JOSH: Hello, and welcome to Clearer Thinking with Spencer Greenberg, the podcast about ideas that matter. I'm Josh Castle, the producer of the podcast, and I'm so glad you've joined us today. In this episode, Spencer speaks with Tyler Cowen about Cowen's three laws, trends in economic theory, and cultivating mentorship and cultural learning. In the first part of the conversation, they have a fairly technical discussion of economics. So if that doesn't interest you, feel free to skip ahead to about 21 minutes in, which is when they switch to other topics. Also, they discussed real interest rates. And Spencer asked me to clarify that that's a term of art meaning the interest rate minus the inflation rate, or in other words, the interest rate adjusted for inflation. Okay, now, here's the conversation.

SPENCER: Tyler, welcome.

TYLER: Thank you for having me on Spencer.

SPENCER: Now, you are literally the most requested guests on the show. So I'm really excited to chat with you. I really appreciate you taking the time. And I know that you actually haven't seen the questions that I'm going to ask you because you said you prefer not to see them for the spontaneity. So hopefully, there'll be some interesting spontaneous remarks that nobody's ever heard you say before.

TYLER: That's up to you, right? Well, I guess it's up to me, as well.

SPENCER: Exactly. Alright, first, let's start by talking about economics. So you have this idea of Cowen's Third Law – that all propositions about real interest rates are wrong. Can you tell me what do you mean by that? I want to dig into that a little bit with you.

TYLER: Well, I've been following economic events for quite a few decades now. And I've seen so many claims. So one claim is, well, if you increase deficits, that means the government borrows a lot more, the real interest rate will go up a considerable amount, and that will crowd out private investment. Now, in theory, that argument makes total sense, but if you look at the numbers, it's very hard to find that as a measurable effect. Government deficits do not seem to affect real interest rates, or consider our current time rates as price inflation has been rising – the last recorded measure was 6.2%. Nominal yields are not going up very much. So the real interest rate on say government borrowing has been plummeting. It depends on the time horizon you look at but it could be as low as negative 5%. Now, how can that be? Why would you have a real interest rate if negative 5%? So over the decades, real interest rates, they always surprise you, you're never even sure what the real interest rate is. You see people making a lot of claims about real interest rates. They prove this, they predict that, they'll respond this way. And they're all wrong. So I thought this deserved a law, which may be as a meta-commentary on economic knowledge in general. And that is Cowen's Third Law – all propositions about real interest rates are wrong with the self-referential element, of course; you being an applied mathematician.

SPENCER: Yeah, exactly. So what does this tell us about the theory that we have? If these theories don't seem to predict us?

TYLER: Well, macroeconomics is maybe more an art than a science. So you have a lot of loose moving variables. And then at the macro level, the variables interact in complex ways that maybe you don't understand. But I do find it odd that the real interest rate, in particular, is the locus of understanding where predictive ability fails so badly. I don't feel I understand that very well. And if I gave you a possible reason why we might be predicting real interest rates worse than other things, that would itself violate Cowen's Third Law, right?

SPENCER: So does the theory that we have to tell us that it can predict real interest rates? Or does the theory have a way of explaining why we can't like there are too many free parameters or something like that?

TYLER: There's a few different theories of real interest rates. But the simplest, and maybe the most commonly held one would be that real interest rates are somehow due to an intersection between individual time preference and the productivity of the economy. And then on top of that, you layer monetary phenomena, and changes in the money supply, perhaps by altering liquidity could change real interest rates; a small but not considerable amount, I would call that the status quo or default theory, it makes perfect sense. It seems to list all the relevant variables. But again, when rates of real inflation, price inflation went up considerably this year, well, nominal interest rates barely adjusted. And that means the real interest rates plummeted. And that's very hard to understand, to give just one example of many. And a lot of economists left wing right wing in the past, they've always had this recipe like, we're gonna do XY and Z, that will lower real interest rates, and then that's going to liberate all these productive energies. Those just haven't turned out to be true, and that real interest rates have on average declined steadily since what at least the 1920. I don't know, to me, it's all strange.

SPENCER: So other than real interest rates, what is something that you think most economists are wrong about? And why do you think they disagree with you?

TYLER: I'm not sure there's anything that most economists are wrong about. And maybe that would be my complaint about the economics profession, that people are so hyper-specialized. They don't necessarily even have opinions on most topics. Or if they do have opinions, they just take them from the popular press or mainstream media, or NPR. They're not really thoughtful economist opinions. So I wish there were more areas where I could say everyone else is wrong. I think there's too much careerism. And just unwillingness to think more about the big picture. That view of mine is the one that most economists might disagree with. But it's not like, oh, these economists, like they have Theory X, about China and Theory Z about Mexico, and I have you know, these other theories. I mean, there's a bit of that. What's actually striking to me is how little curiosity a lot of economists have about the world surrounding them. They do their jobs.

SPENCER: So where do you think they're getting their opinion from regarding all the things that they're not a specialist in right? You mentioned NPR, do you think they're just picking them up from kind of popular conceptions of economics rather than economic theory?

TYLER: For sure, we know where we get their opinions from. And I'm not at all saying these sources are always wrong. But it's odd how much the opinions of economists are just like the opinions of kind of other educated semi-cosmopolitan people who live in coastal cities, for instance. So New York Times would be a big source, Paul Krugman would be another source. For the more kind of activist ones, Twitter is quite important. So it would be the media diet, you would expect people of their socio-economic status to have. There was an interesting study done some number of years ago, it showed that if you look at a French economist, the fact that he or she is strange predicts their opinions better than the fact that he or she is an economist. That's a simple way of putting the same point.

SPENCER: Is there a robust study of economists or economics lens? And if so, what does it tell us?

