On the great stagnation, transformational technologies, and the future of crypto with Eli Dourado.
Eli Dourado is an economist and regulatory hacker living in Washington, DC, and a senior research fellow at the Center for Growth and Opportunity at Utah State University.
Before joining CGO, he spent 2+ years as head of global policy at Boom, a company creating a supersonic airliner. Before that, he was a senior research fellow at the Mercatus Center at George Mason University and director of its Technology Policy Program.
He has a PhD in economics from George Mason University.
Alex: [00:00:00] Eli Dourado is an economist and regulatory hacker living in Washington, DC, and a Senior Research Fellow at the Center for Growth and Opportunity at Utah State University. Before joining CGO, he spent over two years as Head of Global Policy at Boom, a company creating a supersonic airliner. Before that, he was a Senior Research Fellow at the Mercatus Center at George Mason University and director of its technology policy program.
He has a PhD in economics from George Mason University. We talked the great stagnation, transformational technologies, and the future of crypto.
Well, thanks so much for making the time. I appreciate the willingness to chat for a little bit here.
Eli: [00:00:39] Sure, of course.
Alex: [00:00:40] To get us kicked off, I just want to hear a little bit about the path that you took to get to where you are, because originally you wanted to be an econ professor, right?
Eli: [00:00:52] Yeah. So, I mean, I feel like I've just had this sort of meandering path that You know, sort of aimless. I think I, sometimes I joke, I feel like Forrest Gump, right? Like a complete idiot and just ended up doing all these amazing things. Yeah. I mean, I was a undergraduate, like sort of early undergraduate, I was really interested in poly-sci, so I took a bunch of poly-sci classes and you know basically did most of my poly-sci major in my first two years in undergrad. And then, it was only at that point that I discovered econ. And so I did an econ major also.
So it was, that was like my training. And then graduated. I was like, oh, I really want to go on the hill, on Capitol hill and go work there. So I did I got a job there as a staffer for a Congressman and didn't stay long. I ended up leaving my girlfriend was in law school and wanted to be near her.
So went down to Charlottesville and got married eventually, and then when she graduated from law school, we came up to the DC area again. And it was like, I don't think politics is for me. I want to do more of the econ stuff. So I got a job at the bureau of economic analysis.
And that was not a very hard job. I gotta say and gave me plenty of time to do things like think about what are the pre-recs that I would need to do get a graduate degree in economics? And so I went back and did some night classes, just to make sure I had all them, all the math shored up and stuff.
And then applied to GMU which is, where all my heroes were like all the bloggers you know, this is, this would have been. I guess like 2005, I was, I was thinking about applying, right. And so early blogosphere, it was like a really interesting time. So you had Tyler, Cowen, Alex Tabarrok, Arnold Kling, Brian Kaplan, pioneering the econ blogosphere in a way.
And they were all GMU related. So I was like, yeah, I want to do that. And, you know, it's still only a few years out of college, so I really, you know, admired my professors and stuff a lot. So I was like, yeah, I'll do that. That sounds, that sounds like a cool cool path. And then it became clear, like I don't actually want to do conventional econ research in the sense of publishing and trying to publish in top journals you know, like papers are growing so long now in econ, like it's like 90 pages and so many appendices and tons of math and millions of different robustness checks to your econometrics and stuff. And it just wasn't that exciting for me. And so I really, really honestly like struggled with the dissertation just because I was working towards an end that I actually deep down didn't really want.
And so, you know, sort of found a release valve for myself in blogging and writing about technology in an economically literate way. And that led me to folks at Mercatus who were like, Hey, you should come work here. And so I joined the Mercatus center in 2012 in with the technology policy program, you know did a bunch of IT policy stuff like internet governance, cybersecurity, intellectual property, et cetera.
Like I really got hired because Jerry Brito was interested in my writing on cryptocurrency. I think I was the first economist in the world to write about cryptocurrency as far as I can tell.
Alex: [00:04:05] Wow, jeez.
Eli: [00:04:05] And so then I did that for awhile eventually, you know, Jerry left to go start Coincenter, which is a cryptocurrency centric think tank.
