Liaquat Ahamed on Financial Crises, Gold, and the Lessons of 1873

Liaquat Ahamed has spent years making central bankers into compelling characters. His 2009 book Lords of Finance won the Pulitzer Prize for its account of the bankers whose decisions helped cause the Great Depression; his new book, 1873: The Rothschilds, the First Great Depression, and the Making of the Modern World, tells a stranger story — a severe deflationary crisis that barely dented global growth but poisoned politics for a generation. Tyler pushes him hard on the central puzzle of those two books — why did one financial crisis derail the world, while another left growth almost untouched? Tyler and Liaquat start with that puzzle before moving through Gladstone's startlingly self-interested bet on Egyptian bonds, Bismarck's role in destroying bimetallism and deflating the world economy for two decades, whether a global silver or symmetallic standard could have worked, Britain's fateful decision to re-peg the pound to gold in 1926, Hjalmar Schacht's transformation from the economist who stabilized Weimar's currency to opportunist collaborator with the Nazi regime, Montagu Norman's spiritualist beliefs, why the 1920s produced such a creative cultural moment, lessons from the IMF on Ireland's housing bubble and Pakistan's two dozen bailouts, what went wrong in the eurozone crisis, Britain's baffling modern stagnation, and finally to his own restless career and what he wants to write next. Read a transcript https://conversationswithtyler.com/episodes/liaquat-ahamed/ enhanced with helpful links, or watch the full video https://www.youtube.com/watch?v=PEESXA9WXNk on YouTube. Recorded July 28th, 2026. Other ways to connect Follow us on X https://x.com/cowenconvos and Instagram https://www.instagram.com/cowenconvos/?hl=en Follow Tyler https://x.com/tylercowen on X Sign up for our newsletter https://mercatus.tfaforms.net/5060931 Join our Discord https://discord.com/invite/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. Timestamps: 00:00:00 - Intro 00:01:13 - On 1873 vs. the Great Depression 00:15:32 - On bimetallism and the gold standard 00:21:32 - On the 1920s and Weimar hyperinflation 00:29:29 - On Ireland, Pakistan, and the Eurozone crisis 00:36:21 - On Liaquat's career and Ismaili Islam 00:44:37 - Outro

• 0:04Speaker 00

  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.

• 0:25Speaker 00

  Hello, everyone, and welcome back to Conversations with Tyler. Today I am chatting with Lyaket Ahmed, who is the author of a new and wonderful book, 1873, The Rothschilds, The First Great Depression, and the Making of the Modern World, which I enjoyed very much. Many of you will know him as the author of Lords of Finance: The Bankers Who Broke the World, from 2009, a book that won the Pulitzer Prize for History and numerous other awards. Lyaket also has extensive experience in the private sector, dealing with the World Bank and the IMF, and he has headed the World Bank's investment decisions. He's also produced a movie about Iraq and done much more as well. Lyaket,

• 1:10Speaker 00

  welcome.

• 1:11Speaker 01

  Thank you, Tyler.

• 1:13Speaker 00

  I have a general question about how your work fits together. So, your book Lords of Finance, it convinced me that financial crises really matter, and your new book, 1873, almost convinced me that financial crises don't really matter, because the world just keeps on growing. So, what makes for the difference for when, historically speaking, crises will really matter?

• 1:36Speaker 01

  Well, I think the first book, Lords of Finance, was about the financial crisis that really plunged the world into a Great Depression. The second, 1873, is about a crisis that didn't actually plunge the world into a terrible Great Depression, but what it did was cause a sort of sequence of effects throughout the world, which sort of damaged the political economy of the world for the next 20 years. A better title would have been The First Great Deflation.

• 2:14Speaker 00

  We're supposed to believe that deflation is bad, nominal wages are sticky. This was a pretty slow deflation, but by one measure, the major world economies are growing 2.5% over the next 20 years, from 1873 onwards. So, how did we adjust so well to this?

• 2:32Speaker 01

  Because prices were flexible. Nominal wages went down. I think the distributional consequences and the political impact of those distributional consequences were much more damaging than the pure economic consequences.

• 2:50Speaker 00

  So, in the 1920s, and a bit afterwards, of course, you could say politics goes crazy in many countries, most of all in Europe. After 1873, would you say politics went crazy, or it just continued along its 19th century path?

• 3:04Speaker 01

  No, I don't think it went crazy, but it wasn't a happy time politically. I think populism in the United States, protectionism, the resurgence of protectionism in Europe, the retreat from liberal ideas, the revival of imperialism by Britain when it invaded Egypt, those were not happy things that happened.

