[Auren Hoffman] Welcome to World of DaaS, a show for data enthusiasts. I'm your host, Auren Hoffman, CEO of SafeGraph. For more conversations, videos and transcripts, visit SafeGraph.com/podcast.
Hello, fellow data nerds. My guest today is Tyler Cowen. Tyler is professor of economics at George Mason University and host of “Conversations with Tyler” podcast. He is a blogger at Marginal Revolution and he's an author of a lot of books including one of my personal favorites, “The Great Stagnation”. Tyler, welcome to World of DaaS.
[Tyler Cowen] Auren, thank you for having me on, a real honor.
[Auren Hoffman] Oh, well, thank you. Now, in your “Great Stagnation” book, you make a case that innovation has been decreasing over the last 50 years. What do you think is the core thing that's responsible for the slowdown in that innovation?
[Tyler Cowen] First to qualify, I think it's possible in the last two years, we've emerged from the great stagnation: the vaccines, for instance, are very valuable. But put that aside, I think the core problem was that we had a new technology, which I call “fossil fuels plus powerful machines”, and we did everything possible with it: we built cars, we built planes, we electrified the world, right? That was incredible. But at some point, we're simply making the seat in your car a little more comfortable. And while that's nice, it's not a major breakthrough. So by the time 1973 rolls around, we're having a lot of marginal breakthroughs, other than the tech sector, which you live in, but a lot of the other sectors were pretty stagnant for about 50 years. I would also say we have regulated business too much. And as a society, we've become more complacent and more risk averse for cultural reasons.
[Auren Hoffman] You mentioned these last two years, because I think that's kind of interesting, is it because we're under threat that we have to innovate in the last few years, we had to get the vaccine out quickly, we had to do some of these other things that we may have be coming out of this and seeing a little faster innovation cycle, or because we've been under threat before in the last 50 years for other kinds of threats, but we didn't necessarily see that core innovation increase?
[Tyler Cowen] Well, I think threat is the most plausible hypothesis. As you know, a lot of innovation came out of World War Two, the actual development of the computer, even the airplane, and also nuclear power. So if you look at 9-11, that was a kind of threat, developing the quality of drones, which later had commercial uses, partly came out of that. So it's too early to say but I think both in the areas of green energy and biomedical innovation, not just the anti-COVID vaccines, but you look at malaria, you look at sickle cell anemia, we seem to be seeing a coordinated set of advances, it’s too soon to say for sure they're all going to work, but to my eye, it looks pretty promising.
[Auren Hoffman] Now one theory that could be while innovation slowing down is that we've just become way too comfortable. And certainly we're a lot more comfortable today than we were 50 years ago. Do you think there's something to do with that, that like maybe we don't have this desire to innovate enough? Because we're just fat and happy?
[Tyler Cowen] I definitely agree with that. But I think we need to add qualifications. So people in the year 800 were not that comfortable, right? I'm not sure how much they innovated over the next 200 years. So it's the unquiet combined with opportunity, a good mix of talent, problems to be solved crisis and emergency, you need a lot of things to come together to innovate. The natural state of affairs for mankind is poverty and stasis, right?
[Auren Hoffman] Now, even if you look at things like other innovations, let's say music or fashion, in some ways, it's very hard to distinguish today from some music and fashion was in the 1980s. Why hasn't there been as much innovation, even in some of those areas? You would think “Okay, well, we're not going to focus on new technology things, but at least we would innovate in the arts over time”.
[Tyler Cowen] Well, if you look at music, say a five year period from 1963 to 1968, every year, there's incredible innovation. You can listen to music, and almost know what year it's from, not what decade. And since then, you've had sort of two new genres, electronica and rap, which in turn have relied on innovation. But that initial burst comes, I think, from the electrification of the guitar, and the Beatles, and some other groups developing the recording studio as a thing you can use. And then you have people very quickly sort of filling out that space with all these permutations from those ideas. And then you have a period of stasis again, with rap being its own thing, electronica being its own thing, the latter being driven by digitalization of music. And now we're in this period, there's a lot of good pop music, but you listen to it, it could be decades old, it would sound the same. Maybe they use fewer guitars. What kind of innovation is that, right? To me, it's sad. I think, maybe more great songs in a year than 30 years ago, but way less innovation and most of it's just not that interesting.
[Auren Hoffman] Yeah. When I listen to a group like Queen or something, it's like almost every song was innovating.
[Tyler Cowen] Bohemian Rhapsody, think of all the different influences in there, right? Like culture of Zanzibar, Italian opera, British musical tradition, rock and roll, the Beatles, everything. Beach Boys, barbershop choir harmonies, like all packed together in this thing that's its own. And now it's like “Taylor Swift she’s great, but yeah”, you know?