TYLER: Well, I think economists maximize in a mostly selfish way, the same that other human beings do. So if you look at, say, their opinions on subsidies for higher education, subsidies for economists, I'm not saying those are bad ideas, but they are accepted uncritically. And economists are remarkably unwilling to criticize them. My co-author Alex Tabarrok and I wrote a piece a few years ago, looking critically at the National Science Foundation and how it funds economist. We were not negative in the real sense, but we did have suggestions for reform, and actually looked at it analytically. And it was shocking to us how little literature there was on this topic from any point of view. And I think that's the result of self-interest. It's not that each economist is cynical, but each feels a bit threatened. Well, maybe I shouldn't work on that. And I have a priority to work on this. And someone else will do that. But collectively, you know, it doesn't happen.

SPENCER: Do you feel that political correctness affects the opinions of economists or what they write about?

TYLER: It's starting to affect their opinions more and more. But historically, even quite recently, economics has been an area where you can say politically incorrect things and not be pilloried for it. That's mostly still true, but Twitter is having an impact on the economics profession. And I think that's changing. So it's all in flux right now, that I would say that sort of the typical median American economist if they're born in the United States, would be a somewhat conservative to moderate Democrat, with maybe ethical views favoring a fair amount of redistribution. But understanding there's no free lunch and that incentives mattering those different pieces of the puzzle, fitting together to give them a modestly, not very different version on what other people have their same socio-economic status believe. Now, if the economist was born in a different country, all bets are off. But I would say at least in terms of surface presentation, the economists born in other countries at least are trying to fit into this other dominant view in the profession.

SPENCER: Lately, I've heard quite a bit about Modern Monetary Theory. And I don't know enough about it to kind of analyze it from an economics point of view. But it does seem like some people are using it as a justification for massively increasing government spending. And so there seems to be at least a political element to it from the people that want to use the theory. So I'm wondering what your thoughts are on that theory.

TYLER: I don't think Modern Monetary Theory was coherently defined in terms of a model. So I, in turn, could not coherently present it to you. It was a series of somewhat disassociated views with a largely political slant, the essence of which being you can inflate your way out of a lot of problems. There's not really a constraint on boosting aggregate demand. And the one specific claim that was made, well, if inflation gets too high, you know, the way out of that is to cut government spending. Well, we're in a world where inflation clearly has gotten too high. And none of those people are calling for cutting government spending. So I would be negative on MMT. And even a lot of prominent economists on the left, you know, Paul Krugman, Larry Summers, Noah Smith looked at NMT and just couldn't quite wrap their arms around exactly what it was saying in terms of a coherent model. So I view it as kind of a marketing thing and a politics thing,

SPENCER: But it does have a popular TED Talk. So at least it's having some influence on the public.

TYLER: You know, I would say the part of it that seemed to make sense to me, was the claim that in many situations, but not all, you can monetize more of government debt than a lot of people had thought. And that has been true. It may not be true at this particular moment, but if you look at say, the last 30 years, it's been true on average, and the MMT people have been right about that. But again, I think they need to write it all out in terms of an understandable model. And I just don't think they're willing to do that. And I, because I don't think the whole thing entirely makes sense.

SPENCER: When you say monetize government debt, could you elaborate on it that?

TYLER: Well, as you know, the United States federal government runs very large deficits in most years, right? And that over time, accumulates into a pile of debt. Now, you can pay off that debt by raising taxes, or you can, to some degree, pay off that debt by having the Federal Reserve create dollars, purchase the debt, sit on it, in essence, retire the debt. Economists used to think there was very little room to do the ladder without boosting inflation a lot. It turned out there was more room than we had thought. Again, I'm not saying it's true for 2021. But in general, over the last few decades, and the MMT people insofar as I understand them, I think they were saying that, and they were correct.

SPENCER: So what do you see as some of the biggest open questions in economics right now?

TYLER: Well, I think most of it is open questions. There's a bunch of really small things we kind of understand, like, if you boost the tax on liquor, how many fewer drinks will people buy? We're pretty good at that. But the big questions, you know, what drives economic growth? What produces innovation in society? Why is unemployment sometimes so stubbornly high? How do we explain all the different moving parts of the business cycle? I don't think we've done a great job on those. I just think that they're very, very hard questions. There's been a lot of honest effort. And the way to measure our progress is just to talk to someone who doesn't know any economics. And it's like, oh my goodness, you people who really look pretty good, you can at least ask the correct questions. In kind of an absolute sense, I mean, you can't compare economics to physics and hoped for anything like that level of clarity of understanding.

SPENCER: Just sounds like you chalk up the challenges mainly to like the complexity of the world. Are you optimistic about economics making progress, let's say over the next 10, 20 years on some of these questions?

TYLER: No, I don't think will make a huge amount of progress. So understanding the causes of economic growth, I think we'll see much better how complex the problem is. And that, yes, that's progress. Like if it's complicated, what progress means is to see how complicated it is. But progress in the sense of, oh, here's some variable no one else had thought about, it turns out, it explains 17% of growth, and now I'm going to get a Nobel Prize for that. I'm not expecting that. No.

SPENCER: I've heard that if you go to a PhD program in economics today, you spend like the first year or two doing advanced math. It looks a lot like a math PhD. I'm wondering, do you think that there's too much math in economics or do you think this is a good thing?

TYLER: Well, it's a mix of both. So in a way, it's sort of worse than what you're saying, even before you start your graduate program, these days, you're expected to be in a kind of apprenticeship called a pre-doc. And what you're typically learning to do in the pre-doc, it's not math theory so much, but programming languages, how to work with databases, how to be a research assistant for a top economist, and eventually how to create that kind of research, yourself. In some ways, in terms of mathematical theory, economics, I would say has becoming less mathematical. But in terms of data manipulation, data collection, needing to be entrepreneurial, getting datasets, maybe having to study machine learning, it's become much more mathematical. So it depends on what you mean. But I think economists interested in math these days, it has been chasing the actual real-world problems. So I'm not sure what the alternative is. I still at the margin wish economists were broader. But I'm not going to blame the math for that. Any more than I would blame economists like to go for walks in the forest. I just wish they would spend more time reading, traveling the world, and thinking about bigger, broader, deeper questions.