• 3:30Speaker 00

  I wouldn't endorse any of those, but they sound a bit like business as usual for Europe in the 19th century. So, England goes many places in that century, often with bad results, but Egypt hardly seems like a major outlier, right? There is protectionism throughout.

• 3:46Speaker 01

  Well, it was the beginning of the scramble for Africa and gave a sort of second wind to imperialism, because you could argue that until then, there was actually a retreat away from the growth of imperialism.

• 4:03Speaker 00

  And you view imperialism as a natural expression of liberalism, or as something contrary to its spirit? Because the liberals themselves often favored it, right? There's a whole literature called liberal imperialism as a topic.

• 4:17Speaker 01

  Right. I think it's definitely contrary to the spirit of liberalism.

• 4:22Speaker 00

  But the liberalism of that era, surely it was a doctrine that thought England and some other countries could improve the rest of the world. They thought of that as quite a liberal idea. Malthus and Mill, of course, worked for the East India Company. They don't seem so morally torn over that. I'm not saying they were correct, but isn't that in some way a high watermark of liberalism, to think you can re-engineer the whole world along liberal lines?

• 4:49Speaker 01

  Yes, you're right. They didn't think that they were damaging these societies, but I think the long run consequences weren't happy.

• 4:59Speaker 00

  If we look at the somewhat fragmentary data we have, I see that the estimated rate of per capita economic growth for the United States over the period you consider, it's below 2%. Some sources would estimate 1.7% to 1.8%, but this seems to be the time in American life where just everything is starting to change. It's not fully taking off until the 1920s, but fossil fuels are being mobilized, some centerpieces of modern society are being laid. Am I right to think, you know, below 2% is a mistake, and we're not hedonically measuring the improvements carefully enough, and the real rate of growth was, in fact, considerably higher?

• 5:42Speaker 01

  That's way, that's way outside my expertise.

• 5:46Speaker 00

  But you've read, you've read plenty about this period. You have a sense of life in 1873 and, say, 1896, which is sometimes when the depression or recession is supposed to have ended. And don't you feel that it's a bigger difference than just real incomes doubling every 40 years, which is what, like a 1.8% rate of growth would imply?

• 6:07Speaker 01

  Oh, yes, yeah. No question that it truly transformed the United States. When I talk about the distributional consequences and the political consequences, the thing that I focused on was, at the beginning of the period, the Republican Party looked as if it was going to dominate American political life for a generation or two. It had the presidency, it had both Houses of Congress, and the 1873 depression or crisis and the subsequent monetary policy decisions set that back. You got the revival of the Democrats in the

• 6:50Speaker 01

  South, the congressional election of 74, the Democrats came back, they almost won the presidency in 76. You could argue that they actually did, and only were deprived of the presidency because of the backroom deal. And that set back Reconstruction, that was the end of Reconstruction. It's not hard to trace a line from there to Jim Crow. So, those were all terrible things, I think.

• 7:19Speaker 00

  As you well know, we built a lot of railroads over the last 30 years of the 19th century. There was a boom-bust cycle, but we got the railroads. We still have them, in fact. So, the people who did all that, who extended the credit, should we just think of them as heroes and not villains? They're the good guys in the story, just like the people today building AI. Well, some of them will go broke, whatever. It's their money. They're building stuff.

• 7:45Speaker 01

  Oh, yes, very much so. As you said, that we had boom-bust cycles. We had three booms, three railroad booms, and three busts. We ended up with a fantastic transportation system that knitted the country together. So, yeah, no question, we should think of them as heroes. There were a few villains along the way, though.

• 8:11Speaker 00

  But the institutions of this period, like very loosely regulated credit, if it's regulated at all, and flexible nominal wages and prices, do in part to less regulation, though there might be other reasons. Should we just look back at those and say, oh, that's better than what we have now? Is that the correct conclusion? If you could have a big thing that you're calling a depression, and we just have a lot of steady growth and lay the ground for some great infrastructure, wasn't that just a better set of systems to have?

• 8:41Speaker 01

  Did we have steady growth? Half the period from 1873 to 1896 was classified as recessionary. So, the growth was very opposite of steady. It was very unsteady and highly unstable.

• 8:57Speaker 00

  But the average growth seems quite good, especially if one believes, as you do, that we're underestimating true growth over that 30-year period.

• 9:05Speaker 01

  Yeah, no question.

• 9:07Speaker 00

  Those were just great institutions, or like, why shouldn't we just like them?

• 9:10Speaker 01

  Can we restore flexible prices, and can we get rid of nominal wage rigidity?

