Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema

Scott Sumner didn't follow the typical path to economic influence. He nearly lost his teaching job before tenure, did his best research after most academics slow down, and found his largest audience through blogging in his 50s and 60s, in the wake of the 2008 financial crisis. Yet this unconventional journey led him to become one of the most influential monetary thinkers of the past two decades. Scott joins Tyler to discuss what reading Depression-era newspapers revealed about Hitler's rise, when fiat currency became viable, why Sweden escaped the worst of the 1930s crash, whether bimetallism ever made sense, where he'd time-travel to witness economic history, what 1920s Hollywood movies get wrong about their era, how he developed his famous maxim "never reason from a price change," whether the Fed can ever truly follow policy rules like NGDP targeting, if Congress shapes monetary policy more than we think, the relationship between real and nominal shocks, his favorite Hitchcock movies, why Taiwan's 90s cinema was so special, how Ozu gets better with age, whether we'll ever see another Bach or Beethoven, how he ended up at the University of Chicago, what it means to be a late bloomer in academia, and more. Read a full transcript https://conversationswithtyler.com/episodes/scott-sumner/ enhanced with helpful links, or watch the full video https://youtu.be/iV34kkD61AA. Recorded December 27th, 2024. Other ways to connect Follow us on X https://twitter.com/cowenconvos and Instagram https://www.instagram.com/cowenconvos/?hl=en Follow Tyler https://twitter.com/tylercowen on X Follow Scott https://x.com/ScottSumnerTMI on X Sign up for our newsletter https://mercatus.tfaforms.net/5060931 Join our Discord https://discord.gg/JAVWP7vTxt Email us: [email protected] mailto:[email protected] Learn more about Conversations with Tyler and other Mercatus Center podcasts here https://www.mercatus.org/podcasts.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Tyler Cowen?

  Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. For a full transcript of every conversation, enhanced with helpful links, visit conversationswithtyler.com.

• 0:26Tyler Cowen?

  Hello, everyone, and welcome back to Conversations with Tyler, which occasionally aspires to be a conversation. Today, I'm talking with Scott Sumner. Scott is an extremely well-known economist, known perhaps most for his blog, The Money Illusion, where he was and still is, in fact, the world's leading champion of nominal GDP level targeting. Scott has numerous books on monetary theory and history. He also blogs at Econ Lib, and he is a longstanding Mercatus affiliate, among other things. For many years, he was a professor at Bentley in Massachusetts. Scott, welcome.

• 1:03Speaker 01

  Oh, thank you. It's good to be here.

• 1:05Tyler Cowen?

  Now, for your books on the Great Depression, you once said that you read The New York Times for many years in a row, for, I think, the 1920s and the 1930s. Monetary theory aside, what was the biggest surprise that you learned about that era?

• 1:20Speaker 01

  Oh, it's kind of hard to say. I think the thing that felt interesting about it was to see how people saw things as the events played out in real time. So, you know, before I read The New York Times, it was always sort of looking back on history, knowing what we know now about how things played out, and seeing how people interpreted events like the rise of the Nazi Party in Germany in real time, I found kind of enlightening. And it's kind of hard to put into words exactly why it's enlightening, but it gives you a different perspective, I think, even on current events.

• 1:57Tyler Cowen?

  And you think they weren't panicked enough? Or there was a high variance of being panicked? Or how would you describe it?

• 2:04Speaker 01

  Well, I think, you know, in the case of the rise of the Nazi party, there was no awareness of how transformative, in a negative way, the events would be. You'd see things in the New York Times like, "Experts Expect Hitler to Moderate His Views As He Gets Closer to Power." Obviously, that did not occur. And also, you know, in the field of economics, just seeing how policy shocks were interpreted at the time as compared to how we think of them today. Monetary policy decisions, decisions by Franklin Roosevelt and the New Deal and so on. And I found that very enlightening.

• 2:42Tyler Cowen?

  So when FDR abrogates the gold clause, what was the typical response?

• 2:47Speaker 01

  Well, I think there was different responses, depending on if you were a conservative finance type in New York. You probably would regard that as an outrageous abuse of power. But Roosevelt was pretty popular at the time. So he was doing a lot of things. And I think overall, his actions were widely popular in the United States, partly just because of the difference from what had happened right before. We'd had four very bleak years under Herbert Hoover. The public was ready for, I think it was called bold and persistent experimentation. And so even though some of the actions would have been perhaps regarded as abuse of power in previous period of American history, the public was ready for those kind of decisive actions.

• 3:32Speaker 01

  And so overall, I think his decisions were relatively popular.

• 3:36Tyler Cowen?

  Now, Sweden at that time, as you well know, had fiat currency and floating exchange rates, and they had a much milder Great Depression. When is it in economic history, do you think that it was possible for relatively developed countries to actually just do fiat currency? It didn't work during the French Revolution. There's a monitoring problem, a hyperinflation problem. When did it become the better thing to do?

• 4:01Speaker 01

  Wow, that's a hard question.

• 4:03Tyler Cowen?

  I've thought about this a lot and never made much progress on it. But I feel in 1830, it was still impossible.

• 4:11Tyler Cowen?

  And in the 20s, it's clearly possible, right? How well countries did it is a different matter, but some countries did it well.

• 4:18Speaker 01

  So one way of answering that question is to think about why didn't countries move sooner? And I think one of the problems is that previous experiences with fiat currency tended to be highly negative. So highly inflationary episodes, most notably the period right after World War I, where a number of European countries, especially Germany, suffered hyperinflation. So at that time fiat currency was associated with hyperinflation, highly irresponsible monetary policies. Even John Maynard Keynes had very negative things to say about pure fiat currency regimes. He's today viewed as an opponent of the gold standard, but he didn't really favor fiat currency.

• 5:01Speaker 01

  He favored something more like a Bretton Woods system with some sort of gold peg that could be adjusted in an emergency. And because of those negative experiences, it took a tremendous amount of pain before countries were willing to abandon gold and switch over to fiat money. A modern analogy to that might be the situation in Argentina at the end of the 1990s and early 2000s. So Argentina went through four very painful years of deflation with the currency board regime. And if you wonder, well, why didn't they abandon that sooner, devalue, try to get the economy out of depression? Argentina had previously had decades of painful history with high inflation.

• 5:45Speaker 01

  So the public was strongly opposed to inflationary fiat money regimes, and they were willing to tough out the currency board for longer than most other modern political systems would have stuck with it. So I think you have to look at the painful experience with fiat currency in the recent past and remember the post-World War I hyperinflation in Europe was a recent event for them. And I think that colored the views of policymakers in the early 1930s, made them reluctant to move away from fiat until the pain was so intense that politics forced them off of gold standard to fiat money.

• 6:27Tyler Cowen?

  What's the key missing analytical variable? At some point fiat money becomes quite workable. Is it ease of monitoring the Fed or is it climate of ideas in society? What is it that was different from what the economists worried about?

