WEBVTT - Economics Is Not a Subject — It's a Toolkit | Economics Matters 0:00:00.120 --> 0:00:02.120 You're about to listen to a conversation I had the 0:00:02.200 --> 0:00:06.080 other day with Larry Kotlakoff. He's a friend, a fellow economist, 0:00:06.320 --> 0:00:09.920 and host of the Economics Matters podcast. This was a 0:00:09.960 --> 0:00:15.000 fun one. Larry encouraged me to look both backwards and forwards, 0:00:15.480 --> 0:00:17.479 backward at some of the work I'm most proud of, 0:00:17.520 --> 0:00:20.840 and forward at the growing challenges we face as an 0:00:20.880 --> 0:00:25.239 economy and a nation. In the process, well, you get 0:00:25.239 --> 0:00:28.800 two economists together. We philosophized over the role of economics 0:00:29.360 --> 0:00:31.640 and the duty of economists in helping tackle some of 0:00:31.680 --> 0:00:35.400 the most pressing issues of our time. This was the 0:00:35.520 --> 0:00:39.480 kind of conversation that reminded me actually why I fell 0:00:39.479 --> 0:00:43.240 in love with economics. It's not the models or the math, 0:00:43.920 --> 0:00:47.040 but the chance to make sense of the lives we 0:00:47.159 --> 0:00:50.760 actually live. I hope you enjoy listening to this conversation 0:00:51.440 --> 0:00:53.199 half as much as I enjoyed having it. 0:01:12.520 --> 0:01:16.680 So we coplak Off with Economics Matters the podcast. I'm 0:01:16.680 --> 0:01:20.840 really delighted to have Justin Wolfers with me. Wolfers is 0:01:22.000 --> 0:01:26.840 Justin is a Wers. Justin is a star in economics, 0:01:27.360 --> 0:01:35.959 a budding star, I think partly because of his personality 0:01:36.000 --> 0:01:38.280 mostly because of his economics and the fact that he 0:01:38.360 --> 0:01:42.400 has a ton to say about lots of different things. 0:01:43.160 --> 0:01:43.280 Uh. 0:01:43.440 --> 0:01:47.120 And he's got a terrific platform. 0:01:47.240 --> 0:01:48.360 It's called Platypus. 0:01:48.560 --> 0:01:52.320 He'll tell us more about it, but it's a substack 0:01:53.200 --> 0:02:00.960 substack platform that everybody should subscribe to and prefer pay 0:02:01.000 --> 0:02:02.480 for it. 0:02:02.480 --> 0:02:04.760 It's worth it. It's one of the really best. 0:02:05.520 --> 0:02:09.320 I learned more in five minutes from that than almost 0:02:09.320 --> 0:02:12.040 any other thing I can jump on too. 0:02:12.720 --> 0:02:14.120 So it's terrific. 0:02:16.240 --> 0:02:20.440 And the thing about economists, as everybody knows, is that 0:02:21.000 --> 0:02:23.720 there are people that are good with numbers but don't 0:02:23.760 --> 0:02:28.880 have the personality to be in actuary. And Justin has 0:02:28.919 --> 0:02:33.800 the personality. He kind of defies that rule, and he 0:02:33.840 --> 0:02:37.240 has the personality to be at least a social sociologist. 0:02:37.280 --> 0:02:40.480 I would say, perhaps, but we'll see. 0:02:41.440 --> 0:02:42.080 What do you think. 0:02:42.480 --> 0:02:45.720 Anyway, let me give you a quick overview of his bio, 0:02:45.840 --> 0:02:48.280 and then we're going to have him fill it in 0:02:48.360 --> 0:02:52.600 a bit, and then we will talk about some of 0:02:52.600 --> 0:02:54.880 his greatest hits in terms of the researcher. Because I 0:02:54.919 --> 0:02:59.240 want everybody to understand that Justin is not just a 0:02:59.280 --> 0:03:04.160 great comment on what's going on in the local national 0:03:04.400 --> 0:03:09.600 and global economies, whether it's fed policy or labor markets 0:03:09.760 --> 0:03:12.800 or China or whatever it is, he can talk about it. 0:03:13.240 --> 0:03:17.840 But that's commentary. But he's also an extremely serious and 0:03:19.440 --> 0:03:23.920 major economist, academic economists who's done outstanding work. It's been 0:03:23.960 --> 0:03:28.680 published in fantastic the very top journals on many different topics. 0:03:28.760 --> 0:03:33.080 That's the amazing thing about him. So he's really somebody 0:03:33.080 --> 0:03:36.200 I'm very proud to have on this podcast. So he's 0:03:36.200 --> 0:03:39.160 a professor of economics and a professor also a professor 0:03:39.160 --> 0:03:43.000 of public policy at the University of Michigan, which has 0:03:43.040 --> 0:03:48.080 always had a really terrific economics department still does, of course. 