Husbands and would have seen that as arrogant and inappropriate, but i certainly see them as heroines myself, and i think they have the right stuff. [laughter] [applause] this program is part of the seventh annual savannah book festival. For more information visit savannah book festival. Org. Megan mcardle argues that the u. S. Is unique in its willingness to let its citizens and businesses fail and says this is whats made the country successful. This hourlong Program Starts now on booktv. Thank you, everybody for coming. Welcome to the American Enterprise institute. Im tim carney, a visiting fellow here as well as a senior Political Columnist at the examiner or what i do here is the two programs one is called the cultural competition where we talk about competition, talk about things like subsidies and crony capitalism and when competition yields good fruit and when the pursuit of profit might not just good food. The other thing i work on is called the program on human flourishing, where we talk about happiness. And both of those topics are addressed in the book we will be discussing today which is the up side of down why failing well is the key to success. Here to talk about this we have the author, megan mcardle. She is an Economics Writer at bloomberg. She is written at the atlantic, the economist newsweek, in addition to writing this her first book. Our respond is tyler cowen from George Mason University and the mercator center. You might know him from his blog, marginal revolution and his recent book the great stagnation and averages over a couple quick comments about the program before we begin. If you have a cell phone just turned it off. Feel free if you want to do twittering stuff about this, to do that. We just dont want phones ringing. That we who will be time for questions but it will be a formal question and answer. We will intersperse it and well have something of the conversation. If you have a question try to spend some time thinking of how to make it as concise as possible because we will break up at about 6 30 for wine and cheese, and we are selling copies of the book outside. Megan will scientific if you like what you hear, i recommend you buy them. Im in favor of people buying books they find interesting. This is a very important economic me, too. So again, thank you for coming. Megan, i read the book. I love the book. I thought there were a dozen interesting things in here more than that stories from all sorts of things ranging from bad dates you had to failed companies to drug addicts. My favorite line i think i can remember off the top of my head is if you dont already have trouble with the delayed gratification, the best way to get there is to develop a drug habit. I am probably misquoting. No end of interesting stories in the book but for this crowd, we have a washington crowd what do you think is the most interesting thing you came across while writing it or what they will come across while reading it . We all know failure is a learning opportunity and often we learn things by failing. Failing. Starting with we would learn to walk which is mostly a tale of tripping and getting up and going over all the way up to how the economy large. Most products do. Most companies fail. Even a successful entrepreneur who was done this before as a seven out of 10 chance of filling the next time he tries to start a company. So the most interesting thing ive learned was how amenable for bad credit attitudes are to change. I learned this in my own way. As a writer i have what psychologists call a fixed mindset, which is basically there are two ways you can approach a challenge. You can approach it as an opportunity to learn something and expand your brain or you can approach it as a dipstick that is measuring your innate level of talent and ability. Most writers are the latter kind of person a fixed mindset. Growth mindset people tended to better, they can to learn more from the challenges that you face, they do it again and develop more skills and grow more. Its hard to develop a special if you look at the way most bright kids go to school. Its easy and to learn from that, success is about finding work easy. When you get to the big leagues thats no longer true. Youre competing with all the people who found it easy and have to have the grit and resilience to first take on things we really might fail, and second of all, to learn from them. Talking to a psychologist who came up with this distinction through her research, and i said at the end of the i felt like i kind of had to confess. I said i feel like a fraud. I totally feel like it take on the challenges this is a of me as a person and if i fail that just means i never had what it took to she said, me too. Fairly common among academics. She said, but i changed. I knew it i had change one heard myself saying wow i suck at this. This is really fun. And i thought wow im never going to get there. I do like doing things im bad at. I never had. Over the course of writing the book, i did. I changed and it wasnt because a lot of these books into being 12 steps to help yourself to failure and thats not what this book is. The interesting thing is it wasnt a 12 step program. It was remind myself of the truth which is when they take on things we dont know how to do think about how you learn to play tennis. You didnt sit down and develop an elaborate theory of tennis. If that were the way to get good at tennis been every year wimbledon would be won by some guy with glasses from mit. You learn to play tennis by hitting a ball. It doesnt go where you think what the first hundred times and by accident you in the right direction. Your brain makes a connection and you say right thats how it feels. You dont know quite what you did so usually the next time but over time he develop that talent. Finding a few things do work out of the many, many wrong ways to hit a tennis ball. And so developing that ability to embrace that isnt a matter of having a 12 step program. Its a matter of remind yourself that this is true. When you Say Something