• 6:43Speaker 01

  Well, you see, I'm not sure it wasn't even workable in the late 19th century. I don't, it's very possible that the US political system was responsible enough in the late 19th century to run a fiat money regime with relatively low and stable inflation. But people just didn't conceive of that as a realistic possibility or a responsible possibility until it was tried and it was discovered. Here's another modern example. Remember when Milton Friedman was proposing floating exchange rates? So that's sort of like an aspect of fiat currency regimes, right? If each country has its own fiat currency regimes, you're likely to end up with floating exchange rates.

• 7:25Speaker 01

  When he proposed that, it was viewed as kind of irresponsible, almost extreme or fringe view of foreign exchange regimes. And a couple of decades later, it was the norm. So sometimes there's a lot of just inertia in how people think about policy possibilities. And until these new options are tried, they're simply not viewed as plausible, realistic policy proposals.

• 7:52Tyler Cowen?

  Was there ever a serious case for bimetallism?

• 7:55Speaker 01

  In favor of bimetallism?

• 7:57Tyler Cowen?

  In favor of it, yeah.

• 7:58Speaker 01

  Yeah, I guess it's, it's generally viewed as being slightly superior to the gold standard in terms of stabilizing properties. I think Milton Friedman thought it was slightly better. There's also a variant called simmetallism, which is not sort of either or gold, silver. It's like the medium of account is a weighted average of the two. So much gold plus so much silver becomes defined as a dollar. And that also has some advantages. And you could think of like inflation targeting as simmetallism going from two commodities to all the commodities in the economy, right? So under a gold standard, you only stabilize one price, the price of gold.

• 8:40Speaker 01

  Under sim metalism, you stabilize essentially the average of gold and silver prices. And under consumer price index targeting, you stabilize the entire average of all prices in the economy. So there's sort of a continuum from gold all the way up to inflation targeting, and everything in between, including targeting commodity price indices and so on.

• 9:03Tyler Cowen?

  To witness events, monetary or otherwise, to where would you like to go back in time? Assume you have immunity against disease and you speak the appropriate languages. Like, I would want to go back to Mexico before the Spanish conquest, probably. But what's your pick?

• 9:20Speaker 01

  Probably not that far back. Because of my interest in economic history, I think the period of the 19th and 20th century is the most interesting for me. I don't know exactly. I mean, the 1890s might be interesting for me because I don't know as much about it as the Great Depression, which I studied intensively. But I think the 1890s probably saw some similar dynamics play out as we saw in the Great Depression. Hoarding of gold, deflationary period, uncertainty about the stability of the monetary system. So going back and seeing that in real time, what were the political issues involved? How did people think about those? That would have been interesting. William Jennings Bryan's famous speech about the cross of gold was during that period.

• 10:05Tyler Cowen?

  So you've researched extensively, the 1920s and 30s, and you've seen a large number of movies from those decades. What do you feel are the biases in the movies? What do we get wrong if we only watch the movies?

• 10:19Speaker 01

  Well, a lot of the Hollywood movies from that period are fairly glamorous because people wanted to escape from the hard times. So you'd see these elegant art deco New York City apartments. And obviously, conditions were very, very bleak during that period. I just watched a TV series called Babylon Berlin, which was in Germany about that time, around 1930. And it really portrayed the poverty of that era in a way that you don't see in Hollywood movies, certainly. And the desperation a lot of people felt at that time. I guess there's probably cultural differences as well. Maybe the culture was more conservative in some sense than the image you get from the

• 11:01Speaker 01

  movies, which is again, a sort of a glamorous, free spirited, you know, cultural scene. But Hollywood is sort of pushing the envelope to entertain people. But the actual views on many cultural issues are probably more conservative than comes across in those films, I would imagine.

• 11:18Tyler Cowen?

  The reputation of the 1920s is that it was sexually radical. And you've seen plenty of movies made before the Hays Code, which feel a bit radical in that regard. What do you think?

• 11:30Speaker 01

  But I think it was only radical relative to what came before, not radical relative to today. Yeah, that's, I'm not really an expert on the culture of that period, but my sense is that there, there were still much more rigid rules about, you know, sexual behavior and so on in that period than in the period I grew up in, in the 60s and 70s. But the movies are presenting a, a certain image that is different from reality. I think you recently saw the film Anora, right?

• 12:02Tyler Cowen?

  I didn't like it. I didn't watch the whole movie.

• 12:04Speaker 01

  Well, someone watching that film might get the idea that things are a little bit more free spirited or crazy in America today than they actually are. Right?

• 12:14Tyler Cowen?

  Maybe they are that way. We don't know, do we? Right?

• 12:16Speaker 01

  Well, you and I maybe aren't in that seat. I don't know. So that's all I could give you on that one.

• 12:23Tyler Cowen?

  Let me ask you some questions about NGDP targeting. Now Carl Schmitt, as you know, is an important thinker from the 20s. And he has the famous saying, it goes something like, the sovereign is he who decides the exception.

• 12:38Tyler Cowen?

  If that is the case, can there ever be a monetary rule at all? Whether or not it's desirable, can we ever get discretion out of the hands of the central bank and treasury?

• 12:50Speaker 01

  Maybe not, but I don't think that's really the right way to think about monetary rules. So to me, rather than think of either or, rule versus discretion, think about it in terms of how rule-like is the policy regime? So we can see, for instance, over the last 30 years or so in the United States, inflation's averaged about 2%, and that's probably mostly because the Fed has decided that's the appropriate rate of inflation. That is more rule-like behavior than the previous three decades, where inflation ranged from zero, almost zero in some years, to double-digit for a considerable period of

• 13:29Speaker 01

  time. And so I would say monetary policy has become somewhat more rule-like over the last 30 years compared to the previous 30 years, and it has the potential to become even more rule-like, despite the fact that ultimately it'll never be a perfectly automatic rule because of the influence of politics.

• 13:50Tyler Cowen?

  Let's say we think of monetary policy as a kind of game between the Fed and Congress, and Congress is always threatening to intervene in the economy, and most of those interventions are ill-considered. So the Fed is not just trying to achieve monetary policy goals, but it's trying to keep Congress at bay. And one of the reasons why it ends up with more discretion rather than less is to limit Congress. So after the pandemic, or the tail end of the pandemic, the Fed is fairly inflationary, but maybe in part it knows, well, if it doesn't do something, Congress will. Is that a useful way to think about some parts of monetary policy? And does it lead us to having to tolerate yet more discretion than we might like?

• 14:35Speaker 01

  It's probably a useful way in some countries, but I think less so in the United States than you might imagine. I think that what happened in the case of COVID and other monetary policy mistakes, it's more a question of the Fed just getting things wrong, misjudging the situation. So, I mean, you can imagine countries where the central banks are kind of forced to inflate for political reasons, to accommodate deficit spending, to monetize the debt. But I don't think that was foremost on, you know, the Fed's mind in terms of the decisions that were made in 2020 and 2021. There had been a shift in sort of the zeitgeist in terms of the way policymakers think about

• 15:18Speaker 01

  monetary policy after a decade of below target inflation and a perception that the Fed had been too, not expansionary enough during the previous decade. So they were determined to not repeat the mistakes of the recovery from the 2008 and nine recession by being more aggressive the next time around. Now, they ended up being too aggressive. But I think that was actually the view of Powell and the others at the Fed, that they needed to be more aggressive. They needed to try for what are called makeup policies to explicitly promote above target inflation for a while to get a quicker recovery.