And so I stayed behind at GMU at Mercatus and ended up running the tech policy program since he was leaving. He was the previous director. And so I made a conscious shift to say, like, we're not going to do so much IT policy, or I'm not going to do so much IT policy now that I'm director of myself.
And I'm going to try to do more in the world of atoms rather than the world of bits. So I started, I had already done a little bit on drone policy. FAA stuff, kind of learned my way, worked my way up to FAA regulatory learning curve. Decided like, okay, I've done what I want to do on drones.
Let's think about what else I could use this skillset for. And so with one of my with one of my students we started working on Supersonics and so, took that basically, as far as I could, eventually got hired at Boom as the first policy hire, set up the DC presence for Boom and you know, spend a couple years doing that and then left Boom took some time off, did a little consulting, et cetera. One of my former colleagues, Chris Koopman, who was a former from Mercatus days was running a new a new research center at Utah state.
And I was like, Hey, sign me up. I ended up signing on and it's been great. And basically what I do for CGO is just think about what are the cool technologies that we need to get moving and how can we remove the barriers?
You know, especially the policy barriers, but maybe sometimes other barriers. And, and just think through like how we can have an awesome future with tons of economic growth. And so that's like, you know, to me it's like an ideal job.
Alex: [00:05:46] All over the place though.
Eli: [00:05:47] Yeah, no, I think I always tell people, like at no point, in my career, have I been doing what I thought I'd be doing five years prior.
Alex: [00:05:54] Right, right.
Eli: [00:05:55] It's just been a lot of surprises and just sort of like follow, follow the path where it leads and.
And I think another tendency is that I would get bored doing the same thing over and over again. So like when I was in grad school, I taught, I taught some undergrad classes at GMU and, the first time teaching intermediate microeconomics was kind of a fun challenge.
The second time was like, okay, I've kind of fixed all the things I did wrong the next time. And then I was like, oh my God, if I had to do this again, it would be so boring. Right I think both a weakness and a strength is that as I sort of master an area I'm ready to move on. Right. And so that makes me it makes me not a great specialist, but it makes me a great generalist.
I think in the sense of. I'm never going to be the world's best at something. Cause I get bored too easily with it. But I know how to do a bunch of different things and, and connect can sort of like link those experiences.
Alex: [00:06:49] Probably a good problem to have, but okay. So let's, let's zoom out for a second. One thing that you've taken the time to distill is a lot of your own beliefs and goals-- it's actually just in your Twitter bio, which is my fondest wish is that GDP per capita would reach $200,000 by 2050. How do you explain that to people? Why the focus on GDP per capita what's the deal with that?
Eli: [00:07:11] So my PhD advisor, Tyler Cowen wrote this book, the great stagnation, right? We're stagnating in one particular metric, it's called total factor productivity. It's basically how much of output do you get for free from technology and just knowing how to combine resources better than you did the year before.
You don't have to put in any more hours of labor, no more capital than you had before, but you should be able to have more output than the year before, just because we're getting smarter and better at doing stuff. And so that was that that metric was growing at about 2% a year between say 1920 and 1970, sometimes 1973.
Right. And so 2% a year, we're like every year we're getting 2% better at everything across the board. Right. You know, averaged across the economy and then it fell by half. If you want to think about it in more discrete chunks, it's 1973 to 1995 it was like 1%. And we had this reversal where it went back to 2% for about a decade. So when I first stuck a macro class, people were like, oh, we had this stagnation period, but we're out of it. And we're growing at 2% a year again. And then in 2005, it fell off a cliff again. Since 2005, it's like 0.3% per year.
So we were getting 2% better per year for most of the last century. And now we're getting 0.3% better per year. So that's what motivates me is thinking about that has a huge impact on human welfare. I think that the level of output as directly affects human welfare and also rate of change of output also really matters.
Like growth itself matters even if the levels are high. Because it sort of induces cooperation in society to have things get better every year. So like the reason the Chinese communist party can do terrible things and nobody in China really cares that much just because their lives are getting better every year, year after year.
Alex: [00:08:55] Right.
Eli: [00:08:55] And so they just sort of say, okay, you know, like we have this like terrible social credit score or whatever it is but it doesn't. You know, I'm not talking about the people being imprisoned or anything, but but just for the average person, they, they put up with a lot because their lives are getting better every year.
