Dr. Tyler Cowen on success and the world's economies

In economics it is a far, far wiser thing to be right than to be consistent.  John Kenneth Galbraith

After the Aug. 3 launch of the Angara Center for Law & Economics at Sofitel Philippine Plaza Hotel in honor of Senator Edgardo Angara, the guest speaker, New York Times columnist, book author and top economist Dr. Tyler Cowen, gave The Philippine STAR an exclusive three-hour interview.

Tyler Cowen is ranked by Foreign Policy Magazine as one of the Most Influential Thinkers of 2011, and nominated by The Economist magazine in 2011 as one of the most influential economists of the decade. He holds the Holbert C. Harris chair of economics and also general director of the think tank Mercatus Center, both of the George Mason University. He earned his PhD in economics from Harvard University.

Cowen writes for The New York Times, The New Republic, The Wall Street Journal, Forbes, Newsweek, and The Wilson Quarterly. The Angara Center aims to raise the standards of academic research and policy studies in the Philippines by tapping world-class thinkers like Cowen.

Excerpts from the interview:

PHILIPPINE STAR: Can you assess the US economy since it’s still the world’s largest now? Who’d make a better leader to save your economy, President Obama or his rival, Mitt Romney?

DR. TYLER COWEN: Both sides  Obama and Romney  are lying about the US economy. The Republicans are saying it’s the fault of Obama, but actually I believe we’re going through what I call the “Great Stagnation.” The 2008 financial crisis only made it worse, because most of us Americans believe we were richer than we are.

Are you asserting that this US economic problem is a long-term malaise?

I would assert that median income growth in the US has slowed notably since 1973, and that it’s even worse for Western Europe. This long-term problem is not only plaguing the US, Japan suffers it since their 1980s bubble burst the Japanese economy has had no rapid growth anymore. The Japanese seem to have lost the ability to believe in themselves.

You’re pessimistic about Japan, the world’s third biggest economy. What about its future?

I believe that in terms of revenues and fiscal position, the Japanese are in very dire straits. I would stress that life in Japan today is still quite good, but looking forward, it’s hard to see a rosy scenario for the Japanese economy.

There should be a good leader between Obama and Romney  both are extremely smart. Who has a better chance of really reforming America?

I don’t think we know; neither is. We should start at the moral level, and the budget. I don’t blame either candidate. Yes, they’re both smart, but I think the real problem in the US is our institutions, so I would rather focus on policies rather than on the politicians.

How do you assess the economies of China, Southeast Asia, and the Philippines?

Well, in my opinion, the economy of China is now imploding, but it will bounce back. The downturn in China now will pull down much of Asia. Japan will continue to stagnate; most of Europe will struggle with problems, so where will the energy and the growth for the short-term come from for the world economy? Where? The BRICS economies of Brazil, Russia, India, China and South Africa are not doing well enough to pull up the world economy.

What about our Philippine economy, do you agree we have positive prospects?

I’m not that well-informed about the Philippines yet, but there are lots of low-hanging fruits here for good economic prospects. But the risk if a country does well is complacency. Some countries that do well, they make a few good changes and then they stop. I’m not saying this is the Philippine situation, but that is what happened to Spain.

Ex-Congressman Mark Cojuangco told me one of the reasons behind Spain’s economic crisis is their unwise spending or subsidies for renewable energy like solar power despite their still too-high costs. Is this true? There’s a bill in Congress here in the Philippines said to be similar and too costly for us consumers and the economy.

Some of it is true. They relied a lot on subsidies in Spain, while some are self-sustaining. A lot of it is in trouble. You can only subsidize renewable energy like solar and others if you’re Germany, but Spain couldn’t afford it; there’s just too much investments and it’s expensive.

Senator Ed Angara is one of this country’s smartest leaders. What do you think of the Angara Center?

Senator Angara is a very important leader in the Philippines, and it seems he is very smart. I am very pleased that he has initiated this center, because research is very important. Economic growth paths are different for various countries, like for South Korea and Chile, so the Philippines’ path to economic success will require a lot of research.

There are a lot of think tanks in the world; any suggestions on how to make the new Angara Center successful?

Yes, there are a lot of think tanks. People in the academe are good in the realm of ideas, while think tanks are good in chasing the latest problems. I think what think tanks or research centers should do is bridge the world of practice and the world of learning.