[Auren Hoffman] Yeah, yeah. Interesting. Let's talk a little bit about data and economics. In the last few decades, we've seen a real acceleration in data in the economics field. Do you think this is kind of an overrated or an underrated thing?
[Tyler Cowen] Well, you might not like my answer, but I think it's become overrated. It's what people do, and they're doing it for a good reason. But most things that people do, they end up overrated. So my fear is were producing these perfect quality papers, but they end up siloed. And people are losing somewhat the ability to construct and evaluate synthetic arguments of the kind, say, that might be required by a Nate Silver, or a Alex Tabarrok. Like to try to figure out what we should actually do with the policy. So the data work is great, phenomenally well executed, but to my eye, it's become a little overrated.
[Auren Hoffman] Is that because till I get a PhD, and to get tenure, you have to get this like, super micro thing and get published in the super micro way. And you just don't have the ability to think bigger until you're in your late 30s, or something, or what's the constraint?
[Tyler Cowen] You have to learn programming at a high level, you have to track down the data set and get the rights to it, that's the very hardest thing to do. That itself is a full time job. So in your spare time, are you pondering the more philosophical questions of micro economics or economic policy? Typically not.
[Auren Hoffman] Are there data sets you wish were more accessible for economists? So we can learn about the world a little bit more?
[Tyler Cowen] Here’s two things I wish for, in particular. If we had individual specific markers of different kinds of talent, above and beyond normal five factor personality theory, and we could see how well they correlate with the success of those individuals, right? I would love to have that data set.
[Auren Hoffman] Give me an example of what can we potentially learn from that?
[Tyler Cowen] What predicts an individual being good at a job, which is something you're very interested in. You have a wonderful tweet storm on this from some number of years ago. So the five factor personality theory is the best we can do, nothing against that. But the five factors like disagreeableness, you're either high in it, or you're low in it. But the really successful people, I would say are selectively disagreeable, right? Like they know when to turn it on and off or conscientiousness. What is it you're conscientious about? It can be a negative, if you feel “Oh, I've got to stop working on this project for Auren, to get home to walk my dog”. Do you want to hire that person? They're highly conscientious to their dog. So if we had better data there, sector specific or job specific, coded by the individual, I think we would learn enormous amounts. And when it comes to say, finding new talent from Nigeria, South India, Pakistan, wherever, we could do much better much more quickly. Another thing I would like to see us have data on is what Arnold Kling has called organizational capital. So my sense, and this is not confirmed, but during the pandemic, output has done pretty well, companies have focused on getting the product out the door, keeping revenue coming, making the next Zoom call, just not exploding. They've had to do that, that’s not the complaint per se, but long term tasks like figuring out who is the 23 year old in your organization will someday become a leader, you don't have much face to face contact, you don't have the temperament, or the time, or the interaction to be able to figure that out. And we are eating into our corporate seed capital, I think, by focusing on getting jobs done now, making the next Zoom call, not enough on developing long term capabilities and vision and talent. We don't know that. If we had a data set on what I call altering costs organizational capital, I think we'd learn a lot about how businesses operate.
[Auren Hoffman] And how would you even be able to measure organizational capital?
[Tyler Cowen] It is hard, right? That's why we don't have it. But even a bad data set…if you had time logs of what people do, and which interactions are considered to be productive, and you could track this through time and see what ended up being important. Was it company picnics? Was it one to one lunches, was it, in fact, a Zoom call? That's what I think we really need to know now. It didn't seem important three years ago. You're asking for a data set now that's going to matter. I’d say it's that.
[Auren Hoffman] interesting. Okay. Well, in some ways, we're probably more likely to have that today, because if we're doing everything online, we at least can track it better, so we can track all the Zoom calls, we can track the email, we can track our Slack, things that we're doing, etcetera. So at least we have the ability to gather the data today. It was probably much harder to do when we're in person interactions.
[Tyler Cowen] And we'll have some sense of those off site, group interactions every three months does this actually substitute for the office? I don't know. I think with time we will know.
[Auren Hoffman] Okay, interesting. One thing I was very curious about. I have this belief that every successful person has like a core superpower. And my belief is that your superpower is that you really good at asking questions. I probably been in like 50 conversations with you over the years, and you just have one of the highest hit ratios of asking the right questions to make the people around you think. And I think we'd have a better world if everyone got better at asking questions. So are there some tips you can bestow upon us mere mortals about how to ask good questions?
[Tyler Cowen] Your questions should be highly specific. The question itself should be detailed and intelligent, instead of kind of standard for the answer, right? So the person feels they better match up to the question. It's good to put before the question and kind of anecdote or confession to raise the stakes like “this really matters”. And then make it clear to the person you are actually listening. And I think another input into asking good questions, if you're a high status person with the same question, you'll get better answers than if you're a low status person, then try to be a high status person.
