WEBVTT - How a Fund Manager Teaches His Kids About Money and Banking 0:00:09.440 --> 0:00:13.680 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.760 --> 0:00:17.479 I'm Joe Wisenthal and I'm Tracy Halloway. So, Tracy, I 0:00:17.480 --> 0:00:19.919 think we've been talking about it a lot on recent episodes, 0:00:19.960 --> 0:00:23.320 but we've had most of our episodes this year, they've 0:00:23.400 --> 0:00:26.799 kind of been gloomy or negative, just sort of we 0:00:26.880 --> 0:00:29.280 started the year like on a real uh, just sort 0:00:29.280 --> 0:00:32.040 of a down vibe. Wouldn't you say, maybe we're just 0:00:32.159 --> 0:00:35.600 capturing the zeitgeist. I don't know. Maybe, yeah, it could 0:00:35.600 --> 0:00:37.880 just be the sort of overall mood. But I think 0:00:37.920 --> 0:00:41.400 today is going to be a break for that. I 0:00:41.440 --> 0:00:46.720 think not only is today's episode hopefully not going to 0:00:46.800 --> 0:00:50.280 be depressing, but actually might be sort of very positive 0:00:50.520 --> 0:00:54.240 and uplifting and maybe even kind of heartwarming. Joe, let 0:00:54.240 --> 0:00:57.320 me tell you, I could use both, um, some heartwarming 0:00:57.440 --> 0:01:00.840 and some cheering up. So what are we talking about? 0:01:01.400 --> 0:01:04.760 So we're going to be talking to a fund manager, 0:01:05.160 --> 0:01:08.399 which I guess is not often the uh you think 0:01:08.400 --> 0:01:14.400 of when heartwarming or uplifting. But he's a really interesting writer, 0:01:14.560 --> 0:01:18.440 a really interesting thinker, and he's a writer and one 0:01:18.440 --> 0:01:22.200 of the things that he does is he um teaches 0:01:22.280 --> 0:01:26.720 his kids about finance, and teaches his kids about banking 0:01:26.800 --> 0:01:30.560 and interest rates and sort of complicated questions. Um, and 0:01:30.600 --> 0:01:33.480 he writes about these from time to time, these lessons 0:01:33.520 --> 0:01:37.039 that he teaches his his kids. I think anything with 0:01:37.120 --> 0:01:39.959 kids is sort of you know, heartwarming. Well, I was 0:01:39.959 --> 0:01:41.520 gonna say, does that mean we're going to get a 0:01:41.560 --> 0:01:44.560 bunch of really cute stories about how kids spend their 0:01:44.600 --> 0:01:46.800 allowance and that sort of thing, because I'd be up 0:01:46.840 --> 0:01:49.320 for that. I think that's basically going to be it. 0:01:49.400 --> 0:01:53.240 We're going to have an episode of cute stories about 0:01:53.320 --> 0:01:57.600 kids spending their allowance money more or less, but it's 0:01:57.600 --> 0:02:00.360 going to tell us something important about finance and money 0:02:00.360 --> 0:02:03.440 as well. Right, yeah, exactly. So. I think like most parents, 0:02:03.920 --> 0:02:05.639 you know, a lot of or a lot of parents 0:02:05.720 --> 0:02:08.440 might give their kids some sort of allowance, maybe a 0:02:08.440 --> 0:02:10.760 few dollars a week for taking out the trash or 0:02:10.800 --> 0:02:13.520 making their bed or anything. But of course, when a 0:02:13.560 --> 0:02:17.000 fund manager does it, especially one who's very into the 0:02:17.000 --> 0:02:20.800 theoretical constructs of the financial system, uh, they make it 0:02:20.840 --> 0:02:23.720 a little more interesting than just you know, a few 0:02:23.720 --> 0:02:27.239 dollars a week. They actually try to teach something profound 0:02:27.280 --> 0:02:30.320 and I just teach something, but potentially learn something through 0:02:30.360 --> 0:02:33.760 the process about how people think about money. Alright, so 0:02:34.040 --> 0:02:37.080 don't keep us in suspense. Who is it? All right? Today, 0:02:37.160 --> 0:02:40.080 we're going to be talking to Toby Nangle. He is 0:02:40.120 --> 0:02:43.600 the global co head of asset Allocation at Columbia thread 0:02:43.680 --> 0:02:47.359 Needle Asset Management, and we have him on the line, 0:02:47.480 --> 0:02:59.600 so let's bring him in. Toby, thank you very much 0:02:59.680 --> 0:03:02.560 for coming in today. Oh, thanks very much for having me, 0:03:02.639 --> 0:03:05.920 Joe and Dracy. It's great to be here. So first 0:03:05.919 --> 0:03:08.760 of all, who are you? Who are you? How many 0:03:08.880 --> 0:03:11.600 kids do you have? What do you do and how 0:03:11.600 --> 0:03:14.880 many kids do you have? And why do you why 0:03:14.919 --> 0:03:19.120 do you like to use spending money and allowances as 0:03:19.160 --> 0:03:23.280 a way of sort of exploring the financial system. Sure, okay, 0:03:23.400 --> 0:03:25.919 I've got three kids who are four, seven, and nine 0:03:25.960 --> 0:03:29.760 years old, and uh, that's a lot of kids. And 0:03:29.800 --> 0:03:32.120 I'm a fund manager, so I part of my day 0:03:32.200 --> 0:03:35.160 job is to think about how money works and and 0:03:34.960 --> 0:03:37.280 and that sort of thing. And actually, to be honest, 0:03:37.720 --> 0:03:39.800 I spent probably a lot of my career, as do 0:03:39.920 --> 0:03:42.640 most fund managers, not really thinking very much about money 0:03:42.640 --> 0:03:46.080 and just sort of taking it for granted. But probably 0:03:46.120 --> 0:03:48.520 over the past ten years I've been thinking more about 0:03:48.600 --> 0:03:52.240 money and asking lots of stupid questions, and suddenly I've 0:03:52.240 --> 0:03:54.280 got this captive audience to ask you the questions to 0:03:54.440 --> 0:03:57.040 in four of my kids. So why wouldn't I use them? 0:03:57.360 --> 0:03:59.880 I love that. Now, as you say, most fun manager 0:04:00.400 --> 0:04:04.240 probably don't spend much time thinking about what money is 0:04:04.360 --> 0:04:06.680 or how the financial system really works. I talked we 0:04:06.800 --> 0:04:09.640 talked to fund managers all the time, and they talk 0:04:09.720 --> 0:04:14.240 about this of that company or the shaveta, you know, commodity. 0:04:14.280 --> 0:04:16.800 But before we even get to the you know, the 0:04:16.880 --> 0:04:18.920 lessons you teach your kids, why do you think this 0:04:19.040 --> 0:04:24.160 is an interesting avenue to explore? Um? Well, I think 0:04:24.200 --> 0:04:27.719 that in the era of heterodox monetary policy, then you 0:04:27.760 --> 0:04:30.440 can have all sorts of things which sounds quite scary 0:04:31.400 --> 0:04:34.880 or weird or wacky, which aren't actually really scary or 0:04:34.880 --> 0:04:36.800 wheel and wacky once you think about money a bit 0:04:37.040 --> 0:04:39.880 so because there can be something like helicopter money coming 0:04:40.000 --> 0:04:42.720 or when quantitive easing was first was first sort of 0:04:42.880 --> 0:04:45.000 there are a lot of like broken notes out there 0:04:45.040 --> 0:04:48.240 about how mr levels of hyperinflation we're going to come 0:04:48.240 --> 0:04:51.080 back because it was money printing, etcetera, etcetera, And you 0:04:51.120 --> 0:04:53.080 have to kind of start to think think about can 0:04:53.160 --> 0:04:56.080 this inter is this good advice or can it interfere 0:04:56.120 --> 0:04:59.680 with good decisions? So I think it was become incumbent 0:04:59.760 --> 0:05:01.600 upon everyone to think a little bit more about it. 0:05:01.920 --> 0:05:04.080 And there's this Chinese proverb which a friend of mine 0:05:04.960 --> 0:05:07.280 let me in on, which is a fish is the 0:05:07.360 --> 0:05:09.320 last and no water. And I think that's a lot 0:05:09.360 --> 0:05:11.880 of that's pretty true in the case of finance, folks 0:05:11.960 --> 0:05:14.200 and money. We're surrounded by what we think of it 0:05:14.240 --> 0:05:16.000 as something which is solid, but it's not. It's a 0:05:16.040 --> 0:05:18.920 social construct. It's something that we invent in different ways 0:05:18.960 --> 0:05:21.760 to do different things with. So Toby on that note, 0:05:21.839 --> 0:05:25.000 when you have um your four year old come up 0:05:25.040 --> 0:05:28.800 to you and ask you what is money? What exactly 0:05:28.839 --> 0:05:30.839 do you say to them? I hope you don't use 0:05:30.880 --> 0:05:35.159 words like heterodox right now? Well, to be fair, the 0:05:35.160 --> 0:05:37.040 four year old keeps out of it for now