Why is Garett Jones willing to write books about risky topics like the case for reducing democratic accountability? Is it the iconoclastic Mason econ culture? Supportive colleagues like Tyler? Those help, but what ultimately gives Garett peace of mind is that he’ll never have to go hungry because he has a broad and deep knowledge of econometric tools. It’s a skillset he recommends to all research economists precisely so they can take bigger risks in their careers — or at least be well-prepared to shape policy in an unelected position at a central bank.
Garett joined Tyler to discuss his book 10% Less Democracy, including why America shouldn’t be run by bondholders, what single reform would most effectively achieve more limited democracy, how markets shape cognitive skills, the three important P’s of the repeated prisoner’s dilemma, why French cuisine is still underrated, Buchanan vs. Tullock, Larry David vs. Seinfeld, the biggest mistake in Twitter macroeconomics, the biggest challenges facing the Mormon church, what studying to be a sommelier taught him about economics, the Garett Jones vision of America, and more.
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Read the full transcript
TYLER COWEN: Hello, I’m here today with my friend and colleague, Garett Jones. Garett has a new book coming out called 10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less. And Garett, of course, being my colleague, is right here at George Mason University. Garett, welcome.
GARETT JONES: Thanks for having me.
COWEN: As usual, the opening question comes completely from left field. Let’s say we had a government that was just strictly run by its bondholders. What would the biases in that arrangement be? And how good or bad would it be at solving which problems?
JONES: Well, one problem is that they would care just about the profitability of the government and not the productivity of the economy. It’s easy to imagine great horrors happening in exactly that situation.
If the bondholders are running the government, then they’re going to only care about the gap between government revenues and government costs. In some parts of the economy, that would probably lead to them imposing things like slavery, massive restrictions of personal freedoms — not caring whether the poorest and least productive die at high rates. That would be the definite downside.
The upside, which is much smaller, I want to emphasize, would be that the government would actually care about . . . When you care about paying your bills on time, you care about having a good, solid revenue stream that comes in reliably and dependably. You would get governments operating much more like firms, except firms that don’t have to compete very much against other firms.
COWEN: Do IMF programs for countries, on average, help them or harm them?
JONES: I think, on average, they help them.
COWEN: But that’s a bit like having your government run by a bondholder, right?
JONES: It’s a bit like having the bondholders be a check on the voters rather than being a 100 percent alternative to voters. That’s really the difference here. Bondholders can be a good check on government, just as voters can be a good check on the abuses of government itself. But giving them monopoly powers is far too much for any of the kind of governance systems we care about.
COWEN: How about a government just run by the landholders — would that lead to an optimum outcome?
JONES: Again, you get the same problem, which is that if it’s completely ruled by them, those who are weakest in the bargaining situation might just get wiped out completely. That’s the real concern — 100 percent voice to any one group is a bad path. Something more like a stakeholder theory — the state where there’s a lot of people who have a voice — that gets us better results.
COWEN: But if you look, say, at the cities that have more or less maximized land value — Manhattan, maybe San Francisco, Dubai city-state, Singapore city-state, London — they seem really extremely well run.
JONES: Exactly, yes. But part of that is that they face some kind of global competition. Cities face huge competition for labor. And the extremely valuable freedom to leave means that a city can’t get rich by just telling its most productive workers, “You’re not allowed to go anywhere. You have to stay here.”
COWEN: You argue in your book that not every county should elect its dog catcher, so to speak.
COWEN: To cite one example of many, what do you think are the conditions where voters are likely to have better judgments than experts?
JONES: The most natural cases are cases where there’s an academic indoctrination that’s completely opposed to reality.
COWEN: Isn’t that more and more the case these days?
JONES: [laughs] I think we can see it happening now because of what’s happening all around us. But in earlier times, there’s always been some kind of illusion that the elites have foisted upon them and that the masses just roll their eyes at. In the early 20th century, it might have been communism, which was the opiate of the intellectuals for quite a few decades.
COWEN: But American elites didn’t fall for communism. The academic ones did.
COWEN: But true American elites were pretty centrist.
JONES: Absolutely, yeah.
COWEN: Should we elect prosecutors?
JONES: No, I think not.
COWEN: Why not?
JONES: Because the short-run incentives — it’s those campaign ads where the person brags about how many people they convicted. “Here’s some scary faces on TV, and let me show you how I convicted these people.” That’s the kind of emotional . . . That’s triggering that short-run hyperbolic discounting, impulsive thinking that the behavioral economists have warned us about. And that ends up having, I think, far too much influence.
COWEN: In the United States, other than the implied supermajority rules already in place through checks and balances, are there policy choices where we should impose new supermajority rules, like a two-thirds vote in the Senate or the House?
JONES: Yeah, I think that, in a way, the balanced budget amendments that have been proposed in my lifetime have always been equivalent to that. They weren’t saying that you could never run a deficit at any point in time. They were saying if you wanted to run a deficit, you had to pass some special resolution and get it passed through a two-thirds or three-fourths majority. I think that’s a classic example of something that would be very wise.
COWEN: But those seemed completely irrelevant, right? Deficits have just ballooned, and those constraints seem not to matter. Finland has a two-thirds rule, I think, for tax increases. They have very high taxes. Isn’t it just ultimately about culture and the will of the voters? Public opinion seeps through the system, no matter what constraints you put on the voting system within the government?
JONES: Yeah, that’s the best comeback to all of this, right? That the voters ultimately have sovereign power in anything that’s even sort of like a democracy. So any of these rules we impose are second order compared to who your voters actually are. But it does appear that across the US states, balanced budget amendments seem to work. The will of the voters can’t be held back. It’s basically one dike that can hold back the tide just a little bit.
COWEN: It’s sometimes argued that proportional representation [PR] systems — they give elites more power because after the election, there’s a second or third round of bargaining to establish the coalition. Are the systems, in your view, better than parliamentary systems such as we find in the UK or used to find in New Zealand?
