Speaker 1: You're about to listen to a conversation I had the
Speaker 1: other day with Larry Kotlakoff. He's a friend, a fellow economist,
Speaker 1: and host of the Economics Matters podcast. This was a
Speaker 1: fun one. Larry encouraged me to look both backwards and forwards,
Speaker 1: backward at some of the work I'm most proud of,
Speaker 1: and forward at the growing challenges we face as an
Speaker 1: economy and a nation. In the process, well, you get
Speaker 1: two economists together. We philosophized over the role of economics
Speaker 1: and the duty of economists in helping tackle some of
Speaker 1: the most pressing issues of our time. This was the
Speaker 1: kind of conversation that reminded me actually why I fell
Speaker 1: in love with economics. It's not the models or the math,
Speaker 1: but the chance to make sense of the lives we
Speaker 1: actually live. I hope you enjoy listening to this conversation
Speaker 1: half as much as I enjoyed having it.
Speaker 2: So we coplak Off with Economics Matters the podcast. I'm
Speaker 2: really delighted to have Justin Wolfers with me. Wolfers is
Speaker 2: Justin is a Wers. Justin is a star in economics,
Speaker 2: a budding star, I think partly because of his personality
Speaker 2: mostly because of his economics and the fact that he
Speaker 2: has a ton to say about lots of different things.
Speaker 3: Uh.
Speaker 2: And he's got a terrific platform.
Speaker 3: It's called Platypus.
Speaker 2: He'll tell us more about it, but it's a substack
Speaker 2: substack platform that everybody should subscribe to and prefer pay
Speaker 2: for it.
Speaker 3: It's worth it. It's one of the really best.
Speaker 2: I learned more in five minutes from that than almost
Speaker 2: any other thing I can jump on too.
Speaker 3: So it's terrific.
Speaker 2: And the thing about economists, as everybody knows, is that
Speaker 2: there are people that are good with numbers but don't
Speaker 2: have the personality to be in actuary. And Justin has
Speaker 2: the personality. He kind of defies that rule, and he
Speaker 2: has the personality to be at least a social sociologist.
Speaker 2: I would say, perhaps, but we'll see.
Speaker 3: What do you think.
Speaker 2: Anyway, let me give you a quick overview of his bio,
Speaker 2: and then we're going to have him fill it in
Speaker 2: a bit, and then we will talk about some of
Speaker 2: his greatest hits in terms of the researcher. Because I
Speaker 2: want everybody to understand that Justin is not just a
Speaker 2: great comment on what's going on in the local national
Speaker 2: and global economies, whether it's fed policy or labor markets
Speaker 2: or China or whatever it is, he can talk about it.
Speaker 2: But that's commentary. But he's also an extremely serious and
Speaker 2: major economist, academic economists who's done outstanding work. It's been
Speaker 2: published in fantastic the very top journals on many different topics.
Speaker 2: That's the amazing thing about him. So he's really somebody
Speaker 2: I'm very proud to have on this podcast. So he's
Speaker 2: a professor of economics and a professor also a professor
Speaker 2: of public policy at the University of Michigan, which has
Speaker 2: always had a really terrific economics department still does, of course.
Speaker 2: He's also a visiting professor of economics at the University
Speaker 2: of Sydney. He hails from Australia. That will be obvious
Speaker 2: in two seconds as soon as you hear his cool accent,
Speaker 2: and you will immediately be relieved that it's not another
Speaker 2: New Jersey accent. Justin's a research associate of the National
Speaker 2: Bureau of Economic Research. He's a non resident senior Fellow
Speaker 2: with the Brookings Institute, a non resident senior Fellow with
Speaker 2: the Peterson Institute for International Economics. These institutions and these
Speaker 2: think tanks and associations.
Speaker 3: Are really big deals in economics.
Speaker 2: He's also a research fellow with the Institute for Study
Speaker 2: of Labor in bond is a a research affiliated at
Speaker 2: the Center for Economic Policy Research in London. That's the
Speaker 2: London kind of equivalent to the National Bureau of Economic Research,
Speaker 2: while the European economists belonged to that the top ones,
Speaker 2: an international research fellow at the Keel Institute for the
Speaker 2: World Economy, a major and also on a fellow of
Speaker 2: the SFO. These are the two major research institutes of
Speaker 2: economists in Germany. It was previously a visiting professor at Princeton,
Speaker 2: associate professor at Wharton University, Pennsylvania, Wharton their Business school,
Speaker 2: assistant professor at Stanford Graduate School of Business, and an
Speaker 2: economist with the Reserve Bank of Australia. And he was
Speaker 2: also a former member of the Advisor to the Congressional
Speaker 2: Budget Office on their Panel of Economic Advisors. So the
Speaker 2: other thing to say is that Justin earned his PhD
Speaker 2: in economics from Harvard University in two thousand and one,
Speaker 2: so he's still a youngster, only been out for twenty
Speaker 2: four years, and he was a Fulbright Knox and Menzies Scholar,
Speaker 2: and he earned his undergraduate degree in economics in Australia
Speaker 2: at the University of Sydney, and he won the University Medal,
Speaker 2: which I'm sure is not an easy thing to get.
Speaker 2: I'm sure there's plenty of people competing for that. The
Speaker 2: IMF has named Justin one of the twenty five economists
Speaker 2: under forty five shaping the way we think about the
Speaker 2: global economy.
Speaker 3: Welcome Justin.
Speaker 1: Thanks to mate, I'm no longer under forty five. So
Speaker 1: I just want to tell folks at home something interesting
Speaker 1: about our profession. Larry, that was really beautiful and I'm
Speaker 1: very grateful that. What's funny is Larry just did something
Speaker 1: we never see economists do, which is he looked another
Speaker 1: economist in the eye and said something nice about him
Speaker 1: in our professional discourse. Well, Larry and I at a
Speaker 1: conference right now, we might say gooda and then I'd
Speaker 1: present a paper and he told me the seventeen ways
Speaker 1: in which it was wrong. But we do secretly say
Speaker 1: nice things about each other, which is where I going
Speaker 1: up for tenure. Someone might ask this was many years ago.
Speaker 1: Someone might ask Larry to write a letter, and when
Speaker 1: we do that, for each other in secret when we
Speaker 1: know no one is watching. Then we say very nice
Speaker 1: things about each other. And it's just interesting to notice.
Speaker 1: As you were talking, I was like, why don't we
Speaker 1: say more nice things to each other in person because
Speaker 1: it might feel good? Thank you?
Speaker 2: Well, it's not, you know, I didn't do it to
Speaker 2: make you feel good. It's just the truth. But this
Speaker 2: also connects to some of your research. I mean, you've
Speaker 2: worked on issues about subjective wellbeing, female happiness, happiness, inequality
Speaker 2: in the US.
Speaker 3: This is the.
Speaker 2: Early parts of your life, your research life. Then you
Speaker 2: move you know, I'm just going to read off a
Speaker 2: few of the titles of your papers. Is business cycle
Speaker 2: volatility costs, the trust in public institutions over the business cycle,
Speaker 2: aggregate shocks or aggregate information costs, the information business cycle,
Speaker 2: code movement, macroeconomic derivatives. You've worked a lot on the
Speaker 2: prediction market, disagreement about inflation, expectations, trends, and marital stability,
Speaker 2: marriage and divorce changes, and they're driving forces the divorced,
Speaker 2: unilateral divorce, raised divorce rates, bogaining in the shadow of
Speaker 2: the law, divorce laws, and family to distress. And this
Speaker 2: is just really incredibly interesting you have. You guys have
Speaker 2: to go and look up his research at NBR dot org.
Speaker 2: Look for Wilfer's papers. That might be the best place.
Speaker 2: That's where I'm finding these. The role of shocks and
Speaker 2: institutions in the rise of European unemployment, uh Forecasting elections,
Speaker 2: party influence in Congress, Partisan impacts on the economy.
Speaker 3: Are voters rational?
Speaker 2: Think of these titles best death penalty uses, Estimating the
Speaker 2: impact of the death penalty on murder, Discrimination, Gender and
Speaker 2: the Dynamics of the economic seminars very interesting racial discrimination.
Speaker 3: Among NBA referees.
Speaker 2: How do you come up with these extremely interesting And
Speaker 2: I've got the whole set of papers on the prediction
Speaker 2: market corruption in the NCAA Basketball League, and it just
Speaker 2: goes on and on. Tell us how you come up
Speaker 2: with these terrific research topics and they just come out
Speaker 2: of the blue. And then you talk about your you know,
Speaker 2: five or ten papers that you're really proudest of.
Speaker 1: Yeah, let me give you some background, which is I
Speaker 1: belonged to what was one of the luckiest generations of economists.