• 9:17Speaker 00

  I could lessen it. I don't think our current political system could. I know what to do. Trade union privileges, minimum wages, a bunch of other things, right? So, that's good, or that's bad in your view?

• 9:28Speaker 01

  You know, I don't think it's politically feasible.

• 9:31Speaker 00

  Neither do I, but I could do it. Could you?

• 9:39Speaker 00

  Tell me the story of William Gladstone buying so many Egyptian bonds.

• 9:44Speaker 01

  I don't know whether he was just doing it because, I mean, the story is that when Britain invaded Egypt in the 1880s, Gladstone had put 40% of his net worth into Egyptian bonds. And he accumulated them over a few years, but he'd progressively put more and more money into Egyptian bonds until they were yielding, at their peak, they were yielding probably 12 to 14%. And he thought this was a great buy. And it proved to be a fantastic investment because he invaded Egypt.

• 10:28Speaker 01

  Britain insisted that the Egyptians pay off their bonds at par. There was very little restructuring. So anyone who invested in Egyptian bonds at that point got 100 cents on the dollar or 90 cents on the dollar. The question is, did he take the decision to insist that Egypt pay back its debt because of his own personal stake? Or did he just believe in principle that that is what should happen? The interesting contrast is with Turkey. Egypt owed $500 billion to British and French investors.

• 11:08Speaker 01

  Turkey owed a billion, but because of the greater significance, geostrategic significance of Turkey, they managed to negotiate to have their debt cut in half. So 50 cents on the dollar. And even that 50 cents on the dollar was restructured. So they essentially paid maybe 30 cents on the dollar. The differential treatment of Egypt and Turkey suggests that Egypt got a raw deal.

• 11:40Speaker 00

  But could it be Gladstone thought that insisting on full repayment from Egypt was optimal? And he bought the bonds because he knew he would enforce it. But he wasn't doing it to be corrupt. He simply was trading on inside information, the way you might find today, you know, inside parts of the Trump administration.

• 11:59Speaker 01

  Yeah, probably. I mean, I'm sure he thought that it was the moral thing for Egypt to pay its debts in full. If he could have insisted that Turkey pay its debts in full, he would have also insisted that Turkey pay its debts in full. He just didn't have the power. He wasn't going to invade Turkey. He needed the Ottoman Empire to remain intact as a bulwark against Russia. So, yes, I mean, I think you're right. He didn't invade Egypt in order to make a lot of money on his bond investments.

• 12:38Speaker 00

  But given how Victorian the Victorians were, are you surprised that the Egyptian bonds were yielding 12 to 14%? They don't seem like that risky an investment. If you know Gladstone will back you up and insist on repayment, I would have bought some. Maybe you too, right? You've managed the portfolio of the World Bank. 14% sounds pretty good.

• 13:00Speaker 01

  Yeah, at a time when 14% nominal and goodness knows what real because prices were falling. So, yes, it was a brilliant investment.

• 13:10Speaker 00

  Now, you've done a great deal of reading about this era, you know, starting 1873 or even a bit before. What has surprised you the most or what views have you revised the most as a result of all that reading?

• 13:23Speaker 01

  Well, I think the downturn, i.e. the depression portion, was not that great. That surprisingly, the economy, economic growth was surprisingly resilient. But that's not the most important thing. The striking thing about this whole period was the fractured political economy. Societies were totally divided in a way that they hadn't been before. And the liberalism, which sort of was at its high noon during the mid-Victorian period, took a big retreat.

• 14:01Speaker 01

  It laid the foundations for many of the things that afflicted the global economy in the early part of the 20th century.

• 14:13Speaker 00

  So who for you are the quote unquote good guys of this era? I take it not Gladstone, not Joseph Chamberlain?

• 14:19Speaker 01

  I'm going to disagree, not Gladstone. I think he wasn't a bad guy. The biggest villain in my whole book is Bismarck. He totally, in an attempt to bring France to its knees, he not only imposed this giant reparation bill on France, which then disrupted the financial markets in Europe. He also destroyed what was actually a very stable monetary system, which is bimetallism. I've never quite understood why he decided to hit France while it's down.

• 15:00Speaker 01

  France was the linchpin of bimetallism, held the largest stock of precious metal reserves, stabilized gold and silver prices throughout the early part of the 19th century until 1873. And by destroying that system, he, I think, initiated the deflation, which then had all of the damaging distributional consequences during the last 20, 25 years of the 19th century.