JONES: This is something I thought about a lot when writing the book. I was wondering whether I should have a chapter on PR versus “first past the post,” and it ultimately becomes very difficult to decide which of those is more democratic. PR feels more democratic to the citizens, so they probably have higher levels of voter engagement in the political process, and that counts for something. So that’s a plus that makes PR sound more democratic.
But you’re right, the ex post coalition formation makes it act less democratic, and I never found a way to solve that. And since I wanted to stick to topics in my book where I could be clear on what was more democratic, what was less democratic, I just set that to the side.
COWEN: But let’s say it’s the early 1990s. Eastern European countries are suddenly becoming free, and they ask you, “Garett, what electoral system should we have?” What do you say?
JONES: What I really would go for is presidential systems, if you can handle it, something like a first-past-the-post system, where those people elected from local districts focused on local problems — which have less of a free-rider problem involved — go up to the parliament and actually argue their case. The presidential element is less important than the parliamentary idea of the single-district voting. I tend to think that creates more accountability on the part of the government.
COWEN: A presidential system does.
JONES: Well, I think the first-past-the-post element as opposed to PR.
JONES: Let me go back to that. First past the post — the kind of systems you see in the UK and even the US — they create a kind of personal responsibility for the individual politician, or personal accountability, and it reduces the free-rider problem.
It reduces the ability to say, “Oh, that wasn’t my fault; that was somebody else’s fault.” Having something that is a bit more like the organization of a modern corporation where you can say, “This is the person in charge, and if something went wrong, I take this person to task for this.” That’s really what you want, and proportional-representation coalition governments make that much harder to occur.
COWEN: But in your framework, where the voters can be poorly informed or irrational, isn’t more accountability arguably a bad thing? A place like Singapore, which is quite well run, whatever flaws it may have, has relatively little accountability, in part due to gerrymandering. So why wouldn’t you want the system with less accountability at the margin?
JONES: I think that even the insiders have a tough time figuring out what’s going on and who’s responsible, and for that reason, having clear patterns of accountability, say, within . . . If corporations want clear lines of accountability so that the people inside can assess the value being created by the 100 or 200 people there, monitoring on a regular basis, then modern democracies of any type must face that problem to a much greater degree. So that’s why I think that the idea of some line of responsibility, some line of who’s in charge is crucial.
COWEN: Is trial by jury a good idea?
JONES: Yes. This is something I, again, thought about. I tend to think that trial by jury balances the ignorance of the typical person who might go in. Juries are intentionally made ignorant about the case that they’re supposed to be evaluating. It seems to balance that weakness against the big benefit of individual responsibility. There’s a small number of people making this decision. And I think that the incentive for becoming informed is a greater benefit than the cost of having people who are quite uninformed on the particular topic.
COWEN: Are there mechanisms of accountability for politicians which do not rely so heavily on voters? And why don’t we do much more of that?
JONES: Oh, that’s good question. You’re right. An old classic example of this would be — well, now classic — is something like New Zealand’s contract for its central banker —
JONES: — where if the central bank fails to meet its inflation target, the head of central bank gets fired. Part of the reason we don’t do that is that the kind of punishments that they’re willing to give out aren’t that great, aren’t very extreme. I think it’s a little bit of a puzzle that we don’t have the equivalent of real performance bonuses based on fairly objective measures for things like this.
COWEN: Do you think other people underrate small, open economies? Because they’re very accountable to global markets, right?
JONES: Oh, yes.
COWEN: That’s not a voter-driven phenomenon. So in your view, they should do better than, maybe, most people are expecting?
JONES: Yes, exactly. I think this has been proven since the global financial crisis. The small, open economies learned their lesson in the 1997 Asian financial crisis. They made their banking systems far more robust. They made their regulatory systems more effective. They increased their capital requirements.
COWEN: But you have Iceland, Ireland — they totally blow up in the later financial crisis, the 2008 one.
JONES: True, but those were richer countries. The middle-income countries, the ones who were actually hit by the Asian financial crisis — they learned their lesson and they stuck with it. If the message is that people can only learn from something that happened to their own country in the last 20 or 30 years, that’s a lesson itself, but that’s far more than most people learn in their whole lives.
COWEN: A long-standing debate from professional sports — should we let the fans elect the all-star teams?
JONES: [laughs] Obviously, this is a great lesson in democracy right there. All-star teams tend to have good players, but all-star games are low stakes. So it’s a little bit hard to evaluate all-star games as versions of that actual sport, for one thing. So you can’t evaluate that too much. But coaches get paid a lot for a reason. That ability to assemble the right team is a scarce resource, and it’s very difficult to pull off. It’s very hard for outsiders to know when teams work well.
COWEN: The old Athenian system, representation by lot — choose members of the legislature more or less randomly. Or the Venetian system has a random element in it, the old Renaissance Venetian system. Good idea or a bad idea? When can it work?
JONES: These systems seem to work in small polities. Small government seems to work well with a version of election by lot. And we use versions of election by lot in trials. You’re basically selected randomly to be on a trial as a juror. And many judges are assigned to cases relatively randomly, although those are people who already preselected.
COWEN: But at the margin, should we do more of it? We could choose a departmental chairperson by lot, right?
JONES: Yes, you’re right. We could choose —
COWEN: The bridge club could use it?
JONES: No, I tend to think that when it comes to management skills, which is what a lot of these governance-type jobs are about, that’s where we really want some level of expertise, skill at that particular management trait.
Where juries are good is where selecting people randomly from the populace is most valuable, when we’re trying to figure out the opinion of the populace, and we want people to carefully think about an issue. We should be selecting from the populace at random when we really want the most informed opinion of a typical person. That aligns the incentives well.
COWEN: For the United States, what is the most effective way, in your view, that you would want us to have 10 percent less democracy? What’s the one thing you would change?
JONES: I would change the House of Representatives to a six-year term. I picked that because it’s not outside the range of plausibility, and because I think people would instantly understand what it accomplishes — not because it has the highest payoff, but because it balances payoff with plausibility in a democracy.
COWEN: And you would still have them elected all together at the same time, or you would stagger it?
