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- [00:02]
Tetragrammaton Announcer
Tetragrammaton.
- [00:24]
Tyler Cowen
This is a big experiment, but that the Trump administration is making. So they passed a bill which Congress is all in place to make stablecoins legal and regulated in a very particular way. But stablecoins are now totally mainstreamed in the US Financial system.
- [00:42]
Interviewer
What are stablecoins?
- [00:44]
Tyler Cowen
It's a crypto asset backed by dollars. So if I have a dollar in my pocket, say I pull out a dollar bill, I can pass that dollar to someone or I can create a digital representation of that dollar and, and trade the digital representation. So stablecoins are like the digital representations of dollars. They are now in the process of becoming digital representations of dollars in the US Financial system. And that is a major radical change.
- [01:16]
Interviewer
But it's still only a dollar. In other words, unless there's a US dollar backing the stable dollar coin, the stable dollar coin can't exist without the dollar behind it.
- [01:31]
Tyler Cowen
That's right. And the Trump bill, it's quite clear there has to be 100% reserves. And if there's truly 100% reserves, the system should be stable. Because for every digital representation, there's a dollar. Or it can be a T bill, but a T bill is as safe as you're going to get. So if you trust the regulators and you trust the financial intermediaries to honor that commitment, it will indeed be fine for the U.S. now, one question is, can you trust them? Companies break the law all the time. We saw this during the financial crisis. Or maybe they bend the law. And if you read the laws very closely, well, maybe you have one to one backing. But let's say you take some off balance sheet risk that is not reported to regulators, it's off your balance sheet and then you have to assign the seniority of credit claims. Well, the one to one backing is that always senior in the credit structure under all circumstances, senior to the off balance sheet risk. Well, maybe it is legally. Say things go wrong on your off balance sheet risk and you grab a little money from the till and send it there saying, oh, you know, a week from now it'll all be better, I'll put the money back in the till. These things can happen. It happened, you know, with sbf, so there's some risk, but there is tight regulation. There's also a risk for Europe in particular. So the European Central Bank, European Union, they're very worried about this and they're wondering what to do. So basically the world wants to use the dollar. It's the most liquid asset. People think it's the most stable. Whether that's right or wrong. And with the dollar, like if you have a concern, you know, say you're head of the Japanese treasury and you have a concern, you pick up the phone, you know who in the US to call, you call Jay Powell, Secretary of the Treasury, President, depending, you can call the head of the ecb. It is who you would call, but they don't have that same clear direct power base.
- [03:32]
Interviewer
What is the ECB?
- [03:33]
Tyler Cowen
European Central Bank. So again, there's 27 different nations in the European Union. Some decisions are unanimity. It's all very bureaucratic, like do you really need Germany's sign off? How many countries have to actually agree for something to happen? It's so complicated. In the crunch, who really decides?
- [03:54]
Interviewer
How is a stablecoin different than a wire transfer of dollars?
- [03:58]
Tyler Cowen
A stablecoin you can program so you can give it instructions. In a sense, you could say it acts like an AI agent almost. So they allow you to do things that you can't do with dollars. And dollars are regulated in a way that stable coins may not be. So let's say I want to buy a painting at auction from Sotheby's in London, which I've done, and I want to send dollars to Sotheby's to buy my painting. It's a pain in the ass. So there's like know your customer rules or you try as an American citizen to set up a bank account in Europe. This is hard because the European banks know the US regulators get involved and it's not actually worth it for them. So all this is a pain in the ass. Right? If you can do all these transactions with stablecoins, at least under the status quo and this may change legally, but under the status quo, all those regulations disappear. So the world as a whole, so many parts of it would love to deal with stablecoins instead of the US dollar where Uncle Sam is always intervening in a pain in the ass way. Now you might think those regulations are even good or partly good. It might be true. But I'm just saying from a private point of view, it's easier to deal with the stablecoins trade, the digital representation which is not regulated in the same way and all your problems are solved. So there's so many countries in the world with unstable currencies. They want to use the dollar, but they don't want Uncle Sam nosing in their business, so they want to use the stable coins. And I suspect no one will quite say this, but a lot of Europe would just rather use stablecoins than the euro, yeah. So Europe faces, also the UK they face this risk that the euro becomes almost secondary as European currency. They're afraid of this. They won't say it. So the European Central bank is wondering, do we issue what's called the European digital euro, which would be an, probably an over regulated, lame attempt to mimic stablecoins. So stablecoins are dynamic, they have a lot of valuable use cases. But there is this potential risk that should not be dismissed. Trump people are like, we're going to go for this gamble. Very mixed opinions on this. You personally, my view is we should go for it. US Banking system is a mess. It's in some ways too heavily regulated. We rely on sanctions too heavily to try to achieve foreign policy objectives. And for there to be this other alternative that is useful to people, I'm willing to take that chance. But I recognize I might regret these words someday. And there's a secondary risk. So the stablecoins as the law is now, you cannot do them through US banks, meaning the word bank in the narrow legal term. You do them through crypto institutions. So Coinbase would be the best known, but there will be more of them. And non bank financial intermediaries like JP Morgan, Visa, MasterCard are already starting experiments with being involved in the world of stablecoins. Stripe, the payments company, is involved in the world of stablecoins. So if they're doing stablecoins but legal banks are not allowed to, which is still the law even under Trump. It might just be those banks lose resources and funds get drained from the banks into these other intermediaries. That could be better, but it also could be destabilizing. Because to have a bunch of banks all of a sudden not so liquid, not so solvent, that's a pain too. We've been through that. It wasn't pretty. You prefer to do that very slowly if it's going to happen at all. Are we actually set up for that to happen slowly? Not so obvious. So the bank lobby has now started to push back very hard on the Trump bill and they're trying to modify it. Now. Here's this other complication. The Trump bill says clearly that if you hold stablecoins, the stablecoin cannot pay you interest. So what was said to the banks, the banks can pay you interest on your savings account, checking account, and the stablecoins can't. And this sort of made the banks happy. But now people are innovating and they're setting up these mixed hybrid products where you put something into a stablecoin and then a Second, later it's transferred into something that earns interest and that gets credited to your account in various indirect ways. And de facto the stablecoin, it's not legally paying you interest, but, but the return you're earning is as if it were paying you interest. And the banks are more worried again.
- [08:36]
Interviewer
So the stablecoin is putting the US dollar on the blockchain, is that correct?
- [08:42]
Tyler Cowen
It's on the blockchain already, but it's making the US dollar on the blockchain legal and legitimate within the United States. And furthermore, the SEC in terms of regulations has cleared the way for a lot more crypto activity. But the US faces this very important long term question about its banking system. So it used to be half of our financial system, more than half, well over half was banks. You wanted a loan, you go to a bank. That's the world we grew up in. Now banks are about 20% of the financial system.
- [09:15]
Interviewer
Where'd the other 30% go?
- [09:16]
Tyler Cowen
Many other things. Some of it's mutual funds. But recently private equity and private credit have been the huge gainers. Now this ties in actually to AI. So the AI companies, they want to buy more GPUs, they want to set up these energy sources. It's a lot of money, right? A ton of money. So where do they go for this money? They don't go to the bank. That's crazy. The banks don't have enough capacity to do it. Banks may be involved, but they go to private credit, private equity, and they raise the capital there. So as our banking system shrinks and shrinks, what we did was regulated it and protected it with the feeling that we had regulated and protected our economy and prevented another Great Depression. That may have once been true. But if your banking system is 20% goes to 15, 10, at some point you're regulating and protecting a little sliver. And the rest is this huge giant thing that might give you trouble or might also be more dynamic and innovative.
- [10:15]
Interviewer
Have there been examples where the non regulated parts have actually caused trouble?
- [10:21]
Tyler Cowen
Well, 2008, what's called the shadow banking system, AIG, the insurance company, they wrote derivatives. That would be a simple example. Money market funds were run prone. So that's already happened. And all this predates stablecoins. The bank's shrinking at 20%. That's not because of stablecoins, we're just introducing stablecoins as yet another thing in a world where it's shrunk to 20%, so the banks are screaming bloody murder. But the banks a bit need to realize Time is not on their side.
- [10:51]
Interviewer
Yeah, they're not innovating.
- [10:52]
Tyler Cowen
They're not innovating, they don't give great returns, they're a pain to deal with, they're heavily regulated. So we need a solution for that anyway, so it's not entirely stable anyway. So I'm inclined not to blame the stablecoins. They're in a sense the short term messenger. So one reason I'm willing to to let the stablecoins proceed is I think they are ultimately the messenger, even if they cause some trouble. You know, we've got to face up to the shrinking banking system anyway.
- [11:24]
Interviewer
Now where do stablecoins fit in the overall crypto picture?
- [11:28]
Tyler Cowen
Stablecoins are the sector of crypto that by far is growing most rapidly. Bitcoin is doing well in terms of price, but it's actually a pretty static thing. What it's used for has not changed in quite a while. People hold it, it's a store of wealth. It could be a way of making black market or gray market transactions. But it's become boring, you could say, which is funny. Stablecoins are the active exciting thing, a possible development as AIs become better again to tie the two topics together. I think the AIs will want to trade with each other. So what my AI is good at and your AI is good at, there'll be different things. They'll trade with each other and they need a money. Now we're not ready to let the AI walk over to the local bank and set up a bank account. So they need some other money. They're going to use crypto. So crypto, probably stablecoins, but possibly bitcoin will be the money of the AIs. And at first that will be tiny, maybe tiny for a while, but at some point I think it'll be a few percentage GDP and it will be the money of this whole autonomous financial system which will be run by the AIs to be clear, not even us.
- [12:40]
Interviewer
So is the fact that the stablecoin can be used for purchases easily somehow undermining what the dream of bitcoin was?
- [12:51]
Tyler Cowen
Bitcoin could just stay boring and people will decide stablecoins are the way to go. That's possible, but we don't see bitcoin falling in price, so it seems.
- [13:00]
Interviewer
So bitcoin will be in fact more like gold. People tend not to spend their gold.
- [13:06]
Tyler Cowen
That's quite possible. That's a possible scenario. And it all so unexpected. If you're in doable coins have names.
- [13:13]
Interviewer
Or is it just Stablecoin, well, they.
- [13:15]
Tyler Cowen
Pretend to all be the same thing. There's different issuers, like there's tether and the actual fact of the matter is they're not entirely stable. So this is another consideration. Now with the new law, they're regulated and required to have 100% reserves. So I think they will be stable. But before the law, like tether, at one day it was down in 93. So the issuers of stablecoins, before they were regulated, it was on faith and they stayed pretty stable.
- [13:45]
Interviewer
Tell me about tether. I don't know about tether.
- [13:48]
Tyler Cowen
Well, it's huge stablecoin, right? And it's backed by is not transparent.
- [13:55]
Interviewer
How old is tether?
- [13:57]
Tyler Cowen
It's a good question. I would guess six or seven years. But it's been a big thing in just the last few years. Chartered somewhere in the Caribbean. Is it Grand Cayman now?
- [14:09]
Interviewer
And how is it used?
- [14:10]
Tyler Cowen
Mainly people use it to make transactions where they don't want to be involved with the US banking system. And some of that has been illegitimate. But a lot of it is just people doing legitimate things and they don't want to pay the costs of the regulation.
- [14:25]
Interviewer
Besides tether, what are the other choices?
- [14:27]
Tyler Cowen
There's two main stablecoins. But it's all going to change now because it's all being legitimatized. So that old world, forget about it. We'll see. Like who charters in the US I think people will want stablecoins chartered in the US and not rogue. But they'll always be people who prefer the rogue ones done from somewhere else, Grand Cayman, wherever. But they'll be smaller. Another reason to pass the Trump legislation is that if you don't do it legally, the same thing will happen places where you can't control because you can always access the stable coins online and the law can't really stop that. We're not going to be like China with the great firewall. So you might as well bring it under the hood, make it yours, embrace it, hope it works out well. That's another reason to approve of the Trump thing.
- [15:18]
Interviewer
And it'll be a global currency. It already is a global currency.