Speaker 1: Economics is a story. We tell stories to each other.
Speaker 1: We get better at telling our stories over time, and
Speaker 1: the scope of the stories we tell group. And so
Speaker 1: when I was a young bloke taking my undergraduate economics,
Speaker 1: you know, we thought that economics was think about the
Speaker 1: old narrow definitions, you know, inflation and money, supply and
Speaker 1: supply and demand, and oligopolies and monopolies. And you know,
Speaker 1: I think one of the greatest social scientists of the
Speaker 1: twentieth century was the late Gary Beck. And Becker said
Speaker 1: he didn't use this language, but I like to imagine
Speaker 1: it this way because it would have been more palatable.
Speaker 1: He said, damn it where social scientists and we have tools,
Speaker 1: and our tools are helpful no matter what the domain.
Speaker 1: He defined economics in terms of our toolkit rather than
Speaker 1: the subject matter. And I think that's actually a correct description.
Speaker 1: It's a coherent description, but more importantly and exciting description,
Speaker 1: because it means if there's a problem you care about
Speaker 1: in the world, maybe an economist has got something useful
Speaker 1: to say about it. It's an unpopular view in some
Speaker 1: parts of the world because people worry about what they
Speaker 1: call economic imperialism. So I want to notice what Becker
Speaker 1: would never have said. And I also did not say,
Speaker 1: even if people heard me say it, I didn't see
Speaker 1: economics was the only lens. It wasn't the only tool.
Speaker 1: It simply is one of the very powerful tools. So
Speaker 1: I went to graduate school, you know, a good couple
Speaker 1: of decades after Becker did his most important work. But
Speaker 1: that's basically the time lag between in the genius of
Speaker 1: Becker and the evolution of the profession, which is we
Speaker 1: understood ourselves as being able to speak to whatever we
Speaker 1: thought the important questions of the day were. And know,
Speaker 1: it was one of the thrills of a lifetime. You know,
Speaker 1: I didn't know Gary Well, I wasn't a student of his,
Speaker 1: but he's discussed papers of minor conferences. He provided comments
Speaker 1: to me, and his genius is unmatched. But what that
Speaker 1: meant was my generation of economists. So what you were
Speaker 1: describing about, you know, we're all over the place. That's
Speaker 1: not me. That's my generation, and that generation made the
Speaker 1: field more exciting. So for anyone who's watching that younger
Speaker 1: than me, you might take all this for granted, but
Speaker 1: realize you're doing economics in the most exciting year ever
Speaker 1: to do economics in the history of the world right now,
Speaker 1: this year, Yeah, because we keep learning, right, So there
Speaker 1: was Becker opened everything up I also was going through
Speaker 1: graduate school right at the very my court was one
Speaker 1: where there was a lot of excitement about behavior, economic
Speaker 1: sendens infancy. So my classmates, literally, the folks I was
Speaker 1: in class with include Muriel Needler, who's leading experimental economist,
Speaker 1: stephanode Lavina, who's probably the best behavioral economist of his generation.
Speaker 1: It's either him or his wife, Larica mamm Dia, And
Speaker 1: there was just a deep sense of excitement there and
Speaker 1: what's interesting, and actually, let me ad one other formative experience,
Speaker 1: which is I was at Harvard. They started a program
Speaker 1: called the Multidisciplinary Program in Inequality and Social Policy, and
Speaker 1: the idea was, here's some really important topics inequality and
Speaker 1: social policy. Let's put economists or ecomphd students, political scientists,
Speaker 1: and sociologist synerroom. So I was a young twenty something
Speaker 1: in a room with actually the woman who's now my dean,
Speaker 1: so lespot Kintez or Mario Small, who's one of the
Speaker 1: leading sociologists of his generation, and some of the leading
Speaker 1: young political scientists as well, and so we were just
Speaker 1: taught like, these are problems, go solve them. And so
Speaker 1: we'll give a license to run across these different fields.
Speaker 1: One of the interesting things in all of this, and Larry,
Speaker 1: you might have views, is in some fields, in most fields,
Speaker 1: in fact, economics has been a net exporter. We've exported
Speaker 1: rational choice to political science, we export a lot of
Speaker 1: our empirical methods to sociology. But actually with psychology we've
Speaker 1: exported a lot to law. All of law and economics
Speaker 1: is and export from economics. The one field where the
Speaker 1: terms of trade go the exact opposite way is psychology.
Speaker 1: I find that very interesting. I don't have a theory
Speaker 1: of why, but we were net importers from psychology. So
Speaker 1: my intellectual foundations do reflect the terms of trade or
Speaker 1: the flow of intellectual trade.
Speaker 2: I guess I do have a point of view about
Speaker 2: the psychology and then behavioral economics that whole you know,
Speaker 2: movement of economics away from just strict rationality to people
Speaker 2: making mistakes, and people making rationally making mistakes. They don't
Speaker 2: have time to let's say, adjust their portfolio or the
Speaker 2: second or nanosecond of the day, so.
Speaker 3: They're not going to get it right.
Speaker 2: But they also have issues of self control potentially, or
Speaker 2: you know, they we have the models of schizophrenia in
Speaker 2: the economics where there's the current self and the you
Speaker 2: know next year is a different self, and then there's
Speaker 2: a future self and your old self, and you become
Speaker 2: the fiduciary for those different selves, and you're trying to
Speaker 2: figure out what to do, even though you're kind of
Speaker 2: a greedy bastard, but you know that.
Speaker 3: You're worried about.
Speaker 2: Your future self as well, and you have to take
Speaker 2: care of them. Nobody else will. So I think that
Speaker 2: that was the reflection of the models when we started
Speaker 2: developing these intertemporal models, these where people are living for
Speaker 2: multiple periods, having to make difficult decisions in the context
Speaker 2: of a fiscal system, tax benefits system that's incredibly complicated.
Speaker 2: The subscurto system in our country has twenty two thousand
Speaker 2: pages of rules in its operating manual system. You can
Speaker 2: go online and see.
Speaker 3: All these rules.
Speaker 2: It's incredible, so nobody could possibly get all this right.
Speaker 2: I spent a good part of my time developing economics
Speaker 2: based financial planning because I think what we should be
Speaker 2: doing as a profession is not kind of studying people's mistakes,
Speaker 2: but just telling them what to do. I think we
Speaker 2: should go from being a descriptive to a prescriptive profession,
Speaker 2: and that we should import not from psychology but from medicine,
Speaker 2: that we should be not studying disease but actually curing
Speaker 2: economic decisions and financial mistakes by just telling people what
Speaker 2: to do. Uh, you know, not like but in the
Speaker 2: context of here's what we're trying.
Speaker 3: Here's what a century.
Speaker 2: Of of financial economics, developed by the founders of the
Speaker 2: field of finance have come up with. You know, the
Speaker 2: idea that you should act at least like a squirrel
Speaker 2: and make sure that you have acorns in your winter,
Speaker 2: which is your retirement. That you should make sure you
Speaker 2: have insurance and how much insurance you need while you
Speaker 2: need to protect your living center of survivors. What about
Speaker 2: you know, investing, Well, you have to think about whether
Speaker 2: you whether how risk tamart you are and think of
Speaker 2: all the things that can happen.
Speaker 3: So all this.
Speaker 2: Stuff can being you know, is incorporated now and in
Speaker 2: ecomic space financial software that I developed called Maximack Planner.
Speaker 2: But uh, I think that's you know, that's my reaction
Speaker 2: that we need to move in that direct. I think
Speaker 2: the behavioral finance has been a bit of a kind
Speaker 2: of a detour and that we should get down to
Speaker 2: what is fundamentally our destiny, which is telling helping people
Speaker 2: with their decisions, whether it's firms or households or countries.
Speaker 3: And policy making.
Speaker 2: And that's what I think probably got you into the
Speaker 2: field as well, the ability to help formulate.
Speaker 3: Policy give people advice, so you're probably engaged.
Speaker 2: In that with members of Congressance of worth as my
Speaker 2: guest anyway, I don't know if you would expect expected
Speaker 2: that answer, but there it is.
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Speaker 1: I think that's really interesting. My guess is that you
Speaker 1: got a lot of grief from the profession for doing that.
