Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas - 205 | John Quiggin on Interest Rates and the Information Economy

Episode Date: July 25, 2022

The idea of an "interest rate" might seem mundane and practical, in comparison to our usual topics around here, but there is a profound philosophical idea lurking in the background: if you lend me money now against the promise of me paying you back more in the future, I am relating the different values that a certain sum has to me at different moments in time. Traditionally, the interest rates set by the government have been a major tool for influencing the economy, but in recent decades they have increasingly fallen near zero. John Quiggin relates this change to the shift from manufacturing to an information economy, and we talk about what that means for the public interest in having information be reliable and widely available. And yes, there is a bit about crypto. Support Mindscape on Patreon. John Quiggin received his Ph.D. in economics from the University of New England. He is currently a VC Senior Fellow in Economics at the University of Queensland. He is a Fellow of the Econometric Society and the Academy of the Social Sciences in Australia. Among his books are Zombie Economics: How Dead Ideas Still Walk Among Us and Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly. Web site University of Queensland web page Google Scholar publications Amazon author page Wikipedia Twitter

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I'm inviting you to join the best-sounding book club you've ever heard with my podcast, Earsay, the Audible and I-Heart Audio Book Club. Every episode, I nerd out with amazing guests and dive into the best new audiobooks available on Audible. It's the book club for your ears. Listen to Earsay, the Audible and I-Heart Audio Book Club. On the I-Hart Radio app or wherever you get your podcasts. Hello, everyone, and welcome to the Mindscape Podcast. host, Sean Carroll. And as this episode is being released in late July 2022, there's a lot of news

stories going on around interest rates going up and the desire to curb inflation. There's a whole bunch of reasons why dealing with global supply chains, wars, a whole bunch of things going on. This podcast will be about none of those things. I'm sure these things are very, very important, but they are of the moment and they might go away. We here at Minescape are about of eternity. We want to know the truths underlying what is going on. So this podcast is, however, about interest rates. And in fact, it's kind of something I was reluctant to get into. Today's guest, John Quiggan, is a very respected economist at the University of Queensland in Australia. The accent will be a dead giveaway right away. And he's written a very interesting book about

markets and how they both succeed and how they fail. So I invited him on the podcast. And he says, Love to talk about markets, but what I really want to talk about are interest rates. I was skeptical, since I know nothing about interest rates, and they do seem a little bit down in the mess of policy and so forth. But it's interesting because, number one, there's a phenomenon going on where interest rates globally are way low. There are many countries that accounting for inflation are going with zero interest rates in the government's lending to certain preferred lenders and so forth. Why is that? This is something very different than it's been going on before. But also, it actually does kind of resonate with the intellectual themes that we talk about here on Minescape, because what do you mean by an interest rate? I have a dollar. I'm going to give you a dollar if you promise to give me back a dollar and five cents a year from now, five percent interest rate, okay? So basically you're trading money for time in some sense. To me, I would rather have the dollar five cents. a year from now, and you would rather have the dollar right now. That is the basis of the idea of interest rates. So it's involving a prediction of what the future is and a sort of evaluation of

where you are right now, which is actually quite interesting. And you want to know, you know, why would anyone do that? Maybe because you just need something right now. Maybe you need a house and you don't have enough money for it or a car, so you get a loan and you'll pay back more later because you've accumulated a lot more money. But if you're a business, maybe you want that money now because you want to keep up your factory or you want to do some expansion

of your manufacturing capabilities. That was a very traditional reason why there were government loans and therefore interest rates. But John's point is that the world is changing. And the kinds of companies, the kinds of large corporations

that dominate the global marketplace right now are increasingly information based, right? Google and Apple and Facebook and what have you. And these are companies that don't need major overhauls of their manufacturing capabilities. Their manufacturing capabilities are kind of tiny compared to their value. And this is a big reason he claims why interest rates are much lower, because the demand is just not there for these kinds of loans. The modern world is running on a different kind of model than we ran on just a few decades ago. And that's not only intrinsically interesting by itself, but it relates to the fact that information, which is what Google and Facebook, etc, are selling as their stock and trade, is in some sense or could be thought of as a public good.

It's not like I have this piece of information and therefore nobody else can have it. We have a common vested interest in information being spread and being spread accurately, right? We want to fight misinformation and disinformation and so forth. So I'm not sure that we have the solutions here today, but it relates to interest rates in a very interesting way. This is the kind of problem that sneaks up on us, a kind of spin-off that we didn't necessarily anticipate when the Internet and global information economy became such an important thing. So if nothing else, food for thought in terms of how we should be thinking about structuring

our economy going forward, which is an important thing. do. So let's go. John Quiggin, welcome to the Mindscape podcast. Glad to be. So this is going to be one of those episodes where, unlike when I'm talking to a physicist and I can sometimes play dumb, I can ask questions about like what is a black hole and I really know the answer. Here I'm going to be asking questions. I just don't know the answer to it all. Economics is well beyond my expertise. But that's why I started the podcast, so I can

ask questions like this. So let me start with, you know, some of the most basic ones that have been lurking in my mind for decades. Markets. We're going to be talking about markets a lot. But sometimes they get the impression that people talk about markets as if they're an invention, an innovation of modernity. Like, weren't there markets in the ancient world? Weren't there free markets in Mesopotamia or China or whatever? Well, certainly, I think markets, in one form or another, have been around for a very long time. As soon as you get money, you really have markets in the modern sense.

and that's thousands and thousands of years ago. And even before that, you certainly had trade, barter and so forth. There's an interesting question which David Graber, an anthropologist looked at of, there's a standard creation story where we invented money to make markets work better. He argues money was all about debt, about paying your taxes to the king or chief or whatever it was, and then came to be used in transactions as well.

But whatever the story, markets are not, not new, there are sort of, and haven't been designed. They've sort of emerged, but they're also not free. Yeah, it seems like, they rely on a whole bunch of rules and conventions, which vary from place to place, which, which depend on what you can trade and, of course, what you own. Well, in your book that you have, that I have right here next to me, economics and two lessons, why markets work so well and why they can fail so badly, you take kind of what I take to be, not the most common way of defining what a market is in terms of opportunity costs. Could you explain how you explained that, why you had that way of talking about it?

Yeah. So the opportunity cost of something is what you have to give up to get it. And that applies both for individuals and society. And that applies to all kinds of choices. The time I'm spending talking to you, I could be spending, you know, improving my score on a video game or something like that. So time in particular, Benjamin Franklin says time is money. And while that is very money-specific, metaphor, the point is everything you spend, you could be doing something else.

