THE KNOWLEDGE PROJECT #39

Tyler Cowen

fs.blog
 Hello and welcome. I’m Shane Parrish and this is another episode of The Knowledge
Project, a show exploring ideas, methods, and mental models that will help you expand
your mind, live deliberately, and master the best of what other people have already
figured out. You can learn more at fs.blog/podcast.

My guest today is economist and New York Times-bestselling author, Tyler Cowen.
His blog, Marginalrevolution.com, is one of the most read economics blogs in the
world, and the one I regularly visit for knowledge and insight. In this conversation,
we talk about how average is over, how technology is helping and hurting us, virtual
tourism, the future of newspapers, how we are becoming more complacent, and so
much more. I hope you enjoy this as much as I did.

***

Shane Parrish: Tyler, I’m so happy to have you on the show. I’m a huge fan of your
work.

Tyler Cowen: I’m a huge fan of your site, so thank you for your interest.

Oh, thank you. I loved your book, Average Is Over. Can you explain what that
phrase means and the implications of it?

Average Is Over is both a book about the present and the future. It refers to a world
where there is a fundamental divide across workers. Is the computer enhancing
your productivity, in which case you’ll do pretty well, or are you competing against
computers and smart software, in which case you’re likely to lose? So I suggest
this is already the case in the world, and more and more it will be the case that you
either acquire those necessary skills and talents or you don’t. This is sometimes
considered a pretty bleak prognosis, but I actually think there will be some positive
features of this world that people don’t realize. So the world will be a lot more
productive because of automation and smart software and this will give us a lot
of consumer goods for free. So we’ll have the super-sharp divide between the rich
and the poor in terms of income, but in terms of actual consumption, the poor
will do better than we might expect. So it’s a kind of mixed pessimistic, optimistic
message on where we’re headed.

Can we geek out on that for a second? Like how do you see that playing out? What
types of jobs are going to lose out? What types of people are going to gain, and
what could we be doing now that would allow us to better position ourselves?

Well, think of old-style manufacturing jobs. You worked in a factory, you didn’t
need a college education. Sometimes you didn’t even need a high school
education. You had to work pretty hard and apply yourself, but those jobs built a
middle class. It was great for America, but that’s mostly a past era. So if you think
of current and future jobs, you need to work with information technology, you need
to work with software. Those technologies, they change all the time.

2 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 So you need to retrain yourself, say, every three to five years, and retraining
yourself is very hard for a lot of people. The skills you need are both a lot of things
you were never taught in college but had to learn on your own anyway, and then
you need to stay current. So the people who have a very strong work ethic, who are
very conscientious, will do extremely well in that new setting, and people who are
good at tech.

The other group of people who will do well are those with wonderful people skills.
So there’s always room for sales, for marketing, for management, including in the
distant future. Computers will not be doing that for us any time soon. I think in
terms of practical advice for a person, you need to ask yourself, like, am I a tech
person? Or am I a sales, marketing, persuasion, manager person? Be one or the
other. If you can be both, you know that’s someone like Mark Zuckerberg, then of
course you’ll do very, very, very well, but for the most part, I think that’s where job
markets are headed.

Do you think the nature of how we sell things will change?

Of course, it’s much harder to get everyone’s attention. Most of all, people who
have high incomes, because there are so many demands on their time. But there’s
your email flow, there’s Twitter, there’s Facebook, there’s being texted, and that’s
just the beginning. You know, virtual reality may be coming. Television is much
better than ever before. So it’s a far more competitive environment. A lot of media
companies of course have lost out, so it rewards people who in some way are
authentic or dedicated or can target a niche and do something really interesting.
You see this on television, like what are the top best shows? They’re not really quite
mainstream products. They’re the reflection of some kind of individual vision of
a director or creator like The Sopranos or The Wire and they have some kind of
cultural currency. You can’t just put slop out there anymore, you know, it’s not 1974.

You’re not just trying to fill the airways with material. What do you think the
implications at the cultural and perhaps country level would be of this?

I’ll handle country level and then ask you what you mean by cultural. I think
countries and also regions within countries, we won’t see so much convergence.
We’ll see a lot of divergence.

3 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 It used to be in America, in the postwar era, America’s poorest cities were
essentially catching up to the wealthier cities, but nowadays, say poorer parts of
Louisiana, Mississippi, they’re not catching up to Silicon Valley. They’re falling
somewhat behind and I think that will be the trend looking forward. You get these
clusters of creativity where people interact, the rents are very high and many
people want to live there. Not everyone can afford to live there and you’ll either be
in one of those clusters or you won’t. So you can call this Regional Average Is Over.
Parts of the world such as Eastern Europe, you know, Poland maybe is catching up
to the West, but most of it is being depopulated and emptying out and it basically
will never catch up. And that’s a harsh awakening. It’s a kind of shock because
economists had predicted, well, if you free up these economies, they’ll converge.
We don’t see that happening.

So tell me a bit more what you mean by cultural.

Well, cultural, I meant if we have more leisure time or we have more time to
explore the arts, how would that change culture and what would the implications
of that be? And also look at, if we were to add to that just one more thing, the
implications perhaps culturally of having city-states almost competing for people
at the wealthy end of resources and people not necessarily having physical access
to those states in the way that they’ve had it before.

