success in the United States and in London actually at that time um it is a it is a struggle for talent absolutely right Tyler where does the
talent where do smart people want to live where do they want to settle down where do they want to have families and people are willing to commute have long arduous commutes into London I I think that um it would be great if either the market or
maybe the government could induce and persuade people to to move to other parts of the country including further north but it has been a long-term struggle but if you compare say Britain to France or Germany so the number two City in France would be Leon Leon is a
very nice place it's not as rich as Paris but you wouldn't say it as structural problems different from those of France as a whole Germany has plenty of cities that are doing fine why is England in particular so unbalanced in terms of its urban
geography well I'd probably blame the Norman Conquest for that one Tyler I mean just kidding a little bit in terms of going back no it's fine as an answer but tell us yeah I think London I think that the London has long been this amazing place
this very Dynamic place a very entrepreneurial place I mean if you think about what started to go right in England before the Industrial Revolution obviously Industrial Revolution was a was a British Midlands phenomenon more than a southern phenomenon but the
Commerce of London the power of London as a trading center the openness of of London to new ideas and new products that was a very important part of what made Britain susceptible to and open to industrialization so I I think it's it's the appeal of London and the success of
London over more than 500 years uh Tyler the north of England had a very good run let's be clear but it was a run that was based on factories and factories that um you know concentrated workforces and all of that turned out to be fairly
Footloose particularly after the the Empire declined and the British round they didn't have quite enough scale to come to uh compete with the Americans and not quite enough government support um and and corporate support maybe financial support to compete with the
Germans they found themselves you know the north of England had had a rough ride for a while should the UK join NAFTA which would mean chlorinated chicken right but would it be worth it [Music] um look the the UK should join the
European Union but they're not going to say that's impossible or maybe they won't take you because you can't pre-commit to staying right but NAFTA would take you maybe it would I mean I think that the people in NAFTA should worry about the
British turning the backs on that too honestly Tyler but we wouldn't mind all right our feelings wouldn't be hurt it'd be a much easier separation oh I see what you're saying it wouldn't be an emotional it wouldn't be an emotional breakup uh yes possibly that's a that's
a very intriguing uh notion uh and probably should be considered uh yeah I think NAFTA or usmca as it is now um you know has enough political baggage as it is in the U.S and the U.S uh Tyler we haven't talked about this at all but I think trade and trade policy and the
politics of trade remain immensely complex in in the US and that's not getting easier so I'm not sure that adding a significant additional piece to to usmca would would be helpful or even feasible my whole life I've admired the British
system of government but lately it just feels to me that it's it's not working you have how many prime ministers and how many years is it four and seven years I've lost track what if anything has gone wrong and how would you fix it procedurally at the so-called
constitutional level I know you don't have a formal written Constitution but what would you change and what's gone wrong well there is no Constitution exactly there's just heuristics and there's just what happens and then establishing establishing Traditions
look it's not unusual in in the British parliamentary system certainly for one party to gain control and keep control for a long period of time I mean that's what uh happened that's the labor did that nobody did previously and um so now the conservatives have had
this long run and you kind of run out of steam I think Tyler you run out of ideas alternation and power will be good but the parliamentary system is one in which you you know a small uh well if you first you can get a majority with a
minority of the vote and also relatively small shift in the vote can give you a big majority and those big majorities are unassailable um so I I think it's it is the unfortunate downside of what is otherwise a pretty robust and definitely
entertaining parliamentary system now I'm a big fan of your book jump starting America about science and science policy it's with Jonathan Gruber I have a few questions about science policy so you argue for a kind of place-based policy to jumpstart
different regions in America and I suppose I'm worried in the same way that you're worried about Northern England that we could do a lot of good things which I I would be in favor of but most of the gains will go to the coasts so
since you wrote the book we've had mRNA vaccines while moderna you know that's in the Boston Cambridge area open AI That's in San Francisco those are phenomenal developments but you know they're not in Rochester they're not in Iowa so are you now more despairing of our
ability to use place-based policies to jump start these other regions uh no actually uh we've kind of gone the other way we're more a bit more encouraged Tyler I mean you're right about course about those big breakthroughs and we are all about the