• 15:33Speaker 00

  Is bimetallism stable? Doesn't it tend to collapse into mono-metallism? Because over time, the pegged price, it may be correct at first, but the actual market values will diverge from the pegged price and you end up with one currency or the other, which is okay from my point of view. But it's not really bimetallism in an active sense anymore.

• 15:53Speaker 01

  Not if you have a stabilizing central bank. And France had successfully stabilized gold and silver prices throughout the 19th century. Even after you'd had massive expansions in gold supply, there's even, there's an argument that they could have done it even with the massive expansions in silver supply. So, I mean, you're right. If the, if, if there's giants, giant increases in the supply of one metal versus another, that will cause bimetallism to collapse. But it, there's no evidence that they couldn't have stabilized gold and silver prices.

• 16:38Speaker 00

  But most currency pegs don't last for that long, right? There's plenty of 20th century evidence for that. You might get lucky, they last a while, but eventually the central bank runs out of reserves, runs out of credibility.

• 16:50Speaker 01

  You know, you're right, eventually. But this is not a matter of, after the massive expansion of gold supplies, the bulk of France, and if you'd had other central banks doing the same thing, the central banks collectively, I think, could have stabilized gold and silver prices. They would have probably stabilized gold and silver prices through the big increase in the silver supply of the 1880s and 1890s. They could have then shifted their holdings into gold. So I think they could have kept the bimetallic system going for a lot longer than they did.

• 17:31Speaker 00

  Is it correct for me to think that the South African gold discoveries, in effect, ended the impetus for bimetallism?

• 17:38Speaker 01

  Yes.

• 17:38Speaker 00

  And how significant were they?

• 17:40Speaker 01

  I mean, they essentially bailed out the gold standard. I mean, until then, during the gold drought of the 1870s and 80s, it looked as if the gold standard was becoming a sort of ever tightening vice on the global money supply. I think another decade of declining prices would have been, I think you could have seen the US abandon the gold standard and move to silver. So I think the South African gold discoveries essentially saved the gold standard.

• 18:15Speaker 00

  What do you think of si-metallism as an option? You have two monies, gold and silver, but you don't peg them. You just let the prices float. You deal with the inconvenience of having two monies. Some medieval systems approximated this. Could that have worked for the late 19th century?

• 18:30Speaker 01

  God, you know, I've never thought of it. But yeah, I think that if the goal is to stabilize prices, average price level, I think a group of central banks stabilizing and holding reserves in both metals would have been optimal.

• 18:48Speaker 00

  The countries that were on silver, flat out, Netherlands, Mexico, Austria, how did they do? Like, I was just having a silver standard.

• 18:56Speaker 01

  They devalued. Essentially, India, China, everyone devalued against the gold standard currencies. So they didn't face deflation. So there was no deflation in India. There was no deflation in China, but it meant their currencies were going down. And that would have been hard to think of their currencies as sort of reserve asset currencies. So if the US had joined, become a silver currency, I think it would have delayed the development of the US as a major financial market.

• 19:34Speaker 00

  They say Mexico was not going to have a reserve currency anyway. The Netherlands, from the vantage point of the 1930s or even 20s, the silver standard back then sounds pretty good. Oh, devalue, get rid of the deflationary pressure.

• 19:47Speaker 01

  I totally agree.

• 19:49Speaker 00

  And why did we just push out silver as a money altogether? Do you blame Britain for that or who's the villain there? Is that Bismarck again?

• 19:58Speaker 01

  Yes, totally Bismarck.

• 20:00Speaker 00

  And why did he do that?

• 20:01Speaker 01

  I've never quite understood it. The Germans claimed they wanted to emulate Britain. And Britain was on the gold standard. You can have a bimetallic global system with individual currencies, individual countries being either on gold or silver. That was the situation during the 1820 to 1870. You just need some key countries and key central banks to stabilize the gold and silver price.

• 20:32Speaker 00

  So Bismarck's a bad guy, Gladstone's okay. Who then are the real good guys for you? The ones you'd sit down with, have a beer and say, hey, I'm on your side. Let's plot something.

• 20:46Speaker 01

  I don't, you know, I, I think, I don't think of this system, or I certainly don't think of the 19th century as divided between good guys and bad guys. Essentially, all of the people in charge had no clue how the system worked. I can think of good guys and bad guys in the 1920s and 30s, but I'm not sure that I would think of the 1870s to 1890s as divided between good guys and bad guys.

