Tyler Cowen is an economist and writer who co-founded the popular blog, MarginalRevolution. A professor at George Mason University, Cowen was named one of The Economist’s top 36 most influential economists of the past decade. He’s a popular thinker and blogger in an academic world, and his work has appeared in Bloomberg and The New York Times. All that to say he’s a smart guy.
And he is pro-cryptocurrency.
In an effort to understand what economists think of this burgeoning industry, I reached out to Cowen to talk about the history of crypto as it relates to monetary policy and ask a simple question: what would most great economists of the past of the present? crypto-mania?
TC: What Do Crypto Economists Think? Do they study it? Do you care?
Couen: I think most of them didn’t follow it much. A significant subset is perplexed. They weren’t the main thinkers behind the crypto movement. Some in particular, like Paul Krugman, have been pretty tough. There are lots of working papers trying to model it, people who are intrigued and curious. So I don’t think there’s a consensus yet. But unless you’re working on monetary theory, the professional incentive to think about crypto is pretty low, and most people don’t do it often. But the fact that they are economists does not make them as qualified to have an opinion as one might think.
TC: Do you see a new generation of Economists coming out or just focusing on cryptocurrency?
Couen: You really need a lot of external training outside of economics that none of us had in grad school, including just the basics of crypto pay. A certain amount of time and experience also helps. So, most of the best crypto work is on the support, on Twitter. It’s in weird places, and it’s not by professional economists. Not even monetary theorists. I find that discouraging for my own profession, but that’s the way it is.
TC: What is your opinion on the current industry?
Couen: I started out as a crypto skeptic, but over time I became what I call a crypto hopeful. I’m not sure everything will work, but I can see legit use cases with high benefits. And I think there’s a good chance they’ll be successful and I’m impressed with the sheer amount of talent in crypto work or the crypto movement.
TC: People compare this technology to cargo cults. You build the trappings of an economic system in the hope that one magically appears. Is it correct ?
Couen: I think crypto people are super, super smart on average. They are smarter than the average economist. And they have skin in the game, right?
TC: Does the profit motive color the experience?
Couen: Well, crypto people want to build systems that work. It is fair for all of us to have some uncertainty as to how this will turn out. But the price of crypto assets has been quite high for quite some time now and they have taken big hits and come back. So I don’t think you can say right now that it’s just a bubble. So exactly what that would be is still up for grabs, but I think the bubble view is getting harder and harder to sustain.
TC: Are we assuming this stuff is here to stay? Won’t this bitcoin disappear in a decade?
Couen: This is strongly my conviction. Now there are many other crypto-assets and I think most of them will disappear. Fifteen years ago there were also many social media companies and many are not there, but obviously social media is very important.
TC: What do you think of decentralization, from an economic point of view?
Couen: I think we will eventually have both centralized crypto and decentralized crypto, and they will perform quite different functions. So obviously there were advantages to centralized systems. You can change faster, easier. There is someone to manage them, someone to oversee them. But you also accumulate costs. So I think both will prove robust. But again, I would freely admit that there is still up for grabs.
TC: When do you expect governments to go all-in with stablecoins and such?
Couen: Well, you could say now. The dollar is a stablecoin. There will be more central bank digital currencies in the next year. Some already exist or are literally about to exist. And I think in five years you will see a lot of them. Now they are not crypto to be clear. But I think they will be significant, that’s a near certainty.
TC: Looking back in time, what is the clearest historical analogue of cryptocurrencies?
Couen: I’m thinking of crypto not so much as a currency. You can’t really use it to buy a coffee at Starbucks. They failed with this kind of currency. I think of them as new kinds of computers, new kinds of legal systems, and new ways of achieving reliable decentralized consensus. So I think they are more analogous to advancements in computing than some kind of money Event.
TC: Oh interesting. So to some extent we can ignore the economists because it’s a technology, not a monetary policy issue.
Couen: It’s a computer issue, but it obviously intersects with economic issues and the central question is how all this will be self-financing, which is still not clear. Economists have or at least could have a lot to say about this. I would not say that economists are worthless. I would say they haven’t been valuable yet. They can arrive very late at the party. Cryptocurrency is not fundamentally new money, but you will find people in the industry who will always argue that these things will serve as literal currencies. I think the name cryptocurrency has become unfortunate but clearly these are currencies that can be used for certain purposes sometimes black or gray market purposes but I don’t think that’s basically it what are. You see this with NFTs which are their own thing and are closely related to crypto. But like, how does this relate to a currency? Is an NFT a work of art? But in the language of cryptography, everything makes more sense. It’s more of a unified development and it’s a way of thinking about them rather than seeing them as currencies.
TC: What should a CFO or even just a budding general economist do in the space?
Couen: It depends on where they are going, but they should spend quite a bit of time there. They should read all the basics of these systems and set up a Twitter feed, so they can keep up with what’s going on because the industry is changing very quickly and have a network of people they can ask questions to as well because it’s not It’s not like cooking roast chicken where there’s more or less a tried and true formula, right? Everything changes incredibly quickly.
TC: What do you read on a daily basis to keep up to date?
Couen: A lot of what I do is chat with people, you know, privately or in groups. I think Twitter is overall the best place to follow crypto. You don’t see any mainstream crypto coverage in business journals. I don’t think there is necessarily anything wrong with them, but that’s not where I go to see what’s going on with crypto. Economists are really the laggards here.
TC: Is it to their advantage or to their detriment?
Couen: You know, I think as a profession we’ll be sorry we missed the boat, but I’m not sure any one individual is going to be worse off, but I think it’s a sign that we are not sufficiently aware of the real innovations. This is a very difficult area to understand. So when I say good luck. I really mean it and it doesn’t matter how much, you know, or how smart you are or how much time you put into it. It’s just a very difficult thing.