The best available alternative is the opportunity cost. And markets make that very clear to us that when we buy something, we forego something else we could buy or we forego saving or we forgot saving or we forget to leisure that we could have taken more time off and not made the money we needed to buy the by the good and question, all those things at the margin are opportunity costs. And the reason I focus on this is, I think, when, A, that we shouldn't be talking about money, which is a standard point that economists always get upset about, that they think we're all about money and we're not. But also, in terms of our undergraduate training, we do a lot

of stuff doing little supply and demand diagrams and calculating areas. Actually, since you're a physicist, I got the idea of this partly from Feynman, who sort of in his, I think, QED book says, look, if you want to actually do the calculations, you need to learn all this complicated physical maths. If you want to understand what's going on, you know, here's the story and here's the waves and the particles and why, if you just add up the probability is right, you can get the way to answer it. So it's always been my view that if people understood opportunity costs properly, they understand

most of the issues in policy, that all the time people are saying, why can't we have everything? And the answer is you can't. You're always making choices. And the reason why economists don't like to be accused of only talking about money is because they think of themselves, you'll correct me if I'm wrong, as having sort of a much more general conception of making choices under conditions of scarcity or something like that. Absolutely. That's the core of it. And indeed, you know, in the ideal view of at least a large group of economists, not all. Money is just this. unfortunate thing that complicates everything, you know, that, I mean, it's necessary to make the

transactions work, but as they say, it's a bail. And the object is to pierce that fail and see the real transactions going underneath. Now, that's not every economist. Some economists have a much more, you know, I think money is much more important than that. And, and, but certainly the, the, the classical view is, it's the real transactions that are going on that matter. The money is just a way keeping score. Okay, so if we have internalized the idea of an opportunity cost, well, actually, let me back up. Maybe we haven't internalized that idea. Like, how do I know what all of the other things I could be doing are or the value of all those other things? I mean, this is clearly giving me a lot more credit than I deserve. And indeed, in the second part of the book,

I make a whole bunch of points of this kind that markets are presented as with these things, but unless we know, unless we know everything in picture of the market choices, unless we know everything that's available in the market, what its price is, we can all get the same price, then they don't work in the ideal way of ensuring that everything, they're always making the best choice available to us, that we don't know what the price of other things are. For example, we might have to bargain and things.

We face uncertainty about what we'll have in the future and our own capacity to understand these things is bounded. And I suppose that's something I'm keen on. I suppose to sermonise a little bit here, when economists talk about bounded rationality, they mostly talk in a kind of way of people doing silly things. It's easy to point to mistakes people make and they do this when they shouldn't.

But what really matters is everybody is boundly rational. The smartest person in the world can't understand and an entire faction of the things that are relevant their choices. And so we're always being surprised by things we were unaware of in the past. And so in that sense, there's always limits to how well markets do in saying, here's this choice you make, but you're giving up that. If they work perfectly, there would be no free lunches left on the table. Everything would be smooth.

Good. So, yeah, I do want to get to, I kind of want to roughly follow the organizational principles of the book where we first give the pro market a happy lesson, and then we'll talk about the failures later. But, okay, if we imagine that people are pretty darn good reasoners and have all the information, et cetera, the idea is that the market is a way of finding an equilibrium? Is that fair? Between what the sellers have and what the buyers want?

Yes. So we all want things. We all want to consume things, and we all have something we can offer in return for those. things and the prices both determine and reflect the opportunity costs that we face so so when we face these prices we that's the opportunity cost we face the wage we can get for doing more work the things we can buy without the choice we make at the same time collectively all our choices determine what those prices are right and working smoothly working smoothly we get this outcome where there are no free lunches left on the table

there's no way of making me better off without somebody else worse of. The converse of that is there's an infinite range of those situations. Any of them with the right initial allocation of property rights could be a competitive equilibrium. Okay. And again, to you sort of give the pro-market point of view, I did have Henry Farrell on the podcast, your co-blogger at Crooked Timber, which I'll give a plug for. One of the few old-school blogs that is still just going strong, like people are still posting

on cooking on. We're carrying on for sure. I had my own personal blog, which is even rare, I think, a 20-year-old individual blog. Yeah, very, very good. So, but one of the things that Henry talked about is democracy as a problem-solving measure, a problem-solving mechanism, and he compared it, contrasted it, with markets. So talk a little bit about this conception of how we can think of a market as a way of solving a puzzle or doing a calculation as a physicist might say it. Yeah, so the market really says let's take us given a bunch of rules, including who owns what and who can trade and sell what, and then ask the question, what should we produce and who should conserved it. And so that's what the market solves.

And the important thing is, if you compare it to central planning, that's an incredibly difficult problem. If you try and work out how many pencils we should have, there's a famous, famous book I talk about, famous article I talk about the pencil. The vast majority of people engaged in the process of producing a pencil. They have no idea about it, certainly have no thought of who will ultimately consume the pencil. If they see a demand for more lumber, they have no idea where that demand is coming from. They just know that there are more orders coming in and they should produce more trees. The other side of that, I suppose, skipping slightly the order is we can come to huge amounts of this process depend on choices that are made democratically or perhaps undemocratically

prior to the market transactions taking place. Right. But still, you know, if we're still giving the pro-market point of view here, I mean, it is a remarkably effective way of answering this particular kind of question. You know, it's an emergence phenomenon, right? It's no one person knows the right thing to do, but the collective wisdom of everybody figures it out. Yes. And that's sort of something which it took a long while for people to work out. For a long time, people thought, in terms of the just price and so forth, that, and of course, although markets always existed, society is much more marketised now than it was in the past. If you were a person at most points in the past, you worked in agriculture because everybody did.

You probably had a lord, you paid them stuff. You had a little bit of money and barter. You went to the blacksmith to get your horse shot and things like that. But things didn't change much. So if the price of something changed a lot, the answer was something must be bad here. And similarly, if you dealt with a merchant, it seemed as if the merchant was taking something for nothing. Somebody else had produced the cloth or whatever it is the merchant brought to your place. You paid for it somehow.

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Learn more. at Organicvalley.com. Yeah, and at the risk of just being repetitive, I think this is sort of intellectually for me, a profound fact. I guess it was discussed on Crooked Timber, on the blog, in that book event you had talking about Red Plenty,

which was a sort of science fiction novel, imagining if they really tried to play in the economy all the way, using all of the science and, et cetera, we could. Cosma Shalizi, I guess, made the point that it is literally beyond our calculational capacity, to correctly figure out ahead of time how to price things in a society better than the market could do? Well, certainly comprehensively that's true. As we'll see, of course, there are plenty of cases where the market gets it wrong,

we can see it gets it wrong, and we know why it gets it wrong, and we can fix things. But I think the dream of central planning was the last gasp of that idea of the just price. that we can work out what everybody wanted. Maybe they tell us we just produce the stuff without the need for, without the need for a market. People just do what they do what they should. And that's, I think, a problem in a bunch of context. That even if you're trying, even if you suppose people who are perfectly,

everybody perfectly want to do the right thing, you know, you say, should I study to be a doctor or an engineer? How can I possibly tell? Right. And the phrase just price brings me to another question I wanted to have. The just price phrase sort of makes me think that or makes us think that there is some correct price for things and you don't need the market to set it. And it's almost a normative thing, right? It's almost a value judgment. But in many contexts now, it's the other way around. People go for the market or argue for market economies, not just on the basis of being. more efficient, but on values, right? Like, it's the right thing to do. Like, any deviation from that is somehow morally wrong. There are, there are, I don't want to put words in your mouth.