And meanwhile in the U S people's lives are not getting better every year. And so we turned to populism and crazy political theories and social conflict and it's not really good. So for me, that's a very strong motivator, you know? So even when I was a kid, I was pretty nerdy, young kid and when I was nine years old, what I wanted for Christmas.
And my mom says actually when I was seven years old, but I remember it distinctly when I was nine. What I wanted for Christmas was a world Almanac. Because it had all these statistics about the world. And so I would look up like GNP per capita you know, for all these different countries. And I would think about how they had grown over time and sort of extrapolate forward to like, oh, when I'm an adult, this is going to be the standard of living.
And I thought that was pretty cool and small differences in the rate of growth can make a big, big difference over time. And I have always just wanted to see what happens when you get really high. The 200k thing is kind of a joke in the sense of like, people say fight for 15, or like trying to come up with a slogan.
So it was my attempt to have a slogan you know, 200k by 2050, which would translate to something like 4% growth a year. Which would mean like, You know, 2.5 or something percent TFP growth per year. If we did that between capital deepening and population growth and stuff, like we could maybe get four-ish percent a year GDP growth, and that would be enough to get you to something, like 200k per year by 2050, which would be pretty cool world, but I think.
Alex: [00:10:31] Yeah. So where did, where would you say you lie on the spectrum when it comes to tech stagnation? Because there seems to be maybe a little bit of disagreement on, well, first of all, If we're even coming out of it, right? Like you mentioned a guy like Tyler Cowen is
Eli: [00:10:45] Tyler thinks we're coming out of it.
Alex: [00:10:46] He thinks we're coming out of it. But, but there also seems to be some disagreement as to whether or not we're even in it, in the first place, because you know, you have a guy like what's an example, like Peter Thiel in zero to one, like the, the famous, the famous quote here is, oh, you know, we were promised flying cars and vacations on the moon. But I'd say people on the other end of that spectrum would sort of say zoom out a hundred years and we can see that global incomes increased what, like 300% our lifespans have, have doubled. I mean, information get outta here. It's millions fold cheaper.
But you guys seem to be taking more of a micro, I use air quotes here, more of like a micro stance and saying like, okay, we're just looking at this through the seventies, right?
Eli: [00:11:24] I think, I think like Tyler and Peter agree on the fact that we did stagnate right in the 1970s and up to, you know, roughly today, at least. I think everyone would acknowledge, that IT has been this amazing success over the last 30, 40 years.
The issue, the issue is it's the only one, right? So like, imagine if healthcare were improving at the same rate as IT.
Or energy were improving at the same rate as IT, or transportation were improving at the same rate of IT. And Robert Gordon like he got something right in his book. He said there are five big inventions and we had all five. Internal combustion and chemistry and internal plumb-- you know, essentially sanitation. Right. And, and a couple of others, I forget what they all were off the top of my head, but he's like, we had all these five things invented in the late 1800s.
And then from 1920 to 1970, they all had these transformative impacts on the economy. And like, yes, we have IT but that's one, right. Where were the other four. So I would grant the IT thing is being big, but it's it's not enough by itself to, equal what we had coming out of World War Two in terms of the progress that we had.
And in terms of, you know, getting out of it, I think where I'm a little different than Tyler and they're very influenced by Peter Thiel on this. Is I think that we need to take a definite optimist approach. And so Tyler sees kind of some rumblings of progress, like, and he'll cite some things like the mRNA stuff, which I agree with is important.
And he'll point to that and say okay, that's a sign that we are getting out of it. And, and for me, I would emphasize more than Tyler, the need to like actually wait and see, and to see if things get commercialized, because it's only when they get commercialized in the form of products that they can affect productivity.
Right. So it's like scaled distributed to everybody that it starts to make a difference. And then the other thing is, I think I have a more fleshed out. Than Tyler vision of like what the future could be like. And so this is, this is Peter Thiel's definite optimism, so that the definite versus indefinite optimism is I think really important for thinking about this.