0:03:48.880 --> 0:03:51.560 He's also a visiting professor of economics at the University 0:03:51.680 --> 0:03:54.840 of Sydney. He hails from Australia. That will be obvious 0:03:54.840 --> 0:03:58.800 in two seconds as soon as you hear his cool accent, 0:03:58.960 --> 0:04:02.760 and you will immediately be relieved that it's not another 0:04:02.960 --> 0:04:07.720 New Jersey accent. Justin's a research associate of the National 0:04:07.720 --> 0:04:12.240 Bureau of Economic Research. He's a non resident senior Fellow 0:04:12.240 --> 0:04:14.800 with the Brookings Institute, a non resident senior Fellow with 0:04:14.880 --> 0:04:21.400 the Peterson Institute for International Economics. These institutions and these 0:04:21.440 --> 0:04:23.840 think tanks and associations. 0:04:23.200 --> 0:04:25.760 Are really big deals in economics. 0:04:25.760 --> 0:04:28.960 He's also a research fellow with the Institute for Study 0:04:28.960 --> 0:04:33.040 of Labor in bond is a a research affiliated at 0:04:33.040 --> 0:04:36.520 the Center for Economic Policy Research in London. That's the 0:04:36.560 --> 0:04:40.320 London kind of equivalent to the National Bureau of Economic Research, 0:04:40.360 --> 0:04:43.400 while the European economists belonged to that the top ones, 0:04:44.160 --> 0:04:47.800 an international research fellow at the Keel Institute for the 0:04:47.839 --> 0:04:52.640 World Economy, a major and also on a fellow of 0:04:52.680 --> 0:04:57.200 the SFO. These are the two major research institutes of 0:04:57.279 --> 0:05:02.479 economists in Germany. It was previously a visiting professor at Princeton, 0:05:02.600 --> 0:05:07.000 associate professor at Wharton University, Pennsylvania, Wharton their Business school, 0:05:07.200 --> 0:05:10.640 assistant professor at Stanford Graduate School of Business, and an 0:05:10.680 --> 0:05:17.160 economist with the Reserve Bank of Australia. And he was 0:05:17.200 --> 0:05:22.359 also a former member of the Advisor to the Congressional 0:05:22.360 --> 0:05:28.680 Budget Office on their Panel of Economic Advisors. So the 0:05:28.720 --> 0:05:32.159 other thing to say is that Justin earned his PhD 0:05:32.279 --> 0:05:37.200 in economics from Harvard University in two thousand and one, 0:05:37.640 --> 0:05:40.760 so he's still a youngster, only been out for twenty 0:05:40.760 --> 0:05:46.240 four years, and he was a Fulbright Knox and Menzies Scholar, 0:05:47.800 --> 0:05:51.880 and he earned his undergraduate degree in economics in Australia 0:05:52.240 --> 0:05:55.359 at the University of Sydney, and he won the University Medal, 0:05:55.400 --> 0:05:57.600 which I'm sure is not an easy thing to get. 0:05:57.640 --> 0:06:01.800 I'm sure there's plenty of people competing for that. The 0:06:01.839 --> 0:06:06.719 IMF has named Justin one of the twenty five economists 0:06:06.800 --> 0:06:09.400 under forty five shaping the way we think about the 0:06:09.400 --> 0:06:10.320 global economy. 0:06:10.760 --> 0:06:11.640 Welcome Justin. 0:06:12.240 --> 0:06:14.920 Thanks to mate, I'm no longer under forty five. So 0:06:16.600 --> 0:06:18.160 I just want to tell folks at home something interesting 0:06:18.200 --> 0:06:20.960 about our profession. Larry, that was really beautiful and I'm 0:06:21.040 --> 0:06:24.039 very grateful that. What's funny is Larry just did something 0:06:24.080 --> 0:06:26.600 we never see economists do, which is he looked another 0:06:26.640 --> 0:06:28.880 economist in the eye and said something nice about him 0:06:30.200 --> 0:06:32.680 in our professional discourse. Well, Larry and I at a 0:06:32.720 --> 0:06:35.080 conference right now, we might say gooda and then I'd 0:06:35.120 --> 0:06:37.040 present a paper and he told me the seventeen ways 0:06:37.080 --> 0:06:40.440 in which it was wrong. But we do secretly say 0:06:40.560 --> 0:06:43.000 nice things about each other, which is where I going 0:06:43.040 --> 0:06:45.920 up for tenure. Someone might ask this was many years ago. 0:06:46.040 --> 0:06:47.840 Someone might ask Larry to write a letter, and when 0:06:47.880 --> 0:06:50.000 we do that, for each other in secret when we 0:06:50.480 --> 0:06:52.920 know no one is watching. Then we say very nice 0:06:52.960 --> 0:06:56.679 things about each other. And it's just interesting to notice. 