I worry about the future of some face-to-face creative interactions. I’m doing
this interview from a hotel room in Manhattan, and Manhattan has become so
expensive. Most artists, writers, they don’t live here anymore unless they’re already
well established. So, well, some of those clusters moved to Brooklyn, but Brooklyn,
the nice parts of it or even the livable parts, they’re now also quite expensive. So
I think there are gains to clustering artistic talent and we’re losing some of those.
Downtown San Francisco, tech aside, I’m not sure artistically it’s such a creative
area, it just costs too much. I think that’s the big loss. The big gain is just how easy
it is to access everything. You mentioned having more time for culture. We do have
somewhat more time, but I think the real gain is we don’t need as much time to get
to culture. If I want to hear a song, I go to Spotify or I go to YouTube, it really just
takes me a few seconds. If I want to watch Netflix streaming, you don’t have to go
out and do culture as much so you can pack more in. In some ways the quality is
lower because there’s less live performance but the information is denser and you
just know about many more things and I think that’s both the present and future of
our cultural lives.

How would you kind of think about the pros and cons of virtual tourism? Like, say,
the difference between putting on a headset and walking around the Vatican and
actually going to the Vatican and experiencing it in a different way?

I’m still a curmudgeon, I have to admit on this, and it could be I just haven’t seen
the product yet. But before I owned a smartphone I thought, well, this is going to
be great. And I got an iPhone on the first day. Virtual reality, I worry it will make
me dizzy and I worry it will substitute for other kinds of experiences.

4 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Also, I’m not looking forward to doing that. I may do it so I can write about it and
think about it and it may turn out it’s really truly wonderful. My current life, I’m
able to spend maybe a quarter to a third of my time on the road and get to a lot of
different places and I’m pretty happy with that but if I’m, you know, ill and stuck in
bed and I’m 81 years old, virtual tourism might be a pretty wonderful thing.

Do you think it stops at tourism or do you think we almost, like if you’re

projecting into the future, do you think we create this virtual world that people
just inhabit that are maybe less productive than other people and that’s their form
of entertainment? I think there was a Disney movie about that, like Wall-E or
something.

Yes. There are quite a few movies in that direction. You know, I think bandwidth
is still a problem. Virtual worlds, to be interesting they have to be pretty thick.
And you know, we’re doing a Skype call but we’re not even having our images
be sent back and forth because that can interrupt or interfere with the quality
of the Skype call. So if just my face creates a problem for Skype over a normal
broadband connection, you have to wonder, well, how far away is a good enough
connection for virtual reality to be cheap enough to use. I don’t have the answer to
that question. Some people say the killer app will be some kind of virtual sex either
with robots or people at a distance. That’s hard for me to judge. I think my intuition
is people like simple, boring things much more than you might imagine. I mean,
people just love spending time on Facebook and sending back and forth short, silly,
or not very informative messages, and that’s been the killer app for so many things.
That’s what’s taken up more of our time. Not like the truly exciting and inspiring.
So I don’t know. I don’t think we know yet. I know so many Americans, you know,
right now they could afford to take an affordable trip, say to Central America and
they don’t even own a passport. So let’s keep that in mind.

I think it was Average Is Over, I sorted the quote because I wanted to read it
back to you, but I forget which book I pulled it out of. You said in today’s global
economy, you know, value will go towards what’s scarce and here’s what’s scarce.
Quality land and natural resources, intellectual property or good ideas about what
should be produced and quality labor with unique skills.

Yes.

Has your thinking on that—

I would stand by those words.

Has it evolved any since you wrote those?

Well, it’s become a lot more extreme. So land prices in top cities including London
and Paris, they’ve kept on going up. The top earners have more and more global
markets to export to.

5 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 You know, I say good for them, but still the old days when if you had a product that
was a big hit, you might sell it to Western Europe and maybe Japan. That’s been
replaced by a global setting where you can sell to billions of people across more
than 100 countries and that really will increase those rewards to the scarce factors.

Do you think that there’s a movement away from national newspapers and more
regional news?

I think there’s a movement away from both. As you know, younger people don’t
read newspapers much anymore. They may read articles from newspapers online,
from say Facebook or possibly Twitter, or email recommendations, but it’s not the
same as reading a newspaper. I don’t think you can fund most papers by ads. I
think they will end up as ventures owned or supported by the very wealthy. New
York Times and Wall Street Journal I think will be profitable. I’m very happy with,
you know, my employer, Bloomberg, I write for Bloomberg View, but newspapers as
we knew them, I think, are mostly already gone or about to disappear.

What do you think will replace them—or do you think nothing will replace them?

I wouldn’t quite say nothing. I think our daily flow is replacing them and the daily
flow again has some pieces from newspapers. There’ll be a lot of local reporting
on blogs or blog-like entities and if you want to find it, it will be there. So if you
uncover a scandal about some local official, the world will find out. I’m reasonably
optimistic about this, but I don’t see why you should bundle it all together. Like
the classified ads, the sports page, the local news, the international news, like who
really wants that as their bundle? When you think about it, it was always crazy and
I now thank goodness we’ve moved away from it into something more efficient
for the user. I don’t want that bundle. Do I want bite-size books bundled together,
unless it’s like a five-volume set, five different books? No, I pick and choose the
books I want. News is the same way. It’s only natural.

You also wrote a book called The Complacent Class, which kind of highlights that
there re a lot of changes going on which get a lot of attention, but a reaction to
those changes is sort of neglected. Can you expand on what these changes are and
how our, you know, seemingly well-intentioned decisions today may not have the
desired effects?

Well, the key idea behind The Complacent Class is that Americans have become
quite risk-averse. They move around the country at much lower rates. They’re
much more paranoid about how they raise their children. They medicate
themselves at higher rates. Our economy has less churn, it’s less dynamic by many
different measures. Rates of productivity growth have been down outside of the
tech sector, so a lot of these decisions to settle in and be safe and comfortable,
they’re individually rational. Like, it’s good to be safe, right? Stress is a bad thing.
But when our society collectively makes this decision, there are ways in which
we’re all worse off because we live in a much less dynamic country.

6 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Our rate of economic growth is slower, it’s harder to afford the federal budget.
We end up with a screwy politics. Those are the basic themes of The Complacent
Class.