It's not your point of view, but there are people who at least give that impression. Yeah. Yeah, I would say, yeah, I mean, neoliberalism is a much misused phrase, but it does have a core meaning. And a part of that is the notion of valorizing market processes and taking very strong presumption in favor of them. even when there seemed to have been good reasons in the past for opposing them, and particularly in relation to financial markets,

which are the most abstract, complex, distrusted of markets, and I think as it turns out, distrusted for good reasons. And so particularly if you go back to the 1990s, the idea that financial markets would get things right when others couldn't possibly do so, had a great deal of popularity and certainly, certainly it's still not crazy. But on the other hand, when you look at something like cryptocurrency or the global financial crisis, you conclude that the bounds on rationale, the kind of rationality that's required to make central planning work

also is needed if you're to avoid fairly catastrophic outcomes in financial markets. Yeah, I mean, I just wanted to get on the table the process. The process. market argument, because it is kind of an interesting collective problem solving mechanism, but then it's very clear that there's a whole bunch of issues, and then the complicated part seems to me which issues are more important and how do you solve them, right? I have one very basic philosophical question right from the start, which is, does it even make sense to compare different kinds of goods in the way that your definition of the market working in terms of price, equalling opportunity cost makes sense. Like it seems like it's a presupposition that we can

always place a monetary value on things. Is that a presupposition we should worry about or is that necessary? Well, let's again leave the money out. There's a presupposition, I guess, that in a large, at least in a large sphere of action, we can judge which are two things we want and our choice is going to be better than any other choice. And if we express that choice in a market by offering to trade, that will get the right outcome. So I think that's, yeah, now, of course, that presumption isn't accepted in any society globally.

If I decide that, you know, I've been looking at a rational theory, I could decide that, well, I'm advanced in years, cocaine won't kill me very quickly, sounds pretty cool, I would like some cocaine. In my society, that's not a choice that people think I should make. No, that's absolutely true. But I guess here's what I have in mind. I'm currently house hunting.

And there's this famous issue where, you know, if you have a house that you want to buy and that it has a certain price, but you get into a bidding war, and it gets to the point where it's just more expensive than you're willing to pay, right? So you make the rational choice of not buying that house. And in some sense, you shouldn't feel bad about that. You're not spending too much money. You're doing the rational thing. But real human beings always do feel bad in that situation.

So is there some mismatch between our intuitive psychology and how we are being modeled in this situation? Well, I mean, A, there certainly is that people aren't calculating machines that some of these things and all transactions involve a social element. perhaps you have a spouse and you have to explain to spouse. Yeah, sorry, we didn't go to that house. We agreed that we weren't going to be any more than this. And as your agent, I stuck to that and maybe, you know, that collective aspect to it. There's also different transactions.

I mean, every house is different. Every buyer is different. It isn't a market, it isn't a market of the same kind as the supermarket. If we go down and say, you know, here's six brands of yogurt, which one will I? Right. Which one will I buy? Will I not buy it at all and have ice cream instead? There's this one house and it's, of course, impossible to tell the path is not taken.

If you had bought this house into the other one, what would the counterfactual have been? So, so, yeah, I think it's, people understand that kind of thing, that certainly this model, well, most people do. I think there's a famous economist who talks with the deadweight loss of Christmas and it says, well, cash will be better and doesn't go the whole lot because if you thought of this correctly, you just say, look, let's all work out in the family, what we're going to give and get, and just hand it. The lose it, the people of net payers put money in, the people who are net gaiders, take it out.

We don't have any of this pairwise, me giving you some and you giving me some, etc. So there's obviously elements that are not rational, and of course, most advertising large sections of it works that way. It tries to associate good feelings with the product you're consuming or possibly discontent with what you currently have in complicated way. And I guess the other quasi-philosophical issue I wanted to bring up before we get to the failures of the market, is this idea of equilibrium, because the discussion really reminds me of a discussion going on right now in physics, where, you know, we invented thermodynamics over 150 years ago, and it was for a long time based on the idea of equilibrium between different physical systems, and everything else was sort of an annoyance. And within the last 15, 20 years, we've had a revolution focusing on non-equilibrium phenomena in thermodynamics and statistical mechanisms. mechanics because most of the world is outside of equilibrium. So is economics also undergoing that revolution, or do they always have that idea, or is it yet to happen? So good question. I mean,

because we're always accused of physics envy and it's this equilibrium notion that we took from physics that's at the core of that plus a general taste for Matthew Silas-Stat. So there's, I think, two kinds of issues. One is the equilibrium I've been talking about of a market equilibrium, and we've always, it's a long-running soarck, so we've always wanted a theory of out of equilibrium and adjustment to equilibrium, never had a really good one. But the other issue, which is more modern, going back to 1950, is natural equilibrium in games. So we have, we have, there's been a huge development of game theory, which generally undermines the certainties of the certainties of economics, because essentially the dirty secret of game

theory is anything can happen. Yeah. In economics in game theory, it's called the folk theorem. And so we have this thing where if we play a game many times, essentially anything, anything can happen unless it's so bad for a player that they can walk away from the game and say, I'm just not going to play. And in trying to narrow down, refine the set of equilibrium, a huge question is what do people thing about what will happen outside equilibrium.

So in that sense, we've actually made, you know, this question of what happens outside equilibrium is crucial in game theory, which is now a really big part of economics. In terms of competitive general equilibrium, we haven't made the same progress. But I suppose the other thing is, in principle, a link between the two is we should have an equilibrium theory which includes oligopathy and monopoly. That means game theory and that kind of equilibrium depends what the equilibrium outcome we get depends critically on what people think about what will happen outside equilibrium. Yeah, I'm just talking out loud now, and this might be all nonsense, but my informal impression

is that economics is taken on very seriously the idea that people are not always rational, right? That's, you know, an important thing to think of. But there's another way to deviate from equilibrium, which is just random fluctuations, right? There's some unpredictability in the system. And that's where the physics progress has been made. Is there a lot of work being done on characterising. We might be ahead of you there because shaking hand equilibrium was sort of a big thing back in the 50s and 60s. Part of the question of equilibrium is what happens if you, and indeed stability of equilibrium,

of course, which I suppose was in physics as well. It was a big issue in general equilibrium theory. But this question of, if I'm in an equilibrium where I'm making the best response to you, what do I think will happen if you change a little bit? If you make a little mistake, for example, do we just go back to the original part? Do we do something very like the original path? It was a bit different.

So that's always, in the game theory, that's always been a big thing. I suppose what I wanted to just jump to quickly in terms of the intellect of the discipline is that Keynes had this great saying that ideas, influence, practically will mean much more than they think, that Madman, I think he's probably thinking of Hitler,

hearing voices in the air, are still in their frenzy from an academic scribbler of a generation ago. And what you see is that the neoliberal revolution of Thatcher and Ray in the 80s was reflecting developments of a decade or more. Before that, the counter-revolution from coming out of Chicago, economics has been moving away from that, at least for the last 25 years or so, with game theory, with bound to rationality and so forth. And so in some sense, the sort of pop view of what economists think,

is still well behind the way the profession's gone, which is not so much partly back to the left, in the 50s, in the post-in-the-canadian period, much more support for intervention, but also much less certainty, much less, much of, well, this is the story as in the first four chapters of economics and two lessons, but all sorts of things can happen.