• 21:20Speaker 00

  But at least post 1815, the 19th century seems like it was by far, and I do mean by far, the most successful human era ever. So it's weird not to have good guys, I think. I have some questions about the 1920s, which of course you're also an expert on. If you had to steel man the British decision to re-peg the pound at its previous parity, that's what, 1926? They did that? How would you steel man that decision? Is it defensible at all? Because Germany chooses a lower valuation, right? And they end up in a lot of currency trouble. They end up with a hyperinflation. The record of fiat currency up to that time was not very good. Like, was it? Although, we know it's wrong, right?

• 22:05Speaker 00

  But was it defensible in some way?

• 22:08Speaker 01

  I mean, it was defensible. I think the problem was, could they have fixed it at a lower price? I mean, or a higher price for gold? Could they have gone back and said, look, all prices have gone up by 50% because of the First World War. We need to revalue gold, all collectively, all change the price of gold. I think that would have been a much better decision because that would have, you know, with the stroke of a pen, increase the availability of global reserves and eliminate many of the constraints of the 1920s.

• 22:48Speaker 00

  If Britain had just gone off gold altogether, said it's a fiat currency world from here on out, would that have worked? Or would that have been a global financial crisis?

• 22:58Speaker 01

  Oh, I think it would have been a global financial crisis. I mean, I think the fear was ultimately, and the example of Germany and France in the immediate post-war period with no link to, to gold, lacked investor confidence would not have allowed Britain to do that.

• 23:19Speaker 00

  So what do you think is the time in world history where a true fiat currency order actually becomes feasible? I mean, is it as late as 1971? That sounds so strange to me. I somehow intuitively have the sense, like in 1890, someone like Sweden could have just done it. It would have been fine. Is that wrong?

• 23:38Speaker 01

  I don't know enough about Sweden.

• 23:39Speaker 00

  But some smaller countries.

• 23:40Speaker 01

  The question is, as long as you had credibility, as long as there was the sort of belief that you would not allow the currency to collapse, people could do it. Could we have had a global fiat currency system? I think we did after 45.

• 23:59Speaker 00

  But there's still a tie to gold through the dollar. Keynes made sure there was. It was weird.

• 24:05Speaker 01

  There was not really a tie to the, to gold. Witness what happened when they broke the link with gold in 71.

• 24:12Speaker 00

  But at least for a few decades, there's a sense if the US inflates too much to just turn seniorage against the world, that the French or someone else will convert into gold. And that did constrain us somewhat, right? Weren't the 50s and 60s pretty good, macroeconomically speaking?

• 24:27Speaker 01

  Yeah. Did it actually constrain us? I don't think so. I think we just.

• 24:32Speaker 00

  Until Nixon, it constrained us, I think.

• 24:36Speaker 00

  Now, the German money printing of the 20s, why does that get so out of hand? The Germans, of course, were pretty smart back then. It's not seniorage maximizing to hyperinflate to the point where people push money around in wheelbarrows. Why didn't they just inflate like at 40 or 60% and try to get through at that level? Why did it go so crazy?

• 24:56Speaker 01

  You know, I, I don't know. It happened over a very short period of time. So that's the first thing. So they lost control. Secondly, were they deliberately doing it to convince the world that they couldn't pay reparations? Or to convince their debt, their creditors that they couldn't pay reparations? Because there was, there was sort of something, I totally agree with you. I think there was, under any sort of revenue maximizing strategy, it didn't make sense. So, yeah, I don't know. But the only plausible explanation is that they said, look, well, the only way that

• 25:39Speaker 01

  we will get out of paying reparations is if they realize that it'll destroy our financial system, which they did.

• 25:48Speaker 00

  I had Katja Hoya, the historian on the show a while back, and she postulated that Gustav Streisemann was a kind of hero of the 20s. His death was a great tragedy. He's underrated. Do you agree with that assessment?

• 26:02Speaker 01

  Yeah, yeah. I mean, I think he was, it was under him that we got the appointment of Schach as the governor of the central bank. He's the one who stabilized the currency. So, yes.

• 26:15Speaker 00

  What's your view on Schach? Why did he turn bad? It seemed he was so reasonable, so smart. Do you think he was always bad? Or he was an opportunist? Or he was pressured? Or we thought he could still do best that way?

• 26:27Speaker 01

  I think he was an opportunist. I mean, he presided over the German economic miracle of the 20s by stabilizing the currency, was never able to get reparations down to a reasonable level, but presided over a Germany that got them down at reasonable levels, borrowed heavily from the US and had sort of economic boom of the late 20s. I think the Great Depression, he always thought the Allied Powers should have done a better job about reducing reparations, and he was quite bitter about that.