Speaker 1: I'm going to preface this by agreeing with you by
Speaker 1: the way that my guess is this is deeply against
Speaker 1: the cultural of economics. It's there are things that economists
Speaker 1: come to believe because we learn it early on, and
Speaker 1: I think we don't do a very good job of
Speaker 1: unlearning sometimes, so we always there's a norm that economists
Speaker 1: don't tell people what to do, because how would I
Speaker 1: know what's in your best interest? And there's parts of
Speaker 1: this that are intensely rational, right, so that make a
Speaker 1: lot of sense. I should say, Larry says he feels
Speaker 1: hungry right now, Should I tell him to eat an
Speaker 1: apple instead of an orange? Hell? No, he knows which
Speaker 1: fruit he likes. But then we take that idea too
Speaker 1: seriously and we say I should never tell an econ
Speaker 1: one oh one student how to make good buying decisions,
Speaker 1: how to make good retirement decisions, how to make good
Speaker 1: educational decisions. And that's it's an internal norm within economics.
Speaker 1: Now what's weird about this is if other economists have
Speaker 1: the same personal lives that I do. I have young
Speaker 1: kids come to my office, young kids, eighteen year olds
Speaker 1: and say, Professor Wilfers, would it be a good idea
Speaker 1: for me to study for the you know, to go
Speaker 1: to business school? And I lean forward and I need
Speaker 1: to ask him a bit about their lives, and then
Speaker 1: I give my answer, Well, family members are getting towards
Speaker 1: the end of life or getting towards retirement, and they say,
Speaker 1: I'm not sure what to do about social security. I'm like, oh,
Speaker 1: don't worry, mamma, I got you. I'll help you out.
Speaker 1: We must all have that experience that, in our favorate
Speaker 1: lives we give advice and the moment we wear our
Speaker 1: economist hat, there is an internal rule of the game.
Speaker 1: I want folks at home twenty cent. How radical Larry's
Speaker 1: proposition is that we should be doctors because the prevalent
Speaker 1: viewer is we should not that just because I am
Speaker 1: making a different choice than you. Doctors would say that
Speaker 1: one's disease that one's not, whereas we say respect all difference,
Speaker 1: but some differences are good, like that Larry likes oranges
Speaker 1: and I like apples. That's reasonable. I'm going to tell you, Look,
Speaker 1: this is the dumbest story you've ever heard, but it's
Speaker 1: really important to my identity as an economist. One summer,
Speaker 1: about fifteen years ago, I was up in Maine with
Speaker 1: my partner Betsy Stevenson. Was the end of a long day.
Speaker 1: I walked in to the ice cream story. I need
Speaker 1: you to understand for this story to work, that I'm Australian.
Speaker 1: I don't understand American norms. I still get tripped up
Speaker 1: all the time. The second thing you need to understand
Speaker 1: is cook is that chocchip cookie dough is the best
Speaker 1: flavor in the history of the world. There's nothing beats it.
Speaker 1: And I walk in, by the way, I'm a Harvard
Speaker 1: PhD economist, and I walk in those fuckers at this
Speaker 1: ice cream shop. They've got another flavor called cookies and cream,
Speaker 1: and like, it's not the same. It's got bloody oreos
Speaker 1: in it, and it's not chocchip, and it's not cookie dough.
Speaker 1: But if you were trying to design a flavor to
Speaker 1: make someone accidentally order the wrong ice cream, you would
Speaker 1: add cookies and cream. I know the Americans won't understand this,
Speaker 1: because you're all you grew up with these as if
Speaker 1: these are two completely different flavors. But to me, the
Speaker 1: idea of putting anything to do with cookies in ice
Speaker 1: cream was radical. And I walked in and I ordered
Speaker 1: cookies and cream. I don't even like chocolate. And I
Speaker 1: walked out and Betsy saw them, and I've got my
Speaker 1: ice cream and the saddest face you've ever seen, And
Speaker 1: she said, what happened? And I said, I ordered cookies
Speaker 1: and cream. And I wish she had a photo of that,
Speaker 1: because that was the day I became a behavioral economist.
Speaker 1: Betsy knew from then on, and she still does it.
Speaker 1: I'll walk into an ice cream store, She'll say, remember, mate,
Speaker 1: you want chock chip cookie dough. And I'm still on
Speaker 1: the customer making that mistake. So notice in that story
Speaker 1: Betsy says, remember you want chock chip cookie dough. What
Speaker 1: an intensely loving partner she is. Or alternatively, she's an
Speaker 1: economist giving advice, which, when you say it that way,
Speaker 1: is a radical idea. People, I may not understand how
Speaker 1: radical that is. Don't make the wrong bloody choice. It
Speaker 1: requires her having a belief that she knows the right choice.
Speaker 1: But she does because she's lived with me, and you
Speaker 1: know that story is vivid because it's completely clear what
Speaker 1: the right choice is. What Larry's talking about is, let's
Speaker 1: say Larry's professional life is someone's in their fifties to
Speaker 1: figure out how much to save for retirement. Some people
Speaker 1: in their fifties just spend every dollar that they earn.
Speaker 1: Now for them. Among that group, some of them that
Speaker 1: might be really smart because they've got a mom or
Speaker 1: a dad who's a trillionaire who's about to drop dead,
Speaker 1: in which case they don't need to say. But for others,
Speaker 1: they're just being bloody stupid. And we know as human beings,
Speaker 1: not as economists, just as human beings, we know they're
Speaker 1: being bloody stupid. They're ordering cho cookies and cream. So
Speaker 1: I'll still make that mistake. And so then the question
Speaker 1: is how far are you willing to go with Larry's
Speaker 1: idea that we're doctors. Now, it turns out there's one
Speaker 1: part where economists are very comfortable. If Congress calls you
Speaker 1: and says how high should the minimum wage be? Most
Speaker 1: economists have a view either really low or really high
Speaker 1: or right in the middle. If Congress calls and says,
Speaker 1: if the next presidential candidate calls and says, should we
Speaker 1: what do we need to do something about? Many will say, well,
Speaker 1: we've got to reduce inequality, or we've got to open
Speaker 1: up trade. Like feel very comfortable doctoring to countries. Okay,
Speaker 1: fair enough, all right, and then you probably feel okay
Speaker 1: with me telling my family what to do. I don't
Speaker 1: know why you feel okay with that, And so then
Speaker 1: maybe you feel okay when it comes to highly sophisticated
Speaker 1: financial decisions of the formularry was talking about about saving
Speaker 1: for retirement. So then here's a really hard one. How
Speaker 1: do you feel about giving advice to eighteen year olds?
Speaker 1: And I asked that question because one of the hats
Speaker 1: they wear is I teach economics one O one, and
Speaker 1: Betsy Stevenson and I have written the textbook Principles of
Speaker 1: Economics Textbook, the Freshman Textbook that within a year will
Speaker 1: probably be the number one selling textbook in the world.
Speaker 1: And the question is, should we in that textbook say
Speaker 1: you have the choice of many different types of ice cream,
Speaker 1: choose the one that is best for you. That creates
Speaker 1: a marginal rate of substitution. It's equal to the price ratio.
Speaker 1: Or should we say, I mean, then there's the opposite extreme.
Speaker 1: Shall we say anyone who likes cookies and creams an
Speaker 1: idiot that should be outlawed. Or should we say, here's
Speaker 1: a bunch of mistakes. We've often observed people making. They
Speaker 1: don't save enough for a time, and they don't think
Speaker 1: hard enough. They understate the cost of education, they understate
Speaker 1: the benefit of education. It goes. I've got a framework
Speaker 1: where you can think this through really seriously for yourself.
Speaker 1: But notice I'm no longer describing your behavior and prescribing
Speaker 1: I'm saying, here's a framework for thinking about it. If
Speaker 1: you do this, you will buy the best flavor of
Speaker 1: ice cream on average. Should I feel comfortable saying the
Speaker 1: way I was raised was here's the framework that determines
Speaker 1: how many ice creams someone will buy. That describes But
Speaker 1: should I say, Actually, I have the courage of my convictions,
Speaker 1: and I believe in this framework. I think this is
Speaker 1: the best possible framework. Here's how you should think about
Speaker 1: I'm not telling you what flavored by it. I'm telling
Speaker 1: you I should think about that because the thing is
Speaker 1: cookies and cream as bad as it is, if it
Speaker 1: was cheap enough, that might be a good choice.
Speaker 3: So I think, yeah, I think you know.
Speaker 2: In our software we say, look, here's your lifetime budget,
Speaker 2: given your resources and your labor projected labor earnings and
Speaker 2: SOID security and the whole tax system.
Speaker 3: So here's what you've got.
Speaker 2: And here, if you want to have a stable living
Speaker 2: standard per household member, here's your annual discretionary spending budget.
Speaker 2: Because the fixed stuff, you know, for them paying off
Speaker 2: the mortgage is given, and you know, taxes are exogenous,
Speaker 2: although we're making sure everything's internally consistent. So here's your like,
Speaker 2: here's your annual discretionary budget which accords with having the
Speaker 2: living standard pattern that you want, which might be the
Speaker 2: same living center every year, or household member might be
Speaker 2: declining in old age. The software does all that, and
Speaker 2: then within that you get to decide how you want
Speaker 2: to allocate your discretionary You're spending between cookies and cream
Speaker 2: and on my favorites, rum raisin, I think you should
Speaker 2: try that.