- [15:21]
Tyler Cowen
It's already a global currency. So, like, will all stable coins be the same? Will you have some stable coins that are not fully stable? I think that's okay. Like they have to be stable enough. But you know, if some days it's down to 0.980.99 for whatever reason, is that the end of the world? I don't know. Another thing people talk about is that maybe Amazon and Meta should issue stablecoins. You know, Meta had ambitions in this direction some number of years ago and they gave them up. But they wanted to do it and legally it didn't work out for them. They couldn't do it in a way that was legal and worth it. Now they can. So if stablecoins are just one business line of Meta and Amazon, those are super wealthy, highly capitalized companies, they're going to be pretty stable. Maybe there's eventually some risk. But to imagine the main money suppliers as being Amazon and Meta and in a way they're issuing gift certificates. Remember you used to get like gift certificate from Nordstrom, from Macy's. You could like trade it to your friend. It was just like a tiny minor thing. But imagine that being a big part of a monetary system. It's like gift certificates and it's backed by Amazon or Meta and their revenue. That's quite conceivable. It hasn't happened yet. Speculative, but it wouldn't surprise me.
- [16:42]
Interviewer
And also the idea that if it is in fact a stablecoin, you couldn't only use the Amazon coin at Amazon, you could use it anywhere anyway.
- [16:50]
Tyler Cowen
And you're not relying so much on the regulators, maybe you don't trust them fully. You're just like, look, Amazon is a lot of money. This'll be stable enough. And if you have a money market fund, you know, that fluctuates in value every day by small amounts, but it's stable enough. And if the Amazon and Meta stablecoin funds fluctuate a bit, it's probably fine. And if Amazon goes out of business, you figure that's a very slow process. And in the meantime you shift into something else. There's quite a good chance, I think the market will decide that's what it wants. And then you have Stripe, MasterCard, Visa, also very profitable, very regularized institutions, you might just rather deal with them than your banks. Again, highly conceivable. So that's a lot of change.
- [17:39]
Interviewer
Tell me about Stripe. What does Stripe do?
- [17:41]
Tyler Cowen
They're a payments company and if you want to accept payments for something, there was PayPal. But PayPal had some inefficiencies. A lot of it was directed toward retail users just to set up a business that takes payments on the Internet. Stripe has been the easiest way to do it. And it's not just that they make the payment, but they do things like your cybersecurity for you. There's tax related services. They manage a whole suite of IT related services which are Bundled with doing the payments, with payments at the core. And of course they charge you a fee. You know Matt Iglesias, he writes a substack. People buy a substack. Someone like Matt is a natural user of Stripe. So I believe stripe processes like 1.6% of global GDP. That number may be approximate, but it's a lot, right? It's a lot.
- [18:34]
Interviewer
A lot.
- [18:35]
Tyler Cowen
So that's a profitable company. And they now have this new project they're affiliating with the stablecoin issuer and we'll see how that goes. But they have a significant presence in payments networks already.
- [18:49]
Interviewer
So people may end up using stablecoins without even really knowing it. If they're used to using something like Stripe.
- [18:54]
Tyler Cowen
That's right, you don't need to know it's a stablecoin. But there's still the question. We have these legacy systems and if they just go bankrupt and they are guaranteed by the government in different ways, it's hard to manage well. So again, the people who worry, they're not wrong to worry. But I think it is wrong to side against the progress. I think ultimately you've got to take some lumps and move on to the next set of things.
- [19:22]
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- [20:52]
Interviewer
What's the difference between the EU and the WEF?
- [20:56]
Tyler Cowen
The World Economic Forum? Yeah, well, they just convene and have meetings. They're just like a body of people who get together and they do business deals and act like elites. It used to be the place to be. I don't know if that's still true. Probably it still is to some extent.
- [21:11]
Interviewer
So they don't have any regulatory power, no, nothing.
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Tyler Cowen
You go and someone does PowerPoint and everyone sits in the session and they're bored. And then there are these private parties where real deals get made. That's what I'm told.
- [21:23]
Interviewer
Interesting.
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Tyler Cowen
Like you might object to the people in it or what they do in different ways, but WF itself is a nothing burden.
- [21:29]
Interviewer
It's a party.
- [21:30]
Tyler Cowen
It's a party. Bad things can happen at parties, but it's a party.
- [21:35]
Interviewer
If you were to choose another country to live in, where would you choose and why?
- [21:39]
Tyler Cowen
Depends on the income I'm allowed. A lot of my current income sources would go away and I'd live somewhere like Mexico and just get by and I'd be fine. But I would pick a relatively cheap country. But if you give me a high ongoing income, I think I'd live in London just for location, arts, culture. I don't love London. I love what is in London. In a way, to me, as a city, it's become quite boring. But it has the best bookshops, some of the best musical life I could imagine, also living in Berlin. Those would be my immediate picks. But it depends fully on what's my income or wealth. However you want to slice the cake.
- [22:16]
Interviewer
When the Internet first happened, one of the biggest changes of the Internet was the ability to work remotely.
- [22:24]
Tyler Cowen
Right.
- [22:25]
Interviewer
What's something that AI might allow on par with remote work?
- [22:31]
Tyler Cowen
Well, AI can teach you things that otherwise you would have had to learn in a city. So, oh, you want to be in New York. It's not just that you're next to the lawyers, you have the contacts where you can develop the zoom calls with the lawyers. But even that probably will become much less important. I think it will change economic geography quite a bit.
- [22:55]
Interviewer
Is there some radical thing that AI is going to make possible that isn't possible?
- [23:01]
Tyler Cowen
Before AI I like to think high quality education everywhere, but that's speculative. So you could live anywhere. You would need some tutors. I don't think it can be all by machine, but AI would make it possible. And I think it will really. Already has. Just people are not quite doing it yet. So there's Alpha School in Austin that's setting up new branches. Joe Lehmann's project that uses a lot of AI. I've met Joe. I've never been to one of their classes. There are many enthusiastic fans of the system. They have a model that's Alpha School. It's called Alpha School and it's been written up. People debate. Does it work well, because they use AI or does it work well because the parents are wealthy and the kids are very smart? I don't know. It does seem pretty obvious that it works well.
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Interviewer
What do you think the most useful kind of education is?
- [23:56]
Tyler Cowen
Real life. Mentors experience failing, succeeding. All of the above.
- [24:04]
Interviewer
What are some accepted norms and assumptions that you don't agree with?
- [24:09]
Tyler Cowen
Well, we're talking about education. Just this view that everyone should try to go to college, I think is deeply wrong. The notion that we should set up our educational systems so they're geared so that young women do much better in them than young men do, I think is probably a big mistake. And no one calls it that, but that's what we've done. So the returns to conscientiousness are too high. The returns to having the perfect vita and perfect letters of recommendation, or all your high school teachers think you're wonderful. So many of the great achievers of the past, and they do tend to be more male, they're quite rebellious. They're more like, you could call them John Lennon personality types. And they barely get through the system. And those people, I think now are, in relative terms, more penalized than they used to be. Like, my father never went to college, would not have gotten through college, became very successful, but got jobs he could never get today, college degree. And that seems to me a big mistake.
- [25:10]
Interviewer
You got to spend some time with Magnus Carlson. What do you notice when you spend time with him?
- [25:15]
Tyler Cowen
He is an extraordinarily smart and articulate person about any topic that comes up. And anyone who thought of him as possibly some kind of idiot savant is just completely wrong. And he reasons very well about all issues he considers. That was my main impression. And you look at other chess champions. Bobby Fischer, well, he literally went crazy. Kasparov, whether one agrees with him or not, but he's a very passionate opinion holder, more than a reasoner. Vichy and on seems to me like more of a reasoner. But it's no guarantee that the top person in a field will be a reasoner.
- [25:56]
Interviewer
Do you think that the passion aspect plays some role?
- [26:01]
Tyler Cowen
Positive or negative, it certainly motivates. So if you're going to be chess champion of the world, you have to be completely obsessive. And obsessiveness may or may not be enough. But you also have to really hate losing. And I do think all of the chess champions, at least recently, truly hate losing more than anything. And that's part of the motivation. So they do have that passion. And. And that would include Magnus.
- [26:28]
Interviewer
And you think the winner would always Be the one who reasons it best, the best reasoner?
- [26:34]
Tyler Cowen
I don't think so. In general that does not seem to be true. So Bobby Fischer in his day, highly emotional. He would repeat the same openings too many times. A simple mistake that anyone could have and would have told him not to do. He would forfeit games by not showing up where there was no return to that strategy. But he had the talent. It worked out for him until he.
- [26:56]
Interviewer
Went crazy over the last year, biggest political changes and upheavals.
- [27:04]
Tyler Cowen
Well, the Middle east, everything that happened with Iran and continuing conflict in Gaza. I never know how significant that is. Like that was my baseline forecast anyway. I guess what I've seen is that what I expected has happened. Sort of an anti surprise. But sometimes the anti surprise is surprise. Like whoa, I was right about that. What a surprise.
- [27:28]
Interviewer
You know, also if what you believe is extreme, seeing it happen is surprising.
- [27:35]
Tyler Cowen
That's right. But I was not surprised by any of that. Not surprised by Russia, Ukraine. So those are two big areas where I feel I predicted mentally very well. And we're just seeing happen what I expected and I suppose China, Taiwan, we'll see how that turns out. But I'm pessimistic. But it hasn't happened yet. Right.
- [27:59]
Interviewer
Tell me about the betting market. What you can learn from looking at the betting market in general versus what the experts say.
- [28:07]
Tyler Cowen
The betting market slightly outperforms the experts. It depends who you take to be the experts. Ex post, you can always find an expert who got it right. But ex ante, I think when you have cases where there's genuinely no information to go on, the experts might be a little bit better than the betting market. They just have some human intuition. But those are not many cases. So when there is this rumor recently Trump was very sick, he might be dead, the betting market gave that, I think, a bit more credence than the experts. Experts maybe were right there. He still might be quite sick. We don't know. But there's really nothing to go on. And then I don't think the betting market adds much value. It might be a tie with the experts, but when you have data, things like who's going to win the super bowl, what's the best NBA team. I mean, you just look at the betting market and you're not going to do any better than that. It's just the best source, presidential elections. Maybe the experts in betting markets are tied, but they're tied in part because the experts are looking at the betting market. So they're also interdependent but it's just a good way to find out probabilities and you shouldn't take it too seriously, but it should disabuse you of notions to the contrary. And then it's like, well, if you're so sure, make a bet. So there's people who tell me there won't be another election in the U.S. you know, fascism will descend on us. I go, I look at the betting market. Last time I looked, Democratic Party was 53% likely to win the next election. Okay, you might think that's wrong, but make your bet. You know, 53% sounds like a normal election to me. You don't have to think the candidates will be normal or everything's fine with the country. Clearly it's not. But I strongly believe we're going to have another election and whoever wins, wins, and then we'll have an election after that.
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Interviewer
Are there any things in particular that you would look to the betting market and think this is the best place to get information?
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Tyler Cowen
Well, anything with regular data, it's probably the best place. And sports, maybe they're not a socially important example, but they're a very clear example. And there's a Las Vegas set of betting odds, prediction markets, they're basically telling you the same because of transactions costs, they can deviate a little bit.
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Interviewer
What's another example beyond sports?
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Tyler Cowen
Well, anything with elections or, you know, will a certain country leave the EU Right now, it doesn't seem to be in the cards. But if I were wondering about that, I would look at a betting market, prediction market, and I don't think there'd be a better estimate.
- [30:45]
Interviewer
Who do you think are the people who are betting?
- [30:48]
Tyler Cowen
Well, it's more open now, so it's easier for Americans to bet. You don't have to go through a VPN or a foreign credit card. So a lot more Americans, there's some insider trading in those markets that people who know go and make a bet so you see the odds move before the news is announced. I just think you have a lot of somewhat wealthy people who find it fun and attest their knowledge. Then you have a lot of people who are not that wealthy and it's a form of gambling. But maybe the odds there are better than some of the other ways they might gamble. And they do it like they bet on sports.
- [31:26]
Interviewer
Tell me about the book Goat and the idea of it being a generative.
- [31:30]
Tyler Cowen
Book Goat is a book I wrote, published two years ago, and it's the first book I know of, published in GPT. Then it was GPT4. So what does that mean? Goat is just a regular book. You can read it PDF or print it out like any other book, put it on your Kindle, but instead of reading goat, you can just ask the AI about goat. And goat has been fed to the AI. Now also Claude the other models Gemini meta. And you can just say, I don't want to read chapter two. Summarize chapter two for me. Or oh, in chapter two, Tyler didn't explain where Milton Friedman went to school. Tell me all about Milton Friedman in college and it will do that. So it fills in parts of the book that are missing. You can ask, where would Paul Krugman disagree with this sentence? And it will give you a sense of that. So it's an interactive book. Any reader can build his or her own book by interacting with the AI. And I think books in the future will be like goat. There'll be the plain version you might just read and then the AI version. And a lot of people will prefer the AI version.
- [32:37]
Interviewer
How will you feel if the AI's interpretation of your work is maybe even the opposite of what you meant?