And we become more segregated too?

If you mean racially segregated, cities are more racially segregated, suburbs are
not. So that’s a mixed story, but many parts of the country are becoming more
racially segregated in a manner that I find discouraging.

It strikes me as odd that the pace of change perceptually at least has picked up. I
mean, I don’t know what it was like to live in the 1900s or before. We’ve become
resistant, more resistant to change despite the acceleration. Can you expand on
that?

Well, I don’t think it has accelerated. Think of my grandmother who was born,
you know, very early in the 20th century. Most people didn’t finish high school.
There were no antibiotics, you know, there really weren’t vaccines. People didn’t
have cars. Radio hadn’t been invented. Flying was not something people did—and
you can go on and on and on with the list. Then fast forward 50 years later when
she’s 50, in the 1950s. Every one of those things is completely different and what
America looks like physically is not that different from the America we have now.
So every area, everything has changed for her.

Now I’m 56 years old. If I think of my life now compared to when I was a kid, you
know, age five, computers are like one huge change, but a lot of the rest, you know,
I live in a house that’s from 50 years ago. I cook in a quite old kitchen. It’s not a
problem. I don’t feel I’m really missing out on anything. My car is safer and better
than cars 50 years ago, but it still looks like a car. Someone from back then could
drive one of today’s cars. Someone from today could drive a car back then without
even needing any new advice or instructions. So a lot of the world, in this country,
change has slowed down.

Do you think that’s in part because there’s a lot to be happy about?

There’s a lot to be happy about. We exhausted a lot of the low-hanging fruit from
combining fossil fuels with powerful machines and electricity and communications
and that’s all to the better, but we’ve now entered a world where people find it
hard to imagine a future very different from the present. When people talk about
progress, they mean something like gentrification, more nice restaurants, you
know, a somewhat higher level of safety. If you read science fiction from the
postwar era, people imagine these radically different futures, often utopian. Today’s
science fiction tends to be dystopian.

7 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 And at an individual level, I mean, these seem to make sense, but as you broaden
your horizons to communities and countries perhaps, what do you foresee as the
implications?

Well, if you go to China, China is very much a non-complacent society. It has much
higher rates of economic growth, in the range of six to eight percent. It’s more
volatile. It’s more stressful. It’s much harder to live in China. There’s a much higher
level of air pollution. So all things considered on any given you would prefer to
live in a complacent society, but that said, a country cannot remain complacent
forever and I argue that eventually, you know, something has to give. You need a
way to pay the bills, you need dynamism again, and you start seeing disruptions in
your complacent life. And I think already in American politics we’re seeing some
of these disruptions. Things we thought just couldn’t happen coming to pass, the
Trump phenomenon obviously. So complacency is wonderful when you can keep it
forever, but that’s never really an option, not for the United States.

What are some of those other things that you see coming to pass that would
indicate that there are cracks?

Well, the loss of Pax Americana on the global scene, I think, is the number one
issue. So we now live in a G-Zero world. America cannot dictate world affairs.
Our attempt to redo Iraq totally failed, turned out to be a huge mistake, and other
countries, you know, will do what they want, say, you know, in Syria, Iran or Russia.
And they won’t pay much heed to us. So again, on any given day, this may not seem
so terrible, but as our influence slowly erodes, I think we’ll find decades from now
that it could be really quite disastrous.

Do you think that becomes the natural kind of seesaw of life where, you know, we
start to lose our positioning, which creates an urgency which kind of revives us,
and then—is this a natural or is this like a different sort of cycle?

I think it’s a natural process, but that process of revival can be very volatile, very
painful, very disruptive. If you look at American history as a whole, we have
somewhat of a nasty history. We have these decades, the 80s and 90s where we
had so many victories and triumphs and things felt so nice. Crime rates fell,
internationally communism, more or less went away and we’re used to those
decades, but they’re not a historical norm. Maybe in some ways we’re going back
to the America of the late 19th century with polarized politics, screwy media, you
know, in some ways, higher levels of violence and more dynamism too. Like I said,
I would personally rather live in the more complacent society, but I also realize that
cannot last.

One of the other things you said in that book was we’re removing ourselves
increasingly from the physical world. Not only through Amazon and being able to
stay at home and have our laundry done and we don’t have to go out, but I think
you alluded to some implications on physical buildings. Can you expand on that?

8 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Well, we’ve more or less stopped building infrastructure. In New York City,
significant parts of the subway lines date from the 1930s or 40s, like the signaling
systems. They’re still in use. It’s great that they still work. It’s a testament to the
creativity of our ancestors, but that’s a sign we’re letting the physical world decay,
and bridges and roads we’re not really maintaining or building enough of the new
ones. The idea that people prefer to live in homes from say the 1920s or 30s or the
1950s than homes built now. You know, no one prefers, say, a telephone from that
earlier era. So when it comes to building and reshaping our space, we’ve somewhat
given up or in some ways even gone backwards. Getting around takes longer
than it used to, this traffic congestion. We haven’t really addressed that problem
anywhere in this country. It’s basically just getting worse, and I think that those are
signs of a kind of inner sickness to some parts of the American psyche.

Do you think that those problems should be addressed by governments or—like,

take the car and traffic problem. Is that something that solves itself because we
know in the next 20 years there’s a high probability of self driving cars coming on
the scene and we can assume reasonably that that will alleviate some of the traffic
problem? Maybe not fix the roads, but is that problem worth solving now or what
would you have people—how would you think about that differently?