0:06:56.680 --> 0:06:59.120 As you were talking, I was like, why don't we 0:06:59.200 --> 0:07:02.560 say more nice things to each other in person because 0:07:02.600 --> 0:07:05.200 it might feel good? Thank you? 0:07:05.600 --> 0:07:08.160 Well, it's not, you know, I didn't do it to 0:07:08.240 --> 0:07:11.960 make you feel good. It's just the truth. But this 0:07:12.040 --> 0:07:14.680 also connects to some of your research. I mean, you've 0:07:14.680 --> 0:07:21.760 worked on issues about subjective wellbeing, female happiness, happiness, inequality 0:07:21.800 --> 0:07:22.440 in the US. 0:07:22.880 --> 0:07:23.400 This is the. 0:07:23.400 --> 0:07:28.040 Early parts of your life, your research life. Then you 0:07:28.120 --> 0:07:30.520 move you know, I'm just going to read off a 0:07:30.560 --> 0:07:33.800 few of the titles of your papers. Is business cycle 0:07:33.880 --> 0:07:38.640 volatility costs, the trust in public institutions over the business cycle, 0:07:39.240 --> 0:07:43.239 aggregate shocks or aggregate information costs, the information business cycle, 0:07:43.640 --> 0:07:49.480 code movement, macroeconomic derivatives. You've worked a lot on the 0:07:49.520 --> 0:07:54.480 prediction market, disagreement about inflation, expectations, trends, and marital stability, 0:07:54.560 --> 0:07:59.480 marriage and divorce changes, and they're driving forces the divorced, 0:08:00.200 --> 0:08:04.240 unilateral divorce, raised divorce rates, bogaining in the shadow of 0:08:04.240 --> 0:08:07.800 the law, divorce laws, and family to distress. And this 0:08:07.960 --> 0:08:11.680 is just really incredibly interesting you have. You guys have 0:08:11.760 --> 0:08:15.200 to go and look up his research at NBR dot org. 0:08:15.480 --> 0:08:19.200 Look for Wilfer's papers. That might be the best place. 0:08:19.480 --> 0:08:22.200 That's where I'm finding these. The role of shocks and 0:08:22.200 --> 0:08:27.920 institutions in the rise of European unemployment, uh Forecasting elections, 0:08:29.080 --> 0:08:32.880 party influence in Congress, Partisan impacts on the economy. 0:08:33.559 --> 0:08:34.720 Are voters rational? 0:08:35.080 --> 0:08:38.520 Think of these titles best death penalty uses, Estimating the 0:08:38.520 --> 0:08:42.959 impact of the death penalty on murder, Discrimination, Gender and 0:08:43.040 --> 0:08:48.520 the Dynamics of the economic seminars very interesting racial discrimination. 0:08:48.040 --> 0:08:50.199 Among NBA referees. 0:08:51.480 --> 0:08:55.600 How do you come up with these extremely interesting And 0:08:55.600 --> 0:08:57.720 I've got the whole set of papers on the prediction 0:08:57.840 --> 0:09:03.440 market corruption in the NCAA Basketball League, and it just 0:09:03.480 --> 0:09:06.720 goes on and on. Tell us how you come up 0:09:06.760 --> 0:09:11.640 with these terrific research topics and they just come out 0:09:11.640 --> 0:09:15.800 of the blue. And then you talk about your you know, 0:09:16.040 --> 0:09:19.280 five or ten papers that you're really proudest of. 0:09:20.280 --> 0:09:26.040 Yeah, let me give you some background, which is I 0:09:26.120 --> 0:09:29.439 belonged to what was one of the luckiest generations of economists. 0:09:30.760 --> 0:09:33.280 Economics is a story. We tell stories to each other. 