• 15:59Speaker 01

  And I don't think it was pressure from Congress that pushed them to be as aggressive as they were. Congress was going to do a lot of fiscal stimulus, whether they set interest rates at zero or at 1% during that period. Congress was determined to push a lot of money out in the economy for a variety of reasons, partly for relief, partly for stimulus reasons. And I don't think the Fed was foremost on the minds of policymakers in Congress when they made those fiscal decisions.

• 16:29Tyler Cowen?

  But say during the great financial crisis, the Fed knows if it does nothing on the bailout front, Congress will just do more. And the Fed would rather do it through lending facilities and monetary policy than have Congress get involved. Or no?

• 16:45Speaker 01

  Again, I think the Fed felt that the crisis was very severe and that they needed to do a lot. I think to some extent, they did the wrong things, but in terms of their mindset, they were, particularly Ben Bernanke, who was a scholar of the Great Depression, right? So he was, in a sense, the perfect person to be in that role. And he didn't want to repeat what he saw as the key mistakes during the early 1930s, allowing the banking system to partially collapse and bring the economy down with it. So I don't think, again, they were thinking that much about what Congress might do instead of their actions, but just the crisis right in front of their face that they had to address.

• 17:26Tyler Cowen?

  But how did we end up with this one institution, which by your account is so non-political in its decision-making? That feels quite miraculous in a way. In response to the last few questions, you seem to be saying, well, the Fed just does what it thinks is best. That's a nice place to be, right? But no other part of the government works that way. How did we get to that?

• 17:46Speaker 01

  I don't think the Fed always does what it thinks, what it thinks is best on all issues. So I think the Fed is somewhat political or aware of political constraints in many areas of policymaking. That would include areas like bank regulation, where they have to think about what Congress wants, and even some of the bailout, which I would separate unconventional monetary policy bailouts, asset purchases and so on, from more traditional monetary policy that's just aimed at stabilizing inflation or nominal GDP growth or things like that. So it's the sort of traditional monetary policymaking where I think the Fed

• 18:27Speaker 01

  is actually trying to achieve an optimal path for spending and inflation over time. And they believe if they do that, that will also be politically good for them. Like if, if things go bad for the economy in either direction, too much inflation or too much recession, the Fed will be criticized and face opposition in Congress. But if things are going well, like think about the long green span period where things were going relatively well in terms of the macroeconomy. The Fed's reputation was pretty high.

• 19:02Speaker 01

  So instead of trying to sort of second guess like what does Congress want us to do here or there, the Fed's actually better off in just achieving good outcomes for the macroeconomy and hoping that that results in their reputation being high among the public and among Congress. But when you get to more specific areas like bank regulation, where there's special interest groups that differ in terms of their political interests, yes, politics does play a role in what the Fed does. And, you know, perhaps under the new administration, the Fed will back off a little bit on some of the tightening of bank regulation that's been in the works recently. So there, I think, politics does

• 19:41Speaker 01

  play a role. But I think it's, it plays less of a role in macro policymaking than people might think, with the exception that if you go back in history, yes, you can find examples, Burns and Nixon and so on, and President Johnson as well, where pressure was put on the Fed. That seems to be, to me, to be less of a factor in recent decades. And even under Trump, I don't think the Fed was pressured that much to change its macroeconomic approach.

• 20:15Tyler Cowen?

  Way back when, I recall Brad DeLong saying something like the following, and here I'm paraphrasing, "Well, stabilizing the growth path of nominal GDP, that can be a good thing. What it really means is that we ought to bail out General Motors, because that will make it easier to stabilize nominal GDP without having too high a rate of price inflation." Do you agree or disagree?

• 20:37Speaker 01

  Yeah, I disagree with that. Pretty much with all similar statements, I would even go further. I don't even think bailing out the financial system was the essential problem we faced in 2008. I believe the financial crisis was mostly a symptom of rapidly falling nominal GDP expectations. So in other words, if you stabilize the path of nominal GDP, that takes care of most of the other structural problems in the economy. At that point, you have individual companies failing here or there, individual banks that perhaps were poorly managed. You know, we had Silicon Valley Bank fail recently during an otherwise healthy period in the economy. Those things happen.

• 21:22Speaker 01

  But I don't think those kind of sectoral shocks are crucial in driving the business cycle. As long as monetary policy keeps the total path of spending along a stable growth path, we can let other policymakers address those issues. Congress can decide if they want to bail out General Motors, for instance.

• 21:43Tyler Cowen?

  But can't credit markets break down on their own? So say today, a large private equity firm turned out to be more leveraged than it seems at the moment, and they became insolvent, and that would be a macroeconomic crisis. So I certainly would agree it would be a good idea to stabilize the expected growth path of nominal GDP. But is any kind of credit market intervention needed? And again, Congress is not going to do it well. We know that. So what should monetary policy do?

• 22:12Speaker 01

  Well, so here, if I told you what I'll tell you in a moment, what it should do, some people would interpret my answer as a bailout. But I don't think it is a bailout. So let me explain. Let's say there's a large institution that fails, and it potentially has ripple effects on other parts of the financial system. That's essentially going to lower the equilibrium interest rate in the economy. So the Fed, in order to stabilize nominal GDP growth, might have to cut interest rates sharply, and might have to do some QE or whatever, merely to stabilize the path of nominal GDP growth, given that shock. If they do that, then the ripple effects from the original crisis become far smaller.

• 22:57Speaker 01

  But I think what happens when people look back at previous financial crises that seem to have, that seem to spread on their own, what they're missing is the role of the effect on the macroeconomy. So when there is a banking crisis that starts in one place and spreads, the initial crisis might have been due to mistakes made by that individual bank. But the spread across the financial system is usually because the policymakers allowed nominal GDP to fall sharply. And any sort of decline in nominal GDP that occurs for any reason will tend to make financial crises worse. We saw this in Argentina in the early 2000s, and even in the Great Depression in the United States. When we look back on

• 23:42Speaker 01

  it, we think of it as like a financial crisis causing a Great Depression. But that's not actually what happened. The Great Depression in the US began in late 1929. The banking system didn't get into any kind of serious trouble until more than a year later, when the depression was already quite deep. So the causation clearly ran from falling nominal spending to financial distress. And that shouldn't be surprising at all because nominal GDP is the key variable determining the health of the financial system, given that almost all of our financial contracts are nominal contracts.

