"World of DaaS"
deep dive into Data-as-a-Service (DaaS) businesses. World of DaaS is a podcast for data enthusiasts, by data enthusiasts, where Auren Hoffman talks to business and technology leaders about all things data - building it, acquiring it, analyzing it, and everything in between.
"World of DaaS"
Alex Tabarrok - Unpacking the Decline of U.S. Economic Dynamism
Alex Tabarrok is a professor of economics at George Mason University and the co-author of Marginal Revolution, one of the most popular and long-running blogs on the internet.
In this episode of World of DaaS, Alex and Auren discuss:
- The decline of American dynamism
- Challenges to innovation
- Crime and bail reform
- Preparing for the next pandemic
Looking for more tech, data and venture capital intel? Head to worldofdaas.com for our podcast, newsletter and events, and follow us on X @worldofdaas.
You can find Auren Hoffman on X at @auren and Alex Tabarrok on X at @ATabarrok.
Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)
Hello data nerds. Welcome to World of DaaS. I'm your host, Auren Hoffman, ceo of Safegraph and GP of Flex Capital. Discover more episodes. Get weekly data as a service. News at worldofdascom. That's spelled worldofdascom, all right. Hello fellow data nerds. My guest today is Alex Tabarrok. He is a professor of economics at George Mason University and the co-author of Marginal Revolution with one of my good friends, tyler Cowen, and one of the most popular and long-running blogs on the internet. Alex, welcome to World of DAS. It's great to be here. I'm very, very excited. There's a sense that the US is less dynamic than in the past. What is an economist's explanation for this?
Alex Tabarrok:Well, economists have done a great job at documenting this fact. So we know that the number of startups as a percentage of the economy is down. There's less turnover, firms are getting older, firms are getting bigger. We don't exactly know why, but I think it is worth emphasizing this point, just on the facts, because it runs completely counter to the conventional wisdom. Conventional wisdom is that, oh, in the 50s you got a job at IBM and you stayed there all your life and you got a pension, and now you have to get multiple jobs. No, it's not true. It's the exact opposite. Today, most people are going to be working for a very large firm, a firm with 500 or more employees, and those firms tend to last. They tend to be much older than they were before. There's fewer startups and fewer people are working in those startups.
Auren Hoffman:There's fewer startups because there's more opportunities. Back in the day it might be hard to get a job, especially maybe if you didn't know the right people or you didn't look a certain way, and now it's just much easier for people to get a job. It's obviously much easier if you can get a job on these big companies. It's much easier for your life than to like go through the rigmarole of all the startup stuff.
Alex Tabarrok:We talk about the decline of dynamism, but we're not entirely sure whether this is even a good thing or a bad thing. You can also call dynamism churn. So you say, well, there's a decline in churn, that makes it sound good. Why are the big firms not going out of business? Well, you could say. Well, it used to be the case that a big firm would get old and ossified and along would come a new firm and would just steal all their business. And now the big firm is maybe more nimble. Maybe information technology has made that big firm more nimble, like Zara and fashion, and they can change more quickly. Walmart changes its stock more quickly information technology, so that's a possibility.
Auren Hoffman:And if the big firm is not doing well, there are plenty of private equity people to come jump in and try to make it do better.
Alex Tabarrok:Right exactly Now. That story it might be true, but it runs against this counterfeeling that the economy has become less productive and productivity has not been going up and wages have not been increasing as fast as in the past. So if you want to tell a story to make both of these things go together, then decline in dynamism maybe is a bad thing, but I don't think we know that for sure.
Auren Hoffman:Your colleague Tyler Cowen, and people like Peter Thiel have a theory that we're just inventing less things, we're doing less science, we're doing less breakthroughs. We're not increasing at the pace that we had in the past. How do you feel about that?
Alex Tabarrok:So there's a couple of theories of the decline of dynism. One is the Tyler Cowen kind of Robert Gordon, peter Thiel theory, which is that why do you start a new firm? Well, one reason to start a new firm is if there's a new idea, some new technology, and if there's been a decline in this fundamental ideas and technology, then maybe that's what's causing the decline in dynamism and maybe we're coming out of that. Tyler seems to think that mRNA technology, things like this artificial intelligence, maybe we're coming out of that. It's still we're not seeing that in the productivity statistics. It hasn't gotten down to where we can measure that. It looks that way but we're not seeing it in the stats.
Alex Tabarrok:The other theory is that it's actually a decline in the growth of the labor force. It's actually a decline in the growth of the labor force. So here's another reason to create a new firm is firms can't get bigger and bigger forever. There are economies of scale. So if you have a lot of people coming into the workforce, then you need to create new firms. Then think about it slightly differently on the consumer side. Suppose you have a new city. Well, in that new city you're going to need some new restaurants, and so that automatically, just because you're growing, you get more firms, you get more startups and maybe, as a side benefit of that, of the new city, the new restaurants, you get a few McDonald's. That is, you get some really innovative ones. It's just this growth in labor force or in consumption, consumers, and that just requires new firms and maybe their spinoffs, which gets you productivity.
Auren Hoffman:So if the US population was going from 300 million to 600 million in the next 50 years or something, then that also could potentially spark a lot more innovation or something.
Alex Tabarrok:Absolutely. And of course you lay on top of this that the most innovative people are the immigrants. There's an interesting reason. I mean, I traveled to India quite a bit and in India most people they work for themselves precisely because, as you were saying earlier, they can't get a job at a nice cushy big corporation with lots of benefits and so forth. You are literally on your own. You have to start your own business. When those people come to the United States, it's much more familiar to them to start a business.