because 0:05:37.040 --> 0:05:40.720 I've started when they're five, So at five years old, 0:05:40.760 --> 0:05:43.360 they get a they get into the issue about money. Now. 0:05:43.360 --> 0:05:44.880 A lot of it was me asking them what do 0:05:44.920 --> 0:05:46.840 you think money is? And you know, how does it work? What, 0:05:47.400 --> 0:05:49.760 and then kind of doing that sort of annoying thing 0:05:49.800 --> 0:05:52.400 that kids do, uh, and which is to ask a 0:05:52.480 --> 0:05:54.680 question about the answer, and just keep on going and 0:05:54.720 --> 0:05:56.719 keeping on going and seeing if it got to the 0:05:56.720 --> 0:05:58.920 same sort of place that I went to, and by 0:05:58.920 --> 0:06:00.960 thinking about these thing more of from off it it does. 0:06:01.320 --> 0:06:05.440 These are pretty simple concepts when you once you sort 0:06:05.440 --> 0:06:08.159 of remember to forget all that you thought you knew. 0:06:08.920 --> 0:06:11.120 Uh So, you know, I think a lot of the 0:06:11.160 --> 0:06:14.120 time we think of money as as something like gold. 0:06:14.240 --> 0:06:16.920 You know, it's it's this this quantity of this physical thing. 0:06:16.960 --> 0:06:19.080 There's only a certain amount ofment. And the way in 0:06:19.080 --> 0:06:23.840 which we talk about budgets as adults, household budgets, that's 0:06:23.839 --> 0:06:26.240 based on the idea of a kind of a metalist 0:06:26.320 --> 0:06:28.400 view of worlds. So when we get down to five 0:06:28.480 --> 0:06:30.520 year old asking them what do you think money is? 0:06:30.720 --> 0:06:33.080 They say, right, well, it's it's a coin, you know, 0:06:33.200 --> 0:06:35.919 It's it's pretty straightforward. It's a coin. What do you 0:06:35.920 --> 0:06:38.000 do with it? Why? I exchange it for other things? 0:06:38.360 --> 0:06:40.960 So how about what about money in a bank? What's 0:06:41.000 --> 0:06:42.800 a bank? And so we can then start to have 0:06:42.839 --> 0:06:44.640 a think about those sort of the questions. All right, 0:06:44.720 --> 0:06:49.080 so let's dive into them. This issue we're talking about 0:06:49.200 --> 0:06:52.719 the Bank of Toby and Angle, the depositors are your 0:06:52.760 --> 0:06:55.680 seven and your nine year old. Something that you've written 0:06:55.720 --> 0:06:58.920 about is this fact that probably almost nobody knows, which 0:06:58.960 --> 0:07:01.640 is that we really use two kinds of money throughout 0:07:01.640 --> 0:07:06.520 our lives. There's inside money and outside money. What do 0:07:06.680 --> 0:07:09.680 these two different terms mean? And how do you convey 0:07:09.760 --> 0:07:13.000 this to your kids? Okay, right, let's let's rewind a 0:07:13.000 --> 0:07:15.680 second and then say, well, when I when I started, sorry, 0:07:15.680 --> 0:07:18.760 when my kids became five, they started getting pocket money, 0:07:18.760 --> 0:07:20.800 they didn't get it. But when they're under five, when 0:07:20.800 --> 0:07:23.960 the five started getting pocket money, um, and they got 0:07:23.960 --> 0:07:26.200 pocket money in the form of outside money, that is 0:07:26.200 --> 0:07:28.800 to say, they've got coins, so a bunch of coins 0:07:28.840 --> 0:07:31.520 every week. And what I found with after a while 0:07:32.040 --> 0:07:34.440 that they just spent these coins every week, which you'd say, 0:07:34.440 --> 0:07:36.560 fair enough, it's their pocket money, but to the point 0:07:36.600 --> 0:07:39.760 whereby they felt almost annoyed that they still had some 0:07:39.840 --> 0:07:41.560 money left that they hadn't spent, so they had to 0:07:41.600 --> 0:07:44.120 find something to spend it on. I thought, this is 0:07:44.120 --> 0:07:47.520 not the lesson really that I wanted to in part 0:07:47.640 --> 0:07:50.600 in giving people, you know, giving giving my kids pocket money, 0:07:50.640 --> 0:07:53.240 I wanted them to think about saving and you know, 0:07:53.360 --> 0:07:55.600 delay gratification. This kind of stuff, but I haven't really 0:07:55.600 --> 0:07:58.240 given them the instruments of doing so. And