Conversations with Tyler - Garett Jones on Democracy (More or Less)

Episode Date: February 26, 2020

Why is Garett Jones willing to write books about risky topics like the case for reducing democratic accountability? Is it the iconoclastic Mason econ culture? Supportive colleagues like Tyler? Those help, but what ultimately gives Garett peace of mind is that he'll never have to go hungry because he has a broad and deep knowledge of econometric tools. It's a skillset he recommends to all research economists precisely so they can take bigger risks in their careers—or at least be well-prepared to shape policy in an unelected position at a central bank.  Garett joined Tyler to discuss his book 10% Less Democracy, including why America shouldn't be run by bondholders, what single reform would most effectively achieve more limited democracy, how markets shape cognitive skills, the three important P's of the repeated prisoner's dilemma, why French cuisine is still underrated, Buchanan vs. Tullock, Larry David vs. Seinfeld, the biggest mistake in Twitter macroeconomics, the biggest challenges facing the Mormon church, what studying to be a sommelier taught him about economics, the Garett Jones vision of America, and more. Read a full transcript enhanced with helpful links. Recorded January 10th, 2020 Other ways to connect Follow us on Twitter and Instagram Follow Tyler on Twitter  Follow Garett on Twitter Email us: [e-mail] Subscribe at our newsletter page to have the latest Conversations with Tyler news sent straight to your inbox. 

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at Mercadis.org. And for more conversations, including videos, transcripts, and upcoming dates, visit Conversationswithtyler.com. I'm here today with my friend and colleague, Garrett Jones. Garrett has a new book coming out called 10% Less Democracy, Why You Should Trust Elites a Little More,

and the masses a little less. And Garrett, of course, being my colleague, is right here at George Mason University. Garrett, welcome. Thanks for having me. As usual, the opening question comes completely from left field. Let's say we had a government that were just strictly run by its bondholders. What would the biases in that arrangement be? And how good or bad would it be at solving which problems?

Well, one problem is that they would care just about the profitability of the government and not the productivity of the economy. So it's easy to imagine great horror is happening in exactly that situation. The bondholders are running the government. Then they're going to only care about the gap between government revenues and government costs. And in some parts of the economy, that would probably lead to them imposing things like slavery, massive restrictions of personal freedoms, not caring whether the poorest and least productive diet high rates. That would be the definite downside. The upside, which is much smaller I want to emphasize, would be that the government would actually care about – when you care about paying your bills on time, you care about having a good, solid revenue stream that comes in reliably and dependably.

And you would get firms operating much more like a government – you would get governments operating much more like firms, except firms that don't have to compete very much against other firms. Do IMF programs for countries on average help them or harm them? I think on average they help them. That's a bit like having your government run by a bondholder, right? But it's a bit like having the bondholders be a check on the voters rather than being a 100% alternative to voters. That's really the difference here. Bondholders can be a good check on government, just as voters can be a good check on the abuses of government itself. But giving the monopoly powers is far too much for any of the kind of governance systems we care about.

How about a government just run by the landholders, right? Would that lead to an optimum outcome? Again, you get the same problem, which is that if it's completely ruled by them, those who are weakest in the bargaining situation might just get wiped out completely. So I think that's the real concern. 100% voice to any one group is a bad path. And something more like a stakeholder theory of the state where there's a lot of people who have a voice, that gets us better results. But if you look, say, at the cities that have more or less maximized land value, Manhattan, maybe San Francisco, Dubai, city, state, Singapore. city, state, London, they seem really extremely well run, right? Exactly, yes. And but part of that

is that they face some kind of global competition. I mean, cities face huge competition for labor. And the extremely valuable freedom to leave means that a city can't get rich by just telling its most productive workers, you're not allowed to go anywhere. You have to stay here. Now, you argue in your book that not every county should elect its dog catcher, so to speak. Yes. To cite one example of many, what do you think are the conditions where voters are likely to have better judgments than experts? It could be the most natural cases is cases where there's an academic indoctrination that's completely opposed to reality. So isn't that more and more of the case these days? I think we can see it happening now because it's what's happening all around us.

But in earlier times, there's always been some kind of illusion that the elites have foisted upon them and that the masses just roll their eyes at. I mean, the early 20th century might have been communism, which was the opiate of the intellectuals for quite a few decades. But American elites didn't fall for communism. The academic ones did. True. But true American elites were pretty centrist, right? Absolutely, yeah. Should we elect prosecutors? No, I think not. Why not?

Yeah, I think because the short-run incentives to those, it's those campaign ads where the person brags about how many people they convicted and here are some scary faces on TV and let me show you how I convicted these people. that's the kind of the emotional, that's triggering that sort of short-run hyperbolic discounting and impulsive thinking that the behavioral economists have warned us about. And that ends up having, I think, far too much influence. In the United States, other than the implied supermajority rules already in place through checks and balances, are there policy choices where we should impose new super majority rules like a two-thirds vote in the Senate or the House? Yeah, I mean, I think that the, in a way of the balance.

budget amendments that have been proposed in my lifetime have always been equivalent to that. They weren't saying that you could never run a deficit at any point in time. They were saying if you wanted to run a deficit, you had to pass some special resolution and get it passed through a two-thirds or three-fourths majority. I think that's a classic example of something that would be very wise. But those seemed completely irrelevant, right? Deficits have just ballooned. And those constraints seem not to matter. Finland has a two-thirds rule, I think, for tax increases. They have very high taxes. Isn't it just ultimately about culture and the will of the voters, public opinion seeps through the system no matter what constraints. You put on the

voting system within the government? Yeah, that's the best comeback to all of this, right? Is that the voters ultimately have sovereign power and anything that's even sort of like a democracy. So any of these rules we impose are second order compared to who your voters actually are. But it does appear that across the U.S. states, I mean, balanced budget amendments seem to work. And it's not just the will of the voters. The will of the voters can be held back. It's basically one dike that can hold back the tide just a little bit. It sometimes argued that proportional representation systems, they give elites more power because after the election there's a second or third round of bargaining to establish

the coalition. Are the systems, in your view, better than parliamentary systems, such as we find in the UK or used to find in New Zealand? This is something I thought about a lot when writing the book. I was wondering whether I should have a chapter on PR versus First Past the Post. and it ultimately becomes very difficult to decide which of those is more democratic. I mean, PR feels more democratic to the citizens, and so they probably have higher levels of voter engagement in the political process, and that counts for something.

