Conversations with Tyler - Luis Garicano on Spain, Europe, and the Future of Work

Episode Date: September 30, 2026

Luis Garicano has one of the more unusual résumés in economics: trained at the University of Chicago Booth School under Gary Becker, Kevin Murphy, and Sherwin Rosen, he left academia for a stint as a member of the European Parliament before returning to research, now at the London School of Economics for a second time. His new book, Messy Jobs, co-authored with Jin Li and Yanhui Wu, argues that AI won't cause mass unemployment for a surprising reason: it will make jobs messier, not simpler, and messiness is precisely what AI struggles with. Tyler and Luis start their conversation with Spain — housing, NIMBYism, and the productivity crisis; Spanish literature and why the Civil War still looms so large; and what Chicago taught Luis about party discipline in European politics. Then to the EU's unanimity problem, capital markets, and Denmark's flexicurity model; a round of overrated-versus-underrated on Rosalía, Penélope Cruz, and Sgt. Pepper's; and finally into Messy Jobs — why retraining programs fail, whether AI's leisure dividend has arrived, and whether Spain could ever achieve AI sovereignty. Read a transcript enhanced with helpful links, or watch the full video on YouTube. Recorded July 28th, 2026. Other ways to connect Follow us on X and Instagram Follow Tyler on X Follow Luis on X Sign up for our newsletter Join our Discord Email us: [e-mail]  Learn more about Conversations with Tyler and other Mercatus Center podcasts here. Timestamps: 00:00:00 - Intro 00:01:05 - On Spain's housing and political paralysis 00:11:08 - On Spanish literature and the Civil War 00:16:52 - On Basque and Catalan public finance 00:18:59 - On party discipline and political selection 00:22:03 - On the EU's unanimity problem 00:28:47 - On flexicurity and European labor rigidity 00:30:24 - Overrated vs. underrated 00:33:12 - On the future of Spanish language 00:35:01 - On why AI won't cause mass unemployment 00:48:38 - On what's next 00:50:11 - Outro

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. For a full transcript of every conversation, enhanced with helpful links, visit Conversationswithtyler.com. Hello, everyone, and welcome back to Conversations with Tyler. Today I am honored to be speaking with Luis Garicano. He is a Spanish economist, one of the best of the best of the conversations.

best known and also best economists in Europe. He was also a member of the European Parliament. He taught at the University of Chicago Business School. He is now for the second time at London School of Economics. He has a new and excellent book out, as far as I know, the best book on AI and the Job Market. It is called Messy Jobs, and it is co-authored with Jim Lee and Jan Hui Wu. Lewis, welcome. Thanks very much for having me. It's a really pleasure. to messy jobs, but first I have so many questions about Spain. So why is it that Spain has become so nimbie? Before the great financial crisis, there's so many homes being built, right? There's overbuilding, everyone goes crazy. And now it seems to be land of nimbie. What's been the switch

in the political equilibrium? There is part of it, which is ideas matter. So Spain was pretty permissive about housing. There was a pretty elastic supply, and people we're building all over the place, up to 800,000 houses a year, which is a lot for country. And what happened is that we got a housing bubble. It exploded. There was a lot of overbuilding at the time for many reasons, but basically there was a triangle between promoters and politicians, local politicians, and the savings banks, a bit like your SNL crisis.

And so people identified, is it building with corruption? And people identify, is it building with high prices, believe it or not? There really is a serious debate in the Spanish media. Maybe I guess you're not so surprised with Mamdami in New York, but there is a very serious debate on whether building more houses would lower prices. And there is people saying, no, it has nothing to do with how many houses you have. So people think that building wouldn't solve it, and they think that you need to restrict tourist flats and so on.

There has been some of that. There's also been, after the bubble, a big restriction on the rights of municipalities is to make decisions on land, which, because it was supposed to lead to corruption. So this is something that has happened in many areas that you're trying to make people accountable and you end up making people scared and making people unempowering the people who could make the decisions,

and you end up with a completely rigid supply, which is what we have now, hundreds of thousands of immigrants per year, only a hundred less than 100,000 houses people per year. And indeed, as you said, no YIMB movement at all. It's completely NIMBY. nobody in Spain, maybe just a very few people, including me, saying, hey, let's build more housing. If you drive through Spain, which I'm sure you've done more than I have, but a lot of it is really

quite empty, right? And you see those big billboards with the black bull and nothing else for miles. What are you going to do with all that land? What does that equilibrium look like? That simply people crowd into a few cities and the rest just dwindles? Yes. The current way that housing is built is basically very much by agglomerating in the center. So a very large share, I don't remember the exact number, a very large share of the most dense census tracks in square kilometers in Europe are in Spain, in Madrid and in Barcelona, which is surprising for a country that is completely empty. First, we are putting a lot of solar energy on those empty, on that empty land. But second, there is a lot of restrictions on what you can do

with it because of biodiversity. There's a ring around Madrid where you cannot build, like around London. Barcelona, people think you couldn't build. People think Barcelona is full. In fact, all the area around the airport is empty and it's agricultural land. But people in Barcelona are convinced it's impossible to grow the city. So a lot of it has to do with biodiversity regulations and effort to keep nature and so on. And you know, it's, I mean, my other country is England, of course, where I'm working and living right now.