[Auren Hoffman] When you're saying you're listening, do you think just a lot of people are asking questions that either they already know the answer to or they don't really care what the answer is? What do you mean by you have to be listening?
[Tyler Cowen] If the person you're asking senses you're not listening, you're asking as a formality. A lot of people doing job interviews, it's their job, they are tired listening, they get automatic answers that maybe are fine. “I really care about the benefits at any company I work for”. Right, fine, but not informative. If you show you're really truly listening, engaged, caring interested, you will get much better answers.
[Auren Hoffman] Interesting, I think you're also really good about asking questions in areas like you don't have expertise in. You obviously know a lot about economics and you can ask great questions there. But I've been in lots of different conversations with you, I remember one about we were talking about neuroscience and you were able to able to get into these questions where you didn't even know, you probably had some cursory knowledge, but you weren't nearly anywhere at the expert level of most of the other people in the room. It's hard enough to ask good questions in a field you know a lot about like economics, how do you ask good questions in a field where you're more of a spectator?
[Tyler Cowen] I would say, first of all, my true superpower, in my view, is that I can read five to ten times faster than a person of comparable intelligence. So I just know more things.
[Auren Hoffman] Because you're more well-read essentially.
[Tyler Cowen] Right? It doesn't fully address your question. But I would say this, the answer to most questions, in my view is training. Just train. So I run a podcast, “Conversations with Tyler”, I do one every two weeks, everyone I speak to is super smart, mostly way smarter than I am more accomplished, wealthier, whatever, some combination of all those. So just train, train, train, train, train. I'm 59 now, I started in on all this stuff, like when I was 13-14. So that's like 45 years of training. And I never let up, it's totally relentless.
[Auren Hoffman] Is it just like compounding at 10-15% a year every year?
[Tyler Cowen] Exactly. And so many of my peers they reached like age 47. I'm not saying they only shirk, but they stop trying to improve, they just kind of cruise at a level of working pretty hard. And I think like I just don't stop trying to compound returns.
[Auren Hoffman] I see that to a lot of people reach a certain kind of level. And then they kind of plateau. I'm not sure it's on purpose that they just plateau at that level, but they stopped putting in maybe like the core effort to keep improving. Is there anything people should be thinking about on that like either like career track or just kind of a core improvement track, because they may not understand what the difference is going to be 20 years hence?
[Tyler Cowen] Well, those people are probably the same ones to be clear. So maybe it's you should be advising me how to become more like them. I suspect it's something you're born with or not. You can cultivate it at the margin. But there's some kind of relentlessness, durability, persistence, that characterizes a lot of like very top performers, but it's fairly rare. I think usually it's worth more than IQ, provided you're like smart enough. And I don't know that it's better for people. It's probably better for the world. Elon Musk could retire and not spend all the money, yes, but he's driven to do whatever he's going to do.
[Auren Hoffman] Is there a way of measuring ambition? Because I can tell you of the 22 year olds I know that I thought were super ambitious. A lot of them maybe reached a certain level of success, and then the ambition didn't keep propelling them forward. And then there are other ones that maybe I didn't think were so ambitious, they turned out to be maybe way more ambitious. Like, I don't know that as a 22 year old, I could have measured my peers in ambition. If you think of those five factor things, is there some way of measuring ambition, before you could know if someone was super successful?
[Tyler Cowen] This gets back to your earlier question, what's the data set you want, right? This is a big part of it. But I'm partly a fan of Peter Keel’s question, which I think is surprisingly effective, though it may get spoiled as it becomes better known. Just ask people: how ambitious are you? People who are not that ambitious, actually have a hard time faking it.
[Auren Hoffman] So asking just from one to ten, how ambitious are you?
[Tyler Cowen] Not want to ten, because no one's going to say like, “seven”. And you won't know what their scale is. Make them use actual words. How ambitious are you? They're going to be some people who say like, “I want to rule the universe”. And I think often, but maybe not always, you can tell they're bullshitting. And the people who are quite specific as to what they want to do, how they want to do it, even if they end up being wrong in this specific gap until they've thought about their ambition and thought it through, they say it with conviction, and something in them like leaps forward. That almost kind of scares you a bit, right? Now I think, “aha, we've got something here”.
[Auren Hoffman] But if you think if I went back to like the 22 year old Tyler, do you think I would learn something from that? Like, what do you think you would have said back then?
[Tyler Cowen] Again, this is the data set I want. But I think I would have said, “I want to be one of the most influential thinkers” and fill that in with detail. But I believe that's what I would have said and indeed did say when asked.
[Auren Hoffman] Okay, interesting. All right. That's, that's really cool. Now, another thing that you think a lot about is time. And you've kind of interesting take on the value of time where you believe that we shouldn't discount the future. And this kind of goes a lot against what I've learned all my life and maybe mainstream economic thinking, what's your reasoning behind that?
