Recorded January 16th, 2020

Read the full transcript

TYLER COWEN: Hello. Today we are here with Jason Furman, who is a professor at Harvard’s Kennedy School and former chair of the Council of Economic Advisers under President Obama. Jason, welcome.

JASON FURMAN: Thanks for having me.

COWEN: First question: why has US investment behavior been so sluggish for so long?

FURMAN: You start with the easy ones. There’s no warm-up here, Tyler.

I think there’s a lot of reasons. Some of it isn’t a problem. It’s that you don’t need as much investment from businesses in the type of intangible economy that we have today relative to the type of heavy industry we used to have.

But I think part of the investment shortfall does reflect problems and failures in economic policy. In particular, the increase in concentration in certain industries has led to greater monopoly power and has reduced some of the incentives and need to make investments in those industries. And I think that’s part of the investment shortfall we can and should do something about.

COWEN: But if I take a sector like, say, hospitals, where there’s quite a bit of monopoly power, there’s been plenty of investments into healthcare. Is there a correlation between sectors with a lot of market power and sluggish investment?

FURMAN: There is. You see this in research by Thomas Philippon. You see it in research that Jan Eberly has done. Both of them have shown that the predictions you’d get by looking at increasing concentration are pretty similar to the predictions you’d get in terms of where you see the investment shortfalls. I know Jan Eberly did look at the hospital industry, and I thought that was one of the shortfalls. But I’m not completely positive about that. Of course, health has 18 different issues and distortions going on in it all at once.

COWEN: Sure, but there’s a lot of investment in tech. And while there may be market dominance, there’s not market power there in the sense of high prices and restricted output, right? So again, should we think market power is actually the problem here?

FURMAN: I think market power is a problem in some sectors. I actually think the health sector is an example of where it is. The problem that has been very well measured and very well documented is higher prices as a result of market power. So I’m quite confident that in the health sector, market power leads to higher prices.

COWEN: But also more investment, it seems.

FURMAN: If higher prices are for something like drugs, then I think it’s tough. I think you do have a tradeoff between “are you getting more innovation” on the one hand and higher prices on the other hand. I don’t quite know the exact thing to do there. When it comes to hospitals, there’s very few efficiencies that come out of these mergers. The only efficiency that might come out of them is that you can pay nurses less than you used to. And I’m not sure how thrilled we should be about that.

COWEN: What do you think of the Rossi-Hansberg paper that if you look at the US economy sector by sector, rather than national concentration indices, that there’s no apparent increase in market power?

FURMAN: These macro measures of market power are limited and problematic, and that’s something we always knew. We knew that the first time we published them at the Council of Economic Advisers. A lot of the researchers that have published them have known that.

The question is, like anything else in economics, does it have predictive power? Does it explain something? Does it work? And it does seem associated with things like profitability, with things like markups at an aggregate level. And some of the aggregate models — it matches features of the data, like the rise in the return to capital relative to the safe rate of return on Treasuries.

So is this going to work for every sector? No. Retail, for example — more concentration. In part that’s more competition at the local level. In part that’s more innovation. So in retail, the national numbers, I think, are really misleading. In other sectors, I think they’re not. On balance, I think they’re not.

COWEN: If investment is important, does that make you an economic pessimist, given the apparent end of the savings glut from Asia?

FURMAN: I think I’m an economic realist. You look at Robert Gordon, and he’s been turned into this big pessimist, this pole of prediction that’s this negative. We’ve run out of ideas. Nothing ever is going to happen. It turns out, if you just look at average productivity growth over the last 50 years and assume that’s what you’re going to get over the next 50 years, we’re going to have a GDP growth rate that is around 2 percent, maybe a little bit below it. And that’s just from continuing the last 50 years.

Now, the average of the last 50 years is better than the average of the last 15 years. So, in some ways, I’m an optimist. I think we’ll get back to our historical productivity growth. But the idea that we’re going to get way beyond that certainly could happen, but I don’t think it’s a reasonable forecast of what’s going to happen.

COWEN: Referring to Gordon, here’s another softball question. Why did productivity fall so much after either 1973 or in, say, the last 15 years?

[laughter]

This is the easy podcast.

FURMAN: Yep. I think there’s something. Less infrastructure investment, less R&D. There were some major projects in terms of highways in the 1950s, the lunar landing in the 1960s, et cetera. I’d like to think that was the answer to your question. I think the truth is, when you go and quantify that type of public investment, it’s a couple tenths of a percent of the answer.

In the recent period, I do think the increased concentration we’re talking about might be a tenth or two percentage point of the slowdown that we’ve seen. Some of it may be that you need to invert your question and ask not why did productivity slow down, but why was productivity so fast?

There’s a lot of very special things about the 1950s and the 1960s, just coming off of World War II. And in terms of ’95 to 2005, well, it’s a relatively short period of time. Stuff fluctuates. You have a period of faster growth. But broadly speaking, we’re in a world of 1.5 percent productivity growth if we’re lucky. Unfortunately, it’s been more like 1 [percent] lately, and that’s just what it is.

COWEN: What is your take on the degree of unmeasured benefits from the internet? High, low, intermediate?

FURMAN: Intermediate, but most of them were in the base 5, 10, 15 years ago — Google, online travel, online shopping, Wikipedia. It’s not like adding these are going to add to your measure of productivity growth in the year 2019 or the year 2018. They might add to the level of productivity, but they were in the level. They were in the base a while ago now. And they’ve just continued up. So, I certainly think there’s some things we’re not measuring.