JONES: No, I think the staggering which was built in by the Founding Fathers of the US was brilliant, and it’s all the more important in our modern age of social media, where social media waves can come and go so quickly. Balanced, staggering elections means that no one period of time has a dominant effect on how the next six years of our country turns out.
COWEN: Do you think it would raise or lower the influence of money and politics?
JONES: I think it would plausibly raise it a bit because being less accountable to voters, to that short-run mania of voter demands, would probably give a touch more vote, touch more influence to political investors. When one election has a six-year payoff, you’re willing to invest more than one that has a two-year payoff.
COWEN: Let’s say you can make one effective change to the governance of the European Union. What’s your pick?
JONES: That’s a much tougher one. Yeah.
COWEN: Because they have more than 10 percent less democracy than they used to, right?
JONES: Yeah, yeah. I think I would probably strengthen the jurisdiction of the EU’s top court. I’ll get its name wrong right now because there’s so many of these European courts, but I’d strengthen their jurisdiction to be able to dive into the local political systems of the countries they’re overseeing, make it just a little bit more like a national government.
COWEN: If someone said we should replace the European Council with a true executive, a single person who would be highly visible and evaluated as such, and that might make the EU more accountable to voters or public opinion, do you agree or disagree?
JONES: I absolutely agree with that, whether it’s voted on by the masses or selected by the EU Council in some way. The EU keeps moving toward that. You can tell they’re groping toward something like this. But they can’t quite pull it off because they have so many little heads between the European Commission, the European Parliament, and the EU Council. But yeah, you’re right. They want more accountability so that there is a clear voice and there’s someone they can hold responsible for success and failure.
COWEN: But do they want more accountability? Isn’t there the risk that with an executive, you can then have a highly visible direct clash with national governments, and maybe the whole thing falls apart? And the whole point of the European Council system is to make it vague and amorphous and not so transparent, so you can always kick the can down the road and pretend you agree when you don’t, and that’s what keeps the whole thing held together.
JONES: Well, this is the question right now. If they’re getting rid of the squeakiest wheel through Brexit, then that strengthens the case for having a tighter government among the remaining members.
COWEN: Scott Sumner says, “Ask Garett about Switzerland, the world’s most democratic nation by far.”
JONES: This is a great question. People have brought this up to me over the years. Switzerland is incredibly democratic, and it’s incredibly functional. It’s hard to tell — is it just that the Swiss are different? Is that just a Swiss national culture that can’t be captured as lightning in a bottle? Or is it something as simple as the fact that so much of their direct democracy is held at the local, decentralized canton level? Sometimes even lower levels, quite the equivalent of villages level. So, to the extent that it’s at that very low level, that’s sounding a lot like the Athenian system, and the Athenian system of democracy — direct democracy working okay in groups of five to 20,000 — might be plausible. But that’s not the level we’re working with. And Switzerland is not running its national government through direct plebiscites in that way.
COWEN: What about extreme federalism for more places? Is that a good idea? It is logically possible.
JONES: No, I tend to think that it’s not incredibly desirable for the kind of reasons Glen Weyl points out, that basically, there’s a lot of increasing returns in the world, and you want to be able to have feasible routine government negotiations at the highest level, where increasing returns are mattering.
It’s totally plausible to have more federalism, but outside of the problems . . . We even see this in problems of big cities, where metropolitan statistical areas much better capture the scope of positive and negative externalities. That’s where the bargaining should be happening, but yet we have the city governments that are much smaller often.
I tend to think that increasing returns are driving a lot of the successes and failures around the world, positive and negative externalities of human interactions, so you want to have the broadest scope possible. You want to have your equivalent of a parliament with the broadest scope of negotiation because parliaments are a great Coasean negotiation forum.
COWEN: It seems that more decisions, in the US at least, are being made at the city level — minimum wage hikes, climate change policy. Apart from whatever you think of those particular decisions, are you, in general, unhappy about more decisions being made at the city level?
JONES: No, I love it because it creates more natural experiments for economists to study.
COWEN: But that seems at variance with what you just said about wanting the externalities internalized and increasing returns being so important.
JONES: I mean that ironically, of course, because it’s like they’re creating these natural experiments at the very local level, which creates a lot of information. That’s beautiful in its way, but a lot of these are things that are not that promising. Economists aren’t ever going to be that excited about massive minimum wage hikes, doubling the minimum wage in the normal range of variation for most countries we’ve seen.
COWEN: Here’s a reader question, and I quote, “Are there any examples of people willingly giving up some of their power to elites? There’s lots of systems of indirect democracy, but I can’t think of any that evolved to that point for more democratic systems.”
JONES: Oh, no, we’ve been shrinking democracy across a lot of the rich countries. The biggest example is, since the 1970s, the rise of independent central banking, politicians handing over more and more power to people like me, to economists, to macroeconomists, especially those trained in money and time series. And they just let people, people I went to grad school with — these folks just kind of run the central banking system. That’s a voluntary ceding of massive financial power to people who are quite unelected, have long terms, and are essentially impossible to fire.
COWEN: If we just think of government as a check on the very worst outcomes in the way that I think Karl Popper suggested — just get rid of the worst people, the very worst decisions; don’t expect too much from the actual decision-making capacity — does that then make democracy look better, and we want more democracy? Whereas, if you think of government as a calculating mechanism, well, of course, you want the elites. But if it’s just about throwing out the worst cases, doesn’t democracy then make a comeback?
JONES: That’s why chapter one of my book is entitled “The Big Benefits of a Small Dose of Democracy.” Avoiding the very worst outcomes is the least we can hope for from governance, and it turns out that democracies are great at eliminating the very worst outcomes. Democracies — regardless of how measured — even a moderate dose of democracy is associated with no famines, and negligible numbers of massacres of a country’s own citizens, and probably starting fewer wars.
Hard to get from correlation to causation — that’s why I have a chapter on it — but it does seem as though a moderate level of democracy gets us the chance to avoid the greatest tragedies that have occurred in modern governance.
COWEN: Dominic Cummings, as you probably know, recently wrote a blog post saying that in the United Kingdom, for their reforms, they want a lot of super smart weirdos who know a lot of math, maybe can do some programming, to change things and shake up the civil service. Does that idea make sense? Or is it going to destroy itself?