Auren Hoffman:How do you square that with? A lot of the people who track the decline and dynamism track it to like the 70s, and that is when the immigration boom in the US started. Right around then In the 40s, 50s, 60s, the immigration was at an all-time low in the US and then it started rocketing up. How does that jive?
Alex Tabarrok:I mean, lots of things could happen at the same time and the 1970s is weird For multiple reasons. It's a very weird decade. Crime started going up. That was definitely not caused by immigration and you had all kinds of massive numbers of assassinations. You've got bombings In 1970, there was something like 275 bombings in the United States. There might be five or six today. Serial killers were huge. Inflation went crazy. You can't blame that on the immigrants. I think a lot of things went wrong in the 1970s. The puzzle really is more why didn't we recover? Because we never really recovered. There was a brief increase in productivity in the 1990s, mostly in the retail sector. Walmart did fantastic. But even into the 2000s and today productivity growth in manufacturing has been flat for like 10 years. It's shocking.
Auren Hoffman:Yeah, it's crazy Part of your research. In one of your papers you concluded that federal regulation was not the cause of decline in American Dynastism, and I would think most people listening to this podcast would be shocked by that. Walk us through that and then a few other questions around that.
Alex Tabarrok:Yeah, I mean, I was shocked by that and it's a bit depressing.
Auren Hoffman:How do you even know that? Like, how did you figure it out?
Alex Tabarrok:We have a big database. There's a code of federal regulations and there's a reg data database, which is a product of Mercatus, which goes through that code and looks at all of the restrictive words, words like shall not prohibited, those kinds of binding words, and it counts those up in each section of the Code of Federal Regulations. And then there's a machine learning technique which says well, what's the probability that this part of the Code of Federal Regulations has to do with this industry? So if there's some words in there like deep pit mine, well then it's probably to do with the mining industry of those textiles. So we can associate each part of the Code of Federal Regulations with an industry and we know how many restrictive words are in that part. So you sum it all up and you get a measure of the amount of regulation by industry.
Alex Tabarrok:And what we found was that, essentially, dynamism has declined in all kinds of industries in the highly regulated ones, in the less regulated ones. It's declined in manufacturing, it's declined in services. It's declined in industries which have a lot of import competition. It's declined in industries which don't have a lot of import competition, industries which don't have a lot of import competition. This kind of finding is depressing in the one sense because if it was regulation, well we know how to fix it, because I have less regulation. Instead, it suggests it must be something economy-wide, like labor force. So that makes sense that it would be in a lot of industries. If it's the decline in the labor force, or if it's decline in this fundamental ideas, science, part of it, that also makes sense. Since we wrote that paper, there's more supportive information has come to light and that is this decline in dynamism appears to be international. So it's happening in Europe, it's happening in most of the developed economies. Whatever it is, it's something pretty big and fundamental.
Auren Hoffman:There's this trope that, starting maybe in the 80s, many of the best physicists, engineers et cetera that maybe normally would be starting interesting things, inventing different things, all went into finance because the pay was just too good and it kind of attracted all these people and that really hindered certain type of innovation. What do you think about that?
Alex Tabarrok:that really hindered certain type of innovation. What do you think about that? A lot of them, it is true, were pushed into finance, but it wasn't pulled Like. If they're just being pulled into finance, that just makes it more profitable to be a physicist and you just get more physicists, more people going into getting their PhDs, and so forth. It was the case that the decline of NASA and decline of some of the big projects we didn't do in the United States we didn't do a collider, so that meant that there was some push, there was less demand for them in physics and so they ended up going into finance. But I don't think it was the case that finance pulled these guys away in a way which harmed the economy. After all, we're talking about hundreds of thousands of the Small numbers. Yeah, we can get more physicists if we really had the demand for them.
Auren Hoffman:You could make a case that innovations happen from a very small number of people and in just diverting some of those small number of people to an area where they might make a lot of money but may not introduce a lot of innovations, could could really affect things. Or do you not agree with that?
Alex Tabarrok:I mean it's possible. But there's also spillovers, a lot of these guys in finance. What are they doing? Well, they're doing machine learning and they're doing signal processing. So that just encourages the research in that area. I mean, some of it is in the general, you know, rent tech.
Alex Tabarrok:Yeah, exactly, You're at Renaissance you can't tell anybody about it, you're just making money. Some of it is hidden away. That's true. I suspect that Rentech Renaissance invented AI like 10 years before anybody else. Totally, however, I think there are spillovers. There's a general if you can make more money in physics, more people go into physics. Not all of them go into finance and the knowledge of signal processing it does spill over. So I don't think a simple reallocation of talent is the story the world has got a lot of talent.
Auren Hoffman:Since the pandemic, we have seen a lot more businesses being started. Is this a real reversal, or do you think this is just kind of a one-time blip, or how do you think about it?
Alex Tabarrok:That also is weird because it doesn't fit any of the stories which I gave you. It's not like science suddenly, you know, improved, or regulation declined or the labor force suddenly grew. None of these stories fit the increase in business startups in the pandemic and following the pandemic I think it's a blip. The story that I would tell is something like this After the London bombings there's a nice paper on this the metro in London was shut down and people looked at how do people get to work?
