Tyler Cowen: Economic Growth and the Debt We Owe to Our Distant Future
The chief goal of society should be to maximize wealth, according to Tyler Cowen. Pursuing that goal has delivered everything from nutritious and abundant food, to air conditioning and smartphones in the developed world, and those benefits are spreading rapidly to the developing world. The challenge is how societies can embrace and implement that goal. If those challenges are overcome, the benefits to globally diversified equity investors will be substantial.
Like many accomplished people approaching late-middle age, Cowen, one of the most interesting men in the world, has turned his attention to moral philosophy. In the slim volume, Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals, which can be read in a long afternoon, the George Mason University economist and polymath argues that maximizing economic growth is the best thing we can do to enhance human welfare.
A review of Stubborn Attachments penned by Cowen’s young admirer Coleman Hughes, an undergraduate at Columbia University, argues that wealth is the foundation on which almost all of the elements of the good life are built:
If you enjoy living past thirty, not starving to death, not having to wash clothes by hand, talking to loved ones on the phone, [using] air conditioning, and having free time to read articles like this one, then you have the existence of wealth – or rather the people, institutions, and ideas that create it – to thank.1
That’s one of the three principles Cowen sets forth in Stubborn Attachments. The second is the power of compounding or, more to the point, the big difference in long-run results that emerges from small differences in growth rates. If Mexico had achieved an extra percentage point of annual growth for the last 120 years, Cowen writes, it would be as rich as the United States; likewise, if the United States had grown one percentage point more slowly than it did over that same period, it would be as poor as Mexico.
The third principle is “deep concern for the distant future.” I’ll get to that later in some detail because it is important to Cowen’s world view, and because reasonable people can differ profoundly on what it means. Should we make sacrifices (which sacrifices?) today to maximize the utility of our great-grandchildren? Of people who will be born in 1,000 years? In ten million? It’s unlikely humans will be around then, but something will.
On “effective altruism”: A gift to Yonas
All of Cowen’s proceeds from the sale of Stubborn Attachments will be donated to (not invested with) an Ethiopian travel guide whom Cowen met on a trip to that country. The guide, known as Yonas, needs capital to start a travel business. (The Ethiopian entrepreneur’s real name is disguised, presumably to avoid him becoming a magnet for troublemakers or moochers.) Cowen, who is loosely associated with the effective altruism movement, says, “Yonas is not randomly selected; rather, he is the one person who I thought would make the best use of the money.”2
The effective altruism movement is focused on direct action, the reduction of suffering, and rationality and metrics instead of sentimentality and looking good. Consistent with his belief in the importance of economics, Cowen departs a little from the direct alleviation of suffering to emphasize the virtue of business enterprise. Yonas is not a charity case but a young would-be businessman seeking capital in a capital-starved country. If he succeeds, he will create wealth, unlike most recipients of aid, and (this is key) reduce the number of people who need aid.
On Tyler Cowen, the man
I’ve pictured Tyler Cowen next to an assortment of Asian foods because, in addition to being an economist, he’s a food writer (An Economist Gets Lunch). He’s also:
- The co-author, with Alex Tabarrok, of the most popular economics blog on the Internet;
- The co-proprietor, also with Tabarrok, of an online economics department (Marginal Revolution University);
- Author of 15 books, including a popular economics textbook;
- A columnist for Bloomberg Opinion and formerly for the New York Times; and,
- According to the Los Angeles Times, “a man who can talk about Haitian voodoo flags, Iranian cinema, Hong Kong cuisine, Abstract Expressionism, Zairian music, and Mexican folk art with seemingly equal facility.”3
To sum up, Cowen is proof that there’s no energy crisis.
