Interview With Daron Acemoglu: Masters in Business (Audio)

on Boomberg Radio. This week on the podcast, I have an extra special guest, a professor from m I T named Darren Assumoglu. He is how do I describe him? He's just a rock star. This guy is one of the most cited economists in the world. Uh. He's published numerous papers. His curriculum vite list of grants and awards I'm not exaggerating runs pages and pages and pages. He was the recipient of the John Bates Clark Medal in two thousand and five that goes out to the anymist

under forty with the biggest impact, most influence on the profession. He's, you know, highly highly regarded and and really a rock star up in M I T. If you are at all interested in things like the impact of institutions on economies, the role of technology and globalization on inequality, and how we think about and evaluate global economic growth. Uh. This is a deep dive, very much wonky and in the

weeds sort of conversation. Anybody who's a fant of economics, anybody who is at all familiar with Professor Asimo Glue's work, is going to really enjoy this. Uh. It's about an hour of us really getting far into the uh weeds about all manners of economic conversation. So, with no further ado, here is my conversation with Professor Darren Asamoglu. I'm Barry rit Helts. You're listening to Masters in Business on Bloomberg Radio this weekend. On the show, I have Professor Darren Asamoglu.

He is the killing professor of economics at m I T. And I'm just gonna give you an abbreviated version of his curriculum vitae, because if I went over the whole thing, we wouldn't have time to ask any more questions. He got both his masters and PhD from the London School of Economics, where he stayed on as a lecturer. He has been at M I T. Since, where he has become one of the world's most cited economists. His lists

of awards and grants one pages. I cannot mention them all, but I must at least mention the John Bates Clark Medal, awarded to economists under the age of forty who are judged to have made the most significant contribution to economic thought and knowledge. He is the author of numerous books, most recently Why Nations Fail, which was published to widespread acclaim. Professor Darren Asimo Blu, Welcome to Bloomberg. It's great to

be here. Unfortunately I'm no longer under forty. That's true, but in O five when you won the Clock Award, you were on forty. So let's let's I'm gonna go way back and start with your doctoral thesis, which I was tickled by the by the title Essays in micro Foundations of macro Economics. What are micro foundations of macroeconomics?

It's that dreaded term, But what it really means is macro is so complicated we all struggle with it, and the micro foundations is to try to make it a little bit more comprehensible by looking at what's going on at the micro level, so rotter than say there is this relationship between unemployment and inflation or technology inequality. Let's dig deep and try to see what's going on at

the micro level. What is it that new machines are doing, What is it that workers are trying to achieve, and what sorts of jobs they're looking for and what sorts of jobs they are matched for and all that. Now, now that's very um when you say micro, that's really going down to chunking it to small pieces. But you also write a lot about broad overarching themes such as economic institutions, and let's let's read a quick quote of yours.

Economic institutions shape the incentives to become educated, to save and invest, to innovate and adopt new technologies. It is the political process that determines what economic institutions people live under, and the political institutions that determine how this process works. So let's talk a little bit about economic and political institutions. What sorts of institutions are you paying close attention to

these days? When we talk of institutions, they're the broad fabric of society that, as the quote that you mentioned tries to capture, that shape opportunities and incentives. So central to our financial and economic world are the economic institutions that regulate how economic transactions take place. What sorts of loans can you give? Are supported by the political process.

You know, if you have any chance of understanding why, say, Russian economic institutions look the way they ask in Russia, that puts most political power in the hands of a single person or a small clique around him. So in the same way, if we want to understand how economic institutions in the United States have evolved, we have to think about the political process also. So so you're referring to very broad systems like the legal system, the banking system,

the educational system. These are the broad institutions that all work to shape our daily economic life. Absolutely absolutely, and we have to go from the broad, but sometimes you

have to go down in the weeds. So if you want to think about, for instance, how the US labor force is going to adapt to the ever changing technological landscape or the globalization process, it's very important to like to look at these macro institutions, but also such things as vocational training, disability insurance system, lack thereof, lack of unemployment insurance. Those things are actually going to matter quite a bit. So it's both the micro and the macro.