[Tyler Cowen] I think the discount rate should be zero for happiness or wellbeing, right? So there's no intrinsic reason to put off going to the dentist, but the economist view that you discount dollar flows, because there's an opportunity cost, because you can invest in positive returns, I fully agree with that. It's just common sense and I think that's what you mean. But when it comes to wellbeing, should we sacrifice millions of lives in the future rather than one life today, just because the future comes later? I would say no, that's immoral, we should treat the present and future on a par in that sense. And that's going to mean we should invest more, right? Take a longer-term view, actually work harder and be more creative. So that's consistent with what I call my common-sense morality.
[Auren Hoffman] So a life 100 years from now is worth the same as a life today or something like that.
[Tyler Cowen] Correct. So we should do things now to make those lives better. Most of all, that means leave them with healthy, well-functioning institutions. We can't micro plan their lives, right? A lot of investment, a lot of science, a lot of innovation. It's what's worked in the past. So I think we have a moral obligation to do those things in a way that is a stronger obligation than I think what a lot of other people believe. You read philosophy, we have all these other moral obligations, race, gender, all that. I don't mean to dismiss that, but what I want to put on the table is our obligation to help the future as much as possible by doing good work, and good trust and good institutions right now, and bequeathing them.
[Auren Hoffman] How would you think on a personal thing? So obviously, there's kind of like short term happiness, short term fulfillment, long term happiness, long term fulfillment. Sometimes there are these tradeoffs that one has to make between the two, maybe I don't eat the chocolate cake for more longer-term fulfillment and longer-term happiness or something. Like how do you think we should be thinking about those tradeoffs between ourself today and our future self?
[Tyler Cowen] I think in most cases, there's a reasonable degree of harmony of interest. But there's not in every case. So if you face a grave decision, should I get chemotherapy for cancer, you're definitely going to be more miserable when you get it I think. It might save your life later on. I'm not sure I have any particular insight into those kinds of choices, but I would just say, treat your future self as being as valuable as your current self.
[Auren Hoffman] Got it. Okay. Pretty simple. Now, and we talked a little bit about the last two years, and how innovation has increased? What are some other big positive surprises in the last couple of years since COVID? And what do you think are maybe some of the big negative surprises?
[Tyler Cowen] The cost of producing effective batteries seems to be declining much faster than we had expected.
[Auren Hoffman] Is that something you think is like related to COVID? Or is that just like was inevitably going to happen, whether COVID happened or not?
[Tyler Cowen] It seems it was inevitable and it preceded COVID, right? But how consistent that trend has been. The cost curve falling for solar and wind has done better than I think most people were expecting 15 years ago, again, unrelated to COVID. That's a big deal, right? So on the green energy front, just that electric cars have come so far, the share price of Tesla, remarkably high. Again, if you go back only a few years, and people are like “I'm going to get rich selling this short”. I'm not saying no one says that now, but it's like, “Whoa, you better watch out”. Elon is in fact this model of the truly ambitious person, and he's going to kick your butt. Yeah, that's great news. And I would say, certainly the market didn't expect it.
[Auren Hoffman] What are some of the maybe negative surprises?
[Tyler Cowen] Well, how poorly policymakers and public health authorities have in most but not all countries responded to COVID. That's been just terrible. That's well catalogued. But as we're speaking, the FDA gave final approval to the Pfizer vaccine, what, two days ago? That is insane. And they're insisting for such a long time we have to take it and they won't even approve it themselves and say it's fine. Although it saved many hundreds of 1000s of lives. Not many hundreds, a few 100,000 lives. And it's the best study vaccine in history.
[Auren Hoffman] Interesting. Alright, I want to talk about fast grants because I know there's something you pioneered and basically, you're quickly giving out these researchers money to help them further their research. And I kind of I think the key term in the stats grants is that they're fast, right? And so you have limited data you can take in to make a decision about what you grant, how much you grant, etcetera. What are the core characteristics that you think are the most important to us to make these grants faster?
[Tyler Cowen] I think the heuristics were very easy, it was actually supporting work that was going to matter, rather than supporting nice research for its own sake. The real contribution is not that we picked better projects, but that simply no one else saw it as their job to get money to these people quickly. So a simple example, when the new variants first came along, the US was doing almost nothing to track them. And the potential tracking stations, we took seven, eight of them actually, and sent the money within two or three days, just sent the money and we said: “track”. And then suddenly, within days, the US had a lot more tracking capacity. Now there's
1000s of people who, in a sense, could have thought of that. But there is no one whose job was “if something like a new variant comes along, it's your job to get the money right away”. And it was our job to do that.
[Auren Hoffman] That actually sounds really hard. Because maybe the new variant one, it's more obvious, but to be thinking of all the core important problems and then going out there and finding the people that are working on them, it seems like hard to do that fast. How have you been able to streamline that?