On optimism, pessimism, liberalism, and the lifetimes of civilizations
I’ve been writing an optimistic book (Fewer, Richer, Greener), and to bolster my case I’ve asked readers to investigate the possibility that, as the late Ben Wattenberg said, “The good news is the bad news is wrong.”4 So I’m fascinated by the also optimistic Cowen’s opposite approach. In an interview with Ezra Klein in Vox,
[Klein] asks for…a book that will make listeners “feel better about the world right now.” Rather than read something like Steven Pinker’s Enlightenment Now, which argues enthusiastically that things are better than they’ve ever been, Cowen suggests reading someone who’s “a bit down” like Nietzsche or John Gray. He says to read “the pessimistic books” like Yascha Mounk’s The People vs. Democracy and [Patrick Deneen’s] Why Liberalism Failed “and you’ll see their flaws.”5
The illiberal moment
While I see some flaws in Mounk’s and Deneen’s work, I’m in fact deeply concerned about freedom and the individual at this illiberal moment in history. (I use the word “liberal” as Cowen does, in the classical or Victorian sense: the liberalism of John Stuart Mill.) Of the five countries with the largest populations, one, China, is a confirmed autocracy;6 Indonesia is an electoral democracy, but far from being a shining city on a hill; India cleaves to liberal principles, at least for now.7
The verdict is still out on the United States and Brazil. The leaders of both countries have been democratically chosen, face countervailing forces in other branches of the government, and will step down when their terms are over. But both Mr. Trump and Mr. Bolsonaro have autocratic aspects to their rhetoric.
Nevertheless, I think both countries will do well in the long run, not only as robust economies but as free and open societies. This should be especially true of the United States given the philosophy behind its founding, what the sociologist Robert Bellah called the “civil religion” in America. However, the popularity of these two countries’ illiberal caudillos – both of whom sometimes mouth liberal sentiments, but not convincingly – is disturbing.
Actually, what is most disturbing is finding the United States on a list of countries facing threats to their freedom.
The tragic vision: Realism or delusion?
So, reading pessimistic literature makes me doubt my own rosy long-term forecasts. Mounk and Deneen are not fools; the tragic vision of history is a legitimate one, with one civilization after another having eventually committed suicide by neglect. Cowen cautions: “Human beings can and indeed do experience significant and ongoing losses in their prosperity and freedom.” Since the fall of the Roman Empire, the average civilization has lasted only 304 years.8
These thoughts, not the slow growth of productivity (which is underestimated by official data), are what keep me up at night.
Still, I don’t think the tradition handed down from Socrates to Cato to the Renaissance and Enlightenment humanists to Jefferson and John Stuart Mill is about to be discarded like yesterday’s newspapers. Liberalism as a philosophical grounding, and wealth-building as the principal goal of human action, are here to stay in some form.
Should maximizing economic growth be our overarching goal?
Cowen takes the controversial (to say the least) position that our chief goal as a society should be to maximize wealth, or what he calls Wealth Plus – the things that make life worth living, including but not limited to those that can be bought with money.9 By doing this, he says, we will maximize enjoyment and minimize suffering, not only by those alive today but those who are not yet born – and not just our immediate descendants, whom we presumably already care about, but those who will come into existence in the distant future, who are further from our minds.
At the macro level, such a goal amounts to maximizing sustainable economic growth, globally and over the indefinite future. The virtue of growth, Cowen explains, is the benefit it brings to ordinary people:
[If] a time traveler from the Eighteenth Century were to pay a visit to Bill Gates today…he would find televisions, automobiles, refrigerators, central heating, antibiotics, plentiful food, flush toilets, cell phones, personal computers, and affordable air travel.
But a visit to me or to Tyler Cowen, he notes, would turn up the same inventory! “My smartphone,” notes Cowen, “is as good as his.” The time traveler would not be impressed by the number of cars Gates has but by the fact that he has one at all – and so does everyone else. The 18th century time traveler would be startled, not by inequality, with which she’d be very familiar, but with the equality of consumption that we’ve achieved. “Baby televisions – even kids have ’em,” jokes Dana Carvey, referring to smartphones.
There are a lot of people in Africa and parts of Asia and Latin America who are waiting their turn at this standard of living and the only way we’re going to get it is by having a lot more economic growth for a long time.
Long-run economic growth, Cowen tells us, should be pursued single-mindedly, but subject to one constraint: absolute respect for individual rights. I’m glad he added that.
Money isn’t everything
These sentiments, however, do not resonate with most people. A Cowen admirer, the blogger Sean Patrick Hughes, pays him a very backhanded compliment: “Cowen’s work has more blood in it [than that of über-libertarians Robin Hanson and Bryan Caplan, who are among Cowen’s George Mason University colleagues]. More human than Hanson and Caplan is still not that human though.”10 There just has to be more to life than maximizing some utilitarian economist’s objective function, doesn’t there?
Of course there is. The idea that money isn’t everything has been instilled in all of us, whether by our teachers, preachers, parents, the writers we read, or common sense. To some people, Cowen’s utility function seems starkly cold when compared with those lessons.