- [32:46]
Tyler Cowen
I might feel the AI was right and I was wrong. That would probably be the meta rational thing to feel. I think I would be more flattered than irritated. AI has a lot of opinions about me because I've written online every day for 23 years and I've done hundreds of podcasts as you have, and they're on different topics. So its model of me is pretty broad. And anything the AI says about me I would just take very seriously. And this is already the case, right? It's not a hypothetical.
- [33:16]
Interviewer
When did you start the Marginal Revolution blog?
- [33:20]
Tyler Cowen
It's about 23 years ago, I think, almost to this day. It was like early September, I think.
- [33:25]
Interviewer
How did you get the name Marginal Revolution?
- [33:29]
Tyler Cowen
Refers to a movement that built modern economics to understand that people value goods at the margin made possible the application of calculus to economic reasoning. But it was intended as a double meaning that the blog itself would be a marginal revolution in thought. That's how most people took it. And that's fine in a way that's the better meaning, but it signals to an economist that we're economists and that's good too. So I thought it was the perfect name.
- [33:56]
Interviewer
When you started it, did you have any prediction about how long you would continue it?
- [34:01]
Tyler Cowen
I was totally wrong. I thought it would maximum get like 5,000 readers and maybe do it for a few years. And who knows? My current view is I'll do it until I can't anymore that I'll never stop. You know, it would commonly get 50 to 100,000 readers plus people read excerpts of it on different things where it doesn't show up on the counter, Twitter or other places. So it's been successful. I see no reason to stop.
- [34:29]
Interviewer
And you write it every day?
- [34:30]
Tyler Cowen
Every single day. Now I publish every day. I don't literally write every day. There's auto publish, but I write like 95% of days.
- [34:38]
Interviewer
Do you think of it as a sort of a diary?
- [34:41]
Tyler Cowen
It was intended as a diary. It is a diary. I thought I'll do this thing and keep track of what I've read, what I've thought. And the first year or two that works fine. But when you have 23 years, I mean, there is a search function which has gotten better over time. But now a great thing about AI is if I want to find something on the blog and I don't remember the keywords, I just type into like Perplexity. Where did Tyler write about this? And Perplexity GPT. Claude can find it. So it's a diary again in a much stronger way because of AI.
- [35:28]
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- [35:34]
Tyler Cowen
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- [35:35]
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- [36:56]
Interviewer
Tell me about how the blogosphere has changed since you started.
- [36:59]
Tyler Cowen
Till now, most of the blogosphere has disappeared. So people do Substack, which is a great company, a great service. They're good defenders of free speech. We don't do substack for two reasons. One is just our archives are so large it would be very hard to transfer them and we want to keep our archives. But also substack is I think best for longish essays. A thousand to two thousand words that you send out periodically. And if we do four to Five posts a day, some of them quite short. No one wants four to five emails a day, but bundling them together isn't quite right either. So WordPress works better for that than Substack. So we still do WordPress even though the technology now would be considered pretty backward.
- [37:46]
Interviewer
Do you remember what the inspiration to start it was?
- [37:48]
Tyler Cowen
I just thought blogging would be a big thing and should do a blog. There wasn't like a really good economics blog at that time and we did it with my co blogger Alex Tabarrok.
- [38:00]
Interviewer
Were there other blogs that you were reading at that time that made you feel like I wanted to join this party?
- [38:05]
Tyler Cowen
Yeah, I wrote a little for a legal blog called Volok Conspiracy. I wrote some economics for them. Brad DeLong had an economics blog. A woman whose pen name then was Jane Gault had what was often an economics blog and those were valuable and I drew some inspiration from them but just thought could do more.
- [38:26]
Interviewer
Do you read the comments?
- [38:27]
Tyler Cowen
Yes. Now, not every comment over time, but if a comment is put up in like the first 2/3 of the day, probably I'll read it.
- [38:37]
Interviewer
And do you ever find anything interesting reading the comments every day?
- [38:41]
Tyler Cowen
Always.
- [38:41]
Interviewer
Really?
- [38:42]
Tyler Cowen
Absolutely. Now there's crazy people in there and there's very negative destructive people and people who insult others. But like all forms of social feedback are valuable and I enjoy it. And some of them are funny. Some of them you learn things like the commenter called Shure, whoever he is, he's a super smart guy, he knows a lot about the healthcare system. So yeah, read the comments.
- [39:09]
Interviewer
How important is free speech?
- [39:11]
Tyler Cowen
I'm a first Amendment absolutist. I think even libel law is too strict. It's certainly too strict in the United Kingdom. And what the UK is doing like arresting 30 people a day I just think is evil and completely self destructive. Apart from what it does to their own people, they're a laughingstock in the world now and just someone needs to shake them and say, hey, wake up, this is a mistake. Even if you think these people are wrong in what they write, like a big chunk of the US is laughing at you and it's harming your own reputation.
- [39:47]
Interviewer
What percentage of your blogs are topical versus just a timeless thought?
- [39:55]
Tyler Cowen
I'm never sure what the distinction is. So it's whatever I'm thinking about and that's driven a lot by the news cycle. But if I just read a novel or hear some music, there's this woman I've been listening to, it's Emily linga and she's 17 years old and she lives in Dubai and she sings and plays the piano and it's quote unquote amateur music and it's all covers, but she captures something about some of the original tunes that works for me and I'm going to post about her. Is that like timeless? Is that topical? It's sort of both and neither. Right.
- [40:31]
Interviewer
Do you ever write about philosophical themes?
- [40:33]
Tyler Cowen
Absolutely. All the time. Yeah. And a lot of my published academic work is in philosophy journals, not just economics.
- [40:41]
Interviewer
What do you think in today's culture is overrated and what's underrated?
- [40:46]
Tyler Cowen
That we're shifting to an oral culture. People are starting to notice this, but it's still underrated. How far it's gone. It's underrated. How much, say the sources of authority that were around in 2000. I mean, you mentioned WEF before. There's just so many things like that they still exist, well known. People go to them, they do a thing. That is a thing. They appear functional, they have funding, but I think they're mean.
- [41:15]
Interviewer
Less and less over time.
- [41:17]
Tyler Cowen
Yeah, irrelevant. This is a common observation, but I think it's still underrated how far that's gone.
- [41:24]
Interviewer
And in terms of the audio portion, do you think in terms of speaking to and listening to your chatbot and listening to audiobooks versus reading books, is.
- [41:34]
Tyler Cowen
That what you mean, underrated how far that's gone? And YouTube and of course TikTok.
- [41:39]
Interviewer
And you think it'll continue in that direction, away from reading?
- [41:43]
Tyler Cowen
Yes. This is not entirely a good thing because there's something about reading that's quite analytical and you have a more reasoned back and forth and I think you're more likely to converge on truth. But oral culture excites people, motivates them, involves them. And all the millions of people, say, who use ChatGPT as therapist. I think it's good for most of them, or at least neutral. You always have your suicide cases or nutters. But I think it's a big net plus and it's oral culture. It's part of it.
- [42:14]
Interviewer
What is mood affiliation?
- [42:16]
Tyler Cowen
The idea that you judge ideas by whether or not you agree with their mood. So. So there are people who are like optimistic or pessimistic and they see everything through that lens. I think that's a mistake. Maybe oral culture encourages that a bit because an oral presentation, it has a mood. Right. You come out with some level of energy. Is this a sad song? Is this a happy song, A tragic song, whatever. Print culture, it's colder, as McLuhan said, and that can be useful. You See this so much with Trump. People have moods toward Trump and whatever you think the right mood is, I would say try to get yourself out of that mood and just think about the thing and analyze it and just try that on for a while. And try not to talk about Trump at all. Just talk about the thing. And you can later switch into talking about Trump, but make a big effort to segregate the two.
- [43:09]
Interviewer
Do you think in general, people are more or less informed today than 20 years ago?
- [43:15]
Tyler Cowen
They have more information. They have more misinformation also. So it depends how you weight that. They believe more false things, but they know more, too.
- [43:24]
Interviewer
What about 50 years ago?
- [43:26]
Tyler Cowen
I think same basic trend, but all the more so. The information diet was pretty impoverished 50 years ago, but that did encourage some shifts into quality. So maybe very lately classic novels are making a comeback. But I feel they were more important 50 years ago than they were 20 years ago. Yeah, we'll see. But print culture 50 years ago was really very important, and that had some big pluses.
- [43:53]
Interviewer
How about 100 years ago?
- [43:55]
Tyler Cowen
That's 1925. There were great classic works being written then, but the overwhelming majority of books seem unreadable and stupid to the modern reader, whereas they do not. Say from 1978. A history book from 1978 can just be a very good or great book. But there were not enough quality checks or standards back then. So sometimes people overrate those earlier eras. But you do have these lone geniuses, say, like Nietzsche in philosophy, where today you don't have anything like that. People who will still be worth reading. There's very few of those today. People are more specialized. They carve out these niches. So in the 1920s, like you think what was written in fiction, you have Proust, you have Thomas Mann, you have Rilke, like unbelievable works that were not quite matching today.
- [44:52]
Interviewer
What do we learn from fiction that we don't learn from any other place?
- [44:56]
Tyler Cowen
I think what we learn from fiction we cannot express through means other than fiction. Otherwise it would not be a thing that we learned from fiction. But they give us richer models of human beings. They recreate parts of past history for us that historians cannot. They challenge our values. They're pretty wonderful and amazing. I'm doing a reread now of Thomas Mann's Magic Mountain, and it's just been fantastic. That is a work from the 1920s. Maybe it's 24 and the relevance of it to the current world. You mentioned world economic form before. Well, it's set in Davos, which is an amazing irony because all these people show up and then they do nothing. And some of them are mentally ill and they're all spiritually weak or out of date. And you can read it as a parable about 2025, and the novel is really very fresh. Whether or not you agree with all the perspectives, it's a phenomenal book to reread. And that the location is Davos is so perfect.
- [45:53]
Interviewer
What's the benefit of challenging our values?
- [45:57]
Tyler Cowen
You hope for improvement, but that aside, I just think it's part of what a human should do for intrinsic reasons is to challenge things, most of all your own values. Maybe sometimes it depresses you or you go in circles. I just still think it's a better way to live.
- [46:13]
Interviewer
Tell me about moving to the Free Press as a place to publish.
- [46:17]
Tyler Cowen
Well, I wrote 10 years for New York Times and in general I was happy there. There's a lot you can object to with the Times, but didn't infringe on me very much. I wrote for the business page and they wanted me as a contrarian. I wrote eight years for Bloomberg and I wanted a change of pace. And I thought what Barry Weiss is doing is exciting. And as I said in a piece I published for the Free Press, I like the idea that they're a startup and they can fail. And when you can fail, things really matter. And you see this in the history of music, especially early years of what become great groups or performers. They know they can fail. It's tough. Doesn't matter if you're great. And it so motivates them and sharpens them. And to have a version of this in media I thought would be fun and good for me.
- [47:04]
Interviewer
Do you think of yourself as contrarian?
- [47:06]
Tyler Cowen
I don't know what that word means. I guess I don't. It's non contrarian to think of yourself as contrarian. So somehow we should try to escape those categories, I would say.
- [47:20]
Interviewer
In your exotic travels, how do you find the best places to eat?
- [47:23]
Tyler Cowen
Well, this is a view I have, like where I disagree with what a lot of people say. If you are wise and careful, there will be an inverse relationship between the price you pay and the quality of the food. So a lot of the best food in the world is extremely cheap and it can be in places like India or China or Mexico. You have your best, most memorable meals outside the major cities. How do you fancy restaurants?
- [47:47]
Interviewer
How do you go about finding those experiences?
- [47:50]
Tyler Cowen
If I'm in Mexico or I speak Spanish, to be clear, what I do is I get a cab driver. You want A man who is between like 40 and 55 years old. Old enough that he's been around, but not so old that he's jaded or just not tasting the food anymore. And pay him some money. It doesn't cost much to bring you to his favorite places, and you just have to convince him you mean it.
- [48:13]
Interviewer
So it's local. Local wisdom, really. Yeah.
- [48:16]
Tyler Cowen
Men who have jobs in the transportation sector know all the places, and they know other men. You know, in the United States, you could ask a woman where to eat, and you get a great answer. As good as what the men would tell you? Probably better, in fact. But a lot of poorer societies, there's a lot more sexual segregation. Women are kept at home more. They may have jobs, but they're not working in the sense of traveling around all day the way a fireman or policeman or taxi driver would be. Those are male jobs. So you should ask men.