[Tyler Cowen] Well, that's why it's useful to read five or ten times more. But look, we had a team of twenty referees who were superb. And they had an incredible base of knowledge. And they were from well-known universities and laboratories. They did the refereeing, they deserve most of the credit. But I had the attitude. You know, this doesn't have to command unanimity or consensus. If a subgroup are enthused, we're going to do it. Because this is like venture capital. And if some people don't like it, you know, screw them. Our goal here is to solve the problem not to look good in the eyes of everyone. So that was important, too. It's not knowledge or data, per se, but it's temperament.
[Auren Hoffman] Is there a way of using that fast grant model in other places in society? You maybe you could say Y Combinator is kind of like that in venture capital, but are there other places you think we can mimic fast grants in?
[Tyler Cowen] Well, in part fast grants was modeled after venture capital, Y Combinator, but many other venture capitalists, yourself included, you could say, right, you're an angel investor, and you do VC. I bet a lot of your best decisions have come pretty quickly. You felt it was right. And you rely on your best decisions paying off a lot. And you're willing to accept a lot of losses because not everything is going to work out, right? So that attitude is not what you find in academia. It's not what you find on the government research funding side. They're slow bureaucracies based on consensus. And even it's like emergency funding and National Institutes of Health typically took four to five months, we were doing things often in two to three days, our longest would be like two weeks. So in a pandemic, speed really matters. And we funded many different things. I assumed final responsibility for all the grants. I'm not like a presence in the biomedical community. And just I never gave a damn if anyone was happy with my decisions. The view was we're going to look for vampire killers and full steam ahead.
[Auren Hoffman] Well, there's this you mentioned, whether it's a National Science Foundation, or all these other like granting bodies that are out there, even like some of these big foundations that are granting, they seem to be more and more granting to establish people and established bodies. And, you know, the average age of people who are getting the grant seems to be getting older. Is it just kind of a risk tolerance thing? And maybe we should give them a sense that they can be a little bit more risky, or they don't want to fail, or why do you think this is happening?
[Tyler Cowen] I think there's more specialization, more bureaucratization in societies. You know, running a major lab is more important, that tends to be older people, all those things may be fine on their own terms. And the NIH has funded a lot of important projects, including early research on the mRNA vaccines 20 years ago. But that doesn't mean they're good at responding quickly. They are not, and they didn't. So for there, you need other institutions, I would like to see the creation of a new branch of something like the NIH, but completely geared toward acting now when emergencies arise. And we all saw COVID as an emergency. But keep in mind, if you're someone with a disease, it's an emergency to you. Malaria, dengue, all the way down the list. Those are emergencies to very large numbers of people right now. They don't feel like it to us in the current media cycle. But that's an illusion.
[Auren Hoffman] Interesting. Now, you've also made the case that like big corporations are underappreciated. And at least from my perspective, they certainly seem like better places to work than they were 20 years ago. But how do you think people are just not appreciating these larger businesses?
[Tyler Cowen] I think they're starting to, especially with the pandemic. So we're doing this over Zoom, right? Yep. Zoom is now a big company. It wasn't at the beginning of the pandemic. Yeah, think how well and how quickly they scaled up. That was pretty amazing. Look at Amazon, how quickly Amazon shifted into delivering so much food to so many American households. Truly astonishing, one of the great miracles of our time, probably only Amazon could have done that. Obviously, they're a big company, all the bigger now. People have seen who has stepped up to the plate. The performance of big business in the pandemic, I think has really been astonishingly good, and people have seen that.
[Auren Hoffman] And you think that will continue? Do you think there's like more? Essentially, rents that will go to the bigger players? Or how do you think that happens over time?
[Tyler Cowen] I think big businesses have done a good job attracting talent, because they pay more, offer bigger benefits. And it's just easier to find friends at work in a big company if there's diversity. So if talent has been underrated for a while, and big businesses invested first and talent, and then there are network effects, I think they will continue to do well for the foreseeable future.
[Auren Hoffman] And you think it's like the crazier person who joins the startup or how do you think startups can compete with that?
[Tyler Cowen] I think in the Bay Area, we're seeing a lot of very rapid evolution where startups are distributed by nature. And like maybe someday they'll all get together in an office. And so far, it seems to me that has worked. And in general, the rate of business formation during the pandemic has been much higher than average. But not the startups in the Auren Hoffman sense, but in the literal sense, they’re startups, they’re new businesses. So it seems to be working. And people doing this out of their homes and over Zoom. At what point that will stop scaling, that gets back to my questions about organizational capital, I would say we don't know yet. But so far, so good, right? Full steam ahead. Keep on trying it don't work no more.
