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Speaker 1: If I fart in an elevator, that's a negative externality.

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Speaker 1: It harms you. If it's I grow beautiful flowers in

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Speaker 1: my front yard, that's something that helps you. That's a

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Speaker 1: positive externality. The work week maybe over bit. The economy,

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Speaker 1: it never takes time off. I'm justin Wolfer's and this

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Speaker 1: is Off the Clock, the show where we unwind and

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Speaker 1: rewind the week's economic years. I'm back once again with

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Speaker 1: my friend and my favorite economics journalist in the world,

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Speaker 1: Stacy Vanoxsmith.

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Speaker 2: I'm really thrilled to be here once again, justin It's

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Speaker 2: always very wonderful to talk with you, and I am

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Speaker 2: a columnist of Bloomberg Business Week and co host of

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Speaker 2: the podcast Everybody's Business, and thrilled to be here.

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Speaker 1: I just love the fact you said very wonderful, like wonderful,

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Speaker 1: needed and intensifier.

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Speaker 3: Yeah it did. It's great to take live in an

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Speaker 3: age of superlatives.

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Speaker 1: Our job, our magnif job, is to pick through the

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Speaker 1: recent economic news. We want to tell you one of

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Speaker 1: the things you should actually be concerned about, what you

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Speaker 1: can safely ignore in these days. There's a lot of that,

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Speaker 1: and maybe we can help you find some silver linings

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Speaker 1: along the way too, Stacy. We've got a few big

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Speaker 1: stories to talk about. So first up, we're going to

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Speaker 1: check in on the latest news out of a Ran.

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Speaker 1: I'm going to stop sounding so happy when we talk

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Speaker 1: about that. I'm just happy to see you. We're also

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Speaker 1: going to discuss what it means for both inflation and

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Speaker 1: you taught me in your word today skimpflation. Then we're

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Speaker 1: going to talk briefly, Stacy, I heard you coughing a

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Speaker 1: little before. We're going to talk about the terrible air

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Speaker 1: quality afflicting the country right now. But unlike any other show,

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Speaker 1: we're not here to measure it with an index. We're

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Speaker 1: here to explore the economics underneath it all. Finally, we're

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Speaker 1: going to close out with some good news, because good

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Speaker 1: news always wins.

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Speaker 2: Yes, I'm especially excited about the good news this week,

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Speaker 2: especially since I can't go outside because the air is

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Speaker 2: so bad. But always good to end with the silver lining.

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Speaker 2: Very happy to be here, and let's jump in. Okay,

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Speaker 2: justin Iran big news of the week, the big global

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Speaker 2: news of the week, there was a ceasefire.

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Speaker 3: It was starting to look like things.

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Speaker 2: Were on the road towards peace. There wasn't actually a deal,

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Speaker 2: but it seemed like we were headed towards a deal.

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Speaker 2: Now it does not seem like we're headed towards a deal.

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Speaker 3: The straight of.

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Speaker 2: Horror moves once again closed, and their attacks seemed to

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Speaker 2: be escalating. And of course for you and me, this

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Speaker 2: means probably higher oil prices, higher gas prices. But I

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Speaker 2: would love to hear as an economist, when you hear

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Speaker 2: this news that the straight of horror moves is once

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Speaker 2: again closed and there's not an end to this conflict insite, like,

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Speaker 2: what what do you hear?

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Speaker 3: What's your take on this?

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Speaker 1: Yeah, so look extraordinary weak at some level, you know.

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Speaker 1: So phase one of this, we tried bombs and bragging.

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Speaker 1: The president discovered that wasn't going to work.

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Speaker 3: Feez. One, that was our bombs and bragging era.

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Speaker 1: Yeah, so then we went to let's try a ceasefire.

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Speaker 1: We have a lot to talk about about the ceasefire.

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Speaker 1: But the President decided that wouldn't work, so he decided

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Speaker 1: to go to bombs and bragging. And the current US

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Speaker 1: started like posture in this war is it didn't work

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Speaker 1: the first time, so let's try it the second time.

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Speaker 1: There's literally nothing different In fact, I suspect Sacy. Right now,

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Speaker 1: you and I can just turn off our microphones. We

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Speaker 1: could replay this show from a few weeks ago. And

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Speaker 1: there's no part of me that's joking, because analytically nothing

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Speaker 1: is different. It's it's it's bombs bragging. I forgot the

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Speaker 1: third bat blockade, bomb brag blockade. We tried. It turns

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Speaker 1: out we could blockade a run. They can still blockade

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Speaker 1: the straight Uphis. We tried making peace. We'll talk about

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Speaker 1: how hot, and then we're literally back to Boem's blockade bragging.

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Speaker 1: If at first you don't succeed, try try again. I

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Speaker 1: guess it's the president's view, but isn't this some amazing

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Speaker 1: quiet about if you keep trying something? Eiver and I

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Speaker 1: have aye the crazy one. What's that question?

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Speaker 3: Is Einstein's definition of insanity?

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Speaker 2: People who I think do the same thing over and

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Speaker 2: over expecting a different result. I actually think in this case,

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Speaker 2: Iran kind of called the president's bluff a little bit.

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Speaker 2: I mean, remember early on there was all of that,

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Speaker 2: like really terrifying tough talk about bombing Iran back to

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Speaker 2: the Stone Age. I think, quite mercifully, the president did

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Speaker 2: not have the stomach for that or the will or

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Speaker 2: for whatever reason didn't do that. But then also I

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Speaker 2: think Iran is like not eager to make peace, and it's.

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Speaker 3: Kind of calling the president's bluff. And now we're in this,

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Speaker 3: they call it. What does it? Nacho? Never again? Can

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Speaker 3: Hormuz open? Now we're in.

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Speaker 2: Nacho territory? Oh yeah, nacho, We're in a nacho world. Well,

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Speaker 2: I'm amazed that I can actually teach teach you something

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Speaker 2: justin for a change. Oh, I wish it were more

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Speaker 2: sophisticated than nacho.

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Speaker 3: But but I'll take it.

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Speaker 1: I you know, honestly, Stacy, we don't have good Mexican

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Speaker 1: food in Australia. It's true. It's like France that way.

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Speaker 1: Can you believe.

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Speaker 2: The tacos and nachos is new to you?

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Speaker 1: Yeah, totally new. You melt the cheese. Okay. So I

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Speaker 1: actually want to come back to the ceasefire because I

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Speaker 1: think that's where everything went wrong. The I think the

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Speaker 1: reporting on this has been unusual and unusually bad, which

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Speaker 1: was the ceasefire was never there never was a deal.

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Speaker 1: There never was an agreement. And once you understood that

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Speaker 1: that we would fail to stick to a deal that

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Speaker 1: we hadn't struck no longer seems so surprising. So what

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Speaker 1: there was was an agreement that we wanted to reach

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Speaker 1: an agreement with her. Literally, it was a memory of understanding,

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Speaker 1: memory and of understanding that we want to get to

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Speaker 1: an agreement so that we don't bomb the crap out

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Speaker 1: of each other. But we haven't actually agreed about any

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Speaker 1: of the issues in particularly nuclear material, the straight up

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Speaker 1: on mows where there'll be tolls. They never agreed on

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Speaker 1: any of the issues that they went to war about.

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Speaker 1: They just agreed that they wanted to agree that there'd

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Speaker 1: be an agreement.

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Speaker 3: Now just a start, which is a start?

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Speaker 1: I don't know, like Stacy, I have a lot of

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Speaker 1: relationships with different people. I have won with you. I

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Speaker 1: never look you, and I don't actually have a formal

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Speaker 1: memory memorandum of understanding that we agree that we want

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Speaker 1: to get along in the future.

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Speaker 3: I just think it's a better way unwritten.

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Speaker 1: Right. So they wrote it, and Stacy, I hereby in

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Speaker 1: front of our entire platypus audience, state that I hope

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Speaker 1: that in the future we can find a way to

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Speaker 1: continue to be friends.

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Speaker 2: I accept this agreement to agree.

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Speaker 1: Right, but we haven't figured out what we're going to

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Speaker 1: do about those annoying habits you have that make me

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Speaker 1: and so look, the point is, first all, there wasn't

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Speaker 1: a deal. There was the rhetoric of a deal. The

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Speaker 1: second thing coming out is we've seen this movie before,

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Speaker 1: because you and I saw the trade wars and the

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Speaker 1: trade wars the president kept the clearing a deal. If

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Speaker 1: you actually went looking for paperwork, like have you struck

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Speaker 1: a deal, you would never find it. There were It's

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Speaker 1: a very complicated thing. How do you count deals? Because

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Speaker 1: the thing is if you call it an agreement to

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Speaker 1: agree that you haven't agreed upon the actual things you

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Speaker 1: agree that you want to agree on, then you could

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Speaker 1: call it deals. But basically nothing really happened. Now, this,

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Speaker 1: by the way, does suggest a way out for a

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Speaker 1: run if it wants to take it, which is what

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Speaker 1: Brits did during the trade war. What a bunch of

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Speaker 1: what the Japanese did is they walked into a meeting

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Speaker 1: with the present and they walked out and let him

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Speaker 1: brag and he said, I've got a deal. The word

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Speaker 1: deal feels very important, and then he would just make

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Speaker 1: things up. It's a you are going to give me

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Speaker 1: a trillion dollars. I think that's what he said. With Japan,

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Speaker 1: maybe it wasn't a trillion, it was some unbelievable number,

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Speaker 1: and then the Japanese problemnists have just stood there and

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Speaker 1: then nothing ever happened.