A bunch of it, though, is about the use of our time. YouTube may be better than TV, but it’s only a bit better than TV, so you can’t just take the gross benefits of YouTube. You have to do the net benefits relative to the other activity. And then, if you’re being a paternalist, you could ask, “Is any of this a good use of our time?” But without even going there, I think you get decent-size impact on the level of well-being, a small impact on the growth of well-being over the last decade.

On the best policy changes to boost productivity

COWEN: Let’s say you are the productivity czar, and you can make two or three key changes to boost productivity. What would they be? Forget the filibuster, you’re the productivity czar.

FURMAN: [laughs] Well, number one, two, and three would be more immigration, more immigration of talented people that will add to innovation here in the United States, that would bring their ideas with them, that would start businesses.

Now, if I had to go to four, five, and six, much increased federal R&D — it’s fallen as a share of GDP consistently since the 1960s — a business tax reform that included more incentives for investment like expensing, and an expanded R&D credit to encourage businesses to internalize more of the benefits that their research has for others. And then finally, investing in American higher education.

COWEN: I’m all for more immigration. But don’t you find it strange that the relatively high-productivity ’50s and ’60s have a fairly limited number of immigrants? Some of them contribute a great deal. Einstein, right? Simple example. The productivity shortfall comes right after we increase immigration a lot. So maybe it’s not the number-one factor?

FURMAN: Is it the number-one factor in the slowdown? Probably not. But we have a lot of micro evidence — papers that take a look at what happens when immigrants come. Not only do they patent, but Jennifer Hunt found that the Americans end up patenting more when they’re in the presence of those immigrants. This is something where I think we have a good enough set of micro data. We don’t need to use macro decades to try to make inferences.

COWEN: What about YIMBY as a way of raising productivity growth? Let everyone move to Oakland or maybe even San Francisco. Would that help a great deal?

FURMAN: That would be on my list, too. If we keep going, probably we’ll discover that a large fraction of the thoughts I have about economic policy would fall under the heading of enhancing productivity. Absolutely, I think there’s a real mismatch of people globally — people that would be more productive if they were in the United States than they were in the country that they were in.

Then there’s a mismatch — not nearly as large, but a still sizable one — within the United States itself. The places where people can most productively add to the economy — places like the Bay Area, the Boston area, the Washington area — are ridiculously and unnecessarily expensive to live in because of artificial constraints on building that drive people out and keep people from coming in.

The places where people can most productively add to the economy — places like the Bay Area, the Boston area, the Washington area — are ridiculously and unnecessarily expensive to live in because of artificial constraints on building that drive people out and keep people from coming in.

COWEN: The US is losing some of its manufacturing capacity, and certainly a lot of its manufacturing workforce. Are there external benefits to keeping those activities more in the US? Significant benefits?

FURMAN: I don’t think that manufacturing itself should be an important objective of US policy. It’s one type of job. It’s been a good type of job, but there’s other good types of jobs as well. I wouldn’t focus on where physical things are being made as opposed to where services are being made. In fact, if anything, I think the error in policy is probably a little bit too much emphasis on manufacturing and a little bit less on services.

COWEN: What do you think of the national security argument? That, say, when building a ship, we might be dependent on South Korean components. If there were a war in Asia, those might be, for some reason, unreliable. We depend on China for rare earths. We depend on Taiwan, to some extent, for high-quality chips, even though we make our own. Is the supply chain extended too long, and it was a kind of economic fantasy, and it doesn’t make national security sense?

FURMAN: I don’t consider myself an expert in any of those national security questions, so I would be open to thinking about the national security concerns associated with the supply chain. I have an awful lot in specific cases — both when I was in government and just in the world more generally — heard people make national security arguments that I found tendentious and pretty unpersuasive.

There may be some that are persuasive and that are true. There’s an awful lot that aren’t. Our administration, towards the end, worried a bit about semiconductors. When I’ve looked at that, there’s enough of a diversified world supply, enough of an ability to scale up if necessary in the United States, that I don’t think on semiconductors — there, it was protectionism under the guise of national security.

So I think we should accept the possibility of national security, take it seriously, but be really, really wary that a lot of protectionist arguments use that trappings.

COWEN: Has the China shock literature changed your view of what is an optimal policy adjustment to foreign trade?

FURMAN: The first economics class I took as a freshman in college, we were told that trade had winners and losers. We were told that the winners were diffuse and tended to have smaller gains, and the losers were concentrated and tended to have large losses. That seems to be exactly what the China shock literature has found.

COWEN: But the losers turned out to be bigger losers than we had thought, right? Opioid deaths were not predicted, say, at their current magnitude.

FURMAN: I think the China shock literature is a fantastic contribution to labor economics and is less important in thinking about trade. We’ve learned about weaknesses and deficiencies in the structure of our labor markets — the ability to connect people with jobs, the ability of people to move after a shock happens, to get themselves retrained, to have some form of insurance that could help them in the event that their next job has a lower pay.

So yes, that literature, together with other observations about what’s been going on with, for example, prime-age men in the workforce, has affected the way I think about the dynamism and efficient allocation of labor in the American workforce, much more than it’s affected the way I think about trade.

COWEN: Why did labor markets recover so slowly from the 2008 crash? You would think, “Well, it’s the world of the internet. Everyone has all this information. Matching markets are better.” But the labor market recovers quite slowly. Why?

FURMAN: Well, I remember in 2009, Alan Krueger was the assistant secretary for economic policy at the Treasury. And he looked at every single OECD country in the last — not going to get any of these numbers exactly right — but let’s just say in the last 50 years who had seen an unemployment rate rise rapidly in a short period of time by a couple percentage points.

And he asked the question, “How quickly does it come down?” What he found was the fastest that any OECD country achieved was 0.7 of a percentage point per year. It’s not just the United States. It’s not just the present. For the last 50 years, a couple dozen countries. Unemployment rates can go up very quickly. Unemployment rates cannot come down very quickly.