Well, I'm looking forward to physicists being accused of economics envy. I think that would be a perfectly, fair turn of events. But okay, so let's then get on to the ways in which markets fail. And I'm sure that different people are going to have different top ten lists for the ways in which markets fail. I have a list in front of me that I can ask you about, or does it make more sense for you to just suggest your favorite ways? Let me give my favorites. So the first I guess, the first I guess is climate change.

So I've had a long story about where there's where externality comes. from, but too long, I think. But so, so essentially, the core of it is that in the naturally emergent order of markets, you can dump stuff lots of places, carbon dioxide in the atmosphere, you know, sewage into rivers, smoke, and so forth, you don't pay for it, other people bear the costs. And we've been talking about that and how to think about that for the last hundred years or so. A guy named Pigou was sort of the number one man.

And we sort of got a, we have quite a good understanding of it, as we say, in terms of climate change, you know, if you pick 20 random economists to address it, we'd all have been the same thing, and we'd all do it, and the problem would have been solved a long time ago. Good to know. And it's just marginal variance of, roughly speaking, we'd either say, look, we're going to put a price on this, and every time you burn something, you have to pay. or we're going to limit the number of amount you can burn

and you'll have to buy a right to do it from somebody else. If you want, here's emission permits. We're going to auction them off. And after that, if you want to do anything like this, you'll have to have to have a permit. So that's sort of, I suppose, the one, that's the one that in the same sense consumes my waking hours most. But I think the next big one,

and probably the one that will be here when we've either succeeded or failed with climate change is a labour market failure as an unemployment that labour markets don't work in the way that they're supposed to for the kinds of reasons that you said with the house you only have one job you're tied to the job you can't till in advance what's going to be like and and there's all sorts of difficulties with the notion that well look if there's too many of one kind of work as their wage goes down and so forth we're seeing that with the adjustment coming out of the pandemic, for example, that everything is shaking up and chaotic.

Some people are getting substantial wage increases, lots of people falling behind inflation, things just not working well. And that's a periodic that's a periodic though that we see that in turn is linked to failures in financial markets. Historically the worst crashes have come when financial markets have first got overheated and then crashed. We saw that Great Depression, of course.

And then the global financial crisis. In between, we had mostly not so bad recessions that typically occurred when the central bank, the Fed, was trying to stop this happening and slightly overdid the correction. But the really bad ones happen when financial markets are let run and then collapse no heap. Yeah, I don't want to stop you from listing ways in which markets can fail. But let me just sort of interrogate a little bit, the two that you've mentioned here. for climate change slash externalities, I can imagine at least two different things going on. One is just that people are self-interested.

This is part of the camp that we hear about the market. And if you can sort of offload bad things to society and not pay for it, then the market's doing its job, but society is worse off. But then there's also the other fact, which is that people are just short-term thinkers, right? The thing that they're trying to optimize is for the next quarterly report or whatever it is, the fact that the climate might be in trouble 100 years from now is not going to be very relevant. So are these the same problem or two different problems? Both of those, but there's a third one in the context of climate change,

which is it's very hard to tell what to do. I mean, there's a big movement, for example, worrying about food miles. How far did your tomatoes travel to get to you? but then the question is, depending on where you live, possibly they were grown right in gap within walking into a house, but in a greenhouse. And then the question is, should you go to the greenhouse, a greenhouse headed by gas,

should you go to the greenhouse and buy the locally grown tomatoes, as the food model people would say, or should you have them flown in from Spain where they just grow out of the sun? Out in the sun. So trying to work out, that's, again, the marvels of the price mechanism as opposed to central planning. So with the early pollution problem, smoke, you just said, you pouring smoke out of this chimney, stop or put a scrubber in. With something like sulfur dioxide, things like sulfur dioxide and carbon dioxide, almost impossible to get it to zero.

So you have to say, you know, we then move to these permit-type solutions. If we can, you know, economists haven't had much success. and persuading it, but this problem goes beyond this kind of issue of how, of people not doing the right thing of one way or another, and simply saying, without a market, it's very hard to tell what the right thing to do actually is. Hey, honey, are you awake? I am now. Much wrong. My back is killing me. This mattress is too soft. Yeah, but I'd like it soft. Soft mattress meant comfort, but every morning your back tells a different story. This is the sound of support. The sound of air weave. Born from Japanese innovation, our air fiber

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AirWeave is truly supportive sleep. Discover more at airweave.com. Well, I guess this was going to be my next question because for climate change, I can imagine the government passing laws that say, don't pollute or don't pollute more than this amount.

Or I can imagine implementing a policy that just adds extra costs to polluting, right? So if you pollute this much, we're going to charge you this much. And in the latter case, it's still the market that is finding the answer. It's just that you're sort of nudging it a little bit. Well, it's a corrected market. And this is where I think you've seen a split, particularly among, I used to term, proprietarians, but you might say libertarians, that lots of them hate this idea. And the reason they hate it is, is some of them love it and some of them hate it.

The reason people who love it say, here's a market, we've created necessary property rights. We don't need government coming in telling us buy this tomato or that tomato. The cost of the carbon will be in the price of tomato, just do what you want. But there's a bunch of people out there who have this creation story of property rights that somehow rather they emerge without the state. And if you say, if then they say, here's this newly mint of. property right, just like your car. You can trade your car for a carbon permit. Where the carbon permit come from? It came from this piece of legislation right here. Where'd your car come from?

Well, something more complicated, but back in the day, all those rights were created because kings and states said you can have this and you can't have that. And in addition, your right to your car is no different from your right to your social security or somebody on welfare's right to government support. They've all been created by the state. And now we've got that out the way. Let's look at what we should do with markets. Yeah. And this goes back to, I guess, this values versus efficiency kind of justification for being pro-market, right? But even if you're purely on the efficiency side, or forget the word even, if we're on the purely efficiency, side. Do economists have a feeling that market-based solutions to climate change, like charging

people money for polluting, are usually better than just banning polluting or something like that, or is it more complex? I think in the case of climate change, you'd have formally said. So, yeah, if it's dumping cyanide in a river, you just say, no, no cyanide, don't dump it in the river. Right. And if you're saying, yeah, if you're saying every moment that you're doing something, Here we are, usually talking on a relatively low-intensity activity, but we've both got computers running. We might have something happening in our house. And although it turned out to be wrong,

there was a calculation floating about back in the day that claim that data centers and things were consuming gigantic amounts of electricity. And we can't tell. The only way to tell you, there's no way that any central plan that can work out can work out at that level of saying in every single thing you do it really would be a level of central planning more comprehensive than than simply saying this is how many computers you can have and so forth and so the market the market solution is the best one we've ended up we end up with