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Speaker 2: So there's been a lot of back and forth, but

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Speaker 2: like you say, no real progress. It just sort of

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Speaker 2: seems like we've been stuck for months.

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Speaker 1: Now.

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Speaker 2: What does this mean for markets, for the economy, for

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Speaker 2: us trying to take our road trips this summer.

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Speaker 1: Yeah, so the stuck part I think is actually really

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Speaker 1: descriptive and really important. Their stacey. So it's earlier on.

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Speaker 1: In some sense, the biggest concern about Iran was the

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Speaker 1: intensity of the war. What was the US going to do?

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Speaker 1: How much damage were we going to take? How much

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Speaker 1: damage was going to be done in I run, how

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Speaker 1: much damage was going to be done in the region.

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Speaker 1: The news that we've learned over the past couple of

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Speaker 1: weeks it's not about intensity, it's about duration. It's that

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Speaker 1: both sides are roughly out of ideas. The President has

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Speaker 1: literally re implemented Phase one as phase two. It's that

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Speaker 1: their agreement to agree to an agreement that they hope

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Speaker 1: is agreeable was not actually an agreement, and there was

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Speaker 1: very little that they agreed on, which means basically, on

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Speaker 1: the core issues, not particularly closer today than they were

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Speaker 1: at the beginning of the war. All of which seems

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Speaker 1: to say, yes, it's possible on any given day one

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Speaker 1: side or the other will wake up and realize we

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Speaker 1: need a breakthrough and offer something meaningful. But at the

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Speaker 1: moment we're having a whole lot of days where we're

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Speaker 1: waking up and nothing's moving forward, and it raises the

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Speaker 1: prospect that this will instead of being a six week

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Speaker 1: war where now it's several months, it'll likely be a

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Speaker 1: six month war. But I think this question of duration

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Speaker 1: now is really important. Is this going to be a

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Speaker 1: six year war? And the economic consequence of that you

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Speaker 1: can see in futures markets, which is in oil futures markets,

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Speaker 1: people are betting on what will oil prices be in

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Speaker 1: the future. Early on in the war, people were mostly

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Speaker 1: betting about what's going to happen to the oil price today,

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Speaker 1: next month, the month after. Now they're betting a lot

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Speaker 1: further out. Our oil price is going to remain high,

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Speaker 1: presumably under the view that the strait of a laws

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Speaker 1: remains closed or on and off, or alternatively, they're worried

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Speaker 1: that there might be other reasons for friction in the

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Speaker 1: region right now, and so it's already clear, according to

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Speaker 1: futures markets, that oil prices are going to be high

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Speaker 1: in the midterms. They'll likely be even behind higher than

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Speaker 1: they otherwise be during the twenty twenty eight presidential election,

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Speaker 1: and they may stay higher for quite some time.

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Speaker 2: It's interesting, by the way, that you should mention futures markets,

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Speaker 2: because we did make a bet not all that long ago,

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Speaker 2: a couple of months ago on manifold markets, which is

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Speaker 2: kind of like call g and polymarket, except no money

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Speaker 2: is involved, about where gas prices would be. Dozens of

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Speaker 2: people have waited in justin and people should check it out.

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Speaker 2: Manifold markets will national gas prices in the US reach

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Speaker 2: I believe I maybe you were quite optimistic. I was

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Speaker 2: more pessimistic, and I'm a little sorry to say that

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Speaker 2: I am winning, because it's bad for the country and

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Speaker 2: bad for all of us, but I guess good for

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Speaker 2: my pride.

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Speaker 3: Anyway.

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Speaker 1: I haven't seen this side of you before. Stacy gloating

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Speaker 1: Stacy gloating Stacy.

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Speaker 3: She's not pretty, but.

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Speaker 1: You bring a certain charm to everything, Stacy, but gloating Stacy.

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Speaker 1: Just to remind people, I bet that gas would be

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Speaker 1: down to three sixty by election day. And during that

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Speaker 1: glorious ceasefire, that long and glorious, beautiful ceasefire, when the

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Speaker 1: two countries had come to a lasting piece that lasted

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Speaker 1: up to a week and a half, I was feeling

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Speaker 1: a bit better about my bet. But Stacy, what's gas

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Speaker 1: prices right now?

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Speaker 3: Look?

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Speaker 2: But here is the thing, justin I think the President

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Speaker 2: may pull some strings to make sure that you win

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Speaker 2: this bet.

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Speaker 1: I've actually had a chat to the teleprompter guy and

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Speaker 1: I asked him to have the President say some very positive.

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Speaker 2: It's my favorite story of the week, the fact that,

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Speaker 2: so I don't know if people haven't heard, the guy

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Speaker 2: who operates the teleprompter at the White House has been

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Speaker 2: accused of making bets on calls about what's going to

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Speaker 2: be in the speech.

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Speaker 3: I just there's something.

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Speaker 2: Really charming about I'm like a little bit I know

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Speaker 2: it's totally dishonest, but I'm a little bit team telepromptery.

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Speaker 1: My favorite part, and I can do a live action

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Speaker 1: recreation of it right now, is apparently so say the

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Speaker 1: bit was where the President was going to say the

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Speaker 1: word platypus, right, and so teleprompter guy knows where the

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Speaker 1: word platypus is in the thing. But it turns out

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Speaker 1: the president doesn't know. This will surprise you, the evidence.

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Speaker 1: The president doesn't always follow he's teleprompter.

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Speaker 3: Well, that's true, that is true. There's a little bit

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Speaker 3: of a yes.

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Speaker 1: So sometimes teleprompter guy would be there and the President

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Speaker 1: gets up to the platypus paragraph and he'd skip it. Yeah,

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Speaker 1: did you know what the teleprompter guy would do. He'd

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Speaker 1: pull out his phone and undo reverse his bit.

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Speaker 3: So I just want you want to say it like

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Speaker 3: a broadcast delay.

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Speaker 1: He is like the prison's giving a speech and his

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Speaker 1: job is to move the words up and down the page.

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Speaker 1: And he's doing that with one hand. He's got his

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Speaker 1: phone out with the other.

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Speaker 2: And I just love to say, all we have a

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Speaker 2: our side hustles in this economy, and I.

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Speaker 1: Just want to found the dollars that Stacy Vannick Smith

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Speaker 1: would say side hustle.

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Speaker 3: Uh, well, I mean, you know you're leaving money on

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Speaker 3: the table.

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Speaker 1: On the subject of money on the.

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Speaker 2: Tape nine cents according to Triple A, Well.

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Speaker 1: I'm twenty nine cents away from being right.

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Speaker 3: That's true, that's one way to look at it.

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Speaker 2: But he'd actually, it makes me sad because we dig

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Speaker 2: some inflation numbers earlier this week, and they were looking good.

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Speaker 2: I mean it was I think three point five percent

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Speaker 2: prices rising on average crist to Kinomy three point five percent,

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Speaker 2: which is a lot higher than the two percent we want.

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Speaker 3: But it was moving in the right direction.

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Speaker 1: Yeah, And more than that, it was less than everyone expected.

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Speaker 1: So there's a sense that we sort of Inflation generally

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Speaker 1: tends to be pretty predictable. Once it gets a bit

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Speaker 1: of momentum, it just keeps on moving, and so surprises

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Speaker 1: are pretty unusual, and this was a pretty serious surprise. Now, look,

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Speaker 1: I want to separate a few things out. One, when

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Speaker 1: you said inflation's three and a half percent, down from

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Speaker 1: four point two percent, Visseral, that's a huge jump. But

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Speaker 1: realized that's what we call headline inflation. Headline inflation includes

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Speaker 1: energy prices, and it turns out energy prices actually fell

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Speaker 1: last month. And you might be saying, way, it doesn't

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Speaker 1: feel like there's low inflation. That's right. Remember, inflation's the

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Speaker 1: rate of change of prices, So the oil price went

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Speaker 1: from low to really high and then came down to

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Speaker 1: moderately high. And that's a big part of the story

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Speaker 1: about win inflation's low, which is we actually had negative

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Speaker 1: energy inflation. We collect disinflation, but just for one month,

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Speaker 1: got some bad news. Though I know all of that

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Speaker 1: was a ceasefire payoff. That was the ceasefire dividend. The

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Speaker 1: ceasefire went away. The dividend's going to go away, and

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Speaker 1: so we should expect to see energy prices coming back

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Speaker 1: up again over the next couple of months. And we're

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Speaker 1: already seeing it at in financial markets, but we'll see

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Speaker 1: it at the gas station as well. Well.

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Speaker 3: Here's the interesting thing too about inflation.