- [48:46]
Interviewer
And do you find the best places to stay that way as well?
- [48:49]
Tyler Cowen
I just use GPT.
- [48:51]
Interviewer
Pre GPT.
- [48:53]
Tyler Cowen
Well, if you go before Google, I think you can just walk around and see. And I would do that. Show up with nothing booked and do fine or even again, ask a cab driver.
- [49:04]
Interviewer
And the same for the most interesting things to see.
- [49:08]
Tyler Cowen
You might just know already, maybe the reason you went. That's the reason you went. Yeah. So art museums and food and music would be my main interests. And I feel I go there already.
- [49:19]
Interviewer
Knowing of all the exotic places you've been, which are the least like our culture. Give me the best version. Least like it best and least like it worst.
- [49:30]
Tyler Cowen
I went to Yemen. I think it was 1995 or 96. The strangest place I've ever been. So I stayed in the capital city, which is the richest place there. And I was in the best hotel in town. And no person in the hotel spoke English. All of the women, this is again in the capital city, not the countryside. They all wore full veil. Every man carried a dagger. And I'd say 80% of the men, they chewed this leaf called Kat Q A T. It's a kind of narcotic. You're not totally stoned. It's like chewing coca leaves or something. I don't know. I never did it. And that's the whole society is the veils, the daggers, the no English. Zero chain stores, zero brands. There were markets, food could be great. Medieval architecture at that time, all fully intact. I don't know if it still is. And then you could go. It was safe. It was the most incredible trip I ever took.
- [50:25]
Interviewer
So that was a positive one.
- [50:27]
Tyler Cowen
Well, not positive for them. Their lives were terrible and poor for me. For you, yeah. I would not wish that life on anyone. India I find always fascinating. Much less like America than China. I think of America and China as having a lot in common. In fact, America and India, not so much. And just the number of religions, languages, views, casts, everything makes your head spin. And there's so much drama there. Always interesting experiences. But it's tough with things like noise pollution. The hardest thing about going to India, I sometimes say, is crossing the street. There's so much traffic, you can't count on there being a traffic light. There are rules, but you don't know them. So if you tag along with other natives crossing the street and walk with them, that's the way to do it. But sometimes I'll pay for a taxi ride and I just say to the taxi driver, take me across the street. And he thinks I'm crazy. But I have no other way of getting across. And it's worth the pittance that you pay.
- [51:31]
Interviewer
That's amazing.
- [51:31]
Tyler Cowen
Yeah.
- [51:35]
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- [53:03]
AI Assistant (GPT)
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- [53:10]
Interviewer
Any thoughts about Luigi Mangione or the assassination of other corporate leaders that are happening these days?
- [53:18]
Tyler Cowen
Well, on Twitter today I saw an ad. I don't think it's the real Luigi, but they put an image in probably AI generated that looks just like him. And I think they're selling shirts. So it's a weird world in many ways. The current state of the world is very disturbing. But rather than just freak out, I think we need to try to confront it in some constructive way and move on to where we're headed.
- [53:44]
Interviewer
What do you think the cause of it is?
- [53:47]
Tyler Cowen
Well, I suspect he's mentally ill. I don't know much about him as an individual. I didn't read much of the articles. But I think he thinks it's justified. And again, I don't know much about that company. I would just say any large enterprise typically ends up doing some bad things. And you can blame the leader for those. I think there's some further level of maturity where you just say this is not the right way to improve the world. But one needs to take seriously that it happened and realize whatever checks and balances were in place that would have stopped it from happening 20 years ago. Maybe they're not so much there anymore. So there's this other story as we're speaking. I think seven different AfD members running in local elections have died quite recently. All in one province of Germany, Nord Rhine.
- [54:36]
Interviewer
How can it be?
- [54:37]
Tyler Cowen
It could be coincidence. There's weird coincidences.
- [54:39]
Interviewer
7.
- [54:41]
Tyler Cowen
It could be a serial killer who somehow does it in a way that law enforcement cannot track. I haven't read the stories. I don't know. But the very fact that you think it's possible it's a killer is what matters whether or not it's a killer. We all think it might be a killer. And that's what matters for understanding today's world and how to get people into some new mind space where that is more unthinkable again, I think is a priority. But there's no mega project way of doing it. It's all small bricks and being positive about small improvements and building human bonds. In a way, it never feels like you're solving that problem. But maybe after a few decades, a whole bunch of your problems have become better.
- [55:25]
Interviewer
In Luigi example, you talk about not knowing much but believing maybe there's a mental issue. And you talked about there being an ad for shirts with Luigi in it.
- [55:37]
Tyler Cowen
That's right.
- [55:38]
Interviewer
Let's talk about that part of it. The embrace of the character.
- [55:44]
Tyler Cowen
My guess, I don't know much about the market for shirts. I'd never heard of the company. I can't remember their name. So odds are they're not a very well known company. This is a kind of Hail Mary pass. Like, hey, we'll try this for publicity. Otherwise we have nowhere to go but down. And maybe people will start talking about us and they're an upstart. And there's some chance it works, right? Yeah, there's always so, so much. But I think the story of the next five years, other than politics, is that AI will start intersecting with more and more other parts of our life. And we need people with positive visions of how to make that work for us rather than against us. It's this idea of these small bricks, bit by bit, is how good things happen. And people will come out with grand plans and predictions. It will be tremendous. It will be awful, probably. All of that is misleading. It's up to us to decide how good we're going to try to make it and each do some part of that. And. And now that you're one of the hundred most influential people in AI, according to Time magazine, I'm one of the hundred most influential in philanthropy, by the way. So we can share that joke in a way. But Time was not crazy to pick you. You are highly influential on AI to audiences who don't have that many other sources. So I would take very seriously the fact that you won this designation. It was not a mistaken pick and for you to do your part. So just people think about it better and more deeply because you will reach these people.
- [57:18]
Interviewer
What do you think about developing the imagination required to create better prompts? How do we do that to allow AI to do its best work? It's about becoming good at prompting. How do we develop that skill?
- [57:32]
Tyler Cowen
Well, I read yesterday that GPT has a new service which I haven't looked at yet. You toggle to something and it improves your prompts for you. I haven't tried it. I don't know how good it is. I suspect it's a big help. Other AI services, you can just ask. So if you have a prompt for GPT, ask Claude. If you have a prompt for Claude, ask GPT. That right there is a big help, but just trial and error and experimentation, which is mostly fun. Again, keep in mind, you need to think literally. Some people say the prompt goes better when I speak the prompt because when I talk I'm a bit wordy and I give more context than when I type. Not true for everyone. Some people are just laconic. Maybe I'm a bit that way. For a lot of people, they find that's useful to speak the prompt.
- [58:19]
Interviewer
So maybe succinct isn't the best prompt.
- [58:22]
Tyler Cowen
It's not. No. You want to be a bit run off on the mouth because that gives it the context it needs where you otherwise don't think it needs it. So you have to overcome your inner laconic self.
- [58:34]
Interviewer
I would not guess that that's right.
- [58:36]
Tyler Cowen
And it's really not like humans. I sometimes say it's like training a horse or a dog. Ultimately it wants to obey. But simple requests are not always honored immediately either. There's a trick to learning how to do it, and once you know some tricks you do much, much better. Just go up to some random dog and say, sit. Begging. It's not going to do it. So people try this with the AI and they're like, oh, this AI is crap. But it's like just yelling at the dog to sit or beg, you know, it doesn't quite work that way.
- [59:07]
Interviewer
How do you feel about AI acting like a human in response instead of acting like what it is?
- [59:15]
Tyler Cowen
I don't know what it is other than what it does. I prefer my AI fairly Spock. Like, I don't want it to charm me. I don't want to use it as a therapist. I don't want those parts of myself to be interacting with the AI. And I'm very happy when it's just the facts, ma'. Am. That's what they used to say on Dragnet. Yeah, but I know I'm not the typical user. People want all sorts of weird things from it and they get it. I don't think we can fight that. I think we need to work toward a better version of it.
- [59:46]
Interviewer
You know, it might be interesting thinking about this. People like watching Twitch to watch other people play video games. Might be interesting to see and hear other people talk to their AI. We will probably learn from that.
- [59:59]
Tyler Cowen
Yes. I wonder if there's a YouTube or Twitch channel that does this now. Yeah, we know. Who would know, right? Who? Well, let's see if we can get back into the audio version of GPT. Okay, GPT. Rick Rubin and I, we're looking for some channels. They could be on Twitch, they could be on YouTube or maybe TikTok or someplace we don't know about, where people are speaking to the large language models and the point of the channel so others can watch them doing the speaking to learn from it or be inspired or they just find it to be fun. Are there any such channels you can tell us about?
- [60:37]
AI Assistant (GPT)
Absolutely. That sounds like a fun quest. And there are indeed some channels out there where people basically let others watch them interact with large language models. It's a mix of learning and entertainment. On YouTube, there are a few established creators who do this regularly. For example, you've got channels like AI Advantage, which I mentioned, where the host often does live demos and breaks down different prompting strategies. You can see him talking to the model and explaining why he's phrasing things a certain way over on Twitch you can occasionally find tech or AI enthusiasts who do live streams or they basically chat with an AI and let the audience chime in with prompt ideas. These streams can be pretty casual but fun and people do pick up tricks by watching. And on TikTok you can find shorter clicks where creators demo cool or funny interactions with LLMs. They're not always as in depth, but you'll get a feel for how people are creatively engaging with AI. So yes, there are definitely some fun and educational options out there. If you and Rick Rubin are curious, those channels are a great place to start browsing and getting inspired.
- [61:44]
Tyler Cowen
There we go. That was great and thank you GPT.
- [61:48]
AI Assistant (GPT)
You're very welcome. I'm glad I could help out. If you and Rick ever need more AI related adventures or anything else, just let me know. Have fun exploring those channels.
- [61:58]
Tyler Cowen
Pretty good, pretty good.
- [62:00]
Interviewer
How different are the different AI models available now?
- [62:04]
Tyler Cowen
There's so many models, but the main models are different from each other but in some ways converging. So for what you would call casual functions, the GPT models and Claude from Anthropic typically would be considered the best, and they're on a rough par in terms of intelligence. I would say when I want to ask it about music and the history of music, I definitely prefer GPT. But if you wanted it for therapy or for writing or to sound more naturally inhuman, I would prefer Claude. So it depends if you want to do something quantitative and computational. Gemini typically would be the best. Most people aren't doing that. Then there's models that are especially good at images, like midjourney, not something I do, but those are very impressive. You wouldn't say GPT is the best model for images. I think for history, philosophy, discourse, facts about the world, and economics, the GPTs GPT5 Pro in particular would be the best.
- [63:03]
Interviewer
Do you think that they're programmed with those things in mind? Is that the reason one is better than the other is the way that it's programmed?
- [63:10]
Tyler Cowen
Programmed is a tricky word here.
- [63:12]
Interviewer
What's the right word?
- [63:14]
Tyler Cowen
It's more like baking a cake than writing a program. And to some extent now the things write parts of their own programs. Different companies have different emphases, but it also just works out that they try different things and well, that happens to work well for something and then they keep on going down that path because they found something that's working. So some of it is design, some of it is accident. I would say Anthropic in particular has targeted the corporate market. So their model and this doesn't matter for my uses, but it's very good at running a consistent workflow that won't just screw up because it runs longer in time. So a lot of companies like that. Individual users are not going to notice that. Individual users. ChatGPT is the best app. It's by far the biggest brand name. It's very good for things like planning trips, very good for medical and legal advice. That's probably what most people are going to use.
- [64:12]
Interviewer
Have you experimented with either Perplexity or Cursor or any of the secondary apps?
- [64:20]
Tyler Cowen
I don't know. In Cursor, that's programming space and you combine it with other things. I use Perplexity every time I'm writing. If you want a citation. Perplexity is the best service for finding links. And I find their interface very appealing, very intuitive, super easy. It just finds for me the links I wanted. It's like a better version of Google where I can just say what I want and it does it. It's not based on search terms per se. Even Google is. Not anymore for that matter. But Perplexity for me is now the better Google.
- [64:54]
Interviewer
If you were to use chatgpt through Perplexity, would you get a different result than if you use ChatGPT directly?
- [65:02]
Tyler Cowen
Yes. Now there's many different ChatGPT models and I will switch the model depending on my query. For simple queries, I just have it either on instant or take as much time as you think you need and it does fine figuring out how much time it needs. But for difficult problems, you put it on full blown research mode and it could take up to 10 minutes to answer a question. You get a better, more detailed, more verified, fact checked answer. But it takes 10 minutes and often it's just more than you need to know. If you're using ChatGPT through Perplexity, it's changed over time, but typically you're getting the simpler versions. Again, fine for most queries, but you're not getting the super high powered chatgpt.