And England, the United Kingdom, has this view that you touch any bird. That construction has to be completely stopped. Spain is not that extreme, but all of those concerns matter a lot. Why is there a current productivity crisis in Spain? Productivity, indeed, hasn't grown for three decades, more or less. We've had a lot of extensive growth. We have immigration, we have tourism, but we don't really have productivity. And a lot of it has to do with the political economy.

I think if you want to explain the West, not just Spain, you have to understand who is voting and who is it being governed for. Spain is a particularly low fertility, high life expectancy country. We have the fifth lowest fertility and the fifth highest life expectancy in the world, a grossomoro, very high pensions. Essentially, 100% of the GDP growth we had

since 2008 has gone to pensions, to the pensioners. And in terms of investment, there is very little in terms of investment, productive investment. We had this fantastic highway network and this high-speed rail network. network is not really getting the mention of its needs. Just as one example, the country is basically being governed by and for the older retired people. So what does the optimistic scenario look like?

You don't have to predict it's going to happen, but lay out for me how it could all go well. And you would get productivity growth of one and a half percent a year and economic growth a bit higher than that. So Spain has amazing fundamentals for the current. situation, meaning we could easily be very electricity energy rich due to solar, wind and nuclear. We have all this empty space where you could put nuclear plants with much resistance. In fact, we are closing them for political reasons. But the energy could be a big advantage. It's a really amazing place to leave.

There is no more diverse geography and climate and nature anywhere in Europe, I think, or close to and beautiful. and you could easily see a situation where Spain becomes Florida or Texas, Austin, you know, like Texas. Think of Texas. Attract technology, attract talent who wants to live there, attract energy, build the data centers, et cetera, et cetera. That scenario is not impossible. The political economy is the tricky part. But doesn't that mean you actually don't have good fundamentals? You said you don't even have a YIMBY movement.

Life there really is quite good. I've been many times. It's one of my favorite countries to visit. Isn't that like a kind of resource curse where there's no sense of crisis? Old people live for a long time. It's very comfortable. The weather's great. The food is amazing.

Aren't those, in fact, liabilities in a time of very rapid change? I think that's a great point. The political economy is the constraint. We have had reforms in Spain, including during the dictatorship, when the crisis situation was unsustainable. Spain opened up and the American pressure, 59 and had the highest growth rate in the 60s. It reformed in mid-80s and early 80s with the socialist government.

That was very actual pro-growth and pro-development, a YIMBY socialist government. It's eliminating, imagine the socialist government that eliminated housing rent control, which right now is coming back everywhere. It reformed again in the upcoming to the euro, although as Tano Santos-Sandos and the European and I have shown in the general economic perspectives article, that pro-reform movement before the euro was gone in all southern Europe once the euro make the urgency go away. And he has reform again in 2012 under the euro crisis and the Spanish crisis. So it could do the reforms it needs. It's going to have to be through a crisis, I'm afraid.

Now, you come from Valladolid, which, as you know, for a long time, has been an automotive center. Should the European Union impose strict tariffs and quotas on, say, Chinese electric vehicles, self-driving cars? I don't have a religious view on this and other industrial policies. I think that you have to evaluate them. There is an article by Danny Roderick and co-authors recent review, which says industrial policies work under some conditions, not under others. We know they have worked in Korea at some point, et cetera. What do they need?

They need to be able to have the conditions to let losers fail, and you need to have an objective, a clear-cut objective. Now, is Europe in a situation to have an industrial policy where losers are let fail in the car industry and where Europe has a clear view of where we should go? I think the answer is no on both. In terms of what the loser's power is, basically any industrial policy would be governed for and by the losers. Basically, as we have seen, traditional car companies are receiving all the help and all the aid. And on whether we know what the objective is, we have a melange of comfort. conflicting environmental labor, industrial security objectives.

So I wouldn't be very optimistic about the chance of success of an industrial policy on large scale, tax these cars, try to make the legacy companies suddenly become a cutting edge. And I also think that what we are seeing is the European companies are getting destroyed in the country markets. In Latin America, you only see B.OIDs now in Africa, everywhere else. So I don't think that would solve much. I can see the short run pressure and I understand it.

But I think our problems are different. Our problems are about labor regulations that allow people to adapt fast, are about lack of innovation and are about lack of incentives for radical, as opposed to incremental innovation. Europe is very good at incremental, little bit little innovation. We're really not good at making radical changes. And I think that's where the problem is. But let's say the automotive sector leaves Valid Olide,

which is a city of what, three, four hundred thousand people? It's not huge. It would be a major blow. What would actually replace it? What would the place look like? Ten years later? For Bayoilli, it would be devastating.