However, Cowen writes,
South Korea is much better off than, say, the Democratic Republic of Congo… The higher growth alternative [achieved by South Korea] will eventually offer a clear and ongoing preponderance of plural values in its favor, whether it be living standards, women’s rights, freedom of choice, the fight against poverty, or other important values. So why not choose that option and recognize that we have rational grounds for preferring it?
The overtaking criterion: Compounding over the long run
Cowen frames the power of compounding in terms of the overtaking criterion, the idea that one growth path is to be preferred to another if the long-run result is superior, even if the short-run result is not. This is really just a way of saying it’s worthwhile to invest in the future at some positive rate of return. Cowen writes:
We should always be willing to give up a discrete benefit today if in return we can create a sufficiently long string of well-being increases in the future…. Compare the two sequences:
(a) 3, 3, 4, 4, 5, 6, 6, 6, 6, 6, 6, 6…
(b) 4, 4, 5, 5, 5, 5, 5, 5, 5, 5, 5, 5…
Using the overtaking criterion, (a) is better than (b).
If these are annual growth rates, just link the returns, 1.03 × 1.03 × 1.04 and so forth, and you’ll see that series (a) surpasses (b) in year 9 and then stays ahead; simple arithmetic.
In this analysis, Cowen implicitly uses a discount rate of zero: one year is as important as another. In investing, we don’t typically do that, because a dollar invested today produces more than a dollar tomorrow, so a positive discount rate applies to all future quantities.
But, unlike the cash flows in Treasury bonds, lives or the benefits from being alive cannot simply be traded between generations. A moment’s thought about the ethics of this question shows the absurdity of using market rates: at the 5% real discount rate sometimes used to compare present values to future values, a dollar today is worth $132 a century from now – but a life today most certainly cannot be equated with 132 lives a century from now! A “social discount rate” much closer to zero makes sense, and one could argue for a rate of exactly zero – all lives matter equally, no matter when in history they occur. Cowen tries to move us in this direction, something that should be applauded in principle.
Deep concern for the far future: What does it mean?
The problem with Cowen’s recommendation is that we do not know how to implement it. Most of us care about the future, including the lives of people who have not yet been born. Most of us would gladly sacrifice a point of annual GDP growth in this decade to achieve an extra two points for the rest of the century or millennium, even if we won’t be around to enjoy it – somebody will, maybe even our own children and their descendants. But the children do not have to be genetically ours for the tradeoff to make moral sense.
The rub is: what specific actions should we take to ensure that the sacrifice today will produce the intended benefit tomorrow? Cowen doesn’t have much to say on that question, other than to “invest…in high-return activities like supporting immigration and producing new technologies with global reach, such as cell phones and new methods for boosting agricultural productivity.” I think we’re already doing that, and very rapid immigration has (and should have) practical limits.
The trouble with zero: Cleopatra’s dessert
A discount rate exactly equal to zero also yields absurd results, as Cowen demonstrates, albeit unintentionally. Cowen wrote, in a 1992 article co-authored with the late philosopher Derek Parfit,
Why should costs and benefits receive less weight, simply because they are further in the future? When the future comes, these benefits and costs will be no less real. Imagine finding out that you, having just reached your twenty-first birthday, must soon die of cancer because one evening Cleopatra wanted an extra helping of dessert. How could this be justified?
This is not satire, but a serious argument for a zero or near-zero discount rate – and Cowen quotes this passage in Stubborn Attachments, so it must reflect his current thinking. The problem is that the real world doesn’t work that way! So many things have happened between Cleopatra’s time and ours that one cannot possibly draw a causal connection between anything she did – even her allowing the Roman conquest of Egypt – and any specific aspect of someone’s life now.
I do not mean that the Roman conquest of Egypt had no consequences for today. It did. It just has no impact on a 21-year-old’s cancer prognosis. Life is not a mechanical cause-and-effect machine, with each single action having a specific single result. If it did, decision-making would be much simpler. That is the reason we do not have the “moral calculus” that the utilitarian 18th and 19th century philosopher Jeremy Bentham so fervently wished for.
The Dutchman who bought Manhattan Island for $24
The first thing we can do to help those who will be born in the far future is to leave them a livable world. We can start by not destroying the environment.
