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  1. The Weekend Interview
18 November 2023

Tyler Cowen: The UK is still underestimated

The US economist on why he’s bullish about Britain, the potential of AI and what Liz Truss got right.

By George Eaton

In recent years, economists have acquired a reputation for pessimism – not least because there has been much to be pessimistic about. Tyler Cowen is an exception. The US economist, Stakhanovite blogger and cultural omnivore rhapsodises about the opportunities available to humanity.

Earlier this year he joined former prime minister Liz Truss’s Growth Commission, a group dedicated to countering “a sense of fatalist inevitability” over economic stagnation. Ahead of Chancellor Jeremy Hunt’s Autumn Statement on 22 November, I spoke to Cowen, 61, about the UK’s prospects and those of the world. 

Once asked what he regarded as the most important philosophical thesis, Cowen replied: “That economic growth is extremely beneficial”. I began by asking him why. 

“Humanity faces numerous problems, problems of disease, problems of poverty,” Cowen told me via video call from his home in Virginia (where he is professor of economics at George Mason University). “The way to fix those is through innovation. Right now we have two anti-malaria vaccines coming onstream, that’s because of economic growth. 

“We all face tragedies in our individual lives, often eventually of a medical nature, and countries that are growing poorer are not going to fix those problems. Countries that are growing wealthier might.”

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Cowen, whose blog Marginal Revolution (launched in 2003) is read by Rishi Sunak among others, is an evangelist for artificial intelligence. Last month he published a “generative” book designed to be read using ChatGPT and other AI models: GOAT: Who is the Greatest Economist of all Time and Why Does it Matter? His aim was to create a “living” work that readers can add to and subtract from. 

“It’s a very exciting time, it’s like living through the invention of the printing press,” Cowen told me. “Right now, GPT-4 can diagnose medical conditions better than a human doctor. In most of the world, doctors are very scarce or expensive, people are not excited enough about this. It [AI] will enable science to work much faster, we’ll invent many more drugs, medical devices and cures of various kinds.”

Since the 2008 financial crisis, much of the West has struggled with periodic stagnation or worse. But the US is increasingly an exception. It now accounts for 58 per cent of the G7’s GDP, compared with 40 per cent in 1990, and its economy grew at an annual rate of 4.9 per cent in the third quarter, its fastest rate for nearly two years. What explains this remarkable resilience?

“We’ve been living through a time period where the returns to scale are very high,” Cowen said. “The US is very good at scale, for all of our problems.”

President Biden, I noted, has derived little political credit from this economic success story. “Well, maybe that’s a good thing!” Cowen riposted. “We’re demanding more and better. Biden seems unpopular but a citizenry should not be happy too readily. Should the United States be more like Denmark? I would say no but some people might want that.”

Denmark currently enjoys some of the world’s highest living standards and best public services, what is so appealing about this prospect? 

“Well Americans should want those things. We’re the number-one innovator in the world, right? And we’re also some version of the global hegemon. We need to stay that way. If you’re going to do those two things with a population of 330 million, you have to arrange things in a very different manner… We’re looser, more flexible, there’s more risk-taking here. You can’t live off state money.” 

Cowen was raised in Hillsdale, New Jersey, and was a chess prodigy, becoming the state’s youngest-ever champion. But it was speed reading that became his most distinctive attribute. The hyperlexic Cowen, who taught himself to read at the age of two and had economics papers accepted by journals aged 19, once claimed to get through “five whole books” on a good night.

As a 13-year old he was enraptured by the works of libertarian economists such as Milton Friedman and Friedrich Hayek. But while he retains his commitment to the free market, Cowen is a distinctly heterodox libertarian. In an influential 2020 blog, he described his favoured philosophy as “state capacity libertarianism”, one that recognises the indispensability of government for “infrastructure, science subsidies, nuclear power and space programmes”. In Singapore, after all, a model approvingly cited by Cowen, public spending and taxes are low but the state owns banks, airlines and investment agencies as well as 90 per cent of land. 

During Truss’s premiership, as former US treasury secretary Larry Summers branded the UK a “submerging economy”, Cowen defended her radical tax cuts and accused critics of scaremongering. How did he view the collapse of her experiment?

“Well it’s a complicated question, the idea that boosting economic growth should be the central goal of policy is absolutely correct. A number of things went wrong in asset price markets and were blamed on her policies, incorrectly. But media was not handled well during that period.”

When I note how unpopular measures such as the abolition of the 45p income tax rate were, Cowen ripostes: “Well, I think your tax rates are too high at the top! [The top rate in the US is 37 per cent]. If it’s not politically feasible to cut them I understand that too. But I think it’s the right idea.”

Does he worry that Truss’s implosion has damaged the cause of free-market economics in Britain?

“I don’t feel I can judge that but I’ve seen a lot of things in history. In the US the Barry Goldwater candidacy [the libertarian Republican defeated by a landslide in 1964] was considered the end of conservatism and 20 other different things, I’m not sure it was the end of any of them.

“Focus on the ideas, different candidates rise and fall in popularity, there’s no guarantee the ideas will win but don’t overreact to very short-term events. Goldwater morphed into some version of Reaganomics, it wasn’t the same thing but it was hardly the case that those ideas were dead.”

Of Truss’s successor, Sunak, he remarked: “He’s very, very smart, I hope he’s not too smart for other people. I’m certainly rooting for him to succeed.”  

Back in 2021, as the UK was derided by the New York Times as “Plague Island” for its Covid-19 death toll and severe economic recession, Cowen insisted that “Great Britain remains grossly underestimated”. Today, after the UK’s GDP was revised up – meaning the economy is 1.8 per cent larger than before the pandemic – he claims some vindication. 

“That shows I was right! It seems to me each time I’m in London, and I think I was there four or five times in the last year, that people are so dour and gloomy about future prospects. That seems obviously unmerited to me.

“Your fundamentals, especially in southern England, with innovation, top universities, the City of London itself, are strong. People are not talking about the positives enough… You’re not going to be Singapore-on-Thames but in areas such as AI you can be the centre for the whole European Union.”

Cowen similarly believes that gloom about the world economy is overdone. Rumours of the death of globalisation, he argues, have been much exaggerated.

“That prediction is quite wrong. I mean, trade metrics are doing fine… A lot of globalisation is also local. Within India, for instance, different regions trade with each other much, much more than they did 10 years ago. Countries are dealing with supply chain issues imperfectly, but we’ve actually seen political will to address them.”

Tyler Cowen’s irrepressible optimism is increasingly rare on both the left and the right. But to sceptics, he poses a simple question: “Would you rather have our problems today or the problems of 1970? I’d rather have our problems today.”

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