In fact, the pace that the unemployment rate declined in this recovery was about the same or slightly faster than the pace it did in the 1980s. And the only area where the economy probably consistently outperformed forecasts after the recession was the unemployment rate. It was consistently lower than what was forecast. Now, the employment rate was not higher than was forecast. GDP growth was weaker. But the unemployment rate itself — I don’t think it was abnormally slow in its recovery.

COWEN: But say after three or four years, once the nominal shock has worked its way through the system, what is the most important rigidity in preventing a more rapid adjustment? Is it the people are unwilling to move locations, or somehow matching markets are not working? What needs to be fixed?

FURMAN: Both the 2001 recession and the 2007 through ’09 recessions, you saw disproportionately long periods of long-term unemployment, of people working part-time for economic reasons — so involuntarily part-time — and people leaving the workforce, and the participation rate falling. Something about both of those shocks led to very prolonged all three of these negative consequences. You take a crappy job, you don’t get a job at all, or you give up entirely.

I think it’s related to the fact that both of the shocks hit at the same time that labor market fluidity and labor market dynamism was lower than it had been. People were moving from job to job less. Businesses were creating and destroying fewer jobs. So yes, I think if you have a less fluid labor market, then a shock will have all of these bad consequences.

That begs the question of why we have a less fluid labor market. I think some of it is land use and the expense of moving to places. Some of it is occupational licensing. Some of it is the cost of healthcare and lock-in. It’d be interesting to see whether that’s gotten better after the Affordable Care Act. But I think that question — how do we have a more fluid labor market? — means the matching models will work better the next shock hits.

COWEN: What do you think are the best place-based policies for America’s lagging regions? Or do you maybe not even believe in place-based policies?

FURMAN: I was about to say, I’m not sure I can think of any place-based policies that I’m particularly enthusiastic about. I don’t mind algorithmic place-based policies. “This place has a bigger, deeper recession, so it gets a larger federal allocation of Medicaid, or it gets longer unemployment insurance benefits.” There’s that type of place-based that’s based on a formula about state unemployment rates or state incomes. That, I think, can make sense.

The regional development — “We’re going to go into this area, create this new cluster, create this new industry” — I think that’s littered with a history of failures. I don’t even know that we know what we’re doing when it comes to place-based policy.

Even if academics knew what they were doing when it came to place-based policy, when the political system implemented it, I don’t think there’s any area of policy where Congress is less interested in expert input than the area of which locations in the country should get resources.

COWEN: How about region-specific visas? You let people move into the US. You give them a path toward a green card. They’re supposed to start off in Maine or West Virginia or Idaho. They won’t all stay there, but maybe half of them would for five years. Should we do that?

FURMAN: Tyler, you are just so much more creative and imaginative than I am. My rather prosaic mind hears an idea like that and thinks the idea that we’re going to have internal checkpoints within the country — even if it’s for one type of people and doesn’t apply to others — doesn’t quite know how we’d do that. It seems —

COWEN: No checkpoint. You enforce through the IRS. You’re sent to Idaho. If you leave Idaho in less than four years, you pay another 20 percent of your income in tax to the federal government. There’s no strong enforcement.

But also, a lot of people — if they show up in Idaho, they will stay, I think, out of good faith. Maybe half of them won’t. But if half of them do, that seems like a big achievement. You’re for more immigration anyway, right? So you don’t mind if they trickle down into Nebraska.

FURMAN: I would say, if the only way for me to get more immigrants is they have to be in one part of the country, I would probably settle for that and compromise with you on this plan. Maybe that’s not where they can make the biggest contribution to the American economy, to the American fisc, to their own families. I’d rather let people choose that than make the choices about where they want to live, including immigrants make those choices.

COWEN: As you know, Bryan Caplan has a book out about open borders. Coming from the left, Matt Yglesias has a forthcoming book arguing we should target an America of one billion people. Do you think right now we’re just thinking too small about numbers in this country? Three hundred twenty million — it’s not very much. China and India — they’re geopolitical rivals. Shouldn’t we have a plan to get to an America of, say, 700 million people? And they can’t all go to Manhattan, not even Staten Island.

FURMAN: First, within any conceivable range that I can imagine for public policy, I’d rather have more immigration than less immigration. When you’ve decided on the amount you have, I then do believe in enforcement. I think it is perfectly reasonable for the United States to decide who can be here. Certainly reasonable for the United States to decide who can vote in the United States. I’d like those rules to be much more permissive and then to enforce the much more permissive place that we set those rules.

Can I imagine 700 million, a billion? I certainly think economically, we could support that number of people in the land that we have in this country. If that happened, you’d end up with an awful lot of people moving to Idaho without having to tell them to move to Idaho because prices in New York and San Francisco would go up even more than they have already.

I do think Bryan Caplan’s book, which I loved, didn’t take completely seriously some of the transition issues and some of the transition costs. The speed with which these changes happen politically, culturally, economically — I think that is relevant.

COWEN: What about having the US government change policy to induce or encourage a higher rate of savings? Is there anything we should do? Or is the savings rate just fine?

FURMAN: I’m not that worried about the savings rate. I don’t think it’s the constraint on business investment right now because the cost of capital is very low. In terms of retirement security, the first place I would go for retirement security would be to expand Social Security rather than to raise savings.

I think the main issue with low savings is just an intertemporal consumption one that we’re borrowing from foreigners today. We’ll need to repay those foreigners in the future. And with a current account deficit of around 3 percent of GDP, I think we’re on the edge of where we need to be worried, but not really that far past the edge of where we need to worry.

