What this covers
Hal Varian, Google's Chief Economist, sits down with Russ Roberts to examine how information technology reshapes work, learning, and economic value. Over forty minutes, the conversation moves from the surprising origins of radio and the Internet—tools that escaped their creators' original intent—to the present moment, where search engines and data systems have become routine infrastructure. The core argument centers on what becomes scarce and valuable when technology makes information abundant and cheap: not more computing power or data itself, but the analytical skill to extract meaning from it, to communicate findings clearly, and to translate insights into action.
Varian illustrates this principle through concrete examples: a panicked Google engineer who discovered an apparent crisis was merely a seasonal pattern once the data was plotted correctly; the success of game-theoretic modeling in understanding ad auctions; the democratization of inventory-tracking systems that once belonged only to Walmart. He traces how users and search systems co-evolve, each learning to work better with the other, and argues that tools like calculators and search engines free cognition for higher-order creative work rather than degrading it—a claim he connects to centuries-old anxieties about writing and technology. Roberts interjects on education, noting that universities struggle to teach wisdom that resists examination, and that skills like statistical thinking and good writing often arrive only through apprenticeship and repeated exposure, not formal instruction. Throughout, both speakers weigh how open versus closed networks shape innovation and access, and whether the Internet's exposure to diverse viewpoints actually counters the local echo chambers that geography once enforced.
Varian argues that information technology and search engines like Google free human cognition for higher-order creative work, democratize access to data and education, and that the scarce, valuable factor in the data-rich economy is analytical skill complementary to ubiquitous cheap data.
- Tools like Google and calculators offload mundane tasks, freeing minds for creative thought rather than degrading cognition
- The scarce factor complementary to abundant cheap data is statistical/analytical skill, making statisticians a high-value profession
- The open architecture of the Internet was an unintended consequence that democratizes information and education
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Radio's initial killer app was ship-to-shore communication where being overheard was treated as a nuisance; the conceptual leap was recognizing that broadcasting the same message to millions could be a feature rather than a bug.
“the initial killer app for radio is shipped too short communication... the fact that over that other people could overhear your conversation was a nuisance and it was a great leap to think that gee... that might not be a bug it might be a feature so you could in fact broadcast”
The key to success is to control a scarce factor of production that is highly complementary to something ubiquitous and cheap; since data is now ubiquitous and cheap, the scarce complementary factor is analytical skill—getting data to tell a story, communicating it, and translating it into practice—making statistician the sexy career of the next decade.
“you want to have a scarce factor of production that's highly complementary to something that ubiquitous and cheap... if you have a monopoly on left shoes and right shoes are free you're in a pretty good position... the sexy career the next decade is going to be statistician”
Game theoretic modeling of Google's ad auction using very simple techniques yielded a lot of insight, and an econometric analysis showed the data fit the model within four or five percent error, making it one of the great arguments for game theory.
“I did the game theoretic modeling of that option very simple techniques turned out to land a lot of insight... the data fit the model within four or five percent error... it's one of the great arguments for game theory”
A very smart person at Google panicked when traffic appeared to be falling through the floor, but plotting the data in log terms revealed the percentage drop each summer was identical to prior summers, illustrating that simple analytical expedients can generate great insight.
“once you take the log and look at it you can see that the percentage drop this summer was the same as a percentage drop last summer... some pretty simple things can really go a long way in in generating insight”
Many economic concepts are deeper than they appear and require repeated teaching to truly understand, as Roberts found with Hayek's 1945 'Use of Knowledge in Society' and with comparative advantage.
“I read it and I thought it was good I liked it I realized... 25 years later I didn't really understand it and... I had to teach them what it meant... there are a lot of concepts in economics... that are deeper than they appear comparative advantage being one of my favorites”
The Internet was a lab experiment that got loose: designed only as a communication mechanism among an elite scientific community, its dramatic social impact surprised even its creators, illustrating the universal phenomenon that tools end up having uses their developers never anticipated.
“I like to refer to the internet as a lab experiment that got loose... it was designed to be a communication mechanism among this elite scientific community... it's a really universal phenomenon that the tools that people develop end up having uses they don't anticipate”
Technology, infrastructure, and users mutually evolve over time, as illustrated by the automobile: both cars and drivers got better, and what people expected of and did with cars changed dramatically.
