Economics

Inside the Mind of the Inner Economist

"Cult hero" economist and blogger Tyler Cowen on his hot new book, his love of organ meats, effecting "marginal revolutions," and why New Jersey breeds so many libertarians (with a very small l).

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The last time reason caught up with economist Tyler Cowen for a long sit-down interview was in 2003, just after he'd published Creative Destruction, a wide-ranging and compelling argument for the cultural benefits of globalization. An occasional contributor to reason, Cowen debated the American Enterprise Institute's James Glassman on Social Security privatization in our pages in 2005 and advanced a "leave-it-alone" argument so convincing that Glassman changed his stance on the matter. Cowen has also written about the negative effect of public subsidies on the French film industry for us (check those articles out here, and go here for reason's review of his influential In Praise of Commercial Culture).

The 45-year-old George Mason University economics professor has a new book out that mixes self-help with hardcore economic thinking. Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist is rightly drawing rave reviews for its mix of high-end theory and practical advice. New York magazine recently dubbed Cowen, who co-runs the popular Marginal Revolution blog, a "cult hero," and The Washington Post just wrote up Cowen's advice on finding memorable ethnic food on the cheap.

reason editor-in-chief Nick Gillespie interviewed Cowen via AIM on August 9. What follows is an edited transcript of their session, with timestamps and irregular capitalization left alone to preserve the immediacy of the exchange.

reason (8:31:35 AM): give me the one-sentence summary of your new book.

Cowen (8:32:18 AM): "Economics is everywhere, and understanding economics can help you make better decisions and lead a happier life."

reason (8:32:31 AM): I've been paying my 13-year-old son all summer to cut the grass, but he hasn't been doing a very good job. what am I doing wrong?

Cowen (8:33:38 AM): Perhaps he feels you are trying to control him. If he accepts the payment for the grass, what next? You pay him to get better grades, or not to smoke pot? (Given that this is reason, perhaps you pay him to smoke pot!) He fears control, and so he rebels against that control by not cutting the grass.

Economists love to talk about incentives, but the bottom line is that people hate being controlled or manipulated, even when done through voluntary institutions. This is one of the most important tensions in capitalism.

reason (8:34:16 AM): it's good to know that he's not just lazy…

Cowen (8:34:55 AM): He's probably not lazy at all; he would work hard for a lawn-care firm, I bet, to get a bonus. He knows they won't try to control his social life.

reason (8:37:34 AM): you're going to speak on capitol hill today. you write that money can't buy love. it's too bad you weren't able to reach out to sen. david vitter (r-la.) before his troubles. why can't money buy love?

Cowen (8:39:22 AM): Money can attract potential partners, at least on an initial basis if you have enough of it. But paying for love just doesn't work. The very act of payment takes away the love and also suggests a control or asymmetry. You also can't pay your kids to respect you.

reason (8:39:35 AM): have you ever paid for sex? has anyone ever paid you for sex?

Cowen (8:40:41 AM): Never ever ever. The idea isn't at all appealing to me. I'm a male who's traveled a lot alone, including in Asia and Cuba, I might add.

Nor have I sold!

reason (8:40:58 AM): i was afraid you were going to say that you bought low and sold high. what's the inner economist's most important message to congress (briefly)?

Cowen (8:42:17 AM): Humility would be a good start. Cut spending is another. Worry about nuclear proliferation. Institute greater accountability.

reason (8:42:28 AM): you write "delusion is one secret to a good marriage." what is your wife's biggest delusion about you?

Cowen (8:42:54 AM): Let me ask her right now…

"If it's a delusion, how would I know about it?" she says.

I would say her biggest delusion is that she pretends not to know what her biggest delusion is.

reason (8:44:31 AM): there's an old song by the modern lovers that goes, "pablo picasso was never called an asshole." yet many of the people who collect his work are. that is, they don't really care about the work itself. rather, they care about the status owning it may signal or confer. is there anything wrong with that?

you're a collector. what are the inner economist's rules to collecting art?