So that's a plus that makes PR sound more democratic. But you're right, the ex post coalition formation makes it act less democratic. And I'd never found a way to solve that. And since I wanted to stick to topics in my book where I can be clear on what was more democratic and what was less democratic, I just said that to the side. But let's say it's the early 1990s, Eastern European countries are suddenly becoming free. And they ask you, Garrett, what electoral system should we have? What do you say? Yeah, I mean, I think what I really would go for is presidential systems if you can handle it.

Something like a first-past-the-post system where those people elected from local districts focused on local problems, which have sort of less of a free rider problem involved, go up to the parliament and actually argue their case. The presidential element is less important than the parliamentary, the idea of the single district voting. I tend to think that that creates more accountability on the part of the government. The presidential system does. Well, I think the first-past-the-post element as opposed to PR. Okay. Let me go back to that. First-past-the-post, sort of the kind of systems you see in the UK and even the U.S.

They create a kind of personal responsibility for the individual politician, a personal accountability, and it reduces the free rider problem. It reduces the ability to say, oh, that wasn't my fault. You know, that was somebody else's fault. So that sort of having something that is a bit more like the organization of a modern corporation, where you can say, this is the person in charge, and if something went wrong, I take this person to task for this. That's really what you want. And proportional representation, coalition governments make that much harder to occur. But in your framework where the voters can be poorly informed or irrational, isn't more accountability, arguably a bad thing?

And a place like Singapore, which is quite well run, whatever flaws it may have, has relatively little accountability and part due to gerrymandering. So why wouldn't you want the system with less accountability at the margin? Yeah. No, I think that even the insiders have a tough time figuring out what's going on and who's responsible. And for that reason, having clear patterns of accountability, say within – I mean, if corporations want clear lines of accountability so that the people inside can assess the value being created by the 100 or 200 people there monitoring on a regular basis, then modern democracies of any type must face that problem to a much greater degree. So that's why I think that the idea of some line of responsibility, some line of who's in charge is crucial. Is trial by jury a good idea? Yes.

This is something where, again, I thought about. I tend to think that trial by jury balances the ignorance of the typical person who might go in. I mean, juries are intentionally made ignorant about the case that they're supposed to be evaluating. It seems to balance that weakness against the big benefit. of individual responsibility. Like, there's a small number of people making this decision. And I think that the incentive for becoming informed is a greater benefit than the cost of having people who are quite uninformed on the particular topic. Are there mechanisms of accountability for politicians which do not rely so heavily on voters?

And why don't we do much more of that? Oh, that's a good question. You're right. I mean, an old classic example of this would be, well, now classic, is something like New Zealand's contract for its central central banker, right? Or if you, if the central bank fails to meet its inflation target, the head of the central bank gets fired. I mean, part of the reason we don't do that is that the kind of punishments that they're willing to give out aren't very extreme. I think it's a little bit of a puzzle that we don't have the equivalent of real performance bonuses based on fairly objective measures for things like this. So do you think other people underrate small open economies because they're very accountable

to global markets, right? That's not a voter-driven phenomenon. So in your view, they should do better than maybe most people are expecting? Yes, exactly. I mean, and I think this has been proven since the global financial crisis. The small open economies learned their lesson in the 1997 Asian financial crisis. They made their banking systems far more robust. They made their regulatory systems more effective. They increased their capital requirements.

But you have Iceland, Ireland, right? They totally blow up in the later financial crisis. True. The 2008 one. But those were richer countries. The middle income countries, the ones who were actually hit by the Asian financial crisis, they learned their lesson and they stuck with it. So those, I mean, if the message is that people can only learn from something that happened to their own country in the last 20 or 30

years, that's a lesson itself. But that's far more than most people learning their whole lives. A longstanding debate from professional sports. Should we let the fans elect the All-Star teams? I mean, obviously, nobody takes, I mean, this is a great lesson in democracy right there, right? Like, all-star teams tend to have good players, right? But they, A, all-star games are low stakes. So it's a little bit hard to evaluate all-star, all-star games as versions of that actual sport for one thing. So you can't evaluate that too much. But coaches get paid a lot for a reason.

And that ability to assemble the right team is a scarce resource. And it's very difficult to pull off. And I think it's very hard for outsiders to know when teams work well. The old Athenian system, representation by lot, right? Choose members of the legislature more or less randomly or the Venetian system has a random element in it. The old Renaissance Venetian system. Good idea or a bad idea. When can it work?

These systems seem to work in small polities, right? Small governments seem to work well with a version of election by lot. And we use versions of election by lot to trials, right? That you're basically selected randomly to be on a trial as a juror. And judges are assigned to cases relatively randomly, although those are people who are already pre-selected. But at the margin, should we do more of it? We could choose a departmental chairperson by lot, right? Yes, you're right.

We could choose it. The Bridge Club could use it. No, I tend to think that for management skills, when it comes to management skills, which is what a lot of these governance type jobs are about, that's where we really want some level of expertise skill at that particular management trait. where juries are good is where the jury style selection system, where selecting people randomly from the populace is most valuable, is when we're trying to figure out the opinion of the populace and we want people to carefully think about an issue. So we should be selecting from the populace at random when we really want the most informed opinion of a typical person. That aligns the incentives well. For the United States, what is the most effective way in your view that you would want, us? to have 10% less democracy. What's the one thing you would change? I would change the House of

Representatives to a six-year terms. And I picked that because it's not outside the range of plausibility and because I think people would instantly understand what it accomplishes, not because it has the highest payoff, because it balances payoff with plausibility in a democracy. And you would still have them elected altogether at the same time or you would stagger it? No, I think the staggering, which was built in by the founding fathers of the U.S. was brilliant. And I think it's all the more important in our modern age of social media. Social media waves can come and go so quickly. So, staggering elections means that no one period of time has a dominant effect on how the next six years of our country turns out.