Alex Tabarrok:And because the metro was shut down, they had to find a new route to get to work. Then the metros opened up again and what they discovered is that a significant fraction of these people continue to use the new route, not the old. They didn't go back to the old route, even though the metro was open. So that suggests that this push got people to think a little bit differently, got people to try out something which they had didn't before, and then they realized, oh, this is actually better. So I think, in the same kind of way the pandemic a lot of people were out of work, they were looking around for something different. They decided OK, I've been shoved, I've been pushed, Now's the time to take some chances, take some risks. Let's start something that gets us a temporary boost. I hope it lasts, but my thing is that it is a blip and it will go back down In the same way. Crime went way up in the pandemic and then is trending back down again things like that. It's too early to draw very many conclusions.
Auren Hoffman:It is certainly much easier today to create a side hustle than it was in the past. So you can be employed or you could be a student, whatever. But then you do something else and you make a little bit of income on it, and there's so many different platforms to help you do this today and potentially some of those side hustles could become real significant businesses one day. How do you think about this adding to dynamism?
Alex Tabarrok:That's very plausible. I hope it's true, but we have yet to see it in the data. That's something which at least dates to the iPhone. So the rise of gig work, that's not something in the last two or three years, it's more something in the last 15 years and we didn't see it earlier. I hope that's true, but it's not in the data yet.
Auren Hoffman:Back in the day, in the 30s, there were all these massive projects like Hoover Dam, and then in the 50s there was the interstate system. In the 60s, you had NASA and the moon landing. I know you're a libertarian, but these are amazing government programs that also did a lot of good. How do you analyze these projects?
Alex Tabarrok:As a libertarian, I'm much more concerned when the government says you can't do something than when the government does something. So I'm not that bothered by the Hoover Dam or the space program. You know, even Ayn Rand liked the space program.
Auren Hoffman:Golden Gate Bridge or something like that.
Alex Tabarrok:A lot of that is complementary to the private sector. We need energy, the transportation system makes it cheaper to move goods and services around, and so forth. I'm not terribly concerned about that. I do think that the space program was the last gasp of the 19th century Victorian, dare I say, manly approach to conquering nature and breaking out into new frontiers, space the new frontier, and we've lost some of that.
Auren Hoffman:Are we just not ambitious enough? Are we too timid? Are we just too worried about people dying? A lot of people died in the space program. A lot of people died creating Hoover Dam and stuff. What's the reason why government doesn't seem to be able to do anything big anymore?
Alex Tabarrok:I mean, it's all of those things. And I think also, look to steel man this you can say well, look, you had World War I, you had World War II. These are like massive technology you got tanks, you got nuclear weapons, you had the Great Depression. You've got environmental problems, which were real, overstated, but still are real, and I think people just got this idea that technology was something to be feared and was something that was a negative, and some of that was understandable. You had Three Mile Island, later Chernobyl and people no, we can't have energy, we can't have nuclear. Jimmy Carter, you got to put on a sweater.
Alex Tabarrok:To me that is so anti-American, this idea that the way to deal with a problem is to say, well, reduce your consumption, the American way is to grow. We definitely have lost some of that. Part of it is courage and ambition and those kinds of things and fear, safety, all that stuff. And then the second part of it. Part of it is courage and ambition and those kinds of things and fear, safety, all that stuff. And then the second part of it, I think, is government just got too big, the scope got too big. Basically we have and I'm going to qualify this it's going to sound crazy, but we have sort of a totalitarian government now.
Alex Tabarrok:It's not totalitarian in its means, but it's totalitarian in its ends, in the sense that whatever the problem is in society today, the first thing people turn to is the government. It doesn't matter how small or how big the problem is, what kind of problem it is, it's the first thing that people think about. So education, health, environment, business, dynamism oh, what's the government solution to this? So the government really does have its finger in every single potential pie. I was looking the other day at the Code of Federal Regulations and the regulation of sausages and it tells you well, for sausages, the meat has to be ground by so much and you have to have so much salt, and it has to be cured for 60 days, but not 90 days. It goes on and on, paragraphs and paragraphs. So the government is just everywhere. It is totalitarian in its ends.
Auren Hoffman:Instead of just saying it needs to be safe. That would be much better. And then people can kind of figure out.
Alex Tabarrok:Correct, which is kind of the common law. It shouldn't be fraudulent, it needs to be safe, things like that sort of a rules approach.
Auren Hoffman:If the government was like really totalitarian, you would think things would work a little better, like they'd actually get stuff done. If you're building a high-speed rail in China, I feel like they get it done, they make it happen, they push people out of the way. And you're building a high-speed rail in California and a mile gets done per year. Maybe it's horrible. It's almost the worst of all worlds. Either you get stuff done and totalitarian, or maybe you get out of the way, but we have both.
Alex Tabarrok:Yes, exactly. So that's why I say it's totalitarian in its ends. It tries to control everything, but not in its means. So we still have a rule of law, so people can still sue. We are still trying to protect the two-eared wild buffalo, rat bird or something like that. There's a whole article on the front page of the New York Times about Elon Musk and SpaceX and eight birds. I mean, it was unbelievable. The Victorians would never put up with that nonsense.
Auren Hoffman:You've thought a lot about things like reshoring building manufacturing capacity. How do you think we could be thinking about that differently?
Alex Tabarrok:So I have some concerns. Yeah, I think we're in a bad situation in that you think about anti-immigration closing our borders and anti-free trade protectionism, and now both parties are in total agreement. So Biden kept all of the Trump tariffs. He built the wall. Biden built the wall. I understand that there's some concerns about China, concerns about China, and there is a argument which I understand and I think it's a legitimate argument, that there are some things chips. It's not good to have them located in Taiwan. We want to make sure that we onshore those. However, I have three concerns. One is fundamentally I don't think China and the United States have such a clash of interest. Of course, it's not perfect harmony, but there's a lot of harmony of interest between China and the United States. We do a lot of trade with China, which benefits both China and the United States.