[Auren Hoffman] All right. One of the things I think you do pretty well is to question your core beliefs. Do you have some sort of systematic way of doing it? Like do you like have a meeting with yourself once a year and you go through your core beliefs and see if you still believe them? Or do you have any way of actually thinking them through or is it just kind of evolved naturally over time?
[Tyler Cowen] I don't know if I'm good at questioning my core beliefs, maybe I'm good at questioning my peripheral beliefs. And that comes from interacting with a lot of different kinds of people, having ties like to the East Coast and the West Coast, having grown up in what was like originally a working class family, but now like being connected to elites, having lived in a bunch of different countries, having visited 100 different countries, having learned as an adult two other languages, spending a lot of time with culture and the arts, and you just put all that stuff together, you get good at like cracking cultural codes. But my core beliefs I guess, I think I'm like dogmatic about them.
[Auren Hoffman] What would be an example of some core beliefs you think you're dogmatic about?
[Tyler Cowen] People should work and innovate, not complain too much, not be whiners, have a relatively positive attitude. Life is wonderful. I don't think I do a great job questioning those, like, I think they're true. So, I’m not looking to throw them away. I'm just like, I'm going to run with these, they might be somewhat wrong. But at this point in the game, what other hand do I have to play?
[Auren Hoffman] Is there some advice you have of maybe keeping your identity small enough so that you can feel comfortable changing one's beliefs?
[Tyler Cowen] Maybe my strategy, which I'm not sure is good for everyone. But just to make your identity so large that your dogmatism gets soaked up in your core beliefs and you're so committed to those you feel you have the freedom to change your peripheral beliefs.
[Auren Hoffman] I like that. That's pretty interesting.
[Tyler Cowen] We're not going to stop having a positive attitude. I think it's not going to be like, “Oh, I'm 68 years old, and I've decided to reinvent myself as a whiner”.
[Auren Hoffman] Yeah, yeah.
[Tyler Cowen] Maybe it will happen. But somehow I don't think so. I'm too dogmatic to do that.
[Auren Hoffman] Right, right. You're wrapped up in a optimistic view or something.
[Tyler Cowen] Yeah, like, “let's do something”, like, even if things look bad, like, “oh my goodness, let's get out there and do something out of obligation”.
[Auren Hoffman] Now, you're a little bit obsessed with asking your podcast guests around their production functions. You've asked a lot of people now, both on your podcast and off, about their production functions. What have you learned from their collective responses?
[Tyler Cowen] I mean, probably not much at all. So they all say different things. I'm not sure I should take any of the answers literally. Sometimes I wonder if I'm not making fun of them. If I ask them about their production functions, I think the audience enjoys it. It's a way to get people to open up, I enjoy the answers. But it's maybe the answer is taken least seriously. And a lot of people are just not very self-aware about how they've succeeded. Maybe especially if they're highly successful.
[Auren Hoffman] I would say that's the main thing I've taken away from some of those questions as well, is that the answers you don't think are true. They're actually trying to lie to you, but I don't think they necessarily have ever thought it through as to why they've been so productive, why they're able to produce so much stuff, you ask this author that's written 30 books, what their production function is and like, “well, I like to have a cup of tea in the morning” or something. That's almost certainly not the true answer.
[Tyler Cowen] And in my asking, there's a bit of “Ha ha, look at what this guy is going to say”, right?
[Auren Hoffman] Yeah, yeah. Interesting. What do you think are some of the most important skills that a person could have to lead to success that maybe were true in the past that aren't true in the future?
[Tyler Cowen] There's some NBR working papers on this. But soft skills and social skills seem to be bringing higher returns than they used to today.
[Auren Hoffman] Like empathy or something or … ?
[Tyler Cowen] But not empathy taken alone. So everyone obsesses over STEM. But I would say people who have expertise in something concrete, could be STEM, but doesn't have to be, could be like geology, and then have great soft skills. They seem to be earning much more. And that's in the data and maybe not proven. But the papers on it to me seemed pretty convincing. And it accords with my intuition and my anecdotal observations.
[Auren Hoffman] And by soft skills, you mean like, they're not jerks? Or what do you mean by soft skills?
[Tyler Cowen] They can communicate with other people, synthesize information, outline a vision to other people, set expectations, accept feedback, give other people feedback, and then wrap the whole thing up into some synthetic package that they can then move forward with, you know, in the days, months, years to come. It's really a pretty tall order. It involves a lot of like subcomponents.
[Auren Hoffman] Okay, interesting.
[Tyler Cowen] And if big businesses are doing better, like that means teamwork is more valuable. People who have this they're like, we used to say “glue guys”, but that's sexist. We've got to give up the alliteration and say the worst sounding “glue people”. But like with some intellect, and you've got to know something about some area, you can't just show up like, “Hey, I'm the empathy guy. I love you all, I feel your pain”, right? That's like, “Come on, take a hike”.