sort of a series of half market half half base kinds of things at Australia for example we have a system of renewable energy credits, which specifically apply to electricity and create a kind of market for carbon dioxide emissions. And we have a bunch of other very half-banked sorts of ways of bringing these calculations into play. And then civil society is kind of doing this also by leaning on banks and saying, you know, if you lend money to, if you lend money to a coal-fired power station, we're going to turn up at

your ATM and give you grief. And so some of them say we won't, and others say, well, we've got this market to ourselves, but we can't diversify. We'll charge you two or three percent more, and that's enough to put them out of business. So, yeah, I think on the issue of climate change, I would say the economic-washed profession is more unified than almost any other type. More unified around the idea of just making it prohibitively expensive to pollute in these ways through the market. And let the market decide how to get around that, whether it's building electric cars. Yeah, as we reduce it, what are the most important uses of putting carbon dioxide

and that are the ones we need to give up last. Exactly. And for the labor market stuff, can I interpret that as the fact that the people who are in the labor market are real people who might have some attachment to their location or their job or their training or whatever? Like in some sense, does it come down to the fact that people are not infinitely fungible and are able to switch effortlessly? There's that. So there's the, yeah, there are information problems.

You know, if the boss comes around and says, you know, if things are really bad in the market, I'm going to need your order to take a 5% cutting your wages. Yeah. Well, the boss has an obvious incentive to say that at any time. and so you're going to resist. There are all kinds of problems with how labour markets work, and I should say on the contrary of, and then there's sort of macro problems of the economy being out of equilibrium.

And so we have, yeah, I should say, having said the general equilibrium theory doesn't have an out of equilibrium approach. The real story, I suppose, as things develop for most of the period, after World War II is we have one theory of how markets worked in this sort of abstract price equilibrium way another theory, Keynes in macroeconomics which said, except that they might fall in a heap and fail to clear and the attempts to integrate those to have consistently failed. And so this is an issue where the exact opposite of why I said about climate change,

economists are utterly disunified. So there's one bunch saying essentially the general equilibrium story is right. if only governments would stop putting their awe in, everything will be right. If you see fluctuations that aren't caused by governments, there are optimal responses, so-called real business cycles and so forth. And another bunch essentially saying, with very modest qualifications, the story that Cain's child was right,

that government policy has a big and systematic effect on things like inflation and unemployment, and the best way to understand that is in terms of notions like April it. And for a while the two camps seem to have reconciled. My previous book, Zambia economics, is a whole lot about this. They seem to reconcile on something called New Cains in economics. But the global financial crisis really blew that up.

And so now we have, again, a division between people essentially saying, yes, government systematically affect the rate of unemployment and inflation. And within an argument of, did we simulate too much or too little? and then another bunch of people they're actually saying, yeah, it can't like it doesn't work, people wake up and in the end, governments can only really create inflation.

Well, there's a whole different angle of critique of the market, which maybe you were going to get to, and I interrupt you, but just that it leaves people behind so readily, right, just kind of heartless. Is there a more emotional or, you know, welfare state liberal kind of critique that we should put on the table? Well, well, there's two bits to them.

It's one which is in my book very much is, I said the market reaches this equilibrium, which is praise, in the ideal case, has no free lunches tonight. We can't make you better off without making somebody else worse off. But it leaves entirely open the question of who should get what in the first place. And opportunity cost applies to that also, that something which gives me more rights, gives somebody else less rights. If workers own their jobs in some sense, employers have less ownership of their capital and vice versa.

And so that allocation problem is subject to logic of opportunity cost and is, and is, so in some sense, the left behind notion is part of that is, the idea that workers own their jobs to some extent. And we use a possessive, even though, of course, certainly in the US with employment it will, because they have no property rights to know, roughly speaking. And that's even not quite sure in the US under a bunch. But that's roughly speaking of the story is even though you call it your job,

it's no more your job than Uncle Tom's cabin was actually his cabin. And similarly to the climate change question, I could imagine distinguishing between government regulations like for worker safety, right? Like the factory has to obey certain things. And that seems to be fairly characterized as an intervention in the market. Whereas if we just, you know, tax people an enormous amount, tax the rich and then give the money to the poor in some universal income or something like that, that still is. Within those constraints, the market is still going to find its equilibrium, right? Yeah, so there's a great distinction here, a great distinction that Jacob Hacker makes between pre-distribution, how we set the property rights in the first place, and redistribution, which is doing this afterwards. And so to the extent that they're solidified into the market, in this distinction,

taxes go in with with regulations as redistribution. The previous question is, what about things like union rights? If workers have a resumptive right to join a union and the employers are obliged to bargain with them, that creates one set of labour market outcomes and those are best thought of as property rights occurring before the market opens, as opposed to saying after the market open,

after we've got the market outcomes, we'll tax some of the money and give it to other people. But underline that, there was certainly, the distinction isn't hard and fast, that undoubtedly your right to social security is a kind of property right. So the distinction can be made in different ways, but it is an important one.

And where the market works, the scope of the market is there. I suppose the other point which I want to come back to with markets leading, with disillusion with markets is the question of how much scope the market should have. Should you be able to sell your kidney? For example, there's a proprietary blog which has a segment saying markets and everything which more or less implicitly takes the view, the more things are subject to the market. the better, and very clearly, against that I suppose, is a left critique of decommodification that says, goes away from a central planning kind of notion

and says, sure, look, when we go to the supermarket, we go to the supermarket, we want to, we just want to look at the supermarket and pick what we want. But, for example, when we decide, well, should we have a supermarket or a corner store, that we shouldn't have the market, decide that kind of outcome. I guess this goes once again back to a more normative value-based distinction.

I guess the pro-market people would worry about paternalism from the government, right? Trying too hard to protect people from themselves. And they would say just on philosophical grounds, let them sell their kidney if they want to. But that does kind of presume a kind of rationality and responsibility on the part of the individual agents, which might sometimes be true and sometimes not. Well, also, of course. I can't imagine that Bill Gates is going to be selling his kidney in time soon. And so a lot of the questions come back to this question of distribution.

That broadly speaking, it's not the only question that rises. And for example, with blood supplies, for example, there's all sorts of complications about. it going in different directions. So you get very complicated stories, but a lot of it is, a lot of it is the question of what happens to equality and inequality with these things. And I'm sure we could keep listing failures and ways the markets can fail, but you hinted at the existence of these sort of booms and busts, right?

Bubbles and crashes. And there have been various arguments, I haven't followed them, maybe you can fill us in that, oh, we figured that out, there aren't going to be any more booms and busts, but they clearly empirically have not gone away. They're as bad as ever. Yes, and so, yeah, there's Rogoff and Brian, not really here, Ken Rockfin or any one of the authors, is Rogoff and Ryan Hart, had this story, this time is different, looking at, you know, at every time, at every point we believe this, that include, yeah, that we have a new economic

here, you can see these predictions come again and again. The longest and most credible version of this was that the Keynesian boom period of 50s, 60s and so forth, when again we thought we had everything solved. Things went wrong and we gave up on that. So I suppose, I'm still the view, we could

do a lot better if we went back to, broadly speaking, that understanding of the world. But certainly, certainly I think look, I would say we've had a series of demonstrations in the past 30 years. First the dot-com bubble and bust,

then the global financial crisis, and then filing of Zergy on Underti Crypto is sort of, I think, has to be the ultimate refutation of any notion of market efficiency. That at this point, no, I mean, there's a sort of pious hope that somehow a database technology

that's been around for 30 years and has no use, no actual applications will magically turn out to be valuable simply because there's a huge amount of money associated with it. I mean, if people have bet a trillion dollars on object-oriented programming, I imagine there'll be fastly, yeah, I don't know much about it other than, well, other than the industry observation, apparently all of the exchanges for cryptocurrency use relational databases. for their into operation.