Well, I would have government price the roads during rush hour or in some places
such as Manhattan, maybe price them almost all the time. One encouraging sign
is outside of Washington, Route 66 into Virginia, they’re now charging tolls and at
rush hour the toll can be as high as $30 or $40. That sounds terrible, but without the
toll you couldn’t really use the road at all. It was just a big parking lot. London has
applied a congestion charge going into the central city. It has worked. Singapore
has congestion charges for its roads. They have worked. In this country we need
to do the same thing. Self-driving cars could make the problem worse, you know,
because you’ll send out your car or your vehicle on all kinds of errands. Oh, go to
Whole Foods and pick me up some smoked salmon, I’m hungry—and there may be
fewer people on the roads, but the people that are there could be in much slower
traffic. And it’s so hard to get new roads built. There’s environmental review, there’s
homeowners groups. It’s very, very difficult in a lot of parts of the United States.

How can we prepare as individuals or what should we be taking into account in

terms of this type of future playing out? What should we be doing?

Well, I think the future belongs to people who are what I call meta-rational. That is,
people who realize their own limitations. So not all the skills that you think are so
valuable actually will matter in the future. Don’t just feel good about yourself, but
think critically, what am I actually good at that will complement emerging sectors
and emerging technologies. The world of the future, even the present will be a
world of algorithms. Artificial intelligence will tell you what to buy and how to buy
it and at what price.

9 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 People who think they can beat the algorithms will make a lot more mistakes.
So know when you should defer. It’s easier than ever before to get advice from
other people, including on podcasts, right? Or, you know, go to Yelp. When can
you trust the advice of others? Having good judgment there is becoming more
important than just being the smartest person or having the highest IQ. So a kind
of epistemic modesty, I think, is showing much higher returns than it used to.

How, in your opinion, do we develop good judgment?

I think having people you trust who serve as your mentors, and I mean that word
in a very general way, who teach you things about different areas and teach you
judgment. That supplemented by extreme and intense online experimentation.
That’s the way to do it.

What do you mean by online experimentation?

Read Wikipedia. Use Google creatively, listen to your favorite podcasts, read your
favorite blogs, Twitter, put time into having a wonderful Twitter feed, whatever it’s
going to be. It is worth investing time in. And do a lot of it, because today is the
golden age for that. For the first time in world history, there’s this new thing like
internet culture, the internet way of learning, internet modes of writing. Right now
is to that as, say, the 1780s were to classical music, so enjoy it. It’s incredible. Online
education as we have it is one of the world’s greatest achievements ever and we’ve
put almost all of it in place in say 15 years. Incredibly rapid transformation, so do
that, but you cannot neglect face-to-face learning from other human beings who
can guide you, inspire you, motivate you, steer you. It’s really people who can
combine those two things who will do well.

How do we collect the feedback for ourselves to realize our own limitations?
Like—there’s two problems with that. One is getting accurate feedback, and the
second is kind of moving out of the way of our ego and allowing ourselves to see it.
How can we be better at that?

Well, I think there’s more feedback today than ever before. So many jobs, your
performance is measured or can be measured in a way that wasn’t true 20 or 30
years ago. You know, if you’re a programmer, it’s not that hard to figure out how
good you are. You know, there’s Github and you can post what you’ve done and the
world will want to hire you or they won’t. So a lot of it’s psychological. How can you
accept the feedback because you know, none of us are actually that great and life
is an experience of being humbled all the time. You’re either discouraged or you’re
reenergized by that, and I think learning how to reenergize yourself—you can
always go online and see someone who’s smarter or better looking or who can lift
more weights in the gym than you can, whatever the metric is.

Unless you’re Magnus Carlsen and his chess, there’s someone better than you.
When knowledge and peer groups were more local in earlier periods of time, that
wasn’t usually the case.

10 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 So attitudinally adapting to never being the best, I think is, you know, a new
tough challenge brought to us by the internet but I see many people up to it. It
can be reenergizing. It’s exciting how much new stuff there is to learn. So be more
internally motivated, like, I want to become something, I aspire to something. Be
less like, oh, you know, I’m the best at this, I’m the best at that because you’re not.

As a parent, how did you foster that in your kids?

We have one daughter, she is now 28 and she’s doing great. I don’t really claim
credit for her, that goes to her.

But as a parent you shaped the environment and you do have some influence. I
mean, was there anything that you consciously were doing in terms of building
resistance and tenacity and internal motivation?

Other than the platitudes, here’s what I recommend. Expose your child in 10 years
to as many of your friends who might be possible role models as possible. Like, at
some margin, they’re just not going to listen to you anymore. They’re not going
to watch your behavior anymore. They know what you’re about. They’ve taken
from that what they’re going to. Have them meet and spend time with some of
your quality friends. Show them new role models. That’s what I tell people. Your
influence is limited, for better or for worse.

I like that. Do you think that we’re becoming more specialized in this kind of
mental, rational world, the world of algorithms?

Most people are, but I think there’s a countervailing tendency. So, we have more
managers. Managers, almost by definition, are generalists. So as more people
become more specialized, there’s a separate class will become more synthetic
and less generalized and more almost like philosophers. The manager is like
a philosopher. They need to understand the human condition, what motivates
people, which people can work well together, which cannot. Those are very general
forms of knowledge.

I think Charlie Munger said something last year at the Daily Journal meeting
that struck with me on this. He said that most people would be better served by
hyperspecializing with 80 to 90% of their time and then using the rest of that time
to become a generalist in sort of the big ideas of the world. To what extent would
you agree or disagree with that?

I mean maybe most people, but you know it’s person by person and for some
people it should be 50–50. Certainly at the higher levels I think generalists are
important. If you look at CEOs several decades ago, most CEOs were people hired
from within that sector and now a CEO is much more often hired across sectors. So
someone who, you know, worked for an oil company would then be hired to runa
manufacturing firm.

11 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 So that’s showing some kinds of knowledge are actually more general.

To what extent do those skills transfer successfully?