It would be devastating. We are, both Biolitan and Palencia are big centers for. Renault and Michelin, the car tire company and the car manufacturing brand. It would be devastating. So we would need the other industry that Violid has has has been the capital of Castileone. It's a very kind of bureaucratic

intensive country. You know Spain had a bureaucracy before anybody else had a bureaucracy. Well, I guess China also had a bureaucracy. So that's the other industry, which is not a very promising industry. I think that what we need to do is to give a chance to innovation and to change. And the way we're doing it is just slowing down all change and all adaptation. But there was a media article recently. It said something like, well, Americans don't read anymore. Texts aside, but the Spanish, they still read. Do you agree? Books and novels, right? Not on your smartphone. I guess there's quite a lot of reading among females much more than men. I think women more than men. I think it happens everywhere in the world. But even then, it's relatively meaning that also the publishing world is adapting to that,

which I'm not sure I understand where women are remaining a more loyal constituency of books. I don't know the figures. My sense is that Spain is going through the same shorter attention span, TikTok short videos. When you're in the public transport and you see what people are doing, they're just hitting the videos with the same finger as everywhere else in the world. If I walk into a bookstore in Spain, I'm struck by how much the front tables are mostly fiction, and there's a relative paucity of nonfiction. That's correct. The U.S. is actually moving in that direction, but we used to be very much the other way around. Why that difference? That's a great question. There is not a long tradition of nonfiction. If you think of what are your remarkable 150 or 200 books from Spain

and none of them will be nonfiction. And in fact, it is also related to the fact that Spain doesn't have a big tradition on research and innovation. So Spain has always had a humanistic, artistic. Think of our powers in the 16th, 17th, best painters and best writers from Theranth to, I mean, I was thinking Belafketh Engoya, painters, Ferbantes, Calderon. I mean, all the 20th century fantastic writers from Lorca, et cetera. But if you try to think of, well, just for example, who is the last Nobel Prize winner in science from Spain,

you will have to go back to 1905. It's really a long, long time in coming. So, Spaniards are, the culture doesn't reward a lot non-fiction, science. It rewards, you know, sports, very well. well, market-driven, excellence, big rewards, big concentration at the top, very large high labor mobility, and it rewards all these artistic expressions, which, by the way, two things where you won't see AI encroach, so, or AI will encroach much more slowly, so maybe that's protecting Spain.

Other than some obvious choices, like, say, Servantes, what in Spanish language fiction is especially meaningful to you? There is a lot of writing from the Latin American boom that I have enjoyed enormously. I have enjoyed Garcia-Marquez. I have enjoyed Rolfo Pedro Paramo. I have enjoyed Vargas-Josa. I have laughed. I have cried with Vargas-Josa, who, by the way, very free market thinker as well, wrote an essay,

a non-fiction collection on liberal thinkers. I've enjoyed a lot of that Latin American writing. In terms of Spanish writing, I mean the poetry from the 1929. Generation, Garcia Loka, Miguel Hernandez, those people are amazing as well. I like Javier Circas. Do you like him? I love Thercas. He has some really good kind of mystery novels, which are fantastic, but he also has this Anatomy of an Instante, this kind of non-fiction novelized book that I would recommend very strongly to people to read about the Spanish coup d'etat in 1981, that he writes

from the perspective of three main characters, who are three people coming from the civil war, who were all three betrayers of their own cause, the communist leader who actually was in favor of the monarchy, the phalanjist, the ex-prime minister from the Frankist party, well, the Secretary-General of the Party, who was the Prime Minister, who made the transition, and the general who was on the Franco side who made the military-accepted transition. And those were the only three people, coincidentally, who didn't go under the desks, when the guys, the civil guards with the guns came storming into the house, which was in session to vote the successor of Suarez of the Prime Minister. And he manages to weave those lives and those and that story beautifully.

I really, really recommend that book. That's a great book. I also like soldiers of Salamis and the recent one about the trip with the Pope. Yes, he's all around really, really fantastic. Why is the Spanish Civil War still so focal? And I'm thinking of your literature, but also your politics. Why is that stuck as such a thing in Spain? It's a long time ago now. It's true. It frustrates me very much and it frustrates many of us.

It probably is because many people think it wasn't really well-closed episode. It wasn't an episode where, if you think of maybe South Africa, reconciliation, there was an explicit reconciliation. If you think of German dictatorship, there was an actual surrender. Franco died in bed. He started the civil war. He won the civil war. He restored a dictatorship. And he died in bed.

There was no revolution, like in Portugal, that pushed him out. And so I think that people feel that the transition to democracy was not a true people-driven transition but it was driven by the Franco elites. The truth is there were many people in Spain at that time, including the communist leader I mentioned, Carillo, who thought never again, let's try to do things now peacefully and well, and they handled the transition admirably.

I think it's time to put all that behind us. Today, how is it that you understand the public choice economics of Catalonia? There is a very clear historical inequality, which is the Basques had a terrorist movement, and because they had a terrorist movement, they managed to preserve a confederal system of financing in the Constitution.

