3 Takeaways Podcast Transcript

Lynn Thoman

(https://www.3takeaways.com/)

Ep 251: Why America’s Poorest State Is Richer Than France

This transcript was auto-generated. Please forgive any errors

Lynn Thoman: While there's a lot of dissatisfaction in the U.S., what many don't realize is how well the U.S. has done economically compared to the rest of the world. Back in 2000, the U.S. economy was about 20% smaller than the European Union. Today, it's about 30% bigger.

Because of the U.S. economy's much faster growth, per person income has grown much faster and U.S. GDP per person, that is, gross domestic product per person, is nearly double that of Europe. Astonishingly, the GDP per person for Mississippi, which is the poorest state in the U.S., is now higher than that of France, Italy, the U.K., and Spain. 

Why has the U.S. done so much better economically than other countries? 

Hi, everyone. I'm Lynn Thoman, and this is 3 Takeaways. On 3 Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers, and scientists.

Each episode ends with three key takeaways to help us understand the world, and maybe even ourselves, a little better.  

Lynn Thoman: Today, I'm excited to be with Tyler Cowen. He's a professor at George Mason University and general director of George Mason's Mercatus Center, a university research center that focuses on the market economy.

He also writes for The New York Times, Bloomberg, and The Wall Street Journal. In addition, he is the author of numerous books, including his last two books, which are titled Big Business and Talent. 

I'm excited to find out why the U.S. economy is so much more dynamic and faster growing than other countries. Welcome, Tyler, and thanks so much for joining 3 Takeaways today.

Tyler Cowen: Hello, Lynn. Thank you for having me on.

Lynn Thoman: It is my pleasure. How do you compare the U.S. to Europe, Japan, and other countries?

Tyler Cowen:  Well, if we compare the United States to Europe, the tech sector has been a big difference maker. Most of the world's leading tech companies outside of China are in America. The European Union overregulates its tech sector in numerous ways. 

It's much harder to have a successful tech company there. And I think, in general, the level of ambition, especially in California, is just much higher in the United States. 

And the European Union doesn't quite scale. 

It pretends to be a union. It has a lot of different languages, still a lot of different national regulations, especially for the service sector. So you're selling into these smaller national markets, whereas the United States of America, along with China, is one of the world's two biggest economies.

Lynn Thoman: Is the U.S., especially compared to other countries, a nation of opportunity and prosperity? And if so, why do you think that is?

Tyler Cowen: Well, like other very large countries, the U.S. is many, many things, not all of them good. I think you can say the best parts of the U.S. create more opportunity and more prosperity than any other part of any other country anywhere else. So if you take China as a point of comparison, per capita, China is about as rich as Mexico.

And we think of ourselves correctly as much richer than Mexico. I'm not saying that being born everywhere in the United States gives you great opportunity, but we have so many dynamic cities or states or sectors. We attract world-class immigrants like no other nation.

They don't want to go to China. Their opportunities are much more limited in the European Union, and their tax is much higher. So they want to come here, and we reap all of those gains.

A number I find striking is that the median household income for a family from India in the U.S., it's $158,000 a year. And those are mostly not wealthy families in India. And they've come here and made really great livings for themselves.

Lynn Thoman: How do policies of the U.S. compare to other countries?

Tyler Cowen: Again, it depends which country you're talking about. Taxes here, quite simply, are lower in most places than in most other countries. So if you're going to be a top earner, you will think about, well, how much of my income do I need to turn over to the government?

Your ability to hire a qualified labor force typically is greater. In the most productive parts of the United States than most other parts of the world. 

We are highly regulated, like just about everywhere else.

I'm not sure we're better on that score, but I would say when it comes to our tech sector and AI, we're definitely less regulated than the European Union.

Lynn Thoman: And how do you seek creative destruction? And can you start by explaining what it is?

Tyler Cowen: Creative destruction is an economics concept. It comes from the earlier Austrian economist, Joseph Schumpeter. Schumpeter pointed out that for capitalism to grow, it has to do away with its older sectors.

It has to move on to other things. So if you want your best talent, say, to float a tech or the service sector, that may well mean that your manufacturing doesn't grow at the same pace it used to. It may mean your manufacturing employment shrinks, which has been the case in the United States.

So the willingness to accept change and loss, I would say the United States is better placed than just about any other country in the world.

Lynn Thoman: Protectionism sounds appealing because it claims to protect workers. How does protectionism work in practice?

Tyler Cowen: Well, protectionism doesn't sound appealing to me. For one thing, it means higher prices for consumers, so it lowers living standards. 

But economists also put forward the basic insight that your imports and exports pay for each other.