so, thinking 0:07:58.240 --> 0:08:00.880 back into our adult world, you know that one of 0:08:00.880 --> 0:08:04.480 the reasons why people do say is because they're they're 0:08:04.480 --> 0:08:07.000 saving up for something or other, and they're often using 0:08:07.040 --> 0:08:09.960 interest rates. And so I started thinking about, well, what 0:08:09.960 --> 0:08:12.200 what we might need to do is to have inside 0:08:12.240 --> 0:08:14.520 money as well as outside money, so not just coins, 0:08:14.600 --> 0:08:17.680 but also a bank. So we started up the an 0:08:17.720 --> 0:08:22.720 Angle Household Bank, which was a ledger, which and which 0:08:22.760 --> 0:08:25.840 attacks an interest rate every week. And you know, they're 0:08:25.880 --> 0:08:28.920 be a whole bunch of like behavioral psychology experiments over 0:08:28.920 --> 0:08:32.840 the decades, probably most famous with the Stanford Marshmallow experiment 0:08:32.920 --> 0:08:34.560 was thinking, like, you do you want to marshmalloon? Now 0:08:34.600 --> 0:08:36.280 do you want two in fifteen minutes if you wait 0:08:36.320 --> 0:08:40.040 for it? And these these all reveal really high internal 0:08:40.120 --> 0:08:42.800 rates of return that kids have. They have massive amounts 0:08:42.800 --> 0:08:45.079 of interest rates that they are required to to kind 0:08:45.080 --> 0:08:47.280 of delay consumption. So I get I give them ten 0:08:47.320 --> 0:08:51.199 percent a week on their balances. Uh, And I thought, well, 0:08:51.200 --> 0:08:53.240 we'll set down into train and see what happens and 0:08:53.280 --> 0:08:55.360 see whether they want to spend it on suites or 0:08:55.400 --> 0:08:57.560 whether they want to put it on the bank and 0:08:57.640 --> 0:09:01.120 get some some compound interest with the proviser. They can't 0:09:01.160 --> 0:09:04.040 spend their compound interests on suites, and it seemed to 0:09:04.040 --> 0:09:08.160 work quite well. So what exactly is the rate of 0:09:08.280 --> 0:09:12.280 saving versus they're spending? Um? Because, as you point out, 0:09:12.320 --> 0:09:15.600 like when you think of children, you don't necessarily think 0:09:15.679 --> 0:09:20.280 of comfort with delayed gratification. UM, So I'm curious to 0:09:20.360 --> 0:09:24.280 learn more of exactly how much they're spending versus saving. Yeah. 0:09:24.360 --> 0:09:26.280 I mean, my seven year old and nine year old 0:09:26.320 --> 0:09:28.920 have got really quite different savings habits, so that I 0:09:28.960 --> 0:09:31.640 was quite pleased for giving them this eyewateringly high level 0:09:31.679 --> 0:09:34.000 of interest did encourage them to save for a starter 0:09:34.800 --> 0:09:36.720 h and also kind of you know, I could talk 0:09:36.720 --> 0:09:41.080 to them about payday lending having those kind of rates 0:09:41.120 --> 0:09:43.559 in reverse if you like. So they're probably a bit 0:09:43.559 --> 0:09:45.880 frightened of that in terms of borrowing. Have you ever 0:09:45.960 --> 0:09:49.640 experimented with, um, changing the interest rate that you're paying 0:09:49.720 --> 0:09:54.000 to see their reaction? Yeah? Yeah, so my my my 0:09:54.080 --> 0:09:56.720 seven year old got really into saving and just saved 0:09:56.720 --> 0:09:59.920 and saved and saved, didn't spend a single penny on anything. 0:10:00.520 --> 0:10:03.400 Uh and uh, and I kind of you know, of 0:10:03.400 --> 0:10:05.280 course I did the math and saw that he was 0:10:05.440 --> 0:10:07.840 within about a year of owning my tire net worth, 0:10:07.880 --> 0:10:11.319 you know, with the com power combined interests and so 0:10:11.320 --> 0:10:13.080 so I kind of thought it was about the same 0:10:13.200 --> 0:10:16.280 time that the Swiss National Bank went into negative interest rates. 0:10:16.640 --> 0:10:20.120 So I discussed this move of movement in negative interest 0:10:20.200 --> 0:10:22.480 rates on the on the of the Swiss National Bank, 0:10:22.559 --> 0:10:25.040 and and they thought that the Swiss National Bank was 0:10:25.160 --> 0:10:28.679 really mean. I mean, it was like horrible, horrible institution. 