Anyway, whole thing's worthless. And at this point, the idea that's going to be used in orderly transactions are being given up, it's valuable because it's valuable. People understand, look, the only thing this reports is somebody did a complicated calculation, which has no interest for anybody. But, yeah, you know, it's been valuable.

And no one of significance in the financial markets has held out against. I mean, Warren Buffett said it's rubbish individual people have. but until relatively recently you can say, look, this stuff is happening because a bunch of silly people get together and do this stuff, we can't stop them. But now, Citibank and all these people,

they're all into it. So you can reasonably be saying, no financial institution has simply said this stuff is useless. Sooner or later grief will come. We won't deal with it. By all means, go to one of our competitors. If you want to do this stuff,

But when you lose all your money, maybe you'll think differently. No one's done that. I'm not an expert either in cryptocurrency, and I know that opinions get very heated. I could have imagined that a use for cryptocurrency really as currency, like just as a way of keeping track of transactions. But clearly, something that is wildly impossible to predict its value isn't very good as a currency. And so my very simplistic understanding is it just became valuable because people thought it was valuable. And if there's no there, this is Warren Buffett's criticism. Like if suddenly people change their mind, all of that wealth has disappeared and that's not what we should be

about. And there's a false argument to the fact of what about gold and what about paper currency. And so here, gold's easy. The answer is gold isn't in much use of currency, but it revolved completely. there would still be gold mines. It's pretty. It can be used for computer connections. It's true that because having to establish people like this stuff, the fact that we can use as money means there's more demand for it, so the price of gold is high than it would be,

if it was just something you use for ornaments and filling teeth and stuff like that. Without the underlying value, it can't be done. We pay for money. It's very straightforward. There's a government with guns. They say, you will pay a state. And they say in the US, if you bring us enough pictures of presidents, we'll regard your obligations as discharged. And indeed, yeah, in place in Africa where they didn't have money, that was precisely what they came in.

They wanted people to work for wages instead of being hunter-gatherers. So they said, you've got a hut here. That will cost you a shilling a year. Where do you get a shilling? Go and work for the European planter because they have shillings. And so both so-called fiat money and gold have a real underlying value. If you look at crypto, what you see is the answer is somebody performed a very complicated calculation. You don't even get the answer to that calculation.

You can't sell it. So it wouldn't matter if people stop believing in money as long as when the government came to collect their taxes, they paid up. Yeah. When Toyota builds an electric vehicle, we don't start with a blank slate. We start with everything we know. The BZ brings Toyota's proven engineering to electric. With impressive range, intuitive technology, and Toyota reliability, BZ reflects decades of experience, reimagined for what's next.

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And the fact that it didn't make a pun about moving? Also a plus. Organic Valley Protein plus ultra-filtered milk. Protein plus pasture-raised. Learn more at Organicvalley.com. And so this leads us to, I mean, the crypto example is an example of a relatively new technology here. And the other point that you want to make, which I definitely want to give you time to explain, is this shift economically from properties and goods to information and how this is affecting things. I mean, maybe the whole financial crisis sort of prefigures this in some way because finances are different.

So financial crises have been around for a long time, of course. So, yeah, but yeah, so what I want to, so when I was at school, partly the Australian economists pioneered this stuff, but we learned about a three-sector model of the economy. And roughly speaking, got a bunch of people, primary producers who were particularly the salt of the earth and they either dug stuff up or grew it. Then there were manufacturers who were pretty good, who turned this stuff into cars and loaves of bread and things.

Then there were a tertiary sector which basically was fat warehouses, shops, all these kinds of things. And then off on the side, there were some bits that didn't really fit in, like university lecturers and nurses and stuff like that. But were fewer enough in number that they could more or less be ignored. And so, and the whole concept of GDP, in fact, the crucial aspect of GDP is to make sure we don't count the wheat multiple times as it goes from being produced on the farm to being a loaf of bread in our, we make sure that at each stage we only look at the value at.

So that's what the economy was like. And at one time, yeah, at one time the agricultural sector was largest, then the manufacturing sector was largest, then the service sector was largest. But it was still all essentially to do with getting goods in our hands. But now, the majority of economy and all the action is in information, what we're doing right now. I mean, if you look at the economy we're doing, okay, there's some bits of equipment involved. But, you know, the value of the time, you know, as judged by the market, you know, the value of my wages compared to the value of my computer is gigantic. The computer, the hardware part of the industry has been shuffled off mostly into a relatively small, more story. All the action is information.

And coming back to market failures, information. is a public book. That is, I do this podcast, you put it on the internet. It's not perfect because you can say you can pay wallet, but the point is we have this notion of a magic pudding cut and come again. As many people as want can listen to the podcast. It doesn't degrade. It's infinitely useful.

And that in turn means, to the extent there's a price. It's can you stick a barrier in front of it that doesn't determine. lots and lots of people from getting it but gives you money, that doesn't bear any real relation to opportunity cost. Some things which are very valuable can't be kept quiet, can't be controlled and they're gone. Other things of less value and other points of less value in the system, like search, for example, can be controlled and marketed.

And so we have a situation where Google is immensely valuable, most the content that Google searches on is entirely unrewarded. So that's the sort of, and the other feature of this is that there's very little need. So there's no relationship between what you produce and what the value is, and that in turn means that there's no real return to capital anymore. So Google, of course, they've got some, they've got big bank, you know, large amounts of computers. But the guts of what they have is first mover position in the search market. Sometime back in the 1990s, they developed a somewhat better search engine than their earlier arrivers.

It hasn't really improved. I mean, certainly hasn't improved from the point of view of somebody who just wants to search for non-market-related information. It's probably got worse. But it's very hard to replicate. There's no real need to. And so what you've seen is that the rates of private investment are falling. That's reflected in very low rates of interest. People are confused because of monetary policy and the Fed doing this in the short run.

But the big story is long-run rates of interest have fallen to zero new terms. So Google can borrow money indefinitely in the future at 2%, which is what we expect inflation to be. The US government, every US government governments can do this. we have these really low rates of interest reflecting the fact that investment, private returns to investment, no longer really have any close link to social utility. Okay, I hear all those words, but I don't quite get the connection. I mean, I completely get the fact that these super valuable companies are valuable not because of their stuff, but because of some handle on knowledge and rights and access and whatever. So it's a different kind of valuation. But where do the interest rates come in?