• 27:08Speaker 01

  I think when the Great Depression hit, he realized that he did not want to take the fall for that. And that's why he resigned and resurfaced later as Hitler's Minister of the Economy and Central Bank Gartner. I mean, he sort of presided over a second economic miracle in inverted commas, and it was based on the fact that Germany had no reserves, world trade had collapsed, and he had to do the best he could under the circumstances and devise this remarkable system of essentially quantitative controls and import quotas and managed to see Germany

• 27:53Speaker 01

  through the whole rearmament boom.

• 27:56Speaker 00

  What was Montague Norman's weirdest belief?

• 28:00Speaker 01

  I think he claimed that he, people could walk through walls. He had sort of some very weird spiritualist beliefs.

• 28:09Speaker 00

  He was a theosophist, right? Is that where it comes from?

• 28:13Speaker 01

  Yes. But I, I think he was part of that generation of the 1920s where they dabbled in all sorts of esoteric spiritual practices.

• 28:26Speaker 00

  Now, as you know, the 1920s, they're a very rich time culturally for much of Europe. What is it from that period, from culture, that you feel closest to?

• 28:35Speaker 01

  Oh, fascinating question. I'm not a great, you know, I don't know, modernist in terms of literature, so I couldn't say that, you know, I love the sort of modernist novels. So I, I'm not sure the answer to that. I, I never really thought about it. I actually prefer the American novels of the 1920s.

• 28:57Speaker 00

  Like?

• 28:58Speaker 01

  Fitzgerald, Hemingway.

• 29:00Speaker 00

  Yeah.

• 29:00Speaker 01

  Those, rather than Joyce and Ulysses.

• 29:05Speaker 00

  Why do you think it's seen as such a creative period?

• 29:09Speaker 01

  Because we'd eliminated the constraints, and yet there was a much more sort of a shared belief in what was great art, great literature. I know literature better than I know art. So we'd eliminated constraints and yet we, there was a sort of shared culture about what made for great writing.

• 29:31Speaker 00

  Now, there's a third book you wrote, which is much less well-known, and much of it deals with your experiences at the IMF. It's a shorter book. It's quite vertical. I have a few questions from that book. And here's a, a kind of very simple and stupid question. But given the price of homes in Ireland today, and the fact that it's so hard to get anything built, before 2008, did Ireland actually have a housing bubble? Or were those the correct prices?

• 30:00Speaker 01

  God, you're taking me back to.

• 30:02Speaker 00

  And you worked on this, right?

• 30:04Speaker 01

  By the way, I did, although I was not a staff member of the IMF. This book came out of a, a sort of strange idea that you could write about institutions by embedding yourself in for a few weeks and essentially try and describe what these institutions did from a journalistic point of view. And when I started the book, my approach was, let's suppose you are someone whose son has just got a job at the IMF, and you ask your son, what does the IMF do? And this book was designed to provide an answer to that.

• 30:48Speaker 01

  So that was the origin of the book. It didn't do well, and it turns out I'm not a very good journalist.

• 30:55Speaker 00

  It's a good book. I like it.

• 30:58Speaker 01

  Okay, great. So then, turning back to Ireland, I don't think you can judge a mania purely by the level. I think you can judge a mania by the rate of change as well. And prices were going up at an unsustainable rate. People were buying three, four, five houses. And that's sort of, that's, to me, the signs of a sort of unstable economic situation. I think we got that in the US, we got that in Spain, we got that in many places in the world. A bubble has both to do with the level, but also the rate of change.

• 31:45Speaker 00

  But isn't this a bit like the railroads? A lot of the railroad companies went under. We got the railroads built. Ireland needed to build a lot of homes. They actually didn't build enough. People should have been buying 10, 15 homes, not just six or seven. And they didn't have a big enough bubble exposed. No?

• 32:02Speaker 01

  They should have been building homes. I'm not sure. They should have been trading on existing homes. But maybe one couldn't happen without the other.

• 32:11Speaker 00

  Now, as you probably know, Pakistan has been through what it's either 23, 24 IMF bailouts. There's something wrong there, right? Okay, it's a poorly run country. But there's a lot of poorly run countries that don't go through so many IMF bailouts. If we make you dictator of the IMF, what would you do differently?

• 32:29Speaker 01

  I would not respond to pressure from the US to put money into unsustainable countries. It's happened time and time again. And the US has used the IMF as a vehicle for foreign policy objectives, which essentially distort the IMF's very reasonable economic practices.

• 32:53Speaker 00

  The Eurozone crisis, what should we have done differently?