• 24:23Speaker 01

  All right, so think of the total nominal income in the economy as the resources that people, companies, and even governments have to repay their debts. If that falls sharply, you will have a lot of financial distress. On the other hand, if there's a financial crisis and that lowers the equilibrium interest rate and policymakers don't respond appropriately, nominal GDP will fall, the crisis will get worse, and it'll look to the average person like the crisis is sort of just building on itself. An analogy I sometimes use is like a cold that turns into pneumonia. Right, it starts as one illness. It might seem to a person like it's just a bad cold, but actually the nature of the

• 25:08Speaker 01

  illness has changed. And this is what often happens in these periods of financial crisis combined with falling nominal GDP. It starts with one type of problem, financial distress, and it turns into a very different type of crisis when nominal GDP falls sharply because of all these nominal debt contracts.

• 25:27Tyler Cowen?

  So if the Fed had listened to you during the great financial crisis, what would have been the rate of price inflation in 2009, roughly?

• 25:35Speaker 01

  I think it would have been a little bit higher than the Fed's target, but not a lot higher.

• 25:40Tyler Cowen?

  But say real GDP was going to fall by 2%.

• 25:44Speaker 01

  But you see, that's what I don't accept. See, I believe that the fall in real GDP was mostly due to the fall in nominal GDP. So in a counterfactual, we know that the trend rate of growth in nominal GDP had been 5% a year going into the slump, and it fell to negative 3. So it's like an eight-point decline in the growth rate. Now, in a counterfactual where they keep nominal GDP growing at 5% a year, let's say.

• 26:15Speaker 01

  Most of the difference shows up in stronger real growth and only a small part of the difference shows up in higher inflation. So the inflation rate in 2009 was actually around zero.

• 26:29Speaker 01

  It might have been no more than 2% or 3% if nominal growth had been that much higher and real growth might have been 5% higher.

• 26:37Tyler Cowen?

  But this is a point where I think I disagree with you, even though I agree with much of what you've said up until now. I worry that by attributing the decline in real GDP to a decline in nominal GDP, that it's on the verge of being tautological, not a literal tautology, but given prices don't move that much, that you're explaining a thing by itself. And I think it would have been quite possible for real GDP to fall by a few percent. And if we had stabilized the growth path of nominal GDP, we would have had price inflation of, say, 5%, which I would have greatly preferred to what we did, to be clear. But I think it's one reason why central banks are reluctant to institute your kind of advice, because

• 27:21Tyler Cowen?

  they know they'll be blamed for a price inflation rate of 5%. Do you see what I'm saying?

• 27:26Speaker 01

  I see what you're saying, but I think that in a way, your instincts that it's almost tautological reflects the fact that you sort of buy into what I'm saying about the interrelationship between real and nominal shocks. I mean, we both know that they're not necessarily at all closely correlated, right? In 2008 and 09 Zimbabwe had a recession and hyperinflation at the same time. So their nominal and real economies are going in dramatically different directions. And we also know that real and nominal variables are radically different variables. So when our instincts tell us that there's something tautological about the correlation between real and nominal GDP in the United States, it's because our

• 28:09Speaker 01

  instincts have recognized the fact that, in fact, most of the US business cycle is due to nominal shocks interacting with sticky wages. And if that hypothesis is true, that model of the business cycle is true for the United States, but not for Zimbabwe. Then what is telling us is that if we can control nominal GDP growth, probably the path of real GDP will also be more stable. Now, it's possible that we do succeed in stabilizing nominal GDP growth, and we find out it doesn't help. But there's an awful lot of circumstantial evidence to support my claim, because we observe, for instance, in the United States,

• 28:52Speaker 01

  that when nominal GDP is more volatile, so is real GDP. That's one thing we know. We also know that some of the volatility of nominal GDP comes from very clear monetary policy mistakes that have been made at various periods of time that can be clearly identified. And so when we see this show up in similar movements in real output, there's just a strong presumption that there's a causal relationship there. Financial markets also seem to treat it like there's a causal relationship. Financial market responses to Federal Reserve policy shocks seem to reflect a view in the financial markets that these things are important for the real economy.

• 29:37Tyler Cowen?

  I think my view would be when you get a very bad recession, it's typically the combination of negative nominal shocks and significant negative real shocks, often to credit markets. And the negative real shocks are not just an epiphenomenon or result of the nominal problem mixed with sticky wages. You have both happening, and the credit market problems don't just go away if you do your nominal job. And then you get back to these situations where you'll need a fairly high rate of price inflation to stabilize the growth path of nominal GDP. So you just think credit market shocks are not that important? Like what Charles Kindleberger wrote? You wouldn't really agree with that economic history? Or how should I frame your view here?

• 30:19Speaker 01

  Yeah, I think the financial market problems are mostly a symptom. Here's another example I could give you. At the beginning of the 2008 recession, the view in Europe was that America was paying a price for our reckless cowboy capitalism, deregulation of banking, less stable financial system than in Europe. And there was almost a little bit of gloating in some quarters in Europe at that time. Now, we now know that the Great Recession ended up being much worse in Europe than the United States. So let's say the standard view is correct, that the Great Recession was caused by the American housing bubble combined with the banking crisis. The recession should have been much worse in the United States.

• 31:04Speaker 01

  We're the ones that had the big subprime crisis. And that was what was expected in early 2008. The recession was going to be much worse in the US than in Europe. But here's one difference. Monetary policy in Europe was clearly tighter throughout 2008 than the US. The ECB was much more hawkish than the Bernanke Fed. That led to the recession being more severe in Europe. In addition, two years later, in 2011, Europeans got spooked by rising commodity prices and a pickup in inflation, which was a little bit misleading because nominal growth was very weak still. They tightened monetary policy twice in early 2011.

• 31:48Speaker 01

  They had a double dip recession. The financial problems ended up being more severe in Europe than the United States. And they were more severe because the path of nominal GDP was much more unfavorable in Europe compared to the United States, even though the United States did not do particularly well. And so I think that again and again, when you look at these cases where there's some sort of monetary policy mistake, America in 1929, Argentina in the late 1990s, you see the monetary policy mistake occurring first in an otherwise healthy economy, then you see the financial crisis developing as nominal GDP is falling sharply.

• 32:30Speaker 01

  But there are other occasions like 2008 where the financial distress occurs first. And this is why I believe it gets misdiagnosed. Because the financial distress occurs first, people think that everything that happened afterwards... Was an implication of just a worsening financial crisis. Whereas what actually happened is the financial crisis causes changes in the equilibrium interest rate that the Fed misjudges. Policy gets off course. Because it's off course, aggregate demand falls sharply. And that is the factor that actually worsens the financial crisis as you get deeper into the process.

• 33:11Tyler Cowen?

  Now, in very late 2024, I was reading a Wall Street Journal article that reported on how many different price indices in China were showing deflation, sustained deflation.

• 33:23Speaker 01

  In which year, sorry?

• 33:25Tyler Cowen?

  This year now.

• 33:26Speaker 01

  Oh, this year.

• 33:27Tyler Cowen?

  People listen to these in future years, so I'm just benchmarking when we're talking. So there's ongoing price deflation in many Chinese price indices. This is considered to be bad for the Chinese economy. Chinese aren't stupid. They have a sophisticated central bank. Why is China tolerating this? Why don't they end the deflation with a more activist monetary policy?