As a top economist, what is your advice to Asian businessmen?

I view myself as not in any position to give advice, but to learn from Asian businessmen. This is not advice, but I would caution people about the world economy now; it’s more fragile than we realize. Also, I would say that a lot of great achievements of the past 20 years were by Asian businessmen, so it is they who should give me advice.

What are the chances of the US economy going into a double-dip recession?

I think the 2008 economic recession of the United States never really ended. What we’re experiencing now, it’s one long, big dip. The so-called “recovery” is just a little hiccup up.

Why do you say so?

Look at the 1980s when the US economy got out of a recession, we were then growing at six percent per year, but now we’re just growing at 1.5 percent per annum and that’s already three years after the so-called “recovery.” I would say there’s no real recovery, and I would call this the new normal.

Filipino journalist Maria Ressa recently wrote in CNN: “What’s clear is that American-style democracy has largely failed in the Philippines... Figures from the Asian Development Bank show the Philippines is the only Southeast Asian nation to record an increase in the absolute number of poor people since 1990 (although no figures are available for Myanmar).” Do you think in some developing nations, it is better to have economic reforms first before plunging into political democracy?

There’s a lot of research data that political democracy and economic reforms are compatible.

But I see many examples of economic reforms first before political democracy, like Chile, South Korea, Taiwan, Japan, etc.? China, too, seems better than glasnost-era Russia?

Those are examples in the other direction, you’re right. But Poland and the Czech Republic, they had political democracy first before economic reforms.

Economist Paul Krugman seems to have disagreed with you several times publicly?

Yes, we disagree in most cases (laughs). We’ve had 15 or 20 exchanges. My views are more market-oriented and liberal, Krugman is too leftist progressive, he likes more government spending.

Isn’t that suicidal thinking, because the US government is already overspending, isn’t it?

Krugman says I don’t understand him. He thinks he has all the answers and he thinks all who disagree with him are stupid or corrupt. Quite often, some people are stupid and corrupt, but it’s a dangerous attitude to think that way, because you can lose your self-critical way of thinking.

Obama is liberal and therefore more for government spending, so isn’t Mitt Romney ideologically closer to your market-oriented economic ideas?

I like Romney’s rhetoric, but I don’t think he has a coherent plan. I think Romney and Obama both have equal chances to save our US economy. On Obama as liberal, you know we had a saying in US politics before that only President Richard Nixon could go to befriend China, because he was the most anti-China politician before and had built his credentials on that. Very often, you can get change from the other side or the opposite side  look at all the market reforms by Germany’s Social Democrats, the left.

So you’re hoping that left-oriented, ultra-liberal Obama can probably do better at pro-market reforms? But it’s been four years already and he has not done so.

I agree with you, it’s been disappointing. And look at Mitt Romney, too, supposedly a conservative, but he was the first to introduce universal health care in Massachusetts!

Your market-oriented views are similar to that of Nobel Prize-winning economist Milton Friedman, whom I admire. Have you met him or talked to him?

I’m a great admirer of Milton Friedman. Yes, I’ve met him five or six times, the first in 1990. I learned a lot from him. He always has a constructive way of thinking as a temperament, whether economically, politically, etc. You can learn a lot from being with him or from his writings.

Is the US now in decline like all past empires of the Romans, British, Spanish, and others?

No, I think we’ll do better than the British. Look at our US population of 310 million; the United Kingdom is still only 40 or 50 million. The US has size, we still have a good business culture, and we’re protected from foreign enemies while Rome had barbarians at the gate.

Do you think culture is the X factor in economic progress, like the Protestant ethic of the US, Britain, Germany and Nordic countries in the West, with its equivalent of the Confucian ethic in China, Korea, Japan, Singapore, Taiwan and Vietnam?

I agree. I wouldn’t use the word “equivalent,” but it’s indeed similar. They have the sense of mission that you’re put here on earth to do something great, and that you really believe it. It’s not just about earning money, but it’s more about the task itself, that they love the task for its own sake. It’s different if you go to Russia  people there do not have this feeling, people there are too cynical.

I heard your wife is Russian?

She’s from the former Soviet Union, but she’s not ethnically Russian. She’s part Jewish and part Armenian.

The Jews are amazing in preserving their culture even in diaspora, do you agree?