They say it's because of historical reasons. That's BS. I mean, when you do a constitution, you redo the history. I mean, you start from scratch. But because people were scared of this terrorist movement, they were allowed the following bizarre exception. Everybody gets financing through the taxation system

and you get some taxes that go to your region and some taxes that go to the central government, except a bus country, which has itself collects all the taxes and negotiates bilaterally. Imagine Texas negotiating bioterrori with the U.S. government how much Texas is going to contribute to the U.S. budget. Now, here's the smart thing or terrible thing.

They have enough votes to flip government every few years. They wait for that negotiation till the moment when they actually can decide that this government is going to continue, is going to drop. And they do always a negotiation in that moment, which means that what is called the coupo, the contribution of the Basque country to Spain, is basically frozen.

In fact, even when the pensions go up, the rest of the country pays them, the Basques don't actually pay more. And so they actually are net recipients from Spain, even though they are the biggest, one of the richest regions. Catalonia sees this and says, hey, we want the same system. The problem is, and the past country is small.

Catalonia is very large. It's not sustainable to do a system like that because it will break the budget. If you have like two of the biggest regions, kind of bargaining bilateral with the state over how much they're going to contribute every five or ten years, that's going to be unsustainable. So that's the reason this basic inequality in the constitution has created a system that is unstable and that doesn't actually have any solution at all. What did the University of Chicago teach you about politics

that Spain ended up proving wrong? I think what I learned at the University of Chicago helps very much with understanding politics. Politicians are pretty smart maximizers. I guess voters are pretty inattentive. I think that your colleague Brian Kaplan wrote a beautiful book about it, the myth of the rational voter,

which is perfectly rational, that they are inattentive. We doubt why do they have the incentive to stand up and vote? Why would they have the incentive to figure out what the program of the different parties is? So they're inattentive. I think that that's not clear enough from the rational models of political economy.

The thing that I think I understood when I was actually doing politics better than I understood before and I actually wrote a paper about it is the importance of the party discipline. The mechanism that connects the voters to the politicians is very weak because we have, in many countries in Europe, we have, even in other countries,

happens to all the means like in the UK, but we don't need to discuss that. But that mechanism that connects the voters and the parties is a mechanism that is mediated, sorry, the voters and the law is mediated by internal party discipline. The parties don't look for the smartest person for the job or the most competent person

for the job, the person who can design the right person. They actually want people who owe their position to the party. so they won't complain. So it's not the one who in the town hall votes more smartly or proposes the smartest things, who gets to the next layer of the proportional representation system. It's the one who's been most subordinate to the party decisions.

That's why the socialist party, which is now in enormous corruption scandals, like unprecedented in all directions, there is nobody in the party, and definitely nobody in the Congress support of the Prime Minister Sanchez, who is actually making any noise because their alternative option is zero. So the parties look for people whose outside option is zero in order to make sure that they have to keep the control.

That's, I think, completely rational, and it would have been predicted by any Chicago economist on the basis of the incentives, but it's not something that I was as aware. Like, for example, how do parties in Europe choose the president of the European Commission? Do they choose the most, the smartest person that is going to make the best calls?

No, the leaders of the different countries, they actually want to keep the power. They don't want somebody in Brussels who is kind of shadowing them. So they look for somebody who won't give them any trouble. And we've had two Luxembourg people, one failed defense minister from Germany, who is the current president. I mean, we have people who are just not able to lead.

And that is by design. And I think that part of how the party machines and the insight of the way that this promotion adverse election, you could say, these promotions to hire office get done. It was something that I didn't understand well before politics, I think. Not sufficiently well. As I've mentioned, you've served in the European Parliament. Should the EU keep its unanimity rule for major decisions?

The EU has majority rule in single market decisions and unanimity rules in things that fall out of its core, meaning taxes, defense, foreign policy. in a sense you could say all the core functions of the state, the states don't want win-lose decisions here. So let me give you an example.

Armament procurement. You would say, hey, guys, you're making like multiple tanks. You spend more in defense, many times more in defense than Russia, just make one tank, make one plane, and, you know, one cannon. What happens? Well, let's say that Germany wants to export to Israel.

France doesn't want that and let's say, or Spain doesn't want that. Germany doesn't want Spain and France to make a coalition and veto it and vice versa. So what happens is the countries want to have the ultimate right to decide on all defense matters. And that means that you get multiple procurement decisions,

incompatible, shells in the cannons, all of these things. Now, should we have it? Yes. should we understand, should we have the majority vote that you proposed? Yes. Should we understand the politics that make it very hard? And those politics are the core of the state sovereignty, which is taxation, defense, foreign affairs. The functions that the state of 1600 or 1700 had originally are all not in Europe,

the politics make it very, very hard. And I told you defense, but I could go through many other examples. examples and show you why, even though you would want to think that the gains from a single market, single procurement, et cetera, would be enormous. The politics make it really, really hard. Right now what we're doing is harmonizing the shells. You have a big meeting group. People, they say, oh, I want the 55 millimeters to be like this. And somebody says, no, I want it like this, 55 and a half. And they meet for weeks and weeks and weeks and weeks and come up with pages and pages and people, the citizens are upset. But the truth of matter is, There is a political reason for this, and it's the one I mentioned. So in those unanimity areas, so fiscal, Ireland wants to do a separate tax in Luxembourg, separate tax policy that basically attracts multinationals and lowers tax bases and all of those things. The rest would want no arbitration tax bases. But this is by unanimity.