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Speaker 2: I feel like because prices have been elevated for a

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Speaker 2: long time, and because consumers are kind of getting fed up,

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Speaker 2: companies are kind of looking for ways. Companies are paying

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Speaker 2: higher prices too for imports, because of tariffs, because of

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Speaker 2: weather events, all these things. Companies are paying higher prices

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Speaker 2: for the raw materials they used to make the stuff

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Speaker 2: they sell us, and so they have been dealing with

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Speaker 2: this interesting dance themselves. And as a result, justin I

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Speaker 2: there's a lot of inflation just because prices aren't going

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Speaker 2: up or going up less does not mean inflation is

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Speaker 2: not getting worse.

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Speaker 3: I think there's a lot of inflation that we cannot see.

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Speaker 1: But wait, so there's two things there. Yeah, we cannot

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Speaker 1: see it, but can the Bureau of Labor Statistics see it?

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Speaker 3: Also?

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Speaker 2: No, because because so I asked you to bring something

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Speaker 2: to our recording today, did you do you have it?

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Speaker 1: You did, so I'm just going to tell folks. Shall

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Speaker 1: I reveal it now? Said bring Racey's pinut butter cups.

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Speaker 1: And I thought to myself, but you told me today

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Speaker 1: we're going to talk about skimpflation. Yeah, and I thought

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Speaker 1: this was going to be a story about shrink flation.

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Speaker 1: So shrink flash is when portion saces get smaller.

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Speaker 2: Yes, so the price will stay the same of your

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Speaker 2: whatever peanut butter cups, So get less of it. And

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Speaker 2: that's the way companies can save money but not raise prices,

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Speaker 2: because we're getting best consumers pretty fed up with prices

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Speaker 2: going on.

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Speaker 1: My kids went to town and I said, when you're

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Speaker 1: in there, I said to my daughter, could you please

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Speaker 1: pick me up Racey's peanut bot of cops, which, by

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Speaker 1: the way, I don't actually eat. And I didn't tell

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Speaker 1: her it was for a piece on shrink flation, and

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Speaker 1: so she came back with king size, king size.

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Speaker 3: Go Matilda, I love it.

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Speaker 1: Isn't that the opposite of shrink flation that she brought

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Speaker 1: me king size?

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Speaker 2: Well, this is the thing. We are not talking about

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Speaker 2: shrink flation. Although shrinkflation has been happening all over the economy.

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Speaker 2: If you've ever noticed, like you open chips and they're like, hey,

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Speaker 2: wait a minute, I.

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Speaker 3: Thought the chips used to start here and now they

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Speaker 3: start here.

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Speaker 2: I mean, that's been happening, new trend happening that you

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Speaker 2: cannot see.

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Speaker 1: But Jess, okay, well, don't worry. I went back to

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Speaker 1: the store. Look what I got, regular sized ones.

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Speaker 3: I appreciate this so much.

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Speaker 1: But by the way, they were next to do you

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Speaker 1: know how many brands?

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Speaker 3: How many star cups did you buy?

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Speaker 1: Well, so they had miniature size, small size, snack size.

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Speaker 1: The number of SKUs of Riese's peanut butter cups is unbelievable,

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Speaker 1: and I don't even like them because I don't really

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Speaker 1: like peanut butter. But then I discovered, look at this,

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Speaker 1: there's something called Reese's Barbie.

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Speaker 2: Justin how many Reese's products do you have in friend

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Speaker 2: of you.

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Speaker 1: Okay, So Reese's Bark. This stuff is the bomb. It's great.

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Speaker 1: But guess what, I had to go to the drug

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Speaker 1: store for this, and so I'm going, I'm like, I'm

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Speaker 1: buying Reese's. I don't even like Riese's. Bloody Stacey's making

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Speaker 1: me buy Reese's. Why do I have the way candy

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Speaker 1: I don't like? So I picked up some candy.

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Speaker 3: I do like Nesley Crunch, Babe, I love a crunch. Okay,

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Speaker 3: so you.

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Speaker 1: Have ruined my health for the summer. It's all sitting

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Speaker 1: here right next to me. But I recommend the Bark.

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Speaker 1: There's some economics and all of this. There's Stacy or

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Speaker 1: are you just finding me on all this?

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Speaker 3: Yeah?

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Speaker 2: So I reported a story about this, this trend of skimplation,

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Speaker 2: and it started because so Brad Rees, who is the

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Speaker 2: grandson of the man who invented Reese's peanut buttercuffs, wrote

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Speaker 2: this open letter to Hershey's Hershe's bought Reese's back in

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Speaker 2: the sixties. So Brad Reese eats peanut buttercuffs every day,

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Speaker 2: but he ate a product.

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Speaker 1: Back in Wait, can we just pause?

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Speaker 3: He's called brad Rees his name is Brad Res.

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Speaker 1: I mean, like, if I would Brad Reese the inheritor

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Speaker 1: of the race's fortune, yeah, an origin, I I would

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Speaker 1: put my full name on my dting profile. I would

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Speaker 1: just want everyone to know.

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Speaker 2: Like the peanut buttercup, well, he wears he loves to

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Speaker 2: go out in like Reese's gear. So he has this

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Speaker 2: like National Car Racing jacket that's like bright orange and

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Speaker 2: says Reese's across the chest and he loves to wear

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Speaker 2: this out because he says, people come up to him

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Speaker 2: and they want to take pictures with him and they're like,

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Speaker 2: are you related, and he says yes, but he's he tried.

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Speaker 2: I had this product, these hearts. It was for Valentine's

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Speaker 2: Day this year, and he ate them. And he had

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Speaker 2: this very interesting experience. So I brought a little clip

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Speaker 2: of tape from my interview with Brads.

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Speaker 3: Here's what he said.

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Speaker 4: I literally had two bites and I had to spit

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Speaker 4: it out, and I was just like, what is this?

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Speaker 4: And of course I immediately inspected the ingredients. There's no milk, chocolate,

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Speaker 4: there's no cocoa butter. It said chocolate candy and peanut

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Speaker 4: butter cream. They're actually degrading the ingredients. I've literally got

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Speaker 4: hundreds and hundreds of letters emails from people saying thank you,

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Speaker 4: thank your fun. It was going nuts.

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Speaker 2: So Brad wrote this open letter to Hershey's saying you've

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Speaker 2: ruined my family's brand.

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Speaker 3: It doesn't taste like chocolate and peanut butter anymore.

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Speaker 2: Hundreds of people wrote back, being like, you're right, it

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Speaker 2: doesn't taste this same. And the reason it doesn't taste

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Speaker 2: the same is the thing called skimflation. And I have

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Speaker 2: to shout out Greg Rizalski from Planet Money who coined

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Speaker 2: this term skimflation. But it is essentially when companies will

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Speaker 2: swap out ingredients for cheaper alternatives.

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Speaker 3: So like chocolate, you know, cocoa prices have gotten so.

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Speaker 2: High in the last few years that that companies are

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Speaker 2: trying to grapple with this. They don't want to keep

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Speaker 2: raising prices, so they're like, okay, how can we continue

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Speaker 2: to make our candy and use something that seems like

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Speaker 2: chocolate but doesn't cost as much. So they'll use like

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Speaker 2: vegetable oils and palm oils, and then that is when

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Speaker 2: you'll see things like chocolate candy show up if you look.

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Speaker 2: Because the FDA regulates this, So you can't just say

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Speaker 2: something's chocolate or peanut butter. If you call it peanut

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Speaker 2: butter has to be ninety percent peanuts. If it's not

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Speaker 2: ninety percent peanuts, you have to call it peanut butter

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Speaker 2: cream or peanut butter crem and.

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Speaker 3: If it's not, I think ten.

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Speaker 1: Points crim if it's French cream, if it's.

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Speaker 2: Am If it's French, yes, And then for chocolate, if

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Speaker 2: it doesn't have a certain amount of actual cocoa pod

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Speaker 2: in there, then you have to call it chocolate chocolate candy.

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Speaker 2: And this is becoming kind of more prevalent because actually,

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Speaker 2: so there's the wholesale price inflation index, which is the

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Speaker 2: price that companies pay for the ingredients and the raw

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Speaker 2: materials they buy. Those prices have risen faster than the

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Speaker 2: prices we pay, which means the companies are eating some

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Speaker 2: of those costs or finding ways to avoid them, and

436
00:22:38,640 --> 00:22:42,000
Speaker 2: so there's been this rise of skimflation. So if you

437
00:22:42,080 --> 00:22:47,320
Speaker 2: notice things taste different, like your favorite peanut buttercups taste different,

438
00:22:48,000 --> 00:22:51,240
Speaker 2: then okay, just I want to get your your thoughts

439
00:22:51,240 --> 00:22:52,080
Speaker 2: on this peanut butter cup.

440
00:22:52,080 --> 00:22:57,760
Speaker 3: I don't want to miss this. I'm not really a nope,

441
00:22:58,240 --> 00:22:59,480
Speaker 3: and you're not a peanut person.

442
00:23:00,400 --> 00:23:03,240
Speaker 1: And it's had to talk when you got Recie's cups

443
00:23:04,200 --> 00:23:07,879
Speaker 1: in your mouth. The things I do for you and

444
00:23:07,920 --> 00:23:08,919
Speaker 1: for science.

445
00:23:09,440 --> 00:23:11,520
Speaker 3: No, it's it's noble but nothing.