If we wanted to increase savings, though, certainly you could do it on the private side. But you could also decide you’re going to reduce the budget deficit.

COWEN: But since we’re borrowing at real rates pretty close to zero — depending on the term structure and what day you’re talking about — and the growth rate of the economy is positive, why shouldn’t the US actually borrow much more? Either cut taxes, spend more, or some combination of those two changes. What’s the constraint? You said 3 percent of GDP. It’s just a number, right? As a percentage of wealth, it’s below 1 percent. Why not do much more?

FURMAN: We have interest rates that are lower than our growth rate. That means we can, on a sustained basis, run a primary deficit. We can spend, excluding interest, in excess of what we collect in taxes.

Right now, though, our primary deficit is set to be about 4 percent of GDP. That means our debt under that plan would asymptote to about 400 percent of GDP. Perfectly possible that we’d be fine at 400 percent of GDP. I’d like to explore how far we could get a whole lot more slowly than committing ourselves to our current fiscal trajectory, which is a 400-percent-of-GDP steady-state debt, or something even higher than that.

COWEN: If borrowing rates stay low, do you think borrowing more then is an actual free lunch, and we need only worry about rates going back up? Or is it simply pushing around resources and we won’t do anything extra?

FURMAN: There’s ultimately a resource constraint that we have in terms of what the potential of the economy is. And you can relax that resource constraint at the level of the planet, [laughs] with the United States borrowing, financing consumption from other regions in the world, and paying those regions of the world back in the future.

But by the way, if what we’re doing with the rest of the world is financing consumption and financing investment, that will come out of our well-being in the future. So no, I don’t think we have a free lunch there.

COWEN: What’s the best way to think about the risk that borrowing rates, in real terms, rise above the growth rate of the US economy?

FURMAN: I think that the risk is symmetric. If you look at the last 140 years, about 25 percent of the time, real interest rates have been lower than where they are now; 75 percent of the time they’ve been higher. You look around the advanced economies today, and in most all of the advanced economies, real interest rates are lower than they are in the United States, so I think there’s a certain amount of symmetry. I think rates could go down; rates could go up.

At the extremes, though, there’s not symmetry. Rates can’t go down by 10 percentage points. Rates could go up by 10 percentage points, so I think there is some tail risk there. I don’t know that it’s so large that I would make a big effort to deal with it. If you want to deal with it, you don’t even need to reduce the deficit. You can just borrow more long term and lock in the low interest rates you have now. But I wouldn’t want to go hog wild and assume it will never happen either.

COWEN: There’s a new paper from the Bank of England— probably you’ve seen it. In any case, you know Larry Summers. But it suggests there’s a long-term secular decline over centuries, that real rates basically get lower. What should we infer from that? Anything?

FURMAN: I think so much damage was done to economic forecasting by the experience of the 1980s. We had this brief, relatively brief period of unusually very high interest rates, and people built that into their forecast. For the next 20 or 30 years, there was something almost that felt normal about the 1980s. Then the decline from the 1980s felt strange when a lot of what we’ve seen in interest rates in recent years is going back to the types of interest rates and the type of trend we were on before then.

In terms of a longer-term decline of interest rates, you have to be careful about what’s happened to risk associated with interest rates. Bonds used to be more risky than they are right now. Bonds might be negatively correlated with what your consumption is, the marginal utility of your consumption. So maybe they should actually have a lower interest rate now than the pure safe rate of return. I think there’s a couple other different factors going on there.

COWEN: What is the right way to think about the economic losses from Brexit? Paul Krugman says, “Two to three percent of GDP, one-off. It’s bad, but they’ll get over it.” What’s your take?

FURMAN: I put Brexit primarily in a medium- to long-term cost of the set of microeconomic efficiencies associated with somewhat worse supply chains, somewhat worse balance of composition of imports and exports. And yes, putting that in the couple percent of GDP poor over the long run seems about right. Is that two? Is it five? I don’t know. I think it’s a negative number. It’s not a large upfront negative number.

COWEN: A few questions about tech, which you’ve been working on lately in the United Kingdom. You once wrote a piece called “Wal-Mart: A Progressive Success Story.” Can we today say the same about Amazon? It does lower prices, right?

FURMAN: I have a lot of fondness for Amazon. I order a lot from Amazon. I’ve personally benefited a lot from Amazon. I think an awful lot of American customers do. Amazon’s online retail platform also is, to some degree, competing with brick-and-mortar retail. And once you place it in that market, it’s a relatively small player in all of it.

So personally, I actually think Amazon would probably be lowest on my list of concerns. But that doesn’t mean I have no concerns about Amazon and don’t think it needs to be monitored. Some of the proposals that I made in the context of the report in the United Kingdom, I don’t think would constrain an awful lot of what’s good about Amazon’s business model.

COWEN: What’s your biggest concern?

FURMAN: My biggest concern is more the online search, social media, social networking, and —

COWEN: So not Amazon per se?

FURMAN: Not Amazon per se. I think those are sectors where, first of all, there’s a whole set of social concerns and democratic concerns that are probably much more important than anything in terms of competition. But those are areas where you can see Google and Facebook didn’t get to where they are today through organic growth.

Walmart was largely organic growth. It was efficient. It opened up a new store. Then it opened another store. Then it opened another store, and each one of those stores was better than the other things in the neighborhood, so it succeeded. Amazon — a lot of organic growth, although certain key important acquisitions along the way.

Facebook has three major social media companies all in one because it bought two of those three. Almost every component of Google was, except the search algorithm, purchased at some point along the way. So those are a little bit more like merger to monopolies. And when you have that, I have less of a presumption of efficiency. If you grew, I think you’re probably efficient. We probably shouldn’t do anything about you. If you bought a bunch of things, I get more worried.