Do you think it would raise or lower the influence of money in politics? I think it would plausibly raise it a bit because being less accountable to voters, to that sort of short-run mania of voter demands, would probably give a touch more vote, touch more influence to political investors. And the reason, I mean, when you're investing in a, when one election has a six-year payoff, you're willing to invest more than when it has a two-year payoff. Let's say you can make one effective change to the governance of the European Union. What's your pick? That's a much tougher one. Yeah. I mean, they have more than 10% less democracy than they used to, right?

Yeah, yeah, yeah. I think I would probably strengthen the jurisdiction of the EU's top court. I'll get its name wrong right now because there's so many of these European courts. But I'd strengthen their jurisdiction to be able to dive into the local political systems of the countries they're overseeing. Make it just a little bit more like a national government. If someone said we should replace the European Council with the true executive, a single person who would be highly visible, and evaluated as such, and that might make the EU more accountable to voters or public opinion. Do you agree or disagree?

Yeah, I think that's a – I absolutely agree with that because I think – and whether it's voted on by the masses or selected by the EU Council in some way, the EU keeps moving toward that. You can tell they're groping towards something like this, but they can't quite pull it off because they've had so many little heads between the European Commission, the European Parliament, and the EU Council. But yeah, you're right. They want more accountability

so that there's a clear voice and there's someone they can hold responsible for success and failure. But do they want more accountability? Isn't there the risk that with an executive, you can then have a highly visible direct clash with national governments and maybe the whole thing falls apart?

And the whole point of the European Council system is to make it vague and amorphous and not so transparent. So you can always kick the can down the road and pretend you agree when you don't, and that's what keeps the whole thing held together? Well, this is the question, right? Right now that if they're getting rid of the squeakiest wheel through Brexit, that strengthens the case for having a tighter government among the remaining members. Scott Sumner says, ask Garrett about Switzerland, the world's most democratic nation by far.

This is a great question. People have brought this up to me over the years, right? So Switzerland is incredibly democratic and it's incredibly functional. And part of the – it's hard to tell. Is it just that the Swiss are different? Is there just a sort of Swiss national culture that can't be captured? It's a sort of lightning in a bottle. Or is it something as simple as the fact that so much of their direct democracy is held at the local decentralized Canton level, right?

Sometimes even lower levels, quite the equivalent of villages levels. So to the extent that it's at that very low level, that's sounding a lot like the Athenian system. And the Athenian system of direct democracy working okay in groups of five to 20,000 might be plausible. But that's not the level we're working with. And Switzerland is not running its national government through direct plebicides in that way. What about extreme federalism for more places? Is that a good idea? Right.

It is logically possible. No, I tend to think that it's not incredibly desirable for the kind of reasons Glenn Wilde points out, that basically there's a lot of increasing returns in the world. And you want to be able to have feasible routine government negotiations at the highest level where increasing returns are mattering. And, you know, it's totally plausible to have more federalism. But outside of the problems, I mean, we even see this in problems of big cities, right? Where metropolitan statistical areas much better capture the scope of positive and negative externalities. That's where the bargaining should be happening. But yet we have these city governments and that are much smaller often.

And I tend to think that increasing returns are driving a lot of the successes and failures around the world, positive and negative externalities of human interactions. And so you want to have the broadest scope possible. You want to have your equivalent of a parliament at the broadest scope of negotiation because parliaments are our great Kocan negotiation for them. It seems that more decisions in the U.S. at least are being made at the city level, minimum wage hikes, climate change policy, apart from whatever you think of those particular decisions. Are you in general unhappy about more decisions being made at the city level? No, I love it because it creates more natural experiments for economists to study.

But that seems that variance with what you just said. said about wanting the externalities internalized and increasing returns. I mean that ironically, of course, right? Because it's like they're creating these natural experiments at the very local level, which creates a lot of information. That's beautiful in its way. But a lot of these are things that are not that promising by the, you know, economists aren't going to ever be that excited about massive minimum wage hikes doubling the minimum wage in the normal range of variation for most countries we've seen. Here's a reader question, and I quote, are there any examples of people willingly giving up

some of their power to elites. There's lots of systems of indirect democracy, but I can't think of any that evolved to that point from more democratic systems. Oh, no. We've been shrinking democracy across a lot of the rich countries. The biggest example is since the 1970s, the rise of independent central banking, politicians handing over more and more power to people like me, to economists, to macroeconomists, especially those trained in money and time series. And they just let people, people are people who are went to grad school with. These folks just kind of run the central banking system. So that's a voluntary seating of massive financial power to people who are quite unelected, have long terms and are essentially impossible to fire. If we just think of government as a check on the very worst outcomes in the way that I think Carl Popper suggested, just get rid of the worst people, the very worst decisions, don't expect too much from the actual decision-making capacity. Does that then make democracy look better and we want more democracy? Whereas if you think of government as a

calculating mechanism, well, of course, you want the elites, but if it's just about throwing out the worst cases, doesn't democracy then make a comeback? You know, that's why the chapter one of my book is entitled, The Big Benefits of a Small Dose of Democracy. I mean, avoiding the very worst outcomes is the least we can hope for from governance. And it turns out that democracies are great at eliminating the very worst outcomes. So democracies, regardless of how measured, even a moderate dose of democracy is associated with no famines and negligible numbers of massacres of a country's own citizens. and probably starting fewer wars.