Well, the market has rendered the judgment that they transfer more and more, and
American companies are pretty well managed. If you think, well, insiders have
some kind of natural advantage in having, you know, an inside track, if companies
are more willing to hire these outsiders, I think that’s a clear sign that executive
knowledge is becoming more general in nature, more global, more a set of skills
about communicating, understanding how politics, global economy, internal
management all tie together. Those are somewhat general skills. You do need to
understand something about your sector too, though.

Let’s switch gears a little bit and talk about a subject I’ve been wanting to talk to
you about for years, which is reading. You used to read a few important books—
you called them, I think, quake books—and now you read many more books.
Almost a disposable-like. Why the change?

When you’re young it’s quite easy to read books that will shake everything you
know, and those are the quake books. So for me, you know, a quake book was
reading a Friedrich A. Hayek, a quake book was reading the early science fiction I
read in my life. A quake book was reading John Stuart Mill’s autobiography. And
because your worldview is not as formed, books have incredible influence over
you. Then as you get older, say, you know, by the time you hit 40, I don’t mean
that you never change your mind about things, you’re changing your mind all the
time, but it’s very hard for something to have the impact. Say like the first time you
heard Beethoven or the first time you picked up Shakespeare, it’s just not possible
anymore. So you read more history books, you read more biographies, you read
more for particular facts, you read for a kind of entry into cultural anthropology of
different places or different industrial sectors and what reading is changes. And
books do in a way become more disposable. Like, the books I still own are, you
know, Homer, Shakespeare, some basic works of economics, and I’m not ever going
to give up those books, but they’re not necessarily the books I’m reading now. I do
reread them sometimes.

Do you reread anything you’ve read in the last five years?

Shakespeare I reread pretty frequently. That’s probably what I reread the most,
but any classic work I’m likely to reread over the course of say a 10-year period.
So James Joyce’s Portrait of the Artist as a Young Man, I’m going to reread soon. I
probably haven’t read it for 20 years, I would guess.

What are your rules for reading? I mean, do you read cover to cover? After you
pick up a book, what’s your process like?

12 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Classics I read cover to cover, almost by definition of a classic. Most books I don’t
finish, very good books I finish. Maybe one book in 10, I’ll finish. But I don’t mean
that as any slight to the books. You’ve always got to think, well, you know, chapter
seven in this book, is it better than starting a new book altogether? So much of
my reading now is shaped by my reading for my own podcast series to interview
guests. I just interviewed Matt Levine of Bloomberg and he writes on law and
finance, but when he was an undergraduate he was a classics major. So I reread
quite a bit of Horace, the Roman essayist and poet, to try to get into the mind
of Matt Levine. So that more than anything now drives my reading—reading to
understand other people I’m interviewing.

So with a typical nonfiction book, are you reading introductions straight through?
Are you flipping around or—

I flip around. You know, I start the opening 20, 30 pages just to see, should I read
this book at all? More than half of all books I get don’t pass that test. Then there’s
plenty of books I’ll read, you know, maybe half of and be quite happy with them but
still want to read something else. Then, you know, a really good book like the new
Charles C. Mann book, The Wizard and the Prophets, about history of debates over
the environment—I read all of that. That kept my interest the whole way through.
There’s certainly still plenty of books like that.

Do you read mostly in Kindle or physical books?

I don’t like Kindle. Sometimes when I travel I need to use it. I can manage with
Kindle. I find it hard with Kindle to, like, turn back. And I also remember things
better when I think, physically what is their place in the book. Maybe that’s silly,
but I think, oh, that was like early in the book and I see where it is in my mind in
the book and I remember it, and I can’t do that with Kindle.

I have the same thing. It’s really weird. I can remember, oh, I think it’s like this
part of the page, you know, between 70 and 80, but I can’t do that at all with the
Kindle for some reason. That’s a really strange—do you write in the books?

No, what I sometimes do is fold over pages where there’s something notable. That’s
if I own the book, not a library book. And then maybe I’ll go back to it, but usually I
don’t. Just the act of folding over the page helps me remember it. Like I found that
notable, I’m telling myself, and then it sticks with me better and then I’ll, you know,
give the book away or throw it out.

A while ago—

Be careful about giving books away. If you give the book away, the danger is a
person will read it just because it’s a gift. Unless you think it’s the book they should
be reading, it’s actually a slightly cruel act to give someone a book.

13 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 I’ve had that happen before where I’ve given people books and they’ve taken
messages out of it. Like I was trying to send them a subtle message that I was
never intending to give.

Oh, you think I’m this neurotic character? Well, I’m sorry.

Yeah, that’s exactly what happens, and it takes a while for it to come out and it’s
like, hey, what happened?

So giving books away, you know, it’s overrated, I think. I also get a lot of review
copies because I blog, I cover a lot of books. A typical day I could, you know—five
to 10 books could come in the mail and, you know, I need some way of dealing with
those, and some I do give away. Then there are people, I know them well enough,
they trust me, they know my giving them the book signals nothing and that’s just
like a beautiful relationship.

I usually take those advance copies, preview copies, review copies, and chuck
them in the lending library right by my house. Which probably has, you know, it
has more books coming out before they’re actually out, people must love being
around there. One thing that you said a while ago was that you read fairly quickly,
and you said to read quickly, you should read a lot. What did you mean by that?

I read nonfiction very quickly. I don’t read fiction very quickly. Maybe I read it a
little quicker than most people. The more you’ve read, the more you know what’s
coming in the books you’re reading, so the easier and quicker it is to read them.
So, like, if I read a book now, you know, I’m 56 years old, I started reading when
I was three. If someone asks me, well how long did it take you to read that book,
the correct answer is 53 years. It doesn’t matter what the book is. You’re bringing
to bear your last 53 years of reading on the book, and most of your reading, you’re
understanding results from your prior investment. So that’s the way to read well,
is—you know, stick around on this earth and keep on reading. That’s by far the best
advice I think. Keep at it, stay alive.