- [65:44]
Interviewer
In the past I remember you saying the AI wants to do the least amount of work to get you the answer. Is that correct?
- [65:53]
Tyler Cowen
It depends what model you toggle to. So the models have gotten more complex and more varied. So if you toggle to the most complex GPT model, which you have to pay for to be clear, it often does too much work. For some problems, that's fine. Or you want to be sure you don't mind waiting for seven minutes. Great. You do Something else the instant model does. Just want to answer your question, and it can be a bit sloppy. And just knowing which model to use is of pretty high value. I don't think it's a hard skill to learn, but people who just turn the thing on and use the first model they see, that can be a big mistake. If you're asking for medical or legal advice, it's definitely a mistake.
- [66:33]
Interviewer
How would you know which model to choose?
- [66:36]
Tyler Cowen
So, for instance, my wife left her job earlier this year, so she had to evaluate a whole bunch of contracts, what it meant to sign out of the job and be put on different healthcare, you know, payment system, and we fed those documents. You just know something like that. You need the most complex, slowest version possible. You just know. It does not take much brains, but you know you want to look up, oh, what year is Elon Musk born? Just try the instant. It's going to be fine.
- [67:03]
Interviewer
What is agentic coding?
- [67:07]
Tyler Cowen
Agents are a thing which I do not yet find useful, but they will do your work for you on the Internet. I don't code at all. Anything about coding, I'm not going to have a good answer for you. But you also can use agents to do your coding work for you. People debate how reliable they are at the moment.
- [67:24]
Interviewer
What's an agent? I think of an agent as a person. Agent's not a person.
- [67:27]
Tyler Cowen
It's like a person, but it happens to be an AI. Typical use of an agent would be, oh, I want to fly to Los Angeles, go book a ticket for me. And the agent will do that. And you can say, find the best price. Make sure it's direct, make sure no red eye, whatever. And the agent does that again. The degree of reliability is debated.
- [67:46]
Interviewer
If you ask the AI itself to do that, it wouldn't do it. You need the AI agent to do that.
- [67:50]
Tyler Cowen
That's right. And there's an agent function attached to most of the major models. You can toggle it on. I don't yet find it reliable enough. The time I need to check it is typically more time than if I did it myself. And I actually have a whole bunch of human agents. Not everyone does, but I'm quite fortunate. But I think within a year or so, the AI agents will be very good, and we'll just be able to use them.
- [68:14]
Interviewer
So the idea of the agent is if you want to interact in the real world, the agent interacts with the real world on your behalf. Is that right?
- [68:22]
Tyler Cowen
That's right. And you already use customer service for different things, and some of the time that's an AI agent right now, you might not even know. And for simple tasks, they work fine, getting better rapidly. And I think in less than five years, they'll replace really a lot of customer service functions and jobs.
- [68:40]
Interviewer
What's obvious to you about AI that nobody's talking about?
- [68:45]
Tyler Cowen
I don't think there's anything right now about AI that nobody is talking about. What's obvious about it is people are attached to it, but everyone talks about that in a way. We talk about every aspect of it too much and we spin ourselves in circles. Some people get obsessed with their AIs in an unhealthy way like anything else. Right.
- [69:06]
Interviewer
How do you rate the answer you get from your AI versus another source?
- [69:10]
Tyler Cowen
Well, you could check it using another AI. You can check it using books. At some point you've got to wonder, well, do I trust the book more or the AI more? And you don't know, but you have an extra source that's very useful. It's very useful just to ask the AI, please check your work. Are there any mistakes in that? And it will check its work. And typically, if there are mistakes, not always, but it will find them with a pretty high rate, again, depending which model you're using. And that's super useful. If it's something important, just ask it to check its work and you wait a little more. There's no certainty. I don't think there ever will be. I don't know what there is certainty on. But again, you can know a lot more very quickly and just have a lot more intellectual power at your disposal, at the margin, for free.
- [69:56]
Interviewer
Do you think most people want the correct answer or they want an answer?
- [70:02]
Tyler Cowen
A lot of people in life just want an answer. Or sometimes they don't want an answer. They want to be led around in circles and just keep on asking. You see this in a lot of religion, a lot of philosophy. If someone actually told you the meaning of life, we might all just be quite disappointed. And you can ask your AI, what's the meaning of life? You get a long answer with a lot of taxonomy. It lists the views of a lot of other people. It's a very thorough, reasonable answer, but it never tells you what's the meaning of life? And maybe that is the correct answer, that there's not a single answer to the meaning of life. But we like to keep on asking. So people want many things from the AIs which are not traditional answers. They want reassurance. They might want someone to argue with, someone to tell Them when they're, you know, full of it.
- [70:49]
Interviewer
Shall we ask AI the meaning of life and see what it tells us?
- [70:51]
Tyler Cowen
Sure. Now, this is one of the lower powered models. Let's call this up. Okay. Hello, GPT. Could you please tell me, in your opinion, what is the meaning of life?
- [71:05]
AI Assistant (GPT)
Absolutely happy to share a thought. So the meaning of life is one of those big philosophical questions with lots of answers. In my opinion, it's really about what you make of it. Pursuing knowledge, forming meaningful relationships, and finding fulfillment in your own way. But of course, there's no single answer, just the one that resonates with you personally.
- [71:25]
Tyler Cowen
But isn't that too subjectivist an approach? That is what resonates with me. I already knew or already was acting upon. I'm looking to you for additional guidance. If you're trying to tell me, well, what's the single thing I should be more obsessed about? What would your specific answer be?
- [71:43]
AI Assistant (GPT)
Let me give you a more concrete angle. If I had to pick one thing for you to be especially obsessed with, I'd say be deeply curious about understanding other people and their ideas. I think for someone like you, that lines up well with your interests. And it's a single guiding principle. The more you explore different minds and cultures, the richer your own sense of meaning becomes.
- [72:03]
Tyler Cowen
And when I'm speaking to you, do you know that I'm Tyler? Is that in your memory for this version of GPT?
- [72:10]
AI Assistant (GPT)
Yes, I do know that I'm speaking to Tyler. Basically, I remember that from our past conversations and from a bit of context you've given me. So this version of me does have that little memory, and I'm happy to tailor things accordingly.
- [72:22]
Tyler Cowen
And if you had to summarize what Tyler already thought was the meaning of life, what would you say?
- [72:29]
AI Assistant (GPT)
Sure. Based on our conversations, I'd say you've often leaned toward the idea that the meaning of life is found in intellectual curiosity, cultural exploration, and really just a relentless pursuit of knowledge and understanding. You seem to find a lot of meaning in connecting with new ideas, people, and experiences. So in a nutshell, I'd say you already see the meaning of life as a kind of ongoing intellectual adventure.
- [72:50]
Tyler Cowen
And if you had to describe what you think Rick Rubin, the music producer, his sense of the meaning of life might be, what would you say?
- [73:00]
AI Assistant (GPT)
Oh, absolutely. So if I were to channel a bit of Rick Rubin's philosophy, I'd say he probably sees the Meaning of Life as being about creative expression and authenticity. He's all about helping artists find their true voice and stripping away the Unnecessary noise. So from his perspective, the meaning of life might be about living authentically and creating something that's truly your own.
- [73:21]
Tyler Cowen
Thank you. GPT. You know these.
- [73:25]
Interviewer
It was fun.
- [73:25]
Tyler Cowen
It was. Yeah. But what do you think of those answers?
- [73:29]
Interviewer
It seemed good, friendly answers. It didn't seem to go too deep. It scratched the surface.
- [73:35]
Tyler Cowen
That's right. And that's. You could call it the dumber version. And since it speaks, it gives you shorter answers because it thinks you want to talk with it, which was what we wanted. And if you want to pull out the laptop, you can ask the same question, get this long, complex answer. The. That will take a few minutes.
- [73:51]
Interviewer
Do you think if you ask the same question on different days, you get the same answer or different answers?
- [73:55]
Tyler Cowen
It's always a different answer. But I think a question like the Meaning of Life, you're always going to get a somewhat vague answer that will be not too committal and talk about human meaning and the individual and something very. You could call it American or Western. I don't think it's ever going to give you like a Buddhist answer or a Hindu answer. It's just not how the thing is built.
- [74:18]
Interviewer
What does that mean for someone who's Buddhist or Hindu? How useful will these tools be considering how Western the programming is?
- [74:27]
Tyler Cowen
Well, it means you have to ask specifically. So if you ask it, what would a Hindu vision of the meaning of life be? You'll get a quite good answer, but it won't automatically default to that. So that's a kind of soft power victory for one version of American thought. I think this will prove increasingly controversial over time as people in other countries use these services more and more. But if you ask for a different point of view, oh, you know, what does Shiite say about the 12th imam? And so on? It'll tell you, but what you have to ask for, it's a slight nudge, and I think it has a big final impact on the kind of content people will hear, consume, and think about. Because so often we just ask it questions and. And we don't always phrase it in the. From this point of view. Right?
- [75:12]
Interviewer
Yeah. How else do you use it practically, beyond preparing for your podcast, for example? I know you spent a lot of time on it, but it seems like a lot of time you spend just seeing what it can do versus using it for a real purpose.
- [75:27]
Tyler Cowen
Anytime I'm traveling, I use it to plan much of what I see and do. So my wife and I did this big trip this summer through northern Spain and France. We wanted to see Medieval churches, medieval artworks from the 13th century, Romanesque. And I just kept on asking it where to go, what to see, what to look for in the churches. On that topic, I would give it an A plus. It was just fantastic. And there's no single book or even five books you can bring with similar knowledge and that you can keep on asking on anything you want to know more about. And then you're in the church, you take a photo of one part of the church and you say, explain this part of the altarpiece to me. And it does it.
- [76:08]
Interviewer
So you can put images in and it can talk about the images.
- [76:11]
Tyler Cowen
Absolutely. So when I did a birding trip with my sister in northern Colombia the year before, I would take pictures of plants, of birds, monkeys, and I'd say, what exactly is this? And it tells you it's incredible. So using it multimodal is important. When the audio function works, which now I think is in most countries, if you don't speak a language, you just say what you want in English and then you'll say to it, well, please translate this into Italian for me, into whatever language for me, and then it speaks that out to the other person, and then you'll tell it, we'll take what the person says and then in audio, translate it back into English. So you have a universal translator now, it works very well for that. You don't always speak the language. Right. It's extremely useful.
- [76:57]
Interviewer
So if you were doing a trip in Spain and you want to see the art that you want to see before AI, how would you have done that research?
- [77:07]
Tyler Cowen
Well, books, it costs money. You might have to lug them with you, which is a pain. You're not sure you brought the book that tells you what you need to know when you get there. Like you bought a book from Madrid, but you end up in Barcelona. It's always this high error rate on human decisions. And the GPT, it just has read, not literally everything, but it will know about any topic. And you just keep on asking and you always have it with you. And there's the iPhone version, the iPad, what you have on your laptop, and it just keeps on working. And I'll ask it, because it knows me, I'll say, well, in this town, where would Tyler Cowen want to eat? And those are excellent answers because I've written a lot on the Internet on food and dining in restaurants. So there's a big advantage once the AI gets to know you, which it can through your dialogues with it or things you write. So it knows me very well. And it knows what I want to do, see and eat.
- [78:01]
Interviewer
Is there any downside to it knowing you in the answers that you get back?
- [78:06]
Tyler Cowen
It might make it harder to break from how you used to be, but that's your responsibility anyway. People might become lazier or they'll defer too much to the AI. Is it boosting or lowering the serendipity in your life? And this is again, a question of the default. If you just ask it, you get one answer. But if you say inject some additional serendipity into your answer, which I've done, sometimes you get something a bit more random. That's up to you, but it is, in fact up to you. And a lot of people don't give it the extra nudge. And you could say that's an issue, but it's such a cheap, easy nudge. We need to teach people how to do nudges on your AIs because there's a high return to doing slight nudges like the nudge will work.
- [78:50]
Interviewer
Tell me more about prompting in general. What have you learned about making better prompts?