Speaker 1: I think I'm going to have respectable choice.
Speaker 2: I'm going to come down with a cape since I
Speaker 2: we're living in Providence, and buy your rum Raisin so
Speaker 2: you can have truly American right now, try it out here.
Speaker 4: Yeah, want more money, less risk, and a better life.
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Speaker 2: So I think there's, yeah, there's a limit to what
Speaker 2: we should be advising. We can't tell people between we
Speaker 2: shouldn't be interfering with their consumer choice, but to make
Speaker 2: sure that they can maintain their living standard, so they
Speaker 2: can have like a you know, a squirrel eats twelve
Speaker 2: k acorns a day basically on average, and they apparently
Speaker 2: hide some like ten thousand acorns acorns in the spring, summer,
Speaker 2: and fall, and by putting them in different places, they're
Speaker 2: diversifying their investment because some other animal steal them, and
Speaker 2: they may also forget where they've hidden them, So they're
Speaker 2: doing a lot of economics. They are to maintain their
Speaker 2: living standard and retirement. So this is kind of basic fundamentals,
Speaker 2: and I think up till now it's been impossible to
Speaker 2: I got into this when I first wrote I started
Speaker 2: writing a paper with Alan Hourback on the adequacy of
Speaker 2: life insurance, and I realized we had to do some
Speaker 2: pretty intensive dynamic programming to figure this out, and that
Speaker 2: when we got to the end of this paper, which
Speaker 2: was very primitive in terms of the algorithms compared to
Speaker 2: what the software has developed into, that nobody would possibly
Speaker 2: remotely ever get this right on their own. And then
Speaker 2: we did some studies comparing life insurance as recommended by
Speaker 2: the salt by this tool that we developed with what
Speaker 2: people were actually holding. It was night and day different.
Speaker 2: So we're suggesting in our modeling that people can do
Speaker 2: things they can't, and that's I think something we should
Speaker 2: step in and say, Okay, here's how much, here's your
Speaker 2: living standard you're trying to sustand and here's a life
Speaker 2: insurance for the survivors given their taxes and everything they're
Speaker 2: going to face. But anyway, let's get back to the
Speaker 2: Justin offers hits. Give us five to ten of your
Speaker 2: papers that maybe if you haven't received enough attention or
Speaker 2: or were received the huge amount of attention. But the
Speaker 2: typical the viewers and listeners.
Speaker 3: Here are not going to be aware of.
Speaker 1: So I believe it or not. Despite what looks like
Speaker 1: my spoken confidence, I don't particularly like to boast. So
Speaker 1: what I'm going to do is I'm going to tell
Speaker 1: you some things I'm proud of instead. Okay, So research
Speaker 1: agenda that I started in graduate school and actually started
Speaker 1: it with Betsy Stevenson, so my life partner. The very
Speaker 1: first thing we ever did together was wrote a paper
Speaker 1: on marriage, divorce to miss stick, violence, and suicide.
Speaker 3: Follow them.
Speaker 1: But that was part of a broad research program trying
Speaker 1: to think about how should we conceptualize the family? And
Speaker 1: sociologists have obviously thought about this. An anthropologists and earlier
Speaker 1: generation of economists, most notably Gary Becker, had thought about it.
Speaker 1: And it's not one paper, it's a research program and
Speaker 1: I'm really proud of the work that we did there.
Speaker 1: Becker thought used the economic leans to say, a family
Speaker 1: is like a firm. In a firm, there are different
Speaker 1: people with different jobs, and so you want to find
Speaker 1: the person who's best suited to each job, and you
Speaker 1: want to create the firm. You want to staff the
Speaker 1: firm up in such a way that it can maximize
Speaker 1: its output. And so are families like that. Its workers
Speaker 1: are called mum and dad. I'm going to use heteronormative terms,
Speaker 1: and so you want to think about how could we
Speaker 1: get this firm of mum and dad to produce the most.
Speaker 1: Adam Smith taught us about the benefits of specialization, So
Speaker 1: one of them should specialize in the market. Now they're
Speaker 1: in the home. That's why in the nineteen sixties dad
Speaker 1: went to work and mom stayed home. Nine and fifties. Actually, okay,
Speaker 1: brilliant idea there is that economics can have something to
Speaker 1: say about this, I think probably you know doesn't describe
Speaker 1: modern families at all. My family is two Harvard PhD
Speaker 1: economists who both work all the time. And so the
Speaker 1: question is, so what happened over the next few decades
Speaker 1: is we had a revolution around the household. We had
Speaker 1: the invention of the washing machine, and the dishwasher and
Speaker 1: the vacuum cleaner. In fact, my favorites the rumba, and
Speaker 1: so a lot of what used to be highly specialized
Speaker 1: work being domestic work machines started doing. In fact, machines
Speaker 1: started doing. It became so simple even a man could
Speaker 1: do it. Then the other thing we had as an
Speaker 1: expansion of markets. My grandmother was the cook for her family.
Speaker 1: The cook for my family is this other fellow called
Speaker 1: trader Joe, and so we buy frozen meals and just
Speaker 1: reheat them. My grandmother was the seamstress for her family.
Speaker 1: She would sew clothes. My family also has a seamstress.
Speaker 1: It's a factory in China, and it's more efficient and
Speaker 1: effective than my grandmother ever was. And so what that
Speaker 1: means is the returns to specialization in a household got
Speaker 1: completely overwhelmed, partly by changing technology and partly by the
Speaker 1: expansion of the market. And so if you had Gary
Speaker 1: Becker's view of the family, you would say, well, if
Speaker 1: we're no longer specializing, then we're no longer going to
Speaker 1: be more productive if mum and dad meet and form
Speaker 1: a household, in which case marriage should disappear. Now at
Speaker 1: some level, it did in the nineteen seventies and eighties.
Speaker 1: But then actually look around you. It turns out people
Speaker 1: are still marrying like crazy. So the question is, why
Speaker 1: are people marrying like crazy? Well, then you look a
Speaker 1: little bit more. Who is getting married. What you have
Speaker 1: today is a lot more assortative mating people with degrees,
Speaker 1: married people with degrees, people who are in the trades,
Speaker 1: married people who are in the trades. You have back
Speaker 1: in the old days, my grandma and grandpa, if they
Speaker 1: hold a dinner party, the men would retire to one
Speaker 1: room and the women would retire to another. Which is
Speaker 1: to say that for that generation, friendship was not an
Speaker 1: essential part of a marriage. Quite literally, women had very
Speaker 1: very close friends outside their marriages, much less so today.
Speaker 1: And so what is it we see today we actually
Speaker 1: see I mean, what do young people say when they
Speaker 1: get married. They talk about marrying their best friend, and
Speaker 1: so what we need now is new language for this.
Speaker 1: It's not the case that Betty in my household does
Speaker 1: the washing and the drying and the cooking and the
Speaker 1: cleaning and the sewing, and I just go to work.
Speaker 1: If she were here right now, she'd clubbed me over
Speaker 1: the head at the suggestion. We both go to work,
Speaker 1: and then we rely on the market to help us
Speaker 1: with a lot of the production of those other things.
Speaker 1: So then why are we together? Good question? Now the
Speaker 1: answer turns out to be, you're gonna love this one.
Speaker 1: This is a radical suggestion, and it takes some pride
Speaker 1: in being one of the first economists to come up
Speaker 1: with this idea. I think it's because we love each
Speaker 1: other now exactly.
Speaker 3: Epontomies of shared living come on.
Speaker 1: That's right, Okay, great, so that's in our software by
Speaker 1: the way, right, so Larry's got different language for it.
Speaker 1: So of course I can't write a serious economics paper
Speaker 1: and say I discovered love. But what I have to
Speaker 1: do is instead say what we used to have is
Speaker 1: what we'd call production complementarities. Mum and Dad can produce
Speaker 1: more together than they can apart. What we're talking about
Speaker 1: here is you talk about consumption complementarities. That for me,
Speaker 1: going out to watch live music is twice as fun
Speaker 1: when Betsy's there, and so therefore I always want to
Speaker 1: go to that with Betsy. Raising children with Betsy is
Speaker 1: occasionally frustrating, but always a joy. So you can think
Speaker 1: about children as being, if you want to use the
Speaker 1: language of economics, a public good within the household. But
Speaker 1: you could also think about that as a consumption complementarity.
Speaker 1: You could talk about the fact that we only have
Speaker 1: to make one dinner each night. That's closer to a
Speaker 1: production complementarity.