So why is it that some nations become democracies and the adjacent nation with similar natural resources in a similar cultural history make a turn and become either dictatorships or or something similarly unappealing. Well, I think that's another great question, and it gets to the bottom of the great paradigmatic question of how we should think of political development. And you know, going back to Marks and before Marks and also early twentieth century sociology, most people think of it,

you know, using structural factors. You know, for instance, they think, oh, if a country gets rich, that it's going to become democratic, or you know Marxist thinkers, you know, oh, if a country has enough of a quote unquote capitalist class, they're going to become democratic. Actually, going back to our earlier discussion,

it's really very much the devils in the details. It depends on how different groups are organized and whether the ability of a narrow segment of the population that could be coming from the old communist apparatic in the case of the transition economies, it could be some landowners or businessman, military personnel, or just like political machine operators, and whether they're strong enough to capture the system and set aside the demands of the broader population, or there is enough

mobilization and contribution from political parties and civil society and the media so that the democratic process actually gaels and is able to act as the vehicle for sort of having people's voices heard, resolving conflicts, deliberation, and so on. Let's talk a little bit about the minimum wage, which has been an area of some debate in the country. We've seen a number of cities and some states razor minimum wage, and in some cases pretty substantially San Francisco,

l A. Seattle. When when Seattle raised their minimum wage, I heard all sorts of dire warnings, this is it. They're going to cause a recession, They're going to cause unemployment, and yet Seattle seems to be booming. Um, what's the state of minimum wage in the United States and and what do we need to know about that ongoing debate.

I think that's an area of considerable controversy within the economics profession, and I'm not an active participant in that debate, so I can give you sort of the outsider's perspective, and my summary of it would be that we know, if there is a very high level of minimum wage that destroys jobs, it creates the very opposite of the economic process that it intended to create, which was to

help low wage workers they're priced out of jobs. On the other hand, if there's a moderate to low level of minimum wage, which is what you know US minimum wage has been for the last thirty forty years, if small increase in the minimum wage doesn't seem to have much of an adverse effect unemployment, and it might force employers to pay a little bit higher UH wage to their workers while at the same time reorganizing work in such a way that perhaps the lowest pay workers are

doing a little bit more productive. So, in particular, UH workers can be trained a little bit more when they have to be paid more so that they are actually able to UH produce something commensurate with what they're being paid. UH. Employers are going to use a little bit more capital to go with these workers. So at the lower levels, there are going to be a lot of options for employers to make adjustments that don't lead to huge job losses.

So when we are talking of the federal minimum wage in the United States, that's still at the very low level. When we are sort of getting up to fifteen dollars an hour, now, I think we are beyond the level where we are most comfortable that this is not going to create huge job losses. And if you think of twenty dollars there, we're really getting close to European or lower end of the European levels of minimum wages, and we have to be much more careful. So you're on

the outside of that debate. Let's talk about a debate that you're not on the outside. Let's discuss inequality. I'm gonna pull a quote of of yours. The default position of economists is that inequality reflects unequal human capital of product productive capabilities. Some people make more than others measure to their contributions to their employees, to their employers. Why is that thesis wrong? I think there is a fairly broad consensus within economics that not all, but the bulk

of inequality we observe in the labor market. And here I'm not talking about, like, you know, Warren Buffett making billions of dollars because he has billions of dollars to invest. So the fact that some engineer is being paid, you know, fifteen times as much as a technicians exactly. That is related to the human capital, skills, talents, creativity, expertise, problem solving ability of workers. It's not the whole thing because there is discrimination. It's not the whole thing because some

people just turn out to be lucky. It's not the whole thing because some people get paid because they're doing really awful jobs and they need to be compensated for it. But the bulk of it is that human capital. But and here is the big butt. How that human capital is compensated is very much a function of technology and institutions. So by technology, for instance, I mean what's going on

with robots, artificial intelligence, automation, all these new machines. Many of those may make certain types of skills and certain workers redundant and therefore act as a powerful generator of inequality. By institutions, I mean things like what we just talked about minimum wage unions. Those are going to be able to sometimes protect certain segments of the population from wage drops. So as a result, let's make a cross country comparison

US and Germany to rich and highly complex economies. If you look at many trends like technology, how quickly they're adopting computers, robots, how their occupational structures are changing. There are many parallels between these two countries, but look at wages, you see quite major differences. Inequality has also increased in Germany, but they haven't experienced the same extent of the bottom of the wage distribution falling out in the United States.