And hard to get from correlation to causation. That's why I have a chapter on it. But it does seem as though a moderate level of democracy gets us the chance to avoid the greatest tragedies that have occurred in modern governance. Dominic Cummings, as you probably know, recently wrote a blog post saying that in the United Kingdom for their reforms, they want a lot of super smart weirdos who know a lot of math, maybe can do some programming to change things and shake up the civil service. Does that idea make sense or is it going to destroy itself?

As a general rule for all the civil service, it destroys itself. But as the idea of a sort of skunk works that could, if kept in a box for two to three years could generate great ideas that could be pushed into the right sectors of a government, that seems quite plausible. My guess is that in any of the rich democracies now, there's probably five to 15 percent of the government where there's just enough of a culture that's open to radical reform. and it probably takes a year or two to figure out where those sections of the government are. And the right weirdos could come in and re-engineer that, just like pretty much like any kind of corporate reorganization. If you could be benevolent dictator of any country or region on earth, where could you have the greatest 50-year impact? They do what you say. They do what I say.

And you get 10 years in charge. Yeah. And then you leave. Yeah, yeah, yeah. Yeah, I would like to think that it'd be Rwanda. So, I mean, Paul Kagame has made quite a number of reforms. economic, political social leaders across sub-Saharan Africa have paid a lot of attention. There are, of course, real weaknesses in what's been going on there as well. But I think that it could be

the case that he just doesn't need my advice. He's really just following the Likuan-U path to the best of his ability. But I think the idea of having a populace that's basically open to moderate levels of reform and leaders who are open to some degree of technocratic governance while making life great for the masses, that's something that could happen there. Why is political polarization in America gone up if indeed it has? I mean, I think a lot of it has to do, I mean, some of it is the rise of social media, right? It is sort of the federalism of the internet. And part of it is the rise in ethnic diversity across the U.S.

And, you know, there's a reason why we use the term ethnic conflict when studying a lot of wars across history. And at a much lower level, people often disagree with each other when they come from different cultural backgrounds. But it seems like the worst shouting is rich white elites at each other, right? A, that's true, but often, but that's partly because the rich white elites are signaling, are acting as the self-appointed representatives of other individuals and groups in society. So I think there's that feedback between those two.

But since they're not actually representing those other groups, wouldn't these squabbles have happened anyway? And if one group of the wealthy white elites claims to be speaking for, you know, the L-A-T-I-N-X people, well, maybe that's absurd, but that's a kind of excuse and they would fight about something else. No, I think it's easier to have arguments when people can credibly point to some substance. I mean, both sides and debates over political issues, each side tends to pay some kind of respect to the raw existence of the other side's issues. So if there is no existence of the issue, if you're talking about folks who are 0.003% of the population, then it's much harder to create a broad social movement worrying about that problem. You went said on Twitter that one of the books that influenced you most was Gary Miller's managerial dilemmas, the political economy of hierarchy.

What did you learn from that book? Why is it important? Oh, it's great because it applies classic public choice to the questions of the organization of the firm. So one version of it, one early insight is that arrows and possibility theorem applies to any kind of decision within a firm. So if you have three managers, three top managers who are trying to decide the strategy of the company and they disagree, slightly on where the company should be taken. Wow, that can lead to classic preference cycling, a classic Condorcet paradox. And so corporations can face the same difficulties of making rational decisions, whether it's because of the problems of voting, the problems of paying people their marginal product when real life is a team effort. And ultimately, Gary Miller says

the only thing that can solve this problem is to realize that firm culture is basically an equilibrium to a repeated prisoner's dilemma, a long-run cooperation game. And so once he pointed out in sort of the climax of the book that long-run cooperation, focusing on some kind of cultural norm and infusing that throughout the system was crucial to firm success. And that failed firms would be those often that failed to coordinate on a good equilibrium. I decided that was central to seeing not just how firms work, but how societies work as a whole. Let's try some questions related to your first book, Hive Mind. Here's a reader question, quote,

the term hive mind is often thought of as a science fiction term, first used in 1950 in a short story, second night of summer by James Schmitz about alien intelligences. In the Cold War era, this was frightening. And of course, there's the Borg from Star Trek next generation. Do you think the term hive mind is now fully thought of as a good term rather than a concept that strikes fear? Yeah, it's a great question.

And I have to say, the Wall Street Journal very kindly wrote an entire article and the heart of it. The heart of the article was how I picked the title of my book. And it was about this very theme that hive mind used to be a negative idea, but now people routinely on social media at least treat it as a positive idea. Yeah, the idea that we can grab ideas from a lot of other people and synthesize those ideas and get to use the business cliche synergy where the whole is greater than the sum of its parts. This is something that people can see on a regular basis now in a way that was much more theoretical, 50 or 75 years ago. So I think the idea of a hive mind or collective intelligence is it still has the scary downside and it should. But the positive upside is way too visible for people to ignore. In the 1970s, Irish IQ measured as lower than British IQ.

Yeah. And people worried about this as a problem. These days, Irish IQ measures as higher. What should we learn or infer from this development? Yeah. And something similar happened in East Germany after the end of communism, right? where there was this sort of 10ish point IQ gain within about a decade, decade and a half of the collapse of communism. So I think it's a sign that substantial amounts of national or regional intelligence, cognitive skills, are really shaped by the culture that we're marinating in.

So this is part of my hive mind ideas that it's, I take the Flynn effect very seriously. And what Flynn and Dickens pointed out in their famous paper and what Flynn has emphasized in his own work, the IQ research. who's a philosopher by training, is that when our environment change, most of us get to choose our own environment as adults, but some of us have our environments as adults forced upon us through basically the culture or society we're living in. And that has a huge effect on how we use our minds. And I think that really does show up in substantive intelligence, not just some sort of nominal intelligence.

But what's the key environmental lever? So whatever Ireland did, it's not the people were starving, right? That we understand. Yeah. So why don't we do more of whatever they did, whatever it was done to the East Germans, everywhere. Exactly. But what is that lever?