“think about the car in 1910... over time the automobiles gotten better but drivers have gotten better... you see this mutual evolution of the characteristics of the machinery the characteristics of the infrastructure the characteristics or the driver”
Because a wealth of information creates a poverty of attention (Herbert Simon), modern search is now all about precision rather than recall, since one can always retrieve thousands of documents; the challenge is ensuring the retrieved documents are the most relevant.
“a wealth of information creates a poverty of attention... now everything is about precision recall is is pretty much irrelevant because you can always retrieve hundreds if not thousands... of documents”
Information technology has become much more generic so similar IT is available everywhere, and systems once affordable only to the largest, richest companies (e.g., Walmart's intelligent cash registers, inventory tracking, scan codes) are now available to the smallest mom-and-pop store, democratizing the technology.
“only the Walmarts and targets and Kmart's of the world could afford these intelligent cash registers detract inventories... 15 years ago but now the smallest mom-and-pop store can have the same technology essentially so we see in this great democratization of the technology”
Google's search algorithm is ultimately based on statistical relationships that are largely language- and meaning-independent, so the same algorithm applied to another language works remarkably well, and it improves as more data and experience accumulate.
“if you take the Google's search algorithm... in English and apply it to another language it will work remarkably well... there are these language or meaning independent parts that are primarily driven by statistical relationships”
Learning to write and communicate well is a remarkably important, scarce, and valuable skill, contrary to undergraduates who choose business majors to avoid writing papers.
“learning to write and communicate well is a remarkably important skill and it's very scarce and very valuable”
Search systems and users co-evolve: over time users have become more skilled at entering longer, more focused, more qualified queries, which gives the search engine a much better chance of retrieving relevant documents.
“over time users have become much more skilled at entering queries... which are more focused that you're longer that you're more qualified and so of course that gives Google or any other search engine a much better chance of pulling out the relevant documents”
Even though IT infrastructure is now easily reproducible across companies, the expertise to make sense of masses of data is not, so firms that invest in data managers, statisticians, and economists who can analyze data will have a competitive advantage in the future.
“even though a lot of the infrastructure is reproducible easily across companies the expertise is not necessarily reproducible across companies... people who invest in hiring data managers... statisticians economist other people who can make sense of those masses of data... will have a competitive advantage in the future”
Networks differ sharply by whether they are open or closed: cable, mobile, and landline networks are proprietary with provider-chosen content, while the Internet is an unusually open network where everybody has access, which is its huge strength.
“look at cable TV... the content you see is chosen by the provider... when you go to the Internet everybody owns a pretty impress everybody has access to this open network and so the openness of the Internet is it's huge strength”
The Internet democratizes data, making information that previously required subscriptions, academic libraries, or insider connections available to anyone in the world.
“the Internet is that makes information more democratic that things you could only get if you subscribed to a working paper list or if you went to a academic library... now are available to anybody in the world”
Cognitive tools like Google and calculators free the mind to pursue creative thought processes by eliminating routine, mundane tasks.
“when you can use Google or for that matter use a calculator it frees your mind to really pursue the creative thought processes as opposed to the routine mundane processes”
Imposing a constraint like an 850-word column limit improves communication and writing style, analogous to Robert Frost's view that free verse is like playing tennis with the net down.
“having that constraint of the 850 word column did a lot to improve my communication and writing style”
Universities, especially at the undergraduate level, struggle to teach things that don't lend themselves to exams, so they over-emphasize testable facts and proofs and miss the subtler, more valuable wisdom—such as understanding that statistical significance is more than a t-statistic being greater than two.
“it's very hard to teach people things in universities especially at the undergraduate level that don't easily lend themselves to an exams and a lot of the lessons of life that are most valuable are not amenable to exams wisdom is not easily tested”
The impressive achievement of Google is not that it searches many sites but that it produces a set of pages the user is likely to want to read, which is an extraordinary achievement combining the human mind with technology.
“the cool thing about Google is that it knows... it produces yields a set of pages we're likely to want to read and that's an extraordinary achievement of the human mind combined with technology”
People have seen the benefits of open systems so the genie is out of the bottle, with growing pushes toward open standards (e.g., European document-exchange standards) and open science, though any open network still requires a viable business model to support it.