the breakthroughs there but I think one of the things that strikes me as being a strength of the U.S is the depth of the bench and all these other places where real estate prices are not so high there's plenty of towns of people who who want to who want to live and of
course there's massive Spiller effects from investing in basic science which is the basis of our of our argument so why not when we make those public sector Investments I mean that's to get the spillovers why not look more broadly
outside of Boston outside of New York outside of San Francisco um or Seattle and attempt to bring those places make those places more Central make those tap into the talent that already exists uh in in those places and I think the shrinking of distance or our
different view of distance Tyler after the pandemic has got to be a helpful part of that reading the book much as I like many parts of it but I feel you're underrating the benefits of sunshine so when you list your most promising places
for regeneration the top three on the list are Rochester Pittsburgh and the Syracuse area now Pittsburgh's may be done okay but Rochester is still losing population Syracuse area not doing so well the entire Southeast not the entire but most
of the southeast is done well Nashville a star performer not on the list most of Texas doing well what if we just had a simpler theory that said it's Sun Belt and a good University helps isn't that a better predictor for the up-and-coming
places than like Rochester Pittsburgh Syracuse Cleveland is on your list Ithaca New York Cincinnati they were all in your top ten they don't seem like winners to me well I I I think we we're flagging there is potential and potential that could be tapped on our website
jumpstartingamerica.com there's an interactive map and and you can apply you can put in different criteria so if you like the idea of ranking places you can change the ranking or change the weight on different elements we did not put hours of sunshine in there Tyler
maybe we should in the next version and then you could change put that in the index totally valid point I think the bigger uh argument that we're making there is look beyond the east and west coast there are some really great places
full of talent in the US which ones will surge to the front I don't know that depends a little bit on who gets their act together and who gets focused on this I do think the the importance of a good University should not be understated but that University should
also be feel pushed to engage with business engage with um uh finding jobs for graduates helping startups the kind of things that my University does in your University does very well Tyler Circa 2023 with some more years behind us
apart from wanting to spend more money how would you improve U.S science policy for any given level of expenditure I think that um you know looking for places and and where you could invest in the basics and you can imagine that there
will be commercial applications the Human Genome Project is one of our favorites that was actually turned down by private venture capital in the 1980s because they said you know yes you can do this map out the human genome but we don't know how you can monetize it but
that turned out to be a brilliant money maker and a great job Creator because the basic science then could be appropriated in an appropriate manner uh by Downstream firms who could build uh technology-based Solutions and I think that that I think
we've got 300 000 jobs out of that most of which are good paying jobs now that requires some imagination that requires some commercial orientation but we're not saying that the government should do what the private sector is already doing in terms of financing
Ventures we're saying look for those big potential breakthroughs that could have commercial applications and seek solutions that are that address anything that the private Market's not able to do along the way if the private Market can
build it Tyler let him get on with it and then we'll you know figure out later if there's consequences we need to do it but I think the problem is we don't do enough of the basic science and we don't convert enough of that into commercial products
a few questions about the Simon Johnson production function what is your most unusual successful habit um I don't know I play tennis I find playing tennis to be immensely mentally challenging it just makes you clear your mind if you have anything else in your
mind at all you miss the ball and you embarrass yourself and I just find that to be completely refreshing what's your favorite novel and why oh Neil Stevenson snow crash first of all because uh Paul Krugman said in 1992 or something that it was the best
possible predictor of the future and it turns out to be pretty much right but I think as Stevenson predicted the metaverse Stephen predicted Stevenson predicted a bunch of things that happened to the sort of political social level it's an exaggeration it's it's
it's it's a it's a fun it's a fun novel but I think I'm still looking for any science fiction of any kind that's a better predictor of the future than that one we have an episode with him do you think our actual future will be as
dystopian as his novelistic future um well he wrote the book 30 years ago and I think we've had some dystopian moments along the way Tyler I mean I think the the key idea that he has is that the the technology-powered future will lead to a
fragmentation of society and to a collapse of the United States and some sort of political disunion and and there's been plenty of pressures that were you know maybe even the president today were unimational compared to when he wrote 30 years ago I
don't think it ends up quite so bad I think you know I'm an immigrant to this country I like a lot about this country I like the American political system Tyler which I know is a deeply unfashionable thing to say but I like the fact that you know people are always