COWEN: But if you take Facebook, is there consumer harm? The WhatsApp page — it’s totally clean and pure. It’s beautiful. There are no ads on it. There are no ads on it because it’s part of Facebook, the bigger company. So aren’t customers better off with Facebook “the company” owning, say, WhatsApp, Instagram, and Facebook “the page”?

FURMAN: I would much rather have competition. I think what benefits consumers is choices, lower prices, more innovation.

COWEN: The price is zero, right? There’s a lot of social networking. I can go on Fortnite. I can recruit people through my blog. I can email you. I can text you on my cell phone. So many ways to network with people.

FURMAN: These are advertising companies first of all.

COWEN: But the consumer facing side.

FURMAN: If something drives up the price of steel, am I going to say, “Well, I don’t have to pay any more for steel because I don’t buy any steel”? Well, I buy a lot of products that have steel in them, and I’m paying more for those products. I am paying more for any product that has to pay more in advertising fees to Google and Facebook, which dominate the online empire.

COWEN: But they don’t dominate advertising, and it’s a much lower price for advertising than before Facebook and Google came along.

FURMAN: But the right question is the counterfactual of what would the price of online advertising be if there were five online advertising companies instead of two online advertising companies? I think it would be lower, the price of those products. We also pay separate from that, of course, in the form of privacy, in the form of giving up our data, and then in all sorts of ways of less innovation that we don’t even see because something doesn’t exist, because it was too hard to enter the market.

COWEN: What do you think of GDPR as privacy legislation?

FURMAN: I have mixed feelings about it. I think privacy legislation is important. I think it’s something that people care about. I personally, for myself, don’t care that much about it and tend not to do lots of privacy settings on things, even when I have a choice and know what I’m doing, so I don’t personally relate to it as much, but it’s something that people care about.

I’d like . . . in a world where I thought people were informed, I would think competition and choice would fully solve the problem. I think it contributes to solving the problem but probably isn’t enough. GDPR also, though, is cumbersome and in some ways has been an impediment to competition because the big companies can navigate it much more easily than small ones can.

COWEN: Sure. Won’t that be true of any effective privacy legislation? That it will make worse the dominance of the larger companies? Because any law — the bigger companies have better legal staff, PR, and so on.

FURMAN: You can make laws that are dependent on size. The recommendations that I made in my UK report were a code of conduct for the largest players, and it wouldn’t apply to the medium or small ones. That’s easy to do if the code of conduct is around anticompetitive behavior. That’s much harder to do if the code of conduct is about something that’s considered a human right.

It’s not like we would say industrial safety rules shouldn’t apply to a small business and only should apply to a big business. If you think that a business shouldn’t be killing people — its workers — you should think that regardless of the size of the business. So privacy has been approached from a human rights frame rather than from a competition and economic frame. I think there’s some merit, though, to that, that human rights approach.

COWEN: Does the European Union treat the big tech companies fairly? If we’re economists, we think about this in terms of incentives. They’re American companies. They just want to tax them. Won’t it be the case, we would think, in a public choice model, that the European Union would treat them not well enough?

FURMAN: Maybe I’m not as immersed in public choice as you are, Tyler, given where we’re sitting.

I think that the Europeans have a pretty fair and impartial antitrust system that is largely blind to nationality. Look at what they did in Siemens and Alstom. You had a merger of two major European companies, one from France, one from Germany. The commission said they couldn’t merge. Both of those countries were infuriated. I think they take a tougher approach to antitrust, but they take that across the board with their own companies and with American companies. I think they do it in a pretty even-handed manner.

COWEN: But say the proposed digital tax of what, 3 percent — would that be so popular if Facebook were a French company?

FURMAN: I am less sympathetic to the specifics. You asked me to antitrust enforcement, the antitrust enforcement —

COWEN: But general EU policy toward the tech companies. So there’s privacy law there’s taxes.

FURMAN: I don’t think you want to put it all in one bucket. Antitrust — the cases against Google were brought through a very technocratic, relatively independent, I think, honest process.

The tax proposals are coming from politicians, and yes, absolutely, your public choice models, I think, apply a lot more to those politicians. Those politicians are right that they’re missing out on a bunch of taxes they should be getting. They’re wrong to have sector-specific levies and proposals, in some case, jury-rigged just to get at American companies.

So yes, antitrust in Europe, I think, is fair. Taxes is a bit anti-American, if you want to call it that. And privacy, I’m less sure of the answer to. My guess is it’s more that’s what Europeans believe as a belief about the world and not a form of protectionism.

COWEN: It seems that they don’t mind Huawei for their 5G networks. There’s a big emphasis on privacy. And until Trump pressured them, Germany was fine. “We’ll have Huawei in to do our 5G network.” Doesn’t that seem discordant to you?

FURMAN: Now that you say it, to some degree, it does. As I said, I’m not immersed in how the policymaking in Europe gets done on the issues of privacy. Huawei — it’s easier to understand that somebody’s tracking you, or somebody’s keeping data on you, or someone’s deciding what the search results about you are.

That’s transparent. You can see that happening, and you can decide if you think that’s fine or if you think that’s not fine. In some cases, Europe decided it wasn’t fine. Huawei was an awful lot of information that I don’t have access to and that you don’t have access to either.

COWEN: Do you worry that data portability for social networks could stifle innovation? Let’s say I develop a new social network. It’s based around virtual reality. Then the regulators ask me, “Well, how do we port your data into Facebook or the incumbents?” And I say, “Well, that can’t be done.” And they say, “Well, then you don’t satisfy data portability.” And the innovation is stifled. Don’t you lock in the current way of doing things with data portability?