• 33:48Speaker 01

  Okay, good question. So first of all, the deflation they're going through, I would argue, is very similar to the deflation they went through in the late 90s and early 2000s. It's due to the Chinese government being reluctant to weaken the currency sufficiently in the foreign exchange market to maintain positive inflation. And that reluctance seems to be partly due to political reasons. But as you know, governments around the world have traditionally viewed the exchange rate as a very important variable. And so if you focus on a certain set of goals for your exchange rate, you're inevitably going to let go of your ability to control macroeconomic aggregates

• 34:33Speaker 01

  like nominal GDP and inflation. The most extreme example of that is Hong Kong, which has pegged their currency, the dollar, for 40 years. And so essentially, the Hong Kong business cycle and the periods of deflation in Hong Kong are completely correlated with the strength of the US dollar. So if we go back to the late 1990s, most countries in East Asia devalued sharply. There was a severe crisis. China did not. The consequence of China's decision not to devalue when all its competitor countries were devaluing was deflation. That was a political decision they made. More recently, China has allowed a little bit of weakening of the yuan, but not nearly

• 35:16Speaker 01

  the extent that you see in places like Japan. And Japan, despite large depreciation in the Japanese yen, has still only suffered very mild inflation. In China, where the currency is much stronger than in Japan, you get outright deflation. So it's a question of prioritizing exchange rate over macroeconomic stability that leads to these kind of unfavorable outcomes in terms of inflation. Anytime you prioritize any variable above your core goal of either inflation targeting or nominal GDP targeting, you will end up with negative outcomes.

• 35:55Tyler Cowen?

  But why don't the Chinese just give up the exchange rate target? On your account, it sounds like a big mistake. You're saying they're stupid in a sense, right? They don't import that much, so it's not going to be a problem there. It would help their exporters marginally. It certainly wouldn't hurt them. Why not just push the button and do what Scott Sumner says?

• 36:14Speaker 01

  I'll give you an example, and I hope I get the facts right on this. In the early 2000s, there was a lot of criticism from American economists, like, why don't the Japanese just devalue the yen if they want to create inflation? They can get out of the liquidity trap. At the very time the economists were making this suggestion to the Japanese, Treasury officials were putting a lot of pressure on Japan not to depreciate the Japanese yen with the implied threat of protectionist response if they did. So you can argue that essentially, to the extent that the US is able to influence Japanese policymakers, we may have pressured Japan into a long period of deflation by discouraging

• 36:56Speaker 01

  them from devaluing the yen in a way that would have been required to get Japan out of deflation in the 90s and early 2000s.

• 37:03Tyler Cowen?

  But we can't push China around the same way.

• 37:06Speaker 01

  I can only speculate, but maybe part of the reason is fear of the way the US would respond with protectionist measures if there was a sharp fall in the yuan. Now, I'm not certain that's the case, and I'm not certain that China is making the right decision. On balance, I think they'd be better off allowing a little more weakness in their currency.

• 37:27Speaker 01

  I'm not exactly certain all of the reasons why. It could reflect different interest groups within China, some which benefit from a strong currency, some from a weak currency. I don't know enough about the Chinese situation, but if you're asking me, does China have the ability to get out of deflation with a weaker currency? Yes, they do. They have that ability. I don't think there's even any question. One economist, Lars Svensson, called currency depreciation "a foolproof way of escaping a liquidity trap." You can always weaken a currency and create inflation under a fiat money system if you're determined to do so. If you haven't done so, there is some sort of political barrier to taking the steps that

• 38:08Speaker 01

  would be required, or there's simply a sort of cognitive error, like you're not thinking about the problem in the right way, which has also been an enormous problem in monetary economics because of confusion about what low interest rates mean and other things about monetary policy that confuse even policymakers, often into thinking their policy stance is different from what it actually is.

• 38:33Tyler Cowen?

  Let me give you an alternative hypothesis and tell me what you think of it. This is for China. Their banking system is radically undercapitalized. They keep on shoveling money into it. A lot of their credit channels are broken. They believe a more activist monetary policy won't work through credit channels. They do, in fact, know they could get higher price inflation by doing something like printing up currency, but they don't feel they can control that process because they don't have a good theory of how their own monetary base relates to their own price level, and they're afraid to do that, somewhat justifiably, and that's why they keep on suffering under deflation.

• 39:13Speaker 01

  Okay, good, good question. So I think you could have made a similar argument about Japan, say, 12 years ago, right before Abe took office. And Japan had suffered a long period of deflation. There was problems in the banking system and so on. So it was easy to view the Japanese situation in some sense as structural and to blame it on whatever demographics or whatever you want to point to. So Abe ran for office on a platform of inflation. He promised higher inflation. And by the way, that's worth thinking about because of all the recent discussion about how unpopular inflation is.

• 39:54Speaker 01

  Roosevelt in 1930s also ran on higher inflation and was very popular on that platform. So Abe runs for office in 2012 on a platform of high inflation, or sorry, not high, but say up to 3% a year. And things do improve in Japan under his changes in monetary policy. So I think that that's a piece of evidence in favor of the view that these problems that look structural actually have a deeper cause. And that is a failure of monetary policy to achieve the desired objective. And a lot of times,

• 40:36Speaker 01

  I know that the mistake theory is unpopular among intellectuals. You know, a certain policy is in effect because policymakers just don't understand things. It's much more fashionable to view dysfunctional policies like tariffs as reflecting, say, special interest politics of one sort or another. But I think monetary policy is different. I think monetary policy is one area where mistakes actually do occur fairly often. And you get outcomes that governments actually don't want because they're not thinking about the situation in the correct way. And even the policymakers themselves have often failed to really understand the nature of the problem. It's sort of an Alice in Wonderland world where things look one way but are very different, like high interest rates look like tight money

• 41:21Speaker 01

  and low interest rates look like easy money. But often low interest rates are actually reflective of a previous tight money policy that's created deflation. And in that upside down world where it's hard to really understand the meaning of policy indicators.

• 41:39Speaker 01

  It's easy to make mistakes. You know, as you know, there's currently a debate now between Keynesians and what are called neo-fisherians about whether low interest rates are easy money or tight money. You'd think a basic question like that would have been settled decades ago in the field of economics. And if it's that confusing to even high-level theorists, why should we expect policymakers at central banks to always get these decisions right?

• 42:07Tyler Cowen?

  I have a very different question, and this is from a reader. I'm paraphrasing. Scott Sumner's mantra, quote, "Never reason from a price change," is perhaps his best contribution to economic thinking. Are you the one who came up with this? And when did you first use it?

• 42:22Speaker 01

  I don't remember when I first used it, but I'll tell you a story on this. I think I started mentioning this phrase 10 or 15 years ago, either to my class when I was teaching at Bentley College or in my blog. But when I thought back on my early career in academia and my research, I realized that I'd actually been thinking about this all along. So I did a paper in 1989 with Steve Silver on real wages. It's in the JPE. And it's basically a paper that looks at the question of real wage cyclicality and criticizes the previous literature as reasoning from a price change. So there was this debate about whether real wages were procyclical or countercyclical.