Over the last thirty years, for instance, we see that workers at the autom of the wage distribution does say, earning uh less than the median wage. They've had a terrible run. They've had periods of ten fifteen years where the real learnings have fallen or they have been stagnant, and you don't see a parallel to that in Germany. Let's let's talk about another comparison across countries, and I pulled this from one of your earlier papers. The comparison

between CEO and worker salary varies dramatically by country. In Japan, it's eleven to one between the CEO and the lowest paid worker. In Germany, it's twelve to one. In the United States, it's almost five to one. How does that sort of gap versus are closest economic competitors developed. It's exactly the same thing. It's these institutional aspects, but perhaps with a little bit of the globalization process working out a little bit differently, So it didn't wouldn't globalizations similarly

impact Japan and Germany? It does, and it is, but and I don't think that's that's the most important part. But US companies are more globalized and that has often led to more rewards for their CEOs, for for good and bad reasons. But I think the most important part is what's going on with the social norms and what's

acceptable for CEOs to be paid. So Germany and Japan are very modern economies in many ways, but they still have a sort of a corporative culture leftover, and that's got some costs, but it also creates a more cohesive internal organization for many structures, and it imposes that, you know, a rising tide should lift all boats, at least within

the company. So you cannot have the workers using their wages and jobs and masses while the CEOs are getting tens of millions of dollars of bonuses, and that's totally acceptable in the United States. Let's talk a little bit about technology. You wrote on robots and jobs. Evidence from US labor market. An analysis that looked at the effect of the increased use of industrial robots between and two thousand and seven on on the labor markets. What did

you find? Summarizing it briefly, I would say we found that more robots is associated with lower employment and lower wages in the local labor market. The effects are not enormous, meaning that we're not talking millions of people losing their jobs or anything like that, but they are also large if you look at it from the viewpoint of what does the stock of robots that we have imply, And roughly speaking, what we are finding is something like one more robot is leading to the loss of jobs but

between three to six workers in the local labor market. Now, that's not a huge effect because we don't have that many robots, but projecting it in the future, we have to be quite aware that we are going to be facing both great opportunities because these robots and artificially intelligence technologies are going to increase productivity, but huge challenges also. So let's not talk about robots a second. I want

to talk about software and technology. I run a small office where fourteen people, and I know based on my experience at firms ten and twenty years ago. What we managed to do with fourteen people it would have taken fifty or a hundred people twenty years ago. Everything from the content we generate to the sort of tax loss harvesting and portfolio rebalance you push a button today that used to be for accountants in green ice shades working for a week to get all that done. How significant.

Let me let me phrase that differently. Is the fear that technology is going to take all our jobs away unfounded or is there a genuine reason to be concerned? Yes and no. So let me put it this way. Let me first start with the yes part, which is that people are somewhat complacent about what the future of the labor market will look like. And that's for two reasons. The first one is that we are told, and with good reason, that technology is what brings economic growth, what

brings prosperity, So why should we be afraid absolutely right. Second, there have been economists in the past, some of the greatest minds of our profession, who predicted the end of work, John Maynard Keynes, the founder of macroeconomics, Leon tv, Herod Simon, and they didn't turn out to be right, at least in the medium term. So we say, why should it

be different this time? But I think the truth of the matter is that many technologies, and automation technologies and parts of software being examples of it as well as robots do displace workers. They replace workers and tasks that labor was previously performing, and they do it better, they do it faster, they do it more cheaply. The reason why this doesn't spell doom for the workforce its two folds.