But what specific actions does that commitment imply? Let’s skip the obvious (reducing pollution; limiting climate change to the best of our ability) and dig a little deeper. One experience I will never have is enjoying the wilderness that was Manhattan Island 400 years ago. Should Peter Minuit, out of obligation to leave me an unspoiled island, have left Manhattan without exchanging $24 worth of beads and trinkets – or so goes the legend – for it? Or did he have an obligation to leave me the current Manhattan Island, with its then-unforeseen pleasures (and pains)?
I would say he owed me neither. Minuit had an obligation to trade fairly and to do what was best for himself and the people of his place and time. There is some debate about whether he engaged in fair trade – his transaction is sometimes half-seriously described as an example of unwary tourists being bilked by wily natives!12
I inherit the world my ancestors left me, bounteous but with many warts, and it is my responsibility to make the best of my time in it. In this sense Cowen’s exhortation to be deeply concerned with the far future is ambiguous: who knows what people (or other creatures) of the far future will want or need? All we can suppose is that they will be much like us and need the same things, which may be a poor forecast and lead to flawed decisions such as Peter Minuit might have made by leaving Manhattan without having bought it.
Climate and the far future
An Economist article that relies partly on Stubborn Attachments boils concern for the far future down to one variable: climate.13 The article’s author writes, “[H]umanity ought to be willing to bear substantial costs now to reduce eventual climate harms.” I agree – but only if the proposed remedy has a high probability of being effective, and if the resources consumed do not have a better use in ensuring well-being in the far future. There are other problems to be solved and only so many resources to go around, so we face a multivariate problem in resource allocation under conditions of profound uncertainty.
It would be ironic, and tragic, if we focused all of our attention on climate and later found out that there is a worse problem we could have avoided by acting differently. It is also not clear that the remedies now considered mandatory for climate remediation will “work.” So, even if one accepts “deep concern about the distant future” as a moral imperative, translating that to a plan of action is very difficult.
The tyranny of unforeseen consequences
The law of unforeseen consequences is one of the most powerful in nature. Peter Minuit just wanted to purchase some land for his employer, the Dutch West India Company. (They didn’t have a firm grasp of geography in those days; Manhattan is nowhere near the West Indies, which are nowhere near India.) He did not contemplate founding one of the world’s greatest cities. In a butterfly effect, his decision to make the trade cast a 400-year shadow on the future.
Likewise, our own decisions to respect the needs of our distant descendants could prosper or backfire, and if our decisions are no good, we won’t be there to reverse them even if that were possible. We should be very careful in trying to implement Cowen’s laudable goals.
Implications (very indirect) for investors
What does all this moral philosophy have to do with investing? Very little, if you’re talking about getting the highest return for your risk budget this year or this decade. But the long-run rate of return in equity markets, which consume most of our risk budgets, is profoundly influenced by the underlying rate of economic growth – even if the correlation over the short run is not high.14 And, as Cowen reminds us, small differences in year-by-year rates of change have huge long-run consequences.
If leaders around the world follow Cowen’s advice, the prospect for globally diversified equity investors is remarkable indeed. We should expect more Chinas, more South Koreas, more Israels to rise out of the emerging and frontier market categories and join the ranks of the rich.
The danger is that short-term temptations – to restrain trade and immigration, redistribute resources well beyond what is necessary for moral acceptability, and engage in rent-seeking and corrupt behavior – will take precedence. The pendulum of power will continue to swing between John Stuart Mill’s wealth-building liberalism and the capital-destroying populism that is currently infecting the body politic.
I do not know which forces will prevail in the near future, although a very long-term (over the centuries) view of history strongly suggests that much more wealth will be built. Investors should be on the lookout for inflection points in these trends, to help guide their allocations to risky versus safe assets, and to local versus global ones.
Cowen is probably best known for his ultra-popular blog, Marginal Revolution. In it, he rarely expresses his own thoughts, instead pointing his readers to other resources – books, articles, blogs, musical recordings, and restaurants in exotic locales. Stubborn Attachments is not like that – it’s not a smorgasbord of intellectual thought and pleasurable sensations. It’s a serious philosophical work with implications for both policy and personal behavior.
Anyone can benefit from reading Stubborn Attachments, but investors will find the language of compound interest, discount rates, and cost-benefit analysis familiar and will get more out of the book than other readers might. A long afternoon would be satisfyingly spent reading it.