Speaker 3: Washing machine one washing machine.
Speaker 1: Right, But overwhelmingly this is the shift that maybe we
Speaker 1: should think about modern families in terms of consumption complementarities. Now, this,
Speaker 1: by the way, explains some very simple things your grandmother
Speaker 1: probably told you when you were thinking about a partner.
Speaker 1: Opposites attract in a world of production complementary is you
Speaker 1: want to people with two very different skills, because they're
Speaker 1: going to specialize in very different things. Now, if you've noticed,
Speaker 1: even if your grandmother said opposites attract, I bet your
Speaker 1: mother didn't say that. And that's because under this new world,
Speaker 1: it's no longer opposite attract you want to find someone
Speaker 1: you want to spend time with, so it might be
Speaker 1: similar as attract and so you actually see a whole
Speaker 1: lot of that happening. The other thing that this helps
Speaker 1: me do and this is really and truly how I
Speaker 1: got into it. I am myself the child of divorce.
Speaker 1: It was one of my parents' divorcing was probably the
Speaker 1: most traumatic event of my life. It was violent, it
Speaker 1: was awful, it went to chord, It was all the
Speaker 1: bad things that can happen. And so sometimes in research
Speaker 1: we're trying to make sense of our own lives. Some
Speaker 1: people are deeply critical of that because they say, you
Speaker 1: can bring objectivity, but you can certainly bring passion. And
Speaker 1: so this research program helped me make sense of my life.
Speaker 1: And let me explain. My grandparents grew up in a
Speaker 1: Gary Becker life. Grandpa went to work, Grandma stayed at home.
Speaker 1: And so what happened was they, you know, Grandma went
Speaker 1: looking for someone who was a college graduate. Grandpa was
Speaker 1: cared more about her domestic skills. Grandma kept her close
Speaker 1: female friends. Grandpa socialized with his mates. So that was
Speaker 1: production complementaries. I want to I want to skip my
Speaker 1: mom's generation and come to me. I partnered with Betty,
Speaker 1: who is also a harbyd PhD labor economist, So we
Speaker 1: are exactly the same the exact Gary Becker would say
Speaker 1: we couldn't exist, there's no reason for it. But the
Speaker 1: reason is we like doing things together, so ours is
Speaker 1: a consumption complementarity pairing. Now I can make sense of
Speaker 1: my parents. My mom in the seventies was looking for
Speaker 1: the right partner. She thought she was in a production
Speaker 1: complementary as world. She married my father. They are very
Speaker 1: little in common with each other. They discover themselves in
Speaker 1: the middle of so many revolutions, a sexual revolution, the
Speaker 1: gender revolution, and so on, that all of a sudden,
Speaker 1: my mum can enter the workforce, she can be well paid,
Speaker 1: that discrimination against her is illegal, that she can work
Speaker 1: even though we need dishes washed because we have a dishwasher.
Speaker 1: So my parents discovered themselves with the wrong partners for
Speaker 1: the world they were actually in. Now I'm telling you
Speaker 1: this not because I want you to understand the Wolf's
Speaker 1: family in great detail, but in fact they described one
Speaker 1: of the most interesting time series here. See Divorce rates
Speaker 1: in the fifties and sixties were low. Divorce rates rose
Speaker 1: in the seventies and eighties, and a very underappreciated fact
Speaker 1: is divorce rates have fallen dramatically over the last thirty
Speaker 1: or forty years, and so this story helps us understand
Speaker 1: not just the Wolfer's family, but dramatic changes in patterns
Speaker 1: of whom may are and how long those marriages last,
Speaker 1: and who will get divorced in the form of those
Speaker 1: divorces and divorce rights over time and so on.
Speaker 2: I was just wondering whether the car had anything to
Speaker 2: do with us in the suburbs. The fact that, you know,
Speaker 2: earlier on people were like you know, in the cities,
Speaker 2: and so you could have your friend next door you
Speaker 2: don't have to hang out with your husband or wife
Speaker 2: or partner. But then when everybody moves to the suburb,
Speaker 2: it's not so easy to go next door and find
Speaker 2: somebody to hang out with. Also, you can philander as much. Right,
Speaker 2: you can't go to a local brothel if you're not
Speaker 2: coming together for physical reasons when you first marry. So
Speaker 2: you're saying people are much more selective when they get
Speaker 2: married to begin with.
Speaker 3: And that's that's changed. I mean, that's that's a big
Speaker 3: change over where we were. Yeah, yes, you.
Speaker 1: Know two other facts with noting people are getting married
Speaker 1: at much later ages, which means you'll often read statistics
Speaker 1: that say things like fertility is falling dramatically, But that's
Speaker 1: because what they're often doing is saying, how many babies
Speaker 1: have you had by age thirty five, whereas a lot
Speaker 1: of people haven't met their partner by age thirty five,
Speaker 1: and so what you have to look at it instead
Speaker 1: is terminal fertility, which these days is how many babies
Speaker 1: have you had by age forty five? And you don't
Speaker 1: have to wait till the cohort turns forty five. And
Speaker 1: it turns out, yes, fertility is falling, but much much
Speaker 1: less dramatically. And you see similar statistics around marriage. People
Speaker 1: say marriage rates are falling. No, a lot of what's
Speaker 1: happening his marriage has been delayed. Now that might sound radical,
Speaker 1: but it actually turns out if you go back to
Speaker 1: my grandmother's generation, they got married a lot later. It
Speaker 1: was sort of or maybe the generation before that, there
Speaker 1: was that sort of when everyone came home from the war,
Speaker 1: all they wanted to do was match straight away, and
Speaker 1: they all matched up at very very young ages. What's
Speaker 1: interesting about this is a lot of our political rhetoric around.
Speaker 1: You know, why haven't we returned to what's normal the
Speaker 1: nineteen sixties married or patterns were normal, But actually they
Speaker 1: were quite unusual. People were getting married at very very
Speaker 1: young ages. And it turns out, of course, one of
Speaker 1: the best predictors of divorce is aged marriage. I think
Speaker 1: it's pretty easy to understand how when I was twenty two,
Speaker 1: I didn't even know who I was, So how could
Speaker 1: I possibly find the best partner for me for future justin?
Speaker 1: I didn't know who future Justin was. So today what
Speaker 1: couples are doing is they're waiting till they find out
Speaker 1: who their early middle aged selves are. They're waiting till
Speaker 1: thirty five. At age thirty five, I knew a few
Speaker 1: things about myself, and so I was probably much better
Speaker 1: equipped to go searching for for just the one.
Speaker 2: Oh so this is really so is divorce. If you
Speaker 2: think if you take somebody, let's say it gets well.
Speaker 2: When you say divorce rates are coming down conditional and
Speaker 2: being married at let's say thirty, would you say the probabilities,
Speaker 2: you know, ten percentage points lower than was otherwise, I mean,
Speaker 2: any kind of quantitative number you can add to that.
Speaker 1: Are they not about thirty percent. Thirty percent, And you're
Speaker 1: now asking me to remember my own papers from many
Speaker 1: years ago, and believe it or don't you forget your
Speaker 1: own work. But I think the valves is down about
Speaker 1: thirty percent.
Speaker 2: So that's quite dramatic. Yeah, that's that's very interesting. Okay,
Speaker 2: give us a couple mores. Oh they you know, we
Speaker 2: could talk to you for about twenty hours, I think
Speaker 2: about you know, you just talked about just two papers
Speaker 2: out of probably one hundred that you've written, and learn
Speaker 2: taught me a whole lot just in listening for a
Speaker 2: few minutes.
Speaker 1: Let me describe two ano. There is just a whole
Speaker 1: research program on understanding subjective well being or happiness. So
Speaker 1: that got very trendy for a while. The problem was
Speaker 1: the people who had drawn to that field drawn to
Speaker 1: it because they thought that it would lead to dramatically
Speaker 1: different conclusions which would give them a great deal of importance.
Speaker 1: And when you're drawn to a field for reasons like that,
Speaker 1: you may not always see the truth as clearly as
Speaker 1: you otherwise might. And so what is the relationship between
Speaker 1: income and happy It's a very very old question in economics,
Speaker 1: and as of twenty years ago, The standard view was
Speaker 1: income makes you a little bit happier, but really what
Speaker 1: matters is being happier than the next guy, that relative, sorry,
Speaker 1: being richer than the next guy, that relative comparisons are
Speaker 1: what matters. That was something called the Easterlin paradox. Betsy
Speaker 1: and I wrote a series of papers which basically shows
Speaker 1: that number one most important stylized fact in that entire
Speaker 1: literature was just wrong. It turns out that within a country,
Speaker 1: at a point in time, richer people are happier than
Speaker 1: poorer people. Across countries, people in richer countries are on
Speaker 1: average happier than poorer people in poorer countries, and as
Speaker 1: countries get which are through time, people get happier. It
Speaker 1: turns out it's a delightfully boring thing. Turns out money
Speaker 1: helps who knew. It's not glamorous, it's not exciting, it's
Speaker 1: not good dinner party talk, but it's good social science. Right.