First of all, at the same time that they do that, they reduce costs, and as we become richer, we deploy these workers into other sectors. We consume more cars, we consume more information, we consume more widgets, and we consume more services, and all of these require workers. And secondly, we also create new tasks, new jobs, new industries to soak up all of the labor that's been freed from

the task that they were previously performing. So it's a good picture on the one hand, but it's a difficult picture because it does involve people losing their jobs and

going through the painful process of reallocation. And sometimes that process can be slow, Sometimes that process can be incomplete, and I think what we are finding with robots and what we are finding with some other automation technologies is that those pains of reallocation, and in particular, perhaps because these technologies are a little bit more disruptive than other ones that we've implemented over the last twenty years, it's more painful. Let's talk about your book Why Nations Fail,

which origins of power, prosperity and poverty. Uh, this is really an epic magnum opus which has been wildly received and highly regarded. In the book, you talk about institutions, institutions institution, as we discussed, You discuss how significant institutions are to a robust and well functioning economy. How different is this framework for analyzing um economic progress from from what preceded anything in science built on the shoulders of giants.

I think we very much benefited build on the work of others. Douglas North, who is a Nobel Prize winner, was the first person perhaps to really push this institutional perspective.

But what we have done is go beyond that, try to explain more varied sorts of economic and political relations with institutions, be much more systematic about how they work, and bring both empirical and historical analysis to further understand how these institutional equilibria emerge and why these institutional objectories diverge across countries. So define for us what is institutional drift. Here we are talking of institutions as the broad organization

of society. Who has political power, how do you regulate trade, how do you enforce property rights, how do course function? Who has opportunities in society? And if you look at two societies that look very similar at a point in time, say go back to the fourteenth century, and observe them over decades, perhaps even centuries, what you're going to see is that, even though they look similar at a certain point in time, they will start drifting apart a little bit.

You're going to see that they're going to face somewhat different challenges, They're going to respond to these challenges a little differently, and the nature of the social relation is going to look quite different in fifty or one hundred years. So you see that, for instance, in the Middle Ages, Eastern Europe and Western Europe at some point look very

differ very similar. They have similar hierarchies, aristocrats and kings, and some parliamentary institutions feudal labor relations, cities providing some industrial output, and then roll forward one hundred years and suddenly you see Western Europe has somewhat bigger cities, merchants are a little bit more assertive, feudal relations have just

slightly eroded relative to Eastern Europe. And then that institutional drift comes into contact with a big shock like a demographic collapse during the Black Death or new trading or political opportunities. And then those societies that have drifted a little bit apart suddenly see their trajectories diverged much more radically. So let's talk a little bit about the opposite sort of question, which is, you're building on the work of

previous economists who looked at institutions. Where does traditional political science, sociology, or economics fail the evaluation of uh poverty and economics. We we have persistence, persistent poverty in all sorts of places around the world. What do we misunderstanding about those geographies? I think understanding poverty is a very difficult question, so from a societal From a societal point of view, I mean,

look at it this way. We live in such great comfort, we're uh surrounded by widgets, the hardest type of work is gone. We have amazing abundance around us, and then we think what's going on in parts of Sub Saharan Africa. People have access to income per capita daily income one or one eightieth of what we have here. It's just so difficult for us to understand how that could exist in this globalized, connected, unified world. It is a difficult problem.

But we have also failed to some degree because we have gone after some somewhat facile answers such as geography or culture or oh just it's inspired leadership that gets out of us out of poverty. And I think the truth of the matter is that you really need to think much more systematically about what opportunities people have, what incentives they have to use those opportunities, and then that's going to bring you to these institutional equilibria that we've

already talked about briefly. Why our economic institutions different, why political institutions are different. Why is it that people in Sierra Leone or Chat or the Central African Republic don't have those opportunities? Why don't they try to create those opportunities? And you see there, you really need to get into the d tales of these political equilibria. Who has political power, what do they benefit from? How is it that they can to get away with creating wealth for themselves and

poverty for millions. So let's talk about extractive institutions. What are extractive institutions and how do they differ from the traditional rent seeking epithet we've seen tossed about. So what I just described a second ago without using the term,