0:10:29.440 --> 0:10:31.120 But then also discussed that I was going to put 0:10:31.160 --> 0:10:33.000 through an interest rate change as well, and put through 0:10:33.000 --> 0:10:36.679 a tiered interest rate change to reduce savings. So if 0:10:36.679 --> 0:10:38.839 you get up to fifty pounds, you get zero on 0:10:38.960 --> 0:10:41.680 that first fifty pounds and then it starts again. And 0:10:41.800 --> 0:10:44.199 that kind of changed my my behavior of my nine 0:10:44.280 --> 0:10:47.440 year old who never saves beyond fifty pounds ever, and 0:10:47.520 --> 0:10:51.040 my seven year old he just still determinedly saves a lot, 0:10:51.280 --> 0:10:53.280 but still you know, by the occasional sweet from now 0:10:53.440 --> 0:10:55.880 now and again, but is really kind of target saving 0:10:56.040 --> 0:10:58.160 with the dream of one day buying an iPad, which 0:10:58.240 --> 0:11:01.960 maybe several years away. I love that at least in 0:11:02.000 --> 0:11:05.400 the bank of Nngle there's a relationship, a clear relationship 0:11:05.440 --> 0:11:08.360 between rates and savings since in the real world, you know, 0:11:08.760 --> 0:11:11.520 central banks are still trying to fiddle with that and 0:11:11.559 --> 0:11:14.240 get it just right. Before we move on to the 0:11:14.280 --> 0:11:18.400 next point, I still think if you can explain, maybe 0:11:18.440 --> 0:11:21.679 even perhaps for a level above seven and nine year olds, 0:11:21.720 --> 0:11:24.920 this distinction between outside money and inside money, I still 0:11:24.960 --> 0:11:27.760 think very few people would even realize that there are 0:11:27.760 --> 0:11:30.520 two different things. But as you say, you know, the 0:11:30.559 --> 0:11:33.520 two different kinds of money, coins versus the money in 0:11:33.600 --> 0:11:35.800 your bank are as different as oil and water. Not 0:11:35.880 --> 0:11:38.560 only are they different, but they actually never even mix. 0:11:38.679 --> 0:11:41.040 Can you just explain that a little for them. Yeah, sure, 0:11:41.080 --> 0:11:43.040 I mean, it's it is. It is an amazing kind 0:11:43.080 --> 0:11:45.480 of revelation once you kind of think about these things 0:11:45.480 --> 0:11:49.439 a bit. That's and actually Hodgin Chang, who's an academic 0:11:49.440 --> 0:11:52.360 at Cambridge University, put it really nicely that banking is 0:11:52.480 --> 0:11:55.880 essentially a confidence trick, but a socially useful one. Insofar 0:11:55.920 --> 0:11:58.120 as I still tend to think, even though I know 0:11:58.240 --> 0:12:00.280 this distinction, that the money in the bank is still 0:12:00.400 --> 0:12:02.600 kind of like real money. It's still notes and coins, 0:12:02.640 --> 0:12:04.280 but in a form of a bank. I know I've 0:12:04.360 --> 0:12:07.400 lent to the bank that this money. But actually, when 0:12:07.640 --> 0:12:11.520 when the bank lends someone money, it's basically lending you 0:12:11.720 --> 0:12:15.960 a deposit. So if you're X y Z bank and 0:12:16.280 --> 0:12:17.920 and I come to you and I say, can I 0:12:17.920 --> 0:12:20.840 borrow you know, a hundred pounds or hundred dollars, you 0:12:20.880 --> 0:12:23.240 say sure, and you create this deposit for a hundred 0:12:23.280 --> 0:12:26.360 pounds or hundred dollars uh, And then I've got I've 0:12:26.360 --> 0:12:29.920 got this deposit, which itself is simply just an entry 0:12:29.920 --> 0:12:31.640 in the bank's book. And then I've got a loan, 0:12:32.240 --> 0:12:34.520 which is another entry in the bank's book, and I 0:12:34.559 --> 0:12:39.439 can spend that deposit by usually buying something from someone 0:12:39.480 --> 0:12:41.760 else you might bank, either with X y Z bank 0:12:41.840 --> 0:12:44.080 or another bank, which can then and then kind of 0:12:44.400 --> 0:12:47.960 relay the payments through the inter banking system. Um. So 0:12:48.040 --> 0:12:52.640 that actually by borrowing money, the money is created out 0:12:52.640 --> 0:12:55.720 of out of nothing by the private sector banking system. 