• 32:56Speaker 01

  The optimal thing when people borrow too much is to find a way to restructure their debts. Now, I don't remember all of the details, but it seems to me that should have happened. And I don't, I don't remember quite how that eventually happened. That, it seemed to me, is the flaw in the Eurozone crisis. That was the flaw in the US housing bubble problem. That whole era was we had too much debt by people who couldn't pay it back. And we should have found a better way to have restructured those debts.

• 33:39Speaker 00

  Was the problem that Europe had no distributional mechanism for allocating the costs of that restructuring? Say they had been more liberal with Greece, treated it as Gladstone had treated Turkey. But then which country exactly picks up which part of that bill? I mean, is that the thing that hadn't been solved or something else went wrong?

• 33:57Speaker 01

  No, I think that was essentially the problem. And what you need is a sort of, I don't know, hegemon. Germany taking charge and deciding how that should have happened.

• 34:09Speaker 00

  But Germany was too reluctant because Germany was Germany?

• 34:13Speaker 01

  Yes.

• 34:15Speaker 00

  Why does the United Kingdom now seem economically and politically to be so stuck? They have a system of government that at least on paper allows for a lot of decisive change. And yet they cycle through prime ministers and nothing gets better. And they haven't had much real wage or productivity growth since 2008. What's gone wrong?

• 34:34Speaker 01

  You know, God, I wish I knew. I mean, I totally subscribe to the view that things have gone wrong. I really don't know because there are so many impressive things about the UK. I mean, one of the striking things is how many people, inventors of AI, how many of them were British? An educational system that can throw up that many innovative thinkers and yet not be able to capitalize on it is, there's something wrong there.

• 35:07Speaker 00

  What's a part of the world you're especially optimistic about right now?

• 35:11Speaker 01

  I'm generally optimistic about most of the world, except for, like, I'm not very optimistic about India because of the environmental damage and because of the water problems and the inability of the authorities to deal with that. I'm optimistic about the US just because I think we will see ourselves through this downturn in our political fortunes and the inherent innovation that is coming out of the United States. We'll see us through. I think that, I haven't been to Europe for five years apart from passing through.

• 35:56Speaker 01

  I haven't spent enough time there. But, I mean, I've always admired France, for example. It seems to have hit upon an equilibrium where people like the balance between work and leisure and a lifestyle that works very well. It's a remarkably innovative country. I think it's probably, has more startups than most other countries in Europe.

• 36:23Speaker 00

  But you're a workaholic, right? You've written-

• 36:26Speaker 01

  No, I'm not.

• 36:27Speaker 00

  You've been very successful in the private sector. You've produced a movie. You've written two extremely notable books. You're well-known world over. You have a Pulitzer Prize and you're talking to me about work-leisure balance?

• 36:41Speaker 01

  Well, it's just, I don't like golf.

• 36:45Speaker 00

  What is it you, you see yourself as maximizing? So you left Harvard, you didn't finish a PhD, which I can very well understand. But later in life, you come back, you write these two books when you're not needing them for the income. So what are you pursuing?

• 37:02Speaker 01

  An interesting life.

• 37:04Speaker 00

  And what makes what you do interesting?

• 37:06Speaker 01

  I don't know. Intellectual, sort of intellectual stimulation. I mean, I'm not a, you know, I'm not a great athlete, but ideas stimulate me. I get writing books. When you want to find out about something, writing a book about it is a remarkably good way of learning it. That's what I'm trying to maximize, to stave off dementia.

• 37:31Speaker 00

  David Halberstam's The Best and the Brightest. Why do you find that book so notable?

• 37:36Speaker 01

  Oh, it was, it was probably the first book I read when I came to the United States in 74. And it just remarkable how it opened up the US political system. I mean, I learned so much about how the United States worked just by reading that book.

• 37:57Speaker 00

  GPT said about you, quote, "Think tanks are your hobby." What might it have meant by that?

• 38:05Speaker 01

  Oh, for a while, for a while, I used to kid around that when I retired from the investment business and I was writing Lords of Finance, I joined the boards of several think tanks. I found it quite fascinating because, you know, these are organizations that didn't seem to have the dysfunction of universities, where people were paid to, sort of got a stipend to be able to come up with good ideas. And being on the board of them was, you know, exposed you to some wonderful thinkers.

• 38:45Speaker 01

  I suppose I became disillusioned after a point, in part because these were almost all policy ideas. And policy seemed to have nothing to do with good ideas. And I suppose 2016 was the turning point in my mind. Since then, for the last 10 years, so little policy is driven by great ideas.