were the extractive institutions. Extractive institutions are any institutional arrangement that enable a group of people to extract resources directly or indirectly from the rest of society, and they do so by creating a tilted playing field, by destroying opportunities

and by destroying incentives for the rest of society. So it is similar to what people talk of rent seeking, but it's broader because when you toko rent seeking, you you're thinking of corruption and what government officials do or sometimes what some businesses might do in with the politicians,

as in the chronic capitalism. But extractive institutions, by putting the emphasis on this opportunity incentive and the tilted playing field, brings out the parallels between say a system like what you had in Egypt under Wabarek, where every businessman had to be connected to his m DP party and give him kick bads to say, feudal Europe where you don't

have corruption. You don't have any one of those things, but you have a system that makes people servile, labor produce under coercion, and the benefits go to a well defined group of people. You discuss equality in terms of political power, opportunity and economic outcomes. Does more equality always equal more prosperity. No, because we need the economic system to reward success m hm. And that means there will

have to be some inequality. You cannot success. You cannot reward economic success if you pay everybody the same amount, And rewarding success means that some families are going to do better than others. But what's important is not just whether we have equality or inequality of outcomes. That matters, and excessive inequality of outcomes could be quite costly for society. But what matters much more is whether we have equality

of opportunity and whether we have political inequality. So by inequality or equality of opportunity, I mean the same thing as I was referring to with the tilted playing field. If you qualify for the best jobs and I don't because of my hair color, skin color, social class. That means it's inequality of opportunity. Go back to the apartheid system under uh in South Africa before it collapse of

the population Black South Africans. Not only could they not go to school high quality school or could they not become policeman or politicians or anything like that, but they could not perform anyone over over one hundred semi skilled or skilled occupations. They couldn't become technicians, they couldn't become teachers, they couldn't become formant. So that was an extreme version of this tilted playing field, a huge amount of inequality

of opportunity, but it could take more subtle forms. You know, in the United States, everybody is free to do whatever they want. But you know, if you grow up an inner city and you don't get access to high quality schooling, you're not going to be able to be competitive against people who go to the best schools. So that's the inequality of opportunity. But even more pernicious, it's politically inequality. You know, the United States was would as the country

of the common man. Robert dal a sort of prominent political scientist. You know, he asked the question who rules? And his answer was the common man rules. That was forty five years ago. Today we have a political system where the rich are much more vocal than the regular person. So politically inequality has crept in. Who do our congressman or senators listened to the very rich? Whoever's writing them

a check? Where he was writing them a check? Who's policy positions are reflected in their campaigns, wherever's writing the check, wherever is more visible, whoever is more vocal? And I think that's the politically inequality we have to watch out against. We have been speaking with Professor Darren Asamoglu of m I T, author of the book Why Nations Fail. If you enjoy this conversation, be sure and check out our podcast extras. You can find those at iTunes, Bloomberg dot

com and SoundCloud. We keep the tape rolling continuing to talk about all things economic. Check out my daily column on Bloomberg View dot com. Follow me on Twitter at ri Halts. If you would like to read any of the professors written work, his papers are all available on his m I T page. Just google Darren Asamoglul and you'll be presented with a wealth of reading opportunity. You can also check out his book Why Nations Fail Origins of Power, Prosperity and Poverty. I'm Barry H. Halts. You're

listening to Masters in Business on Bloomberg Radio. What could your future hold more than you think? Because at Merrill Lynch we work with you to create a strategy built around your priorities. Visit mL dot com and learn more about Merrill Lynch. An affiliated Bank of America. Mery Lynch makes available products and services offered by Merrill Lynch Pierce Federan Smith Incorporated or registered broker Dealer remember s I PC. Welcome to the podcast. Thank you, professor for doing this.