Why is it that Google can get away with small interest rates? Well, the answer is, the answer now is if you want to, yeah, the answer now is if you want to, if you want to develop growing things in the economy, you don't put a lot of money into capital investment. Certainly not a physical capital. What you do is find a bit of the information economy that hasn't been, hasn't been, hasn't been, hasn't. been fenced off yet, you don't find a way of fencing it off. I mean, that roughly speaking is what Google did 30 years ago, or you find something you can give away and attach advertising to, which is what Facebook and Twitter do. So what you have a situation where the, once you've established a position, the, you don't really need much in the way any kind of capital,

not even R&D. Even when you throw in Google's R&D, it really isn't that much. What you need is something in the information sphere that you can sell. So what that means is in the growing parts of the economy, there's very little need for capital investment to deliver it. Meanwhile, the old manufacturing part,

the economy has got more and more efficient. We don't need, it's got smaller relative to the economy as a whole. and so the need for large amounts of investment there is less. And finally, though, the policy part of the story, there's these huge needs of stuff governments historically have invested in, like health and education and so forth, which was discouraged because high rates of government debt, high rates of interest on government debt,

people are very worried about debt. The big story in economics now is governments really don't need to worry nearly as much about debt as they used to. They can take on a lot more debt. and they can use it to find it socially productive investments. Okay, there's still one step that I'm missing, and it's probably because I know nothing about economics, but again, I completely understand that Google, et cetera,

doesn't have the same investment in capital. They don't build factories in the way that Ford Motor Company would have. But I think of interest rates, of course, there's lots of different kinds of interest rates. There's interest rates on my credit cards. There's interest rates that the Fed charges, that banks charge each other. Why do the interest rates on loans or bonds set by the Federal Reserve, why are they affected?

Why are they lower than they used to be? Almost zero these days, right? Sure. Yeah. So the first thing is, the interest rate is the opportunity cost of time, at least for. Ah, okay. It has a credit cards. Good.

It has a credit cards, a lot of the interest rate is chasing after deadbeat borrowers and writing off some of the loans and ripping people off and stuff like that. If you go to the actual operations of the capital market, it's, I've got a dollar now. I'd like to consume something in a year's time. How much, you know, can I find somebody who can take my dollar, turn it into a dollar five, say, and give me back that dollar five? And that's investment. And so, so historically, we've been short of capital, lots of reasonably high-returning investments. and there's a story which declined over time over a very long period,

but certainly as information economies developed, the need, the number of people who say, yes, give me your dollar, I will put it into a server farm, and I'll give you back a dollar five. Now they say, look, I'm spoiled for choice here. I'll give you back a dollar in two cents. US Treasury, for example, gives a loan, has a bond where they say, say, and they're in competition in the same market, but they say, we'll adjust your money for

the rate of inflation. If there's 10% inflation between now and then, we'll give you, the 10% will give you back $1.10 plus the interest, except that now it's minus the interest. We'll give you back the $1.10, but the real part of the interest is negative. You'd only get $1.9 back because there are so many people who want this that we can actually give you a negative real rate of interest. and that's true for 10, 20, 30 years, zero or negative real rates of interest. And as that's the combination of the information economy doesn't need capital,

and governments have been shying away from debt for many, many years. All of this has been sort of somewhat upset by the pandemic, and we'll see how that happens. But even with the pandemic, even with the huge amounts of debt that have taken on, the stories about how government debt is going to be ruinous, that people were putting out until recently have been essentially undermined by the fact that because the real rate of interest is low or negative, if governments get anywhere near balancing their current expenditure income, the debt stays the same, because the interest is

zero, the economy grows interest full. So that the kind of panic stories you used to see until very recently, when they do these projections now, they're sort of, you know, with a bit of inflation and a bit of GDP growth, even with big deficits, the debt's going to go going to climb. And so, okay, I think I do get it. I think that that is actually very helpful. So the companies that are leading our economy, Google or Apple or Amazon or whatever, they don't need to keep building more and more factories. They don't need to keep borrowing money to improve themselves,

and therefore there's less demand for loans, and therefore the interest rates goes down. And there's another way of measuring the same thing. it's called Tobin's Cube, you don't need to know the name. But roughly speaking, it says, let's look at everything the company has, has built all the factories. If you look at all the factories, ideally as I say, you capitalise in their R&D,

and they say, here's the factories, then here's the market value of the company. Right. And roughly speaking, historically, that number was close to one. And the reason was, if it was much different, if it was three, say, somebody else would look at this and say, well, why should they get that? I'll go and build a factory myself, another car factory, and I'll get it.

So he started that number was one. Now it's like 20. Wait, so remind people what the number is. What is the 20? It's the ratio of the market value of the company to all the money that's been invested in the assets of the company. So the market values are just way, way bigger than what has been put into the company. Yeah.

And so as it's measured, that typically means in the company. the case of Google, it's the computers and office building, that kind of stuff. They don't, they don't include R&D, but I've checked and R&D doesn't make that much different. So these companies are worth massively more than they were. Another qualification is you really ought to, I suppose, look at the, look at the Sikhs and bings and things like that, the people who, the competitors, the competitors that Google's left behind, that value ought to be in there somewhere.

Again, it's not, again, not much physical capital and the R&D wasn't gigantic. And so those numbers are, you know, that's the other way of looking at this thing is that the value of the company doesn't bear much relationship to the capital invested in it. And that, in a sense, precise, that relationship is why we call the system of capitalism. Because, you know, if the return to capital, a is near zero and B bears no relationship. to the way the economy is working, in some sense, we're already beyond capitalism. Well, what we're on to is another question. Good, because that's my next question. I'm just going to say, like, if we're beyond capitalism, I mean, is it just intrinsically dangerous or bad, or is it just uncomfortable because we don't

know what's going on if we say that there's the relationship between capital and value for a corporation has just been severed? Because now all the value is in people's heads, not in brick and mortar. Good question. It's unsettling, I would say, in the sense of it's certainly not, it's not, certainly not immediately at the end of capitalism as envisaged by socialists and other critics. He potentially could be. Yeah, I can tell a story about that. But yeah, a situation where most of the value is generated by advertising, you know, advertising has always been this very problematic concept. But search advertising marginally, I mean, the search itself is useful, but the advertising, so there's slots. It's a very complicated story. It certainly hasn't proved to be a system conducive to great equality.

We've inherited, in some sense, the boom in inequality coming out of the neoliberal reforms, the 80s, added to that the sort of phenomenon of tech billionaires and so forth, but there's still, of course, a heap of non-tech, third generation, fourth generation, now, billionaires. So it's very hard to say what will happen other than that a lot of the, we came back to the moral justification, a lot of kind of theoretical justification for capitalism as has existed is no longer there. I mean, as we're having this conversation, I do recognize that we're making a podcast, and I make money off it from advertising and there's no physical product whatsoever.

And I was at one point offered, you know, someone wanted to buy the intellectual property of the Mindscape podcast. And I didn't want to sell it in part because it just made me nervous. Like, what does that mean? I don't know what you're going to do with it. I certainly don't want you to tell me what to do with it.