My wife Natasha is very amazing! (Smiles)

My editor recently wrote a column mentioning that Mexican artist Frida Kahlo and Russian revolutionary Leon Trotsky had a romance before; both were of Jewish heritage.

Yes, I know, I love and collect Mexican art, but we could not afford a Frida Kahlo work. I’ve lived in Mexico, too, and know the place well.

Is the Philippines, our society, politics and economy similar to that of Mexico? You know, our telecom king Manny V. Pangilinan is soon becoming the TV king, too, like Mexico’s telecom and TV tycoon Carlos Slim.

Yes, the similarity has struck me. When I see people in Manila, how they pick up their children, talk to them and smile at them, it’s all so similar to Mexico that I find it stunning and so striking.

Is the Mexican economy a basket case or can it be as good as Brazil or Chile?

The Mexican economy is often underrated but it’s actually extremely dynamic and productive. Of all the OECD economies, Mexico is the most open, productive and it has lots of exports.

Is Mexico’s economy open to foreign investors? Do you think the Philippines should have Charter change to reform the xenophobic and anti-investor economic provisions of our 1986 constitution put there by our politicos?

Foreign investment policies are very open and liberal in Mexico. I don’t know the details of your Philippine constitution, but in general, foreign investments are good for an economy. Mexico’s industries are open to foreign investors except oil, but even that they’re trying to change, too.

Are you optimistic about our Philippine economy?

From what I’ve read and heard, yes. You have a talented population, good education, lots of economic potential.

So you’re impressed with the leadership of President Noynoy C. Aquino?

I’m not qualified to say. I can see that there is Philippine progress, but I can’t say who deserves the credit.

On a personal note, what are your success secrets or advice to others on success?

(Laughs) Secret? I think I had a great mother, Nheiva Cowen, and good health, plus some luck. Any advice? Have a good mother! (Chuckles)

What advice did your mom give you on success?

She never advised me, she believed in me. A parent believing in one’s kid is very important.

What companies in the world do you admire the most, and those you don’t?

I think Amazon by Jeff Bezos is a great company. As innovators, they’re underrated. On the other hand, I think Mark Zuckerberg’s Facebook is overrated; it has only one product, difficult to use, and it doesn’t bring in much money.

Three economists on earth you admire the most?

Adam Smith, Milton Friedman and maybe Thomas Schelling, the Nobel Prize-winning economist who was my thesis adviser.

With the US and Europe in crisis, are you optimistic about the future of capitalism?

In the next 10 years it may be bad for capitalism in the world, but I’m still optimistic about its future.

I believe capitalism will triumph. Look at China, I think communism there won’t last, because we ethnic Chinese people anywhere on earth are natural entrepreneurs.

Yes, Chinese people are business-minded, pragmatic, which speaks well of the Chinese people.

Why are many Latin American countries electing leftist leaders into power?

In most cases, the many leftist governments in that region have worked out fine. Look at Brazil, the leftist leaders there are reformers, but of course the case of Venezuela under Hugo Chavez is different.

Do you think US foreign policy will become more introverted, despite Obama and Hillary Clinton declaring a new strategic shift towards Asia?

Yes, I believe the United States will become more introverted, because government spending is a big problem. We will soon withdraw from Afghanistan; we have already from Iraq. After 11 years in Afghanistan, we’re not doing well there.

Is being introverted good or bad for the US? Can this inward-looking trend be changed?

I think being introverted is a bad thing, but you can’t spend money you don’t have.

With lots of well-educated leaders, how come your US government or politicos can’t solve your budget crisis?

Our own worst enemy in the US is ourselves. You know, we can reach a budget agreement if we really want to, but we don’t want to, we’re stupid. They’d rather not agree and complain about each other, but I agree it’s a fixable problem unlike that of Greece or Spain.

When you say “we,” are you referring to your politicians?

No, I also blame the voters. The American people are in denial.

I heard you admire textiles made in Mindanao. How come? Where have you seen them?

Yes, I like them. I’ve seen Mindanao textiles in the ethnographic museums in Germany and France.

That’s amazing. You should ask Senator Ed Angara to introduce you to Senator Loren Legarda; promoting Mindanao’s native tribal textile arts is one of her advocacies.

That’s a good idea. Mindanao textiles are very subtle, rich in feeling, beautiful and perhaps still undervalued as art. They’re all over the world.