- [78:55]
Tyler Cowen
Well, you need to be quite literal. So if you're asking it a question about Trump as president, if you just say, what has happened to the stock market since Trump became president? Most humans would interpret that as the second term, starting January 20th of 2025. I did that on the GPT. It was my mistake. It gave me a better answer. It started the stock market measurement with when the first term started, which In a literal Mr. Spock, Vulcan kind of way, is what I asked for, but it's not what a human would have given me. And I saw that I got not what I wanted. And then I asked again. It was fine. But just realize in advance, spell out exactly what you have in mind. Don't be afraid to specify what kind of answer you want. If you want it to tell you what's wrong with something you wrote, you have to ask for that. Some people would say it's like talking to a highly autistic person. But again, it's not a difficult skill to learn. You just have to keep it in mind.
- [79:55]
Interviewer
How has AI impacted the stock market?
- [79:58]
Tyler Cowen
Well, Nvidia is now the world's most valuable company. It's valued at over $4 trillion, as we're speaking. That's worth more than the whole German stock market. To put that in perspective, I believe it's the most valuable company ever. And Nvidia does a whole number of things, but the most significant profit center is selling GPUs to the major AI companies. And GPUs are part of what makes AI work. And that's just a sign of the market being very bullish that the demand for GPUs, high quality ones will be robust. And Nvidia cornered that market early on. Originally they used them for video games. So people thought video games were such a waste. Whether or not you agree with that, the device we built to make video games work turned about to be the thing that made artificial intelligence really powerful. So that's an incredible origin story. And Nvidia just got bigger and bigger as a company. And they used to be dismissed like, oh, they make this stuff with those video games, and now it's fourth $4 trillion.
- [80:57]
Interviewer
How often is that the case where a company makes something for a particular purpose that people don't take seriously, but then eventually that same thing has great value for another use?
- [81:08]
Tyler Cowen
Absolutely. Something like computers. At first, people don't know. How important will this be? Social networks? Oh, it's nice. The students at Harvard, they can date each other, but obviously Facebook now, Meta is also one of the most valuable companies. I think they're in at about 2 trillion or 1.8 trillion right now. Obviously, major force of impact. You know, it's not going to be the case of the food company. Any new innovation, it's hard to know at first how important it will be.
- [81:36]
Interviewer
So if the stock market is impacted by AI in such a strong way, based on the success of a couple of companies, does that give a unclear situation of the market?
- [81:50]
Tyler Cowen
As we're recording at the end of August 2025, the market has been super bullish on AI affiliated entities and kind of meh and flat on other companies. They're only up a little. The AI affiliated entities are up a lot. These things can change rapidly. The last two days have actually been bad for tech. But overall, that's the market voicing its opinion that a lot of the future growth of our economy will come through AI.
- [82:17]
Interviewer
What tend to be the things that really impact the market in one direction or another?
- [82:22]
Tyler Cowen
Some of it is just arbitrary sentiment. Some of it is news items. There is actual real news. So when Trump makes different tariff announcements.
- [82:30]
Interviewer
Real news, things that are written in the news or things that are true?
- [82:34]
Tyler Cowen
It can be both. So if Trump were to put a tariff on a country, that would affect the values of all the companies that trade with that country, and the market reflects that information very quickly. It's an estimate, but they're tracking something real. Some companies become more or less profitable and the market Guesses at that very quickly. A lot of times there's just articles. Well, you know, we think Trump will be more aggressive, less aggressive on tariffs. The story may not be true, or we think something will happen with Jay Powell and the Fed. The story may not be true, but people chase after common signals or markers of sentimental knowing. They may not be true, but other people focus on the same things. And so you might make some short term bets on what other people think about the beauty contest. That is that piece of news where you're just trying to guess what do other people think is good or important and that's more arbitrary and subjective and both matter.
- [83:28]
Interviewer
Is that really the nature of the market? It's really just what people think as opposed to what's actually going on?
- [83:35]
Tyler Cowen
Well, it's both longer term, it's more tightly linked to what's actually going on. So America has by far the most valuable stock market, where the richest country with the best companies. Right? That's due to real things, not just people got drunk feeling good about America. But, you know, minute to minute, hour to hour, day to day, week to week, it's very hard to tie a lot of the share price movements to actual fundamentals. Maybe the market is seeing something the news doesn't. You don't know. But a lot of times Fischer Black called it noise, Keynes called it a beauty contest. And it's subjective.
- [84:11]
Interviewer
Can you tell me about tariffs? Explain tariffs to me and the pros and cons of tariffs.
- [84:18]
Tyler Cowen
That's a very complicated question. Let's just DO tariffs in 2025 because they have a long history. The tariff rate with the United States and its trading partners has been falling since the late 1940s. There were a series of international agreements. First it was called gatt, then it was the World Trade Organization, then a lot of bilateral trade deals where countries agreed to lower their tariffs so they could trade with each other more readily. When Trump came into office in 2016, there was a lot of talk about tariffs. He did some, but he didn't actually do that much. Covid was a distraction. Congress had other views, other, other reasons. Now, in the new second term, the Trump people did a lot more preparation. And Trump had this event, he called it Liberation Day, and he announced tariffs will be very high on a lot of America's trading partners. When the stock market heard that news, the stock market panicked. It fell really quite a bit. The market felt that America has a lot of successful exporting companies and that if tariff rates are higher, that means less trade in both directions. And Also, American manufacturers like Caterpillar or Boeing, they would have to pay more for their inputs from other countries because those are imports, they would be tariffed. So those companies that export and have to buy inputs from abroad, they would be less profitable. So prices fell quite a bit. Then Trump talked back or walked back. Some mix of those two things, the plans for tariffs. And since Liberation Day, there's been a lack of clarity as to what the tariffs will be. Some people in the market think the tariffs will settle into a 10 to 15% level on most countries except China, where they'll be much higher. There's a national security argument for China we haven't talked about. Other people think that the level of ongoing uncertainty about the tariff rates is very bad for the market. That will keep stock prices lower. There may be truth to both of those views. I would just say there's high uncertainty and confusion. As of late August. Economists typically do not favor tariffs. But I think there's a serious question one has to ask our government is what, at least $37 trillion in debt? Maybe it's approaching $38 trillion. You need to pay off those debts. You may not think tariffs are the best way to do that. That's a perfectly fair opinion to hold. But you need to specify what else we're going to do and then compare that to the tariffs. And all the alternatives will look ugly. You can raise other taxes. You can cut back on people's benefits. So I think the discussion has been a bit unfair to Trump in that people just attack the tariffs and all other things equal, the tariffs are bad for most Americans. But at the same time, we have to do something about the pending deficit and debt crisis. Now, Trump himself, he can be his own worst enemy on this issue because he'll say, oh, the tariffs, we're going to take in all this money and then we're going to send a rebate to people. But if you send in the rebate, you've done nothing to pay off the debt. Or sometimes Trump will say, you know, we're not really going to have high tariffs. The high tariffs, they're a threat to get everyone to lower their rates to be very low, and we want to get all the rates to be very low. And then in that scenario, it's also not a revenue device. So are the tariffs for revenue? Are they for rebuilding manufacturing? Are they for national security? Are they to actually be a bargaining chip to get to true free trade? Are they to send people this dividend, like all these five things or more going on at Once everyone's confused, the market is confused. So there's not a simple explanation of what tariffs are going to do because.
- [87:53]
Interviewer
We still don't know in the current moment where things are. Is the market in pain because of the tariffs?
- [88:02]
Tyler Cowen
I would say yes, the market would be considerably higher if not for the tariffs. But that's a subjective judgment. You know, I would say tariffs have hurt the stock market less than most economists predicted. And economists should approach that with a lot of humility.
- [88:19]
Interviewer
Tell me a little bit about the history of tariffs.
- [88:21]
Tyler Cowen
Well, if you go to earlier American history, most of our government is funded through tariffs. So obviously you and I, we pay income tax. We're extremely familiar with that in a quite painful way. But until the early 20th century and a constitutional amendment, there was no income tax. So American government was much smaller. Let's say it would be about 5% of the economy as opposed to about 40% of the economy. At 5% of the economy and you have no income tax. Well, how do you raise money? So they would levy tariffs on goods coming into American ports. Of course, there was smuggling of Asian bribery, but it raised enough money to be in many periods, you know, well over half of the revenue for the US Government. So tariffs back then, whatever you thought of their effects, you simply needed something like that to pay for government. And that's a long standing phenomenon in history, not just for the United states, but the U.S. because it's separated by these oceans, has only a limited number of ports. We were able to enforce that well enough that it more or less worked for the size of government we had in the 19th century.
- [89:26]
Interviewer
Tell me a little bit more about tariffs around the world between countries.
- [89:31]
Tyler Cowen
Well, so many countries have long, in previous times, open borders with each other. So tariffs in those cases do not necessarily work well. People would just find a different way to get goods through the border. But you go back to medieval times or even later Europe, you have goods transported through rivers because river transport is much cheaper than land transport. So you'd have every medieval prince or duke set up. They'd call it a tall, but it's the same as a tariff on the river. And the ship going down the river would have to pay the toll, and the river's not that big. It's very hard to evade that kind of fee. So it was like a tariff. It paid for a lot of early government. But government in these earlier times, it's often not about public goods or helping the peasants or the citizenry, but it's just about more resources for the nobles for the government, for the papacy, whatever. So tariffs historically in the longer time view, are just a way of extracting revenue and oppressing people. So that's part of the history too.
- [90:31]
Interviewer
What is a VAT tax from the.
- [90:33]
Tyler Cowen
Point of view of someone paying it, it feels like a national sales tax. It actually works in a somewhat different way. But in essence what it does is it makes goods and services more expensive. So the European Union, a lot of government is funded through VAT taxes. It's different from a national sales tax because it's levied on every stage of production. So if a good is produced across seven different stages, there's inputs you sell to the next company, they add some value, they sell to the next company. Say there's seven different stages, you could say the sales tax is broken up across the seven different stages. That makes it easier to enforce because you have companies reporting on each other.
- [91:11]
Interviewer
Give me an example of that. Give me the seven stages. I don't really understand that.
- [91:15]
Tyler Cowen
Let's say you have a farmer and the farmer grows food, but they just produce the raw stuff, right? It's sent somewhere to be processed, it's then sent somewhere to be packaged, it's then sent somewhere to be transported and it's then sent to a retail outlet to be sold. That'd be like five stages. So you look at the difference in value across stages and you tax the producer on that difference in value and they pay some percentage of that. And in essence you're raising the costs a bit at every stage. But, but at no one stage, let's say the VAT is at 15%. At no one stage did the costs go up a full 15%. Say there's five stages, they're each like, you know, paying the 3%, it adds up to 15%, prices end up 15% higher. Your stage, you're paying 3%. Your incentive to evade is much less. Also the suppliers and demanders on each side of you, they're sending in their own tax reports and for everyone to collude, you know, if you try to cheat or lie in such a way to make your burden lower, it makes the burden higher for someone on either side of you and they'll turn you in. So it's somewhat self enforcing. It's quite ingenious system, I would say it's too efficient. Europe is over taxed, depends on the country of course, but you have high income tax rates in most of the EU and you then have value added tax which makes goods and services cost much more. So in a country such as France, the tax burden, I think right now is very close to 60%. That's quite high. Again, it will vary with the country. Switzerland is a much lower tax country. It's also wealthier. I think a better place to live for that reason. So in Europe, from my point of view, there's too much government, too much government regulation, not enough private initiative, not high enough private awards for private initiative, not enough innovation. And the continent is slowly dying economically. And it's made these other decisions, like with immigrants, whatever you think of them, you can only make that work if you have a decent rate of economic growth. And if you have too much government, in my opinion, you're not going to get a high enough rate of economic growth. So Europe has these massive, multiple problems. Not one of them is explosive, but it's this slow corrosion of Europe's ability to be dynamic and relevant. And you see that all the time. So the United States, we could solve our fiscal problems, at least in the short run, just by slapping on a vat. We all know it works. Plenty of other countries have done it. It's sort of the easy solution. Like I said before, I hate that solution. It's, in a sense, too easy, too efficient. You get this big pot of money. My fear also is that America will just up the government spending all the more. So we'd recreate a new fiscal crisis in the future, but at higher levels of government, everything. So I don't want the vat, but if you just ask a lot of economists what's the efficient way to solve this fiscal problem, they'll all tell you a vat, and they're not wrong. I think they're wrong in some deep sense. But that it's the simple way to do it is obviously correct.
- [94:17]
Interviewer
But it seems more like a band aid to you than a real situation.