So as long as there's one loser, no change takes place. And in all of these policies, there's always one loser. Parato improvements are the only ones that can happen. So you have your finger on a button, and you can press the button, and the unanimity rule goes away, and it's replaced by two-thirds majority rule. Do you press the button? You know, everything, everything. Europe becomes, say, not even the US has that, right? Not even the US. So let's say Europe gets the same intercomers close as the US, on the functions.

Let me put it like this. On the function that the US government has, Europe loses unanimity. I would say yes. Could a Eurobond work at a significant level under current institutions? No, you cannot have the four housemates of the apartment share the credit card bill without sharing anything about how the money is spent and how the money is raised. Then the incentives are for all the housemates to go around with the common current card bill and penny around. So joint borrowing requires, and I've been able to.

very big proponent and I was a proponent of the Covent Reconstruction Fund for Europe. We proposed it together with some revenue functions for Europe that would allow the Hamiltonian compromise. The money gets centralized for some public goods.

There are European public goods and you raise it in some European way. But that just not happened. We issued those bonds, which we do have, so Europe bonds do exist, without really any joint revenue. Capital markets seem to be a big problem. What could we do to make EU capital markets stronger and better?

It's very interesting because I wrote about this in Silicon Continent in my substack, a piece with Perz Stromberg. Sweden has enough money to fund startups and scale those startups up. And Perz Stromberg is one of the biggest world experts on private equity and he happens to be also an expert in Sweden because he's based in the Stockholm school. And the basic story that he tells and that I wanted to write in a blog for our readers with him is that it is not really about having the cash.

It's about the cash and the knowledge together. So the money exists. Europe sends the money to the US. We invest in all those startups. The talent exists. All those French and Germans in Anthropic and all these other places. What is missing is

the Spotify chief of Martin that actually has seen how companies run, how it's scaled, et cetera, and now has a lot of money and starts to fund, startups, advise them, and help them. So it's possible that it is true, our capital markets are a problem, but it is possible that just fixing the other aspects, which is at the national level allowing for, and the big change that Sweden did, is that you don't pay those tax. on the capital gains as long as they are reinvested in the new startups. So then you create

this ball that starts rolling in which all these startup funders start funding the new startups. And you can do it in a country that was supposed to be one of the most socialist in Europe. In fact, it's very free market thanks to internal reform. So it's true the capital markets are not working. It's also true that capital market changes we're doing are wrong. The main thing I learned about Europe in that respect is what we do efforts are harmonizing. instead of we put this new law and eliminate the previous ones, the way it often happens in the European Parliament, European Commission, European Council, the European institutions is we add this new law, which is harmonized,

but leave all the lower layer laws there. For example, we are giving right now in the new capital markets package more power to the European Securities Markets Authority, the ESMA, the SEC at the European level, without removing any power from the SEC at the national level, means you're not harmonizing anything. You're just having more hurdles for people to raise money. You mentioned your substack Silicon Continent.

I'm happy to recommend that strongly as well. Now, in labor markets, should severance protection rise with the tenure of the worker? Or why not just let the market handle that? I have written and argued in favor of more flexible markets. Denmark has found a solution that I think achieves both ends in protecting workers by having relatively or pretty high unemployment insurance, but in making it flexible and able to hire and fire. That would be, to me, the best solution to the current rigidity on European level markets.

The problem is that it costs quite a bit of money because you have to ensure people quite significantly to make them be happy to move around. But there are solutions in Northern Europe that allow for this flexicurity, and I would wish that the rest of Europe was adopting them, because I do believe that it's not just that rigid labor markets raise the cost for companies. You can then lower wages and neutralize it. The problem is they increase hugely the cost of making mistakes.

That's what a new literature is recognizing. People weren't clear about that before. If Facebook makes a mistake, thinks the future is the metaverse. And the metaverse is a completely ridiculous idea. And the future is AI. Facebook can turn on a dime, fire all the engineers in meta bears, and hire all the ones in AI in a week. If Erickson or Nokia want to do something similar, they are going to take months and months and months of negotiation with their labor, consulate and so on, to the point that they might go under underwent. Before we get to your new book, Messy Jobs, are you game for a round of overrated versus underrated?

Sure. Go ahead. Okay. Rosalia, overrated or underrated? Rated just fine. She is amazing. Penelope Cruz. Also fine, a very fine actress doing very well. Javier Marius, the author. I am a big fan. I would say he deserves wider recognition, so I would say underrated.