I like that. What would you say is the way to think well?

I don’t know anyone who thinks well.

I think you wrote a piece a while ago, or I seem to remember this, which is the
work required to have an opinion. I think you alluded to writing an article from
the point of view of someone else.

Yes. There’s a basic dilemma from what’s called Bayesian statistical theory. Why
should you ever hold an independent opinion? Like, on almost any matter, maybe
any matter, there’s someone out there who knows more about it than you do. So you
should in a sense just find other people’s opinions to copy, but then how do you
judge who’s the person who knows the most or understands it the best?

14 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 There’s a paradox in that because if you don’t know the right answer, it’s hard to
judge who is the best judge. So one implication is we should just be far less sure
about a lot of our opinions, but also this point—I referred to it earlier—the wisdom
in knowing how and when to defer is like the key wisdom of 2018, of our time, and
this is under-publicized.

What do you mean? The wisdom to knowing how to defer or when to defer?

Well, you can Google to such a high percentage of the world’s information, and
again, this is pretty new. So when you know how to judge the quality of something
on the internet—it’s sometimes said, you know, the internet makes smart people
smarter and stupid people stupider. So it’s back to Average Is Over, like, which
category do you want to be in? Be epistemically modest, but also be a critical
reader and just having a general knowledge of how to evaluate sources. Getting
back to being generalist versus specialist—if you’re going to be a generalist, one
of the best things to be a generalist in is evaluating the quality of sources in your
Twitter feed, online, everywhere. That is so important and it’s skyrocketing in
significance. Most people, they’re not getting that much better at it.

How do you think about that? How can we improve our ability to judge?

I think again, it’s this triangulation with really good face-to-face, people you trust
and who know something, and then intense use of the internet to crosscheck and
investigate things and just kind of bounce back and forth and do that around and
around in a circle as much as you can, as quickly as you can, and you get better.
Don’t think you know it all. You know, if something offends you, don’t assume it’s
wrong, I would also recommend. I’m not saying it’s right, but if you dismiss it, you
won’t learn from it. So try to be able to learn from almost everything.

So when you read something that disagrees with your thoughts or opinions, how
do you process that information?

I try to be happier about it. It’s not always possible. We’re all imperfect creatures,
but I would say a lot of times I succeed. Overall, I’m more interested in reading
books I disagree with than books I agree with. A lot of books I agree with, they
could be quite good, but they tend to bore me and that’s one thing about myself
I feel good about. Books I agree with tend to bore me. I view that as some kind of
like minor, tiny victory I’ve achieved in life.

I think that’s a pretty big victory. Do you have a mental state before you read the
book? As in, like, this is my position? And then after a book you maybe disagree
with, and view how your position has changed.

I don’t know. I think I’m more blasé than that. Like, there’s a pile of books on the
floor, and probably my wife thinks the pile is too large, but if I put them away I’ll
forget where they are.

15 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 So I want the pile to be smaller, and I’m more focused on very mundane things
than like the grand ideological struggle of our time, whatever. You know, to focus
more on the mundane things maybe is also helpful for reading the books, because
you don’t get too caught up in being offended or like, oh, I’ve heard this person
isn’t—like, doesn’t know this or that and I can dismiss them. This is an intellectual
move which I call devalue-and-dismiss and you know—try not to do devalue-and-
dismiss. You learn much less. And it’s always justified, right? Again, unless it’s
Magnus Carlsen playing chess or maybe a computer program playing chess, you
can always devalue and dismiss. Oh, that person, he didn’t, you know, understand
this event 10 years ago. You know, he or she doesn’t know very much. Always
possible. Don’t do it.

Are we doing that to discredit them or relatively position ourself better?

I think both, but mostly the latter. People want to feel good about themselves. They
want a kind of easy path to virtue, to truth, to feeling in control. We love to feel
somewhat in control.

Speaking of your wife, I think in one of your books you brought up fighting with
your spouse over a bed or something, and I think the context was you like the bed
10% better and so you fight about it and you win and you’re a bit happier, but it
costs you a lot because your spouse is unhappier. Can you expand on how we can
think about this and how we should bring that to our own relationships?

Well, this gets back to epistemic modesty and not just with your spouse, your
children, your friends, but—you know, in fights, both people can’t be right all the
time. On average, maybe you’re right half the time. I would say on average you’re
right less than half the time because there are so many fights where both sides are
wrong. So trying to be right or establishing being right or proving being right is
usually a mistake. Most of the time you’re wrong, and it’s hard to keep that in mind
if you have a disagreement or fight in the workplace, but it’s true. Most of the time
you’re wrong in this fight and if you can carry just like 10% of that realization and
internalize a bit of it emotionally, I think you can do a little bit better. No one can
really truly believe that. Like, we all actually think we’re right, but you can sneak a
little bit of it into your consciousness.

I used to witness a similar phenomenon when I worked for the government, which
was people would come in and they would have to present project plans and they
would present these plans and the person would have 100% conviction because it
would be their plan. And then the people around the room would try to add value
to that plan and they would inevitably say the plan was 90% complete and now
it’s 95% complete.But the end result was actually worse because the motivation of
the person who brought that plan had gone from 100% to 50% because it was no
longer their plan.

16 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Yes. Morale is increasingly important in our world. This idea of reenergizing
yourself in the face of setbacks—I think it influenced me a lot that I was a chess
player very early in life because you learn pretty quickly in chess. Like, you don’t
really have excuses for losing and most of the time you’re making the wrong move.
Maybe your moves are better than your opponent, but you go back, you study your
game. Most of your moves are in fact wrong compared to the perfect moves, and
I sort of learned that when I was 12 and that’s always stuck with me. So that was
formative.