446
00:23:11,560 --> 00:23:15,159
Speaker 1: I wouldn't like them. But can you cold Brad and

447
00:23:15,160 --> 00:23:16,040
Speaker 1: tell them they're not bad?

448
00:23:17,320 --> 00:23:19,720
Speaker 2: Well this may be because of Brad because after he

449
00:23:19,760 --> 00:23:23,479
Speaker 2: wrote this open letter on LinkedIn, it got reposted all

450
00:23:23,480 --> 00:23:27,840
Speaker 2: over social media and her she's actually responded and said

451
00:23:28,720 --> 00:23:32,280
Speaker 2: that they were going back to the original formula.

452
00:23:33,359 --> 00:23:35,760
Speaker 1: You know, I think that it succeeded because this actually

453
00:23:35,760 --> 00:23:37,800
Speaker 1: says it comes with paint up and it calls them

454
00:23:37,880 --> 00:23:42,879
Speaker 1: paintut butter cups. She has milk, chocolate, painut but up there.

455
00:23:43,040 --> 00:23:44,840
Speaker 1: You can't talk when you have one in your mouth,

456
00:23:46,000 --> 00:23:47,000
Speaker 1: which is proof it's.

457
00:23:46,880 --> 00:23:48,800
Speaker 3: Painut but up, but it's tasting good to you.

458
00:23:49,920 --> 00:23:53,760
Speaker 1: I'm ready to make Raci's the official panup but a.

459
00:23:53,359 --> 00:23:55,359
Speaker 3: Cup the candy of the summer. I brought some to

460
00:23:55,359 --> 00:23:56,080
Speaker 3: you just because.

461
00:23:55,840 --> 00:24:00,679
Speaker 1: I didn't want to feel platypus economics. I This, by

462
00:24:00,720 --> 00:24:03,000
Speaker 1: the way, is not a paid segment, but I just

463
00:24:03,040 --> 00:24:07,080
Speaker 1: had my first. No one has ever managed to get

464
00:24:07,080 --> 00:24:09,000
Speaker 1: me to try a peanut butter cup before.

465
00:24:08,800 --> 00:24:12,360
Speaker 3: And economics got you to try the peanut butter cup.

466
00:24:12,840 --> 00:24:14,639
Speaker 1: No, it's Stacey annic Smith who did that.

467
00:24:15,600 --> 00:24:18,320
Speaker 3: I appreciate, but she said this is very interesting.

468
00:24:18,720 --> 00:24:20,399
Speaker 1: There is some economics. I'm going to have one more

469
00:24:20,400 --> 00:24:21,879
Speaker 1: bite then I'll get to the economics.

470
00:24:22,080 --> 00:24:24,680
Speaker 3: Yes, and have one too.

471
00:24:25,280 --> 00:24:29,159
Speaker 1: It's actually good. I might look when my kids go

472
00:24:29,240 --> 00:24:31,480
Speaker 1: trick or treating, I never steal their peanut butter cups,

473
00:24:31,480 --> 00:24:34,680
Speaker 1: but I might now I'm gonna see if I can

474
00:24:34,680 --> 00:24:36,040
Speaker 1: do the rest of the podcast with a big gob

475
00:24:36,040 --> 00:24:37,640
Speaker 1: of peanut butter on the roof of my mouth. Wish

476
00:24:37,720 --> 00:24:42,920
Speaker 1: is both black. So what's interesting here? As you're talking

477
00:24:42,920 --> 00:24:45,359
Speaker 1: about so what you're calling skimflation because you're from the

478
00:24:45,359 --> 00:24:47,400
Speaker 1: planet money world, where you all have to have amazing

479
00:24:47,480 --> 00:24:51,400
Speaker 1: names and make everything catchy. We in economics would call

480
00:24:51,440 --> 00:24:57,800
Speaker 1: these unmeasured quality change. Now the Bureau of Labor Statistics

481
00:24:57,840 --> 00:25:01,360
Speaker 1: tries to measure quality because it doesn't want you know.

482
00:25:06,800 --> 00:25:09,119
Speaker 3: I really appreciate how much you're loving these peanut butter cups.

483
00:25:09,359 --> 00:25:13,439
Speaker 1: As an audio experience, this might be quite unusual. And

484
00:25:13,480 --> 00:25:16,280
Speaker 1: if anyone wants to a cup ASMR, I'm ready to

485
00:25:16,280 --> 00:25:22,879
Speaker 1: do it. For the right price, it's good. So we

486
00:25:22,960 --> 00:25:24,800
Speaker 1: always do want to measure quality change, right, So if

487
00:25:24,840 --> 00:25:26,840
Speaker 1: something gets better over time and it's the same price,

488
00:25:26,880 --> 00:25:28,119
Speaker 1: that's sort of like it got cheaper.

489
00:25:28,600 --> 00:25:30,919
Speaker 3: Sort of the BLS measure quality change.

490
00:25:31,000 --> 00:25:34,240
Speaker 1: Okay, So it's really important. So for things like computers.

491
00:25:34,680 --> 00:25:38,480
Speaker 1: Once you think about your phone, Yeah, the first iPhone

492
00:25:38,520 --> 00:25:40,960
Speaker 1: you got probably had eight megabram and it want to

493
00:25:41,000 --> 00:25:42,679
Speaker 1: cost another one hundred dollars to get the version it

494
00:25:42,680 --> 00:25:46,320
Speaker 1: had sixteen megabram. And then when the iPhone two came out,

495
00:25:46,400 --> 00:25:48,439
Speaker 1: maybe it had sixteen megabram. So that's sort of like

496
00:25:48,480 --> 00:25:51,239
Speaker 1: you just saved one hundred dollars. And so that's how

497
00:25:51,280 --> 00:25:53,600
Speaker 1: they try and do it. They it's called a doning

498
00:25:53,680 --> 00:25:55,720
Speaker 1: price adjustment, but you basically figure out how much of

499
00:25:55,760 --> 00:25:58,560
Speaker 1: people willing to pay more for the extra features, and

500
00:25:58,560 --> 00:26:00,359
Speaker 1: then you say, what extra features did we get? And

501
00:26:00,400 --> 00:26:02,440
Speaker 1: then you say, oh, it's as if the price fell

502
00:26:02,520 --> 00:26:06,760
Speaker 1: by that much. And it's really really important for technology

503
00:26:06,800 --> 00:26:10,480
Speaker 1: because honestly, the price of phone hasn't phones hasn't changed years.

504
00:26:10,480 --> 00:26:12,520
Speaker 1: It's been eight hundred bucks, you know, plus one it's

505
00:26:12,520 --> 00:26:16,480
Speaker 1: one hundred bucks ever since the first iPhone. But of

506
00:26:16,480 --> 00:26:19,720
Speaker 1: course today's iPhone is a device that fifteen years ago

507
00:26:19,720 --> 00:26:23,760
Speaker 1: would have sold for four hundred thousand dollars, and a

508
00:26:23,760 --> 00:26:26,280
Speaker 1: lot of the improvements in our quality of life come

509
00:26:26,480 --> 00:26:30,680
Speaker 1: out of come out of that. So they do try

510
00:26:30,680 --> 00:26:33,160
Speaker 1: to measure quality change now. The problem is it's hard

511
00:26:33,200 --> 00:26:34,760
Speaker 1: to measure it with everything. So they can have a

512
00:26:34,800 --> 00:26:37,320
Speaker 1: whole bunch of nerds. They have like a division whose

513
00:26:37,359 --> 00:26:39,600
Speaker 1: job is to measure quality change with technology because it's

514
00:26:39,600 --> 00:26:41,840
Speaker 1: such a big deal. I haven't checked this, but I

515
00:26:41,840 --> 00:26:43,879
Speaker 1: have a funny feeling they do not have a peanut

516
00:26:43,920 --> 00:26:47,840
Speaker 1: butter cup division doing atonic price adjustments yet.

517
00:26:48,200 --> 00:26:48,440
Speaker 3: Yeah.

518
00:26:48,600 --> 00:26:50,840
Speaker 1: The other thing that's interesting about this is we normally

519
00:26:50,840 --> 00:26:54,560
Speaker 1: think about quality change as being positive, right, because goods

520
00:26:54,600 --> 00:26:57,960
Speaker 1: get better over time the computer's advanced cars AVN.

521
00:26:58,400 --> 00:27:02,680
Speaker 2: This is how companies compete, right, a better But this

522
00:27:02,760 --> 00:27:08,280
Speaker 2: is a form of intitification, and so same price was product,

523
00:27:08,440 --> 00:27:09,840
Speaker 2: it's effectively a price rise.

524
00:27:10,000 --> 00:27:13,639
Speaker 1: Anyway, Stacey, I'm never going to think about unmeasured quality

525
00:27:13,720 --> 00:27:15,719
Speaker 1: change the same way without thinking about that big gob

526
00:27:15,800 --> 00:27:18,000
Speaker 1: a pinup butter right there. And I think we should

527
00:27:18,000 --> 00:27:18,920
Speaker 1: do all less shows this way.

528
00:27:19,720 --> 00:27:20,480
Speaker 3: I agree.