[Auren Hoffman] Got it, you need a little bit of both. There's like a Laffer curve of being somewhere in the middle or something, or … ?
[Tyler Cowen] People who are synthetic, synthesizers is another way to put it. Hard and soft skills. Who is only like a super nerd incredible calculator, you can outsource them with work from home. Yeah, there's going to be someone in India smarter than they are. Like, they're going to do well, but they're not actually the top earners, the people who can do both, they’re the real prizes.
[Auren Hoffman] Now, if we're moving to a world that is going to be more virtual, in some ways, it means that one could interact with more people, right? And do you think that's going to expedite innovation? Or do you think that will quell innovation, because you don't have as many repeated interactions with the same person?
[Tyler Cowen] So far, it has radically accelerated innovation, there is this question, are we eating into our organizational capital by doing so many things at a distance, but I'm very bullish on the trend. It could be like only 20% of previous work becomes work from a distance. But if you can bring to bear on your team, the smartest people from Pakistan, Nigeria, South Korea, wherever, I think that's going to be amazing. And yeah, you wish you could see them more, you fly them in once or twice a year, that's efficient. Like that's probably all still true. But the value of getting some key people from everywhere, I think, will be very, very high. And especially for America, and especially for Silicon Valley.
[Auren Hoffman] Now, how do you think their reward should work? Companies like Google have made a public statement that they're actually that they've chosen to pay people differently based on the location where they live. So if you move from New York to Indiana, you get paid less than if you moved from Indiana to New York, you get paid more. Other companies are saying, “okay, wherever you live, if you're doing the same work, you get paid the same”. What do you think is the right approach? Do you think there's a certain type of model that will win long term?
[Tyler Cowen] I think we'll be forced to move to an even higher degree of pay by performance in bonuses and measurable output. As people are at a distance, and this goes on for years, in part, you don't know, you've got to measure it. So everything will be more bonus driven, more metrics driven, and the person in Nigeria, they're going to accept a lot of pay risk, that like even the downside, they'll be able to live in Nigeria, I think they'll be willing to do that. And it won't be like an upfront salary is the main part of the deal. You'll get too much shirking with that.
[Auren Hoffman] In some ways, if you think of organization, if you think like sales and engineering, sales, weirdly when it deals with their employees, is extremely data driven, and engineering when they're dealing with employees and compensation, is almost the opposite. It's almost like very little data driven, when it comes there and somewhat hard to measure things like performance and stuff with engineers kind of know it when you see it. How do you do you think companies are just going to have to get smarter at measuring productivity and measuring output?
[Tyler Cowen] We'll have to measure it more. AI might do some of that for us, right? So maybe the company won't ever be that smart. But it will ask its AI like, “Hey, who did the real work on this?” And there'll be an answer, it won't even like be transparent to you. Like, how does GPT-3 work? You know, complicated, right? But you'll go by the answer when setting yearly bonuses.
[Auren Hoffman] I've got it. I've known you for a while. So I have a couple personal questions. I've always wanted to ask you, and this is a good time. The first one is, I think I remember you once saying that you proposed to your wife Natasha, after knowing her for like three weeks.
[Tyler Cowen] And one week of that I was out of town.
[Auren Hoffman] Okay, well, okay, I needed to collect a lot more data to propose to my wife. Is there a heuristic that you used to shortcut? I mean, this is a massively big decision in your life. If you made the wrong decision, it could be really bad for you. How did you shortcut that decision? I know it's turned out really well for you. But you could see scenarios where it didn't.
[Tyler Cowen] Well, to think of it as like data gathering on Natasha has it backwards. My way of thinking about the strategy was “when can I get her to say yes?” If there's a moment when I could get her to say yes, I'm kind of trick and track her into this, I'm like “I got to take this”. For the notion I'm going to spend a year thinking about it, like no you have your yes, you've got to do it, right?
[Auren Hoffman] But I mean, you have some sort of sense that, like it needs to work out for both parties, right? This is a marriage. So both parties have to work out. And ideally, both parties have to continue to be happy with this decision for a very long time. Like there must be some sort of heuristic you used to come up with this, this decision right or now?
[Tyler Cowen] I don't know, it seemed like the right thing to do. It wasn't the result of an elaborate plan. And it's worked out. So I'm not recommending it to the audience early. But I suspect if you had the data, a very long stretching relationship and then a proposal, I think they would do worse, not saying it's causal. I think it reflects a difficulty of committing among at least some subset of people.
[Auren Hoffman] Yeah. Or maybe reflected the fact that maybe deep down they knew it wasn't right, and that's why they never did it, or … Okay, interesting.
[Tyler Cowen] Maybe they settled or, you know, became too inconvenient not to. So I don't think it's such a great signal to wait too long.