What age did you start playing chess?

Ten, and I quit by about 16, but for about five of those years I played very intensely
and in competitive tournaments and put in a lot of time, and it’s one of the biggest
things that has shaped how I think.

How has that shaped how you think?

This idea again, that most chess moves are mistakes, even if they’re made by
very good players. The idea that you can’t blame other people for your own
problems, even though some of your problems maybe are their fault. You need
to face up to your own imperfections as a player and try to work on them, and
that habit is rewarded. And chess is brutal. You talked about measuring your own
results or talent, and chess has this thing—a numerical rating, an Elo rating, and
it really does measure how well you’re doing, remarkably exactly. You wake up
in the morning and you know where you stand in the pecking order and you can
either be discouraged by that or reenergized, and for as long as I was playing, I
was reenergized. At some point, I guess I wasn’t reenergized anymore and it just
seemed to me like economics and other social sciences were more interesting than
chess, but then I tried to transfer some of my learning techniques from chess to
those other areas.

What were your learning techniques? How did you go about learning chess?

There was a book written by Alexander Kotov called How to Think Like a
Grandmaster and it argued, like, just reading chess books maybe had some use, but
the really useful thing to do is to try to analyze a game and write out your analysis,
and then compare that to a really good analysis by a top grandmaster, so you could
see how rotten yours was. And it suggested you needed to get used to that process
emotionally and the people who did that would improve. In intellectual fears,
there’s the same thing. You want to really figure out what are your mistakes, you’re
like most of the time not making the best chess move intellectually speaking, and
if you face up to that, you’ll improve. If not, at some point, you will ossify, and you
can play devalue-and-dismiss. And there will be people stupider than you or more
wrong than you and you can lord it over them and try to make a career out of that,
but again, at some point you’re going to stop improving.

17 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Another way to think about is the value of compound interest, I refer to it as the
value of compound learning. Like, just keep on learning, let the years pile up in
your favor. Learn x percent a year, it will compound and stay alive on this earth and
maybe you’ll get somewhere.

And part of that learning process is putting yourself out there to opening yourself
up to either criticism or other people making your work better.

Sure, and just learning from them. Like what have they done that has made them,
you know, successful or smart or talented.

I think the internet has opened so many doors in that respect.

Absolutely.

Would you change the education system to include chess for all students or how
would you go about changing the education system?

Garry Kasparov has a foundation devoted to spreading more chess education

throughout the world. I think that’s a very worthy project. I wouldn’t want to
make it mandatory for everyone or in all countries, but I think we should have
much more of it. I mean the good thing we’re living in a world where there are
more games and a lot of gamification and that’s mostly a positive development. It
doesn’t necessarily have to be chess. Maybe some games, they’re addictive in bad
ways, that it’s somehow the virtual world of the game that pulls you in rather than
the intellectual parts of the game, but the internet gives you a lot more access to
gaming and that’s a big positive too.

I have to ask you a different question. Changing gears a little bit here and then
I want to get to some of the other questions before we go, but why do you only
watch one TV show at a time?

Sometimes it’s zero and occasionally it’s two. Just time. I would like to watch more
TV. The shows The Americans and Westworld are right now the two that we watch
and if neither is running, we’re not watching anything. If both are at the same time,
we watch both. I love The Sopranos. I’m a big fan of Curb Your Enthusiasm. Most
TV shows bore me. I think movies are actually much better than TV. TV now is a
bit overrated and movies underrated, but a great TV show is a wonderful thing. You
can do it in short bits. Do it at home and you look forward to it all the time.

What would be your equivalent of, lik,e quake movies or movies that you
absolutely love?

Bergman movies from Sweden, you know, starting in the late 50s, but his entire
career, all of those for me were quake movies. Star Wars—I saw the premiere on
opening night. I guess that was 1977.

18 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 I had never seen anything like that. I knew, you know, in the first few minutes, like
I’m a fan of this for life, even though I don’t like the recent one so much.

What don’t you like about the recent ones?

I think they’re okay, but of course they’re Disneyfied, both literally and figuratively.
They feel less serious. There’s so much repetition of themes. The idea of suspense
about the story is drained away. And maybe story suspense is just hard to pull off
in 2018 with social media, but like, when I saw Empire Strikes Back, the second
installment—which I guess now is called Part Five—and when Darth says, “Luke,
I am your father,” everyone watching it was shocked. This was an incredible
moment. I don’t think we can do that anymore. Like, what could they tell you now
in installment number, you know, 19 when it comes along that really can have any
kind of equivalent meaning? Like, oh, I’m the third cousin of Darth Sidious, you
know, who would care?

And how do you prevent those spoilers, if you were to create them in the cinema,
from reaching you?

I don’t know how to do that other than by being walled off, which I cannot manage,
but I think if you watch a lot more foreign films, they rely less on that kind of
revelation. And now is a wonderful time to watch films from South Korea or Iran
or Latin America, all sorts of places. Hollywood is in a bit of a dry spell. Too many
tentpole franchises, too many superhero movies. Black Panther, though, I’m very
excited about. I loved the preview. I will see it right away. I expect to like it very,
very much.

I’m excited about that one too. One of the questions we got on Twitter was what
do you think are the long-term implications of interest rates being near zero? So
anybody who’s basically under 40 at this point has never experienced interest
rates above, I don’t know, five or six percent in their lifetime.

It’s much harder for millennials to save, and I fear they will have impoverished
retirements, especially since the fiscal budget on the federal side is problematic as
well. I think those rates staying so low is a sign that there’s all this wealth out there
in the world, Russia, China, but not really that many safe places to put it. So they
bought US government securities, which is perfectly understandable, but it lowers
our rates for reasons which are somewhat artificial and I don’t know that that’s
going to change soon. The real remedy would be for China, Russia, Argentina, to
become truly safe, predictable countries. That seems to me somewhat far away.