Speaker 1: Everyone liked all those other paradoxes. They're just not true.
Speaker 1: But what it does is, I think, really shapes a
Speaker 1: bunch of conversations. So some people say, oh, we shouldn't
Speaker 1: keep focusing on GDP, we should focus on happiness. It
Speaker 1: turns out the relationship between the two is so close
Speaker 1: that that's a remarkably uninteresting statement. The countries that are
Speaker 1: high on GDP are high unhappiness. So if you think
Speaker 1: we should be like Norway because of their happiness, fine,
Speaker 1: If you think we should be like Norway because of
Speaker 1: their GDP, fine, Like you get the same conclusions. So
Speaker 1: that was just a really interesting debate to be involved
Speaker 1: with one of the social scientists. So most I mean,
Speaker 1: I got to meet some amazing people through that Angusty
Speaker 1: was working in this field at the same time. Angus
Speaker 1: is one of the most serious empirical researchers we'll ever meet.
Speaker 1: And I remember giving papers in front of Angus and
Speaker 1: that he didn't turn me to shreds and think it
Speaker 1: was terrible is perhaps the highest praise I've ever received
Speaker 1: as an empirical economist. But actually, if I think about
Speaker 1: the economist.
Speaker 3: That Angus shares himself apart.
Speaker 1: So yeah, no, it's just the men's monstrously brilliant with
Speaker 1: monstrously high standards, and we all should have opportunities to
Speaker 1: have people like that in our lives. But the person
Speaker 1: the social scientist I really want to be when I
Speaker 1: grow up is Danny Carneman, who has now departed. But
Speaker 1: Danny was an important early player saying money didn't make
Speaker 1: you happier. And I remember Betsy and I wrote this paper,
Speaker 1: and Angus wrote his, and Danny said, I've changed my mind,
Speaker 1: which is the simplest but most profound sentence social science.
Speaker 1: I showed Danny data and he went from a story
Speaker 1: he's told in a thousand magazine articles and a hundred
Speaker 1: lectures and a dozen articles, he said, data is convincing.
Speaker 1: I've changed my mind. And look, I was a young
Speaker 1: lag at the time. I was very excited. I changed
Speaker 1: the mind of the great Danny Carneman. There's a different
Speaker 1: story there. Danny at the time was in his seventies
Speaker 1: to be able to be so open to evidence and
Speaker 1: so interested in understanding the truth, to see a bunch
Speaker 1: of regressions and scatter plots and so on, and just
Speaker 1: be like, I've changed my mind. I hope I can be.
Speaker 1: I hope I can be. That the human foiling on
Speaker 1: this is so deep. I have no great confidence I
Speaker 1: will be, But that's the aspiration.
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Speaker 3: Yeah.
Speaker 2: Danny Konoman is for everybody ages now deceeized psychologists who
Speaker 2: got the Nobel Prior is uh in economics for his
Speaker 2: work in economics the interface between economics and psychology behavioral economics,
Speaker 2: so he's a major figure in this field. Oh just
Speaker 2: quick question, are you how confident are you in measures
Speaker 2: of happiness? If you asked me how happy I am?
Speaker 3: Ye know. To quantify this for people.
Speaker 1: Let me be let me first of all give you
Speaker 1: a glibe answer and then I'll give you a real one.
Speaker 1: All right, how confident you in measures of GDP?
Speaker 3: That's a good one. Well, you don't have to answer,
Speaker 3: I think, do I think that point makes it so? Right?
Speaker 3: I think relatively yeah?
Speaker 1: Confident yeah, cross in cross national comparisons of GDP.
Speaker 2: I think if you you know, a lot of this
Speaker 2: is you know, we were just spent my weab and
Speaker 2: I just spent ten weeks in Europe, so we went
Speaker 2: through seven different countries, and so you look at Denmark,
Speaker 2: for example, and Holland, and you know, you think about
Speaker 2: their GDP differences per capita and you can see things
Speaker 2: that connect. We have so much more space and housing,
Speaker 2: you know, split footage.
Speaker 1: I'm not going to give up on this, So go ahead,
Speaker 1: let me get Let me make a different comparison, because
Speaker 1: it's actually really important one. And Angus Deaton made this
Speaker 1: the focus of his AA presidential address one year. We
Speaker 1: can look up on the internet how much rich of
Speaker 1: the United States is than Barundi, right, right, But the
Speaker 1: truth is the things that I buy has zero overlap
Speaker 1: with the things that people in Burundi buy. Yeah, as
Speaker 1: a matter of economic theory, if two people have completely
Speaker 1: different consumption sets, you can't say which one's better.
Speaker 3: True.
Speaker 1: Okay, So like people in Burundi might be eating a
Speaker 1: lot of grains, Well, a grain's fantastic or terrible, because
Speaker 1: if you judge them to be fantastic, people in Burundi
Speaker 1: are richer than us. If you judge them to be terrible,
Speaker 1: they're poorer than us. And if there's no overlap in
Speaker 1: the consumption set, this is literally a matter of economic theory, right,
Speaker 1: you cannot make the comparison. This was the point that
Speaker 1: Angus made many of the points. Let me give a
Speaker 1: different example that you know, well, I'm sure do you
Speaker 1: remember Nordhouse on the price of light?
Speaker 3: Uh no, I don't know where that wan?
Speaker 1: Go ahead, Oh, this is extraordinary. So Bill Nordhouse has
Speaker 1: tracked the price of light over time. And so it
Speaker 1: turns out, you know, one hundred and fifty years or
Speaker 1: two hundred years ago, people had candles around the house.
Speaker 1: The only way of reading at night was by candle. Now,
Speaker 1: in order to make a candle, what they had to
Speaker 1: do was find a whale and kill it and make
Speaker 1: a candle out of it. So one hours of one
Speaker 1: hour of light was extraordinarily expensive. Or before that you
Speaker 1: had to make a fire. People would spend their day
Speaker 1: finding firewood. Today light is almost is so cheap. LEDs
Speaker 1: are so efficient, and our energy production and so on.
Speaker 1: So if what we did is we looked at the
Speaker 1: quantity of light that people consume today. I keep my
Speaker 1: lights on all the time, and we used the prices
Speaker 1: from the past, you would say we're unimaginably rich right now.
Speaker 1: If you use the prices from the present, you would say,
Speaker 1: we're only a little bit richer right now. Which is it?
Speaker 1: There are puzzles like that everywhere. There was a famous
Speaker 1: example if you look at the old front page of
Speaker 1: an old radio shack. Radio shack was an electronic store,
Speaker 1: and the front page had a GPS for sale for
Speaker 1: one thousand dollars, a fax machine for sale for two
Speaker 1: thousand dollars, walkie talkies for two hundred dollars. That literally,
Speaker 1: a telephone for the wall for one hundred dollars, and
Speaker 1: on and on it goes. The joke, a compass for
Speaker 1: forty dollars. The joke, of course, is that everything that
Speaker 1: was on the front page of that Radio Shack ad
Speaker 1: which if you added up the prices like ten or
Speaker 1: twenty thousand dollars, every single one of them is inside
Speaker 1: your iPhone, And so should you therefore say that the
Speaker 1: price we all now are so rich we all can
Speaker 1: achieve everything that was inside the Radio Shack catalog. If
Speaker 1: you say yes, you know this is for the more
Speaker 1: technically minded economists like Larry. This is just how do
Speaker 1: you price new goods?
Speaker 3: Right? So it's difficult, but it's not that you know.
Speaker 2: We shouldn't leave anybody with the impression that the Bureau
Speaker 2: of Labor Statistics doesn't try and deal with those through
Speaker 2: time through.
Speaker 1: There are less bad ways of doing this. Absolutely, there's
Speaker 1: less bad, and we should stand up for our friends
Speaker 1: who are coming up with the less bad ways of
Speaker 1: doing it. This all started because you said how much
Speaker 1: do you trust happiness date? And I said how much
Speaker 1: do you trust GDP data? And I wanted to make
Speaker 1: it clear that anyone's faith in GDP data rests along
Speaker 1: a whole bunch of assumptions that are incredibly tenuous. People
Speaker 1: often say to me, oh, the problem with happiness data
Speaker 1: is it's all self reports, to which my response was
Speaker 1: how do they measure unemployment? The answer is they ask people.