I've been looking forward to chatting with you for a long time. I find your work absolutely intriguing. And I didn't say this in the introduction, but I wasn't exaggerating. Your CV is literally eighteen pages long. People give me grief. I'm like, no, I have a page and a half. That's that's a CV. I'm a piker um and I you also make all of your papers readily available, which not the data does not. Everybody does that. I was up late last night reading a run of different um PDFs,

which I found quite quite interesting. I threw away a bunch of questions that we worked a bunch of others. I know, I only have you for a finite amount of time before you have to run back to the conference. But there's some questions I didn't get to that I have to ask before I jump into some of my standard questions. We we talked about inequality, We talked about technology, but we didn't talk about the impact of technology and inequality.

What does technology mean in terms of increased globalization and what does it mean in terms of rising levels of inequality. You know, technology is what creates prosperity, but that prosperity is not equally distributed. If you look at robots or automation,

they help some workers much more than others. In particular, many of these technologies display certain groups of workers, and they're not going to translate into higher earnings for these workers, while the managers are the more skilled workers who are being complemented by these technologies are going to be the winners. So economists talk skill biased technological change, and that's what we have experienced over the last sixty seventy years in

terms of the effects of technology. That's not to say that all of the increasing equality in the United States is an outcome of technology. I don't think you can explain why the top zero point one percent is doing so well just by technology, But a lot of it is really a technological phenomenon. So you mentioned the top zero point one percent. I love this UH data set I pulled from one of your pieces. You wrote, the zero point one percent in the United States accounts for

eight percent of the national income. In other countries that's more like one or two percent, and in the nineteen fifties in the US it was more like three pc. So how did the top point one percent capture so much of the national income? Is that a function of tax policies, at a function of UM stock options? What accounts for the tripling of income captured by UM that zero point one percent of the population, all of the above, it's a huge phenomenon and its consequences are really transformative.

The occupy movement, the Tea Party, what's going on right now with all sorts of populism. I think they're all related around the world, around the world than in the United States. They're all related to this feeling and it's the reality also that the pie is being distributed more and more unequally. And when we look at that top point top zero point one percent, technology has played at all. But I think changing institutions, changing tax policy, and changing

social norms are very important. Also, we talked about CEOs. It's not just that CEOs are so much more productive today than they were twenty five years ago, but it's become more acceptable for them to be paid huge stock options and especially being paid huge sums while they're laying off workers are cutting wages at the bottom of their organization. So another data point I pulled from one of your papers, not so much about the point one percent, but generally

about the widening inequality gap. You wrote, um, the gap between relatively high earners meaning nine percentile of income distribution versus the bottom ten percentile has widened. Also, same factors driving that gap question. You're not talking CEO is necessarily, but you're talking professional class top ten percent a little different than than that one or or point one. I think the same factors, but they're relative importance would be different.

I think technology is really the dominant factor when we are thinking about, say the workers at the shop floor versus the technicians. Engineers are the middle managers. So back to your institutional focus. Clearly, technical skills, high end education is going to make a big difference in those sort of folks, obviously, and I think part of it is that we have to run faster in terms of upgrading our skills, creating the skills for the new age. Otherwise

the bottom is not going to benefit. That's a across the entire economic strata. Everybody has to move. Absolutely, we have to be more flexible, we have to be more adaptable. This was really fascinating quote. Um, and a lot of this comes This is going to come back to a lot of the same answers, but the quote is so interesting.

The quest for general laws of capitalism is misguided because it ignores the key forces shaping how an economy functions, namely, how the gains from various different economic arrangements are distributed.

So when you talk about the quest for general laws of capitalism, what you're really saying is it's not the input that matters, it's the output that's so significant, right, absolutely, And I think again this goes back to social scientists desire to simplify things, and we always seek to find commonalities, and that's great, but sometimes we see commonalities where non exist. So there is this effort to find some general trends and ways in which all capitalist economies function, and I

think that's so misguided at some level. You know, look at Egypt. I think under Mubile, Egypt is a private ownership economy. There are capitalists. They own the firms, They act in profit profit maximizing man or labor markets. You know, people uh decide how much to pay for the workers that they hire. But the Egyptian economy has so little in common with the United States. I would say it has much more in common with North Korea. So that's why I think this sort of looking for general laws

