Speaker 1: Pushkin. Hey, it's Jacob.
Speaker 2: Recently I co hosted an episode of another Pushkin podcast,
Speaker 2: a show called Cautionary Tales, hosted by Tim Harford and
Speaker 2: Tim and I on that show answered a bunch of
Speaker 2: listener questions, and as it happens, those questions were largely
Speaker 2: about themes that we talk about a lot on what's
Speaker 2: your problem, technological innovation, climate change, etc. So I thought
Speaker 2: that show would be interesting to people who listen to
Speaker 2: this show would be interesting to you. So here's the episode.
Speaker 2: I hope you like it.
Speaker 3: Hello listeners, Tim Harford here, as loyal listeners will know,
Speaker 3: caution Me Tales is a podcast about learning from the
Speaker 3: mistakes of the past. But it also seems to me
Speaker 3: that we can learn from things that have gone well
Speaker 3: in the past. Example, getting Jacob Goldstein on the show.
Speaker 3: Jacob is Jacob is back for an episode of Cautionary Questions.
Speaker 1: Hello Jacob.
Speaker 2: What's the opposite of a cautionary tale, A salutary tale,
Speaker 2: a salutary story?
Speaker 1: I guess we salute you, Jacob.
Speaker 2: We can do better.
Speaker 3: Let's try and punch that up. We'll work on it.
Speaker 3: For those of you who don't know. Jacob is the
Speaker 3: host of pushkin podcast What's Your Problem, which is a
Speaker 3: brilliant show about people who are trying to make technological progress.
Speaker 3: He is also the author of the book Money, The
Speaker 3: True Story of a Made Up Thing, and he's the
Speaker 3: perfect person to help me answer all of the questions
Speaker 3: that you lovely people have been kind enough to send in.
Speaker 3: So Jacob, wonderful to have you back. Of course, our
Speaker 3: virtual mail bag is bursting with queries on topics as
Speaker 3: varied as climate investing and careers advice. So Jacob Goldstein,
Speaker 3: are you ready? Yes, let's do it.
Speaker 2: So, Tim, We're going to start with a couple of
Speaker 2: emails that came in after the last time you and
Speaker 2: I talked on the show, and one of the things
Speaker 2: we talked about was what happens if AI and robots
Speaker 2: take all of our jobs. So the first question about that,
Speaker 2: which is frankly really more of a comment, but a
Speaker 2: lovely comment, comes from Karen, who writes, Dear Tim Harford,
Speaker 2: I was, as usual enjoying your recent Q and A
Speaker 2: episode with Jacob Goldstein.
Speaker 1: She's a woman of taste. I like how this thoughts.
Speaker 2: I like her already, and your lively discussion about what
Speaker 2: happens when everyone loses their jobs. To AI, at one
Speaker 2: point you said, quote, how would we react if our
Speaker 2: desire for mastery, or desire for meaning, or desire to
Speaker 2: feel useful if all that had to be satisfied without
Speaker 2: having a job, And what would we do? And could
Speaker 2: we cope? And I don't know well, said Tim Harford.
Speaker 2: Karen writes, you could just have easily asked what do
Speaker 2: people do after they've retired? She goes on, My work
Speaker 2: was very meaningful to me too. I led policy teams
Speaker 2: that advise government minister as it was fast paced, exciting, fun, challenging.
Speaker 2: I loved my job. So when I retired I wondered
Speaker 2: about all the things you expressed concerns about on your show.
Speaker 2: Here is the truth as I see it. Whatever you're
Speaker 2: doing for a living, it's not all of you. It
Speaker 2: just takes most of your time. All the other parts
Speaker 2: of you, all those pushed down by the demands of
Speaker 2: capitalist discipline, emerge once your time has been freed. Then
Speaker 2: you find out what else you are, what else makes
Speaker 2: you happy, and what else gives you meaning and purpose.
Speaker 2: So there is really nothing to fear from our robot
Speaker 2: over Lord's my very best regards Karen, Wow, way to
Speaker 2: start the show with our best question, and the other
Speaker 2: questions can't possibly be as good as that. It's really lovely, rights, it's.
Speaker 3: Really lovely, And I agree with all of the stuff
Speaker 3: about what we do for a living is not all
Speaker 3: of us. It's a very interesting thought, though. Is retirement
Speaker 3: the same as living your entire life not working because
Speaker 3: a robot took your job? And we have some evidence
Speaker 3: on this point, tell me where is the finding?
Speaker 1: So these three.