JONES: As a general rule for all the civil service, it destroys itself. But as the idea of a sort of Skunk Works that, if kept in a box for two to three years, could generate great ideas that can be pushed into the right sectors of a government — that seems quite plausible.
My guess is that in any of the rich democracies now, there’s probably 5 to 15 percent of the government where there’s just enough of a culture that’s open to radical reform, and it probably takes a year or two to figure out where those sections of the government are. The right weirdos could come in and re-engineer that, pretty much like any kind of corporate reorganization.
COWEN: If you could be a benevolent dictator of any country or region on earth, where could you have the greatest 50-year impact? They do what you say.
JONES: They do what I say?
COWEN: And you get 10 years in charge, and then you leave.
JONES: Yeah, yeah, yeah. I would like to think that it would be Rwanda. Paul Kagame has made quite a number of reforms. Other economic, political, social leaders across sub-Saharan Africa have paid a lot of attention. There are, of course, real weaknesses in what’s been going on there, as well.
It could be the case that he just doesn’t need my advice. He’s really just following the Lee Kuan Yew path to the best of his ability. But I think the idea of having a populace that’s basically open to moderate levels of reform and leaders who are open to some degree of technocratic governance while making life great for the masses — that’s something that could happen there.
COWEN: Why has political polarization in America gone up, if indeed it has?
JONES: Some of it is the rise of social media. It is sort of the federalism of the internet. And part of it is the rise in ethnic diversity across the US. There’s a reason why we use the term ethnic conflict when studying a lot of wars across history. And at a much lower level, people often disagree with each other when they come from different cultural backgrounds —
COWEN: It seems like the worst shouting is rich white elites at each other, right?
JONES: That’s true, but that’s partly because the rich white elites are acting as the self-appointed representatives of other individuals and groups in society. I think there’s that feedback between those two.
COWEN: But since they’re not actually representing those other groups, wouldn’t these squabbles have happened anyway? And if one group of the wealthy white elites claims to be speaking for the L-A-T-I-N-X people — well, maybe that’s absurd, but that’s a kind of excuse, and they would fight about something else.
JONES: No, I think it’s easier to have arguments when people can credibly point to some substance. In debates over political issues, each side tends to pay some kind of respect to the raw existence of the other side’s issues. So, if there is no existence of the issue, if you’re talking about folks who are 0.003 percent of the population, then it’s much harder to create a broad social movement, worrying about that problem.
COWEN: You once said on Twitter that one of the books that influenced you most was Gary Miller’s Managerial Dilemmas: The Political Economy of Hierarchy. What did you learn from that book? Why is it important?
JONES: Oh, it’s great because it applies classic public choice to the questions of corporations, or any of the organization of the firm. One early insight is that Arrow’s impossibility theorem applies to any kind of decision within a firm. If you have three top managers who are trying to decide the strategy of the company, and they disagree slightly on where the company should be taken — wow, that can lead to classic preference cycling, a classic Condorcet paradox.
Corporations can face the same difficulties of making rational decisions whether it’s because of the problems of voting, the problems of paying people their marginal product when real life is a team effort . . .
Ultimately, Gary Miller says, “The only thing that can solve this problem is to realize that firm culture is basically an equilibrium to a repeated prisoner’s dilemma, a long-run cooperation game.”
Once he pointed out, in sort of the climax of the book, that long-run cooperation focusing on some kind of cultural norm and infusing that throughout the system was crucial to firm success, and that failed firms will be those often that failed to coordinate on a good equilibrium, I decided that was central to seeing not just how firms work, but how societies work as a whole.
COWEN: Let’s try some questions related to your first book, Hive Mind. Here’s a reader question: “The term hive mind is often thought of as a science fiction term, first used in 1950 in a short story, “The Second Night of Summer” by James Schmidt, about alien intelligences. In the Cold War era this was frightening. And of course, there’s the Borg from Star Trek: Next Generation. Do you think the term hive mind is now fully thought of as a good term, rather than a concept that strikes fear?”
JONES: Yeah, it’s a great question. I have to say, the Wall Street Journal very kindly wrote an entire article about that. The heart of the article was how I picked the title of my book, and it was about this very theme. The hive mind used to be a negative idea, but now people routinely, on social media at least, treat it as a positive idea.
The idea that we can grab ideas from a lot of other people, and synthesize those ideas, and get — to use the business cliché — synergy, where the whole is greater than the sum of its parts — this is something that people can see on a regular basis now, in a way that was much more theoretical 50 years, 75 years ago. I think the idea of a hive mind or collective intelligence still has the scary downside, and it should. But the positive upside is way too visible for people to ignore.
COWEN: In the 1970s, Irish IQ measured as lower than British IQ, and people worried about this as a problem. These days, Irish IQ measures as higher. What should we learn or infer from this development?
JONES: Yeah, something similar happened in East Germany after the end of communism, where there was this 10-ish point IQ gain within about a decade, decade and a half of the collapse of communism. I think it’s a sign that substantial amounts of national or regional intelligence, cognitive skills, are really shaped by the culture that we’re marinating in. This is part of my hive mind ideas. I take the Flynn effect very seriously.
What Flynn and Dickens pointed out in their famous paper, and what Flynn has emphasized in his own work — the IQ researcher who’s a philosopher by training — is that when our environment changes . . . Most of us get to choose our own environment as adults. But some of us have our environments as adults forced upon us through, basically, the culture, society we’re living in, and that has a huge effect on how we use our minds. I think that really does show up in substantive intelligence, not just some sort of nominal intelligence.
COWEN: But what’s the key environmental lever? Whatever Ireland did, it’s not that people were starving, right? That we understand.
JONES: No, true.
COWEN: So why don’t we do more of whatever they did, whatever was done to the East Germans, everywhere?
COWEN: But what is that lever? Why don’t we know?
JONES: I would say that thing is the thing we call capitalism.
COWEN: Capitalism is a big, huge thing. Not all of capitalism makes us smarter.