Speaker 1: They asked some bunch of questions.
Speaker 3: Okay, so you're pretty okay, I've come around with it.
Speaker 1: I'm not saying it's good. I'm saying let's give all
Speaker 1: economic statistics the same degree of scrutiny.
Speaker 3: Fair enough, Okay, that's a good response.
Speaker 2: Tell us about the other piece that you want to
Speaker 2: the other line of research you want to talk about.
Speaker 1: Yeah, I'm going to surprise you. It's not research, but
Speaker 1: I'm super proud of it. So Betsy Stevenson and I
Speaker 1: about ten years ago, no six years ago, published the
Speaker 1: first ever edition of our textbook called Principles of Economics.
Speaker 1: And you might say, how on earth could anyone be
Speaker 1: proud of publishing a textbook. You're just taking everyone else's
Speaker 1: known economics, and you're putting it between two covers, and
Speaker 1: it's read by a bunch of eighteen year olds. What's
Speaker 1: the matter with you? I think this will be the
Speaker 1: most influential thing I've ever done in my life. Paul
Speaker 1: Samuelson once famously said, I don't care who writes the
Speaker 1: nation's laws if I can write its textbooks. We know
Speaker 1: the old Canes quote you might know it better than me.
Speaker 1: That you know in the back of the mind of
Speaker 1: any politician is the scribblings of some madman economist. Economics
Speaker 1: ideas have intensely powerful effects on how people view and
Speaker 1: think of the world, and I get to be the
Speaker 1: person who serves it up on the dish for them
Speaker 1: the first time. And we've done a lot in the
Speaker 1: textbook one to represent modern economics in all its beauty.
Speaker 1: Remember we started this discussion today talking about how economics
Speaker 1: has become broader and that it means that economics is
Speaker 1: more useful for more people. Two a point that you made, Larry,
Speaker 1: which is economics as useful. The earlier generation of textbooks
Speaker 1: would all say things like and in equilibrium, the rational
Speaker 1: agent will choose to buy three hot dogs, which is
Speaker 1: much less useful than saying if you need to think
Speaker 1: about the future, here's a framework for doing so. And
Speaker 1: we're taking big steps in that direction. I'm going to
Speaker 1: tell you something I'm proud of, and you might think
Speaker 1: it's the smallest thing in the world. We moved. We
Speaker 1: were with the first economics textbook to talk about to
Speaker 1: remove gendered pronouns, not because I'm a gendered numb, but
Speaker 1: because everyone else used to always talk about heat, like
Speaker 1: all textbooks were written about Billy is going to do this?
Speaker 1: What will he do next? Or it would be like
Speaker 1: what's going on with the mutual fund? Or Billy's going
Speaker 1: to go and play golf. I'm like half the population
Speaker 1: was missing, and not just half, because golf, by the way,
Speaker 1: is not a sport played by working class families. And
Speaker 1: so what I love economics I want to bring you.
Speaker 1: I want to make it on to animate its excitement
Speaker 1: for everyone. And that textbook, which is an ongoing work
Speaker 1: in progress, we revise it constantly. That's me trying to
Speaker 1: share the beautiful gift I was given as a student,
Speaker 1: was this intensely powerful set of tools, and it's my
Speaker 1: attempt to share it with the world. And maybe on
Speaker 1: the outside it looks the same as other textbooks to you,
Speaker 1: but I'm going to tell you there's an element of
Speaker 1: love and thoughts.
Speaker 2: It's winning in the marketplace, right, So there's a revealed preference.
Speaker 3: And you were saying in a recent.
Speaker 2: Edition of Platypus the Economics, which is your substack, which
Speaker 2: everybody again should sign up for and go to that
Speaker 2: there are more I guess by a significant marginal female
Speaker 2: college students than male college students.
Speaker 3: Veterinary classes.
Speaker 2: I think probably eighty five percent female medical school law schools.
Speaker 3: Majority of these professional schools are female.
Speaker 2: Maybe it's not so much yet in in physics or mathematics,
Speaker 2: but that may be changing too.
Speaker 1: Getting closer, getting closer to parents.
Speaker 2: Now and the share of the workforce today, the job
Speaker 2: growth has been such it's.
Speaker 3: Been kind of heavily oriented in the.
Speaker 2: Area of health, in particular, where females have a disproportionate
Speaker 2: role as nurses and also as physicians, because they're again
Speaker 2: more graduating female doctors and male doctors at this point.
Speaker 2: So is our economy becoming Are the males specializing in
Speaker 2: the braun activities and the females the brain activities?
Speaker 3: Is that how you see things?
Speaker 1: So we want to be careful not to be two
Speaker 1: course about it. But yes, so you know this isn't
Speaker 1: all just economics, right, So what is masculinity? What does
Speaker 1: a man look like? And what does a man do?
Speaker 1: Every time you meet a man who says he's a nurse,
Speaker 1: do you think to yourself it's a bit unusual. If so,
Speaker 1: then these ideas that they're a male and female codded
Speaker 1: jobs is central. I think it's really interesting because a
Speaker 1: lot of the rhetoric when he is out of the
Speaker 1: current administration is about trying to get the return of
Speaker 1: the sorts of jobs that were for big buffy blokes. Right.
Speaker 1: They're all about manufacturing and factories and steel toed boots
Speaker 1: and lunch pails and constructions. Okay, and mining is really good,
Speaker 1: you know, mining, coal mining in the United States, I
Speaker 1: think employs fewer people than target, but the president is
Speaker 1: out there trying to keep more coal mines open. So historically,
Speaker 1: you know, the question is where do people go. Historically
Speaker 1: there were occupations that required braun. Those occupations would be
Speaker 1: more likely to draw men than women. It's also the
Speaker 1: case that braun plays a much smaller role in our
Speaker 1: economy than that ever used to. Right. It used to
Speaker 1: be the fact that in order to be a farmer
Speaker 1: you had to go out there and hoe the soil
Speaker 1: and then plant your own seeds, and it was very
Speaker 1: difficult physical labe, you'd shot your own sheep. You you know,
Speaker 1: a lot of it.
Speaker 3: And so do you think we have like a crisis
Speaker 3: in male you know, in educating males? I mean, is this.
Speaker 2: Is this sympt simple symptom, as you know, is this
Speaker 2: suggestive of some problem that we need to address in
Speaker 2: training in Uh why why are males slipping behind?
Speaker 3: I guess is the.
Speaker 1: I want to be careful, to be thoughtful about this.
Speaker 1: I do think that there's a crisis. I think we're
Speaker 1: in a world where now where sixty percent of college
Speaker 1: spots are taken by women and forty percent by men,
Speaker 1: and we think the college is one of the most
Speaker 1: important pathways to a successful career.
Speaker 2: It's really sixty forty. Now, that's amazing, that's Astonishedhi, sixty forty.
Speaker 3: Well, I mean.
Speaker 1: Someone will correct me and say fifty eight forty two
Speaker 1: or something, but you know, roughly roughly sixty forty.
Speaker 3: I thought that was just in the elite schools, but
Speaker 3: now it's really everywhere.
Speaker 1: Okay, we can check. So young men today are not
Speaker 1: equipping themselves for the future. I think that's sort of
Speaker 1: an observation I want. The reason I want to be
Speaker 1: careful is, you know, there's also sort of a men's
Speaker 1: rights movement, which is all about let's reclaim the nineteen sixties,
Speaker 1: where masculinity was ascend and femininity was subservient. And that's
Speaker 1: not the claim I'm making at all. It's simply that
Speaker 1: in today's economy, men seem to be struggling in important ways.
Speaker 1: It is still the case that the gender wage gap
Speaker 1: is men out earned women in otherwise similar with otherwise
Speaker 1: similar qualifications. So again I don't want to overstate the case.
Speaker 1: I think there has not been enough work on this question.
Speaker 1: I think part of it is it's such a difficult
Speaker 1: ethical mind field. It's no one wants to be perceived
Speaker 1: as sexist, but recognizing that there are differences by gender
Speaker 1: is in fact just a reality. I have been struck,
Speaker 1: for instance, what is going to happen? And the question
Speaker 1: I started asking this question some time ago, I could
Speaker 1: never get a graduate student to go and work on it.
Speaker 1: In a world in which women overwhelmingly have college degrees
Speaker 1: and men don't, and most people are heterosexual, are these
Speaker 1: women going to partner down? If they're not going to,
Speaker 1: then what's the future of the family look like it's
Speaker 1: And then also the future of the workforce. So I
Speaker 1: think these are really foundational questions that remain remarkably under answered.
Speaker 1: But I think you know, there are people like Richard
Speaker 1: Reeves now who are willing to say it looks like
Speaker 1: there's a crisis with men and boys, and you can
Speaker 1: decide whether you want to use the word crisis or not.