Speaker 3: German economists published this research just over a decade ago
Speaker 3: looking at people's life satisfaction. Turns out people are quite
Speaker 3: happy being retired. And if you have a job and
Speaker 3: then you retire, nothing happens to your life satisfaction. You
Speaker 3: will fine before, you're fine after. But if you're unemployed,
Speaker 3: you're miserable. And if you then retire from a situation
Speaker 3: of unemployment, your life satisfaction goes up. I mean it's
Speaker 3: the same thing, right, Like you go from not having
Speaker 3: a job to not having a job. But there's something
Speaker 3: about your identity as a retired person versus a person
Speaker 3: who is looking for a job and can't find a job.
Speaker 3: It makes a huge difference to how people feel about themselves.
Speaker 2: Unemployed in the data does not mean a person who
Speaker 2: doesn't have a job, right, It means a person who
Speaker 2: wants a job and doesn't have a job, And that's
Speaker 2: an important difference. And so I wonder in that study
Speaker 2: if that difference is actually quite significant, right, Like, if
Speaker 2: you want a job and don't have a job, you're
Speaker 2: going to be unsatisfied in that dimension, Whereas if you
Speaker 2: don't have a job and don't want a job, it's fine,
Speaker 2: that sounds fine.
Speaker 3: Yeah, yeah, So I think that's right, Jacob, And I
Speaker 3: think a lot of this depends on what people's expectations are.
Speaker 3: They're expectations of themselves, what they think other people expect
Speaker 3: of them. But I would guess there's a huge difference
Speaker 3: in the scenario where the robots take everyone's job and
Speaker 3: where all they just doing, you know, hobbies, whatever we want,
Speaker 3: our living standards are taken care of by the robots
Speaker 3: and everyone's in the same boat, versus a situation where
Speaker 3: a lot of people lose their jobs to the robots
Speaker 3: and a lot of other people don't, which I think
Speaker 3: is more likely.
Speaker 2: So traditionally we thought of technological unemployment as happening to
Speaker 2: people with lower job skills, right, people with less education, strong,
Speaker 2: people who were getting replaced by machines. Plainly, the new
Speaker 2: wave of generative AI threatens you and me, which is.
Speaker 1: What makes it existentially threatening.
Speaker 2: It does people losing their jobs to technology are more
Speaker 2: broadly drawn from across the income spectrum and the education spectrum.
Speaker 2: How does it change the sort of social implications because
Speaker 2: on a fundamental level, what we're really talking about is
Speaker 2: whether you have a job or not, and how you
Speaker 2: feel about that is largely determined by social norms. Right,
Speaker 2: That's actually what's going on here. It's a status game
Speaker 2: to some significant degree, and it's uncomfortable to call it that.
Speaker 2: I don't think I like my job because it gives
Speaker 2: me status. I think I like my job because it's
Speaker 2: fun and I'm contributing something to the world. But obviously
Speaker 2: we all care about status.
Speaker 3: And it does give you status. You have one of
Speaker 3: the best jobs in the world. You're a podcasta.
Speaker 2: Listen, we're walking right up to the next question in
Speaker 2: a very elegant way from Neil.
Speaker 1: Hello, Tim.
Speaker 2: During your recent Cautionary Questions episode, Jacob Goldstein jokes that
Speaker 2: if AI takes everyone's jobs, the two of you will
Speaker 2: still do a free podcast together. I understand the jest,
Speaker 2: but it begs the question, By the time AI is
Speaker 2: good enough to take over most jobs, won't it also
Speaker 2: be better than us at creating entertainment and art. I
Speaker 2: think we as humans don't want to admit that as possible,
Speaker 2: but it's definitely the goal of AI developers all over
Speaker 2: the world At this very moment. I'm curious what that
Speaker 2: possibility could mean for humanity and what we might do
Speaker 2: to avoid or prepare for it. Thank you for all
Speaker 2: your excellent content. The robots have nothing on you yet.
Speaker 3: Yes, Jacob, have you heard the podcasting software that notebook
Speaker 3: LM have just released?
Speaker 1: This is a Google product, Tim.
Speaker 2: Not only have I heard it, I uploaded a chapter
Speaker 2: of my book about paper money in China and queued
Speaker 2: up a moment of it to play for you right now.
Speaker 4: You know how we always hear about Marco Polo bringing
Speaker 4: back these crazy stories from China, right well, get ready
Speaker 4: for this trying out. China was light years ahead of
Speaker 4: Europe when it came to.
Speaker 2: Money, centuries ahead to be exact.
Speaker 4: We're talking paper money, folks, Yes, centuries before it ever
Speaker 4: showed up in Europe.