The Spanish painter, Antonio Saurer. Maybe just fine, just fine, let me just say just fine. I think he's underrated outside of Spain, for instance. Yes, he is big, big in Spain, but I wouldn't be able to comment on how internationally he's recognized. The region of Spain, Extremador, overrated or underrated. Underrated. It has some of the best history. All the conquistadors, many of the conquistadors came from there. So when they went back, they did a lot of work and making the cities beautiful. The region stopped growing 400 years ago. So it's all frozen in time. And you have some of the most stunning experiences of walking into a portal towards the past in places like Cathares.

Which, by the way, has one of the best restaurants in Spain as well. What's it called? The restaurant in Catheres, I don't remember. I ate there a few months. ago. It's a three stars. So people got five. The AIs will know. Yeah. Within the world of Beatle fandom, is the album Sergeant Pepper overrated or underrated? I think it's overrated. I'm not as huge a fan of that as of Abbey Road or of Robert Sowell or for sure the earlier ones. I am not, I don't think it's the biggest piece in the canon. There's some weak songs on it. I think George Harrison contribution is not so wonderful. When I'm 64 is charming, but it bores me a bit.

I think there is some weakness. I would agree with. you. Is there an underrated Beatles album? Again, this is within the world of Beatle fandom. People somehow don't like let it be, which I think the post not quite last album, but the really last album. I don't know why. I always adored it. But I mean, it's kind of so relative. I mean, their albums are all hugely appreciated. What is the special food place in Spain that not everyone knows about? The place where I'm sitting now, I'm in a studio, Recording this from Asturias. It's the region in the north between Galicia and Cantabria and a vast country.

It's the oldest bit of Spain in many ways because it was the last place we conquered by the Islamic invasion in 711. And it's where the Reconquista started. So historically has a long history of romantic churches and all that. But it also has outstanding food everywhere, wherever you stop. It has amazing nature, unspoiled, beautiful beaches. and it's completely climate change-proof. It has amazing weather.

How will the Spanish language change? The way it's changing is it's incorporating a lot of English language words and expressions. People, probably I am guilty of that as well. People who are very exposed to English introduce expressions and false friends. You know, we are so careful not to introduce a false friend from Spanish into English, and then somehow they come back from English into Spanish, and you see words that are used. If you are English speaker, you realize, oh, that's complete the English usage.

That's the biggest word. Many words that are ambiguous, instead of shifting towards the Spanish use, they shift towards the English one. If I'm in Latin America, I noticed that the conditional and subjunctive are used much less often than in Spain. Given that Madrid now is, what, 20% Latin American? Is this going to affect Spanish in Spain? That's a great point. We are getting a very big Latin American influx. I haven't noticed that. I haven't noticed the change in the use of subjunctive. We use, unlike the French, not just the subjunctive present.

I don't want to discourage our listeners from learning, but we use a lot the past and the compound past subjunctive. So if you make a future statement that is hypothetical, the hypothetical future is subjunctive if I were Richmond and past subjunctive. And I haven't noticed people using it less, or at least not among people I hear regularly. And in Mexico, at least non-learned people,

they don't use the future tense very much, right? They'll use the present tense and maybe throw in the word manana or they'll depend on context. And Spanish and Spain, is it going to go that way as well? I haven't noticed those changes in Spain. I think that the impact of English language

is orders of magnitude higher than Latin America. That's my sense, but I would have to consult my favorite LLM before being so sure. Okay, on messy jobs, your new and excellent book, you argue very persuasively in my view that AI will not lead to anything like mass unemployment, maybe not even to arise in unemployment, because jobs will

become messier and the AIs won't be able to do them. Is that a fair description of part of your argument? I think that's completely right, yes. Now, I agree with you, but I think my worry is the opposite, that I know a lot of people, they want simple jobs, they're okay with some measure of and that if most jobs become messy jobs, for them that's quite stressful and they're upset and disoriented. Do you worry about that? I think that we will have to have a tolerance for human relations. Is that what your friends don't want? We'll have a tolerance for relational work that is complex, that has politics in it, that has big human component, and that's the part that is going to stay. So if people just want to be in their desk typing away, you know, I think two good ways to think about

is work from home and outsourcing. So if you think of which jobs were outsourced in the big offshoring, which jobs were offshore, let me say offshore in the big offshoring wave to India, those are jobs that are not messy. They are clean, the company specifies the jobs, they said, okay, we can specify this job perfectly, let's ship to you all.

Those jobs are the same exact ones that are under complete threat of disruption. A lot of the work from home, when it doesn't evolve, a lot of some meetings, I guess, has the same feature. those jobs are clean, single task, and very often verifiable. You can just see how the performance is going and have your RL, your reinforcement, learning loop work on those.

I think those are gone. The messy component that I want to emphasize, many people will say, oh, staff AI, we're getting to the messiness as well. I think that there is some messiness that is contingent and that AI can streamline. But there is a lot of messiness that. is both relational, it has to do with a deeper aspect of the knowledge problem that doesn't really go away, you know, and that as AI advances, many aspects of the Hayek, Pollyani, and all these knowledge problems are still there.