JONES: Yeah, that’s the thing — figuring out which things within capitalism — what is it about living in a free society with competitive markets where, at least in our youth and middle age, we feel a need to sell ourselves as valuable creators. There’s something about that that probably is what’s most valuable for boosting cognitive skills. It’s a sort of demand-side desire to try to use our minds in socially productive ways. And I think in communism, we can —
COWEN: So marketing makes us smarter?
JONES: That’s what I would say, yeah.
JONES: I think there’s some version of this. There is a push-pull element, too. When you’re in a network of people who are trying to do that for you, you end up trying hard to decipher their signals as well. When other people are trying to present themselves as, “Oh, look, I’m a cognitively sophisticated person. I’m trotting out these ideas,” you’re trying to process their signals so you can fit into their world. So there’s a synergy here. It’s not just a one-way story.
COWEN: One of the key themes of your book is that the social returns to intelligence and groups are much higher than the private returns.
COWEN: If that’s the case, why don’t we see increasing returns in the economic data almost everywhere?
JONES: It’s because it works essentially like a level effect, not like some sort of increasing returns to scale. My rough estimate from my early work was that one IQ point raises your private marginal product about 1 percent, but it raises your society’s marginal product in the long run with about 6 percent, so that’s a level effect. I wouldn’t expect to see some sort of massive agglomeration showing up in the wealth-creation process.
COWEN: But firms are larger than before, at least in the US. Cities are larger. Our population is growing. We’re better at sorting talent. So why doesn’t the economic data look like what Paul Romer expected in 1990, where there are literally increasing returns to scale, growth rates go up, you see increasing returns almost everywhere? It seems we do in a few super firms and a handful of cities, but otherwise not.
JONES: I think the answer to why Paul Romer’s world didn’t turn out to be true comes from his coauthor, Chad Jones. Chad Jones’s semi-endogenous growth theory basically says, “Yeah, yeah, yeah, it’s great to have a lot of people, more people searching for ideas. But there’s diminishing returns to the idea research process, just like there are diminishing returns to capital.”
And once you add in diminishing ideas to the search return processes, once you grab the low-hanging fruit, it’s more expensive to grab the harder ideas to invent. Then you get back to something that’s a lot like the solo growth model, where the world’s level of growth and new ideas ends up becoming kind of a constant, a constant value.
There might be some shifts in the relative level. But ultimately, because new ideas are pretty hard to find — new, valuable ideas — you end up right back at whatever the long-run number is. Maybe that’s 2 percent, maybe that’s 1 percent.
COWEN: In your view, why are smarter groups of people more cooperative, on average?
JONES: I think, partly, it’s for reasons that come out of Axelrod. So Axelrod’s Evolution of Cooperation really had a huge influence on how I think about the hive mind. The three traits that turned out to be especially crucial are what I call the three Ps of the repeated prisoner’s dilemma, the RPD. It turns out that intelligent people are more patient, they are more pleasant, and they are more perceptive.
In order to get good cooperation in groups, it helps to have people who are focused on the long run, who are willing to take a little risk today in order to get back some return to their cooperation in the future, so they need to be more patient.
They need to be more pleasant. They need to be more willing to start off cooperating, to take a chance on cooperation early in the game. It turns out, experiments showed that they, in fact, do that on average. And they need to be more perceptive. They need to keep track of the fact that they’re playing a game and that there are payoffs happening. Remembering the history of a game — and life is a game in many ways — is important to generating cooperation.
So smarter people tend to have all three traits in greater degree: more patient, more perceptive, more pleasant. And those three Ps of the repeated prisoner’s dilemma are crucial for group cooperation.
COWEN: In some studies, the personality psychology trait called conscientiousness doesn’t seem to predict cooperation at all. Why is that? How do you make sense of that result?
JONES: I think, partly, it’s because it’s none of the three Ps of the RPD. But to go beyond that to real substance, it’s that cooperation is pretty dangerous. A person who’s conscientious in trying to make sure that they’re watching out for their themselves or their loved ones should be a bit reluctant to just jump into a pro-social, pro-cooperation relationship because a lot of people get ripped off.
So a prudent person who isn’t able to tell whether you’re dealing with someone who’s trustworthy, should best respond in an untrustworthy way. If I don’t know whether I’m surrounded by scoundrels or saints, it’s probably a little safer to assume that I’m surrounded by scoundrels. And a person who is conscientious will be more likely to just notice that fact.
COWEN: When I tell smart people, including bosses and venture capitalists, how relatively weak is the correlation between individual IQ and wages, typically they’re surprised. You may have found the same.
COWEN: Does that mean that we as a society, the elites are overrating intelligence?
JONES: It does. If what you’re saying is true —
COWEN: Hire stupider people?
JONES: Yeah, yeah. I think the correlation is just high enough for you to keep it on your radar, but it’s just low enough that you should always do the job interview and not just hire on the SAT score.
Especially, the link between IQ and income is weaker when you just look at IQ and wages. A lot of the numbers that people look at are often looking at the link between IQ and total income for people in late middle age. And by that time, a lot of people, at least in the sample, have some nonwage income, some financial flows coming in. And that’s driven by intelligence as well, to some degree. Smarter people seem to be paid better in the stock market, for instance.
So yeah, when you look at the link between IQ and wages, the market just isn’t paying all that much for it. The boss will pay something for it, but there seems to be a lot of other things that are worth more.
I think part of this is that the way jobs are constructed is that jobs are constructed to be, in many ways, foolproof, so that a person can’t screw it up that much. So being the very smartest person in a particular job category might not make you that much more productive than being the worst person in that job category, but that’s partly because that job category was created so people couldn’t screw it up that much.
COWEN: Let’s say I do interviews, and I’ve decided I will weight intelligence less. What should I weight more instead?
JONES: I think an ability to adapt to what the group needs at any point in time because I tend to think a version of openness —
COWEN: Social flexibility.
JONES: Social flexibility, yeah.
COWEN: Women tend to have more of that in some studies, right?
JONES: I believe that, yeah.
COWEN: So if we viewed intelligence properly, we would actually want to hire more women than is currently the case?