And so how does that change in terms of a democracy? If you have a large voting
bloc of people who maybe don’t save, and view the social system as being a safety
net now, like how do you foresee that playing out over the next 20, 30 years?

19 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 Well, you become more dependent on foreign capital. The nation is in some
regards mortgaging it’s future. People expect things from governments that
government cannot always deliver upon, and I think it’s a very precarious situation.
We have become very, dare I say, complacent about this state of affairs.

What’s your take on minimum wage increases and the implication on not only the
people receiving them, but in terms of the broader economy in general, and do
they have an effect? What is that effect?

Minimum wage increases put people out of work. Sometimes it’s a small number
of people. Sometimes it’s a large number of people. But I think jobs are very
important and I would look for different ways to raise wages, which we do need to
do.

What would—

Productivity.

Productivity would be the way. It seems to—

Productivity is cumulative. A minimum wage increase is not. It’s one off, you
know. Ultimately it will be chipped away by inflation or other factors. You need
something cumulative. It gets back to the power of compound interest, compound
learning. If I look at a policy, I just ask, does this policy really involve compound
learning of some kind and if it doesn’t, like, it still might be good, but I’m probably
not going to be that enthusiastic.

Do you think minimum wage increases improved the quality overall of the people
receiving them or is it just net neutral and then there’s a smaller labor pool?

No, I think when people get a minimum wage increase, they probably work harder
and they’re somewhat more conscientious and that is an argument in favor of the
policy. I don’t think it makes up for the lost jobs, but I do think there are some
positive effects. If they have a criminal record, they may be less likely to end up in
prison, say.

I guess that presumes that there, and I don’t know the answer to this, so I’m really
asking like does it actually benefit or does it work out as a wash? Like because
minimum wage goes up so you get a higher wage and then you start paying more
for all of your goods because like do you end up ahead?

Oh, a little bit but not as much as it looks. So if you raise minimum wages, say that
raises food prices. There’s good evidence for this. And other poor people have to
pay more for their food and a lot of those apparent first round gains get given back
and they dissipate. So that too is another reason not to be super enthusiastic about
boosting minimum wages.

20 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 What advice would you give to somebody under 40 who’s never been rewarded for
saving?

I don’t know. I mean, can I say don’t listen to me as the advice? I think the people
who save well have methods and systems almost like a religion. You know, our
daughter—there was recently, a week ago, a Marketplace article about her and her
husband and how much they saved and I was very, very proud to see that, and their
method is to treat it like fixed rules, almost like a religion.

I think that that’s really good advice. What I tell people is usually live off your first
job and then if you can be happy living off that wage than anything else, you can
bank and you’ll live a long life and if you do your 20s right, you’re set up for life.

And especially with the internet, there’s so much free fun. Like, what do you need
to spend all that money for anyway? You know, I’m at a point in life, I have a
reasonably high income, but I don’t buy a nice car. My car is a piece of crud, you
know? That’s fine. It drives, it gets me there. It doesn’t break down.

Where do you think money will go for returns in the future? Is it going to be the
same classes that we’ve had before, which is fixed income, equity and maybe
property, or do you think that that changes to somewhere different?

I think private equity is a wave of the future already in the present. They take over
firms and improve how they’re managed. There’s so much low-hanging fruit for
improving management that ordinary investors cannot easily get in on, private
equity real estate, but in select areas, areas that a lot of people already can’t afford
to buy into. So I think this is a big problem. How do you save? Where do you put
your wealth? It’s one reason why there’s so much interest in Bitcoin, which I would
not recommend for that, but it’s a sign there aren’t too many other good options for
a lot of people out there.

Do you own any Bitcoin?

No, I do not. Obviously that was one of the many, many mistakes I’ve made. Just
like all those mistake in chess moves.

Well, have you looked into Bitcoin? What do you think of the idea of a currency
that is non-government-regulated?

Well, I don’t think it’s a bubble. I think it serves some useful functions. I don’t view
it as a currency. It’s not convenient to spend. It’s a store of value, a bit like gold or
maybe a work of fine art, part of the portfolio or protection against risk. I think it’s
a perfectly legitimate asset that will endure and have a high value. I’m not sure its
value is going to go up any at this point, but it’s for real and it’s not a bubble.

21 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 And do you differentiate that from the blockchain? Do you know much about the
blockchain? I don’t—like, what would be the implications about blockchains that
you foresee?

The blockchain is a way of organizing information where you can verify and
confirm things without needing a boss. I don’t think we’ve found killer apps for the
blockchain yet other than Bitcoin, and we’ve had blockchain for 10 years. Could we
use it to register property titles? Maybe, but the other methods we have actually
don’t seem that bad, at least if your quality of government is good enough. So I
would say the blockchain is actually more improvement than Bitcoin at this point.

Like the transaction costs seem high, if I’m understanding this correctly in terms
of the energy costs to verify the work.

Yeah, you know, just people understanding the system. So at any institution you
have to ask, do people need to understand this to use it? Sometimes the answer
is yes, sometimes the answer is no, but I think with blockchain, like at least some
critical mass of people have to understand it and that understanding is hard to
come by. Lawyers cannot easily understand blockchain unless they specialize in
it. Most economists I know don’t understand blockchain. So I think there are still
quite a few hurdles before it’s some kind of proven innovation.

This transcript is intended for single FS Learning Community Members and not
intended for distribution. If you would like to distribute these in your organization
please contact shane@farnamstreetblog.com. For individual memberships, please
refer friends and colleagues to join at fs.blog/membership/

22 FS.BLOG | © 2018 FARNAM STREET MEDIA INC.

 FS.BLOG
@FARNAMSTREET