Laurence B. Siegel is the Gary P. Brinson Director of Research at the CFA Institute Research Foundation and an independent consultant, writer, and speaker. His book, Fewer, Richer, Greener, will be published by Wiley in 2019. He lives and works in Wilmette, IL and Del Mar, CA, and may be reached at [email protected]. His web site is http://www.larrysiegel.org
 Hughes, Coleman. 2018. “Tyler Cowen’s Stubborn Attachments – A Review.” Quillette (online, November 21), https://quillette.com/2018/11/21/stubborn-attachments-a-review/ At the rate he’s going, this 19-year-old is going to take over my job.
 Marginal Revolution post, September 12, 2018, https://marginalrevolution.com/marginalrevolution/2018/09/update-yonas-stubborn-attachments.html. “Whom [sic] I thought” in the original.
 Akst, Daniel. 2003. “The joy of thinking globally.” Los Angeles Times (February 7). Cowen, who is 56, is also head of the Mercatus Institute at George Mason University, and is on the advisory boards of the Wilson Quarterly and the American Interest. Remarkably he is also married, with a stepdaughter.
 Wattenberg, Ben J. 1984. The Good News Is the Bad News Is Wrong. New York: Touchstone (Simon & Schuster).
 Heller, Emily P. 2018. “Tyler Cowen recommends ‘a pile of books’ on The Ezra Klein Show.” Vox (online, May 21), https://www.vox.com/2018/5/21/17369920/ezra-klein-show-book-recommendations-tyler-cowen-shakespeare-amazon
 I greatly admire the accomplishments of the Chinese system since the accession of Deng Xiaoping, but a recent report regarding the establishment of a culture of overwhelming surveillance in Xinjiang (presumably to repress the local Muslim culture and imbue Chinese values) is terrifying. See Mikhailov, Vadim. 2018. “A Week In Xinjiang’s Absolute Surveillance State.” Palladium (online, November 29), https://palladiummag.com/2018/11/29/a-week-in-xinjiangs-absolute-surveillance-state/ Disturbingly, Palladium, an intellectually distinguished web magazine, describes itself as “dedicated to exploring the foundations of the post-liberal future.”
 I’d caution that India’s commitment to liberalism is only a quarter-century old, and is at least partly dependent on the continuance in power of a nominally religious party, the BJP. Yascha Mounk calls its leader, Narendra Modi, a populist, not a liberal. Russia, the ninth most populous country but the largest in land area, is now (post-2003) a confirmed autocracy.
 At least that is the calculation provided by Michael Shermer, cited by Cowen. Shermer is a historian of science, broadcaster, editor of Skeptic magazine, and contributor to Scientific American. Some historians calculate a longer average lifetime, using a more expansive definition of a civilization. Cowen points out in a footnote that, for example, the total lifespan of the Chinese Empire was 2,133 years (from 221 B.C. to A.D. 1912). So 304 years is a low estimate.
 Wealth Plus is just what most people call well-being. It used to be called welfare until governments stole the word; now only “welfare economists” call it by its proper historical name.
 Hughes, Sean Patrick. 2018. “This is the Review I Want to Write About Tyler Cowen’s Stubborn Attachments…” Chartwell West (blog, November 19), https://chartwellwest.com/2018/11/19/this-is-the-review-i-want-to-write-about-tyler-cowens-stubborn-attachments/ Hughes works in the technology field and is a former U.S. naval officer.
 Cowen, Tyler, and Derek Parfit. 1992. “Against the Social Discount Rate.” In Peter Laslett and James S. Fishkin, editors, Justice Between Age Groups and Generations. New Haven/London: Yale University Press.
 This joke arises from an economics professor’s observation that the current value of all Manhattan real estate, discounted back to 1626 at a risky discount rate to reflect the uncertainty that Manhattan would ever amount to anything more than a hilly forest, is less than $24.
Minuit actually paid 60 Dutch guilders, converted to 24 U.S. dollars by a historian in the 19th century; 60 guilders then are worth about $1000 now.
 “The moral assumptions embedded in economic models of climate change.” Unattributed. The Economist (December 6), https://www.economist.com/finance-and-economics/2018/12/08/the-moral-assumptions-embedded-in-economic-models-of-climate-change. The article ran in the print edition under the title “Future Lives Matter.”
 See my article, “The Annotated Russell Napier,” at http://larrysiegel.org/conference-roundup-the-annotated-russell-napier/, for a discussion of this issue, along with some data.