JONES: Yeah, I think so. I think the idea of social flexibility, openness to new experience — and that latter is correlated with IQ, weakly but positively — those are traits for nonroutine jobs especially, which probably we’re thinking about here. For nonroutine jobs, whether manual or mental, openness is a trait that’s going to be more valuable.
COWEN: Are you game for some overrated versus underrated?
JONES: Yes, as long as we’re clear about who it is overrated or underrated compared to. What is the standard?
COWEN: Sure, but you can make that clear.
JONES: Yeah, I will make that clear.
COWEN: Okay, the Harry Potter novels — overrated or underrated?
JONES: [laughs] I have not read any of them, but I tend to believe they’re overrated. I tend to think that they’re —
COWEN: You must, if you haven’t read them, right?
JONES: Yeah, exactly.
JONES: Underrated because I think people can do great things in retirement and keep using their mind and their body and developing them in great ways.
COWEN: Manhattan — overrated or underrated?
JONES: Oh, still underrated. It’s just a wonderful place. Yeah, there’s so many individual universes inside of there, and even outsiders who’ve been there quite a lot don’t get to explore it enough. It has many communities, and it has an underratedly high level of social capital.
COWEN: Nathaniel Hawthorne.
JONES: Cannot comment. Too ignorant to speak.
COWEN: The original Star Wars movies. The first three.
JONES: Yeah, yeah, I know what you mean.
COWEN: Four through six.
JONES: I think they’re appropriately rated. People have the right rank order — that episodes four and five really did interesting new things and took big risks. In a way, they updated old ideas for the 21st century, and repurposing the best ideas in a substantive way is very helpful. Perhaps that’s what the Harry Potter novels did.
COWEN: Mm-hmm. What is the most underrated cuisine?
JONES: I still think that the regional varieties across France are not sufficiently appreciated in other rich countries. It often gets boiled down to a few clichés.
COWEN: And that’s because they’re not exported, or people have bad taste? Or what’s the underlying mechanism?
JONES: Yeah, I think people have bad taste. It gets boiled down to the cliché versions of it that they’ve seen, the potted history versions of it. So, yeah.
COWEN: And which are the most underrated wines?
JONES: I tend to think that regional Italian wines are still wildly underrated. There are so many people doing excellent things in Sicily, in the northwest of Italy, in the Piedmont, with the second- and third-tier grapes that there’s just a lot of great things going on.
COWEN: Lennon or McCartney?
JONES: McCartney. I don’t know enough of the history to assess well, but my impression is that McCartney has a reputation for being the guy who just did this schmaltzy love-song stuff. But my limited understanding is that he really had a lot of the biggest, weirdest ideas. His link with Lennon was real, but . . . He was bringing the weird, but he was presenting himself as the schmaltzy guy.
JONES: Oh, that’s so hard. I’d say Buchanan because he . . . Tullock had more weird ideas. Buchanan took the time to do something that I personally am not that skilled at and not that interested in, which is building an intellectual empire, building an organization and a culture that shares those ideas. And that’s really how you get important ideas into an ecosystem, by taking the time to build an organization, to build a culture, to work with people, and Buchanan did that. That gave him a power that Tullock couldn’t quite have.
COWEN: Napa or Sonoma?
JONES: Sonoma, only because of the ones that I’ve appreciated from there most recently, where I think the land prices aren’t quite so high. It works a little bit more like what you think about restaurants, where you’re going to find the best restaurants in strip malls because that’s where the most innovation can occur. Similarly, in Sonoma, there’s enough inexpensive land that people can still take big risks. Nobody’s taking a risk in Napa anymore.
COWEN: Seinfeld or Larry David?
JONES: Larry David because he can take the sort of Buchanan-style experience and legacy of an organization, and he can play with it. He can spend that reputation on toying with these ideas in ways you couldn’t in a big corporate sitcom.
COWEN: Who’s your favorite American painter?
JONES: Let me see. I’m going to go with Grant Wood right now. I got to see American Gothic just a couple of days ago. And it really did say something about America that few would have, I think, the nerve to say, in a lot of ways.
COWEN: Macroeconomics — why is Thomas Sargent your hero?
JONES: Because he marries the best of time-series thinking with the best of dynamic general equilibrium thinking. He’s willing to make the tough choices that it takes to marry data with theory. He doesn’t just go off into la la land of pure theory, and he doesn’t just take an agnostic approach to theory that some of the time-series people do. That’s a tough synthesis, and he dove into that for quite a few decades.
COWEN: Why do Sargent and Prescott, at least to me, seem to have lost influence with younger economists?
JONES: It’s because of the rise of micro data, the rise of big data, the lack of interest in finding grand synthetic stories. That’s what I keep running into in the last, say, 10 years, is that we’re in a world in macro now where people have some sort of vague overall story that they’re willing to use.
But it’s essentially a new Keynesian story, which is a way of saying, “Oh, there’s some nominal stuff out there. There’s some real stuff. We really don’t know what’s happening.” And we’re in a world — it’s a lot like the ’60s in macro where people are studying micro foundations, but they’re not synthesizing them into a macro story.
Sargent and Prescott were both wedded to big macro stories that could explain the whole world. That’s part of what drew me into social science in the first place, was the fact that I want to be around people who take micro and build it up to a macro story. They tried hard to do that. With the rise of big data and the rise of little stories, that has faded.
COWEN: Models of nominal wage stickiness — how convincing do you find them as an explanation of sustained unemployment?
JONES: Not of sustained unemployment at all. I tend to think that the most recent work . . . The new John Bates Clark Medal winner, Nakamura — I saw her speak just a couple days ago. When you look at the research that she’s done on nominal wage stickiness and trying to plug it into real models — sure, she definitely finds real evidence that there’s genuine nominal price stickiness, and other workers find nominal wage stickiness.
These things can’t explain 10 years of unemployment. The invisible hand is more powerful than wage stickiness in the long run.
COWEN: So what’s the missing factor for explaining unemployment over sustained periods of time?