FURMAN: I worry about that. That’s why you want to apply it, for example, more, or make it mandatory, for the large companies and not for Tyler Cowen’s new virtual reality company.

There’s a set of costs and benefits. And I think the right way to get that mix of cost and benefits is, with the large companies, the lack of portability creates a barrier to entry. It entrenches them and reduces competition. So I’d turn the dial one way for them, and for smaller companies, I’d turn the dial the other way or not even have a dial.

COWEN: But doesn’t it have to be symmetric? If Facebook cannot export to the new virtual-reality social network . . . In essence, people coordinate on portability into what we have. Having any kind of certified dominant standard, even if you regulate it more heavily, in essence ensures that standard keeps on dominating the market because you have to export from Facebook into which providers, right? The government has to make a list. And that worries me.

FURMAN: I think it should worry you. If the UK moves forward establishing the digital markets unit I recommended, as they have been moving forward, I would love to have you on it, asking that set of questions. I don’t think that something has downsides and concerns is, in this case at least, a reason not to do it.

In some spaces, like messaging, they’re reasonably mature. Could the iPhone have introduced Animoji in a world of required interoperability? We could have figured out a way to do that. And by the way, if the world lost Animoji, probably would still have turned.

COWEN: I think we should ban most uses of facial surveillance. Do you agree? In the US.

FURMAN: I don’t think I agree. You’re allowed to have a police officer on the street looking at somebody. You’re allowed to post a wanted poster for somebody. And then if somebody, with their eyes, recognizes that face, call in a tip line and have the person arrested. I don’t know why we would want to give up on —

COWEN: Privacy. You’re worried about privacy, and cameras always know where you are. And they track your face. They track your gait. It’s private sector. The government can subpoena them. Isn’t that a terrible violation of privacy?

FURMAN: I’m not saying we shouldn’t . . . I care an awful lot about violations of someone’s right to life, like murdering them, or theft and sexual assault, and breaking and entering — all of these things. I think these are problems too.

All of our law enforcement violates some principle. We take people and lock them up. We take people’s rights away in all sorts of ways. There’s a process for deciding whether you’re allowed to have a search warrant, whether you’re allowed to put someone in prison. I think we need to put processes around this that respect balances of rights. But I would hate to give up a tool that could keep us safer.

COWEN: What’s the most likely legitimate future use for blockchain? Not gray markets. Not black markets. Not people playing around.

FURMAN: I understand. I’m really bearish on blockchain. Maybe I know less than everyone that’s excited about it, but everyone that’s excited about it also has a stake in it and a reason to be excited about it.

To me, very little of it seems like something that couldn’t be done more cheaply and efficiently with the types of systems we had in the past. They couldn’t do anything resembling what Visa and MasterCard — the number of transactions they process a second today. We just can’t do that with blockchain technology.

On things under- and overrated

COWEN: Okay. Are you up for a round of overrated versus underrated?

FURMAN: Sure.

COWEN: I toss something out. Growing up in New York City — overrated or underrated?

FURMAN: Underrated.

COWEN: Why?

FURMAN: It’s just an amazing city. You can walk right outside. Children can have a lot of autonomy in New York. They can ride the subway. They can take the bus. They can get so many different types of food, have so many different types of experiences. I think it’s an amazing place.

COWEN: Juggling — overrated or underrated?

FURMAN: [laughs] Maybe correctly rated. Am I allowed to say that?

COWEN: You’re allowed to say that.

FURMAN: Okay.

COWEN: You’re a juggler, correct? Still?

FURMAN: I juggle at my own children’s birthday parties, would be probably where I make appearances now.

COWEN: Other than just practice, what makes for a good juggler?

FURMAN: I spent ridiculous amounts of time in high school, and to some degree middle school, on juggling. So probably it’s just practice.

COWEN: So party — you must think it’s underrated in a way, right? Three-Body Problem, science fiction novel.

FURMAN: Underrated.

COWEN: What’s important about it?

FURMAN: It’s so good. Everything in it is so plausible and real in a way that you can only have in hard sci-fi. It operates on every time level. A time span of years, especially in the first book. And a time span of billions, or maybe it was trillions, of years by the time you get to the third book. Just the way you think about computers is different when you learn about the human computers that they have there.

The Fermi paradox is something I worried about from time to time. Now I’m almost scared of an alien civilization discovering we exist and wanting to destroy us, and make sure they don’t find out about us. Yeah.

COWEN: Who is an underrated figure from pre-20th-century world history?

FURMAN: I guess Abraham Lincoln isn’t a reasonable answer. [laughs]

COWEN: He’s probably correctly rated. Certainly important.

FURMAN: [laughs] Certainly highly rated. I don’t have a great answer for you.

COWEN: What’s your favorite movie?

FURMAN: Might be something conventional like Blade Runner, but I’m really partial to a romantic comedy called Kiss Me, Stupid that I once saw at the Brattle. Had never heard of it, walked in there, and found it just so delightfully pleasant, fun. I’ve watched it probably twice since then, and it’s made me happy every time I’ve seen it.

COWEN: Which is the best Matt Damon movie? He was your college roommate, correct?

FURMAN: He was my college roommate. When I saw him in the John Grisham one — he’s in The Rainmaker, I think it was. That was his first super successful one. The day I met him in college, when he showed up at college, he told me he wanted to be a movie star. Told me he was going to be a movie star. He was completely confident of it. And I cried at the end of that movie when I saw that he had achieved his dream and his plan.

COWEN: If you’re recommending an Africa trip for someone, where do you tell them to go?