of capitalism is a misguided activity. So let's jump into some of my favorite questions. I ask all my guests, Um, your background. You pretty much went from l C to M. I T you've been in academia your whole career. Yeah, no real job. Any thoughts on ever leaving academia or is that your home for the foreseeable future. I like what I do I or what I do? I mean, I can't. I would have never thought people would be paying me good money for investigating things I find interesting

and sharing my thoughts. Now most people do that over a glass of beer. Right that that sounds like a fun a fun job. Let's talk about some of your early mentors. Who who are the people who influenced your thinking when you were first beginning your career. Many people shaped the way I think about it. But you know, perhaps it's my character, Perhaps it's the topics that I focused on. I did not strictly follow anybody. So if

you look at you know, people I found inspiring. You know Bob Solo, who was a Nobel Prize winner thinking about economics, economics, his work was fugially influential. But I went in a very different direction. Uh. Bank Homstrom, who was an early mentor for me, who was the Nobel Prize winner this year, and it's a good friend of mine. You know, I found it very inspiring both his approach, but but I approached things is very differently uh than

he did, and went in a very different direction. You know, when I started thinking of the bigger picture questions, you know,

I read Jared Diamonds, Couns, Germs and Steel. I thought that was spell bounding, you know, it's was he was so good at bringing different pieces of information on the table and making it interesting, and I very much try to emulate that, you know, James Robinson and I when we wrote Why Nations fairly said, well, we're gonna try to learn from Jared, But at the end of the day, our thesis is so different from Jared. We were triggered to write the book in some sense because we have

a very different story to tell. So in some sense, my mentors are often the people I sort of learned from but moved away from all push back against or or or head in a different direction. Who's influencing you thinking today? Oh, that's a difficult question. That is a difficult question, isn't it. Economics is a very broad and doesn't It doesn't have to be economics. It could be

any subject, anybody making you think about whatever. Well, you know in economics, often people who make me think differently are the people I work with closely, you know, in the context of technology. For instance, I've been working on and off with my colleague David Otter, and I've learned so much from him in terms of thinking about the role of technology and how it affects different tasks and different types of workers, but also on the political aspects,

sort of bringing the politics and the economics together. You know, I have for a long time being building on the work that Dog North did, as I mentioned, but for instance, his collaborator Barry weinast very much, you know, when we Whenever I turn to a different area, I see Barry has also written on that. Again I differ from him in many ways, but it's always influential and fascinating. Let's let's talk about authors, not again, not necessarily economics. What books,

what authors influencial? You mentioned um, guns, germs and steals, steal. What other books did you find especially interesting, worthwhile or influential? You know, early on, I think I started reading a lot of the history of how the Western world was shaped, and many of the authors who sort of tried to capture that in a broad social science framework were hugely influential on me. Fernand Brodell Mark Block, the sort of French historians, and then again Douglas North and his collaborator

Robert Thomas. In all of these instances I found what they did fascinating but also insufficient. So I try to sort of build and and move away from them in some sense. But Also, you know, many authors who have written beyond uh you know, the social sciences have been hugely influential. Uh. You know, more most recently, I've enjoyed Paul Loster and Hilary Montell's recent books. But uh, I always find sort of different approaches to literature as inspiring

as as reading the history or the economics of it. So, since you've joined the world of economics, what has been the sea changes? What are the major shifts that took place that are are noteworthy, especially in your space? Obviously Picketty's publication was one. What what else do you think is a well too? That I would mention that I think are much more deep rooted and will have longer run effects on economics. Is and this is of course

from my vantage point, the importance of institutions. You know, it's not again that people didn't realize institutional factors matter, but it's now become such an inseparable, vital part of economics, political economy. How institutions context determines how different technological, demographic, and other factors impact the economy. I think that's now second nature to many economists. Second, technology, you know, for a long time we thought of technology as just a

fairly uniform process. It improves productivity, it then leads to higher wages. And now we are seeing that technology does lots of good things but creates lots of challenges, also displacing workers, creating unemployment, sometimes reducing wages, increasing inequality, creating hugely costly, socially difficult adjustment processes. And I think in the next twenty years we're going to see both more of that. But as an economics profession of social science,