Speaker 2: It's wild. It really flips the script on how we
Speaker 2: usually think about financial history. Absolutely, So, just to be clear,
Speaker 2: I just uploaded a chapter of the book clicked whatever
Speaker 2: make a podcast, didn't make any choices, didn't tell it
Speaker 2: to do anything but that, and that's what came out.
Speaker 3: And these are two synthetic voices reading a script that
Speaker 3: was created by a genitive AI in response to your
Speaker 3: wonderful book Money the True Story of a made up thing.
Speaker 3: And it's pretty good. It's pretty good.
Speaker 2: It's definitely good enough to be very scary.
Speaker 3: I've heard worse human podcasters, for sure, So I mean,
Speaker 3: maybe this is all happening sooner than we think. But
Speaker 3: what Neil is basically driving at is, by the time
Speaker 3: the robots take our jobs, won't they also be better
Speaker 3: than us? So they will make a better podcast than
Speaker 3: we will. They will draw better pictures than we will,
Speaker 3: they will write better pros than we will, they will
Speaker 3: compose better music than we will, and so on. And
Speaker 3: is that a problem. I'm not sure that's the problem.
Speaker 3: I'm worried about. The computer already draws better than I do.
Speaker 3: And Lobar respect y Loba, and it's great. I'm like, wow,
Speaker 3: I can create art for my hobby projects.
Speaker 1: That's great.
Speaker 3: I'm not doing anybody out of a job, But now
Speaker 3: my own creativity is unlocked by the computer. Of course,
Speaker 3: maybe there comes a time where I don't need to
Speaker 3: do any of that. I just press the button and
Speaker 3: the computer just produces everything, and it's better than what
Speaker 3: I could produce.
Speaker 1: Does that matter? I want to add a wrinkle rinkle away.
Speaker 2: When I was talking about making a podcast with you
Speaker 2: after the robots take our jobs, part of what I
Speaker 2: was imagining was that somebody would listen, right, Like, not
Speaker 2: that we could make a living out of it, but
Speaker 2: that we would be doing it for some audience.
Speaker 4: Right.
Speaker 2: My hope, although I really don't know, is that even
Speaker 2: if AI makes a better podcast than us, people will
Speaker 2: listen just because people like people. And one interesting case
Speaker 2: to consider is chess.
Speaker 3: Right.
Speaker 2: Chess has this history where first people were better than machines,
Speaker 2: and then for a long time computers could beat people,
Speaker 2: but a person working with a computer was better than
Speaker 2: just a computer. Yeah, and then a few years ago
Speaker 2: that ceased to be the case. And obviously many many
Speaker 2: computers can beat every single human being on earth, but
Speaker 2: chess players still like are famous among nerds, right, Magnus
Speaker 2: Carlson is like a rich guy, yes, superstar, and people
Speaker 2: pay lots of money to watch him play worse chess
Speaker 2: than a computer. So my hope is we can be
Speaker 2: if not the Magnus Carlson's of podcasting, the whoever is like,
Speaker 2: you know, way worse than Magnus Carlson, but still a
Speaker 2: pretty good chess player.
Speaker 3: Sure, and you may be right, but I think my
Speaker 3: point is it's worth playing chess even if nobody watches you,
Speaker 3: even if it's just you and a friend.
Speaker 2: Yeah, but is it worth making a podcast if nobody
Speaker 2: listens that, what are we bothering with the microphones for?
Speaker 2: Then you could just call me.
Speaker 3: Yeah, yeah, Okay, we could have to think it's the
Speaker 3: pocast that nobody listens is a fun conversation.
Speaker 2: Welcome to the podcast for Noah, I'm Jacob Waldstein.
Speaker 3: If people weren't listening, it would be different. But I
Speaker 3: think people would still be creating stuff. People would still
Speaker 3: be making apt and that will be fine. That's my
Speaker 3: answer to Neil.
Speaker 2: Okay, Tim, We're going to go from the robot apocalypse
Speaker 2: to the climate apocalypse with our next question from Julian,
Speaker 2: who writes Dear Tim. Lately, more and more news breaks
Speaker 2: of climate change harming the economy. For example, I remember
Speaker 2: a recent story about home insurance premiums rising steeply and
Speaker 2: hazard zones for flooding storms or landslides. That made me wonder,
Speaker 2: isn't there a way to profit from climate change too
Speaker 2: that would allow us to hedge against these economic risks.
Speaker 1: Could you set up a.