SPENCER: Well, the complaint that I've heard some people make is that when you're focused on advanced mathematical tools, then you're trying to fit everything into formulas. You're trying to map things out as equations where some of the older school economics was really more about trying to describe the world, theoretically, but without trying to actually put down a formula. So I've heard the critique that there's something about narrowing your focus of thinking when you're trying to put everything in an equation. Do you think there's validity to that or not so much?

TYLER: Well, there's some, but keep in mind, you know, the work in the less mathematical traditions was not always mashing success. Ideally, you want economists who are quantitatively well trained but have a lot of real-world experience and a fair amount of breadth. And again, we're not at that ideal picture. But like is the math the thing you should blame? I don't know. Like you do want people producing pieces of research that can be criticized or improved upon, or can serve as bricks in a larger edifice. And mathematical research, often not always does that better than more qualitative forms of research. But that said, you know, some of the last quantitative fields, economic history, it's had a great run for the last few decades. It's also at the same time becoming more quantitative. So I think you want structures where there's a lot of competition across different approaches. And I guess right now, I think there is too much conformism in the direction of mathematics. But I don't want to blame the math for that, so to speak, I think economics should be fairly mathematical for the most part.

SPENCER: So traditionally, economics has assumed that humans are perfectly rational agents, most of the time. And then, you know, behavioral economics comes along and says no, actually, this is not a great model. I'm wondering how have these ideas of humans not being perfectly rational, change our theories, in terms of allowing us to be better at predicting what's happening in economies?

TYLER: Well, I view it differently. I think economics has been behavioral pretty much from the beginning. If you read Adam Smith, Wealth of Nations, but especially Theory of Moral Sentiments, you get a very rich portrait of how people make decisions that is not complete rationality, or pick a point in the middle of – read Pigou, read Keynes. Many, many other people had behavioral models throughout. So I like behavioral economics, but I think some of the people who have promoted it has painted this overly narrow picture of what they're reacting against. And a good deal of economics throughout didn't have that assumption that everyone's perfectly rational. My doctoral advisor, Thomas Schelling did his most influential writing in the 1950s, 1960s. He was not assuming perfect rationality, and he won a Nobel Prize.

SPENCER: So has behavioral economics then had a big impact on the way we think about things or do you would you say that it actually has less impact than people realize?

TYLER: I think it has taken the earlier behavioral insights and forced us with greater care to try to demonstrate which ones are the most general and which ones are the most context-specific. And what we've learned is that it's all more context-specific than we had thought. So that's a very real contribution. But it's in a way behavioral economics slightly undercutting itself. Not that it's false. But it may be somewhat less useful than we had thought because if it's always a different behavioral model, it's very hard to work with. And I think like, right now, behavioral economics is somewhat less popular than it was 10 or 15 years ago for that reason. But it's not seen as false, as valuable and interesting. But a lot of people are just a little bit frustrated with it.

SPENCER: So is the idea, let's say, take something like loss aversion, if you could say, well, people always have a certain loss aversion ratio, or they treat losses, as you know, two times as bad as an equivalent gain, then you could actually like put it in a model, and then you could use it in your theory, but in reality, maybe it depends on kind of what kind of situation someone's in, and in order to decide how much loss aversions are experienced, and then it becomes very hard to work with theoretically?

TYLER: That's exactly right. And in general, you've seen people move more toward writing context-specific papers, whether they're behavioral economists or not. That may be inevitable, but I see a certain fragmenting of economics as a field. Every paper is this kind of little isolated universe, with its own model, with its own data set. They're kind of like, you know, Leibniz Monads; you're not sure how they interact with other papers. Again, I don't have any, like great proposals to fix this, like it's happened, because reality has, in some sense forced that on us, but I do think economics is losing something that had made it special. And that is this general engine of inquiry, where you are applying some fairly simple, straightforward ideas to a set of problems repeatedly. And that was much more influential, say in the 1960s and 70s, than it is now.

SPENCER: Okay, shifting topics away from economics. I'm wondering, do you believe that you have an unusual worldview? And if so, how would you describe your worldview?

TYLER: I think most people are weird. It's just that they sometimes act like they're normal. So I think most worldviews are unusual. You know, mine would be, you know, what counts as unusual? So you know, I've generally been a smaller libertarian in terms of my say, political views, the way politics has evolved in a funny way. I feel like I've ended up as a kind of centrist, even when I haven't changed my views. So does that mean I was once weird, and now I'm normal? I'm just not sure what the benchmarks are anymore. So like, I live in the suburbs. I have a house, I drive a car, and so on and so on. Like, does that make me normal? I don't know. I would say it doesn't, but I think it's gonna be a highly context-specific judgment. My friend, Brian Kaplan is always telling me, what a rebel an unorthodox guy he is. I'm like, “Brian, you drive an SUV in the suburbs, and you have four kids. And you know, you work for the state government, and you have tenure, like, you're not that weird, in a way.” And in the way, he is weird, like, his views are weird. But in other ways, this guy who's a lot like his parents, like most of us.

SPENCER: Well, one thing that strikes me is that you seem to be willing to have opinions on many more things than most people are willing to have opinions on. Do you agree with that?

TYLER: Almost certainly, that's true. But look, there's a higher demand for me to do podcasts, as you yourself said at the very beginning. So someone asks me a question, I want to put out my thoughts, in a very fallibilist manner. Like, I might be wrong with this, or very qualified manner, but I'm gonna say what I think like why not. I've spent a lot of my life absorbing and collecting information in a pretty broad way. That would definitely be a way in which I'm unusual, especially for an economist. So if people ask, you know, I feel strongly I should qualify it in necessary ways like Cowen's Third Law, all these propositions are wrong; mine, too. But still, why not say what you think?