If you have a general sense that things are getting better and without engineering level, mechanical level, understanding of like what it would take then, then I think you might just be in an optimistic mood or something like, you're not really thinking it through and, you know, zero to one, like Peter talks about the importance of definite optimism of having a vision and trying to advance, create that vision in the world.
And that's where I'm coming at it from is I see the vision that I want to have, and we're still very far from it. And, I kind of know the steps to get there and I'm trying to make them happen. So that, so that's, I think how I differ a little bit from Tyler, I think on the point about like the rest of the world, doing amazing, like Africa is, is booming. That's great.
Alex: [00:14:22] Right.
Eli: [00:14:22] But the TFP point total factor productivity point is narrowly cabin to the developed world particularly the United States. You know, we're, we are the frontier. And if we are not pushing that outward then yes. Like Africa will catch up eventually, which is an amazing success story for Africa.
But then we're just stagnating further. I think also you could argue you're limiting the opportunity for developing countries to leapfrog. The invention of 5g is great because it means that. You know, Africa doesn't have to build out as much internet infrastructure because they're able to do things more wirelessly so they can actually save more money save resources, not having to build out a bunch of infrastructure, that's eventually going to be obsolete. So the faster we move in the, you know, what's called the developed world that we're all still developing. Right. In the wealthier world. The faster we move the more leapfrog opportunities we're getting to the rest of the world.
And that's important from energy perspective, especially like on climate and so on. You want the developing or the poorer countries to be able to leapfrog directly to whatever the cleanest it's the most accessible energy technology is. The faster we move at generating new technology that the quicker to do that.
Alex: [00:15:32] Right but that's the key and what you're pushing is that in order to get out of any sort of a stagnation that we're experiencing, it's not just big breakthroughs that make the difference. Right. It's mass adoption of those.
Eli: [00:15:45] Yep. You gotta have both.
Alex: [00:15:47] So in your mind then what are the key technologies that we should be looking at? Cause obviously there's a lot of stuff to your point earlier, like. Everything except IT was sort of the issue. What do you think some people are sort of looking over right now that maybe we should be paying more attention to.
Eli: [00:16:01] Yeah. I've said for a few years, I think if we had health, housing, energy, and transportation, right.
If you had those four sectors, like those are all pretty big chunks of GDP. And so if we could turn them into small chunks of GDP by basically getting them all for free, right? Like if you made housing 1% of GDP, because everybody gets almost free house or free mansion, like that would be a huge success.
Most politicians think about increasing the size of the economy by increasing GDP. I'm thinking about reducing nominal GDP in a given sector by increasing productivity. Right. But if you, you take those big second segments of GDP and you make them so much better and cheaper, that the real productivity gains are high, like that's what you want. So housing, I think a lot of it's a lot of it's a zoning issue or, you know, like, like not non-technological stuff, but thinking about like manufacturable high quality housing, right. We're still stick building all these houses and you know, like there's a company in LA called cover.
That's doing interesting things like thinking about it. About you know, how you would manufacture at scale housing. And they have like this panelized building system that I think is really neat. You know, in healthcare, like there's so much in biotech, I'm really interested in the longevity space.
Anti-aging stuff. Like to me, that's an area where the science is absolutely booming. Like it is progressing so fast and it's so interesting to watch. There's a huge adoption hurdle there with FDA approval and the clinical trials that are gonna be needed.
Alex: [00:17:29] Right.
Eli: [00:17:30] Right. So it's, it's a long road. But it's just incredible, like the breakthroughs that are happening. And then, in transportation, like obviously I worked in Supersonics for awhile. I'm a really big fan of that. And then there's Hyperloop there's tunneling you know, there's. Tons of opportunities to, to basically do things faster, more convenient autonomously. And that has a huge impact because-- well probably the most successful empirical model in economics is the gravity model of trade, right?
So you think about two cities with their own GDPs. The amount of trade between them is proportional to the GDPs of the two cities and inversely proportional to the distance between them or the cost of moving people and goods between them. You know, economists have a little bit of physics envy and just like copied the gravity model from Isaac Newton.
And it turned out, it worked really well in economics. It's like one of the most successful empirical models. The exponents are different, but. But it works. And so, you know, having better transportation technology, like going to massively increase economic activity and that's, that's pretty cool.