Cowen (8:45:36 AM): I don't think there is anything wrong with buying art for status. And a lot of so-called status-buying is really buying for self-image, not just or mainly to impress the neighbors. We all identify with something or other. what's wrong with identifying with Picasso? I'd love to own a print from the vollard series.

The rules depend what you buy. One big rule is to beware of fakes, and research what you are buying. Buy art for love, not for resale, it is hard to beat the market unless you have the eye of a genius. And specialize your collecting and get to know your area very, very well. Also: it's as much fun to collect something cheap as expensive, in most cases.

reason (8:46:40 AM): what does it mean that a picture's value changes dramatically if it is revealed to be a "fake"—or to have been painted with the help of a camera obscura or some other mechanical tool?

Cowen (8:47:56 AM): I don't think the value of Old Masters would fall if [David] Hockney's hypotheses (now mostly discredited) about how they were made were confirmed. But no one likes an outright fake. It reminds the buyer he was a fool, even if the apparent quality is high to the naked eye. This shows again that art is about self-image.

reason (8:47:52 AM): the key then is pleasure? finding something that expresses something about you that you enjoy doing?

Cowen (8:48:30 AM): key to what? happiness is not the only value. for instance, some people want to be a certain way, even if it doesn't make them happier.

reason (8:49:32 AM): you give rather unusual advice to restaurant-goers. i'll paraphrase it as being: buy the most disgusting thing on the menu, especially organ meats. are you in the pocket of the powerful organ-meat lobby? explain why you think it's a good idea.

Cowen (8:49:59 AM): that's only good advice for fine restaurants. if something sounds bad, why is it on the menu? it probably tastes pretty good. I wouldn't recommend trying the most disgusting item at Burger King, however.

reason (8:50:33 AM): you could be there all day just figuring out what's actually the worst.

Cowen (8:50:45 AM): sometimes I have the problem that to me the sweetbreads have become the norm. If I want to try something disgusting my attention is directed toward the roast chicken.

mostly I wanted to shake people up and get them out of their comfort zones. the chef does know more than most of us! that's meta-rationality, or humility, one of the fundamental themes of the book: admitting what you don't know.

reason (8:52:06 AM): we'll talk more about the limits of knowledge in just a second. first, explain why you're such a lousy tipper. you counsel your readers not to go above 15 percent.

Cowen (8:52:51 AM): give the money away to somebody who really needs it. send it to Haiti! Any waiter working in the U.S. is doing pretty well in the broad scheme of things.

reason (8:53:55 AM): you write of the limits of applying economics to everything. at one point you even call out a couple of fellow economists for being caricatures of utility-maximizing drones applying supply and demand, etc. to every aspect of human life. where do you draw the line in applying econ principles to human activity?

Cowen (8:55:10 AM): economics—properly understood—applies to human choices quite generally. It even seems to apply to other animals, at least mammals. Gordon Tullock wrote a great book on the economics of insect societies. the problem is when people think that everything boils down to money, or buying and selling. I'm still very influenced by [Ludwig von] Mises's notion of economics as a general "logic of choice." [James] Buchanan and Tullock, my colleagues, have promoted much the same.

reason (8:55:55 AM): you love mises but didn't name your book "the inner praxeologist"…

Cowen (8:56:26 AM): my publisher advised against that idea.

reason (8:56:44 AM): besides buchanan and tullock, the creators of the public choice school of thought, who are your heroes in economic thought?

Cowen (8:57:21 AM): Thomas Schelling is a big one. also Adam Smith and his integration of economics, psychology, and a notion of moral sentiments. Milton Friedman on policy. Hayek. He "got" the dynamic virtues of capitalism better than just about anybody. We've yet to fully absorb those insights. It's a long list.

reason (8:59:28 AM): what's the role of human emotion in understanding economics? i agree that mises was on to something when he referred to humans as "choosers"–that our ability to choose is one basic thing that defines us. but we don't do that rationally. or not just rationally.

we're hardwired to have extreme emotional responses. can economic science deal with that?