SPENCER: Speaking of that, do you wish we were in a world where economists and let's say other public intellectuals would like to publicly make forecasts all the time, and then they'd be evaluated on them, so we could kind of track people's performance?

TYLER: Well, aren't we in that world to some extent – there's blogs, there's Twitter, people publish papers. I don't know of a systematic way of evaluating them. There's Philip Tetlock experts prediction project at the University of Pennsylvania. And he found pretty early on the experts don't do that well. So I feel a bit we can kind of stop the clock on this evaluation. And just figure economists are not doing that well. And the idea that you keep track of each individual and grade them. I don't know that that's so interesting, like, most of us aren't very good at predicting, let's just accept that. And the ones who say they're so great, maybe are the more self-deluded of the batch.

SPENCER: Some people think that if you don't know much about a topic, you should just sort of not have an opinion on it. And other people say no, you should always have an opinion, you should just kind of hold them weekly on topics, you know, less about. Do you have thoughts on that? Well,

TYLER: There's so many topics I don't have opinions on. So you know, go to geology. Is there anything in geology I have an opinion on? I'm not sure that there is other than some vague general deference, you know, to the experts. So like, even a generalist has opinions on really a very small percentage of topics. I think the people who say that don't have any opinion, I mean, typically, they're lying, or they're fooling themselves. Like they do have an opinion. They have some kind of conformist opinion of deference, which again, might be perfectly fine. But there's so much on that issue they're going to trust if it turns out to be irrelevant. And yes, they have an opinion. So why not be more honest.

SPENCER: So let's talk about Cowen's First Law – that there is something wrong with everything. Can you tell us, why did you formulate that? And why do you think that's valuable?

TYLER: Well, I used to teach PhD Macro for many years. And I just came up with these laws, I think spontaneously one day. I thought, well, my students could take these away. This was before the internet was such a significant thing. And the first one was, there's something wrong with everything. What I meant was, in the context, that they're reading all these research papers for class, and none of them were solving their problems perfectly. And you could always know you didn't really understand the paper until you could articulate what was wrong with it. That's what Law One meant. But it's become much more general. And I think probably it should be more general. And Law Two was there's a literature on everything. So when they go to write their research papers, you know, there's a tendency for younger PhD students to think, kind of, they're the first ones to approach a problem. And I was just trying to tell them like, you're not. Make sure you know what's out there already before you get too far. That too, I think I have subsequently generalized. And then the Third Cowen's Law was all propositions about real interest rates are wrong because I was teaching all these papers about real interest rates and PhD Macro. And the students were like, hey, none of these papers seem to really solve their problems. And that's where the Third Law came from. And they were all of the pieces, like one night, I scrolled them on the chalkboard.

SPENCER: I see. So there, you're, you know, trying to transmit wisdom to your PhD students.

TYLER: Oh, yes. But I've seen stressed the point they apply to more than just PhD Macro. And mostly they do. But the third one is so weirdly specific; comes from the context of me teaching PhD macro with the time.

SPENCER: Got it. Yeah, just seem out of line in terms of generality together. But that's

TYLER: On purpose. And again, there's some meta lesson in Cowen's Third Law, like there are just these things. I mean, in physics, there's also seem to be planning, like Einstein and relativity and quantum mechanics, how's that going to fit together? I'm no expert on that. But I know that's quite a fraud problem. And I'm just not gripping the edge of my seat, like thinking that three years from now somebody's going to solve it. So maybe like all propositions about You know, final theories of unification are all wrong, something like that. So I do want people to think about the Third Law more generally. There's some kind of limits to our understanding.

SPENCER: So going back to the First Law – there's something wrong with everything. Would you advocate that if people have a belief, and they really want to make sure it's accurate, that they try to seek out the flaws in their worldview?

TYLER: Absolutely, that's, you know, the main thing I try to push on my students, but I would even go further, you should try to write out other points of view that are not your own and articulate them, and see how good a case you can make for them. And then you'll just understand the whole issue much better. Try to make the best case, you know, the EA people, they call it steelmanning now.

SPENCER: Do you have any tricks you use to kind of overcome the psychological barriers? I think because a lot of the people I think they would say, oh, yeah, in theory, that's a good idea. But then, in practice, they're not able to get themselves to do it.

TYLER: Obviously, it's easier for me, so I'm a professional writer. I write blog posts every day for 18 years. That's crazy and not normal. I write columns for Bloomberg, you know, I write tweets, I write books, other things. So I have so many chances to write out arguments, and directly or indirectly be paid for them. It's easy for me. And I also figure, you know, I'm 59 years old, if all I'm doing is spending decades saying the same thing, people will get bored of me, I don't want people to be bored of me. I want to like stay in the game. So to work on sort of trying to be richer or deeper every year, like you've got to do something other than just saying the people who disagree with me are wrong, and here's why they're wrong. You will stultify. And I think if you play around with different ideas, and try to write them out, not saying you should present them as something you agree with, but just try to make the best case for them. I think you'll get smarter.

SPENCER: Yeah, I agree. So, I tend to post a lot online as well, not nearly as much as you. And I don't know if anyone posts as much as you do. But one thing I find really motivating is that if there's a flaw in my argument, I get my ass kicked online. So I'd much rather find the flaw first before I post it. So it's a nice, you know, motivator.

TYLER: Exactly. And you know, teaching to a group serves the same function. Again, not everyone gets the chance to do this. But you find if you can't explain something, maybe you don't understand it very well. And you want to be teaching plenty of things you don't agree with, but present it as objectively as you can. But if you can't make a good case for it to your class, you should take that as a warning sign.

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SPENCER: So in addition to your laws, you also have Tyler's Rules. I want to ask you about Rule Number Seven – learn how to learn from those who offend you. Can you tell us about why is this one of your rules for life?