529
00:27:20,560 --> 00:27:22,800
Speaker 2: I mean it is interesting to think about the different

530
00:27:22,800 --> 00:27:25,560
Speaker 2: ways inflation shows up. And I one of the things

531
00:27:25,560 --> 00:27:27,320
Speaker 2: that did come up in this because it just seems

532
00:27:27,320 --> 00:27:30,280
Speaker 2: like you can be like the companies are evil, uh,

533
00:27:30,400 --> 00:27:33,600
Speaker 2: is that the companies are stressed out because we've gotten

534
00:27:33,600 --> 00:27:37,520
Speaker 2: pretty price sensitive after all these years of inflation. We're

535
00:27:37,520 --> 00:27:40,840
Speaker 2: getting squeezed, so companies feel like they can't raise prices.

536
00:27:42,000 --> 00:27:44,480
Speaker 3: And if you shrink, you can shrink packages to a point,

537
00:27:44,520 --> 00:27:45,960
Speaker 3: but then it starts.

538
00:27:45,640 --> 00:27:48,119
Speaker 2: To get a little weird. So this is one of

539
00:27:48,200 --> 00:27:50,000
Speaker 2: the ways that they're trying. And I talked with a

540
00:27:50,000 --> 00:27:53,480
Speaker 2: bunch of like consumer advocates and things like that who said, oh, yeah,

541
00:27:53,480 --> 00:27:56,359
Speaker 2: this is getting to be kind of the norm, and

542
00:27:56,400 --> 00:27:58,840
Speaker 2: now they have new technology. Actually also spoke with this

543
00:27:59,520 --> 00:28:03,520
Speaker 2: woman in Jersey who is this professional taster and companies

544
00:28:03,560 --> 00:28:07,439
Speaker 2: come to her when they say, we want something that

545
00:28:07,480 --> 00:28:10,760
Speaker 2: tastes like peanut butter but involves no peanuts or fewer peanuts,

546
00:28:10,760 --> 00:28:14,240
Speaker 2: and she has like teams that help them reformulate these things.

547
00:28:14,280 --> 00:28:17,359
Speaker 2: And it's becoming this huge business, especially like as crops

548
00:28:17,359 --> 00:28:19,800
Speaker 2: become more difficult to come by, you know, like cocoa

549
00:28:19,840 --> 00:28:23,000
Speaker 2: and coffee and things like that and more expensive, I

550
00:28:23,040 --> 00:28:25,919
Speaker 2: think we can maybe expect to see more of this

551
00:28:26,000 --> 00:28:27,960
Speaker 2: but it is another form of inflation.

552
00:28:28,160 --> 00:28:30,560
Speaker 3: It's just maybe less. It's like sneaky inflation.

553
00:28:31,440 --> 00:28:34,080
Speaker 1: What I love about this, listen, is that our audience

554
00:28:34,080 --> 00:28:36,920
Speaker 1: now understands whenever they walk past the candy oile, there

555
00:28:37,080 --> 00:28:42,200
Speaker 1: is an economics list and rot there now sticy. It's

556
00:28:42,240 --> 00:28:44,680
Speaker 1: not just a candy oil. I have a funny feeling

557
00:28:44,720 --> 00:28:46,520
Speaker 1: for you walked outside right now. They want be an

558
00:28:46,520 --> 00:28:49,440
Speaker 1: economic explicitly whiting for you. Tell me about that, listen.

559
00:28:50,120 --> 00:28:51,880
Speaker 2: Well, I'm glad I have all these peanut butter cups

560
00:28:51,920 --> 00:28:53,480
Speaker 2: so that I can eat my feelings.

561
00:28:53,480 --> 00:28:55,080
Speaker 3: But I am in New York.

562
00:28:55,600 --> 00:28:59,680
Speaker 2: And by the way, your producer Megan is in ann Arbor,

563
00:28:59,800 --> 00:29:03,800
Speaker 2: and we are both experiencing really terrible air quality right now,

564
00:29:03,840 --> 00:29:05,480
Speaker 2: like we're not supposed to go outside.

565
00:29:05,520 --> 00:29:06,440
Speaker 3: I went to.

566
00:29:06,480 --> 00:29:08,320
Speaker 2: Walk to get a coffee this morning, which is like

567
00:29:08,400 --> 00:29:11,840
Speaker 2: ten minutes, and my throat is still sore.

568
00:29:12,040 --> 00:29:15,240
Speaker 3: Even though it looks really beautiful, it's like a dangerous

569
00:29:15,280 --> 00:29:18,240
Speaker 3: really it's nuts.

570
00:29:18,400 --> 00:29:21,920
Speaker 2: I mean, yesterday the air was all gray, but today

571
00:29:21,920 --> 00:29:26,200
Speaker 2: it's apparently worse, one sixty eight on the AQR or

572
00:29:26,240 --> 00:29:32,400
Speaker 2: AQI scale. And this actually got me thinking, and I'm very,

573
00:29:32,640 --> 00:29:35,080
Speaker 2: very excited to have you here to ask about this

574
00:29:35,120 --> 00:29:39,080
Speaker 2: because I know that economists will talk about something like

575
00:29:39,120 --> 00:29:41,800
Speaker 2: clean air does not seem like an economics issue necessarily,

576
00:29:41,920 --> 00:29:45,640
Speaker 2: but it is called a public good and it's kind

577
00:29:45,640 --> 00:29:48,960
Speaker 2: of a special it has special qualities and economics. Do

578
00:29:49,000 --> 00:29:51,800
Speaker 2: you mind just talking a little bit about what a

579
00:29:51,840 --> 00:29:55,719
Speaker 2: public good is and kind of how economists think about this.

580
00:29:56,200 --> 00:29:59,880
Speaker 1: Yep, So first of all, like, of course, clean air

581
00:30:00,280 --> 00:30:03,760
Speaker 1: is an economic issue. There's no issue on Stacey that

582
00:30:03,800 --> 00:30:05,600
Speaker 1: you've ever raised with me or I've said, are you.

583
00:30:05,720 --> 00:30:06,760
Speaker 3: As the economist?

584
00:30:06,840 --> 00:30:09,400
Speaker 2: Yes, and you, by the way, we should say, are

585
00:30:09,440 --> 00:30:15,000
Speaker 2: safely out of this situation on the keep on in

586
00:30:15,000 --> 00:30:16,120
Speaker 2: the keep I don't know.

587
00:30:16,560 --> 00:30:17,920
Speaker 1: Well, if you make fun of me for that, I'm

588
00:30:17,960 --> 00:30:19,400
Speaker 1: going to make fun of you for being in Brooklyn.

589
00:30:19,520 --> 00:30:20,160
Speaker 3: Are you kidding?

590
00:30:20,200 --> 00:30:24,320
Speaker 2: I'm jealous. I'm so jealous. Me and Meghan are just jealous. Inside.

591
00:30:24,680 --> 00:30:27,960
Speaker 1: I am on my family vacation and I am going

592
00:30:28,040 --> 00:30:30,960
Speaker 1: to go swim in the water after this, which just

593
00:30:31,000 --> 00:30:31,680
Speaker 1: makes me miss.

594
00:30:31,520 --> 00:30:33,600
Speaker 3: Australia really and put a price on that.

595
00:30:34,240 --> 00:30:39,320
Speaker 1: You can. In fact, real estate is more expensive closer

596
00:30:39,360 --> 00:30:41,720
Speaker 1: to the water from which you can infer people like

597
00:30:41,800 --> 00:30:43,960
Speaker 1: being near the water. Don't ever tell me you can't

598
00:30:43,960 --> 00:30:46,320
Speaker 1: put a price on something, Stacy. That's your point about

599
00:30:46,320 --> 00:30:48,720
Speaker 1: clean air. Stacy, let me ask you a question. You

600
00:30:48,880 --> 00:30:52,960
Speaker 1: just told me you went for coffee and your throat hurt. Yeah, okay,

601
00:30:53,000 --> 00:30:54,640
Speaker 1: Now I want to know, is there a lot of

602
00:30:54,640 --> 00:30:58,000
Speaker 1: economics there? Would you be willing to find a magic

603
00:30:58,080 --> 00:31:00,560
Speaker 1: drug that got rid of that sore throat? Would you

604
00:31:00,560 --> 00:31:01,320
Speaker 1: buy it for a dollar?

605
00:31:02,680 --> 00:31:02,960
Speaker 3: Yeah?

606
00:31:03,920 --> 00:31:11,840
Speaker 1: Would you buy it for ten dollars? Yes, sounds like

607
00:31:11,880 --> 00:31:12,920
Speaker 1: you're right on the fence.

608
00:31:13,680 --> 00:31:15,960
Speaker 3: Yeah, ten dollars, but I would Yeah.

609
00:31:16,240 --> 00:31:19,520
Speaker 1: We just priced it the value of clean air to Stacey.

610
00:31:19,640 --> 00:31:22,080
Speaker 3: Oh yeah, it's ten dollars.

611
00:31:23,040 --> 00:31:25,080
Speaker 1: Because the walk and getting the coffee stays the same

612
00:31:25,080 --> 00:31:27,200
Speaker 1: other way. But you'd be willing to pay ten bucks

613
00:31:27,360 --> 00:31:29,080
Speaker 1: every time you go for a walk for clean air?