taking students at each other we don't have a closed Elite uh you didn't have to go to Oxford and study a certain degree in order to become Prime Minister I like the intensity of the back and forth in American politics and I think
it wasn't it Winston Churchill who said the Americans um it was a little condescending but Churchill's mother was America and let's remember the Americans always do the right thing after first exhausting all the other possibilities what's your favorite movie and why
um I I did like everything everywhere all at once I know that's just the most recent movie I saw also it did give me a headache I had to close my eyes at a certain point but I did like the whole idea that we have um multiple empowering personalities
that we can draw in different circumstances I I thought I thought that was supremely wonderful and I did really like the fact that the Asian um actors won so many uh Oscars I thought that was outstanding now I'm quite sure the position of MIT
is secure in our future but what's the future of the MBA more generally beneath say the top 10 or 20 schools well we still have mbas in 20 years will anyone go and pay all that money that's a it's a great question you know I I think a big part of what
went right what went right in the era of Henry Ford was the so-called engineer managers the people who created the new tasks the people who designed companies the people who built these organizations I think they got a little bit of a bad
name later Tyler is like middle management perhaps that was deserved perhaps things became too bureaucratic but I do think that people who come from engineering or people who like engineering and people who want to be managers they want to organize things
and make things more productive I do think that's a very important group of people that's the people who I spend most of my time with in the classroom and I think I you know and I push them to think about this issue of you know
what's the social angle what's what's the task creation why does that matter you know if you're just focused on Automation and and displacing workers what are the consequences of that I have to say these people are extremely engaged in that conversation Tyler of
course that's just a classroom conversation what will they do in their careers 10 20 30 years from now remains to be seen I hope I get to see it my intuition is that I would rather hire people with Technical Training and no MBA rather than hire people with the NBA
maybe even now again not Harvard not MIT where a lot of its selection and networking but in terms of what you actually learn it seems to me the other backgrounds are more valuable I think an engineering or a science undergraduate degree is a very strong
preparation for the modern world I also find that for the for the right people where it's a match an MBA type qualification and there's they come in many shapes and sizes you know I find that that can be really quite helpful to them I know some remarkably talented
people who fit exactly that um description so I'm I'm sticking with the business model Tyler last two questions first when you're evaluating students not just who will make a lot of money but someone you might want to work with or you think
will change how the rest of the world thinks about ideas what are the non-obvious qualities you look for in those students sure they should be smart they should work hard but what else ability to communicate so Toronto have a course based on the book uh we're
teaching MIT undergraduates right now it's a Communications elective Tyler and and the point is that we have a fantastic writing coach working with us um and some superb Tas and we're trying to help the students learn how to write
persuasively about technology technology policy sure but about technology more broadly it's it's a lot of fun and I and I think a good compliment to their other parts of Education which obviously much more technical much much much more much
more mathematical so I'm interested in can people communicate ideas can they communicate with me can they communicate with with other people particularly about technical topics and do it in a way that isn't condescending a way that's you know explains things
clearly a way that invites further debate and conversation and then do they listen to the feedback they get and and sharpen the messages last question what will you do next other than promote the book again to repeat everyone power and progress
our Thousand-Year struggle over technology and prosperity Simon Johnson and Jerome asamoglu but what next well talking about the book is a big part of what's next Tyler because it's immensely fun you get to go around the country and and and some other countries and really
get feedback and hear the sorts of questions and pushback that you've been giving me today so that that's immense but I think the next thing I'll do is write on the book I like writing books I like working with my my friends um we've got various ideas and things to
explore and it takes um three or four years to bring one of these books to fruition and then at the end of the day people might not be interested maybe the news is something completely different for a while so it's a big bet in terms of your
personal time but it's also fun it's also fulfilling and I and I feel it you know it makes a contribution that that that I enjoy and I really enjoy talking to people about the book title and I've really enjoyed talking to you I always
enjoy talking to you Tyler and and I uh really appreciate this this opportunity so hopefully when the next book comes around I'll you'll have me on your show again a pleasure to chat with you Simon Johnson and very good luck with the book thanks a lot