TYLER: Well, Jordan Peterson wrote his book 12 Rules something I forget the exact title. And that book was a big bestseller, partly because Jordan Peterson is famous, but it seemed also there was some demand for these rules. So I just thought I would write out Cowen's rules. But those were kind of something I came up with on the spur of the moment. Like the three laws have been with me for decades. The rules were like, while I agree with them, still a passing fancy, but it just seems to me, in a world with social media, you're exposed to other people's points of views far more often, you see the worst or most offensive forms of that point of view, maybe sometimes you see the stupidest forms of that point of view. And at least some people get more entrenched in their current way of thinking because they look at the others like “Oh, my God, they're terrible.” They're close-minded. And that's exactly the wrong reaction, like you, on average might be as bad as they are. But if they're offending you, that's a sign, like maybe they're not the right message carrier. But their point of view, you should be trying to master it. You're taking offense as a sign you've under-invested and understanding them. And I definitely still agree with that. But it's hard to do, right? It's easy to dismiss people. I call it devalue and dismiss. Try to avoid devalue, and dismiss. I say that to my students, too. And it has this nice alliteration, the two Ds aren't sound of the D – devalue and dismiss, I want to devalue and dismiss, devalue and dismiss.

SPENCER: So how do you define devalue and dismiss?

TYLER: That you look at an argument or a person and you find one thing wrong with it, that probably is wrong, right? Say you're a smart person, you thought critically about it. And then you lower the status of that argument, that school of thought, that person, and then you dismiss it, and you relegate it to some part of your mental universe where you stop learning from it. And like, there is some reason why that might make sense to do, right? But at the same time, most people carry good understandings and good wisdom. And those are the ones you're going to end up learning too little from. So don't do devalue and dismiss so much.

SPENCER: I think when some people feel offended, they take that as a sign that the other person is bad. I'm wondering, given that you say you should learn from those who offend you? What's your analysis of what it means when you're offended?

TYLER: Well, typically, you will be offended, say, on social media, if someone writing devalues a class of people that you're connected to, right? So insulting a political point of view, or like a point of view on fiscal policy, or calling your position, some kind of name, attacking, you know, a friend of yours who said something you agree with – those are all cases where you tend to get offended, you feel like directly or indirectly, your status is being lowered, you get pissed off, which is natural, but I think one needs to then resist the devalue and dismiss part of that equation. You should be drawn a bit to those people like a magnet, like hey, here's some people I can learn from, they're pissing me off, without dropping like what you might think about their view that's wrong; it still might be wrong.

SPENCER: It's interesting because it seems like sometimes when people are offended. It really is because someone is, you know, let's say someone's saying something really racist or homophobic or what have you. And other times, it's just because they feel like their group is being slighted or you know, their social status is being lowered. And maybe partly, what happens is that people get confused between these two. And so they're easily able to take a slight against their worldview as this person saying something objectively, offensive or bad, and they're further in the bad group.

TYLER: Sure. And look, people with terrible views can be super smart. I mean, look at Picasso. He was a communist, kind of a Stalinist. So many of the great intellectuals, creators of the 20th century had these horrible views somewhere fascist, many others apologized for, say, Chairman Mao, and that the Chinese massacres. So like, okay, well, one can more than understand why you would be offended. But at the same time, you want to be learning from those people.

SPENCER: Right. So maybe there's a question of how corrupted are people? If someone has, you know, one really horrible view, does that corrupt their other viewpoints? Where, you know, listening to that person is dangerous, or will mislead you? Or is it you know, if you look at a lot of people who had one really bad view, in one regard, they actually might have had other good points actually helpful and, and worth learning from.

TYLER: And I think the one really bad view, it very often is corrupting. And it's a pretty general way. But you still can learn from people. I mean, look at Karl Marx. Marxism pervades all of his thought, right? He was a very systematic thinker. And I think it's very wrong, super harmful. It's like led to the deaths of millions, and so on and so on. And he was wrong about most issues. But you still can learn a lot from Marx. And in part, you can learn a lot from him because his mistakes did pervade almost everything he wrote.

SPENCER: So I don't really have a stance on socialism as kind of a detailed theory or communism as a detailed theory, but it seems like they're quite popular in certain circles. It seems like when people have tried to implement them, it's generally gone really badly. Maybe there are some exceptions where it's gone. Well, but I'm just wondering, why do you think these theories continue to be popular despite the critique that in implementation, they don't seem to work very well?

TYLER: Well, it depends on what you mean by popular. I don't actually think communism or Marxism, as a political doctrine is very popular in the West. And it's not so popular because it failed. There are various appendices of communist and Marxist thought that are popular that people want to do it in the context of being able to order DoorDash, and own a smartphone and ride on an e-bike, and whatever. And I think the place where communism truly is popular in China. And there you have a Communist Party, which is not communist in the classical sense. But Marx's notion that first you need to industrialize a society, and then you impose later complete control, then it all fades away into the utopia, they at least pretend to be on that path. And they've done a good job growing the Chinese economy and the Communist Party in China is popular, and a lot of people are communists, and sincerely believe it. Now, I think they're naive as to where this all will lead. That's the place where communism is popular. And there is some kind of very practical reason why it's popular, namely, the Communist Party there has succeeded on a whole bunch of important things, which is not to minimize the terrible actions they've taken as well.

SPENCER: Do you think that the form of communism they practice would be recognizable to the originators of communism? Or do you think it's so different that it's really a different theory?

TYLER: Well, I think the truly initial initiators of communism were real communitarians like the French utopian socialists, who never would have wanted to see the macro corporate and state structures of current CCP, China. But if you mean Marx, I think in a funny way, China is on a path very true to Marx's vision, or first they tried to kind of agrarian earlier collectivist communism. Mao said this is actually the right next step for us. Maoism turned out to be a disaster, China then gets caught back on the true Marxian path, which is that you have to industrialize first. And that since it's very classically communist, what they've done. I just don't think the part of it the state fading away and everything being wonderful is ever going to happen. I think their states becoming more corrupt, making more errors being more oppressive. And we seem to be headed for something quite terrible there.