So there's a balancing out of trade over the longer run. And if you tax imports into your own country through a variety of mechanisms, you end up taxing your own exports. And you're also taxing the goods that are the inputs for your exporting firms.

So you're hurting your own balance of trade, hurting your own job creation, and leading to a higher rate of inflation for your customers. What's so good about that?

Lynn Thoman: Can you make it more concrete with an example? Say, take something like steel.

Tyler Cowen: Well, let's say you're making tractors in the United States. That's a major sector here and a major export sector. Those tractors rely on a lot of inputs from other countries, including, I think, steel.

So if you put a tariff on steel coming into the United States, it's harder and more expensive for us to export tractors. So what you think you're taking with one hand, you're giving back with the other. And in the meantime, you have higher prices for most things.

Lynn Thoman: If you had to summarize why U.S. economic growth has been so much higher compared to other countries, what would those reasons be?

Tyler Cowen: We have the best talent. We have a relative degree of freedom. We have a tax system that is not confiscatory.

We have the largest single market. And the best immigrants from the world want to come here. And I think it's an edge.

We have 50 different states you can live in. There's just a lot of choice and variety within the country. Many people prefer that.

Lynn Thoman: The U.S. is highly influential in music, movies, entertainment, and sports. Why do you think that is?

Tyler Cowen: English is the world's language to the extent we have such a thing. But also because we are a nation of immigrants, we're used to the notion that when you make something entertaining, it's supposed to entertain not literally everybody, but more than just, say, a small group of people in Denmark who all went to the same high school together. There's a generality or universality to a lot of American culture.

And it's positive and life-affirming and forward-looking for the most part. And much of the world likes those things.

Lynn Thoman: Why do creativity and startups flourish in the U.S.? 

Tyler Cowen: They have a pretty favorable regulatory environment.

Some of it is just what economists call path dependence. Once you're known for something, other people want to go there and do it, just like Hollywood is known as a center for entertainment, television, cinema. So people go to Hollywood.

There's nothing special about the geography. Immigrants again, and just dynamism. So here is the place where you can think big.

If you fail a first time, you're given a second chance. Norms in Europe are quite different from that. The venture capital markets are much better developed here. 

All of those factors working together.

Lynn Thoman: You have said before that in the U.S., it's more acceptable or even admired to be a loner or to be different or, in your words, to be a weirdo. Can you elaborate on that?

Tyler Cowen: Well, we're a big country, again, full of people from all over. So if you're somewhat different, nobody thinks it's so strange. People in general don't necessarily think it's bad. 

You're given a lot of freedom to operate. Many of our social norms are pretty loose. That's not, in all contexts, a good thing. 

But when it comes to freedom to create, freedom to innovate, daring to think differently, I think just at the sociological level, you have more freedom here than anywhere else on Earth by quite a good margin.

Lynn Thoman: And how would you compare that admiration for nonconformity to some other countries?

Tyler Cowen: Well, I think Japan is a good point of comparison. Japan is a highly admirable society, and it has some remarkable features. You can leave your wallet on a park bench, and it will still be there. 

Rates of crime, most crime are close to zero. There's no real risk of violence. Those are all virtues of Japanese society. 

But in part, they come from conformity. And when it comes to innovation, in most areas, Japan has been and remains far behind the United States. So some of our good features and some of our bad features actually come together.

I think overall, for us, the mix works.

Lynn Thoman: How would you compare the U.S., for example, to Germany or Denmark? 

Tyler Cowen: Well, I lived in Germany for a while. Germany is very orderly. That's a good feature of the country.

Germans are very disciplined. They're quite likely to show up on time. Rebellion there is harder.

In German politics, it's quite difficult to truly speak the truth or be very controversial. German politicians always sound reasonable. I'm not sure in all states of the world that is a good thing.

It clearly has its advantages. And what we've seen in Germany is the former manufacturing sector is getting weaker and weaker, and Germany's not really doing anything about that. They've messed up their energy sector.

They've been dependent on Russia and China too much. So they've made a lot of mistakes. For all their reasonableness, they don't actually have very good error correction mechanisms, and some of that, I think, is due to their excess conformity.

Lynn Thoman: Nine of the ten largest companies in the world by market capitalization are American. Why do you think that is?

Tyler Cowen: Well, we're the largest economy. That claim is slightly complicated because there is China. But per capita, we're the richest economy, and Chinese companies are much less successful exporting abroad than American companies.

In part, they have less experience at it, but there's also a lower level of trust. If it is, say, a tech company, that will have your personal data. I think over time, Chinese companies will be as large as the American ones. 