0:09:33.400 --> 0:09:35.920 We get better at telling our stories over time, and 0:09:35.960 --> 0:09:40.679 the scope of the stories we tell group. And so 0:09:40.800 --> 0:09:43.839 when I was a young bloke taking my undergraduate economics, 0:09:43.880 --> 0:09:45.920 you know, we thought that economics was think about the 0:09:45.960 --> 0:09:50.160 old narrow definitions, you know, inflation and money, supply and 0:09:50.280 --> 0:09:56.200 supply and demand, and oligopolies and monopolies. And you know, 0:09:56.320 --> 0:09:58.360 I think one of the greatest social scientists of the 0:09:58.360 --> 0:10:02.800 twentieth century was the late Gary Beck. And Becker said 0:10:03.600 --> 0:10:06.040 he didn't use this language, but I like to imagine 0:10:06.040 --> 0:10:07.959 it this way because it would have been more palatable. 0:10:08.559 --> 0:10:12.360 He said, damn it where social scientists and we have tools, 0:10:12.400 --> 0:10:15.640 and our tools are helpful no matter what the domain. 0:10:16.160 --> 0:10:18.679 He defined economics in terms of our toolkit rather than 0:10:18.679 --> 0:10:22.200 the subject matter. And I think that's actually a correct description. 0:10:22.720 --> 0:10:25.680 It's a coherent description, but more importantly and exciting description, 0:10:25.760 --> 0:10:28.280 because it means if there's a problem you care about 0:10:28.320 --> 0:10:30.720 in the world, maybe an economist has got something useful 0:10:30.720 --> 0:10:33.640 to say about it. It's an unpopular view in some 0:10:33.880 --> 0:10:36.600 parts of the world because people worry about what they 0:10:36.640 --> 0:10:39.120 call economic imperialism. So I want to notice what Becker 0:10:39.120 --> 0:10:41.160 would never have said. And I also did not say, 0:10:41.280 --> 0:10:44.160 even if people heard me say it, I didn't see 0:10:44.160 --> 0:10:46.880 economics was the only lens. It wasn't the only tool. 0:10:47.200 --> 0:10:50.840 It simply is one of the very powerful tools. So 0:10:51.760 --> 0:10:55.199 I went to graduate school, you know, a good couple 0:10:55.200 --> 0:10:57.880 of decades after Becker did his most important work. But 0:10:57.960 --> 0:11:00.959 that's basically the time lag between in the genius of 0:11:01.040 --> 0:11:05.040 Becker and the evolution of the profession, which is we 0:11:05.160 --> 0:11:08.000 understood ourselves as being able to speak to whatever we 0:11:08.040 --> 0:11:11.199 thought the important questions of the day were. And know, 0:11:11.200 --> 0:11:13.880 it was one of the thrills of a lifetime. You know, 0:11:14.440 --> 0:11:17.360 I didn't know Gary Well, I wasn't a student of his, 0:11:17.440 --> 0:11:21.960 but he's discussed papers of minor conferences. He provided comments 0:11:21.960 --> 0:11:26.320 to me, and his genius is unmatched. But what that 0:11:26.360 --> 0:11:29.080 meant was my generation of economists. So what you were 0:11:29.080 --> 0:11:31.680 describing about, you know, we're all over the place. That's 0:11:31.679 --> 0:11:35.720 not me. That's my generation, and that generation made the 0:11:35.720 --> 0:11:38.199 field more exciting. So for anyone who's watching that younger 0:11:38.200 --> 0:11:40.560 than me, you might take all this for granted, but 0:11:40.679 --> 0:11:43.640 realize you're doing economics in the most exciting year ever 0:11:43.679 --> 0:11:47.800 to do economics in the history of the world right now, 0:11:47.960 --> 0:11:51.800 this year, Yeah, because we keep learning, right, So there 0:11:51.840 --> 0:11:55.360 was Becker opened everything up I also was going through 0:11:55.400 --> 0:11:58.079 graduate school right at the very my court was one 0:11:58.080 --> 0:12:00.400 where there was a lot of excitement about behavior, economic 0:12:00.480 --> 0:12:04.640 sendens infancy. So my classmates, literally, the folks I was 0:12:04.640 --> 0:12:08.199 in class with include Muriel Needler, who's leading experimental economist, 0:12:08.720 --> 0:12:12.280 stephanode Lavina, who's probably the best behavioral economist of his generation. 