Why don't we know? I mean, I would say that thing is the thing we call capitalism, right? But capitalism is a big, huge thing. Not all the capitalism makes us smarter. So yeah, that's the thing, is figuring out which things within capitalism. What is it about living in a free society with competitive markets where you, at least in our youth and middle age, we feel a need to sell ourselves as valuable creators? There's something about that that probably is what's most valuable for boosting cognitive

skills. It's a sort of demand side desire to just to try to use our minds in socially productive ways. So marketing makes us smarter. So that's what I would say. Yeah. I think there's some version of this. I mean, there is a push-pull element too, right? When you're in a network of people who are trying to do that for you, you end up trying hard to decipher their signals as well. When other people are trying to present themselves as, oh, look, I'm a cognitively sophisticated person. I'm trotting out these ideas. You're trying to process their signals so you can fit into their world. And so there's a synergy here. It's not just a one-way story. One of the key themes of your book is that these social returns to intelligence and groups

are much higher than the private returns. If that's the case, why don't we see increasing returns in the economic data almost everywhere? Oh, it's because this is, it works essentially like a level effect, not like some sort of increasing returns to scale. So if my estimate from my early work was that one IQ point raises your private marginal product about 1%, but it raises your society's marginal product in the long run by about 6%. So that's a level effect. And so I wouldn't expect to see some sort of massive agglomeration showing up in the wealth creation process. But firms are larger than before, at least in the U.S. cities are larger. Our population is growing. We're better at sorting talent. So why doesn't the economic data look like what

Paul Romer expected in 1990, where there were literally increasing returns to scale? Growth rates go up. You see increasing returns almost everywhere. It seems we do in a few super firms in a handful of cities, but otherwise not. I mean, I think the answer to why Paul Romer's world didn't turn out to be true comes from his co-author Chad Jones. Chad Jones's semi-indogynist growth theory basically says, yeah, yeah, yeah, it's great to have a lot of people, more people searching for ideas, but there's diminishing returns to the idea research process, just like there are diminishing returns to capital.

And once you add in diminishing ideas to the search return process, a sort of, once you grab the low-hanging fruit, it's more expensive to grab the harder ideas to invent, then you get something, you get back to something that's a lot like the solo growth model, where the world's level of growth in new ideas ends up becoming kind of a constant, a constant value. There might be some shifts in the relative level, but ultimately because new ideas are pretty hard to find, new valuable ideas, you end up right back at your, whatever the long run number is. Maybe that's 2%, maybe that's 1%. In your view, why are smarter groups of people more cooperative, on average? I think partly it's for reasons that come out of Axelrod.

So Axelrod's evolutionary cooperation really had a huge influence on how I think about the hive mind. And the three traits that turn out to be especially crucial are what I call the three P's of the repeated prisoner's dilemma, the RPD. And it turns out that intelligent people are more patient, they are more pleasant, and they are more perceptive. So, and in order to get good cooperation in groups, it helps to have people who are focused on the long run who are willing to take a little risk today in order to get back some return to their cooperation in the future. So they need to need more patient. They need to be more pleasant. They need to be more willing to start off cooperating to take a chance on cooperation early in the game. It turns out experiments show that they, in fact, do that on average.

And they need to be more perceptive. They need to sort of keep track of the fact that they're playing a game and that there are payoffs happening. Remembering the history of a game, and life is a game in many ways, is important to generating cooperation. So, smarter people tend to have all three traits in greater degree, more patient, more perceptive, more pleasant. And those three P's of the repeated prisoner's dilemma are crucial for group cooperation. In some studies, the personality psychology trait called conscientiousness doesn't seem to predict cooperation at all. Why is that? How do you make sense of that result? Partly it's because it's none of the three P's of the RPD.

But to go beyond that to real substance, it's that cooperation is pretty dangerous. So a person who's conscientious in trying to make sure that they're watching out for themselves or their loved ones should be a bit reluctant to just jump into a pro-social pro-cooperation relationship because a lot of people get ripped off. So a prudent person who isn't able to tell whether you're dealing with someone who's trustworthy should best. respond in an untrustworthy way. If I'm, if I know that, if I don't know whether I'm surrounded by scoundrels or saints, it's probably a little safer to assume that I'm surrounded by scoundrels. And a person who's conscientious will be more likely to just notice that fact. When I tell smart people, including bosses and venture capitalists, how relatively weak is the correlation between individual IQ and wages? Typically, they're surprised. You may have found the same.

Yes. Does that mean that we as a society, the elites are overrating intelligence? It does, I mean, if what you're saying is true, hire stupider people? Yeah, yeah. It's that I think the correlation is just high enough for you to keep it on your radar, but it's just low enough that you should always do the job interview and not just higher on the SAT score. So, yeah, and especially the link between IQ and income is weaker when you just look at IQ and wages, right? A lot of the numbers that people look at are often looking at the link between IQ and total income for people in late middle age.

And by that time, people have, you know, a lot of people, at least in the sample, have some non-wage income, some financial flows coming in. And that's driven by intelligence as well, to some degree. Smarter people seem to be paid better in the stock market, for instance. So, yeah, when you look at the link between IQ and wages, the market just isn't paying all that much for. The boss will pay something for it, but there seems to be a lot of other things that are worth more. I think part of this is that the way jobs are constructed is that jobs are constructed to be in many ways foolproof. so that a person can't screw it up that much. And so being the very smartest person in a particular job category might not make you

that much more productive than being the worst person in that job category. But that's partly because that job category was created so people couldn't screw it up that much. So let's say I do interviews and I've decided I will wait intelligence less. What should I wait more instead? I think an ability to adapt to what the group needs at any point in time because I tend to think that that version of openness. Social flexibility. Social flexibility.

Women tend to have more of that in some studies, right? I believe that. Yeah, yeah. So if we feud intelligence properly, we would actually want to hire more women than is currently the case. Yeah, I think so. Yeah, I think this, the idea of social flexibility, openness to new experience, which, and that latter is correlated with IQ weekly, but positively. Those are traits that for non-routine jobs, especially, which probably what we're thinking about here, for non-routine jobs, whether men manual or mental, it's openness as a trait that's going to be more valuable.