Auren Hoffman:And their economic destinies are somewhat intertwined. Is what you're saying?
Alex Tabarrok:Absolutely. And look, china's not going away. It's 1.4 billion people, it's not going away. And look, china's not going away. It's 1.4 billion people, it's not going away.
Auren Hoffman:And you think it's more true than Germany and the UK in 1914, type of thing.
Alex Tabarrok:Yeah, it's more true, even with respect to Russia. I mean, the Soviet Union did go away.
Auren Hoffman:Well, certainly more true than Russia.
Alex Tabarrok:Putin can go away, but China it's not just the premier. As China's getting richer, people are worried because they're getting more military, whatever, but what this means is that people in China are getting cancer Not a good thing. But now there's 1.4 billion people who want to cure for cancer and they're willing to put some money into it. That's going to increase the amount of research and development for all kinds of high-tech goods, which is amazing for us. I would be thrilled if an American wins the Nobel Prize for curing cancer. I would be 99.5% as happy if a Chinese scientist winsa Nobel Prize for curing cancer. So we have a lot to gain from a richer China. That's point one. Point two is that I get the idea that we want to onshore chip manufacturing, but I think we want to friend shore. We don't want to just have protection against all countries. I get it. Okay, A hundred percent tariff on Chinese EVs. It's kind of crazy, but all right.
Alex Tabarrok:However, let's reduce tariffs on Germany, let's reduce tariffs on Europe. In fact, let's create a free trade, even a free immigration block among the Western democracies, including Japan, Australia, New Zealand. This idea that let's not turn a small problem in foreign policy, which is to make sure that we have ready military supply. Let's not turn that into trying to create a fortress America, which is going to make us poorer and actually less safe. Instead, let's build up the free world. Let's create an immigration and free trade with Europe and Canada and Mexico and so forth. Let's build up the free world.
Alex Tabarrok:That's point two. Let's build up the free world. That's point two. Point three is that, look, it's very, very easy to take a foreign policy argument and turn it into rent-seeking for the benefit of special interests and protectionism for the benefit of special interests. So at one point in the United States probably even still today we were prohibiting mohair imports. Why? Because we use mohair to make military uniforms. The whole thing is ridiculous, but it's very easy, almost inevitable, that this kind of argument is turned into a special interest trough.
Auren Hoffman:Now a couple of things on pandemic. I know you were really involved with things like Operation Warp Speed. Why was that particularly so successful?
Alex Tabarrok:I'm not a big Trump fan, but on Operation Warp Speed, trump had the right instincts, which was to get it out of the government procurement system and instead create a private-public partnership which avoided a lot of the contracting rules and which was guided, frankly, by the military. So you had two people leading Operation Warp Speed Mazef Slaoui, who has brought in vaccine researcher, vaccine fantastic a guide, ceo of vaccines. On the civilian side, and you have General Gustav Perna, who was logistics expert. And the military is one of the few institutions in American society which still has the ability to act quickly. And we put them to the test. For better or worse, we do keep them on their toes.
Alex Tabarrok:And so I think these two things getting it out of the basic government system, setting something outside of that system, going to the private sector so the way I put Operation Warp Speed was it uses the American model, and by that I mean the American model is not command and control, it's not government procurement, it is let's use the tremendous spending power and to combine that with the ingenuity and the speed of the private sector. So it's a combination of the visible hand and the invisible hand and that can work in an emergency. It can become overrun by rent-seeking in normal times, but in an emergency that's really the way to do it. The American model spend a lot, so the government knows how to do that, but get the private sector to produce.
Auren Hoffman:How do you think about other pandemic potential things that we're facing, like bird flu?
Alex Tabarrok:COVID was completely predicted and predictable and predicted. The scientists were saying this is going to happen. Multiple papers on it. Bill Gates had a TED Talk on it seen by millions of people, time magazine, cnn. They're all talking about the inevitable pandemic before it actually happens.
Auren Hoffman:Pandemics have been predicted 10 out of the last two times, type of thing. They're always being talked about, so it's hard to know when you should go into core mode.
Alex Tabarrok:Yes and no. I mean we had the earlier avian flu. It infected millions and millions of people got lots of people sick. Fortunately it didn't create so many deaths. It created a few thousand deaths. But still the point that this was predicted and we weren't ready. You would think, now that we've had the experience of COVID, that we would be better prepared and maybe we are a little bit. But the response to the bird flu, I think it's not been great. I give it a C minus maybe a C.
Alex Tabarrok:We need to ramp up testing much more quickly. We should be testing the milk supply. It's ridiculous. It is frankly ridiculous and I'm a libertarian. It's ridiculous that the farmers can refuse to have their stock tested. That's insane, even as a libertarian. It's much, much better to violate some liberty and test some cows and birds and things like that now than to lock down the economy later. And those are kind of our two choices. So I'd much rather we act decisively early on than be forced into changing our entire economy and locking people in their houses and forbidding people from going to church later. So the thing we should have learned about a pandemic you got to act quickly and you got to act decisively early. There's a lot of things we could be doing In addition to testing. We could vaccinate the cows. I mean, it's in the word vacc back up right. What more clue do we need that we should vaccinate the cows?
Auren Hoffman:Now, you've also written a lot about crime and you've studied a lot of crime and, as you mentioned earlier, there was a lot of violent crime in the 70s and it started to fall off pretty sharply in the 90s. There's been so many theories about it, but what are some of those factors that changed the crime rate?