“the genie is out of the bottle so people have seen the benefits of having an open system... you still have to worry about what the business model is that supports that open networks”
Whereas your neighbors' political views are the best predictor of your own creating self-reinforcing local echo chambers, the internet makes the world your neighbor, exposing you to a much larger variety of viewpoints and a better chance of reaching intelligent conclusions.
“the best predictor of your political views your neighbors political views... now I've got the world as a neighbor so when you go to some of these blogs you can experience a much larger variety of viewpoints”
The Internet is not necessarily producing a short attention span; rather it boosts our capabilities, and complaints that technology degrades thought go back to the Greeks complaining writing made the young stupid, with the same charge leveled later at calculators.
“the debate about the impact of technology on thought processes goes back to the Greeks who complained that that writing was making the younger generation stupid and in my time I've heard the same charge levelled at calculators”
There is a gap between what is taught in econometrics class and what is learned as a research assistant; an underappreciated apprenticeship model is needed, since certain skills—and even Varian himself only truly grasping statistics when forced to teach it—are learned by seeing them done and by communicating them.
“there's a gap even in economics between what's taught in the econometrics class and what you need learn as a research assistant working on projects is this apprenticeship model which i think is not sufficiently appreciated”
Today one can acquire a flavor of economic intuition—previously only available by sitting in a graduate-school coffee room—by reading blogs and listening to podcasts, and this is true across subjects like statistics and political science.
“I completely agree with way say and the interesting thing is it's true of every subject... it's really remarkable how you can dip your toe into the intellectual activity of these of these areas”
Although partisan blogs produce solipsistic in-group venting (a negative), the freedom of entry online enables challenge and counter-challenge, as in the global warming debate, and this free open debate is overall one of the great healthy developments of our time.
“given the freedom of entry in this area you've got the possibility of challenge to pay counter challenge... this is incredibly healthy for a society”
An early business model for the telephone was to pipe music into homes, charging three cents an hour for pop music and five cents for grand opera, functioning as a very limited early version of an iPod.
“one of the business models surrounding the EV and the telephone was to pipe music into your house... three cents an hour for pop music and five cents for Grand Opera”
Recent MBA graduates at Google requested a refresher course in databases and statistics—normally the least popular MBA courses—because on the job they realized they could not get data, make presentation deadlines, or compute basic statistics like a confidence interval without those skills.
“We had a group of recent MBA graduates come to management at Google... saying would really like to have a course on databases in statistics... those are the least popular course as an innate MBA curriculum”
The first Xerox machine was thought to have no market because people couldn't imagine how many copies anyone would want to make, assuming it would merely replace carbon paper.
“the first Xerox machine was thought to have no market because I mean how many copies would people want to make... they assumed it was gonna replace carbon paper”
In Washington nobody pays attention to anything that doesn't fit on a bumper sticker, in business nobody pays attention to anything that doesn't fit in a one-page memo, and in academia nobody pays attention to anything that doesn't fit on a 40-page document with notes and appendices.
“in Washington nobody pays attention to anything that doesn't fit on a bumper sticker and in a business nobody pays attention to anything doesn't fit in a one-page memo and in academia and nobody pays attention to anything that doesn't fit on a 40 page document”
When one entity becomes large and powerful in society it inevitably attracts additional scrutiny from the press, the population, and the legal system, which is overall a healthy phenomenon.
“it's inevitable that in our society when one entity becomes large and powerful it's going to attract additional scrutiny that's the nature of the game”
Much of the Internet is free not only to users but to providers who get nothing out of it, and Google is a phenomenal story because it found a way to make money off something people thought would be free while keeping it free to the user.
“much of the Internet is free to users much of its free to the providers... the Google story is a phenomenal story because they found a way to make some money off the signing but people I think thought was gonna be free and it is still free to the user”
There has never been a better time to be an aspiring economist without going to graduate school.
“I don't think there's a better time in life to be an accountant an aspiring economist without going to graduate school”
Search engines enable rapid fact-checking so that audiences can verify in real time what a candidate is saying, which may bring more accuracy into political discourse.
“Google or other search engines is allows for pretty rapid fact-checking... everybody sitting there with their mobile device verifying what the candidate is saying I think it's going to bring a little more accuracy”
Welcome to EconTalk, part of the Library of Economics and Liberty, hosted by Russ Roberts.
“welcome to econ talk part of the library of economics and liberty I'm your host Russ Roberts”