SPENCER: What do you think people don't understand about China that they should understand?

TYLER: There really is, I don't feel that I understand it. So I don't speak or read Chinese. But I have visited China a large number of times. And the main thing people don't understand, pandemic aside, is that they ought to visit China as much as they possibly can. It's a huge and highly relevant part of our world, and don't think you can ever wrap your arms around it, but like, get off your butt and go there. Same with India, why not? What is it you have to do that so better, you might have to, if your job won't let you go, that's all understandable. But the number of people who have not gone simply out of complacency? I think that's a huge mistake.

SPENCER: Yeah, I visited China once before, and it was really so different than I expected it to be. It was kind of amazing. Going into Shanghai and Beijing. I didn't get out to, you know, some of the other lesser-known cities, but it was just so different than I expected. It was really quite amazing.

TYLER: And there's so much diversity within the country. Again, I don't think you'll come away with the answer. But we'll just force you to re-examine so many preset positions. And you'll remain interested in China your whole life if you go.

SPENCER: So another one of Tyler's rules. Rule Number Eight is about cultivating mentors and being willing to mentor others. Love to hear your thoughts on the value of mentorship. And also like, what does it mean to be a mentor to you.

TYLER: But there are two pieces of advice I'm willing to give almost everyone, and almost all good advice is context-specific. But these two pieces, I think, are close to universal. And the first is to have a small group of peers you're working with, who are smart or interesting or useful. And the second is to have mentors. And the mentor is just someone who knows an area that you don't know as well, and you can learn from, and they're willing to help you. So like if someone asks me, Tyler, “How can I learn more about art?” You can say, “Read this book, read that book.” But mostly, I'd say, “Get a mentor, get an art mentor, get classical music mentor, get a China mentor, and so on.” So you learn by things becoming more vivid to you. And the way we're programmed as humans, that's more likely to happen when there's another human being in the picture. So small groups and mentors are my two nearly universal pieces of advice.

SPENCER: So what do you mean by mentor? Because I've heard people talk about it somewhat differently.

TYLER: Well, look, there's a formal business sense of mentor, like an executive above you in the chain of command, and they help you get a promotion, teach you the ropes, you know, that's fine, too. That's a form of mentoring. But I think if it is something very general, maybe a notion going back to the ancient Greeks, of just people who take delight in instruction, and in turn also learning from you. To me, that's mentorship, incredibly general, and you know a mentor when you see one or when you have one. I'm not sure there's a simple way to define it. But when you don't have one, you know, that too. You're like, hey, what do I do? Why does none of this make sense to me, and you can read a book, like I could read a book on geology, I don't think that much of it would stick with me. But if I got into the right small group, had a mentor or two, and was reading the books, doing other things, I could make real progress.

SPENCER: I've heard some people who are told, you know, get a mentor, and then they'll email people saying, “Will you be my mentor?” And it seems to me that that's missing something about that relationship, then mainly mentor relationships are more informal than that. And they involve just someone who knows more about a topic who enjoys spending time with you, who enjoys teaching you about it, or you know, is willing to kind of meet periodically, do you have a thought about sort of the formality or lack of it of mentorship relationships?

TYLER: No, I agree fully with what you said. I mean, if asking works, you know, fine, you could try it. Maybe there's not much cost. But I don't think it's how mentorship usually clicks. And sometimes your mentor you already know pretty well, but you didn't quite know they knew so much about a particular area. So you kind of already have them, but you redefine the friendship by making it broader and about this other thing, too.

SPENCER: So I want to ask you also about Tyler's Rule Number Two, which is the suggestion to study the symbolic systems of art, music and literature, and religion if only to help yourself better understand alternative points of view in political and intellectual discourse. I was actually a little surprised about that. Because if you said to me, you know, “How do you learn to understand alternative points of view and political and intellectual discourse?” I'm not sure that I would have thought of symbolic systems of art, music, literature, and religion. So could you put those two things together for us and explain Rule Number Two?

TYLER: Well, people who study the political views of others directly, I think they often hit a wall. They just end up deciding what it is. they think and what it is they agree with. And then they organize everything around that. And the arts – the visual arts, music, and so on – they somehow defy that kind of approach. They're always more complex, they're always more multifaceted. There's always more you can learn. So to get into the mode of learning that is more like art appreciation, it is useful in all these other areas of life. I think it will keep you more open with, say the arts, you're always trying to crack cultural codes. Those codes are in some ways, always outracing you, are always defeating you. And the puzzles in there are so strong, I think it's intellectually healthy and good training. And a nice thing about the arts, you know, unlike a lot in mathematics, you would know more about this than I do. Just so much math, innovation comes from relatively young people, right? That's not necessarily true in the arts. So if you are yourself, not very young, you're in an area where your skills are not necessarily deteriorating at all, and maybe getting stronger. So that's maybe good areas to invest in.

SPENCER: So do you think that learning about things like art, music, and literature of a group of people directly helps us understand their political and intellectual discourse? Or is it more about applying that kind of lens that we would apply to art and music and so on to these other aspects of culture?

TYLER: Oh it's both. Absolutely. And keep in mind, their arts, their music and literature? Those are the stories they are telling often about themselves. Why should that be a weird place to look? Aren't you going to come away with a deeper sense of who they are? So politics is very narrow and limiting and can get boring very quickly?

SPENCER: That's an interesting perspective, like it's there's the stories are telling about themselves now. Now I'm thinking like if you studied American art, music, and literature today, like what are the stories we're telling about ourselves. Do you have a thought on that?