Speaker 2: Fund that would act, in effect, like a climate change
Speaker 2: insurance policy. Excellent show, by the way, Deep insights told
Speaker 2: via gripping stories. All the best from Vienna Julian.
Speaker 3: It's a very interesting question. The thing that immediately springs
Speaker 3: to my mind is I once saw one of the
Speaker 3: most amazingly persuasive pieces of rhetoric ever that was not
Speaker 3: intended to be persuasive, and it was at a commodities conference.
Speaker 3: There was a bunch of guys who trade agricultural commodities
Speaker 3: and therefore have a big interest in climate variability, but
Speaker 3: at the same time were culturally Midwestern and therefore climate skeptic,
Speaker 3: And the guy giving a talk at this conference was
Speaker 3: rather professorial Germanic character. I can't remember if he was
Speaker 3: German or Austrian or Swiss and he was from one
Speaker 3: of those big reinsurance companies. He just gave a talk
Speaker 3: explaining how they were raising all of their insurance premiums
Speaker 3: because of climate change, and showed loads and loads of
Speaker 3: data about climate change and how they were changing their
Speaker 3: pricing model. And there's a bunch of people who I
Speaker 3: think were politically predisposed to be climate skeptics were like, huh,
Speaker 3: this guy is not Hillary Clinton and the Dems coming
Speaker 3: to take away our freedoms. This guy doesn't want to
Speaker 3: persuade us of anything. He's just telling us that the
Speaker 3: price of insurance is going up and here's why. And
Speaker 3: I really felt the mood in the room change because
Speaker 3: of that talk was fascinating. And what that gets at
Speaker 3: is that insurance gives us a kind of truth about
Speaker 3: the risks that we face. Because insurance companies operate in
Speaker 3: a competitive market, they want to offer the most expensive
Speaker 3: premiums they can get away with, but they're forced by
Speaker 3: competition to keep the premiums low, and so as the
Speaker 3: premiums rise and rise and rise, that generally indicates that
Speaker 3: the risk is rising and rising and rising too. So,
Speaker 3: to return to Julian's question, is there a way to
Speaker 3: profit from climate change. I mean your podcast What's Your Problem, Jacob,
Speaker 3: You've talked to many entrepreneurs who are hoping to make
Speaker 3: money while also saving the planet.
Speaker 2: I was thinking about that. It is encouraging to talk
Speaker 2: to these people who are very smart and I think
Speaker 2: truly believe that the work they're doing will mitigate the
Speaker 2: damage from climate change. And the progress has been extraordinary,
Speaker 2: right like the fall in the price of solar power
Speaker 2: in particular, it's staggering. You know, people are making batteries better,
Speaker 2: and there are really hard parts of the problem like
Speaker 2: cement and planes, and people are working on that. And
Speaker 2: you know, Bill Gates started a venture capital fund called
Speaker 2: Breakthrough Energy Ventures. That is exactly what Julian is asking about, right, Like,
Speaker 2: the point of this fund is to profit from climate
Speaker 2: change by helping to solve or mitigate climate change.
Speaker 3: So I think there are all these hopeful stories and
Speaker 3: it is very encouraging. But fundamentally to come back to
Speaker 3: this idea of our kind of inverse insurance policy, I
Speaker 3: think that the answer is no.
Speaker 1: Yeah.
Speaker 3: Fundamentally, insurance moves the cost around the person whose house
Speaker 3: got burned down or the person whose home was destroyed
Speaker 3: in a hurricane, they don't have to pay for rebuilding it. Instead,
Speaker 3: the insurance company pays, but somebody still has to pay.
Speaker 3: And insurance moves that risk around and that's very valuable,
Speaker 3: but it doesn't make the cost go away. And climate
Speaker 3: change increases these costs, and all the insurance in the
Speaker 3: world is not going to reduce them in aggregate. It'll
Speaker 3: shift them to different people, but it's not going to
Speaker 3: reduce them. For that we need you sell the panels, Jacob.
Speaker 2: You know, when you put it that way, like, what
Speaker 2: we really want in terms of moving the economics is
Speaker 2: you want the people who are consuming the fossil fuel,
Speaker 2: who are flying on the plane, who are eating the
Speaker 2: hamburger to pay the full cost of that. Right, you
Speaker 2: want to internalize that cost which is now not in
Speaker 2: that transaction. And you can do that with a carbon tax,
Speaker 2: Like it's a great idea. You can even have a
Speaker 2: carbon tax and then just give everybody the money back. Right,
Speaker 2: the government collects money from people for consuming carbon essentially,
Speaker 2: and then sends a check to everybody in the country
Speaker 2: at the end of the year.