614
00:31:29,360 --> 00:31:31,600
Speaker 1: Sounds like, Actually, you know, if you do that every

615
00:31:31,680 --> 00:31:33,480
Speaker 1: day or every time you walk, how many times do

616
00:31:33,520 --> 00:31:35,320
Speaker 1: you outside in the day. I know you're in New York.

617
00:31:35,320 --> 00:31:36,240
Speaker 1: A said never, But.

618
00:31:37,680 --> 00:31:39,240
Speaker 3: That's not true. We have to walk everywhere.

619
00:31:39,280 --> 00:31:41,640
Speaker 2: I don't have a car, so I'm outside anytime I

620
00:31:41,680 --> 00:31:43,240
Speaker 2: want to go anywhere and do anything, I have to

621
00:31:43,240 --> 00:31:43,840
Speaker 2: go outside.

622
00:31:43,920 --> 00:31:46,160
Speaker 1: If we put a toll on clean air, how many

623
00:31:46,200 --> 00:31:47,880
Speaker 1: times would you have to pay a ten dollar toll.

624
00:31:47,880 --> 00:31:49,400
Speaker 1: How many times would you have to pay a day?

625
00:31:50,040 --> 00:31:54,960
Speaker 3: I mean probably at least sixty, because if.

626
00:31:54,920 --> 00:31:58,200
Speaker 2: Every time I left indoors to go outside, yeah, sixty.

627
00:31:58,320 --> 00:32:00,560
Speaker 1: So then now you're telling me your value clean air.

628
00:32:00,560 --> 00:32:05,320
Speaker 1: It's sixty dollars a day, right, and there's three hundred

629
00:32:05,320 --> 00:32:09,280
Speaker 1: and sixty five days in a year. And you love multiplication.

630
00:32:09,560 --> 00:32:12,040
Speaker 1: I know that that's eighteen thousand dollars a year, roughly

631
00:32:12,040 --> 00:32:15,160
Speaker 1: twenty thousand dollars a year. So Stacy just told me

632
00:32:15,200 --> 00:32:17,760
Speaker 1: she holds an asset in her portfolio, which is access

633
00:32:17,800 --> 00:32:19,960
Speaker 1: to clean air, that she values at twenty thousand dollars.

634
00:32:20,920 --> 00:32:23,200
Speaker 1: And I believe in Brooklyn there's lots and lots of people.

635
00:32:24,240 --> 00:32:25,840
Speaker 1: How many people are there in Brooklyn?

636
00:32:26,400 --> 00:32:27,440
Speaker 3: Many millions?

637
00:32:27,680 --> 00:32:30,360
Speaker 1: Okay, So therefore there's many billions of dollars worth of

638
00:32:30,440 --> 00:32:33,240
Speaker 1: value in clean air. So the economic stakes, all I'm

639
00:32:33,280 --> 00:32:36,040
Speaker 1: doing is taking a very common sense observation. Stacy doesn't

640
00:32:36,120 --> 00:32:39,080
Speaker 1: like getting a sore throat, and I'm saying, how valuable

641
00:32:39,120 --> 00:32:41,840
Speaker 1: is it? And it turns out extraordinarily valuable? Okay, we

642
00:32:41,920 --> 00:32:46,000
Speaker 1: agree that it's valuable. Hey, Stacy, I am currently near

643
00:32:46,040 --> 00:32:48,400
Speaker 1: the beach. The air here is clean How much do

644
00:32:48,400 --> 00:32:49,480
Speaker 1: you think I have to pay for it?

645
00:32:50,160 --> 00:32:50,560
Speaker 3: Nothing?

646
00:32:51,200 --> 00:32:55,960
Speaker 1: Right? Okay, So that's the problem, which is air is unpriced,

647
00:32:56,200 --> 00:32:59,040
Speaker 1: and so if I wanted to go outside and harm

648
00:32:59,160 --> 00:33:01,080
Speaker 1: the air, how much am I going to have to

649
00:33:01,080 --> 00:33:01,520
Speaker 1: pay for that?

650
00:33:02,320 --> 00:33:04,720
Speaker 3: Like if you start a big charcoal grill? Yeah?

651
00:33:04,800 --> 00:33:07,640
Speaker 1: Nothing, yeah, or you know it, a big can of beans.

652
00:33:10,960 --> 00:33:12,600
Speaker 1: I'm sorry, that's the astral way.

653
00:33:12,720 --> 00:33:15,120
Speaker 3: All of the peanut butter cups, that's.

654
00:33:14,960 --> 00:33:17,960
Speaker 1: Right, Wait, depend up, but but cups make your hard.

655
00:33:18,520 --> 00:33:21,880
Speaker 3: I don't know. I think if you eat all of

656
00:33:21,920 --> 00:33:24,800
Speaker 3: those that there will be consequences.

657
00:33:24,840 --> 00:33:29,120
Speaker 1: Maybe we can have another bet. Okay. So look, here's

658
00:33:29,120 --> 00:33:30,800
Speaker 1: a very special type of good. We do call it

659
00:33:30,800 --> 00:33:33,560
Speaker 1: a public good. Here's the problem. Effectively, no one owns it,

660
00:33:34,040 --> 00:33:36,200
Speaker 1: which is I can't stop you from using it, and

661
00:33:36,240 --> 00:33:39,680
Speaker 1: I can't stop you from hurting it. When I can't

662
00:33:39,680 --> 00:33:42,840
Speaker 1: stop you from using it, then I've got no incentive.

663
00:33:43,240 --> 00:33:47,840
Speaker 1: Then I can't stop you from using clean air. Therefore

664
00:33:47,840 --> 00:33:50,520
Speaker 1: you can just take it for free, which means if

665
00:33:50,520 --> 00:33:52,680
Speaker 1: I want to set up a business that provides clean air,

666
00:33:53,040 --> 00:33:57,200
Speaker 1: my business isn't going to be very successful. And so

667
00:33:57,320 --> 00:34:00,600
Speaker 1: therefore no one's going to enter the clean air production business.

668
00:34:00,040 --> 00:34:03,400
Speaker 2: Yeah, there's no incentive like to protect it.

669
00:34:03,840 --> 00:34:06,160
Speaker 1: Right, So imagine I came up with a wonderful air

670
00:34:06,160 --> 00:34:08,600
Speaker 1: cleaning innovation, but it would clean the air over all

671
00:34:08,640 --> 00:34:12,759
Speaker 1: of the state of New York. No one's going to

672
00:34:13,400 --> 00:34:15,480
Speaker 1: I'm not going to say ten bucks to breathe my ear.

673
00:34:15,480 --> 00:34:16,719
Speaker 1: I'm going to say nine bucks to give you a

674
00:34:16,800 --> 00:34:18,879
Speaker 1: good deal. But no one's going to pay it because

675
00:34:18,880 --> 00:34:20,200
Speaker 1: they're just going to walk out to the front door

676
00:34:20,200 --> 00:34:24,040
Speaker 1: and drink it in. They're what we call a free rider.

677
00:34:24,040 --> 00:34:28,960
Speaker 1: They're going to enjoy the benefits of clean air without

678
00:34:29,200 --> 00:34:33,400
Speaker 1: paying the price. And so therefore the benefits of producing

679
00:34:33,440 --> 00:34:37,240
Speaker 1: clean air the money I can get selling it zero, right,

680
00:34:38,160 --> 00:34:39,640
Speaker 1: And the cost of producing clean air is I have

681
00:34:39,640 --> 00:34:43,320
Speaker 1: to invent a crazy machine. And so therefore markets tend

682
00:34:43,320 --> 00:34:45,880
Speaker 1: to underproduce public goods.

683
00:34:47,920 --> 00:34:50,719
Speaker 3: So you might you mean under price or underproduce.

684
00:34:51,200 --> 00:34:54,480
Speaker 1: Well, because it's underpriced, we don't produce much of it.

685
00:34:55,520 --> 00:34:58,160
Speaker 2: So explain that maybe because and also if you don't

686
00:34:58,200 --> 00:35:01,640
Speaker 2: mind naming some other public goods other than clean air,

687
00:35:01,840 --> 00:35:05,280
Speaker 2: like national security as one, which is interesting.

688
00:35:05,480 --> 00:35:08,480
Speaker 1: Yeah, I'm going to come back to how I talk

689
00:35:08,520 --> 00:35:11,320
Speaker 1: to my students about this. So there are some goods.

690
00:35:11,800 --> 00:35:14,239
Speaker 1: The technical word is non excludable. What I mean by

691
00:35:14,320 --> 00:35:16,760
Speaker 1: non excludable is if I produce it, I can't stop

692
00:35:16,800 --> 00:35:17,680
Speaker 1: you from just using it.

693
00:35:17,960 --> 00:35:20,640
Speaker 3: You can't be like stazy, no breathing the air unless

694
00:35:20,680 --> 00:35:21,880
Speaker 3: you pay me. Okay.