TYLER: Oh, a lot of American sort of higher brand fiction sold in Indie bookstores, I find pretty boring. It's too frequently written by people who live in Brooklyn. The writing somehow, for me is not universal enough. The lives of the writers have not always been that interesting. It's to sort of pandering to particular parts of the market. Though I'm typically these days more interested in foreign literature in translation, which is often more vital, America, I think, is still doing very well in terms of genre fiction. But the theory of semi-serious writers today in this country, I don't know, I don't think many of them will last. I would sooner bet like on [unclear] and Elena Ferrante and Michelle [unclear].

SPENCER: You've written before that you think we should be funding more studies of super effective people. I'm curious why you say that? And also what you expect we might find by doing that?

TYLER: Well, I don't think we understand that very well, right? So a lot of people want to be more effective. They don't always succeed at that task. Like what body of knowledge should they look to? Like, what exactly are the books they should read? Biographies are very long and sprawling. I don't know that there ever could be like a good book of simple tricks or secrets that explain it all. It seems the problem is too complex. So there ought to be some kind of intermediate level of book you could go to that part of the literature seems somewhat thin to me. That was Cowen's Second Law tells you – there is a literature and everything.

SPENCER: To what extent you think that people are multiple, like, oh, if we had good enough rigorous enough studies of super effective people, we could adopt their techniques and become much more effective versus how much you didn't get sort of immutable traits, whether genetic or just set, you know, in childhood, and early life experience?

TYLER: I don't think we know. I mean, I'm fairly sure that after a certain age, people are really not very moldable. I'm not sure what that age is, I think certainly like before age 13, you can have a huge impact on people's lives. And that doesn't disappear immediately. Just people who grow up in different cultures, they could be of the same, you know, genetic background, but they come out so so differently, so immutability must be there. When it all turns off, I don't know, I think we should be optimists and think people can improve at all different stages in their lives. And you see, like Grandma Moses, at what age did she start to paint past her 70s, I'm pretty sure. And we still buy her paintings, hang them in museums, and so on. So don't write people off would be one of my conclusions.

SPENCER: What do you make of the academic literature that says that if you study people's outcomes, the heritable portion of them seems to come from non-shared environment, and genetics, as opposed to kind of shared environment where parts of the environment that both, you know, let's say a brother and a sister would have in common, which is kind of who the parents are and how the parents raised them and so on.

TYLER: Well, I take that very, very seriously. I think those are correct results. But I'm also struck by what are clearly other correct results. So look at the Renaissance in Florence, how many people were living around Florence at that point in time? Depends on how you define the area, but Florence itself was what 60 to 80,000 people. Look at the ancient Athens, how many people were in those societies? Classical music in the early 19th century, mathematics in Central Europe in the early 20th century. So there's some notion of magic in the air that really matters. You know, the Florentines, genetically didn't change so much before the Renaissance after the Renaissance. It's not that. So we have somewhat conflicting bodies of literature. In some level, I think they're probably both true. We don't have the big picture properly put together yet.

SPENCER: So would you chalk it up to something like local culture?

TYLER: Something like a local culture can produce magic. Maybe it raises people's aspirations, it puts them in these small groups, it makes mentorship easier. And those are all ways that careers, achievement paths can change a lot, even with a fixed genetic pool of humans. So that, to me is highly, highly significant. Why are some ethnic groups so successful in some areas and not in others? Is that like, all because of their genes? I just don't believe that. So in the US, Jews were once very prominent in boxing. Today, I can't say I've looked but like you don't ever hear about all the Jewish boxers out there. Do Jewish genes change? No, of course not. So something socially or other incentives operated.

SPENCER: So you have this grant program you started where you give away these small grants for working on interesting topics. I'm wondering how you think about this with regard to the efficient market hypothesis? Like, why do you believe that there are opportunities to do these kinds of really interesting things with small amounts of money that are not already kind of gobbled up by, let's say, the charitable sector or the or the financial sector,

TYLER: I think efficient markets only operate in a small part of human affairs, quite close to true, I think for publicly-traded securities and highly liquid markets. But human beings are very far from that. Those are super liquid markets. Due to what you call behavioral economics, we have all these biases, a lot of us just don't have the synthetic knowledge, or the cultural code cracking experience, to always spot talent in different types of others. So I think there are huge opportunities there for myself and for other people to find talent, get more resources, bend upward, the aspiration curve, and help people do much, much better so far from an efficient market.

SPENCER: So why aren't large institutions with tons of funding that are trying to improve the world already taking up all these opportunities?

TYLER: Well, some of them are. So there's a new program from Schmidt Futures, which is funding, I think, 14- to 17-year-olds, and giving them fair amounts of money, for at least five years just to help develop their careers. That's a very new program, but I think overall, our private foundations have become bureaucratized and politicized. They are highly ineffective, they have super slow, they have incredibly high overhead. I mean, I'm generally a pro-market economist, as you probably know, but it's one of the biggest market failures is how poorly our major foundations are run. So there is a lot of rent-seeking and entrenchment and just slowness, in the end. That's partly what I want to change. I want to show people it can be done differently. And my model for emergent ventures partly came up with it by studying to go back to the previous topic, the Florentine Renaissance. And now artists then were supported. They were supported by small compact decision-makers who could allocate capital very quickly, not by these massive bureaucracies,

SPENCER: Do you think large foundations don't have a ton of feedback loop?

TYLER: Well, they have feedback loops that are very strong, but they push a lot of them in the direction of conformism and doing things that are socially popular, or doing things that are a particular kind of like woke or politically correct. So maybe the problem is that the feedback loops are too strong, there's another way to look at it. They all want to do good. I think it's rarely the case that intentions are bad. But just as a lot of our government has become paralyzed by being too large, having too many layers, being too slow to respond. We need to realize that phenomenon has deeper cultural roots. It's not just a story of government. It's a significant portion of American society, including the problems that had been at IBM and General Electric and also many large American companies.

