Tyler Cowen is an economist and writer who co-founded the popular blog, Marginal Revolution. A professor at George Mason University, Cowen was named one of the Economist’s top 36 most influential economists over the past decade. He is a popular thinker and blogger in an academic world, and his work has appeared in Bloomberg and the New York Times. All this 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 cryptocurrency as it handles monetary policy and ask a simple question: what would the greatest economists of the past think of today? crypto mania?
TC: What are economists thinking about cryptocurrencies? Do they study it? Worried about it?
Cowen: I think most of them didn’t follow that much. A significant subset is puzzled. They were not the main thinkers behind the crypto movement. Some in particular, like Paul Krugman, were pretty tough. There are quite a number of working roles trying to model it, people who are intrigued and curious. So, I think there is still no consensus. But unless you work in monetary theory, the professional incentive to ponder cryptocurrencies is pretty small, and most people don’t do it often. But just being economists doesn’t make them as qualified to give an opinion as you might think.
TC: Do you see a new crop of Economist coming out or just focusing on cryptocurrencies?
Cowen: You really need a lot of outside training outside of economics that none of us had in graduate school, including just the basics in crypto salary. Some amount of time and experience helps too. So, most of the best cryptocurrency work is in the middle, on Twitter. It’s in strange places, and it’s not from professional economists. Not even monetary theorists. I find this disheartening about my own profession, but that’s the way it is.
TC: What is your opinion of the current industry?
Cowen: I started out as a crypto skeptic, but over time I became what I call a hopeful crypto. I’m not sure everything will work, but I can see legitimate use cases with high benefits. And I think there’s a good chance that they will succeed and I’m impressed by the sheer amount of talent in crypto work or the crypto movement.
TC: People compare this technology to cargo cults. You build the traps of an economic system in the hope that it will magically appear. Is this accurate?
Cowen: 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?
Cowen: Well, people in cryptography want to build systems that work. It is only fair that we are all uncertain about how this will play out. But the price of crypto assets has been very high for some time now and they have taken big hits and come back. So I don’t think now you can say it’s just a bubble. So what exactly that would be is still up for debate, but I think the bubble view is getting harder and harder to maintain.
TC: Are we assuming these things are here to stay? That bitcoin won’t disappear in a decade?
Cowen: This is strongly my belief. Now, there are many other cryptocurrencies and I think most of them will disappear. There were a lot of social media companies fifteen years ago too and a lot aren’t around, but obviously social media is very important.
TC: What is your opinion on decentralization from an economic point of view?
Cowen: I think we will end up with centralized encryption and decentralized encryption, and they will serve very different functions. So, obviously, there were advantages to centralized systems. You can change faster, more readily. There is someone to manage them, someone to supervise them. But you also accumulate costs. So I think both will prove to be robust. But then again, I would readily admit that it’s still up for grabs.
TC: When do you expect governments to get involved with stablecoins and the like?
Cowen: Well you could say now. The dollar is a stablecoin. There will be more central bank digital currencies next year. There are already some that exist or are literally about to exist. And I think five years from now, you’re going to see a huge number of them. Now, they are not crypto to be clear. But I think they will be significant is a near certainty.
TC: Looking back in time, what is the clearest historical analogue of cryptocurrencies?
Cowen: I think of cryptocurrency not so much as a currency. You can’t actually use it to buy a coffee at Starbucks. They are failing like that kind of currency. I think of them as new types of computers, new types of legal systems, and new ways of achieving credible decentralized consensus. So I think they are more analogous to advances in computing than some sort of event.
TC: Oh interesting. So to some extent we can ignore economists because it’s a technology issue, not a monetary policy issue.
Cowen: It’s a computing issue, but obviously it intersects with economic issues and the central issue is how all this will pay off, which is still unclear. Economists have or at least could have a lot to say about this. I wouldn’t say economists are useless. I’d say they haven’t been valuable yet. They can arrive at the party very late. Cryptocurrency is not fundamentally new money, but you will find people in the industry who will still argue that these things will serve as literal currencies. I think the name cryptocurrency has become unfortunate, but clearly they are coins that can be used for some purposes, sometimes for black or gray market purposes, but I don’t fundamentally think that they are. You see this with NFTs which are their own thing and are closely related to cryptography. But like, how does that relate to a currency? Is an NFT a work of art? But within the language of cryptography everything makes more sense. It’s more of a unified development and that’s a way of thinking about it rather than thinking of them as currencies.
TC: What should a CFO or even a budding general economist be doing in the field?
Cowen: It depends where they’re starting, but they should put in a good amount of time. They should be reading all the basics about these systems and putting together a Twitter feed so they can keep up with what’s going on because the industry changes very quickly and having a network of people they can ask questions too because it’s not like cooking roast chicken where there’s more or less a tried-and-true formula, right? It’s all changing incredibly fast.
TC: What do you read daily to stay up to date?
Cowen: A lot of what I do is talk to people, you know, in private or in groups. I think Twitter in general is the best place to follow cryptocurrencies. You’re not seeing any conventional cryptographic coverage in the business papers. I don’t think there’s anything wrong with them necessarily, but that’s not where I go to see what’s going on with cryptocurrencies. Economists are really the laggards here.
TC: Is this for your benefit or harm?
Cowen: You know, I think as a profession we will regret missing the boat, but I’m not sure any particular individual will get worse, but I think it’s a sign that we’re not sufficiently in touch with real innovations. It is a very difficult field 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 just remains a very difficult thing.