So I just said no. Well, there was a fair way back when, when blogs were bigger. And they went around the fanage of all the bloggers and like Crooked Timber was, some, yeah. Right. I mean, not enough to let any of his retire, but worth an awful lot of money. We should have sold, probably. Exactly, and that's another aspect of the whole information economy

is that not only can valuations go way up, but they can go way down, right? That it's somehow, because it's not anchored to physical stuff, it sounds like it's intrinsically more susceptible to booms and busts. Well, certainly, yeah, certainly once, because ultimately, I mean, information wants to be free, the bust is always waiting for you. That, and the question, yeah, the question of how do you get people to generate information becomes live? I mean, for example, this has been a hot topic, was a hot topic with COVID. And the correct answer, reached by the Trump administration, in fact, was prizes. that what you say is you give us a product and we'll give you money.

I think, in fact, some of them are unconditional, but the ideal version is, yeah, we won't say, as we typically have said, you invent the product and we'll give you the monopoly rights over it to do it. And we also didn't, you know, we also needed not only what, you know, people like universities who will give you a salary. You put this stuff in the public domain. is that version, but the third version, which goes back to the discovery of the longitude, or that's the way of measuring it is, you answer this problem and we'll give you money.

We'll reward you. And so that's one of many, you know, it's no, it's unclear which is the best solution, but certainly, certainly I think this comes back to the patent solution saying, we'll, you know, you register this and we'll have a monopoly rights for a certain number of years, certainly is a way of dealing with the information economy which looks kind of out of date. And it almost seems too obvious to say out loud, but if our economy becomes information-based, then the information in maybe a slightly different sense that you possess become super valuable and subject to manipulation, right? I mean, we're in the middle as we're having this

conversation of Elon Musk maybe trying to buy Twitter or maybe not and getting in trouble because not letting the SEC know it was going to happen, maybe saying things on Twitter that didn't match what he was doing behind the scenes. And that just sounds like it's going to become more and more important to how the economy gets run. Oh, yeah. And I mean, we have yet to see that really

delivering the goods would be my judgment in most contexts that I keep on scraping up your information and they sell it, but mostly without any obvious smarts. I mean, I get all sorts of recommendations from Amazon. And the most convincing is there's this book called Zombie Economics and we think you really like it. They love to recommend your own book. That's very accurate.

But yeah, but yeah, so no, I think those kinds of issues of, given that information can't be owned, but can be useful in the short run, who owns it, who gets to control it is a big deal. and I don't have a good answer. Right. And maybe in that context, I'll give you a chance to return to something you said at the beginning about bounded rationality, right? I mean, part of the problem is that we don't have all the information or we're actually subject to misinformation.

But another problem is that we're just finite. We can't know everything, even if we had access to it. No, no, exactly. And I mean, the internet has made that a reality in a way that just wasn't true in the past. I mean, when I was a kid, I read every book in the library, roughly speaking, I mean, at least in the sort of vaguely kid's section of the library, I read them all. You know, you could turn on the TV and get some fairly low quality information,

I mean, information in the sense of bone rubble and fed Flintstone, but low quality data. But when that was done, yeah, Wednesday went on to the stuff. If you weren't interested in, that was that. It was back to rereading your library books. in there you can't possibly look at the internet you run through

looks interesting, you won't get to it, looks interesting, we won't get to it, maybe I can just read the headline on this one. So that that boundeness has become an absolute reality

for everybody in a way that just wasn't true in the past and I think some people are handling it better than others. I mean, the question of what rules you apply is a skill that we have yet to learn, and maybe we'll get through the current mess and learn well, maybe not.

Well, I guess maybe as a final topic to touch on, I do want to give you the opportunity, just sort of give your proactive recommendations for what we need to take seriously in this situation that you've outlined, with the need for public investments in things that the market is not going to naturally do, especially in this information economy.

Yeah, so I think as a classic human capital services, what's in people's heads and making sure their bodies support them, health and education is a big deal. That all the same ultimately comes out of people's heads and education. Education everywhere is this huge problem, but of course in the US, just financing and the whole structure, this gigantic problem, you know, there are ways to fix it, but they're going to involve a fairly substantial outlay of public money

and then it has to be done right. So, yeah, that sort of, I mean, but things like Free Community College, for example, would be one, yeah, an easy one. So there's an aspect of it. But then I think what we ideally want, which is going to be very difficult, is for governments to take responsibility for providing lots of free and reliable information in a way that. and that requires solving a bunch of social problems.

I mean, in some countries, that wouldn't be that difficult a question. In the US, obviously, the most basic facts are in disputes. So the idea of, you know, I mean, even, obviously, for example, publishing the results of the 2020 presidential election, it's quite the government's historically done. When you can't do that, then the question of trying to solve, trying to solve the more general problem of dealing with this information providing with access to it is even more problematic.

But I suppose that nonetheless, if that responsibility were taken more generally and more seriously and seen as a central part of what government agencies, what governments were doing, we could get a lot more useful stuff than we have. Well, okay, I mean, let me, this sounds good, but maybe a bit utopian. And so let me just push back on it for purposes of fretting and worrying. I mean, putting aside the political polarization weirdness and reality-based community and so forth, are you recommending that the government just offer more information to people or somehow help people decide which information is true and which information is false? Ultimately, I mean, and on the assumption that the government remains more or less on the side of Senate.

of the information and then in some sense there has to be a social consensus which may not survive that if I see something well clearly is not a consensus a majority viewpoint

that if I see something on the NOAA something from the National Ocean air things about climate change that that information is like to be reliable and that I can make the information just to be available but also

I mean, I'm thinking of a more general program, systematically putting all the stuff that's in the public domain on the internet and the way that the Gutenberg project tried to do. There's lots of stuff like that that governments could do if they saw that as part of their role. I'm just saying, here is all this information out there, which could be made available, and we're going to put actual resources into making it available.

Yeah, I mean, everything you're saying sounds wonderful and recent experiences in the country where I live make me skeptical that it will be easy to pull off. Because we're not even happy letting people study the climate or climate change or the effects of guns and things like that. But that's okay. Let's put that aside. I mean, is the motto, is it too simplistic to say that the final motto is in the information economy? one of the most important public services is spreading information widely and accurately. Yeah, and also, of course, paying for the generation of information, which is paying for research and stuff like that.

Unsurprisingly, more researchers need, as the few of all researchers. But yeah, but all sorts of stuff like that, recognizing the value of it, that even when it can't easily be captured and try to make it easily, easily, accessible available that I think is, yeah. I mean, Google does that, a very half-bakedy kind of way, finding a really good, yeah, the task of finding a search engine, given the problem of bias, is an insuperable one, perhaps, but certainly there's, I think, a lot more room for the public sector put into making information available, educating people so they have the skills to

to interpret and use it is the future of the economy. So I guess the motto really is information is a public good and we should take it seriously as one. Yeah. All right. I think that's. I like that message and I think that I've understood something about interest rates that I never did before. So John Quicken, thanks very much for being on the Mindscape podcast. Thank you.