SPENCER: What is lookism and why do you think it's a problem?

TYLER: Well, I'm not sure it's a problem. I think it's not discussed enough. I'd like to figure out how much it's a problem. But lookism is judging people by their looks, right, which everyone does. Now to some extent, you might think, well, how people look indicates how they actually are. And okay, partly, that's true. If someone looks tall, there's a better chance they're an excellent basketball player, right? That's not a crazy inference, like a pretty high percentage of the world – seven footers are playing in the NBA. But at the same time, again, going back to human imperfection, behavioral economics, it's so easy to stereotype be prejudiced, make mistakes, overly generalize. And if the rest of the world is judging people by their looks, that's a chance for you to move in with some kind of deeper understanding, and support more and better talent. Lookism is something we're not kind of allowed to discuss. So on the left, for instance, there's so much opposition to racism, sexism, which is great, but those people get together, it's so common, like, they'll all look a certain way, or all be good looking or all be a certain kind of charming. And there are prejudices in that too. And I don't think we examine those close enough.

SPENCER: Yet. It's really interesting how, you know, today, we talked about many different types of privilege, but rarely how good-looking someone is brought up as a type of privilege. And I think, you know, obviously, people who are good-looking get benefits from that. But probably the even more extreme form is that people who are just unlucky enough to be born very, very good looking, my guess is that they actually have it quite difficult in life, but nobody really kind of gives them credit for that.

TYLER: Yes. And I also think there can be not always but very high cost to being extremely good-looking. People might take you less seriously. If you're a woman that can be problematic for you in a number of ways. I don't know that it's always such a blessing. Maybe there's some notion you want to be good-looking enough, but not too good-looking. Maybe in some ways, your drive is weaker, or it's too easy to make friends or find a partner of a particular kind. Again, I'm not pretending to have the answers here. I just see it as radically under-discussed. And that fact itself that it's under-discussed is interesting.

SPENCER: I've definitely heard good-looking women say that there's this problem where they can get kind of sexualized constantly, which is, you know, definitely not something that they want to have happened.

TYLER: Right. One important question is why do we resist talking about this so much, is it that we're all in some way, like, quite happy judging people by their looks, and we don't want to have to disturb that. I mean, that would be all the more disturbing, I suspect, something like that is true. You know, you could take like a right-wing person or a left-wing person, and then just have put on the screen or walking in front of them, like someone who obviously looks like they're of the different political persuasion. So take a right-winger and have a pajama boy parade by or take a left-winger and have someone parade by who sort of fits the stereotype of like a NASCAR watching Trump supporter, gun-toting person from wherever, and there will be this visceral negative emotional reaction. And just, it seems to me someone should ask like is that, in fact, just another prejudice that we should be more at war against.

SPENCER: There was this machine learning paper that came out that claims that you can, to at least a small extent, predict people's political views from their photographs. And I think what it's doing is picking up on interesting things in the photo, like the way people's heads are tilted, and their facial expressions, and so on. Insofar as this result is actually accurate, it's fascinating to think that there are such subtle indicators of like, even kind of the facial expressions people make might be slightly different because of kind of cultural phenomenon.

TYLER: Yes. And as you also probably know, there's this literature, how quickly do you form judgments of other people? It's super, super quick. Maybe that's morally wrong. But in any case, maybe it's a way you can do better, right? If they're undervalued assets, you want to help the world by giving those people a better chance, and it will also help yourself.

SPENCER: Yeah, a company that focused on hiring people, they're very unattractive, they might have an advantage because other people are kind of prejudging them in interviews, and have all these subconscious biases against them, because and to get under hired, for example,

TYLER: Yes. You know, short man would be another topic. There's evidence that short men suffer an earnings penalty. Now is it because shortness is correlated with lower productivity in some manner? Well, possibly, but it could also be, there's a stereotype. Obviously, it's plenty of extremely productive, shorter men, and they're suffering under the stereotype.

SPENCER: I was at an entrepreneur event, and I was standing around with a bunch of male entrepreneurs. And I was shocked. I was the shortest person in the room. And I was like, what's going on here? Cuz I'm of average height. So it was fascinating, and maybe just a coincidence. So final question for you. Why is raising other people's aspirations a higher return activity? And what do you mean by that raising aspirations?

TYLER: A lot of people are not ambitious enough. So they want to do something or they want to be useful, or they want to earn more money. And that's fine. But the scope of their imagination does not consider all of the possibilities they might chase after and one of the things that still surprises me after decades is what a big market failure that is, people's imaginations are not vivid enough. And until they see it embodied in the form of like other humans, you can tell them you should be more ambitious. Here's this other path you could take or you build your company out to be much broader, bigger, or your research ideas more important than you think. My co-author Daniel Gross, the venture capitalist, tells me a story that when he finally met Mark Zuckerberg and just saw Mark Zuckerberg give you know, a normal talk. Like he realized it became vivid to him that being a Mark Zuckerberg is, in fact, the thing and people who were human did it. He didn't literally know that in advance, but it became real to him. So you can get just much higher and more rapid compounding returns, I think by raising people's aspirations. And that to me is one of the biggest market failures out there that it doesn't happen enough.

SPENCER: This reminds me the idea that some people say it's important that kids have someone who kind of looks like them, or they can put themselves in the shoes of that have achieved great heights. And this seems to support that, that you know, if there's someone that you're you can identify with saying, oh, that person is a doctor or that person is an entrepreneur. And I kind of can imagine being that person because it came from my background, that that might help people raise their ambitions.

TYLER: I'm a big believer in that. And you know, like, 20 years ago, I didn't think that was such an important effect. But the more evidence I've seen, and the more experience I've accumulated, I see more and more that that's important.

SPENCER: Tyler, it has been great. Thank you so much for coming on.

TYLER: My pleasure. Great to chat with you. Happy Holidays and keep up the great work on your end.

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