Cowen (9:00:49 AM): Human emotion is paramount in life and choice. I think of my book, in part, as "economics for the emotional." I'm very influenced by the French moralists, Schopenhauer, and Adam Smith on this point. That's a neglected strand of Western thought among economists and I'd like to bring it back. Schelling has it in his writings, though perhaps not very self consciously. Thomas Schelling that is, not the German Idealist Schelling.

reason (9:02:19 AM): does the behavioral work of people such as nobel co-laureates vernon smith and daniel kahneman undermine the notion of individualism in the traditional or classical liberal sense? that is, they talk about how certain structures and institutional arrangements will create very predictable behavior in individuals. that suggests that we may think we exercise choice, but we really don't.

Cowen (9:03:07 AM): Smith and Kahneman seem to differ on this. Smith thinks that individual irrationality "washes out" in broader market settings. I've never heard or read Kahneman argue that. oddly Kahneman's scheme leaves more room for individuals to matter, though smith is the libertarian, not he.

reason (9:04:22 AM): among economists under the age of, say 60, (or pick an age), whose work do you most admire?

Cowen (9:05:17 AM): I truly love my George Mason colleagues Bryan Caplan, Robin Hanson, Alex Tabarrok, among others. I am quite taken by Greg Clark's new book, A Farewell to Alms, also. [Freakonomics author] Steven Levitt has been important in a positive way.

reason (9:05:19 AM): how do you mean, with regards to levitt?

Cowen (9:05:56 AM): Freakonomics has both made economics broader, more about real life, and has forced a lot of specialists to think more explicitly about incentives.

reason (9:06:15 AM): do you think the general level of economic literacy is higher now than 30 years ago? if so, will that have an effect on public policy?

Cowen (9:06:59 AM): literacy is much higher, especially among the left where hardly anyone still glorifies socialism. I don't see policy getting better in this country, but it is around the world.

reason (9:07:33 AM): why wouldn't a better general understanding of econ affect policy over the long run? and why is it getting better around the world?

Cowen (9:08:40 AM): the collapse of communism was a huge event, much bigger than we think, and its positive ramifications are just starting to kick in. Americans perceive themselves as doing well, correctly, and they see less need to change. Our big success at markets has made it a lot easier to afford big government as well.

reason (9:09:35 AM): that's a message buried in a new book by your new colleague, john v.c. nye—that britain could afford big government when it levied big taxes for most of the 19th century. talk a little about why george mason has become such an incubator of interesting economics.

Cowen (9:10:12 AM): John is one of the smartest people I know. George Mason consistently hires interesting people and we expect them to be interesting. We provide one of the very best intellectual environments in modern economics academia.

The Mercatus Center [of which Cowen is general director] has been essential to building up what is happening at GMU; it would have been impossible without Mercatus.

reason (9:11:20 AM): who do you think is overrated among your generational peers? what departments or institutions are declining as george mason rises (not that it's a zero-sum game completely).

Cowen (9:12:53 AM): A lot of mid-level schools just don't have anyone interesting to me. Right now Harvard is a clear No. 1, by either mainstream or my personal standards. Overrated, that is a tough question. We are in a world where people don't acquire Arrow, Friedman, or Samuelson-like reputations. The overrated are not a problem, the problem is that the ratings are pretty concentrated in the first place, and maybe don't last that long, as people move into consulting or other endeavors.

reason (9:13:05 AM): names, dammit, give me names!

Cowen (9:13:33 AM): to clarify when I wrote "ratings are pretty concentrated": I mean there are lots of specialists rated highly by their immediate peers and not know to the broader world; that makes it hard for anyone to be overrated. any economist with a downward sloping demand curve, and opportunity cost, is underrated.

reason (9:13:44 AM): is specialization a general development throughout academia—areas of specialization have been getting tighter and tighter?