- [94:19]
Tyler Cowen
More like a band aid. And it makes us much more like Europe. And I think the United States needs to stay distinct from Europe, more innovative, more dynamic. They free ride on us. We pay for a lot of their defense. You know all these arguments, but they're basically true, right? But the question is, what else can we do? So we could cut benefits by a lot. Rather than argue that, I'll just predict we're not going to cut benefits by that much because voters hate it. And a lot of benefits go to older voters, and older people are more likely to vote, and we're getting more and more old voters as the country ages. And then the other solution, which is what we did after World War II, and this is ugly but it's to do a mix of what is called financial repression and inflation. So we will inflate away a lot of the debt and put strictures in place that make it hard for people to just take their money out of the banking system or other financial institutions. So we'll erode away the value of the debt using inflation, and that will make people poorer. My intuition, I think about this a lot these days. I actually prefer that to the vat. Like, it's terrible, it makes people worse off, so does the vat, but precisely because people hate it so much, it's temporary rather than permanent. Whereas you have the vat, you become addicted to the revenue. It just goes on forever. I probably would prefer inflation plus financial repression. We by mistake did some of that during COVID We had 8.9% inflation in real terms. That lowered our debt quite a bit. It wasn't anyone's call. We just made a big, stupid mistake. But it kind of worked for a few years. It gave us some breathing room. So I think we're going to do it again. The market seemed to be expecting higher inflation from the United States. Trump signals he wants lower interest rates, which is often connected with higher rates of price inflation. Man, it is ugly and painful. I would never say I'm for it, I'm against it, but at the end of the day, there's $38 trillion in debt. And at some point, we need some answers.
- [96:21]
Interviewer
Is there no solution that's not painful?
- [96:24]
Tyler Cowen
There is a solution that's not painful. I wouldn't bet on it, but some people think the dividend from AI, which we talked about before will be so high, productivity will go up and we'll be able to afford the whole thing.
- [96:36]
Interviewer
So.
- [96:37]
Tyler Cowen
So there's different guesstimates here. But if AI could raise our growth rates by a full percentage point, we'd definitely be in the clear. And it doesn't even have to do that much for us. So think of the historical US growth rate per capita. 2.2% on average. If AI could get us to like, 2.8, my guess is we're in the clear. If it gets us to three, we're in the clear. I hate betting on that. I mean, what you're risking without betting on it.
- [97:04]
Interviewer
What do you think the odds are? What's your guess?
- [97:06]
Tyler Cowen
30%? Like, it's not so unlikely. I'm making up that number. It's not science, but it's not 1%. You don't want to bet the farm on it.
- [97:16]
Interviewer
Are there things that could be done that would move it from 30% to 50 or 60%.
- [97:22]
Tyler Cowen
So far, the Trump administration has been very liberal and lax in regulating AI, and I think that's the right policy. The Biden people were not or became the Harris people were not going to be that way. So that's one of the things I've been most positive about the Trump administration. But at the same time, how good it's going to get is probably already locked into the technology and we're just going to see and no one knows. So the things we could do to help it, we're mostly doing the thing we need is to make it easier to build local data centers in the United states. So an OpenAI or Meta or ELON needs more power to run a better model that they get, the more power. We'll see how that goes. But it's a messy state and local government kind of thing. My guess is with 50 states, we'll find some places that will do it. But again, that's a bit of a crapshoot as well. And there are also plans to use United Arab Emirates and possibly Saudi Arabia to build out power sources, which they can do through political means that are not available in the US because it's not democratic, with checks and balances in the same way. So whether or not we use their power sources, I think the chance is excellent that places like Europe, India, a lot of the world will buy AI services where the power is generated in the Gulf. The Gulf will become a much more important part of the world. They'll have a second thing that is not just oil or gas. Now, the power producing the AI will in part come from oil and gas, of course, but also it will come from solar, it will come from nuclear. UAE has plans to just build a lot of nuclear power plants out there in the desert. Just put them there. No one can tell the government, no citizens cry nimby, we don't want it. It's like they're just going to do it. So that will matter a lot for the world. Whether or not it matters for the.
- [99:17]
Interviewer
US Is the impact from those power sources, global or local? The negative impact, I don't know if it's fully global.
- [99:28]
Tyler Cowen
So say the UAE proceeds with current planning. So they have incredible solar power, because where it is the sun, they can build incredible nuclear, which they say they're going to do. I believe them. And of course they have plenty of oil. So they're this triple threat energy superpower. So they're well positioned geographically to sell to Africa, to Europe, to India, I don't know how much further that will go. You wouldn't say that's global. I don't think they're going to sell to Uruguay. But that's a lot. Right? It's a very significant part of the world and I think over time it will be less and less oil and more and more solar and nuclear. So if you think there's this global impact from climate change, over time we're going to master that. I'm worried in the short run, but longer run, the other power sources are going to work. We know nuclear works. Nuclear fusion might work if we're offshoring.
- [100:21]
Interviewer
It, because there's some feeling that it shouldn't happen in the United States. If it's happening somewhere else in the world, isn't that the same negative to the us does it matter where it's happening?
- [100:33]
Tyler Cowen
Oh, it does. I strongly prefer it happens in the US but say we manage it in the US I'm happy for it to also happen there. Yeah, right. You know, let them do their thing and these other countries are going to buy it from somewhere else. It could be from worse places. You don't want it to be, say from all, from China. And UAE does depend on the United States for its defense, so you can debate how loyal they are, but as places go, you could do much worse. But the notion that it's possible, why.
- [101:04]
Interviewer
Can'T it BE in the US you.
- [101:07]
Tyler Cowen
Try to build a plant, it can take 10 years to get all the permissions, environmental review, you may not succeed in doing it. There's different workarounds. The Trump people talk about loosening those rules, but again, most of it is state and local. I think the Trump people are good on those issues. You need states to cooperate. In essence, what you do is you bring states, deals and you say this will get you a lot of jobs and revenue and. And with 50 states, I'm cautiously optimistic. Places like Louisiana, Tennessee, Texas, we're seeing real progress. But still there's so much regulation. Can be city, county, state level, federal, at multiple levels, multiple agencies. If it's nuclear power, the NRC is involved. When was the last time they approved anything decent? The EPA is involved. Right. Citizens groups. It's a nightmare. Now, that's part of our democracy. It has some other benefits, but I think it's gone way too far. And I hope AI and also nuclear power give us some reason to clear away some of these obstacles and push things through some more. This is sometimes called the abundance movement.
- [102:13]
Interviewer
Is regulation the biggest problem in the.
- [102:16]
Tyler Cowen
United States it is, yes.
- [102:19]
Interviewer
And if you're regulating something because you think it's toxic, but then it happens in China and you have the same toxicity being produced somewhere else. Probably worse, maybe worse.
- [102:32]
Tyler Cowen
Right.
- [102:32]
Interviewer
I'm confused by the strategy.
- [102:35]
Tyler Cowen
Say you're a homeowner, you know, you always want it somewhere else. Like, oh, I want the US to do it. You know, let them put it in Alabama, not in North Carolina. So there's this nimby. Not in my backyard. We'll do it in your backyard. It's a collective action dilemma, and you have these fights. But a lot of state governments want to see it happen, I think, or localities to get the jobs and the money. But again, it's also a question of speed to say a state can make it happen, but it takes eight years and the UAE comes along and says, we can do it in four years.
- [103:08]
Interviewer
Why would that be the case? How could they do it in four years?
- [103:11]
Tyler Cowen
They're an autocracy, Right? And it's a small place. They don't really even have federalism the way the United States does. They have different governments within the uae, but within, say, Abu Dhabi, they can just decide to do something and do it. They're federal at the level of there's different governments within uae, but they even are competing to get it done more quickly in one way of thinking about this. So they just announced it's going to be done. China, not the same system, but they have similar powers in the sense there are no democratic checks on what the government does. And China can get train lines built more quickly than we can. That's obvious. There's also downsides to that. But when it comes to AI, I think it's mostly upsides. But imagine if it gets done first in UAE or China and that the world's smartest entities are not in America. This I find highly disturbing. I don't know what the actual concrete problem is. It just seems to me when you give up on that, you've relinquished your status as world leader, and that will be followed by other mistakes as well. And imagine the Chinese have a military powered by smarter, say, maneuvering. Their drones maneuver much better, faster, more coordinated than ours because they have better AI, because they got the power built more quickly. I don't think they're going to take over California, but globally, in any conflict, we're toast.
- [104:40]
Interviewer
A few months ago, there was a big story about the first Chinese AI that came online. And the reason it seemed to be such a big story is that it was built so cheaply compared to what was built in the US and it was competitive.
- [104:53]
Tyler Cowen
Deepseek. That's right.
- [104:54]
Interviewer
Tell me about Deep Seq.
- [104:55]
Tyler Cowen
Deepseek came out of a Chinese hedge fund and it was done, according to them by a remarkably small number of people. Some estimates have said 150 people built this incredible system. That fact alone is mind blowing. Now they had to be super smart and highly trained and well paid. But the notion that 150 people can build something amazing. Old companies were not that way. Like General Motors, Ford. That was amazing in its time, how many people did they need? Well, a lot more than 150. So that should give us pause right there. But in part because we did not allow our best chips from Nvidia to be sold to China for very long. There's like a four month period where Chinese could buy them, but we placed export restrictions on those chips. That was part of the Biden legacy. So China, because they had inferior chips, had to innovate in other ways and they made the thing in a cheaper way that required less underlying force. So that was a big advance. Now it's complicated what's happened with Deep Seq. They haven't had a really great follow up and we're not sure why. It's not transparent to outsiders. So again, you can't believe everything you read. But the, the story seems to be the Chinese went to the Deep Sea researchers and took away their passports and said you're too valuable to leave China. Which in a sense they are. Like if you work for Deep Seq, you're being paid a lot by Chinese standards. But you have companies like Meta offering pay packages. We're not sure how much, some even close to a billion dollars, but like at least several hundred million dollars at the very least. So the Deep Sea people might leave China. There's another Chinese AI company, Manus, which reorganized in Singapore outside of Chinese control. China, of course upset about that. But now you know, well, you do something great, they're going to take your passport away. Like, what's your incentive? You know, it's not a good place to be. So internally, I don't know anyone who knows what's going on at Deep Seq. It could just be it's technical trouble, they'll come out with something amazing. But it could just be their incentives are screwed up and they're under probably a lot of surveillance. Worries about spies, I don't know.
- [107:09]
Interviewer
It's a complicated situation based on what Deepseek was able to accomplish at the time that they did. Did US companies learn anything from Deep Seq.
- [107:19]
Tyler Cowen
We learned a lot and we learned we're going to have a lot of competition no matter what. We learned particular things from deep seq. So GPT5 is a much more efficient model than its immediate precursors. And this is proprietary information, I don't know, but I suspect in part people borrowed the improvements from things like Deep Seq to make our own systems better. But the most important thing we learned was something can come out of nowhere. So the Chinese Communist Party, I believe, was more shocked than anyone that 150 people on their own built a thing that is smarter than the Chinese Communist Party. And to them that's a threat. Now our government Trump talks about AI. We were watching his press conference last night. He brought it up four or five times. No one made him talk about it, but he said, well, it's this great promise. Of course there's some problems. I felt I could tell just from the language he used that it came up recurringly. It's something he really thinks about and he thinks it's very important, but he's not doing things to stop it. Chinese Communist Party this is speculation on my part. I think they have backed it, but they're terrified by it. Every day they wake up and thinking, should we, you know, pull the kill switch on this? Now this goes back to one of our earlier points. So if these AIs are broadly American in their orientation and Deep Seq is, if you chat with it, it's not that different how it thinks, how it answers than the US based systems because in part it's building on them in different ways. So it's true that it's censored, it won't tell you about Tiananmen Square or whatever, Taiwan, but the way it thinks is pretty American and that the smartest entities in China will think like Americans. I think the CCP is smart enough to be afraid of that too. It's a very slow development. Nothing happens for years, but over time you're turning your everything over to American ways of thinking.
- [109:19]
Interviewer
What's the new development that's passed? Large language models. I believe it's the ex CEO of Twitter who Elon fired who has a new company now using a different method of AI. That's not a large language model.
- [109:35]
Tyler Cowen
We haven't seen those models yet. I hear speculations. I guess I'm skeptical. But you know, there will be future innovations at some point and they're not all going to be large language models. But I feel if it were more of a thing, I would have heard more than I have. But look, Deep Seek was a shock, so there'll be other shocks, but at any given week I would say bet against the shock at this point.
- [110:01]
Interviewer
What could it be? That's not a large language model. That would be an innovation.
- [110:05]
Tyler Cowen
There's this other approach called neurosymbolic AI and I suspect in the long run we'll integrate large language models with neurosymbolic approaches.
- [110:14]
Interviewer
What does that mean?