Alex Tabarrok:So we had a huge increase in crime in the 60s 70s, basically peaked in the 1990s, early 1990s, and then we've had this big, big decline in crime. And there are three things which I think mattered Some controversy. One of them is abortion.
Auren Hoffman:Yeah, that's the Steve Lemon Freakonomics.
Alex Tabarrok:Freakonomics story. So he says abortion is legalized in some states as early as 1970, nationally in 1973. And then, 18 years later, you begin to see this drop in crime. The evidence for that is that crime dropped first in the states which legalized first. It's also the case that crime dropped first among the crimes which were most age-related. For example, like homicide, that's a crime of young people. Check fraud, that's a crime of older people. And so what you see is that as the crimes which began to decline first were the ones which were dominated by young people, and then as more and more cohorts came under the abortion regime, as it were, the crimes which were committed by older people also started to fall. So that's some of the evidence for the theory.
Auren Hoffman:That theory just never made sense to me because over that time the rise of people living in one-parent households started to go up dramatically. Decline in the family, all these other things which you would think would also even more so contribute, that whole abortion theory just never really made a lot of sense to me.
Alex Tabarrok:Because the causal arrows do go something like the children who were aborted would have been the ones who would have grown up in the most criminogenic single parent low income, often African-American. They would have grown up in the worst circumstances. And you're right that, on the macro level, we didn't see a big decline in single parent households. Yeah, In fact, we didn't see a big decline in single-parent households.
Auren Hoffman:Yeah, in fact, we saw a rise of it.
Alex Tabarrok:Somewhat of a rise, but certainly not a decline, with abortion. So what you have to argue is that it was very targeted or that it was focused. So it's not just single parents, but it's a specific type of single parent very poor, and so forth. All this stuff is not always easy to talk about in today's political climate, but a huge amount of crime is created by a relatively small number of people, and if we're talking about violent crime, we're essentially talking about a small number of African-American young men. That is a huge source of crime. African Americans are also the victims of crime. It's not totally inconsistent, not totally impossible that the numbers add up, but I agree with you that that is one critique of this theory. But if you focus on the fact that you don't need that many super criminals to be aborted for this to be true, the numbers can still add up. That's what I'd say on that.
Alex Tabarrok:The other theory is the lead getting the lead out. The nice thing about this theory is we do know that people who have a lot of lead in their blood from gasoline, from lead, paint things like that. It lowers IQ and it makes people less able to regulate their emotions. The micro evidence kind of fits. The macro evidence is that we started phasing out leaded gasoline in the 1970s. So again 18 years later, you begin to see this decline in crime.
Auren Hoffman:You also see at the same time a somewhat decline in testosterone, a rise in estrogen in men, lowering sperm counts, all these other things, and who knows what environmental factors there are causing some of these things.
Alex Tabarrok:I think there's some dispute about the sperm counts whether that's actually true or not, I don't know, but I think you're right. You do see not only lowering in crime, but lowering in like teenage pregnancy, which sort of fits on the female side, less ability to regulate your emotions, things of that nature. Maybe that's connected with getting pregnant when you're a teenager. So you saw a lot of things getting better in the 1990s, so I think that's a possibility. It also fits the international evidence reasonably well, so that's a possibility. So you got abortion possibility. It also fits the international evidence reasonably well, so that's a possibility. So you got abortion, you got lead, maybe that's something. The third one is just kind of melange of things like crime became less profitable. People aren't carrying around cash anymore. Cell phones are making it easier to capture people, things like that.
Auren Hoffman:Cameras everywhere, all those types of things, cameras everywhere, all those types of things, cameras everywhere, exactly.
Alex Tabarrok:And then we did massively increase the penalties for crime, which had been falling in the 60s and 70s. We way ramped up the number of prisoners.
Auren Hoffman:If you're in prison, you can't really commit crimes, at least against non-prisoners.
Alex Tabarrok:Exactly, there's deterrence and there's incapacitation. I think these things matter. However, like my last point would be, I think crime declined. Because crime declined, crime went up. Because crime went up, there's a big peer effect.
Auren Hoffman:If you're a victim of crime, you're more likely to commit crime yourself. There's some sort of spiral down or spiral up.
Alex Tabarrok:Exactly so. This is why I worry. People think crime has gone down and we have mass incarceration. Well, first of all, you have to understand there was mass incarceration for a reason. It was because the number of murders went up by a factor of four in the 1970s, so people were afraid to walk in the streets I like to talk about the bombings, the serial killers, just where we get all the movies from the Joker and all that. So people were frightened. So it's totally understandable. And let me add this among the people who were demanding mass incarceration, more incarceration, were leaders of the black community, because they were the victims of crime In the 1970s.
Alex Tabarrok:People said the criminal justice system is racist. Why? Because it lets out too many Black criminals on the street. It doesn't punish them enough. That's what Black leaders were saying. There was a good reason for mass incarceration. I think we went too far, but you got to be a little bit careful to let the pendulum swing back too far, because I think that underneath the surface there is still plenty of bubbling criminality which could leap out like a volcano, and you see that in San Francisco and Oakland and you see that in Kia and Hyundai, car thefts and things like that. I think we do have to be careful not to let the social contagion free once again the way we mistakenly did in the 1960s and 1970s.
Auren Hoffman:There was a paper last year that compared the crime rates of Swedish lottery winners to the crime rates of non-lottery winners.