But how much retraining will be required and how frequent will that retraining have to be? So if I think of me working with agents, I have to retrain myself every month or two. And that's difficult for me. It's not stressful given my position, but I can imagine. imagine it would be stressful. Can we really just put a big chunk of the labor force through that? Rafael Zedune and others at HBS have been working on this. I mean, one of the things that is frustrating about retraining programs and not just returning individuals, but returning programs, is that they generally don't work. The favor middle of the road, free market, economy's kind

of prescription for technological change is less retrain people. And we find that this is really, really hard to do. If you wanted to retrain, you know, a clinician, a doctor who's learn to diagnose illnesses and that suddenly gets very easy. This is not one of our examples, but just to give an example, to become a plumber. I mean, it's not that you couldn't retrain him because, you know, the plumbing skills are so hard, which they probably are, to be honest, but not just that. But because there's a lot of social identity and other aspects that are tied to the kind of job you do. So retraining is a huge barrier.

And the way we retrain ourselves, as Kuhn said, the talking about scientists is by dying and the new generations do new things. So I share your concern about how easy it will be to get people to learn new tricks. On the other hand, my mind is 84 years old, and she took to chat GPT all the time, and she has good long conversations. I've updated it so that she now has the better version that you can talk over it and argue back, the very recent improvements. And the LLMs are becoming better at eliminating all the prompting skill

and all the skill that went into making agents, et cetera, it seems like it's easier to use. I think the hardest thing about LLM's, and maybe that's easier to retrain. The hardest skill about LLMs is knowing what they can do. Most people have no idea what you could do with your AI. And that's the part where a short focus lesson to a relationship manager at a bank,

would you tell him, here's the case, you're going to visit your client, here are the six questions you should ask. I'm doing some work with you. a big bang on this exact topic, a big experiment. Here are the questions that you could ask before you have the client meeting. Maybe that retraining is easier on the use case, as opposed to retraining for new jobs, which I think is very hard.

So do you think the natural rate of unemployment will go up? I don't mean cyclical, but just due to search retraining. My sense is that we have several hundred years of automation, and we do have moments of blips. But I think the natural rate is going up much more due to other things. Well, if you allow me to group participation in, which has to do with disability and mental illness and people not feeling well and all that, rather than to a permanent increase in retraining needs. You know, we have some degree of recursive self-improvement right now. Arguably, there's more to come.

So there's a new model out every month or two. and for the most part, they're much better than the model that existed a month or two earlier. Just how exactly are people supposed to keep up with that? Like, do the jobs get messier at an equivalently rapid pace? You lose certain bits of the job, certain things get unbundled. Other things don't get unbundle. Other things, I mean, we talk about Gene and Jan Hui and me,

talk about strong bundles and weak bundles. Weak bundles, the job kind of breaks into pieces and some parts are done by the AI. When the job is a strong bundle, the AI kind of comes in to your bundle and helps you, like in a relationship manager, an account manager for a bank, who gets to prepare the meetings better, but still needs to have the cognitive task bundled with seeing the clients.

And I think that part doesn't quite require staying as close to the frontier as you and me are staying. I think that part requires knowing that the LLM can help you prepare the client meeting, and you ask the LLM, please help me prepare the client meeting. Here are the budgets and the balanced sheet statements of the client. Help me see which accounts, which products of the bank I could offer. And I don't think that needs really to know what the actual frontier model is

and how does it differ for the previous ones. Now, as you well know, virtually all new technologies and productivity improvements, they lead to more leisure over time. And in a good way, I don't mean unemployment, actual enjoyed leisure. If I think of the current day, there's some people, like the two of us, we choose to work more to learn about AI. And then there's other people. They feel they have to work more to learn about AI, to not lose their jobs.

And so far, there's no leisure dividend. People basically are working more. When is the leisure dividend going to arrive? I'm not sure that's the case. Let me give you two data points. So one is a Chinese CEO. I had dinner with my two co-authors are from Hong Kong University. and we had dinner with this CEO who told us

she sees every one of her IT people more productive, she looks at the productivity of the overall IT department, nothing happens. And quote, she said to us, I think they are smoking the productivity gains in the corridor. The second is from the recent NBR Summer Institute. There was a paper in health which gave doctors scribes. And they all adopted.

I mean, you know, adoption is slow. People are... Well, the automated scribes went up to 100% of adoption really very quickly. You see doctors scheduling more meetings and doing more stuff. And eventually, and there was a recent New York Times article from a doctor, exactly arguing this, she was saying, you know, I have more time for my yoga classes. So she was actually using the scribe, which transcribes her meetings, and which stops a lot of the bureaucratic work that is nasty for a doctor.

My wife is one, so I know how much they hate that. and she was actually doing more yoga. And this actually shows up in this paper to some extent. So I do think that what we see with this usage, this shadow usage of AI in the job, which is people have their own computer and they actually ask questions that maybe their corporate AI doesn't allow them to ask,

has a lot of welfare gains in the form of leisure and lower work stress in the job. Because you just ask the LM, you post it there and you just spend some time browsing the web. So I am not as sure and that the leisure is not expanding. But definitely not mine. I've never worked as much as grad school. But say in the short run, when taxes change, almost always the substitution effect overwhelms the income effect, right? Tax cut, people work more.