saying to yourself, i might not be very good at this, probably i wont but i can get better. The whim going to get that is by doing it and not being very good at it. Similarly with things like unemployment, with things like what psychologists call the fundamental attribution error we tend to attribute things that happen to the agency of some person. This person with someone meet you in the supermarket you think thats a terrible, mean person. You dont think she probably had a bad day and maybe her mother is sick. Just remind yourself that usually its because her mother is sick most people do not randomly Wander Around snarling at everyone they meet changes to interact with those people. That was the most surprising thing i learned was its easy to describe the way in which its hard to fail but i was surprised how easy it is by describing them to get better at doing it. Tyler, you have ideas and thoughts and opinions on nearly every subject, whether its thai food in suburban strip malls or the Unemployment Rate or whether inflation is, in fact everywhere and always a monetary phenomenon. When you read to when you read megan spoke of what was the thing that struck you as most interesting . First of all this is a great book and you should go out and buy nine copies of it. We could be calling it the upside of up. I learned from this book we should teach Young Children to play chess at a very early age because you cannot be good at chess right away so you have to learn failure. And furthermore your failure is rather brutally measured and you see everyone around you failing. You know exactly how bad you are but you also have a way of learning how to be better and you can measure your progress. This is one of the most important skills to teach people early on is how to fail. We need to think about this more in educational terms. So when i think a failure and how to move towards success i think of issues concerning children. To say that one had a child and youre asking yourself what can you do to make this child learn the lessons of this book. To me thats really the big question coming out of this book. To some extent we learned these lessons as a nation. Im afraid were going to forget them. Im afraid were headed toward a future where theres so little privacy and so much measurement may be eventually genetic measurement that we will lose a lot of the upside of down and become a society where Second Chances are more difficult. Im also intrigued by the idea that there are some areas where failure is good for you and other areas where failure is completely disastrous. Some of you may have read megans recent blog post, the bitcoin, it is completely gone. Thurber of all bitcoin in circulation is that the number . I dont know but it is a large percentage. Makin predicts that it will eventually spell the end or dramatic decline of bitcoin. So we dont say it went boom the bitcoin is going to learn something. Its a fixed architecture to bitcoin angina properties of increasing returns systems based on liquidity and common focal point. You have a case where both the architecture and increasing return to scale means that mistakes multiply and accumulate and then things will go poof. So to try to think about more systematically what other cases where we see learning, certain area and learning in the austrian since . What other cases where things what did that term mean . Entrepreneurship, learning. Doesnt matter if you dont know. What are the conditions where you get one outcome or the other . What should you actually read for insight into this . I would say read the up side of down and then read the sequel, the upside of up. I predict there will be such a sequel. The problem with chess, that ive intent is i am teaching my daughter and son to play chess. And so as a result i always win because they are seven and five and i have beaten them every single time. Now my brother challenge me and im afraid to blame because ive gotten us used to winning, i dont know if i could handle it. On a policy front, your book ends with a discussion of u. S. Bankruptcy code and how thats so different from the rest of the world. And in fact your book starts in the fort with a comment on how america is sort of unique compared to a lease europe in our approach to failure. A story i was told by a european cabinet minister, it mightve even been angela merkel, back in 2004, this German Cabinet minister, top Government Official told a group of us traveling something about there wasnt a lot of new business formation even while declining in the u. S. , in germany, someone said why . Europe has been historically two kinds of people, the risktakers are willing to fail and people who sort do what theyre told and what hold onto what they have. The first time the people all got on a boat and went to america. Is america different . Does it have to do with our character, our founding or does it have to do with their Bankruptcy Code . I think these things build on each other. Bankruptcy is relatively modern invention most people arent aware. It comes out in the 19 century as we now know. There was something that looks like it earlier in british common law but it comes out of the 19th century in u. S. Because in our constitution it says the federal government has the power to create a Bankruptcy Code. While the cant prove this, one suspects that because so many Founding Fathers were heavily in debt. When Thomas Jefferson would either taking up a collection to pay off his massive debt which he could not get out from under. He was a very very good writer and thats a good at running a plantation. That ends up showing up i think in a lot of Ways International character. Our Bankruptcy Code is so much more generous than anywhere else in the world. People dont believe it. People are surprised to the america doesnt care about the downtrodden is incredibly lenient if you get into financial trouble. I went to bankruptcy court, i went to memphis which is the bankruptcy capital of the world as a journalist, to go for this book, take a look at