0:12:55.760 --> 0:12:58.600 And most of the money, in fact, almost all of 0:12:58.640 --> 0:13:01.000 the money that we think we have of is this 0:13:01.600 --> 0:13:05.160 is this inside money that's inside the system. And we 0:13:05.200 --> 0:13:07.080 all know that if everyone tried to get their money 0:13:07.080 --> 0:13:08.640 out of the bank at the same time, the banks 0:13:08.679 --> 0:13:13.079 would collapse. There'd be a run on banks. But one 0:13:13.440 --> 0:13:16.520 of three reasons is because there just isn't enough outside money. 0:13:16.559 --> 0:13:18.679 It's not because the banks have done anything foolish with it, 0:13:18.720 --> 0:13:23.200 but it simply doesn't exist for them to transfer into 0:13:23.200 --> 0:13:26.120 outside money. You mentioned, um at the beginning of our 0:13:26.160 --> 0:13:31.480 discussion that thinking about money from perspective of children, and 0:13:31.520 --> 0:13:35.920 also using this inside outside framework can help explain some 0:13:36.040 --> 0:13:39.280 of the weirder things that have been happening in terms 0:13:39.360 --> 0:13:43.199 of monetary policy over the past few years. For instance, 0:13:43.480 --> 0:13:46.600 you know when QUI, when quantitative using was first announced, 0:13:46.800 --> 0:13:49.120 we had a whole bunch of people um talking about 0:13:49.120 --> 0:13:53.160 the inflationary effects, and then when helicopter money started to 0:13:53.200 --> 0:13:57.360 be discussed, Um, that inflation talk kind of went into overdrive. 0:13:57.840 --> 0:14:02.360 What can we learn from the Bank of Toby n 0:14:02.360 --> 0:14:07.640 Angle when it comes to unconventional monetary policy? Well, I 0:14:07.640 --> 0:14:10.680 guess you know the way in which I can think 0:14:10.679 --> 0:14:13.720 of of the Bank of Toby n Angle as a 0:14:13.760 --> 0:14:17.079 bunch of credits that my kids have. So actually, when 0:14:17.080 --> 0:14:19.640 when we started, when they said so if I give 0:14:19.680 --> 0:14:22.240 you my fift p where are you going to put it? 0:14:22.640 --> 0:14:25.200 I said, well, I'm going to spend it, thank you, 0:14:25.240 --> 0:14:27.040 And they're like no, no, no, no, But seriously, like 0:14:27.920 --> 0:14:29.040 where are you going to put it? Is it in 0:14:29.040 --> 0:14:31.480 a jar or is it in your pocket? I said no, seriously, 0:14:31.520 --> 0:14:33.280 I'm going to go and spend it. You know, you've 0:14:33.360 --> 0:14:35.400 lent me this money and I've I've got and spend it. 0:14:36.200 --> 0:14:39.680 But nevertheless, they have assets in the form of of um, 0:14:39.920 --> 0:14:42.920 you know, this liability that I've incurred. And if we 0:14:42.960 --> 0:14:46.360 start to think about like increasing the liability that I 0:14:46.440 --> 0:14:49.320 have because their assets are going up, does this become 0:14:49.360 --> 0:14:52.720 inflationary because they've got more assets which they can't translate 0:14:52.800 --> 0:14:57.400 into into into actually spending without without me being able 0:14:57.480 --> 0:15:00.520 to also access that. I mean, it's can get a 0:15:00.520 --> 0:15:03.080 little bit kind of tricky. So let's take it back 0:15:03.080 --> 0:15:04.920 into the real world and think about say quantity US 0:15:05.160 --> 0:15:10.240 and and UH and helicopter money. I guess taking this 0:15:10.320 --> 0:15:13.280 whole idea of inside out my outside money a step further, 0:15:13.640 --> 0:15:16.840 you'd say, well, you know, if outside money is basically 0:15:16.920 --> 0:15:20.120 money that governments invent to pay their bills and then 0:15:20.160 --> 0:15:23.760 like give value to you by demanding taxes that are 0:15:23.800 --> 0:15:26.440 to be paid in it in punishment of administered violence, 0:15:26.440 --> 0:15:29.760 which is basically what outside money is, then you say, well, 0:15:29.920 --> 0:15:33.320 why why did governments borrow money at all? What why 0:15:33.440 --> 0:15:37.160 is government debt in existence? And the answer kind of 0:15:37.160 --> 0:15:39.640 comes back in terms of, well, it comes back in 0:15:39.760 --> 0:15:43.160 order to keep keep outside money, that is to say, 0:15:43.400 --> 0:15:46.040 government money, give it some value. Can either be taxed 0:15:46.040 --> 0:15:48.960 away to keep its stock from exploding on the upside, 0:15:49.280 --> 0:15:52.080 or it can be borrowed back from the people or 0:15:52.080 --> 0:15:54.560 other people to whom it's it's given in the first place. 