FURMAN: I did a six-week honeymoon in Africa. Started in Cape Town, ended up on an island off the coast of Tanzania, and climbed Mount Kilimanjaro —

COWEN: Zanzibar?

FURMAN: Off the coast of Zanzibar, actually. Small island off the coast of Zanzibar. And climbed Mount Kilimanjaro in between those two. So I think that’s what anyone should do.

COWEN: That’s the trip to do. Are you up for a few questions about money and finance?

FURMAN: Sure.

COWEN: These are, again, easy ones. Should we allow banking and commerce to mix in the US, as is done in many other countries?

FURMAN: I don’t see any large benefit to allowing that. And on the precautionary principle, I don’t see any particular problem we’d be solving by allowing a greater mixture than we do.

COWEN: Why do you think it evolves in so many other places? China now has it to a major extent. I’m not sure what those efficiencies are. Some of them may be rent capture. But we see it so many times, including in the US when we allow it. Why isn’t the presumption to allow it? Banks will be bigger, more diversified, safer, lower cost of capital?

FURMAN: Yep. I don’t have conviction on this. I’d be open to changing my mind.

COWEN: Which macro indicators do you think are now not so meaningful anymore?

FURMAN: GDP could be more meaningful if we measured it better. The inflation rate gets harder and harder to measure over time. So I think the one that probably has deteriorated in meaningfulness is the measure of inflation. Number one, we don’t measure it well, and number two, it’s low enough that it’s hard to get that excited about it.

COWEN: Is that a quality-of-goods problem? Or how we do chaining over time? Where are we going wrong in measuring inflation?

FURMAN: Just more and more of the economy is in areas that are harder to measure the quality of, healthcare being the most notorious.

COWEN: How productive is healthcare? You know the old RAND study from the 1970s. That’s an old study, but you give people more healthcare, and only the poorest people end up being healthier. Christian Scientists, Amish who don’t use much healthcare — at least their life expectancy is still quite high. What percent capacity do you think our healthcare sector is operating at?

FURMAN: Certainly, if you look at differences in mortality, differences in health outcomes — behavior, genetics, social environment — I think all matter a lot more than healthcare. It’s much easier to know how to change healthcare, though, than it is to know how to change all of those others. So, I think, at the margin, we might have more gains that we’re able to make in healthcare. Even if I agree with you, I don’t think that’s the number-one factor in health.

COWEN: What do you think is the promising future direction for fintech?

FURMAN: I think that’s a great place where more competition and more choices. I’m fine with the big tech companies entering it. I think that would be a good thing. But as long as we put some of the rules in place up front, I’d love to see some smaller ones. And just the fact that payments aren’t simple and free for anyone anywhere in the world between anyone else and anyone else in the world, to me seems like the lowest-hanging fruit for billions of people, and something that we should fully be able to solve in the near future.

COWEN: Our last conversation was with Reid Hoffman. He suggested that higher ed in the US now is operating maybe at 30 percent of possible capacity or effectiveness, and I think he meant the good schools, not the community college gone wrong or something. What’s your response to that? And what improvement do you think we should make, if any?

FURMAN: Yeah. The hard thing is that there’s so little that we have evidence on. I co-taught the introductory economics course at Harvard with David Laibson. This past semester we did micro. Next semester we’re doing macro. We have over 600 students. We put a huge amount of effort into rethinking the course: how we taught the course, what we were teaching in the course, how we did assignments. how we assessed people, what we expected them to know.

And we did all of that with, frankly, less randomized trial, rigorous evidence than I would do on most of the public policy questions that I work on because it’s simply not there. We used an awful lot of judgment. I talked to different people. I asked you your opinion of this question.

I think what we did was good, but that there’s some other thing we could have done in terms of changing how we do the lectures, how we do the assignments, that would be even better, that it’s right next to us, and that I don’t realize it because the evidence is there. I’m painfully open to that possibility myself and would love to know.

So the observation that we’re operating at 30 percent capacity — that’s probably true. But that’s only useful if you can tell me what I need to do to get to 50 or 100. And I don’t know where to find that information.

COWEN: But just taking that one class, Ec 10, now that you’ve taught it, what don’t other people teach enough of? In that class.

FURMAN: One thing that I think David Laibson and I, I hope, did very well and certainly tried very hard to do and seemed to be something that the students appreciated was convey our enthusiasm and excitement for economics. In David Laibson’s case, conveyed that enthusiasm for how many different things in your own life it helps you to think about — decision-making under uncertainty, if you enter an auction, if you’re dealing with splitting a bill with your roommate, deciding whether to do your homework.

In my case, I think I brought more excitement to the questions about public policy. We talked about tax policy, health policy, climate, and the like. One thing we did, hopefully, was teach students, but another thing is tell them, “Here’s this whole area of knowledge that can help you in so many different ways that you might not have realized. You may want to not just pay attention in our class, but maybe even keep learning about it in the many different ways you can learn about economics.”

COWEN: What should instructors try to do to ensure that students remember the content they’ve been taught? And in some way, however broadly, apply it, use it, vote on it.

FURMAN: I did read — there is a literature on economic pedagogy. And the scariest paper I read in that literature — I can’t remember who it was by — compared performance on a test a year after an economics class, people who had taken the class to people who hadn’t. Asking them questions like “What’s the opportunity cost?” And the two groups performed quite similarly.

So that is certainly my biggest objective, is to have students in my class — most of them aren’t going to take another economics class — so that when they’re dealing with an issue 15, 20 years from now, they’re thinking to some of the ideas we talked to them. That’s my highest and most important objective. And that’s the hardest one to be sure you’ve accomplished or even know how to evaluate whether or not you have accomplished.