695
00:35:22,800 --> 00:35:26,640
Speaker 1: That then means you can benefit without pain. Yes, that

696
00:35:26,680 --> 00:35:28,640
Speaker 1: then means there's not much of an incentive for me

697
00:35:28,680 --> 00:35:32,840
Speaker 1: to produce it. So non excludability is really really important

698
00:35:33,000 --> 00:35:36,760
Speaker 1: to use the language of economics. Non excludability creates an externality,

699
00:35:36,840 --> 00:35:38,640
Speaker 1: which is, if I were to create clean air.

700
00:35:38,719 --> 00:35:42,200
Speaker 3: Oh, this is economists favorite word is externalities.

701
00:35:41,600 --> 00:35:43,080
Speaker 1: Isn't it? It's such a good day.

702
00:35:43,120 --> 00:35:47,280
Speaker 2: First, I got there negative and positive externalities, right, okay.

703
00:35:47,480 --> 00:35:51,359
Speaker 1: So the externality here is you can benefit without as

704
00:35:51,400 --> 00:35:54,880
Speaker 1: a result of my actions. Okay. And because a public

705
00:35:54,920 --> 00:35:57,400
Speaker 1: good has got a second thing, which is called non rival,

706
00:35:57,440 --> 00:35:59,600
Speaker 1: which is, if you have clean air, there's still enough

707
00:35:59,600 --> 00:36:00,600
Speaker 1: air left everyone else.

708
00:36:01,239 --> 00:36:03,759
Speaker 2: Oh right, like me breathing and clean air doesn't mean

709
00:36:03,760 --> 00:36:04,879
Speaker 2: there's less clean air for you.

710
00:36:05,640 --> 00:36:08,919
Speaker 1: So non rival and non excludable that defines a public good.

711
00:36:08,960 --> 00:36:11,120
Speaker 1: And the problem with public goods is so let's think

712
00:36:11,120 --> 00:36:13,359
Speaker 1: about some examples. Clean air is one I can't stop

713
00:36:13,400 --> 00:36:18,040
Speaker 1: you from breathing it. National defense. If I would have

714
00:36:18,040 --> 00:36:20,480
Speaker 1: set up a firm that kept America is safe, and

715
00:36:20,520 --> 00:36:22,360
Speaker 1: I would to send you a bill every year, you

716
00:36:22,520 --> 00:36:26,440
Speaker 1: just not pay the bill, right answer. Therefore, the private

717
00:36:26,480 --> 00:36:30,839
Speaker 1: sector will never produce national defense. Because of that, we

718
00:36:30,880 --> 00:36:33,920
Speaker 1: ask the government to do it for us instead. So

719
00:36:33,960 --> 00:36:38,760
Speaker 1: when something's a public good usually, now here's an important distinction.

720
00:36:38,960 --> 00:36:40,799
Speaker 1: The government doesn't have to produce it. The government has

721
00:36:40,800 --> 00:36:42,359
Speaker 1: to pay for it. Because you're not going to pay,

722
00:36:42,360 --> 00:36:46,160
Speaker 1: you're going to free ride because it's non excludable. So

723
00:36:46,320 --> 00:36:50,359
Speaker 1: national defense is another one. Fireworks, fireworks displays. I can't

724
00:36:50,360 --> 00:36:55,120
Speaker 1: stop you looking at the sky. Yeah, what's hard is

725
00:36:55,120 --> 00:37:01,680
Speaker 1: that sunshine? Isn't isn't the sun beautiful? Yes? And now

726
00:37:01,719 --> 00:37:06,040
Speaker 1: the public goood? And anytime you see a public good,

727
00:37:06,080 --> 00:37:08,160
Speaker 1: you should be asking yourself, Oh, this is the sort

728
00:37:08,160 --> 00:37:11,840
Speaker 1: of thing like clean air that markets won't produce enough of.

729
00:37:12,560 --> 00:37:16,719
Speaker 1: Can we maybe ask our government to help? And that's

730
00:37:16,800 --> 00:37:19,719
Speaker 1: why we might really think government should be involved in

731
00:37:19,880 --> 00:37:24,520
Speaker 1: clean air. Right, that's what's going on with public.

732
00:37:24,480 --> 00:37:27,200
Speaker 2: Because we do, as you said, we need it, like

733
00:37:27,280 --> 00:37:30,399
Speaker 2: the economy needs public The irony is even though they're

734
00:37:30,440 --> 00:37:33,000
Speaker 2: not priced and we may not value them as much

735
00:37:33,000 --> 00:37:34,920
Speaker 2: as we should because they're not priced.

736
00:37:36,320 --> 00:37:38,360
Speaker 3: The economy can't really function without.

737
00:37:38,080 --> 00:37:41,719
Speaker 1: Them, right. Another way of saying this is when we're

738
00:37:41,719 --> 00:37:45,200
Speaker 1: in a situation where it's as if no one owns something,

739
00:37:45,800 --> 00:37:49,799
Speaker 1: then no one will take care of it. Oh, that's

740
00:37:49,800 --> 00:37:51,239
Speaker 1: the more negative view of human nature.

741
00:37:51,480 --> 00:37:52,719
Speaker 3: No, no, I think, But that's true.

742
00:37:52,760 --> 00:37:55,759
Speaker 2: Nobody's like has to own it, right Like if you are,

743
00:37:56,400 --> 00:37:58,080
Speaker 2: if you are in if you know what, if you

744
00:37:58,120 --> 00:38:00,960
Speaker 2: have the special Recee's peanut buttercup rest, you will guard it.

745
00:38:01,000 --> 00:38:03,799
Speaker 2: You will protect it, yep, you will sue people who

746
00:38:03,840 --> 00:38:08,200
Speaker 2: try to harm it or whatever. But if it's something

747
00:38:08,200 --> 00:38:13,960
Speaker 2: that everybody benefits from, then nobody owns it, which is wonderful.

748
00:38:14,120 --> 00:38:17,680
Speaker 2: Nobody can take it from you, and nobody protects it.

749
00:38:18,480 --> 00:38:20,400
Speaker 1: The other really nice example is if I think of

750
00:38:20,400 --> 00:38:23,640
Speaker 1: a new mathematical theorem and if I write it down,

751
00:38:23,680 --> 00:38:26,640
Speaker 1: you now know my theorem, and no one's going to

752
00:38:26,680 --> 00:38:29,520
Speaker 1: force you to pay me to use my theorem. If

753
00:38:29,520 --> 00:38:31,480
Speaker 1: it was a movie, I have copyright law and you'd

754
00:38:31,480 --> 00:38:34,720
Speaker 1: pay to see my movie. But it's a mathematical theorem,

755
00:38:35,120 --> 00:38:37,200
Speaker 1: and as a result, that's another form of public good,

756
00:38:37,200 --> 00:38:40,640
Speaker 1: which is why we think governments ought to subsidize fundamental

757
00:38:40,719 --> 00:38:44,920
Speaker 1: research and development because otherwise it will be underproduced, because

758
00:38:45,080 --> 00:38:46,399
Speaker 1: it is very much a public good.

759
00:38:47,600 --> 00:38:49,960
Speaker 2: All right, justin I need a little bit of good

760
00:38:50,000 --> 00:38:54,560
Speaker 2: news right now. I'm a little sad, speaking of externalities,

761
00:38:54,680 --> 00:39:01,000
Speaker 2: I cannot externalize myself for the entire weekend. Apparently, yes,

762
00:39:01,280 --> 00:39:04,240
Speaker 2: you can watch some movies or something.

763
00:39:04,520 --> 00:39:07,239
Speaker 1: So you managed to do that. It took me a

764
00:39:07,280 --> 00:39:09,799
Speaker 1: while to realize you were using it in a in

765
00:39:09,840 --> 00:39:11,520
Speaker 1: a more human sense. If there's a word with an

766
00:39:11,560 --> 00:39:14,759
Speaker 1: economics and a human meaning, you know, I only hear

767
00:39:14,800 --> 00:39:16,239
Speaker 1: one of them.

768
00:39:16,440 --> 00:39:22,440
Speaker 2: Anyway, make a really bad segue joke and look after yourself.

769
00:39:22,480 --> 00:39:24,960
Speaker 1: But Stacy, I get it. You're like, it feels like

770
00:39:25,040 --> 00:39:27,640
Speaker 1: plagues and locusts out there, doesn't it a little?

771
00:39:28,000 --> 00:39:30,000
Speaker 2: It feels like, yes, we just had one hundred and

772
00:39:30,040 --> 00:39:32,680
Speaker 2: five degree day a couple of days ago.

773
00:39:33,000 --> 00:39:36,760
Speaker 3: It's yeah, and read ray and Orange.

774
00:39:36,840 --> 00:39:39,560
Speaker 1: Tell me about it, Stacy. One of the tricks you

775
00:39:39,680 --> 00:39:41,200
Speaker 1: taught me, and I love it and I'm going to

776
00:39:41,239 --> 00:39:45,279
Speaker 1: repeat it every week is if we only had a

777
00:39:45,320 --> 00:39:50,480
Speaker 1: newspaper every fifty years, Yes, you think about the extraordinary

778
00:39:50,520 --> 00:39:52,319
Speaker 1: things that would teach us. It would look at the

779
00:39:52,360 --> 00:39:56,000
Speaker 1: extraordinary ways in which our world is becoming more positive,

780
00:39:56,000 --> 00:39:59,040
Speaker 1: clean and more beautiful, more prosperous, more enjoyable.