Alex Tabarrok:Unpack that paper for us a bit there's a very clear correlation in the data, which is that poorer people commit more crime, particularly more violent crime. Maybe they're not laundering money right, so they're committing more violent crime. So, you guys? Well, why is that the case? Is it the case that poverty creates crime, or is it that crime creates poverty? Or is there some third thing that just happens to be correlated with both of these two things and that is going to affect your strategy towards defeating crime, combating crime?
Alex Tabarrok:Now, what is nice about the lottery paper is the problem with studying this, of course, is that the people who are rich are different than the people who are poor, so is it that they're rich or is it something else? Now, the nice thing about the lottery paper is it breaks this endogeneity circle, so you have a random event which makes people richer, and then the question that they can then ask is, just like in a randomized, controlled trial, you have a random event makes people richer, do they commit less crime? And the answer is no. The answer is they commit about as much crime as they did before. So it's not the income, at least from this study. It's not that the income causes crime. They're correlated, but it doesn't appear to be causal, at least that's the lesson you know.
Auren Hoffman:In 10 years there's going to be a follow-up Rod Shetty paper on this which will say but the kids of these people commit less crime, or something like that which will say but the kids of these people commit less crime, or something like that.
Alex Tabarrok:Yes, your research never stops. It points very clearly towards that. We must be humble when we're looking at these correlations. You can't just jump to the conclusion that, oh, poverty creates crime. Therefore, if we get rid of poverty, we'll get rid of crime. That doesn't seem to be the case, and there's other evidence on that as well. There are plenty of Chinatowns where there was not a lot of crime but a lot of poor Chinese people, things like that.
Auren Hoffman:Now there's been so many people going after cash bail and talking about eliminating cash bail, how cash bail is unfair. How do you think about that?
Alex Tabarrok:The people who want to get rid of cash bail. They tell a very compelling story, which is that there's this guy. He committed a misdemeanor and he couldn't make bail, and so he's left in jail for weeks or months. And it was just a misdemeanor and you think, oh well, I could commit a misdemeanor, I could end up in jail. And no, the answer is no. That is not actually what's going on.
Alex Tabarrok:What's going on is that these people are committing misdemeanors, but the average person I'll give you some data, approximate data from New York City the average person who doesn't make bail has already skipped bail multiple times previously. They have multiple misdemeanor charges, maybe some felony charges as well. The people who end up not being able to make bail have got already lots of charges against them. So what's going on is that the judge sees this guy yeah, it's just a misdemeanor, maybe it's even a parking fine or something like that. But then he looks at the record. He said well, this happened 10 times before and he never showed up for trial. So what are they going to do? So the judge finally says I've had it with these guys, I'm imposing bail. It's $5,000. And they don't make the bail. But that was on purpose. These guys are not a random sample.
Auren Hoffman:But does the cash bail actually increase the likelihood that they'll show up for trial? Because you could just keep them in jail too, especially if you thought they were a danger to the community. Keep them in jail until the trial starts. What is the reasoning? Obviously the state doesn't need the bail. It's not like a revenue thing. What is the reasoning for it?
Alex Tabarrok:Yeah, I mean there's a couple of things. One is that actually this gives judges a more flexible approach to letting them out on their own recognizance or keeping them in jail. So he's like I'm going to sign bail. So I'm kind of a more flexible approach and it basically says look, are people in the community going to support, to get bail, the accused? They might have to have their mother sign on the bail bond.
Alex Tabarrok:I wrote a paper on bounty hunters which we'll talk about more in a minute.
Alex Tabarrok:But I was talking with one of these bounty hunters, bail enforcement agents, and he says look, I deal with a lot of tough guys and they're not afraid of me, they're not afraid of the police, but if the mother signs the bail bond, they're still afraid of their mother and they'll afraid of the police. But if the mother signs the bail bonds, they're still afraid of their mother and they'll show up for trial. So yeah, I think it does, and especially if you borrow the money from a bounty hunter, from a bail bondsman, because those guys will come out and find you. They're much more effective than the police and they'll get you to show up. But the number of people, just the basic facts it's like 25% of people don't show up for trial. It's a huge number. It's not surprising that judges want some way to partially at least incentivize people to show up. It's a huge waste of the prosecuting time, the judge time, when the guy doesn't show up for trial and he keeps doing this over and over again.
Auren Hoffman:If someone doesn't show up for trial, you're clearly guilty of not showing up for trial. You can be then thrown in jail. You've just committed that crime if you don't show up for trial.
Alex Tabarrok:Absolutely. But the guys who end up not being able to make bail, they've got five, six charges against them, including not showing up on previous.
Auren Hoffman:I thought the idea of bail is making sure that somebody doesn't abscond to Mexico or something. If you're in San Francisco or whatever, St Louis and the person just stays in St Louis, you can go find them and then, if they don't show up, you literally get thrown in jail. It's a terrible situation to not show up. So why is that not punishment enough? Why do we need the dollars?
Alex Tabarrok:So why is that not punishment enough? Why do we need the dollars? The police rarely go after these people. I mean, the only time that the police will typically capture somebody who is out on bail is if they're committing a further crime, this meeting ticket or something like that. What the bail does? Two things. One, you often get the money from a bail bondsman, which means that you have this private, highly incentivized people, because what happens is the bail bondsman puts up means that you have this private, highly incentivized people, because what happens is the bail bondsman puts up the money. If you don't show up, the bail bondsman loses the money. So they have an incentive to make sure you show up. So that's part of it.
Alex Tabarrok:And also, look, it's just a good reminder. You and I know I mean if there's some reasonable amount of money on the line, we're just less likely to forget Could be 500 bucks or whatever. Sometimes you make a dinner reservation. The reservation says if you don't cancel within 24 hours, you lose your 100 bucks or something. Does that make you more likely to show up or more likely to cancel early? Yes, I think it does.