0:12:12.360 --> 0:12:16.200 It's either him or his wife, Larica mamm Dia, And 0:12:16.240 --> 0:12:19.800 there was just a deep sense of excitement there and 0:12:21.600 --> 0:12:25.800 what's interesting, and actually, let me ad one other formative experience, 0:12:25.840 --> 0:12:28.600 which is I was at Harvard. They started a program 0:12:28.600 --> 0:12:32.720 called the Multidisciplinary Program in Inequality and Social Policy, and 0:12:32.760 --> 0:12:36.760 the idea was, here's some really important topics inequality and 0:12:36.800 --> 0:12:42.480 social policy. Let's put economists or ecomphd students, political scientists, 0:12:42.520 --> 0:12:46.880 and sociologist synerroom. So I was a young twenty something 0:12:46.880 --> 0:12:49.440 in a room with actually the woman who's now my dean, 0:12:49.520 --> 0:12:52.959 so lespot Kintez or Mario Small, who's one of the 0:12:53.040 --> 0:12:55.600 leading sociologists of his generation, and some of the leading 0:12:55.600 --> 0:12:58.960 young political scientists as well, and so we were just 0:12:59.000 --> 0:13:02.680 taught like, these are problems, go solve them. And so 0:13:02.760 --> 0:13:06.040 we'll give a license to run across these different fields. 0:13:07.400 --> 0:13:09.839 One of the interesting things in all of this, and Larry, 0:13:09.840 --> 0:13:14.240 you might have views, is in some fields, in most fields, 0:13:14.280 --> 0:13:17.520 in fact, economics has been a net exporter. We've exported 0:13:17.600 --> 0:13:22.640 rational choice to political science, we export a lot of 0:13:22.679 --> 0:13:27.720 our empirical methods to sociology. But actually with psychology we've 0:13:27.760 --> 0:13:30.400 exported a lot to law. All of law and economics 0:13:30.480 --> 0:13:35.840 is and export from economics. The one field where the 0:13:35.920 --> 0:13:38.760 terms of trade go the exact opposite way is psychology. 0:13:39.040 --> 0:13:40.839 I find that very interesting. I don't have a theory 0:13:40.880 --> 0:13:44.600 of why, but we were net importers from psychology. So 0:13:44.640 --> 0:13:50.679 my intellectual foundations do reflect the terms of trade or 0:13:50.720 --> 0:13:52.120 the flow of intellectual trade. 0:13:52.280 --> 0:13:53.920 I guess I do have a point of view about 0:13:54.040 --> 0:13:59.000 the psychology and then behavioral economics that whole you know, 0:14:00.080 --> 0:14:05.360 movement of economics away from just strict rationality to people 0:14:05.400 --> 0:14:09.640 making mistakes, and people making rationally making mistakes. They don't 0:14:09.640 --> 0:14:12.360 have time to let's say, adjust their portfolio or the 0:14:12.520 --> 0:14:15.880 second or nanosecond of the day, so. 0:14:15.880 --> 0:14:17.440 They're not going to get it right. 0:14:20.120 --> 0:14:25.360 But they also have issues of self control potentially, or 0:14:26.520 --> 0:14:32.040 you know, they we have the models of schizophrenia in 0:14:32.560 --> 0:14:37.760 the economics where there's the current self and the you 0:14:37.800 --> 0:14:39.800 know next year is a different self, and then there's 0:14:39.840 --> 0:14:42.960 a future self and your old self, and you become 0:14:42.960 --> 0:14:45.400 the fiduciary for those different selves, and you're trying to 0:14:45.400 --> 0:14:47.880 figure out what to do, even though you're kind of 0:14:47.880 --> 0:14:50.480 a greedy bastard, but you know that. 0:14:51.920 --> 0:14:52.760 You're worried about. 0:14:52.640 --> 0:14:54.200 Your future self as well, and you have to take 0:14:54.200 --> 0:14:59.680 care of them. Nobody else will. So I think that 0:14:59.520 --> 0:15:05.800 that was the reflection of the models when we started 0:15:05.840 --> 0:15:09.680 developing these intertemporal models, these where people are living for 0:15:09.880 --> 0:15:14.360 multiple periods, having to make difficult decisions in the context 0:15:14.360 --> 0:15:18.560 of a fiscal system, tax benefits system that's incredibly complicated. 0:15:18.880 --> 0:15:21.200 The subscurto system in our country has twenty two thousand 0:15:21.240 --> 0:15:24.480 pages of rules in its operating manual system. You can 0:15:24.720 --> 0:15:25.600 go online and see. 0:15:25.400 --> 0:15:26.160 All these rules. 0:15:26.480 --> 0:15:30.280 It's incredible, so nobody could possibly get all this right. 