781
00:39:59,640 --> 00:40:03,840
Speaker 2: Yes, progress, we'd see all the progress right, And because

782
00:40:03,880 --> 00:40:06,720
Speaker 2: we read our newspaper every day instead, we miss that story.

783
00:40:06,800 --> 00:40:09,279
Speaker 1: So you want to be cheered up, and I want

784
00:40:09,320 --> 00:40:11,080
Speaker 1: to be cheered up. So let's think about something over

785
00:40:11,120 --> 00:40:14,480
Speaker 1: that longer time horizon. My favorite fact for the week

786
00:40:14,760 --> 00:40:18,719
Speaker 1: is renewable energy. The world just added its largest annual

787
00:40:18,840 --> 00:40:23,880
Speaker 1: increase in renewable power capacity, and renewables now account for

788
00:40:24,200 --> 00:40:29,759
Speaker 1: just under half of all installed power capacity on the planet. Look,

789
00:40:29,800 --> 00:40:31,879
Speaker 1: there's two things here. I want to pause on both

790
00:40:31,920 --> 00:40:36,879
Speaker 1: of them. One is what an astonishing achievement. The other

791
00:40:37,040 --> 00:40:40,680
Speaker 1: is notice that for most of us, the internal stories

792
00:40:40,680 --> 00:40:44,600
Speaker 1: we tell about the environments are really negative because we

793
00:40:44,680 --> 00:40:46,359
Speaker 1: see bad news and we hear bad news.

794
00:40:46,360 --> 00:40:49,560
Speaker 3: But the reality feel bad news. Bad news drips us inside.

795
00:40:50,080 --> 00:40:53,840
Speaker 1: You go outside and you breathe bad news. But the

796
00:40:53,880 --> 00:41:01,719
Speaker 1: reality is we're making progress. The human ingenuity. Innovation is

797
00:41:01,760 --> 00:41:04,960
Speaker 1: a beautiful thing, and it's all around us. And while

798
00:41:05,000 --> 00:41:07,960
Speaker 1: we worry about our planet, it's also saving our planet.

799
00:41:09,400 --> 00:41:12,160
Speaker 3: Oh that is a beautiful silver lining.

800
00:41:14,239 --> 00:41:16,040
Speaker 2: Yes that I'm going to carry that with me this

801
00:41:16,160 --> 00:41:20,959
Speaker 2: weekend as a very positive externality, a positive internality.

802
00:41:22,080 --> 00:41:24,799
Speaker 1: Oh now you got into internalities that I only talk

803
00:41:24,840 --> 00:41:26,120
Speaker 1: about those with my therapist.

804
00:41:27,480 --> 00:41:30,279
Speaker 2: Yeah, are there internalities or only externalities?

805
00:41:30,520 --> 00:41:32,640
Speaker 3: Maybe maybe that's for another week. I don't know.

806
00:41:33,320 --> 00:41:35,839
Speaker 1: I'm going to give you one sentence on it. Okay,

807
00:41:36,800 --> 00:41:38,400
Speaker 1: I'm going to give you a whole paragraph because I

808
00:41:38,440 --> 00:41:41,279
Speaker 1: love this idea. And externality is when I take an

809
00:41:41,280 --> 00:41:44,920
Speaker 1: action that affects other people. If I find in an elevator,

810
00:41:44,920 --> 00:41:47,880
Speaker 1: that's a negative externality, it harms you. If it's I

811
00:41:47,960 --> 00:41:50,160
Speaker 1: grow beautiful flowers in my front yard, that's something that

812
00:41:50,239 --> 00:41:53,319
Speaker 1: helps you. That's a positive externality. Okay, so I harm you.

813
00:41:53,960 --> 00:41:57,319
Speaker 1: Internalities come from a different idea. It comes from the

814
00:41:57,360 --> 00:42:01,000
Speaker 1: idea that there's not just one Stacy and one justin.

815
00:42:01,080 --> 00:42:04,480
Speaker 1: There's many Stacy's. There's today Stacy, there's twenty twenty seven Stacy,

816
00:42:04,520 --> 00:42:08,160
Speaker 1: twenty twenty eight Stacy, and so on, and sometimes we

817
00:42:08,200 --> 00:42:11,480
Speaker 1: make choices that affect our future selves. For instance, I

818
00:42:11,520 --> 00:42:13,959
Speaker 1: know you notice this, Stacy, I worked out last week,

819
00:42:14,000 --> 00:42:16,839
Speaker 1: which is why my muscles are rippling. That's going to be.

820
00:42:16,840 --> 00:42:19,000
Speaker 3: Rad I was going to say something but it seemed

821
00:42:19,040 --> 00:42:19,600
Speaker 3: off topic.

822
00:42:20,280 --> 00:42:23,960
Speaker 1: I never worry about harassing in the middle of one

823
00:42:24,000 --> 00:42:26,160
Speaker 1: of these. I'm I'm only going to feel great about it.

824
00:42:27,160 --> 00:42:29,480
Speaker 1: But what that means is that twenty twenty eight, Justin

825
00:42:29,760 --> 00:42:31,600
Speaker 1: is going to be in a lot better shape because

826
00:42:31,600 --> 00:42:35,120
Speaker 1: of the work twenty twenty six Justin did. A lot

827
00:42:35,160 --> 00:42:36,960
Speaker 1: of the choices we make, you can think about as

828
00:42:37,000 --> 00:42:39,920
Speaker 1: being a bargain between our current and our future selves. Now,

829
00:42:40,000 --> 00:42:42,799
Speaker 1: let's come back and think about bad choices that we make.

830
00:42:42,920 --> 00:42:45,080
Speaker 1: If I told you I packed I smoked a packet

831
00:42:45,040 --> 00:42:47,600
Speaker 1: of cigarettes, I might have done that to make me

832
00:42:47,680 --> 00:42:50,680
Speaker 1: feel good today, but I did it because I didn't

833
00:42:50,680 --> 00:42:52,800
Speaker 1: really care about the health of that bastard Justin in

834
00:42:52,840 --> 00:42:54,680
Speaker 1: the future, who's going to end up dying of cancer.

835
00:42:55,280 --> 00:42:58,720
Speaker 1: That's what an internality is. It's an externality within yourself,

836
00:42:58,760 --> 00:43:01,200
Speaker 1: but within the multiple versions of yourself, when you aren't

837
00:43:01,239 --> 00:43:03,719
Speaker 1: taking account of the costs and benefits that the creating

838
00:43:03,719 --> 00:43:04,440
Speaker 1: your futureself.

839
00:43:04,560 --> 00:43:06,879
Speaker 2: Like I over, I spent more money than I had

840
00:43:06,880 --> 00:43:08,560
Speaker 2: I didn't see for retirement.

841
00:43:08,800 --> 00:43:14,400
Speaker 1: I yeah, I ate too many peanut butter cups and

842
00:43:14,400 --> 00:43:15,280
Speaker 1: men for that station.

843
00:43:16,000 --> 00:43:17,240
Speaker 3: Okay, very welcome.

844
00:43:18,280 --> 00:43:21,600
Speaker 2: I try to spread my positive externalities around where I can.

845
00:43:22,120 --> 00:43:25,520
Speaker 1: This has been off the clock, on the hook, and

846
00:43:25,560 --> 00:43:28,880
Speaker 1: on the recess. But off the Clock is the Economics podcast,

847
00:43:28,960 --> 00:43:31,200
Speaker 1: in which Stacy and I slow down, review the week

848
00:43:31,239 --> 00:43:35,160
Speaker 1: that was and try to sort out what really mattered. Stacy,

849
00:43:35,160 --> 00:43:36,440
Speaker 1: are you going to come back in a couple of

850
00:43:36,440 --> 00:43:38,040
Speaker 1: weeks fround next installment?

851
00:43:38,480 --> 00:43:39,160
Speaker 3: I'll be here.

852
00:43:39,440 --> 00:43:43,239
Speaker 2: I'll be here, probably hopefully having gone outside at some point.

853
00:43:43,719 --> 00:43:46,680
Speaker 1: Great. And in the meantime, make sure to subscribe. Grab

854
00:43:46,719 --> 00:43:49,080
Speaker 1: yourself a new, higher quality peanut butter cup. They come

855
00:43:49,160 --> 00:43:51,920
Speaker 1: highly endorsed with no advertising money. I have to call

856
00:43:51,960 --> 00:43:56,400
Speaker 1: Brad Reeth and let me also say, if you enjoyed

857
00:43:56,440 --> 00:43:59,640
Speaker 1: any part of this, including the live eating demonstrations, make

858
00:43:59,680 --> 00:44:02,360
Speaker 1: sure you like subscribe and tell your mates this is

859
00:44:02,400 --> 00:44:05,760
Speaker 1: the only place where you can see two economics wonks

860
00:44:06,320 --> 00:44:08,840
Speaker 1: eating peanut butter based products.

861
00:44:09,120 --> 00:44:10,200
Speaker 3: I think that's it to say.

862
00:44:10,960 --> 00:44:12,880
Speaker 1: In the meantime, stay curious.