Auren Hoffman:Now you've thought a lot about AI. Who do you think is going to be advantaged and disadvantaged the most over the next 10 years?
Alex Tabarrok:I mean, I wish I knew. The thing about AI is we have made inanimate matter think, which is unbelievable, and I've never seen a technology where the projections of where that technology is going to go are so widely different that the entire destiny of the human race is at stake. You invented the gasoline engine, but it could be that the gasoline engine increases inefficiously 10,000, 100,000 times if one trajectory happens and it doesn't if another. And the really smart people that's what they're telling me. There's at least a possibility that we create a super intelligence, and beyond a von Neumann, beyond anything which we have previously imagined. That is a possibility.
Alex Tabarrok:I'm not sure it's going to happen. It's also possible that it peaks out. We're training it on human data. Maybe AI peaks out, and I just don't know. You might say, for example, that oh, AI is growing so rapidly, you should become a software engineer, and yet one of the first jobs which AI will replace probably is a software engineer. The guys at OpenAI, they're working very hard to eliminate their jobs. Kohler predicted that the earliest jobs to be threatened by AI would be photographers and musicians. It's very difficult to predict.
Auren Hoffman:Now your colleague Tyler Cowen. He recently made an argument that we reached peak economist, that you don't even need to be an economist anymore to be a member of the Federal Reserve Board. What do you think about that?
Alex Tabarrok:Arthur Burns, I think, was the first one with a PhD. There's been quite a few since then, but before there were plenty of people on the Federal Reserve without PhDs in economics. I see economists are getting more attention in the media than ever before. It's not uncommon now to have a front page article in the New York Times talking about some of the latest economics research, usually by Raj Chetty.
Auren Hoffman:Yeah, he's incredible.
Alex Tabarrok:I think we are getting a greater quality among economics influence, and among economics and so forth. I don't particularly see economics as in decline, certainly not compared to other professions Political science, sociology are they rising? I don't think so.
Auren Hoffman:It's a good point. If you think of even John Levin, the new president of Stanford, he's an economist, so it's still very prestigious to be an economist. So you're right, it's probably less prestigious to be a political scientist today than it was in the past.
Alex Tabarrok:The high-tech firms have been hiring lots of economists. Maybe that has peaked a little bit, but still we're at a much higher level than we were before.
Auren Hoffman:You have been blogging at Marginal Revolution forever, for centuries. It seems like what has changed the most over that time At the very beginning, blogging was definitely seen as low status.
Alex Tabarrok:You're not publishing in the AER or Econometrica or something like that. So what are you doing? Talking to people and writing this blog. What is this thing? That has definitely changed over time. So now, like the high status, guys are like emailing me hey, here's my new paper. Maybe you might want to put a link on wardrobe revolution and so much more. Of what economists do. Isn't this high theory, but is the data work which has a bigger interest to people in the street can be explained to people in the street. So I think blogging became more high status over time and, in general, the economist as public intellectual increased.
Auren Hoffman:You and Tyler have been collaborating on Martial Revolution for a couple of decades. That is longer than most marriages. Why has that collaboration been successful?
Alex Tabarrok:Yeah, tyler and I have written books together and papers and blogging and Marshall Revolution University. I'd say this Tyler and I have very different styles of thought. If you ask Tyler a question, what is the answer, tyler? He'll say, well, here's 10 things you need to think about and he'll list them out. You know this, oren you talk to Tyler and it's like dangling.
Auren Hoffman:One of the reasons I love him.
Alex Tabarrok:Yeah, it's brilliant. Here are the 10 things you need to think about and he'll list them out. It's incredible how he knows all of this stuff. Maybe, like an hour later, you'll be thinking, hey, wait a second, he didn't actually answer the question. Then, if you ask me a question, my, my style of thinking is okay, let's simplify this, let's cut this out, cut this out, let's focus on what's the really heart of it, and I'll give you an answer, but it'll be to the simplified version of the problem, not actually to the one that you asked me.
Alex Tabarrok:So we have very different styles of thought. Tyler likes to complexify things, I like to simplify things. But if you push Tyler, let's focus on right now, in this particular situation, this particular moment in time, and let's cut down this it's probably not this and force Tyler to simplify. And if you come to me and you force me to complexify and say, well, yeah, you're right, that's true for a presidential system, but maybe not quite exactly right for a parliamentary system, we have to adjust the theory a little bit in this way, and so forth and so forth, tyler and I will come to an agreement to adjust the theory a little bit in this way, and so forth and so forth, tyler and I will come to agreement.
Alex Tabarrok:So we have a total diversity of thought and yet, because of values or something else, we often come to agreement. And I think that enables us to trust one another if we're writing a paper or something like that that we will be able to cooperate in a way which takes advantage of both of our skills and not reach some impasse where we can't agree because we have some fundamental difference. No, we're usually coming to the same conclusion from totally different places. The diversity of our thought helps both of us, but also because we end up agreeing, we're able to collaborate.
Auren Hoffman:There's been a lot of people talking about the lack of diversity of thought at universities right now. How big of a problem do you think that is?
Alex Tabarrok:I mean, I think it is a big problem for multiple reasons. Just politically, the universities are under incredible attack. Jd Vance just says the professors are the problem, they're the enemy. The professors are the enemy. And why is that? Well, it's because on campus the liberals dominate, conservatives or libertarians or however you want to define them. In some departments 100 to 1. In the average department it's like 10 to 1. Even among economists are considered radical free market right-wing people. Economists are considered radical free market right-wing people and among economists the liberals dominate like four to one. So this is a problem for the United States politically, because the universities actually do some good things.