A pragmatic economist like you should be in politics. Do economists make good presidents? President Aquino and his predecessor, ex-President Gloria M. Arroyo, are both economists.

(Laughs) Economists don’t usually make good presidents. This is a generalized idea, and I’m not commenting on your president, but economists are very good thinking in terms of models, but less good to connect the models with the real world.

A president or prime minister of a nation, maybe their most important task is choosing advisers, and you can see that is not a good skill of economists, usually. And it is difficult to teach that skill, you can’t teach it like a formula.

So that’s similar to entrepreneurship, which Philippine self-made taipan John Gokongwei Jr. said he believes cannot really be taught in school or from textbooks.

I agree. You can teach some things behind it, but you cannot teach entrepreneurship inside the classroom. But you can learn from mentors, though, so if you work with a great entrepreneur, you don’t copy but can learn a lot of lessons and draw your own formula.

I heard you were just in Beijing and enjoyed watching the Olympics on TV there. You love sports?

Yes, often sports require the highest level of human cognition, more than economics (laughs). There’s more cognition in sports, especially complex sports. Look at LeBron James on the basketball court, he needs to lead, to strategize, to work well with and motivate his team, etc. I find sports admirable, putting aside those sports that make us hurt each other.

You must be referring to boxing? I think that sport is used by the West to exploit poor nations like the Philippines and Mexico, plus your ethnic minorities, the blacks in the US and UK? Why are there no world boxing champions from Harvard, Yale, Oxford or Cambridge?

Yes, I think boxing is cruel; it hurts your brain. I agree.

Your country, the USA, is doing well in the London Olympics; you also have the most number of athletes.

Yes, excelling in sports by certain nations, it also relates to this sense of mission. China and Germany, too, are excelling in the Olympics, and it speaks well of them. It’s tragic that some countries like India, hardly any Indians are excelling in the Olympics despite their having so many people.

South Korea, too, is excelling in the Olympics, winning more medals than Japan since before.

The Korean people also have the sense of mission; Korea will become better than Japan. The Korean economy is not booming now due to the global problems, but the Koreans still believe in themselves, which the people of Japan have lost.

Why is Germany still a dynamic economic powerhouse, but Japan is economically stagnant? Both came out of World War II in almost similar conditions.

Germany is more open to other cultures and to immigrants. The German people might seem rigid in their discipline but they’re actually very flexible and good at reinventing themselves. They’re also guilty about the war. In contrast, Japan is not guilty about the war, and they have no sense of wanting to learn from others. The Japanese should seek to learn more from China and Korea.

You’re right, Germany used state funds to build a Holocaust memorial and they have a law punishing those who deny the Holocaust, but a British businessman told me he saw a museum in Japan whitewashing their guilt in World War II. Is this true?

Yes, I’ve seen that in a history museum in Tokyo, in the section on World War II. The English caption says: “… then the Americans blockaded Japan, and the two countries found themselves at war.” I don’t know what the Japanese words actually said. There was no mention of the Japanese attack on Pearl Harbor.

So you think the German people’s coming to terms with their past war guilt has made them better as a nation, but Japan has failed to come to terms with their war guilt?

Yes, and it’s bad for Japan; they’re the eventual losers.

Going back to Mexico being similar to the Philippines economically and socially, how do we solve the huge rich-poor gap in both countries?

Better education, but that’s hard to do.

Another thing the Philippines and Mexico may be similar in is our being more low-trust societies but with strong extended families?

That’s also the case in Russia. Extended family ties are strong, but impersonal trust is weak among non-family members. In contrast, if you look at Chinese and Korean families, there’s something harsh in their culture, they’re willing to emotionally reject a child if he or she doesn’t conform to what is expected. They could shame the child in unpleasant ways. It might seem harsh, it might not always be fair, but it does lead to more success. Mexican families are not like that, they’re warmer, more relaxed, but there’s also less pressure to perform and less pressure to excel.

So how can these ideas help our Philippine socio-economic progress?

To improve education, there’s a need to go through the families. There’s a need to have families and government work in the same correct direction.

Any final additional suggestions for a better Philippine economy?

Invite me back! (Laughs) I’ve enjoyed my visit, I’ve gone out myself to explore Manila and I even ate delicious street foods  your menudo and adobo.

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