[Auren Hoffman] Yep. Okay, interesting. All right. Now, I checked my inbox before this thing. And I realized that we you and I had met, because you responded to a cold email that I sent you in 2007. And then I looked through, and you're just like, incredibly good at answering email. And I assume, based on who you are, that you get a ton of email. Do you have like a strategy? Do you have a philosophy about that? Like, how do you think through all this random strangers that send you email?
[Tyler Cowen] I sometimes say that answering my email is my business model. And I mean that very seriously. So I don't respond to abusive emails or you know, spam pitches, but I do at least try to respond to every email I get, but don't tell anyone. If you're listening to this podcast, forget I ever said it. And that's how you meet really important people is to take them seriously. So you've got it yourself to send out the right bat signal to get the right people emailing you, but you emailed me, Patrick Collison emailed me once. This was before he was so well known. I thought, “hey, this guy sounds smart, I’ll write him back”. He and I ended up doing fast grants together. So very seriously, answering email is my business model. By the way, how good was my response to you? How good was your email to me?
[Auren Hoffman] It was it was probably pretty good. Yeah.
[Tyler Cowen] Yeah. Well, forward me the exchange, if you're willing to. I'm curious to read what we each said.
[Auren Hoffman] Yeah. Well, I will, I invited you to something. And you basically responded very, very quickly saying “I'll be there”. And you showed up in person in real life, right. Which is pretty amazing. Okay, this is this has been incredibly interesting. Last question. We ask all of our guests on World of DaaS, if you can go back in time, what advice do you wish you could have told your younger self?
[Tyler Cowen] That when I get to be older, don't give me any advice. Because look, for me, things have gone pretty well. So there's always the risk with advice. Even if you make a local improvement, you'll screw up the global path. Things have gone well, of course, you could have done better. But again, type one and type two error. And it's like, let's let that one sit. So no advice.
[Auren Hoffman] So basically, what you're just saying, we're kind of saying going back to what you said earlier, is just work on compounding the good stuff?
[Tyler Cowen] Yeah, but I already knew that and advice is dangerous, like how well can you predict other people's paths? Advice maybe is overrated. I think a lot of advice is a placebo. The person asks for advice because they want the feeling they've done everything possible, before doing what they're going to do anyway. No, I don't mind that. But once you realize that it's like advice, I don't necessarily think advice is advice, it’s helping the person process their own mental and emotional state.
[Auren Hoffman] All right, well, this is great. This has been awesome. Okay, I highly encourage everyone to follow you on Twitter to subscribe to Conversations with Tyler, which is one of my favorite podcasts. And the other thing people should be doing to find you on the internet or anything else you'd want the audience to do?
[Tyler Cowen] My blog is Marginal Revolution. And there's books by me on Amazon and plenty more. All findable through Google. Perfect.
[Auren Hoffman] All right. Well, thank you, Tyler. Thank you for joining us. Look forward to seeing your next Auren.
[Auren Hoffman] Thanks for listening. If you enjoyed this show, consider rating this podcast and leaving a review. For more World of DaaS (DaaS is D-A-A-S), you can subscribe on Spotify or Apple Podcasts. Also check out YouTube for the videos. You can find me on Twitter at @auren (A-U-R-E-N). I’d love to hear from you.
Tyler Cowen is Professor of Economics at George Mason University, host of the Conversations with Tyler podcast, blogger at Marginal Revolution, author of several books (including one my personal favorites, the Great Stagnation).
Tyler is one of the very few truly committed to constantly learning. He also reads 5-10x faster than a fast reader, so his superpower is consuming large amounts of information.
We cover how the last year drove the end of the Great Stagnation, society’s newfound appreciation for big business, why Tyler thinks economists’ use of data is overrated, how to spot talent, why organizational capital would be one of the most valuable data sources, and so much more.
Byrne Hobart, Author of The Diff talks with World of DaaS host Auren Hoffman. The Diff is a top newsletter that covers inflection points in finance and technology. Byrne previously worked in data-driven equity research and online marketing. In 2020, Byrne published an article stating that airline loyalty programs are worth more than the airlines themselves. These programs have been key to the airline industry's survival. Byrne and Auren dive in. They break down the mechanics of airline loyalty programs, reveal how airlines survived the pandemic, share lessons that cryptocurrencies can learn from airline loyalty programs, and more.
Sinan Aral, Professor of Management, Marketing, IT and Data Science at MIT, talks with World of DaaS host Auren Hoffman. Sinan is also the director of the MIT Initiative on the Digital Economy, founding partner of Manifest Capital, and the author of the book “Hype Machine”. Auren and Sinan discuss why social media networks are optimized to connect users with like-minded people, what creates viral content, and how to solve market failures in social media. They also discuss the future of Wall Street Bets and why it will likely remain part of our investment landscape.