If taxes go up, people work less. Of course, we see this in Western Europe. So aren't these AI productivity improvements, a bit like tax cut people work more? changes. You're more productive, and the aggregate, if doctors are more productive, they can earn more, they'll work harder. I'm not complaining about that fact, but maybe we should expect that instead of a leisure dividend. Well, things can happen. I mean, we are seeing Jevon's effects in many of our own utilities and in many of our own decisions to work. It's definitely the case for you and I, as you said. I was just for the amusement of our reasons, I guess. Many of you have a whoop. I was really very

happy with my whoop until January this year. I was 53 years old in actual age versus 59. Sorry, in physical age. Since January, it's been steadily declining. I'm not 57. I grew four years in six months. And that's because I am not sleeping a lot and I am kind of running things into the night and going to bed thinking, oh, I should have done this old thing. Why don't I try this? So yes, it definitely happens to me. So why wouldn't it happen to those doctors? Is there a plausible scenario whereby Spain in particular, and I don't mean the EU, I mean Spain, achieves AI sovereignty? Now, you've written about this on your substack, Silicon Continent. What's your view right now?

And keep in mind, the whole stack in some way has to be under your control, right? Yeah, I don't think that's a substantive objective, neither for Spain, not for Europe. Europe as a whole, and Spain in particular, are nowhere on hardware. We are, except for ASML, which does the capital equipment, I'll go back to ASML, the producer of the machines that make the EUV chips. We are nowhere on the language models, the frontier models. Neither in open weights nor on closed models. We have mistrial, but it's not really at the level of the Chinese ones. Well, we are not really there on the data centers.

So all the elements that are needed are not there except for ASML, which is a Dutch company, and is not on their European. jurisdictions and a Dutch jurisdiction if you want. And many of the supply chain, which is German. What you can aspire to, I've been defending the second mover strategy for Europe with my colleague Jesus Arakejo. What we are defending is being a fast implementer, profiting from the gigantic investment that the Americans are making in many things that will actually, like the railroads eventually not lead to significant value capture, but will generate an almost dissipated wealth again.

for everybody. And let's be the ones who enjoy those welfare gains by adopting AI very aggressively, becoming big clients. When you're a big client like China's show with Nvidia, you have a gaining power because the people who sell to you, your vendors, are going to lobby the government to keep selling to you. So become a second mover. Try to make sure to have options, keep it interoperable, make sure the models can easily be switched, which at the moment is very, very easy. You just need to change the API call and API call it becomes seamless. That's the best that we can do. I don't think sovereignty is an objective at this moment. So how much bargaining power does Spain lose in this new world? All countries except the US and China will be dependent on AI which stayed on control.

My view is that I've disagreed with my blog co-author and son Peter on this. This is the one point of which we disagree. He's very convinced that it's all about frontier models, and he's written a couple of posts on that. I think that you need frontier models in research and innovation. You need frontier models in some adversary applications like war, but that in order to have good law, good professional services, good medicine, good accounting, good companies doing proprietary research in their own servers. You don't need the frontier model. You can be three, four months behind the frontier. As long as you have the harness in-house, the data in-house, you're better off with that.

And I think that this letter from very recently that Nvidia CEO and Microsoft CEO stimulated and everybody else wrote goes in this direction. The open weights model allowed you to keep proprietary your own data and your own know-how. and a country like Spain or Europe as a whole could build a strategy on that ability to switch and to keep the market competitive and contestable. Let's say you were liberated from your AI learning responsibilities and given two or three free weeks in life, all expenses paid to explore some corner of the world where you've never been. What's your choice and why? I think I'll go to Vietnam.

It's one of the places I've been dreaming of going for a long time. I think it has the cuisine, the landscapes, the people, the economic side, the technology to see how they're doing all this transition and nature. I think it would be Vietnam. And final question, what is it you want to learn about next other than Vietnam? I continuously fascinating by economics. I learned a lot of price theory in Chicago from Becker and Murphy and Rosen and those were my advisors and many others.

I find that these tools are allowing me to learn much more and to be deeper on many questions and to think harder about what is it that remains messy. What is the knowledge problem once cognition is very cheap and why is it hard to reproduce with the machine? And all of those questions are infinitely interesting. I spent quite a few years outside of economics because of the politics the tour. Of course, I was in charge of economic dossiers in Parliament. but I was not in the frontier of economics,

and I realized how much I like it. So my desire is to learn more about economics and help the economics discipline and the students make this beautiful transition that we're going to see that suddenly it's going to accelerate all sorts of interesting research. Luis Carrikano, thank you very much. All right, thank you, Tyler.

It was my pleasure. Thanks for listening to Conversations with Tyler. can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other listeners find the show. On Twitter, I'm at Tyler Cowen, and the show is at Cowan Convo's. Until next time, please keep listening and learning.