we're also going to get much deeper into it. So the coming shifts are more focused on institutions, more focused on technology, anything else. We haven't really noticed what what's going to surprise us in the next few decades that I'm really asking what what shift is coming that people

haven't really given a lot of thought to organizations. I think we are going to see very different organizations, and how organizations are able or are not able to change is going to be a crucial factor in our ability to use technology to create prosperity. Organizational economics has been another growth area within economics, but I think the challenge of understanding how organizations are able to recreate, reshape themselves in the face of technology that's an area we have

to be much more serious about. So the next few questions comes from leaders and listeners. We get these on occasion. Tell us about a time you failed, what did you learn from the experience, and how different was that experience in terms of learning than a than a success. Well, I mean, my beginning and the economics profession was just

a huge failure. I came out of the PhD program at the Landon School of Economics, and and I thought I could just take my PhD dissertation and all of my ideas and write them as papers and published them in good places. And I tried that, and then one rejection after another, and then I realized I wasn't ready, that I wasn't, you know, writing just the right way.

I had to improve my exposition. And some of my ideas were I think, still not bad because they became the basis of a lot of the more influential work that I did later, But they weren't They weren't totally accepted at the time, and I wasn't making the right effort to uh to to make them presentable and understandable for the for the audience. So I came close to saying, look, I'm gonna throw in the towel. It's been like three years since my PhD. I'm still not getting going anywhere.

But then the problem was with me. The failure was largely my fault, and I learned, and then once that learning was partly done, I was able to improve myself, my research, and my ability to appeal and communicate with others. What do you do for fun or relaxation outside of the office, outside of work? What's the relaxation? You know, I have two young boys. They don't allow me to relax, but it's fun. Okay, that's a fair, fair enough answer. You work with a lot of students, a lot of millennials.

What sort of advice would you give to someone who came to you, uh and said, I'm interested in the career in economics? What would you advise them? Be serious about it? You know what I mean by that is, don't lose your humor or sense of playfulness, but just invest. Invest, invest, Learn more history, learn more math, learn more statistics, learn more of the context, and try to bring them together.

Most of the good ideas we have come from synthesizing existing lines of thoughts in a new way, And for that you really need to have a lot of background in many different fields. And I think people often don't realize that they specialize in something. They do their homework, but they just don't invest in that reservoir of knowledge that's going to be necessary for going to the next stage. And our final question, what is it that you know about economics today that you wish you knew twenty years

ago when you were first getting started? Boy, I mean, I think if I knew the things that I think I've found out in the last twenty five years, I don't know I what I would have on because first of all, there wouldn't have been all this amazement that was in front of me that motivated me to to to go after them. But of course if I had inkling all the things that I sort of discovered later on, say ten fifteen years after my sort of after the beginning of my career, of course I could have gone

there much faster. I could have started working on this issue of how technology is a much more complex phenomenon that displaces workers and creates both the gains and the losses, or the sort of institutional equilibria that you know really was was there? Part of my interest from the beginning, but it really sort of matured over time. But I think it would have taken the fun away. I think

that's struggled at failure, discovering it slowly. That's what really sort of made it worthwhile, the journey, not the destiny exactly. We have been speaking with Professor Darren Assamoglu of m I T, author of the book Why Nations Fail. If you enjoyed this conversation, be sure and looked up or down an inch on Apple iTunes or on Bloomberg or SoundCloud for any of the other hundred and forty seven

or so such previous conversations. I would be remiss if I did not thank Taylor Riggs, my booker and producer, Michael bat Nick, my head of research, and Medina Parwana, my recording engineer. I'm Barry Rihults. You've been listening to Masters in Business on Bloomberg Radio. Our world is always moving, so with Mery Lynch, you can get access to financial guidance online, in person, or through the app. Visit mL

dot com and learn more about Merrill Lynch. An affiliated Bank of America, Merrill Lynch makes available products and services offered by Merrill Lynch Pierce Veneran Smith Incorporated or registered broker Dealer remember s I PC