And then, and then energy, right? Like, everybody focuses on climate and the need to decarbonize, but I think it's actually it's actually more than that. If in decarbonizing, we can drop the cost of energy. You know by half or more, like, I think that is a huge gain.
Right? So instead of 10 cents a kilowatt hour for electricity, what if we could do like 5 cents delivered to your home? Right. So not just generation, but transmission and maintenance of all the equipment and all that stuff. I think that would be incredible. And, you know, you see like what a country like Iceland has done with that.
They have cheap energy because they have tons of geothermal and hydro resources and they're the, world's leading aluminum exporter because, because of that, right. So it just affects the entire economy. So those are like my four.
Alex: [00:19:18] I mean, it sounds like the sort of unifying factor between your philosophy in any of these four is just the, not necessarily the technology itself, right? Like we were talking about earlier, it's just the means by which you're able to drive scale. Right, like, if you have for example, a solar cell that you know is going to be X times more efficient, it doesn't really matter if it's not cheap enough that people can't use it, you know?
Eli: [00:19:44] Well, yeah. And I would also say. A lot of my friends who are in the innovation space, like they really think they're really bullish on like basic research at universities. And I think that, I think I'm relatively bullish I think it, I think it's a good idea to spend more on basic research.
But if you have some idea or breakthrough, and it's really hard to commercialize because the regulation stops you from doing it or because you know, some other reason it makes no difference, no difference to the world. Right. And, and, and like, to see an example of where, you know, this is obviously true, it's, it's Supersonics right.
Because we know it's technically possible to have a supersonic aircraft that takes passengers around. Like we had it with Concord, we had it for 30 years. And the fact that we don't have one now is cause it's, it's really hard to like a, navigate all the regulations, but b, accrue all the capital that you would need to do to like create a new supersonic, like you have to deal with like engine manufacturers, you have to build the entire supply chain. It's just, it's just a huge, it's a very hard problem from an execution standpoint and noise regulations are insane. It's really hard to do. And those problems need to be reckoned with as well as the basic research idea of like, well, we need, to fund these new very early stage, idea of creation. That is a very long way away from being commercialized. It's the same with intellectual property too.
Like I think the patents are really important because it's like instantiation of an idea, but it's like the ideas, not the scarce factor, right? The scarce factor is execution. I have to drive it to scale.
Alex: [00:21:22] I mean, that's coming along nicely though. Like big news yesterday with, with Boom and United and all that stuff, which is, which is great.
What was that like by the way, your time at Boom, how does policy tie in at a company like that?
Eli: [00:21:32] The entire history of aviation is like totally entangled with policy, right? Like the initial airline service was because we had planes carrying mail, right. And so contracts with the us postal service and the carriers were like, oh, well, we'll add some people on board to make it an airline.
It's totally totally entangled with regulation and stuff. I worked a lot with my government counterparts, you know, it was that FAA fairly often. No, they deal with UN stuff international. You know, the Europeans are a nightmare to deal with because they just hate American companies and they want to stop America from succeeding in the world.
Certainly at the expense of their national champions, like Airbus and Dassault so I felt like I was a big part of the solution, right? Like I, I think it was, it was a very, very big piece of the puzzle is getting the, the policy stuff moving forward.
Alex: [00:22:23] Right, right. Just the other half of the engineering challenge, I guess. Okay. So before we wrap up, because I know you, you're a busy guy, you've got places to be. I'd want to ask you a little bit about your sort of take on crypto and blockchain in general, just as someone who's involved in this space so early, what are your thoughts on it now? Because 2021 has been quite a year so far.
Eli: [00:22:45] My fundamental view, for the last five years has been that Bitcoin is on course to eventually implode. And because Ethereum is just on a technical level iterating much more quickly. And, and I think that some people think like we're in the sort of Netscape days, like there's analogies to the internet.
I mean, this is before your time, but people think about, you know, where are we? You know, if you think about the internet as the last big thing to happen. Where are we in that sort of trajectory, it was analogize and people say like, oh, we're in the Netscape days. Netscape was an early web browser, right.