Cowen (9:14:28 AM): absolutely, academia is ruled by Adam Smith's principle of the division of labor and we don't have enough generalists.

reason (9:14:29 AM): you consider yourself a libertarian, yes?

Cowen (9:14:54 AM): libertarian with a small l, yes.

reason (9:15:16 AM): a tiny, teeny l, half the size of a regular small l. in keeping with the theme of humility, what are the limits of libertarianism as an explanatory system?

Cowen (9:16:10 AM): I'm a pluralist and I don't think any political ideology can explain that much of the world. I think that libertarians need to come to terms with having lost some major battles, probably permanently. there is still room to make the world a much freer place.

reason (9:16:20 AM): what are the battles we've lost probably permanently?

Cowen (9:17:54 AM): I don't, for instance, think we'll ever roll back big government. But we can get rid of many government interventions or make them less intrusive and get all those people out of prison who are sitting there for simply having possessed marijuana, for instance. and we need to stop taxes from rising to European levels. America is a great provider of innovation and global public goods and if that dried up the world would be much, much worse off. we should be making our economy freer, not less free. but the talk of overturning or reversing the entire New Deal and welfare state is, in my view, not going to get us anywhere.

reason (9:18:21 AM): but we can effect "marginal revolutions," as you suggest on your blog, right?

Cowen (9:18:46 AM): "Small steps toward a much better world!"

reason (9:18:42 AM): give a couple of examples of such.

Cowen (9:19:40 AM): We need serious deregulation in health care. We need to rethink many parts of the war on drugs. We need to get long-run government spending under control. Those are a few examples.

reason (9:20:10 AM): do you think libertarian ideas (with a small l and a small i, i suppose) are becoming more widespread and attractive to the public?

Cowen (9:21:29 AM): some are, some aren't. people "feel" more libertarian, for sure. they are more liberal socially, in the good sense. but is the American public ready to tackle its convenient self-deception and face up to the tough issues, and take some policy actions that not everyone will like? I don't think so. People are in a way more comfortably ensconced in the status quo than ever before.

reason (9:22:19 AM): what's next for mr. tyler cowen (i won't add, "ph.d." since you write, "If a book lists 'Ph.D.' after the author's name, be wary….It usually means the author is not used to interacting with peers, is appealing to the gullible, or is making questionable claims")?

Cowen (9:23:23 AM): I'm writing a popular text on economics—a Principles text—with my colleague and co-blogger Alex Tabarrok. And I am starting to think about the book to follow after Discover Your Inner Economist. I have many ideas there, but haven't yet settled on which one. I will soon.

I should add I have an unpublished book manuscript on the foundations of a free society. I will revise that and get back to it, but not right away. I want to think about it for a few more years. The goal of that book is to show the ultimate compatibility between utilitarian and liberty-based thinking. that's a tough thing to do.

reason (9:25:09 AM): i used to write for some rock and heavy metal mags, back before the berlin wall fell (sometimes i think it got smashed because soviet rock was so godawful that the kids in the east bloc couldn't take it any more). we used to end each interview with the query: "message to your fans?" economists are the new rock stars. so: message to your fans?

Cowen (9:26:10 AM): I am "your fan(s)," that is my message to whomever is reading this.

reason (9:28:23 AM): here's a bonus question for garden state readers: i think we've discussed this before, but you're from new jersey. i'm from new jersey. milton friedman was from new jersey. my predecessor at reason (and yours at the new york times, where you write a column every few weeks in the business section), virginia postrel, went to school there. is there something specific about new jersey—the disproportional number of superfund sites?—that turns out libertarians like so many C.H.U.D.s (cannabalistic humanoind underground dwellers)?

Cowen (9:29:35 AM): very intellectual state, in part because of population density, proximity to nyc and philly, and an irreverent sense of humor and dynamic ethos. that's what I think. there are many other names you left out, I don't remember them all but once we compiled a very long list. maybe that would make a good, short reason article!

reason (9:29:50 AM): all short articles are better than long ones, ceteris paribus. thanks very much.