• 39:12Speaker 00

  So if old-style think tanks are somewhat obsolete, what should we replace them with?

• 39:18Speaker 01

  God, I don't know. I wish I knew. Maybe sort of a model which was less top-down driven and a model that essentially was more sort of allowing a thousand flowers to bloom and create institutions where you get great writers and thinkers to write about subjects they're interested in and then see what rises to the surface.

• 39:47Speaker 00

  You produced a movie called The Situation and it's set in Iraq. Why did you do that? This gets back to what do you optimize?

• 39:54Speaker 01

  Well, no, I had a friend who was a director. We were talking about the situation in Iraq and it was more and more depressing. This was in 2003, 04. After we'd invaded, we'd met a journalist who'd been stationed there. We approached her about writing the script. And it was a fun project. It was a total failure financially. So I would not do it again, but it was a fascinating project.

• 40:24Speaker 00

  Do you follow how Iraq is doing these days?

• 40:27Speaker 01

  A little bit. I've got a couple of Iraqi friends. Yeah, a little bit.

• 40:32Speaker 00

  Now, I know you're listed as non-practicing, but I'm quite curious about Ismaili Muslims and why they seem to be so much more pro-progress on average than other parts of the Muslim world. Do you have a view on this?

• 40:45Speaker 01

  Yes, very much so, because of our leadership. Ismailis believe in the leadership of Imam Vajir Khan. We believe he's the direct descendant of the Prophet Muhammad. He sets the agenda for the whole community. And, you know, many, many, in the old days, people believed he would, he was divine. He had divine spirit. I don't think many people believe that anymore, but he's invested with so much moral authority that, you know, if he says, "Move to Africa," big chunks of the community will do that.

• 41:25Speaker 01

  And he has charted an incredibly enlightened direction for the community. And it's not very large. There are maybe two or three million Ismailis in the world.

• 41:39Speaker 00

  So you think it's that the Imam is non-hidden that's useful because he's a source of ongoing change?

• 41:45Speaker 01

  Yes, that was the whole rationale for Shiism.

• 41:49Speaker 00

  And why is it so persecuted by the mainstream in Iran? Because it's a threat to the Ayatollahs or?

• 41:55Speaker 01

  I don't actually know how many remain in Iran. It was a very important community in Iran in the 19th century. The Vajir Khan, in fact, came from Iran and moved to India. And the British sponsored him and invested him with the title His Highness, putting him on a par with other Indian princes. I think there were probably 20,000 or 30,000 Ismailis left in Iran in the latter days of the Shah of Iran. I don't even know how many remain there now.

• 42:30Speaker 00

  Maybe this is a naive question, but given that the Ismailis are so successful, why aren't there more of them? You're allowed to convert, right? There's no barrier to entry.

• 42:42Speaker 01

  Right. I mean, all religions have some strange beliefs. And so perhaps believing in the potential divinity of a man is not something that people people believe in.

• 43:00Speaker 00

  But some number of Christians seem OK with that postulate, right?

• 43:03Speaker 01

  Well, not not someone who's alive.

• 43:06Speaker 00

  That's a little harder, but he was alive at some point in time.

• 43:11Speaker 01

  Well, there weren't that many Christians in those days. They believed that retrospectively after after he was crucified.

• 43:20Speaker 00

  Very last question, really combine two questions. But what is it you want to learn about next? And what is it you want to do next?

• 43:28Speaker 01

  Oh, OK. I've been reading a great book about intellectual movement in France during the 40s, 50s, 60s.

• 43:40Speaker 00

  The Ekins book.

• 43:41Speaker 01

  Yes.

• 43:42Speaker 00

  Yes.

• 43:42Speaker 01

  I find that so fascinating. So that's what I'm reading at the moment. What do I want to do next? I would like to write another book. It probably is going to be a book about some aspect of the global economy. And I would like to find a subject that draws on the what I've been doing up to now, which is the interaction among countries with the few central characters sort of driving driving the story, a narrative about the global economy.

• 44:19Speaker 01

  I thought initially, or the one that I've stumbled across is the 71 collapse of Bretton Woods. I'm not sure that has enough broad appeal, but that sort of checks many of the boxes of the things that I find fascinating.

• 44:39Speaker 00

  I hope you do that topic, Lea Katamed. Thank you very much.

• 44:43Speaker 01

  Thank you, Tyler. You took me in directions that I did not expect.

• 44:48Speaker 00

  Always the case. Thanks.

• 44:52Speaker 00

  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 at Tyler Cowen, and the show is at Cowen Convos. Until next time, please keep listening and learning.