The first virtual web browser.
Alex: [00:23:19] Yeah.
Eli: [00:23:20] And I think no way, like we're in the ARPANET days, like where like people are still working on their very basic protocols. That means that there's a long way still to go. Right. And so we have to do a lot of development and a lot of figuring out how this is going to work.
And, and how are we going to stitch all these protocols together and. Yeah. You know what smart contracts like usability, all that kind of stuff. And so in Bitcoin, there was this block size, you know, sort of a scalability war that raged from like 2014 to, you know, I guess in some sense, it's still going, there's purged all the big blockers now it's over, I guess.
But but they, you know, they've been trying to figure out how they're going to scale and. And basically I just saw that going so badly and eventually the ultra small blockers won that war. And so I was just like, yeah, this isn't going to work. The, the sort of it's sort of way too ideological and not pragmatic enough.
And I saw in the Ethereum community a much more pragmatic view, a much more openness to hard forks, for instance, like where they're adding new features and iterating very quickly, like an interest in doing stuff that improves scalability considerably on layer one. And so I, I basically in 2016, I sold all my Bitcoin and bought Ethereum.
And that's my investment strategy in general is try to know the future and then buy and hold. Right. And so like, if I, if I know how things are gonna end up, like I'm not going to try to time the market. I don't know when Ethereum will put Bitcoin down finally. But I think it will happen at some point.
And so my strategy was I'm just gonna, I'm just gonna buy ether. I'm not gonna worry about the price, but eventually it will become obvious that that Bitcoin is useless if something like Ethereum succeeds.
Alex: [00:25:05] So, what do you think the argument on the other side of the aisle, so to speak is cause you have guys like I dunno, like Michael Saylor has got like stupid amounts of money in Bitcoin.
I'm doing actually one of these chats in probably about a month now with Anthony Pompliano who's very much into all the Bitcoin space. Yeah, exactly. Exactly. What's your understanding of the argument on the other side of the aisle?
Eli: [00:25:33] In terms of a real argument, they would say that really matters that Bitcoin doesn't have a monetary policy that can change. Right. It's 21 million. It's been 21 million from the beginning of time. Some people might say, well, these smart contracts are not really very useful, or the smart contracts introduced too much of an attack surface, or they might say that that some stake is I'm proven or that proof of stake requires, you know, at least weeks of activity.
Whereas by, running a proof of work system, you can objectively know what is the Bitcoin chain based on number of blocks in the blockchain. Right. And then you can validate yourself in principle, pencil paper if you need to. So I dunno, I don't think it's rational.
I think it's a religion at this point, right? It made so much money like, it's not even trying to be a medium of exchange anymore. It's this idea of like number go up and that's what they care about.
And, so it's like, well, I've made all this money, you know, How much has Pomp made on Bitcoin? Like, like tens of millions of dollars probably maybe more. And so rational judgments are affected by incentives, right? Like, like people do not make rational judgments in a vacuum. They make decisions that are heavily affected by their interests. And you know, if your interest is in number, go up, you're going to find reasons for that.
So, so I dunno, it's not really good answer to your question cause I don't think I can steelman their case. I think the argument is not very good. So maybe another thing is like, okay, Bitcoin is governance minimized, right? It's like near the end of history in terms of how much development it needs to do.
And therefore we don't need to have governance, which means it's a stable system. It's not going to change. And there's some value in that. And maybe that's true, but Ethereum is going to be there in five years or so, and when it gets there, that's not an advantage that their client has anymore.
And Ethereum will be much more capable at the same time.
Alex: [00:27:25] I guess time will tell, right?
Eli: [00:27:27] I don't give investment advice on this because I would hate for someone to put in, you know, tons of money at $2,700 a coin or whatever it is, ether is trading at now and then, you know, lose a bunch of it.
But yeah, I do not regret selling all my Bitcoin and holding ether as long as I have.
Alex: [00:27:46] Awesome. Well, I think that's the time we got. I know we actually went a little over, so thank you for, for doing this, but yeah. Awesome chatting.
Eli: [00:27:54] You're welcome. Good luck.
Alex: [00:27:55] Thank you. Appreciate it. Bye.