0:15:31.720 --> 0:15:34.880 I spent a good part of my time developing economics 0:15:34.880 --> 0:15:37.920 based financial planning because I think what we should be 0:15:37.920 --> 0:15:42.800 doing as a profession is not kind of studying people's mistakes, 0:15:42.840 --> 0:15:45.040 but just telling them what to do. I think we 0:15:45.040 --> 0:15:48.840 should go from being a descriptive to a prescriptive profession, 0:15:48.920 --> 0:15:53.200 and that we should import not from psychology but from medicine, 0:15:53.640 --> 0:15:57.440 that we should be not studying disease but actually curing 0:15:57.480 --> 0:16:02.880 economic decisions and financial mistakes by just telling people what 0:16:02.960 --> 0:16:07.440 to do. Uh, you know, not like but in the 0:16:07.480 --> 0:16:09.800 context of here's what we're trying. 0:16:10.200 --> 0:16:12.760 Here's what a century. 0:16:12.360 --> 0:16:18.240 Of of financial economics, developed by the founders of the 0:16:18.280 --> 0:16:20.920 field of finance have come up with. You know, the 0:16:20.960 --> 0:16:23.240 idea that you should act at least like a squirrel 0:16:23.760 --> 0:16:26.200 and make sure that you have acorns in your winter, 0:16:26.240 --> 0:16:30.360 which is your retirement. That you should make sure you 0:16:30.400 --> 0:16:32.960 have insurance and how much insurance you need while you 0:16:33.000 --> 0:16:37.880 need to protect your living center of survivors. What about 0:16:38.000 --> 0:16:41.000 you know, investing, Well, you have to think about whether 0:16:41.040 --> 0:16:45.320 you whether how risk tamart you are and think of 0:16:45.320 --> 0:16:46.440 all the things that can happen. 0:16:47.400 --> 0:16:47.880 So all this. 0:16:47.920 --> 0:16:51.120 Stuff can being you know, is incorporated now and in 0:16:51.240 --> 0:16:55.680 ecomic space financial software that I developed called Maximack Planner. 0:16:55.720 --> 0:16:58.760 But uh, I think that's you know, that's my reaction 0:16:58.840 --> 0:17:03.480 that we need to move in that direct. I think 0:17:03.520 --> 0:17:07.840 the behavioral finance has been a bit of a kind 0:17:07.840 --> 0:17:11.960 of a detour and that we should get down to 0:17:12.640 --> 0:17:16.439 what is fundamentally our destiny, which is telling helping people 0:17:16.480 --> 0:17:20.760 with their decisions, whether it's firms or households or countries. 0:17:20.240 --> 0:17:21.119 And policy making. 0:17:21.680 --> 0:17:24.320 And that's what I think probably got you into the 0:17:24.359 --> 0:17:27.800 field as well, the ability to help formulate. 0:17:27.359 --> 0:17:31.879 Policy give people advice, so you're probably engaged. 0:17:31.520 --> 0:17:35.919 In that with members of Congressance of worth as my 0:17:35.960 --> 0:17:39.040 guest anyway, I don't know if you would expect expected 0:17:39.040 --> 0:17:40.560 that answer, but there it is. 0:17:42.480 --> 0:17:46.679 How financially secure do you feel? Imagine a tool to 0:17:46.800 --> 0:17:50.720 help you make smart financial decisions, A tool that factors 0:17:50.760 --> 0:17:53.440 in all your financial data and shows what you can 0:17:53.520 --> 0:17:56.639 safely spend every year for the rest of your life. 0:17:57.080 --> 0:18:01.880 That tool is Maxify, Powerful, accurate, and easy to use. 0:18:02.240 --> 0:18:07.240 Developed by Boston University economist Lawrence Kotlikoff, Maxify takes the 0:18:07.359 --> 0:18:10.959 guesswork out of financial decisions at every stage of life. 0:18:11.280 --> 0:18:14.359 Maxify calculates what you can afford to spend now and 0:18:14.440 --> 0:18:18.159 throughout retirement, and you can run what if scenarios to 0:18:18.200 --> 0:18:21.720 see how your finances might change by taking a new job, 0:18:21.840 --> 0:18:25.679 buying a home, or downsizing. Knowing the impact before you 0:18:25.800 --> 0:18:29.600 decide let you make smarter decisions so you can finally 0:18:29.720 --> 0:18:34.119 enjoy financial peace of mind. Are you ready visit maxifi 0:18:34.240 --> 0:18:37.880 dot com today to start planning? That's Maxify with an 0:18:37.880 --> 0:18:42.240 I ma xi fi maxify dot com. 0:18:42.600 --> 0:18:44.760 I think that's really interesting. My guess is that you 0:18:44.840 --> 0:18:46.800 got a lot of grief from the