Are you game for some overrated versus underrated? Yes. As long as we're clear about who it is overrated or underrated compared to, what is the standard. Sure, but you can make that clear. Yeah, I will make that clear. Okay, the Harry Potter novels, overrated or underrated. I have not read any of them, but I tend to believe they're overrated. I tend to think that they're...

You must if you haven't read them, right? Yeah, exactly. Yeah. Yeah. Retirement. Underrated. Yeah, because I think people can, people can do great things in retirement and keep using their mind and their body and developing them in great ways. Manhattan, overrated or underrated.

Oh, still underrated. It's just a wonderful place. Yeah, there's just so many, there are so many individual universes inside of there. And even outsiders who've been there quite a lot don't get to explore it enough. It has many communities and it has an underratedly high level of social capital. Capitol. Nathaniel Hawthorne. Cannot comment. Too ignorant to speak. The original Star Wars movies.

Oh. The first three. Yeah, yeah, I know what you mean, yeah. Four through six. No, I think they're appropriately rated. I mean, people have the right rank order that episodes four and five really did interesting new things and took big risks. And in a way, they updated old ideas for the 21st century and repurposing the best

ideas in a substantive way is very helpful. Perhaps that's what the Harry Potter novels did. What is the most underrated cuisine? Hmm. French. Why? Yeah, I still think that the regional varieties across France are not sufficiently appreciated in other rich countries. It often gets boiled down to a few cliches. And that's because they're not exported or people have bad taste or what's the underlying mechanism? Yeah, I think people have bad taste. It's that it gets boiled down to the cliche versions of it that they've seen, the potted history versions of it. So, yeah. And which are the most underrated wines?

I tend to think that regional Italian wines are still wildly underrated. So there are so many people doing excellent things in Sicily, in the northwest, in the northwest of Italy, in the Piedmont, with the sort of second and third tier grapes that there's just a lot of great things going on. Lennon or McCartney? Oh, McCartney. I don't know enough of the history to assess well, but my impression is that McCartney has a reputation for being the guy who just did this sort of schmaltzy love song stuff. But my limited understanding is that he really had a lot of the biggest weirdest ideas and his link with Lenin was real.

But he was bringing the weird, but he was presenting himself as the schmaltz guy. Buchanan or Tollick? That's so hard. I'd say Buchanan because he, like Tollick has. had more weird ideas, right? And Buchanan took the time to do something that I personally am not that skilled at and not that interested in, which is building an intellectual empire, building an organization and a culture that shares those ideas. And that's really how you get important ideas into an ecosystem is by taking the time to build an organization, to build a culture, to work

with people. And Buchanan did that. And that gave him a power that Toler couldn't quite have. Napa or Sonoma? Sonoma. Only because of the wines that I've appreciated from there most recently, where I think the land prices aren't quite so high. So it works a little bit more like what you think about restaurants, where you're going to find the best restaurants in strip malls because that's where the most innovation can occur.

Similarly in Sonoma, there's enough inexpensive land that people can still take big risks. Nobody's taking a risk in Napa anymore. Seinfeld or Larry David? Larry David. So because he can basically break out of the – he can take – He can take the sort of Buchanan style experience and legacy of an organization and he can play with it. He can spend that reputation on toying with these ideas in ways you couldn't in a big corporate sitcom. Who's your favorite American painter?

Let me see. I'm going to go with Grant Wood right now. I got to see American Gothic just a couple of days ago. And it really did say something about America that few would have, I think, the nerve to say in a lot of ways. Macro-economics. Why is Thomas Sargent your hero? Because he marries the best of time series thinking with the best of dynamic general equilibrium thinking. And he's willing to make the tough choices that it takes to marry data with theory.

And he doesn't just go off into the la-la land of pure theory. And he doesn't just take an agnostic approach to theory that some of the time series people do. That's a tough synthesis. And he dove into that over for quite a few decades. Why do Sergeant and Prescott, at least to me, seem to have lost influence? with younger economists. It's because of the rise of micro data, the rise of big data, the lack of interest in finding grand synthetic stories.

I think that's what I keep running into in the last, say, 10 years, is that we're in a world in macro now where people have some sort of vague overall story that they're willing to use, but it's essentially a new Keynesian story, which is a way of saying, ah, there's some nominal stuff, out there's some real stuff. We really don't know what's happening. And we're in a world that's a lot like the 60s. in macro where people are studying micro foundations, but they're not synthesizing them into a macro story.

Sergeant and Prescott were both wedded to big macro stories that could explain the whole world. That's part of what drew me into social science in the first place was the fact that I want to be around people who take micro and build it up to a macro story. They tried hard to do that with the rise of big data and the rise of little stories that has faded. Models of nominal wage stickiness. How convincing do you find them as an explanation of sustained

unemployment. Not of sustained unemployment at all. So I tend to think that the most recent work, you know, the new John Bates-Clark medal winner, Nakamura, she, I saw her speak just a couple days ago. I mean, you know, when you look at the research that she's done on nominal wage stickiness and trying to plug it into real models, you know, sure, she definitely finds real evidence that there's genuine nominal, nominal price stickiness. And other workers find nominal wage stickiness, these things can't explain 10 years of unemployment. The invisible hand is more powerful than wage stickiness in the long run. So what's the missing factor for explaining unemployment over sustained periods of time?

Some of it is some version of technology shocks where they're just, people find it very expensive in real terms to move out of certain sectors of the economy, whether there's a regional stickiness to live in a certain area because of family ties, for instance, whether it's generous unemployment benefits, which are certainly well-witch justifying on their own right because starvation as a motivation to work isn't great. It's these real side factors like social safety nets, real costs of adjustment, shocks that can cripple a person's human capital for a decade or more. I think these are more important for explaining that kind of long run stuff.