• 43:07Speaker 01

  And we ended up with a view that real wages are countercyclical when there's demand shocks and procyclical when there's supply shocks driving the price level. So it isn't just don't reason from an individual price change. It's don't reason from a price level change. Like, don't ever talk about whether inflation is popular or unpopular without thinking about whether it's supply or demand-side inflation, or whether it's inflation trying to get out of deflation. Don't reason from an interest rate change. Never say the interest rate went up, therefore this will happen, or the exchange rate depreciated, therefore this will happen.

• 43:47Speaker 01

  Because the impact of those price changes always depends on what's driving the change. Is the interest rate changing because of the liquidity effect? Or the Fisher effect, or the income effect, and so on? So I actually have been thinking about this since the late 1980s, but I didn't really come up with that phrase until more recently. Once I started thinking in those terms, I started to see this mistake appearing in all sorts of contexts. And probably even myself, I've reasoned from a price change at various times. And I've seen prominent economists make statements that to me seemed to be an example of this fallacy.

• 44:27Tyler Cowen?

  Now, you might be my favorite movie critic of all time, since you are, in my opinion, always correct. So I have a few questions about film. What's your general process for discovering movies to watch? How do you decide?

• 44:40Speaker 01

  Well, first of all, I can't always be correct because sometimes I change my mind about films. I don't actually feel like, what's that?

• 44:47Tyler Cowen?

  Maybe I do too.

• 44:49Speaker 01

  So just the way my brain is wired, I'm much better at visual things than at verbal things. Probably listeners can already suspect that. So when I look at film, I'm focusing mostly on the visual aspect of the film. And that's sort of hard to put into words. I think that a lot of people tend to look at film from the perspective of a screenplay. It's sometimes said that cinema is about cinematography and TV is about screenplays. Right? So people that are really interested in film tend to like movies a lot better than TV shows because the visual aspect comes to the fore.

• 45:30Speaker 01

  And that's what I look for in a film is something that is visually interesting, that expresses artistic ideas in a visually compelling way. But I find it difficult to put into words exactly what that quality is, because it's just sort of intangible. You know it when you see it. Like, there's certain directors that in the first 30 seconds of the film, you just see their signature visual style, right? A Wes Anderson film has a very distinctive visual style. David Lynch and so on. But it isn't just visuals. It's the way visuals are combined with music

• 46:07Speaker 01

  and editing and dialogue that has made film such a rich art form during the 20th century especially. It combines all these things in a way that some other art forms, by comparison, seem a little more one dimensional. Like, I'm a big fan of all the visual arts, including painting. But I think painting as an art form was kind of played out by the early 20th century. At least the visual ideas were exhausted and then goes into conceptual art and so on. But film, because it has all these different aspects combined together, was a very dynamic art form throughout much of the 20th century.

• 46:49Speaker 01

  And I think that's what especially drew me to film.

• 46:52Tyler Cowen?

  Which is the best Hitchcock movie?

• 46:54Speaker 01

  Well, my favorite is Vertigo. That's not necessarily better in a, you know, artistic sense than, say, Rear Window or some of his other classics. But I think Vertigo is Hitchcock's maybe most personal film, where Jimmy Stewart is sort of a stand-in for Hitchcock, in a sense, right? So, as I recall the plot, Jimmy Stewart is at some point trying to sort of mold or reshape this woman into... This dream woman he had met earlier. And Hitchcock as a director is also sort of trying to do that same thing and maybe failing

• 47:38Speaker 01

  in the end. So it seems like Vertigo is in some sense a critique of a certain aspect of a masculine personality. It just seems to be more of a serious, deep film than a lot of Hitchcock films, which are brilliant films but are made to be kind of light entertainment in many cases. Does that make sense?

• 48:00Tyler Cowen?

  Yes, absolutely. You know, for me, it's Vertigo and Rear Window. So on that, I suppose we agree.

• 48:06Speaker 01

  Yeah.

• 48:07Tyler Cowen?

  I like Rope very much. I wouldn't put it at the top, but it's one of the most underrated ones. And Trouble with Harry also, I'm very fond of.

• 48:14Speaker 01

  Very. That whole era was his peak period, I believe.

• 48:18Tyler Cowen?

  I'm never sure which are the-

• 48:20Speaker 01

  Although he was excellent for a long time, but-

• 48:22Tyler Cowen?

  I'm never sure which are the deep Hitchcock movies, though. So ones like North by Northwest, Catch a Thief, I think of as light and frothy, but I don't know, there's some underlying sense of menace. And maybe having more frothiness in it is part of the depth as well.

• 48:39Speaker 01

  Yeah, it's hard to say. There's so many great ones, and some of them are probably less known to people, some of the black and white ones that younger people don't tend to watch as much. You know, Strangers on a Train, Notorious.

• 48:52Tyler Cowen?

  Those are very good.

• 48:53Speaker 01

  Some of those.

• 48:54Tyler Cowen?

  But things like Jamaica Inn, I don't love. They do feel a bit creepy to me.

• 48:58Speaker 01

  That's right.

• 48:59Tyler Cowen?

  Now, if we think of the 1990s, the late 90s, Taiwanese film is quite special. A bit later, South Korean film becomes the thing. Iranian movies for a while, though that probably is mostly over. There's a blip in Romanian cinema. But what's the next location where you're excited about the movie making?

• 49:19Speaker 01

  I don't know. I kind of feel like I've already gone through sort of the peak period for my life. Like, everybody has eras that resonate with them. For me, the East Asian films from places like Taiwan in the 90s were maybe what the French New Wave was to a generation older than me.

• 49:40Speaker 01

  And I don't know if I'll ever really recreate that feeling. And it's, that's not a knock on the movie industry. I think the directors coming along now are perhaps as talented as ever, or more talented. But it's my receptivity to what's being done is maybe not as high as when I was younger. So there's a certain period when you're at your peak ability to receive a certain type of film. And like, I just looked at a list of Matt Iglesias's favorite films. And three of them that I had seen, Dune, Enora, and Challenger. I mean, they seem like good films, but they just, I felt like I was too old for them.

• 50:24Speaker 01

  I didn't really connect with them. And it may be a generational thing.

• 50:30Tyler Cowen?

  I love Matt, but he does not watch enough foreign movies. Like, I think right now Hollywood is pretty terrible. And foreign cinema in this hard to predict diverse way is pretty wonderful. But it's not in any single place, the way it had been in East Asia.

• 50:43Speaker 01

  But even, I'm gonna sound like an old film snob here, but like, if I go back to the seventies and sixties and seventies, when you had those Kubrick and Coppola masterpieces, one after another. I don't feel like I'm seeing that now. But it's possible that they're out there, that I'm just missing them. Or it may be that, like, the directors may be just as talented, but the fact that they're coming later makes them not seem that way. There's, they seem more derivative. Like, you can look at, like, the Coen Brothers, clearly extremely talented directors. But if they had been on the scene 40 years earlier, would they be viewed more highly? Because they would have been more innovative at that time.