0:15:54.800 --> 0:15:59.600 And so government debt becomes an instrument of monetary sterilization 0:16:00.400 --> 0:16:02.680 on the part of the government, simply in the same 0:16:02.720 --> 0:16:06.760 way that taxation is an implement of sterilization. Monetary sterilization 0:16:06.760 --> 0:16:08.760 and part of the on the government. So we think 0:16:08.760 --> 0:16:12.200 about okay, well, quantitybiz and what's that. That's the government 0:16:12.240 --> 0:16:15.480 buying back or an agent of the government buying back. Uh. 0:16:15.840 --> 0:16:19.600 These sterilization instruments, that is to say, debt in exchange 0:16:19.640 --> 0:16:23.320 for zero duration instruments, that is to say, government money 0:16:23.440 --> 0:16:26.960 or outside money. And when is that dangerous? Well, that 0:16:27.000 --> 0:16:29.760 can be dangerous if people start to spend it a lot. 0:16:29.840 --> 0:16:32.600 But what happens then you can just unwind it in 0:16:32.720 --> 0:16:35.960 order to control the quantity of of of of outside money. 0:16:35.960 --> 0:16:38.240 But it isn't something which necessarily leads us down there 0:16:38.800 --> 0:16:42.480 the exploding credit. This is kind of like this is 0:16:42.560 --> 0:16:45.360 kind of the second huge revelation already. So first we 0:16:45.400 --> 0:16:48.680 have this revelation that the money in our pocket and 0:16:48.720 --> 0:16:51.280 the money in our bank are two totally separate things. 0:16:51.800 --> 0:16:54.800 And then you have this and then also this idea 0:16:54.920 --> 0:16:58.520 that the government doesn't really borrow, and it doesn't really 0:16:58.760 --> 0:17:00.760 in the way we think of borrowing, and it doesn't 0:17:00.800 --> 0:17:03.760 raise taxes for the purpose that it rate that we 0:17:03.800 --> 0:17:08.600 think it raises taxes for. Rather, the taxes are raised 0:17:08.720 --> 0:17:12.840 as a creating value for the for its currency. Yeah, 0:17:12.880 --> 0:17:14.719 I mean, I think that's right. I think both government 0:17:15.400 --> 0:17:19.160 governments both borrow and tax in order to keep its 0:17:19.200 --> 0:17:22.000 currency give it, give it its currency some value and 0:17:22.040 --> 0:17:25.359 some stability absolutely, which which kind of gets into a 0:17:25.400 --> 0:17:27.879 distributional issues. Why would you tax rather than borrow? You know, 0:17:28.160 --> 0:17:30.320 there are all sorts of distribution issues that come off that, 0:17:30.359 --> 0:17:32.040 and all this kind of flows from just thinking about 0:17:32.040 --> 0:17:35.880 how money works. Really, let's talk about you talk learned 0:17:35.920 --> 0:17:40.560 some lessons about household political economy. You wrote a post 0:17:40.720 --> 0:17:43.639 on your blog about sort of what you've learned about 0:17:43.680 --> 0:17:47.879 inequality and some of picketty is theories. What what did 0:17:47.920 --> 0:17:50.600 you learn from doing that? Is picketty big in the 0:17:50.680 --> 0:17:53.960 Nangle household among the five to nine year old demographic, 0:17:54.000 --> 0:17:57.760 I'm curious, um, not in the five to nine year 0:17:57.800 --> 0:17:59.720 old no, but but you know when when when I 0:17:59.760 --> 0:18:01.920 start to like put through, you know, after the Swiss 0:18:01.960 --> 0:18:05.000 National Bank moved to negative rates and started to change 0:18:05.000 --> 0:18:07.119 interest rates, I started having a chat to them about 0:18:07.560 --> 0:18:09.199 so if I change interest rates, you know what, what 0:18:09.240 --> 0:18:10.719 do you think the impact is going to be for you? 0:18:11.119 --> 0:18:13.760 And my my nine year old, who targets saved to 0:18:13.760 --> 0:18:17.760 a certain level and then spend it on stuff, knows 0:18:18.119 --> 0:18:21.480 if you like her own reaction function to these things, 0:18:21.480 --> 0:18:24.480 and was kind of outraged at the idea that there 0:18:24.480 --> 0:18:27.520 could be higher rates when I then talked about reversing 0:18:27.520 --> 0:18:29.560 it because from her perspective, she would not be a 0:18:29.600 --> 0:18:32.240 beneficiary of this, and so that would increase your inequality 0:18:32.320 --> 0:18:35.840 within the n Angol Children household. Whereas my my seven 0:18:35.880 --> 0:18:38.359 year old, he knew it would be wrong to have 0:18:38.440 --> 0:18:40.879 higher rates because he knew he'd be benefiting it, and 0:18:40.920 --> 0:18:44.840 he knew they'd also be calls on on his his 0:18:44.960 --> 0:18:47.560 largest from other parts of the n Angle family. House 0:18:47.600 --> 0:18:49.800 that so he does already kind of like buy the 0:18:49.800 --> 0:18:52.760 four year old toys because he realizes in such a 0:18:52.760 --> 0:18:56.359 good situation that he should like distribute this scale at 0:18:56.440 --> 0:19:00.280 this wealth across grassyrest skill quaver parenting questions. So I 0:19:00.320 --> 0:19:03.280 have a one year old daughter, so I won't I'm 0:19:03.359 --> 0:19:05.520 not going to be doing any of these experiments for 0:19:05.560 --> 0:19:07.679 a few years yet. But do you ever worry that 0:19:07.760 --> 0:19:09.880 your kids are just going to be like so much more, 0:19:10.119 --> 0:19:13.080 so much smarter and savvier than all the other kids 0:19:13.080 --> 0:19:17.959 in school, and that they're just, oh my god, clearly 0:19:18.000 --> 0:19:19.720 like those kids, that your kids are just going to 0:19:19.760 --> 0:19:23.320 be like running circles around all the other kids in school, Like, 0:19:23.400 --> 0:19:24.800 do you worry they're just going to be you know, 0:19:24.840 --> 0:19:28.280 it's almost almost too too too smart for their own good. 0:19:28.840 --> 0:19:32.080 I honestly say, I that doesn't keep me awake a night. 0:19:34.920 --> 0:19:37.240 So I have a question that you kind of started 0:19:37.280 --> 0:19:40.600 to get to it with the inequality stuff. But, um, 0:19:40.640 --> 0:19:44.200 you know, we're clearly talking about young children and young 0:19:44.280 --> 0:19:48.719 children's attitudes towards basic interest rates. Um, but you've pointed 0:19:48.720 --> 0:19:53.720 out more than once that people's attitude two rates tends 0:19:53.760 --> 0:19:57.440 to change depending on what age they are so demographics 0:19:57.520 --> 0:20:00.959 ends up being a really really big fa actor in 0:20:01.000 --> 0:20:04.760 all of this that doesn't necessarily get the attention it 0:20:04.880 --> 0:20:07.720 might deserve. Yeah, no, I think I think that's right. 0:20:07.760 --> 0:20:10.880 In fact, you know, after after a couple of years 0:20:10.920 --> 0:20:14.800 of experimenting with my children are and interest rates and 0:20:15.119 --> 0:20:17.320 banks and are like and thinking about how their reaction 0:20:17.359 --> 0:20:20.359 functions change as savers and like, and thinking about that 0:20:20.440 --> 0:20:23.240 into the real world, there actually tend to be some 0:20:23.920 --> 0:20:27.240 some potentially really quite big research questions that aren't addressed. 0:20:28.080 --> 0:20:32.159 That is to say, most economic frameworks, it all models 0:20:32.240 --> 0:20:35.359 used by central banks quite rightly for many years, have 0:20:35.440 --> 0:20:38.280 ever assumed that there is a negative relationship between you know, 0:20:38.640 --> 0:20:42.000 rates and spending, so higher rates would discourage borrowing and 0:20:42.080 --> 0:20:44.800 encourage saving. But there are there are big cohorts who 0:20:44.880 --> 0:20:48.880 don't really have the access to to borrow at those rates, 0:20:48.920 --> 0:20:51.080 so they can't borrow more when it's lower and less 0:20:51.080 --> 0:20:54.159 when it's higher. Now, some of that financially excluded people, 0:20:54.320 --> 0:20:58.520