JONES: Well, some of it is some version of technology shocks, where people find it very expensive in real terms to move out of certain sectors of the economy, whether there’s a regional stickiness to live in a certain area because of family ties, for instance, whether it’s generous unemployment benefits, which are certainly well worth justifying on their own right because starvation as a motivation to work isn’t great.
These real side factors, like social safety nets, real costs of adjustment, shocks that can cripple a person’s human capital for a decade or more — I think these are more important for explaining that kind of long-run stuff. Sargent and Ljungqvist’s work on the “European Unemployment Dilemma,” I think, captures some of that.
COWEN: What’s the biggest mistake found in Twitter macroeconomics?
JONES: Just people looking for simple answers. You see this more than I do, of people saying, “Wow, we should just have a lot more nominal expansion, and we could have eliminated unemployment a long time ago.” I think this belief that more spending early on in the Great Recession could have obviously had a huge multiplier effect seems wrong. The folk versions of Larry Summers’s secular stagnation theory and even Summers’s secular stagnation theory itself. These are really under-evidenced theories. It’s not that they’re under-theorized — that’s its own problem — but they’re under-evidenced.
COWEN: Given that fiscal deficits are so high, why don’t we see more crowding out? Or do you think we do?
JONES: Partly, it’s because we have a global economy, and a lot of people are willing to invest in the US. Financial markets are a lot more open than they were 40 years ago, so one nation’s deficit shouldn’t have nearly as much of an effect. But yeah, I do think that some degree of crowding out is happening. If we had macroeconomic budget balance in the US, maybe a third of that would show up in higher investment.
COWEN: I know it’s hard to get there. But do you think ideally, we should have budget balance now?
JONES: Yeah, this is the kind of time you should be doing it, right?
COWEN: How useful is it to have this liquid safe asset known as Treasury securities, which perform many functions? Collateral, for instance. Don’t you want a deficit of some percent of GDP if you’re the United States?
JONES: Well, we have a huge stock of these Treasury assets out there, and that stock would still be there if we were running budget balance right now. That’s worth keeping in mind. There’s a huge stock there. But it’s also totally easy for the Treasury to create bonds and just use that money to invest in something — to pick a popular example, a sovereign wealth fund.
But yeah, the fiscal capacity . . . the US government is a superpower. The high credit rating of the United States is a superpower, and that gives firms and organizations, individuals, the ability to make credible promises to each other. That’s super valuable, but we’ve got a big stock of assets out there.
COWEN: Germany’s close to budget balance by some metrics. Shouldn’t they be borrowing more? They can borrow at very low rates, sometimes negative nominal.
JONES: Yeah, that’s a good question. They face the problem of a lot of the rich countries, which is this demographic decline, and they have a lot of elderly who are going to be coming along. Those future fiscal problems are going to be haunting the rich countries for the next 30 years.
It seems as though the story that we were teaching as macroeconomists 20 years ago, and that I was learning 30 years ago as an undergrad, are true today, which is that we needed to get ready financially for the baby boomers. We did a mediocre to just-below-mediocre job of that. And now we’re reaping the regime that you’d expect in that world, which is more intergenerational tension.
COWEN: A few questions about your past. What’s the biggest danger facing the future of the Mormon church today?
JONES: Oh, this is a big problem. They’ve really lost male participation in a substantial way over the course of my lifetime. I was a Mormon missionary in 1989. I quit. I’ve kept friendly relations up with LDS folks since then. The LDS church for decades, for over a century, has been able to maintain high levels of male engagement in their religion, which is a problem for a lot of religions.
COWEN: Why have those returns fallen?
JONES: It does appear, partly, that men are drawn more into the appeals of secular life. Partly, it’s that, on Google, they’re learning about the history of the church, and they’re learning things they weren’t taught in church. Church leaders, apparently, are wrestling with this. They’re just being exposed to ideas that had been outside the purview of the church. I think that’s a fairly important part of it.
I think also a version of it is just the general difficulties that non-college-educated white men have had across the US, that Mormons are having their own personal version of that. Basically, a lot of people can spend their time playing Fortnite, and that keeps them away from going to church.
COWEN: So it’s Fortnite and Joe Rogan.
COWEN: Should non-Mormons move to Salt Lake City?
JONES: Yeah, I think the quality of life there is very good. For non-Mormons. you’re maybe at a bliss point now or at the top of the Laffer curve, where you get these great benefits of high LDS social capital, and yet there are enough non-LDS people that you can have a rich social network, where people might be able go to a nice wine dinner on a Friday or Saturday night. Plus, Brigham Young picked a great place in the mountains.
COWEN: Should non-Mormons moved to Provo, Utah?
JONES: That’s a little tougher. I love it there. It’s a good fit for me because I, in a way, speak the vernacular. I think that’s a little harder case to sell because it is built closer around LDS culture, and so non-Mormons who move there will probably feel quite a bit more isolated.
COWEN: In which occupations should we expect to find Mormons over-represented?
JONES: The places where they are, which is places like the FBI and the CIA — places where being able to speak a foreign language is incredibly important, and being able to pass a drug test is incredibly important, and being able to show you can keep secrets is important. And Mormons are great at all three.
COWEN: You’ve never written about this, as far as I know. But there’s something, to me, quite special or unique about the Garett Jones vision of America that I’ve never quite seen you spell out, that you get something about America that most other people do not. Do you have any sense of what that might be?
JONES: There is this case that America, at its top 20 percentile of experience — it’s been a nation that’s been built on a hope and vision, not American exceptionalism in that it’s something you’re endowed with, but it’s an American exceptionalism in the sense that it’s something that people create. And a sense of adventure that is central to the American experience. You could think of it as a pioneer. It’s a mixture of a pioneering spirit with an element of strong social capital.
So to me, of course, the Mormons then are the embodiment of this. They’ve got this strong social capital, strong enough to stand up to other people, but at the same time, willing to take huge risks and endure great persecution in order to build a new world.
And that’s an extreme version of what Americans have done for quite some time. It’s this rare blend of social capital and adventurousness at its best times. And that’s not just a 0.1 percent experience; it’s more like 20 to 30 percent of the US experience. And that’s something that a lot of countries just never get.