COWEN: You’ve coauthored a paper on corporate income tax with Robert J. Barro, and you and he disagree within the context of the paper. Should more people do this? More than one voice in a paper?

FURMAN: Absolutely.

COWEN: What did you learn from that experience?

FURMAN: First of all, when we started that paper, the goal was largely to estimate the economic effects of the 2017 tax law, and we had a number of conversations. We agreed on the general modeling approach. And we said, “You know what we’re going to do? We may reach two different sets of point estimates. And if we have two sets of point estimates, we’re going to put them together in a table. And there’s going to be a crosswalk so you can see what assumptions I used, what assumptions Robert used.”

In the course of writing that paper, we converged, and we ended up having quite similar views on the causal question of what the impact of this law would be. We then evaluated the law quite differently. So the body of the paper — we intended to actually have different voices, but we ended up having a pretty unified voice. When it came to the conclusion and what inferences we drew from all of this, we had very different voices.

But I would love to see more people paired up. Take inequality — force people who have two different sets of numbers to write a paper together, so we can have something that we can reliably understand is the truth on the issue. Or alternatively, understand what those differences are. Yeah, I’d love to see more of that.

On the Jason Furman production function

COWEN: I will close with a few questions about what I call the Jason Furman production function. Who was your first mentor, ever?

FURMAN: Can’t remember that far past high school. But we had a geometry teacher at my high school named Mr. Sturm — just the level of rigor he brought to proofs and thinking was something that I learned a huge amount from.

COWEN: What was special about you in high school intellectually? Obviously, you were smart, but what set you apart? What did you do that was different?

FURMAN: I mostly did what I wanted to do and not what I was told to do. If I wasn’t interested in a subject, [laughs] I did very, very little on it. And if I liked something, I would read 12 other books that no one told us to read on the topic.

I remember when, in the Harvard application, they had you list all the books you’d read in the last year, I wrote down that list. And then I was so terrified they would think that I was a liar, that I ended up cutting that list in half lest they would think I was making things up.

COWEN: I had this problem, too.

You are, to this day, a prolific book reviewer on Goodreads. Why do those? Out of habit? Why choose Goodreads for your reviews?

I remember when, in the Harvard application, they had you list all the books you’d read in the last year, I wrote down that list. And then I was so terrified they would think that I was a liar, that I ended up cutting that list in half lest they would think I was making things up.

FURMAN: I think Goodreads is the third platform I’ve been on. More people are on that platform than others, so that’s why I’m there. I actually don’t even particularly love the platform, but it’s where other people are. I started the reviews for myself just to remember what I thought about a book and why I thought it. And now there’s a few people that are reading my Goodreads reviews, but I still rarely spend more than half an hour on any one of them.

For me, I’m always trying to discover — I think a little bit like you Tyler, although presumably a much lesser version of you — really omnivorous and read in a lot of different genres within fiction and nonfiction, always trying to find new things. Goodreads — I’ve gotten to know if it’s young adult fantasy, it needs to have at least a 4.5 or above or you shouldn’t read it. But it’s not like I’d not read Madame Bovary because it got 3.7, because a bunch of college students were mad they were assigned it.

COWEN: Let me try a very embarrassing question on you. I sometimes tell people that, along a particular dimension, which I can’t quite myself define, that I think you are the greatest economist in the world. A particular kind of policy economist, I guess. But if you had to describe what you think is the dimension of economist where you are the best, how would you put it?

FURMAN: Economists who have been chair of the Council of Economic Advisers and read everything that Charles Dickens has ever written. But yeah, I think you’re kinder about me than I would be, frankly.

COWEN: But there’s some kind of mix of breadth and being analytical and knowing facts and theories about different areas, and having real-world experience, but being focused on policy, not writing a column. You’ve done a lot of published academic research, but it’s not the focus of your life the way it has been for, say, Joe Stiglitz in his earlier years. And along that dimension, who’s better than you? Seriously. Now I’m embarrassing you.

FURMAN: Yeah, honestly, I think you are embarrassing me. I think this isn’t the way I’d think about myself.

COWEN: I know it isn’t. That’s why I’m embarrassing you.

FURMAN: It’s certainly the case for any human being that if you draw the criteria narrowly enough, you can have a set of people that includes just one and they can be the very best in that set.

COWEN: Is it harder to produce Jason Furmans today through the academic process? And is that something we should regret?

FURMAN: I have grad students that come to me and say they love my career trajectory. How do they have it? And I don’t know what to answer them because what I’ve done has been pretty idiosyncratic. I don’t know that it would work out for even one out of ten other people that tried it.

Presumably a bunch of luck, circumstances, et cetera. I think it’s always been hard to have this, maybe a little bit harder now because the think tanks tend to be more tribal, more partisan. So there may be a bit less of a space for just wanting to think what you want to think as opposed to being useful in the short term.

COWEN: And what’s that key idiosyncratic move you made or was done to you, that enabled it to work for you?

FURMAN: I didn’t intend to go into public policy. I ended up almost accidentally at the Council of Economic Advisers in the middle of grad school. I discovered I liked it and ended up staying in government longer than I expected. But there probably have been a dozen things, from Joe Stiglitz calling and asking me to come to the Council of Economic Advisers to something that happened yesterday.

COWEN: Last question — if you’ve read all the Dickens novels, which one is your favorite and why?

FURMAN: Bleak House, for sure. I love that you have a woman’s voice in it, Esther Summerson. I love the huge number of . . . every Dickens thing you can imagine is in that book: villains, heroines, scoundrels. You have a little murder mystery right in the middle of it, a police inspector. I think that book contains everything.

COWEN: On this we fully agree. Jason Furman, thank you very much.

FURMAN: Thank you.