Sergeant and Lundquist's work on the European Unemployment Dilemma, I think, capture some of that. What's the biggest mistake found in Twitter macroeconomics? Just people looking for simple answers. I mean, you see this more than I do of people saying like, wow, we should just have a lot more nominal expansion. We could have eliminated unemployment a long time ago. Yeah, the belief that more spending early on in the Great Recession could have obviously had a huge multiplier effect seems wrong. The folk versions of Larry Summers' secular stagnation theory and even Summers' secular stagnation theory itself.

These are really under-evidence theory. It's not that they're under theorized. That's its own problem, but they're under evidenced. Given that fiscal deficits are so high, why don't we see more crowding out? Or do you think we do? Well, I mean, partly it's because we have a global economy and a lot of people are willing to invest in the U.S. You know, financial markets are a lot more open than they were 40 years ago.

And so one nation's deficit shouldn't have nearly as much of an effect. But yeah, I do think that there's plausible that some degree of crowding out is happening. I think if we had macroeconomic budget balance in the U.S. US, maybe a third of that would show up in higher investment. I know it's hard to get there, but do you think ideally we should have budget balance now? Yeah, this is the kind of time you should be doing it, right? Yeah.

How useful is it to have this liquid safe asset known as Treasury Securities, which perform many functions, collateral, for instance? Don't you want a deficit of some percent of GDP if you're the United States? Well, we have a huge stock of these Treasury assets out there. So that stock would still be there if we were running budget balance. right now. So, and that's worth keeping in mind. There's huge stock there. It's also totally easy for the Treasury to create bonds and just use that money to invest in something like to pick a popular example of sovereign wealth fund. But yeah, the fiscal capacity of the U.S.

government is a superpower. The high credit rating of the United States is a superpower. And that gives firms and organizations, individuals, the ability to make credible promises to each other. That's super valuable, but we've got a big stock of assets out there. Germany's close to budget balance by some metrics. Shouldn't they be borrowing more? They can borrow very low rates, sometimes negative nominal. Yeah, that's a good question. I mean, they face the problem of a lot of the rich countries, which is this demographic

decline, and they have a lot of elderly who are going to be coming along. And those future fiscal problems are going to be haunting the rich countries for the next 30 years. So it seems as though, you know, the story that we were teaching as macroeconomist 20 years ago and that I was learning 30 years ago as an undergrad are true today, which is that we needed to get ready financially for the baby boomers. We did sort of a mediocre to just below mediocre job of that, and now we're kind of reaping the regime that you'd expect in that world, which is more intergenerational tension. A few questions about your past. What's the biggest danger facing the future of the Mormon church today? Oh, this is a big problem.

They've really lost male participation in a substantial way over the course of my lifetime. I was a Mormon missionary in 1989. I quit. I've kept friendly relations up with LDS folks since then. And the LDS church for decades for over a century, have been able to maintain high levels of male engagement in their religion, which is a problem for a lot of religions, right? Why have those returns fallen? It does appear that partly it's that men are drawn more into the appeals of secular life. Partly it's that on Google, they're learning about the history of the church and they're learning things they weren't taught in church.

Church leaders apparently are wrestling with this. They're just being exposed to ideas that have been outside the purview of the church. I think that's a fairly important part of it. I think it's also a version of it as just the general difficulties that non-college educated white men have had across the U.S. the Mormons are having their own personal version of that. And there's a much more of a, basically a lot of people can spend their time playing Fortnite. And that keeps them away from going to church. So it's Fortnite and Joe Rogan.

Yeah, yeah. Should non-Mormons move to Salt Lake City? Yeah, I think the quality of life there is very good. For non-Mormans, it's, you know, you're maybe at a bliss point now or, you know, the top of the laffer curve, where you get these great benefits of high LDS social capital. and yet there are enough non-LDS people that you can have a rich social network where people might be able to go to a nice wine dinner on a Friday or Saturday night. Yeah, plus, you know, Brigham Young picked a great place in the mountains. Should non-Mormons move to Provo, Utah? Yeah, that's a little tougher, right?

Because, I mean, I love it there. It's a good fit for me because I, in a way, speak the vernacular. That's a little harder case to sell because it is built closer around LDS culture. and so people who, non-Mormans who move there, will probably feel quite a bit more isolated. In which occupations should we expect to find Mormons overrepresented? Oh, I mean, the places where they are, which is like places like the FBI and the CIA, places where being able to speak a foreign language is incredibly important, and being able to pass a drug test is incredibly important,

and being able to show you can keep secrets as important, and Mormons are great at all three. Now, you've never written about this as far as I know, but there's something to me quite special or unique about the Garrett-Jones' vision of America. that I've never quite seen you spell out, that you get something about America that most other people do not. Do you have any sense of what that might be? I mean, there is this case that America at its top 20 percentile of experience is, you know, it's been a nation that's been built on a kind of hope and vision, this sort of not American exceptionalism in that it's something you're endowed with, but it's an American exceptionalism in the sense that it's something that people create. and sort of a sense of adventure that is central to the American experience. It's a mixture of a pioneering spirit with an element of a strong social capital.

So to me, of course, the Mormons then are the sort of embodiment of this, right? You know, they've got this strong social capital, strong enough to stand up to other people, but at the same time, willing to take huge risks and endure great persecution in order to sort of build a new world. And that's an extreme version of what Americans have done for quite some time. It's this rare blend of social capital and adventurousness at its best times. And that's not just a 0.1% experience. It's more like a 20 to 30% of the U.S. experience. And that's something that a lot of countries just never get.