Speaker 1: For my own two cents, based on not enough research
Speaker 1: but a little bit of introspection, I think there may
Speaker 1: well be a crisis of masculinity. What does it mean
Speaker 1: to be a man? What are models of masculinity that
Speaker 1: work for the twenty first century? Like, look at us, Larry,
Speaker 1: We're two blokes talking about our feelings. Isn't that amazing?
Speaker 1: But would our dads have been able to do this?
Speaker 1: And if they couldn't, they probably wouldn't be well suited
Speaker 1: for the sorts of office jobs coming up in the future.
Speaker 1: And so one of the reasons I embraced your question
Speaker 1: just now while being careful, was I do think modestly
Speaker 1: successful men should speak out loud about what different models
Speaker 1: of masculinity might look like. I'm wearing a pink shirt.
Speaker 1: It's okay, I'll live. I tell my son I love him,
Speaker 1: It's okay. I'm in a care occupation. You and I
Speaker 1: might not think about our jobs as a care occupation,
Speaker 1: but you see the eighteen year old walk into your
Speaker 1: office and they're full of hope and they want to
Speaker 1: do well in the future, and they're not quite sure
Speaker 1: what they need to do. That's a care occupation, and
Speaker 1: that's okay.
Speaker 2: Real men care, So suggest you care and you care
Speaker 2: about the future of this country. Let's close with your
Speaker 2: sense of where things are going, not just nationally, but
Speaker 2: you you know, geopolitically. We're in the middle of a
Speaker 2: renewed conflict here with Iran. It seems like, you know,
Speaker 2: we've got AI coming on big time. On the other hand,
Speaker 2: a lot of people like me think it's scability over
Speaker 2: riped and that the market's going to potentially crash. With
Speaker 2: forty five percent of the stock market connected to AI.
Speaker 2: That could plus the war, plus the price of oil,
Speaker 2: plus the impact on plus the impact on interest rates.
Speaker 2: I see the perfect economic storm coming. I just posted
Speaker 2: a blog on that. What's your view and what's your
Speaker 2: view of Margat and the Trump administration? Have they achieved
Speaker 2: anything of value? But also, how do you view where
Speaker 2: we're going to be a year or two from now?
Speaker 1: Yep? Could I I'm going to look beyond a year
Speaker 1: or two because that's the less interesting question. The more
Speaker 1: interesting question is a decade or two. I think you'll
Speaker 1: concur so one. I don't know if we're on different
Speaker 1: sides of this, but I believe that AI is going
Speaker 1: to be a tremendously transformative technology, and that means there's
Speaker 1: likely going to be some very anytime there's a lot
Speaker 1: of change, there's some big bumps in the road, and
Speaker 1: I'm deeply disappointed that we're not spent we as a
Speaker 1: as economists, as a society, in policy circles, are not
Speaker 1: spending more time talking about AI. I think it's a
Speaker 1: profound misallocation problem. I go to conferences and there are
Speaker 1: young economists in conference rooms fighting over the standard eras
Speaker 1: of their paper that's about something no one cares about,
Speaker 1: and the labor market's about to transform in front of
Speaker 1: their eyes. So I'd like to blow the whistle and say, hey,
Speaker 1: could you all look over there for a moment. Secondly,
Speaker 1: you raise sort of a very a set of provocations.
Speaker 1: We're in the middle of a maga moment. What does
Speaker 1: all that mean? And it's very easy for me to
Speaker 1: get political, and I have politics and I have feelings,
Speaker 1: but I'm going to try and be analytic instep. I
Speaker 1: think much of our commentary about the current moment misses
Speaker 1: the stakes and misses the important stuff. So the president
Speaker 1: says something stupid, the reflecting pool's got too much algie.
Speaker 1: All of that's just it's noise. But what we should
Speaker 1: notice is when we look across countries, what makes some
Speaker 1: countries rich and other countries poor is the quality of
Speaker 1: their economic, political, social, and legal institutions. The United States
Speaker 1: is one of the richest countries in the world, probably
Speaker 1: because our set of institutions are in the set that
Speaker 1: create enormous prosperity. The country of my birth, Papua New Guinea,
Speaker 1: is one of the poorest countries of the world, and
Speaker 1: it has terrible institutions. So therefore, if you were to
Speaker 1: think which of those countries should take a bet on
Speaker 1: knocking out its existing in institutional structure and going for
Speaker 1: something new, there's a pretty compelling case that Papua New
Speaker 1: Guinea should, and an absolutely terrible case that the institutional
Speaker 1: structure that's created the most prosperous country in the history
Speaker 1: of the world is the one we should be attacking.
Speaker 1: And if you look at the parts of our current
Speaker 1: news cycles that are going to persist beyond next week,
Speaker 1: it is the undermining of the institutional structures. It's January sixth.
Speaker 1: I'm saying it's not as a political statement, but as
Speaker 1: an economic statement. If we start walking away from democracy,
Speaker 1: that's what countries like Argentina did and it didn't turn
Speaker 1: out well for them. It's a tax on the Federal
Speaker 1: Reserve Board, it's a tax on the Bureau of Labor Statistics.
Speaker 1: It's walking away from trade and the rest of the world.
Speaker 1: It's a tax on immigration, which has been I think
Speaker 1: one of the foundational sources of innovation in this country.
Speaker 1: It's a tax on higher education, which is one of
Speaker 1: our most successful possible exports. Those are the things that
Speaker 1: I worry about, and I you know, I might be wrong,
Speaker 1: but I think that's where we economists actually have something
Speaker 1: important to say, which is we should defend the quality
Speaker 1: of our institutions as if our prosperity depends upon it.
Speaker 1: Because it does. And then what I hate to do
Speaker 1: is end non misery and despair. Because a few other
Speaker 1: facts are true. Life expectancy today is the highest it's
Speaker 1: ever been in the United States. We lose fewer children
Speaker 1: in childbirth than we ever have, the whicide rates at
Speaker 1: its lowest rate in generations. You and I are right
Speaker 1: now today, living this day in the richest country in
Speaker 1: the history of the world, at the richest moment in
Speaker 1: the history of the world. So I don't want to
Speaker 1: be a doom and glamor. I want to recognize all
Speaker 1: the magnificent, the intense privilege we're born with. Recognizing that
Speaker 1: privilege makes me treasure it. That in turn makes me
Speaker 1: think hard about those institutions. So I want to celebrate
Speaker 1: what's great as the first defense for why not to
Speaker 1: tear it down. So I want to always be a
Speaker 1: happy worry or. I want to smile, and I want
Speaker 1: to appeal to our better angels, partly because it's the
Speaker 1: only way I sleep, but also because I think that's
Speaker 1: actually who we are as humans.
Speaker 2: Well, I think that's a good note to end on.
Speaker 2: It's optimistic as well as scary.
Speaker 1: So let's hold on to the optimism.
Speaker 2: Let's all on to the optimism justin Thanks Emilian for
Speaker 2: coming on, and I hope to have you back. Truly,
Speaker 2: I think we learned a lot and lots of different
Speaker 2: You have a very fresh perspective on lots of different topics.
Speaker 2: Everybody should definitely go and check out Platypus Economics and
Speaker 2: I'm not quite sure where that title came from.
Speaker 3: Platypus economics.
Speaker 1: I have a story for you, if you've got one
Speaker 1: minute for it.
Speaker 3: We had one minute, sure.
Speaker 1: So platypus is from Australia. Beautiful low creature. But here's
Speaker 1: the thing. When the Brits first discovered a platypus, they
Speaker 1: looked at this thing with a duck bill and a
Speaker 1: beaver tail and sort of duck feet, and they didn't
Speaker 1: know what to do with it. So the first thing
Speaker 1: they did is they literally cut it up because they
Speaker 1: thought someone had faked it. They thought it had been
Speaker 1: stitched together. They didn't think that this animal that was
Speaker 1: a mammal that can lay eggs could be real. And
Speaker 1: I think there's a deep economic story here, which is
Speaker 1: they had their models of how the world worked, and
Speaker 1: they were so rigidly attached to their models of how
Speaker 1: the world worked they refuse to recognize the reality sitting
Speaker 1: there right in front of them, which is, it is
Speaker 1: possible to be a mammal that lays eggs, that has
Speaker 1: a venomous spur, that has a secret sixth sense, that
Speaker 1: has a duck bill and a beavertail. And I would
Speaker 1: like more of us to recognize the platypus sitting in
Speaker 1: front of us, and be ability to walk away from
Speaker 1: the model when the model's wrong.
Speaker 2: That's great, Okay, thank you and we will be back
Speaker 2: in touch.