profession for doing that. 0:18:47.440 --> 0:18:49.159 I'm going to preface this by agreeing with you by 0:18:49.160 --> 0:18:51.879 the way that my guess is this is deeply against 0:18:51.880 --> 0:18:56.040 the cultural of economics. It's there are things that economists 0:18:56.040 --> 0:18:58.159 come to believe because we learn it early on, and 0:18:58.200 --> 0:18:59.520 I think we don't do a very good job of 0:18:59.600 --> 0:19:04.000 unlearning sometimes, so we always there's a norm that economists 0:19:04.040 --> 0:19:07.320 don't tell people what to do, because how would I 0:19:07.400 --> 0:19:09.720 know what's in your best interest? And there's parts of 0:19:09.720 --> 0:19:12.560 this that are intensely rational, right, so that make a 0:19:12.600 --> 0:19:15.760 lot of sense. I should say, Larry says he feels 0:19:15.840 --> 0:19:18.119 hungry right now, Should I tell him to eat an 0:19:18.160 --> 0:19:20.800 apple instead of an orange? Hell? No, he knows which 0:19:20.800 --> 0:19:26.120 fruit he likes. But then we take that idea too 0:19:26.160 --> 0:19:29.920 seriously and we say I should never tell an econ 0:19:30.000 --> 0:19:32.360 one oh one student how to make good buying decisions, 0:19:32.400 --> 0:19:34.720 how to make good retirement decisions, how to make good 0:19:34.880 --> 0:19:40.320 educational decisions. And that's it's an internal norm within economics. 0:19:40.359 --> 0:19:43.520 Now what's weird about this is if other economists have 0:19:43.600 --> 0:19:47.160 the same personal lives that I do. I have young 0:19:47.240 --> 0:19:50.080 kids come to my office, young kids, eighteen year olds 0:19:50.119 --> 0:19:52.399 and say, Professor Wilfers, would it be a good idea 0:19:52.440 --> 0:19:55.240 for me to study for the you know, to go 0:19:55.280 --> 0:19:58.119 to business school? And I lean forward and I need 0:19:58.160 --> 0:19:59.600 to ask him a bit about their lives, and then 0:19:59.600 --> 0:20:04.760 I give my answer, Well, family members are getting towards 0:20:04.760 --> 0:20:07.320 the end of life or getting towards retirement, and they say, 0:20:07.359 --> 0:20:09.119 I'm not sure what to do about social security. I'm like, oh, 0:20:09.119 --> 0:20:10.720 don't worry, mamma, I got you. I'll help you out. 0:20:11.600 --> 0:20:14.760 We must all have that experience that, in our favorate 0:20:14.840 --> 0:20:18.399 lives we give advice and the moment we wear our 0:20:18.440 --> 0:20:20.480 economist hat, there is an internal rule of the game. 0:20:20.480 --> 0:20:23.200 I want folks at home twenty cent. How radical Larry's 0:20:23.200 --> 0:20:28.000 proposition is that we should be doctors because the prevalent 0:20:28.080 --> 0:20:31.040 viewer is we should not that just because I am 0:20:31.040 --> 0:20:34.240 making a different choice than you. Doctors would say that 0:20:34.280 --> 0:20:37.960 one's disease that one's not, whereas we say respect all difference, 0:20:38.920 --> 0:20:42.399 but some differences are good, like that Larry likes oranges 0:20:42.440 --> 0:20:46.280 and I like apples. That's reasonable. I'm going to tell you, Look, 0:20:47.280 --> 0:20:49.320 this is the dumbest story you've ever heard, but it's 0:20:49.359 --> 0:20:53.119 really important to my identity as an economist. One summer, 0:20:53.160 --> 0:20:56.479 about fifteen years ago, I was up in Maine with 0:20:56.560 --> 0:20:59.480 my partner Betsy Stevenson. Was the end of a long day. 0:20:59.520 --> 0:21:01.879 I walked in to the ice cream story. I need 0:21:01.920 --> 0:21:04.320 you to understand for this story to work, that I'm Australian. 0:21:04.400 --> 0:21:06.800 I don't understand American norms. I still get tripped up 0:21:06.800 --> 0:21:09.960 all the time. The second thing you need to understand 0:21:10.000 --> 0:21:12.879 is cook is that chocchip cookie dough is the best 0:21:12.880 --> 0:21:15.639 flavor in the history of the world. There's nothing beats it. 0:21:16.720 --> 0:21:18.639 And I walk in, by the way, I'm a Harvard 0:21:18.640 --> 0:21:23.679 PhD economist, and I walk in those fuckers at this 0:21:23.720 --> 0:21:27.879 ice cream shop. They've got another flavor called cookies and cream, 0:21:28.000 --> 0:21:32.560 and like, it's not the same. It's got bloody oreos 0:21:32.600 --> 0:21:35.879 in it, and it's not chocchip, and it's not cookie dough. 