Auren Hoffman:By the way, even to get to hire as a math professor or engineering professor or something like that. There are certain other questions that some universities will require you to answer to weed out certain types of ideologies.
Alex Tabarrok:Absolutely Again. It's totalitarian, it's McCarthyite.
Auren Hoffman:You're making an argument, it's in the university's best interest, even if you're a very liberal person, to diversify, because otherwise you are going to be under attack. It's almost like telling a rich person it's in your best interest to pay some taxes so that people don't have a revolution against you, or something.
Alex Tabarrok:Correct. The English department should be thanking the economics department, because when you go to funding in Virginia with a conservative governor, we're the only people he likes. So for the general health of the university, it's important to have diversity. I think we need to have diversity between universities, not just also within universities. So you might look at George Mason and say, oh, you economics people, you're all libertarian conservatives and whatever. Your department has no diversity. But like we're the only department like that in the United States, I'm totally happy with having a Marxist economics department. I would like to see this flowering of diversity among different places. It's not that every single place has to be diverse, but we need to have an openness and then we have competition of ideas in the bigger marketplace.
Auren Hoffman:Okay, Two more personal questions we ask everybody. First one is what is a conspiracy theory you believe?
Alex Tabarrok:I'll give you a fun one, which I won't say I believe it 100%, but I think 10, 15%, and that is that Justin Trudeau is the son of Fidel Castro. Do you know this one?
Auren Hoffman:No, I've never heard this one. This is awesome.
Alex Tabarrok:This is big in Canada. If you look at pictures, Justin Trudeau looks very much like Castro. He does not look at all like his father, Pierre Trudeau, and the sort of timeline fits that it was kind of known that Pierre and his wife they were kind of swingers a little bit and they were in the region and it's not impossible.
Auren Hoffman:Why Castro, out of all people? Was there something going on between Justin Trudeau's mother and Castro? Yes, so they knew each other and they were friendly with one another? Yeah, very much so.
Alex Tabarrok:Yeah, the vacation sort of together and they were compatriots.
Auren Hoffman:Oh my gosh, this is a good conspiracy theory. I never heard this. It sounds like one that is well known, but I never heard it before. I'm going to go down the Wikipedia rabbit hole. I love this stuff. Last question we ask all of our guests what conventional wisdom or advice do you think is generally bad advice?
Alex Tabarrok:I think we've put way too much emphasis on going to college. We have too many people going to college and if you're the sort of person who just doesn't like sit down learning you didn't like reading, you didn't like books so much and don't like sit down learning but you feel you have to go to college because everyone's doing it and your parents say it's the only way to become wealthy and rich, and the problem is a lot of these people who are not that well suited in preferences to college. They go to college, they spend a lot of money on a stupid degree and then they drop out. 40% of students don't graduate. That is like the worst of all worlds.
Auren Hoffman:Not graduating college is the worst scenario.
Alex Tabarrok:Exactly, you have the debt and you don't have the piece of paper. It's the worst scenario. Exactly, you have the debt and you don't have the piece of paper. It's the worst scenario. And a lot of students end up in that scenario. There's obviously things which degrees which don't pay very well Cosmetology and English. Even English is not great. Yeah, exactly. But a lot of people think, oh, I'll do a business degree. But actually the business degrees are a joke. How to make a PowerPoint communication? I'm sorry, I still don't know what communication is. I don't know what that is. Are they teaching Claude Shannon? I don't think so.
Auren Hoffman:If you are the type of person who is a little bit of a go-getter and you can learn other things I mean if you could learn how to be an electrician or something like that first of all, you're adding a lot of value to people's lives. You're making people's lives significantly better and kind of a guaranteed incredible living for the rest of your life. It's a very hard thing to learn, even for people who are good at learning stuff. You can make an argument and maybe it just doesn't make sense for so many of them to do this. Traditional whatever. Get the history degree or something. Even if you're passionate about history, you can probably teach yourself history on the side. The degree doesn't matter.
Auren Hoffman:So many great podcasts on history. Yeah, exactly so many great podcasts. There's so many great books. I love history but I never took a history class in college. And if you could actually learn to do something really great and really valuable? Some of those jobs pay incredibly well. People make hundreds of thousands of dollars a year.
Alex Tabarrok:We were talking about AI. Well, the AI is coming for the plumbers.
Auren Hoffman:last, that's right. Being a plumber would be really valuable. All right, this has been amazing. Thank you, alex Tabarrok, for joining us on World of DAS. I follow you at atabarrok on X. I definitely encourage our listeners to engage with you there. This has been a ton of fun, thank you.
Alex Tabarrok:Thank you, lauren, it's been a pleasure.
Auren Hoffman:If you're a super data nerd, go to worldofdascom that's D-A-A-S, worldofdascom and sign up for our weekly data as a service roundup newsletter. Thanks for listening. If you enjoyed the show, consider reading this podcast and leaving a review. For more World of Das and Das is D-A-A-S. You can subscribe on Spotify or Apple Podcasts or anywhere you get your podcasts, and also check out YouTube for videos. You can find me at Twitter, at at Oren. That's A-U-R-E-N. Oren, and we'd love to hear from you. World of DAS is brought to you by Safegraph. Safegraph is geospatial data for physical places. Check it out at safegraphcom. And by Flex Capital. Flex Capital invests and data companies like