But right now, our lead there is pretty strong, and it's not going away anytime soon.

Lynn Thoman: Attitudes toward big business are often negative. Why do you think that is, and what would life be like without business?

Tyler Cowen: Well, there's business and there's big business. If you're comparing big business to small business, big business pays higher wages. It gives you better job security.

People actually overall are happier working in big businesses. There's more people they can talk to or hang out with. 

But the question is, what do we do without business, period? 

We just really wouldn't have much of anything produced. The Soviet Union tried that experiment. It was very poor.

It required a high degree of oppression. No real free speech. So I view big business, and just business in general, as an American hero.

It's maybe the thing in the world we're best at, and it's a major reason why living in this country is so enjoyable. 

Lynn Thoman: And business makes most of the stuff we enjoy and consume, and it also gives most of us jobs.

Tyler Cowen: That's correct, absolutely. Those of us who don't work for business typically work for institutions that are funded by business, directly or indirectly.

Lynn Thoman:  And what drives business to be inclusive and tolerant? Are there any forces that push business in that direction?

Tyler Cowen: Well, one basic force is, I think simply most people are themselves fairly inclusive and tolerant, and they want to work in environments that reflect those qualities. But at the margin, there are also profit incentives. You want to court more customers.

You want to be able to hire more talented people from many different backgrounds. Companies were tolerant toward gay partnerships, what later became gay marriage, before the government was, and that was because of profit incentives. 

Lynn Thoman: Can you elaborate?

Tyler Cowen: If you want to hire gay employees, and that's a significant percentage of the American population, with an incredible amount of talent there, the gay person will wonder, how will my partner be treated? Can I share health insurance benefits with my partner, and so on? Will the partner be treated as a spouse?

Nowadays, of course, the partner may well literally be a spouse because gay marriage is legal. But corporations were doing this before our government was, and I think there's an important lesson in that. 

Lynn Thoman: How do you see business at its best?

Tyler Cowen: Go to the store and buy the products you like, I would say. And that's easy to do. We do it every day.

Or sit at home on your sofa and click online.

Lynn Thoman: So far, we've talked about prosperity and the possible. We haven't talked about downsides and risks. What are the major risks that you see?

Tyler Cowen: Well, I think a lot of people, maybe most people, simply cannot be entirely happy. So when life is good and the society is fairly rich, they psychologically make some trouble for themselves. They elevate small concerns into large ones.

I'm not sure that people in poorer societies do this as much. They're more fighting to survive. People are still better off in the wealthier society.

But I do wonder if it breeds at the margin certain kinds of depressions or even psychoses because we're never quite content. It's part of our nature as humans. And I think it means in wealthier societies, a lot of people are not nearly as happy as they could or should be.

I don't know how to fix that.

Lynn Thoman: Before I ask for the 3 takeaways you'd like to leave the audience with today, is there anything else you'd like to mention? 

Tyler Cowen: Just be curious. The returns to being curious are very high. Don't let inertia take over your life.

There's always something new and fascinating to discover. It'll probably be good for your career, your marriage, your parenting, whatever it is you're dealing with in life. The advice may sound trivial, but if you're ever faced with a choice, ask yourself, what's the curious thing to do here?

And count that as a positive factor.

Lynn Thoman: And what are the 3 takeaways you'd like to leave the audience with today? 

Tyler Cowen: First takeaway. Every day, think about the quality of your peer group. It could be the five people you spend the most time with, the people you're connected to on WhatsApp.

Apart from family, but just who are you talking to? Who are you bouncing ideas off? And the interest and quality and diversity of those people.

Try to have that improve all the time. As much as you can. 

Second takeaway. Think about mentors. I don't care how young or old you are, you always need mentors. You can never have enough mentors.

A single remark from one mentor can change your whole life, put you on a better track, help you self-improve. Just always be thinking, how can I be getting more and better mentors? You can be 60 years old and have a great mentor who's 23, and that can be worthwhile.

So think broadly about mentoring. 

And then third, this is the most abstract, but I would just say context always matters. Learn a lot about different cultures, different musics, arts, details of different things that may not all seem relevant.

But if you're just always involved and curious, to refer back to that point, when the time comes to make decisions, you'll just have more sources of insight you can draw upon. So I would say always worry about the context. 

Lynn Thoman: I love that insight about the context. Thank you, Tyler. This has been wonderful.

I really enjoyed your books, Talent, and Big Business.

Tyler Cowen: Thank you very much, Lynn.

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I’m Lynn Thoman and this is 3 Takeaways. Thanks for listening!

This transcript was auto-generated. Please forgive any errors.