0:21:36.640 --> 0:21:38.879 But if you were trying to design a flavor to 0:21:38.920 --> 0:21:41.600 make someone accidentally order the wrong ice cream, you would 0:21:41.600 --> 0:21:45.080 add cookies and cream. I know the Americans won't understand this, 0:21:45.080 --> 0:21:46.919 because you're all you grew up with these as if 0:21:46.960 --> 0:21:49.560 these are two completely different flavors. But to me, the 0:21:49.600 --> 0:21:52.080 idea of putting anything to do with cookies in ice 0:21:52.080 --> 0:21:55.520 cream was radical. And I walked in and I ordered 0:21:55.560 --> 0:21:58.639 cookies and cream. I don't even like chocolate. And I 0:21:58.720 --> 0:22:00.800 walked out and Betsy saw them, and I've got my 0:22:00.880 --> 0:22:03.280 ice cream and the saddest face you've ever seen, And 0:22:03.320 --> 0:22:06.680 she said, what happened? And I said, I ordered cookies 0:22:06.680 --> 0:22:09.720 and cream. And I wish she had a photo of that, 0:22:09.760 --> 0:22:12.240 because that was the day I became a behavioral economist. 0:22:14.040 --> 0:22:16.439 Betsy knew from then on, and she still does it. 0:22:16.480 --> 0:22:19.520 I'll walk into an ice cream store, She'll say, remember, mate, 0:22:19.760 --> 0:22:23.000 you want chock chip cookie dough. And I'm still on 0:22:23.040 --> 0:22:25.280 the customer making that mistake. So notice in that story 0:22:25.320 --> 0:22:28.199 Betsy says, remember you want chock chip cookie dough. What 0:22:28.320 --> 0:22:31.760 an intensely loving partner she is. Or alternatively, she's an 0:22:31.760 --> 0:22:36.200 economist giving advice, which, when you say it that way, 0:22:36.280 --> 0:22:39.560 is a radical idea. People, I may not understand how 0:22:39.640 --> 0:22:43.800 radical that is. Don't make the wrong bloody choice. It 0:22:43.840 --> 0:22:46.760 requires her having a belief that she knows the right choice. 0:22:46.760 --> 0:22:51.040 But she does because she's lived with me, and you 0:22:51.080 --> 0:22:53.960 know that story is vivid because it's completely clear what 0:22:54.000 --> 0:22:56.760 the right choice is. What Larry's talking about is, let's 0:22:56.760 --> 0:23:00.119 say Larry's professional life is someone's in their fifties to 0:23:00.119 --> 0:23:03.400 figure out how much to save for retirement. Some people 0:23:03.480 --> 0:23:05.680 in their fifties just spend every dollar that they earn. 0:23:06.600 --> 0:23:10.159 Now for them. Among that group, some of them that 0:23:10.280 --> 0:23:12.320 might be really smart because they've got a mom or 0:23:12.320 --> 0:23:14.640 a dad who's a trillionaire who's about to drop dead, 0:23:15.040 --> 0:23:17.840 in which case they don't need to say. But for others, 0:23:18.359 --> 0:23:23.320 they're just being bloody stupid. And we know as human beings, 0:23:23.320 --> 0:23:25.840 not as economists, just as human beings, we know they're 0:23:25.880 --> 0:23:31.000 being bloody stupid. They're ordering cho cookies and cream. So 0:23:31.119 --> 0:23:35.359 I'll still make that mistake. And so then the question 0:23:35.480 --> 0:23:38.120 is how far are you willing to go with Larry's 0:23:38.119 --> 0:23:42.520 idea that we're doctors. Now, it turns out there's one 0:23:42.560 --> 0:23:45.800 part where economists are very comfortable. If Congress calls you 0:23:46.480 --> 0:23:49.680 and says how high should the minimum wage be? Most 0:23:49.720 --> 0:23:52.720 economists have a view either really low or really high 0:23:52.840 --> 0:23:55.560 or right in the middle. If Congress calls and says, 0:23:56.400 --> 0:23:59.080 if the next presidential candidate calls and says, should we 0:23:59.119 --> 0:24:01.000 what do we need to do something about? Many will say, well, 0:24:01.000 --> 0:24:02.840 we've got to reduce inequality, or we've got to open 0:24:02.920 --> 0:24:08.159