COWEN: We’re now on to the Garett Jones production function, by the way, in case you hadn’t noticed. Now, you did a big America trip over the last year, correct? Where did you go?
JONES: I drove from my house in Fairfax, and I went up across the US out to South Dakota, where I was able to see Mount Rushmore again, then went straight up to Canada and saw Banff, which was unbelievable. And from there, I basically went counterclockwise around the rest of the US and was able to linger for a few days at places that I’d long wanted to see or had just been able to drive past.
COWEN: And what was the most surprising thing you learned?
JONES: It’s that, with not being in a hurry, I was able to see parts of beauty, especially in southern Utah, which I’d driven through many, many times. I was able to appreciate it in ways that were just unbelievable. Just getting up a little earlier to watch the sunrise and capture some great photos in, say, Bryce Canyon. That’s the element of beauty.
The second thing is that I expected to see a lot more of the detritus of civilization, signs of social decay in the Midwest because the internet had been telling me for a couple of years it’s been going on.
And yes, pockets of this. Yes, definite concerns about the opioid crisis, very real concerns. You could see them displayed on billboards. But at the same time, a lot of capital investment, a lot of new machines and equipment, a lot of rebuilding in quite rural areas. So, it was a sign to me that the Midwest has . . . Of course, there’s a part of the economy and a part of the culture that’s struggling. The median part of the heartland, the Midwest, the American West just was doing far better than I had been led to believe.
COWEN: You worked for some time under Senator Orrin Hatch?
COWEN: What did you learn from that experience?
JONES: Well, I did learn something about the value of friendship and politics. My office was right outside, just around the corner from Senator Hatch’s personal office, and when Ted Kennedy would come in the office, you could just feel it, and Orrin would come out of his office sometimes, and they would just hug.
I say this in the book, in 10% Less Democracy — this wasn’t just some political, polite hug. This was the real thing. This was a full-on two men just very happy to see each other. That kind of camaraderie across people who really disagreed intensely on politics — that strikes me as the heart of building good political negotiation and keeping a good political culture.
COWEN: You’re studying to be a wine steward. What did that teach you about economics?
JONES: Part of it is, it just gave me a chance to study all of this economics of wine stuff because economists are sometimes quite skeptical of the idea that wine — different quality or that it’s anything more than just self-perception. But inter-rater reliabilities — when people are doing blind taste tests, when judges are doing blind taste tests — are in the 0.3–0.4 range. So when different people are rating the same body of the same 10 or 20 wines, different judges seem to rate them at a 0.3 or 0.4 correlation.
I tend to think that to some people, well, if a relationship — unless it’s nearly perfect, we should ignore it. But that’s just the kind of correlation you expect to see if you actually talk to wine people. If you know what a 0.3 or 0.4 correlation is, there’s something to it. But it’s not the whole story, certainly.
Part of the magic of knowing something about wine is that you have the power to find diamonds in the rough, to find bargains, to find something that’s $20 or $30 that is as good as something that’s $200. That’s the superpower you acquire.
In a way, that’s what a lot of great restaurants do, is they’re trying to find wines that are inexpensive for them to buy, but they give people the experience of a $200 or $300 wine, and they make it up on the margin. I think this element of searching for diamonds in the rough has this element — you could say it’s Kirznerian entrepreneurship in a way. You’re searching, searching, searching for underappreciated gems.
COWEN: So you’re interviewing someone to be a wine entrepreneur?
COWEN: Define these underappreciated gems. What qualities do you look for in them?
JONES: Again, to go back to before, I go back to openness. But really what you need is somebody with a really good palate and a really good nose. Mine are mediocre at best. But the magic of being with someone who’s really great at assessing wines is that they can taste one once or twice and give you a good, thorough description that you yourself would agree with in general.
So, if we both rated it blindly, I might give a 10-word description, and the person who’s truly great will give a 50-word description, but our descriptions will overlap. That’s what you’re looking for, someone who can give a more thorough assessment of something than I can, but who will broadly correlate with my assessment.
COWEN: What science fiction did you read in high school or college?
JONES: Hitchhiker’s Guide to the Galaxy was actually quite important to me. I often think about the fact that the true president of the galaxy was just some guy who didn’t even know he was president. There was a figurehead president of the galaxy, Zaphod Beeblebrox, but the person who really ran it was a guy who lived in a hut somewhere on some planet. And he didn’t actually know he was deciding things for the entire galaxy. So it was a bit like the Ender’s Game theory.
It’s no surprise to me that Douglas Adams had been a writer for Doctor Who, but he took the world of Doctor Who, where anything was possible, and he combined it with the absurd humor of Monty Python. I think that was a great fusion.
COWEN: Last two questions. First, what is your advice to aspiring research economists?
JONES: Build up an enormously broad and deep set of econometric tools. We live in the age of big data, and that is the way to speak the language of our field. Also, if you have incredibly broad and deep econometric tools, you will never worry about going hungry, and therefore, you will feel more comfortable taking big risks with your career.
That’s part of the reason I was willing to engage in some topics that people said might be a little risky — IQ research in particular — because I knew that at the end of the day, I would never have to go hungry because I knew time-series econometrics.
COWEN: Finally, what is your advice to aspiring quality teachers?
JONES: Have depth in the subject matter and find stories that you want to tell to enliven people. I always say this whenever I’m writing a teaching statement, which is, I feel like my job in the classroom is not to teach the details of any theory. My job is to give students a reason to feel passionate enough about the topic so that they’ll go home for two or three hours and study it on their own.
My job is to then give them a few key pieces of advice, a few key pieces of information, a few key anecdotes or stylized facts, and a couple elements of deep theory that will stick in their heads so that those will work in their brain to inspire them to sit down for two or three hours on their own. I think that’s the real goal of teaching at the college level. It’s not that I will actually give them the full piece of information, the full body of knowledge in the classroom. It’s that I inspire them, motivate them to go read it and learn it and make the knowledge their own.
COWEN: Garett Jones, thank you very much. And again, the new book is 10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less. Thank you, Garett.
JONES: Thanks very much.