• 51:26Tyler Cowen?

  I think so. They bore me a bit. Like, they're fine. I agree, they're super talented. But I don't really look forward to seeing the next thing they do.

• 51:34Speaker 01

  But then, ask this question, though. What happened to Coppola after the seventies? So he has those four masterpieces. Why can't he continue? Like, he, he was presumably just as talented, but maybe he had just run out of ideas. And you know, my view is that cinema has evolved in a way where the more interesting directors today are ones that have sort of a more weird or edgy style, you know, more unusual style because the conventional masterpieces like The Godfather have already been done. So you have more quirky filmmakers like Wes Anderson, David Lynch, and so on, that are pushing the envelope in kind of a mannerist, mannerist direction.

• 52:15Tyler Cowen?

  Do you think there are Hollywood movies, recent ones, that 50 years from now will be viewed as classics and still watched? I'm not sure there will be, actually. Like right now, it's Christmas season. People watch Wizard of Oz again, perhaps. I don't myself like It's a Wonderful Life, but I would grant it's become a classic. Die Hard, which is pretty good, right? That's become a sort of classic, Christmas classic. Are we producing ones like that? And they're not even the best movies, right? But they've lasted.

• 52:46Speaker 01

  Yeah. No, I think that, you know, that's my view. There's, there's, in any art form, there's like a golden era and, or there's multiple in some cases. Like if you take the art of painting, there was an enormous number of masterpieces produced between 1600 and say 1675. The next 75 years, I don't think it's anywhere close to being comparable to that previous 75 years when, you know, Rembrandt, Velazquez, Vermeer, Rubens, all those were so spectacular. And I think they, painting didn't get a lot of momentum again

• 53:25Speaker 01

  until the 19th century, when there was new innovations which opened up new possibilities. So, yeah, I think that in film, certain styles get played out and then eventually somebody develops something new. I'm actually surprised by how vibrant the novel is as an art form because that's been around for a long time.

• 53:46Tyler Cowen?

  It's done fantastically well, yeah.

• 53:47Speaker 01

  It seems inexhaustible, almost.

• 53:50Tyler Cowen?

  How did you like Solenoid, by the way? I know you were reading it. Did you finish it?

• 53:54Speaker 01

  I loved it. I thought, this is one of the, the best novels of the last 10 years.

• 54:01Tyler Cowen?

  Same here.

• 54:02Speaker 01

  And I think, you know, it's like, It's an unusual novel. Like, it seems to me to be kind of a depressing novel. But on the other hand, I consider myself a middlebrow reader, not a highbrow reader. And when I say it's depressing, that may be just superficial and maybe at a deeper level, it's inspiring in some way. But I found it kind of mesmerizing in a similar way to My Struggle by Nausgaard in that sometimes you finish a novel and it's, okay, on to the next one. That was a nice novel. And then there's some novels where you feel like a whole world has been sort of opened up in front of you. And I think My Struggle was like that, and I think Solenoid was like that. And earlier ones like In Search of Lost Time and, you know, some of the classics.

• 54:47Speaker 01

  But, you know, it's more than just a novel. It's a whole world in a sense.

• 54:52Tyler Cowen?

  The author of Solenoid has a new novel out. It's not in English yet. I bought a German language copy. It's long enough, I'm not sure if I'll read it in German. But at some point, it will be coming, so you can look forward to that.

• 55:04Speaker 01

  Okay.

• 55:04Tyler Cowen?

  But I think it suggests you don't have less enthusiasm for wonderful new creations. And that you should, at least by your own standards, decide a lot of cinema is worse. It's not that you're incapable of appreciating it.

• 55:17Speaker 01

  Well, there was, I can't get the quote right exactly, but Susan Sontag said something to the effect of like, are artistic masterpieces still possible? And then she said, or are we not receptive to the possibility of future masterpieces? Is the problem they're not being produced or that we're no longer receptive to them? I think it is somewhat of an open question. You can become, you can consume so much of any art form or multiple art forms that you become a bit jaded. And I don't know, it'd be interesting to, to think about what younger viewers that are very talented at, you know, the arts, think of directors like, say, Kubrick.

• 56:00Speaker 01

  As compared to how I view Kubrick. So I saw the Kubrick films when they first came out, but he's been very much imitated. So maybe younger viewers would be less impressed by some of his films because they would think, well, I've seen that before. But of course, what they saw before was actually after he created that innovative style. But we've just have so much material flooding our senses that it may be more difficult. Like, could you imagine someone coming along like Bach or Beethoven in classical music in the next decade and having that impact? Wouldn't you agree?

• 56:42Tyler Cowen?

  It seems quite unlikely. Yeah, extremely unlikely. But Philip Glass had real impact on me. The early works, not the equal of Bach or Beethoven, of course, but it shook my world when I heard Einstein on the beach and some of the other operas. And it was genuinely new and it's held up. I think people still love it. And 50 years from now, it will still be with us. So there were some things in classical music, if glass is even that. And certainly in popular music, there's been plenty, not in the last 10, 15 years, but pretty recently.

• 57:17Speaker 01

  Yeah, I think so. And you asked what might hold up. I don't know if there'll be classics like It's a Wonderful Life and that sort of classic. But I think films by like Wes Anderson may hold up well because his style is so distinctive, his visual style especially.

• 57:36Tyler Cowen?

  Christopher Nolan, what's your view there?

• 57:40Speaker 01

  Yeah, I mean, I think that the films are usually pretty entertaining, but he's not one of my top directors.

• 57:49Tyler Cowen?

  What's missing?

• 57:50Speaker 01

  Fairly, they're, they're very skillfully made, but Stylistically, I see them as fairly conventional. So if, did he do the Batman film with the Joker?

• 58:03Tyler Cowen?

  Oh, he, he did a Batman film, but it's escaping me which one?

• 58:07Speaker 01

  Yeah, I think, I, I sort of thought, so like, if you look at the Batman films, the one where the actor who passed away, unfortunately, I forgot his name, who played the Joker, that one kind of caught my attention because of that performance. But generally speaking, those sort of big budget, modern action films don't interest me all that much. But his, his films are certainly more interesting than typical inception, intercellar and so on are, you know, intriguing to watch, visually dazzling. But as I get older, I guess I tend to migrate more towards sort of like quiet films.

• 58:50Speaker 01

  So when I go to the theater now, I'm often seeing something that's a fairly quiet film, but the previews that appear before the movie are just nonstop, you know, car chases and explosions. And I feel sort of overwhelmed and I think to myself, well, that's probably not for me, even though the actual film might be much less intense than the preview.

• 59:12Tyler Cowen?

  Ozu gets better and better, right?