We're now on to the Garrett Jones production function, by the way. In case you hadn't noticed. Now, you did a big America trip over the last year, correct? Where did you go? I drove from my house in Fairfax. and I went up across the U.S. out to South Dakota, where I was able to see Mount Rushmore again, then went straight up to Canada and saw Banff, which was unbelievable. And from there, I basically went to counterclockwise around the rest of the U.S.

and was able to linger for a few days of places that I had long wanted to see or had just been able to drive past. And what was the most surprising thing you learned? I mean, it's that with not being in a hurry, I was able to see, to see, parts of beauty, especially in southern Utah, which I had driven through many, many times. And I was able to appreciate it in ways that were just unbelievable, you know, just getting up a little earlier to watch the sunrise and capture some great photos in, say, Bryce Canyon. And so that's the element of beauty. The second thing is that I thought America, I expected to see a lot more of the sort of detritus of civilization, sort of signs of social decay in the Midwest, because, you know, the internet

have been telling me for a couple of years has been going on. And yes, pockets of this. Yes, definite concerns about the opioid crisis, very real concerns. You could see them displayed on billboards. But at the same time, a lot of capital investment, a lot of new machines and equipment, a lot of rebuilding in quite rural areas. So it was a sign to me that the Midwest has a sort of, well, of course, there's a part of the economy and a part of the culture that's struggling.

The median part of the heartland, the Midwest, and the American West, just was doing far better than I had been led to believe. Now, you worked for some time under Senator Orrin Hatch. Yes. What did you learn from that experience? Well, I did learn something about the value of friendship and politics. I mean, my office was right outside just around the corner from Senator Hatch's personal office. And, you know, when Ted Kennedy would come in the office, you could just feel it. And Orrin would kind of come out of his office sometimes, and they would just hug.

And I say this in the book. in 10% less democracy, that like, this wasn't just some political polite hug. This was like the real thing. This was like a full on two men just very happy to see each other. And that kind of camaraderie across people who really disagreed intensely on politics, that strikes me as the heart of building good political negotiation and keeping a good political culture. You're studying to be a wine steward. What did that teach you about economics? Part of it is it just gave me a chance to study all of this economics of wine stuff because economists are sometimes quite skeptical of the idea that wine differ in quality or that it's anything more than just self-perception.

But, you know, inter-rater reliability when people are doing blind taste tests, when judges are doing blind taste tests, are in the sort of 0.3.4 range. So when different people are rating the same body of the same, you know, 10 or 20 wines, different judges seem to rate them, you know, at a point-3 or point-4 correlation. And I tend to think that to some people, well, if it's, if a relationship is, unless it's nearly perfect, we should ignore it. But that's just the kind of correlation you expect to see if you actually talk to wine people. Like if you know what a point three or point four correlation is, there's something to it, but it's not the whole story, certainly. Wine people love, part of the magic of knowing something about wine is that you have the power to find, you know, diamonds in the rough, to find bargains, to find something that's $20 or $30 that is as good as something that's $200.

That's the superpower you acquire. And in a way, that's what a lot of great restaurants do, is they're trying to find wines, they're inexpensive for them to buy, but they give people the experience of a $200 or $300 and they make it up on the margin, right? I think this element of sort of searching for diamonds in the rough has this sort of element of sort of, you could say it's Critsenarian entrepreneurship in a way, right? You're searching, searching, searching for underappreciated gems. So you're interviewing someone to be a wine entrepreneur.

Yeah. To find these underappreciated gems, what qualities do you look for in them? I mean, again, to go back to before, I'd go back to openness. But really what you need is somebody with a really good palate and a really good nose. Mine are mediocre at best. But the magic of being with someone who's really great at assessing wines is that they can taste one, you know, once or twice and give you a good thorough description that you yourself would agree with in general. So if we both rated it blindly, I might give a 10-word description and the person who's truly great

will give a 50-word description, but our descriptions will overlap. That's sort of what you're looking for, someone who can give a more thorough assessment of something than I can, but who will broadly correlate with my assessment. What science fiction did you read in high school or college? Actually, hitchhiker's guide to the galaxy was actually quite important to me. And I often think about the fact that the true president of the galaxy was just some guy who didn't even know he was president. Right. So there was a figurehead president of the galaxy, Zaffod Bebel-Brocks, but the person who really ran it was a guy who lived in a, like, like a hut somewhere on some planet. And he didn't even actually know he was deciding things

for the entire galaxy. So it was a bit like the Enders game theory. It's no surprise to me that Douglas Adams had been a writer for Doctor Who, but he took the sort of world of Dr. Who where sort of anything was possible and he combined it with the absurdity, with the absurd humor of sort of Monty Python. And I think that was a great fusion. Last two questions. First, what is your advice to aspiring research economists? build up enormously broad and deep set of econometric tools. We live in the age of big data, and that is the way to speak the language of our field. Also, if you have incredibly broad and deep econometric tools, you will never worry about going hungry, and therefore you will

feel more comfortable taking big risks with your career. I mean, that's part of the reason I was willing to engage in some topics that people said might be a little risky, IQ research in particular, because I knew that at the end of the day I would never have to go hungry because I knew time series of econometrics. Finally, what is your advice to aspiring quality teachers? Have depth in the subject matter and find stories that you want to tell to enliven people. I mean, I always say this whenever I'm writing a teaching statement, which is I feel like my job in the classroom is not to teach the details of any theory.

My job is to give students a reason to feel passionate enough about the topic so that that they'll go home for two or three hours and study it on their own. So my job is to then give them a few key pieces of advice, a few key pieces of information, a few key anecdotes or stylized facts, and a couple elements of deep theory that will stick in their heads and so that those will sort of work in their brain to inspire them to sit down for two or three hours on their own. I think that's the real goal of teaching at the college level. It's not that I will actually give them the full piece of information, the full body of knowledge in the classroom, is that I inspire them, motivate them to go read it and learn it

and make the knowledge their own. Garrett Jones, thank you very much. And again, the new book is 10% less democracy, why you should trust elites a little bit more and the masses a little less. Thank you, Garrett. Thanks very much. Thanks for listening to Conversations with Tyler. You can subscribe to the podcast in iTunes, Stitcher, or your favorite podcast app.

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