what is the worst with the bankruptcy capital of the world in memphis bankruptcy capital of the United States. Were extrapolating. Memphis has Something Like 1 of the population which is a high number. If that were normal, all of you we dont have the people you them would have declared bankruptcy at some point in their lives and thats not the case. I went to memphis to look at this and you would think that i was expecting kind of screening mothers hurling themselves at the feet of judges and so forth. It was nothing like that. Traffic were. You cant believe how much nothing happens. The judge says scientists and then you go away. This astounds europeans. When i try to explain in 2005 when were having our draconian bankruptcy reform, what the new reform looked like. My colleagues said he had reform the. Thats ridiculous. Know, thats the draconian new reform. Because in know the country and what can you walk into a judge and say i cant pay and the judge is like okay, you dont have to. Go in peace. That doesnt happen anywhere else. Everywhere else are on a payment plan and its harsh. Its so different i was in the middle, in the book i was interviewing an expert on a completely different topic and he just started making making fun of you is Bankruptcy Code because he thinks its crazy we do this. This guy is candymaking so you would think he would be, no just weasel out of debt. It turns out its really a hidden strength of our economy because when you look at states, the exemptions are state level in states with more generous exemptions, you get a higher rate of entrepreneurship. This is built out of the fact that in the 19th century unlike most glitches we had a lot of small landlord and western states with a lot of money. So in 1898 when we finally set out our permanent Bankruptcy Code, the constitution said you could have won he didnt have to. We finally passed when in 1890s. All the people in the west which egypt to send is that the people in these that make you give me to get out of my debts, and they did. That changes how you see people declared bankruptcy. In america we tend to give people not as rich people try to get out of paying their data the people that an enterprise where they took on too much debt with Capital Investment and then something out of their control like crop failure and that in turn means where again i think these two things go together. As of today could he be genetic . Im sure theres part of that. I was talking to a historian who pointed out that the vikings strength of the worlds most violent and warlike race and said that they turn into suites. And what happened, while all the violence left and many of them are in minnesota, so that could be part of it too, but i think a lot of it is the culture and institutions because you see even within the United States when people move to a state that has a high level of entrepreneurship, they are participating in the culture not where they came from. The other side of that is worried about moral hazard. Anytime you this thing were if you for your kind of okay. Youre encouraging excessive risktaking at by a lot of accounting the financial collapse we just had was from excessive risktaking when there was an implicit sort of uber bankruptcy behind these banks were they knew they would only be allowed to fail so much. Could it be especially considering the crash we just had or that moral hazard of bankruptcy is causing as much harm as the sort of cushioning is causing good . So moral hazard and bankruptcy israel. You can see it. For one thing todd sawicki was a scholar at george mason, and i disagreed about the bankruptcy reform. He was for it. He had sexual see the bankruptcy rate dropped and he was right and i was wrong. I think we can do for i think we can infer from that there were people didnt need to declare bankruptcy were. At the same time most people could benefit, percentages, many more people dont use it when they could and do use it when they shouldnt. In general, we focus a lot on abuse. We focus a lot on moral hazard because it really takes off and correctly, Bernie Madoff we should really angry at them. He did something really terrible. By the optimal level of abuse is not zero. You tend to think, you talk to banks, they dont really say this but it is widely known in the Banking Industry they just offered some level of embezzlement because the optimal amount of investment reduction is not 100 but getting that last 10 is so much more expensive than getting first 90 , at some point you can send all of the resources, like your immune system. So do i think there is moral hazard in a financial crisis . Yes, i do. Dont think thats why . No. The desire and the belief believe this injured risk out of the system theres nowhere as dangerous as states. So i start as an economic journalist in 2003 2003 i was reported something called the great moderation. Whole careers were i was talking to ken rogoff in 2008 and he said, whole careers have been built on the great moderation. The idea of the great moderation was this regulation had regulars had gotten so good and so far far other jobs will never would have another financial crisis began, that it just wasnt possible to have any the culture like the United States or the eu to have a financial crisis the way we did in 1930. You really saw this reflected in a whole lot of things. Bankers, for example, you would talk to them about debt and mortgage bonds and so forth and they would say things like yes but for this to be a problem to date a sustained nationwide decline in house prices and weve not had one of those since the Great Depression. With the implication that, of course, since the great the Great Depression was impossible, i tend to think of the financial crisis mostly, not entirely but mostly as a sort of everyone getting the same that signal from the market. The central banker saw what they were doing and the other regulators of the Financial System were easing things off in various ways. What this does nothing happened. The economy grew in inflation was leve