• 59:14Speaker 01

  Yeah, Ozu would be a classic example. And to be honest, many of the films I like today, I would have been bored by when I was young. So when I was young, I would have liked Christopher Nolan much more than Ozu. And it's, it's sort of, I cultivated a little more patience. And I've learned that with patience comes the ability to absorb certain types of art that you're not able to absorb if you don't make the effort.

• 59:44Tyler Cowen?

  For our final segment, I have just some basic questions about your history. How did you end up going to the University of Chicago for an economics PhD?

• 59:54Speaker 01

  Well, I was a fan of Milton Friedman.

• 59:57Tyler Cowen?

  But how'd that happen? Like, what's, what's your origin story? You know, Batman has one. Where'd you come from?

• 1:00:03Speaker 01

  So I grew up in Madison. I went to the University of Wisconsin as an undergraduate. I actually was accepted at Chicago, but for financial reasons, I went to Madison for my undergraduate years. And then for graduate school, I only applied to Wisconsin and Chicago. That was it.

• 1:00:23Speaker 01

  So I should say that at that time I was very ignorant about how the world worked. And I wasn't very career oriented, very ambitious, very sort of linked into what was going on. And so I'm not recommending my career path to anyone else. But I applied to those two schools and Madison was my fallback school in case I didn't get into Chicago. But I was interested in free market economics at that time. And so that's what drew me to the University of Chicago. And, and actually, again, this may be nostalgia on my part, but I feel like it was almost at its peak in the 1970s.

• 1:01:00Tyler Cowen?

  It was, of course.

• 1:01:01Speaker 01

  There was a lot of interesting stuff being done there, a lot of people that were getting Nobel prizes or would get them in the next few decades for their work done about that time.

• 1:01:11Tyler Cowen?

  How did you fit in with your other Chicago classmates? Were you an outlier or loner or center of attention? Or how did that all work?

• 1:01:20Speaker 01

  My personality was kind of shy. So the biggest problem I had is I didn't interact much with faculty. But I did have some students that I studied with. In those days, grad school is very different. So first of all, it was very non-technical. You didn't have to know a lot of math or statistics. In addition, they would admit about 60 students a year. And they would basically flunk out half of the class within a few years. They had pretty strict core exams and prelims. So there were big classes. It wasn't like small seminars like imagine you get in a lot of places now, except the upper level classes were smaller.

• 1:02:01Speaker 01

  It was very kind of contentious and it didn't bother me at all. But many years later, I began to read about, you know, gender problems in higher education, how a lot of women don't like the kind of style that was used in Chicago seminars. Very argumentative and aggressive. I just accepted that as normal when I was young. But that was, I suppose, a distinctive feature. Definitely the Chicago students. Tended to be really good at intuition. So the view at that time was like the MIT students were really good at the technical side of economics and the Chicago students were good at the intuition because we were constantly being trained on sort of real world story problems where you'd apply Chicago

• 1:02:46Speaker 01

  price theory. So that education was helpful to me later on when I got into blogging. I think it gave me intuition to think about certain issues in a way that I wouldn't have had maybe if I'd gone through a more technical program somewhere else.

• 1:03:02Tyler Cowen?

  And why do you think it is in your career you were a late rather than early bloomer?

• 1:03:07Speaker 01

  I guess it's personality flaws.

• 1:03:11Tyler Cowen?

  Well, strengths also, right? There's plenty of people who never bloom.

• 1:03:16Speaker 01

  My parents probably should have held me back one year even to go to kindergarten.

• 1:03:22Speaker 01

  So I was, you know, I wasn't a particularly good student or as an uneven student all along the way. I wasn't particularly ambitious. I'm not sure why. And yeah, it's kind of weird. I mean, I got into blogging 15 years ago and it, it put me into a different world whereas interacting with a lot of people, mainly, you know, electronically interacting. But I'd been much more of a loner for most of my life. So when I look back on that earlier period of life, it almost feels like a different person now. But I can't analyze exactly why I was a late bloomer, but it was clearly an aspect of my personality. It wasn't like I was held back by something artificial.

• 1:04:04Speaker 01

  I just wasn't applying myself as aggressively or forcefully as I could have. But when I would get under the gun, I would at the last minute somehow get things done that I need. Like I almost didn't even stay at Bentley. And then I did my dissertation very quickly, right before they were going to fire me. I went in ABD. And then a few years later, I actually got turned down for tenure for lack of publications. And then quickly got a few publications, including the JPE article I mentioned. And so I got tenure by reapplying under different circumstances. So I was treated actually very well, like many schools I wouldn't have even survived

• 1:04:49Speaker 01

  at. And then unlike a lot of faculty, I did most of my research after getting tenure, almost none before. And so I had a very odd career that didn't fit the normal mold. I didn't pursue topics that were trendy. I just pursued things I was interested in. Even my dissertation, Lucas was my chair at Chicago and I did currency hoarding. Well, that's an odd thing for someone to do studying under Lucas, who's known for rational expectations theory and so on. So I just pursued what interested me. And for decades, I pursued work on the Great Depression. I think my book on the Great Depression is the one book I'm proud of. I think there's some, you know,

• 1:05:32Speaker 01

  useful academic contributions in that book. The other books I wrote are more just popularizing my blog posts, but that book I did a lot of real research on. So it's been, I guess, kind of an unusual career in that sense, not following the conventional path.

• 1:05:50Tyler Cowen?

  Final question. What will you do next?

• 1:05:52Speaker 01

  Well, I'll be 70 next year, so.

• 1:05:54Tyler Cowen?

  That's young.

• 1:05:55Speaker 01

  No. So I'll tell you, I think that in my mid 30s, I just quickly transitioned from young to middle age. And I think in my mid 60s, I just transitioned from middle age to old. And after that transition, it's no longer about what I'm going to do. It's like, okay, I've basically done what I'm going to do. I'm not going to write any more books. And I'm going to do, try to just sort of enjoy life. But I think enjoying life does involve being productive in some sense. So I rebooted my blog a few months ago, trying to make it better and more

• 1:06:33Speaker 01

  enjoyable. And so I'll pursue that as kind of a half job, half hobby type of activity. So I'll keep busy. But other than that, I'll just do things like travel and movies and read novels and so on, things I enjoy. I don't have any major career objectives, not to sound too morbid, but.

• 1:06:57Speaker 01

  I really feel like my life is 95% over or 98% over because even if I have another 20% of my life left in front of me, time goes by so much faster when you get older that in a subjective sense, that 20% of my life is only a few percentage points. Because when you're young, time goes so slowly. So it makes you kind of look at things a different way than when you're middle aged or young. I hope I'm not depressing your listeners, but don't tell yourself, oh, I'll wait till I'm retired and then do all these fun things because you may find you don't have the energy at that point.

• 1:07:38Tyler Cowen?

  Scott Sumner, thank you very much. It's been a pleasure.

• 1:07:41Speaker 01

  Thank you.

• 1:07:45Tyler Cowen?

  Thanks for listening to Conversations with Tyler. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other listeners find the show. On Twitter, I'm @TylerCowan and the show is @CowanConvos. Until next time, please keep listening and learning.