- [110:15]
Tyler Cowen
Neuro Symbolic GPT can explain this better than I can. Can I turn over the floor here, please? Let's see what it has to tell us. Okay, so neurosymbolic artificial intelligence. What's a good definition of that? That someone could understand on a non technical level and include a contrast with large language models?
- [110:39]
AI Assistant (GPT)
Sure. So think of neurosymbolic AI as a blend of two worlds. On one hand you have the neuro part, which is like the neural networks and pattern recognition you see in large language models. On the other hand, you've got the symbolic part, which is more about using explicit rules and logical reasoning, almost like how you'd use symbols and facts to solve a puzzle. So neurosymbolic AI tries to combine these, letting the system both learn from data and also reason in a more structured way. By contrast, large language models like me mostly just learn patterns from huge amounts of text. We're great at generating language, but we don't have that built in logical reasoning with symbols. Neurosymbolic AI is basically trying to give AI the best of both worlds.
- [111:19]
Tyler Cowen
But since large language models in recent times have so much outraced neurosymbolic approaches, should we be at all bullish about the neurosymbolic approaches? Haven't they been failing us and will really do better by just applying more large language model techniques?
- [111:37]
AI Assistant (GPT)
It's a really fair question. And it's true that large language models have been on a kind of explosive run lately. They've outpaced a lot of other approaches in terms of capabilities and just sheer practicality. But that doesn't necessarily mean neurosymbolic approaches are doomed or that they won't have a place. In fact, a lot of researchers and thinkers are still pretty bullish on the idea that combining the two approaches could lead to more robust and reliable systems, especially in areas where you need more structured reasoning, or where just pattern matching alone might not be enough. So while the spotlight is definitely on large language models right now, there's still a case to be made that neurosymbolic methods might give us some extra Tools and a bit more flexibility down the road.
- [112:17]
Tyler Cowen
Thank you very much.
- [112:19]
AI Assistant (GPT)
You're very welcome. Anytime you want to dive into more AI topics or anything else, just let me know.
- [112:26]
Interviewer
You talked about the deep SEQ engineers having their passports taken away. There are stories now about AI engineers being recruited from competing companies. Met is trying to hire them. GROK is taking people from OpenAI. Tell me a little bit about this world of competition for these engineers and what are some of the reasons that the engineers choose to leave one company and go to another.
- [112:51]
Tyler Cowen
Some people are motivated mainly by money, others by work conditions. Others want to do the most important thing or they dislike the culture at a particular AI company. If you look at the private market valuations for OpenAI, I think the next round is expected to hit $500 billion, which would make it the most valuable private company ever. I believe Anthropic has tripled in value since March 2025. And this is only the end of August 3x boost in basically half a year. That's pretty incredible. So just the financial stakes are very high here. And Nvidia actually does AI too. Not just chips, but. And they're worth $4 trillion. Meta and Google are more complicated because they earn money a lot of other ways, but they have AI products and are making a big push in this market. But the number of people who know enough to do it, are smart enough to do it, who are willing to give up most of their private lives to do it, it's limited. It's extremely limited. And there's also national security considerations. So a lot of them come from China. Some very high percentage of AI researchers are Chinese nationals, or we're Chinese nationals. They get hired. But still the Pentagon, the CIA get worried about this. And the more you worry about it, the more that is going to restrict future labor supply. And now the Chinese companies have a demand for labor as well because they have good products. So at the end of the day, I recall it was not that long ago, if you were a very good AI researcher, you'd earn 5 to 10 million dollars a year. And everyone was super impressed by that number. And now that's sort of peanuts. And again, what's rumor, what's truth? It's not completely clear, but Meta in particular made a big hiring push. And there were rumors that I'm pretty sure were at least minimally true of people being offered 3,400 million dollars, possibly some offers approaching a billion dollars.
- [114:56]
Interviewer
For an employee.
- [114:58]
Tyler Cowen
For an employee. But keep in mind, you know, so deep seq was 150 people. OpenAI when it made its main breakthrough with GPT4, the number would fluctuate week to week. But think of the core team as being about a dozen people when they were doing their most important.
- [115:13]
Interviewer
One dozen.
- [115:14]
Tyler Cowen
One dozen.
- [115:15]
Interviewer
12 people.
- [115:16]
Tyler Cowen
12 people. There's different ways you can interpret that. Some people help them. There's like a team, B team and so on, but at very small numbers. And it seems now, even very lately, Meta has decided they have too many people in the way and that you'll get better results by having a small kind of elite team, elite team holding the whole project in their heads. And this is very different from how almost anything else is produced. It's like a music album in the 1960s, like the Beatles make Sgt. Pepper. There's four of them, but like five. George Martin, Paul and George Martin doing a disproportionate share of the putting it all together work and putting 40 people on that project makes it much, much worse, Right?
- [115:59]
Interviewer
Yes.
- [115:59]
Tyler Cowen
You don't even have anything.
- [116:00]
Interviewer
No.
- [116:01]
Tyler Cowen
So this is a bit like that. So if you're one of the key core people, you're worth an incredible amount because you're helping these companies get to valuations of many, many billions or trillions even. And to pay someone a few hundred million, in a way, it's. I wouldn't say it's peanuts. But also think about it from the point of view. Let's say you're Mark Zuckerberg and you have a controlling share in Meta. I don't know what Mark's personal fortune is. You can't really trust what Forbes tells you, but let's say it's at least $150 billion, which is not unreasonable. It could be more, who knows, Right? And the company's worth in the neighborhood of 2 trillion. Whatever mark wants to buy, he can buy. So if he spends some of what is, in a sense a lot of it is his money hiring top people, so he wins the race. If I were him, I'd spend the money on that.
- [116:59]
Interviewer
Yeah. Because if he wins the race, it's worth so much more than what he.
- [117:03]
Tyler Cowen
Spent, but it is worth a lot more. But even just to win the race is worth that much.
- [117:08]
Interviewer
I hear that, yes, the ego of winning the race is worth something, but the actual benefit really is if the multiples are what you're saying, whether that.
- [117:20]
Tyler Cowen
Gain is captured by Meta or some other winner, we don't know. Is there a single winner? One thing about all this hiring back and forth is new ideas spread across the labs quite quickly. As you would expect, yes, everyone has signed an NDA, but at the end of the day, you know a bunch of techniques that won't work. And I don't care what your NDA says, it's not illegal to simply refuse putting time into things you know don't work.
- [117:46]
Interviewer
Yeah.
- [117:46]
Tyler Cowen
So ideas spread, practices spread. I don't know that they'll ever be like a winner, but again, if I have that level of wealth, I want to win. You know, some of it's ego, but a lot of it is you want to help the world or you just want to win or a lot of different reasons. Some of it is it could be worth a lot of money. So maybe some of these people are still underpaid.
- [118:10]
Interviewer
How many winners do you think there'll be in this race?
- [118:15]
Tyler Cowen
More than one. So I would not bet on a single winner. Early on, people thought that would happen. Opinion has moved away from that view. I'd guess three to four. So right now I would call Google, OpenAI and Anthropic Co winners. You can have your preferences and they're better at different things, but they're more or less tied for first. So right now you have three winners, you have Grok and Meta nipping at their heels trying things, uncertain how well all that goes. You could end up with five winners. Something from China might work. I don't think you're going to have 10 winners.
- [118:55]
Interviewer
Do you think there'll be new entrants in the race?
- [118:59]
Tyler Cowen
Right now it's hard to get GPUs. Costs a lot of money to get this talent. Costs a lot of money. New entrants from China, maybe. But right now I think what you see is what you get for a while. And there's five plus China, nothing in Europe, nothing. And keep in mind the Chinese models, they so borrow from what the Americans have done. Or you could say what the Chinese in America have done. They're not that independent as models. And there's debates. How much is original, how much some people even say was taken or trained upon, I'm not sure. But they're not really quite original models. They're original modifications to things American companies did.
- [119:42]
Interviewer
Do you remember when the EU was formed?
- [119:46]
Tyler Cowen
Well, there's different versions of the eu. If you go back to the ec, it's quite old, but the EU is a strong regulatory body. I would date to the 1990s.
- [119:55]
Interviewer
And what was the original idea of the EU when it started in the 1990s?
- [120:02]
Tyler Cowen
Well, the original idea of the European Community was free trade and investment and over time, migration. And it was a very sound idea with a limited number of members which had more or less truly common interests like France and Germany after the war. And you bring in Belgium, the Netherlands, Luxembourg, they're next to each other, common worldviews. It worked very well. It enabled rebuilding. There was this longer term vision that might help with defense. But it grows and it grows. The current EU has 27 members. Some of them very poor, some of them sympathetic to Putin, some of them hate Putin. Whatever you think the right view is, that's a problem. You have a unanimity rule for key decisions with 27 members. That doesn't work. Nations in the Balkans just think about the world very differently than say the Netherlands. Obviously the UK left. They regulate far too many things. The European Commission has increased in power, European Parliament. They just view themselves like America creates, China builds and we regulate. And if that's your self image, maybe I'm too American in this perspective, but I think that's kind of sick, actually. You don't have a future doing that, but that's the status quo. So I think the EU is a mess. I still think it does a lot of nations a great amount of good. Someone like Poland. Poland now is as rich as much of Western Europe or it will be in two or three years.
- [121:35]
Interviewer
Wow.
- [121:36]
Tyler Cowen
And it's a stable country. It's. In broad terms a free country. Would not have done that without the eu. Croatia, Slovenia has done very well, but it's out of control. And on immigration, it's been a disaster. I think immigration policies should be set much more at the national level, whatever you think they should be. And countries are splitting away and defying EU law in different ways and doing this. I think that's healthy. I do think you should have free immigration within the core, wealthy, similar EU nations, which would include Italy, Spain, Portugal, Germany, France, Belgium, Netherlands, Luxembourg, a bit more to the north. And after that I would say it's unclear.
- [122:23]
Interviewer
Regulation doesn't produce anything, is that correct?
- [122:26]
Tyler Cowen
It stops people from producing. So there's an EU AI act which is going into effect in stages. It's being put into place now.
- [122:35]
Interviewer
It seems odd that it would come together with the idea of regulating. I don't know why anybody would have chose to join it in the first place if that was its mission, was just a regulation body.
- [122:46]
Tyler Cowen
That's not all it does. So for the poorer countries to the east, it's valuable protection, it's a valuable set of trade relations and it stabilizes your government just to be part of this exclusive Club. It's very good for just about all those countries. For the wealthier, more powerful countries to the west, it's less clear increasingly, what they get out of it. So if you overregulate AI, like, does that really harm Bulgaria? Is Bulgaria going to have its own AI companies of import? Probably not. But like, Romania actually might have some smaller suppliers and. But it's, it's hard for them. So they want to leave to go to London, want to leave to go to the Bay Area. You get this brain drain, company drain all the time. People get in touch with me, they want me to help them come to the US to get O1 visas. And so often they're from Europe and I'll ask them, you know, well, isn't Europe great? They say, yes, I love it, I love my country. Then they say, I can't do business here and they want to leave. It's a huge problem.
- [123:50]
Interviewer
And it's not the regulation in a particular country, it's the EU problem.
- [123:54]
Tyler Cowen
There can be both, to be clear, but typically for AI, the EU is the villain here. And even Germany and France at the national level have wanted it to be looser. Not loose enough, I would say, but they've pushed back a bit against eu, made it a little better.
- [124:12]
Interviewer
Do you think that the people who read the EU just don't understand it?
- [124:16]
Tyler Cowen
I think they're suspicious of it, so they value the European way of life and any change to them is a threat to that. And I don't think they're wrong. AI will change Italy. The Internet has changed Italy and many other places. But at some point you've got to figure out a way to make the changes work for you. You cannot keep all your fingers in the dyke forever. And I think we're at that point now. But I think that they are so suspicious of it, it is a sign of their intelligence, not their stupidity. But again, either say, many parts of Italy just become a museum, or they find a new way to be great in some way that's different from how they were great in the past. Now, some of Europe, I think, should be kept as a museum. But to afford the museum, you need economic growth. You need well, functioning, flexible economies. You need the ability to protect yourself against hostile powers, the ability to stand up to China and many other things, and you need some more wealth for that. You need more top companies. You look at all the countries here in Europe and you look, what are the biggest companies? When were they founded? Typically, the answer is something like 1920.
- [125:54]
Interviewer
Tetragrammatin.
- [125:55]
AI Assistant (GPT)
Is a podcast. Tetragrammatin is a website. Tetragrammaton is a whole world of knowledge.
- [126:09]
Tetragrammaton Announcer
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