Speaker 1: So the government doesn't.
Speaker 2: Even have to take more money in the aggregate and
Speaker 2: like it's super elegant, and it's just politically doesn't really
Speaker 2: seem to be happening, but it is in a way
Speaker 2: solving the problem fundamentally.
Speaker 1: Absolutely.
Speaker 2: All Right, that's enough about that. We'll be back in
Speaker 2: just a minute.
Speaker 3: We are back. I'm Tim Harford. I am talking to
Speaker 3: the amazing Jacob Goldstein. And this is another of our
Speaker 3: Cautionary Questions episodes where you have been sending in your
Speaker 3: questions and Jacob and I are going to try and
Speaker 3: answer them. Jacob, what have you got for me?
Speaker 1: Tim?
Speaker 2: This is a throwback. It's from Robert who writes, Hi, Tim,
Speaker 2: why did no one go to jail after the two
Speaker 2: thousand and eight financial crisis? I remember the savings and
Speaker 2: loans financial crisis during the Reagan presidency when Charles Keating
Speaker 2: was jailled love your show, Robert from Illinois.
Speaker 3: Yeah, and a throwback because we first met each other
Speaker 3: shortly after the financial crisis.
Speaker 2: In twenty ten, when the question on everybody's lips was
Speaker 2: Who's going to jail?
Speaker 3: Yeah, I mean it's not literally true that nobody went
Speaker 3: to jail, but he madeoff went to jail for example.
Speaker 3: I mean, I think the short answer is if you
Speaker 3: want people to go to jail, then first they have
Speaker 3: to commit a crime. And the weird thing about the
Speaker 3: financial crisis is I don't think many people did commit crimes.
Speaker 3: All of this crazy stuff that happened, and all the
Speaker 3: outrageous things that people did were I think mostly legal,
Speaker 3: which is of course the real scandal.
Speaker 2: Yeah, you know, everybody talked about housing and crazy sliced
Speaker 2: up bonds built on mortgages, right, that was the sort
Speaker 2: of part of the story that everybody heard and told,
Speaker 2: And that part of the story is true. But there
Speaker 2: is another piece of the story that I actually think
Speaker 2: is a really fundamental driver of the crisis that you
Speaker 2: didn't hear as much because it's a little more abstract
Speaker 2: and a little nerdier. And that is basically that starting
Speaker 2: a long time before the crisis, starting in like the
Speaker 2: nineteen seventies, there arose in the United States what came
Speaker 2: to be called a shadow banking system, where because of
Speaker 2: regulations on banks in the US that were set up
Speaker 2: after the depression, when there was a giant banking crisis,
Speaker 2: clever finance people came up with financial structures that looked
Speaker 2: like banks but weren't regulated like banks, and in particular,
Speaker 2: they looked like bank deposits. Right, So a bank deposit
Speaker 2: is a weird thing where you put your dollar in
Speaker 2: the bank and you have your deposit and it's worth
Speaker 2: a dollar, and then the bank takes your dollar and
Speaker 2: lends it out to somebody else, or your one thousand
Speaker 2: dollars and lends it out to somebody else for a
Speaker 2: mortgage that doesn't have to be paid back for thirty years.
Speaker 2: And so then there is this inherent fragility in that system, right,
Speaker 2: because if we all come back and ask for our money,
Speaker 2: the bank won't have it. And it's not because the
Speaker 2: bank is greedy or evil or incompetent. It's because of
Speaker 2: the fundamental structure of banking. That fragility is inherent in
Speaker 2: the fundamental structure of banking. And what happened in the
Speaker 2: financial crisis is that there were billions of dollars that
Speaker 2: were deposit like. They weren't exactly deposits. They weren't insured
Speaker 2: by the federal government, but they were in money market
Speaker 2: mutual funds, which people may be familiar with, and were
Speaker 2: explicitly set up to be like a bank deposit, but
Speaker 2: could pay higher interests and weren't regulated and in the
Speaker 2: repo market, which is like a weirder version of the
Speaker 2: same thing, let's say, and everybody came and asked for
Speaker 2: their money back in two thousand and eight, and of
Speaker 2: course the shadow banks which were not called banks or
Speaker 2: shadow banks didn't have it, and that was a core
Speaker 2: driver of the crisis. And it wasn't illegal, as you said.
Speaker 2: But it's like that is what all financial crises are.
Speaker 2: They just have like different flavors, different skins.
Speaker 3: I mean you say it wasn't because the shadow banks
Speaker 3: were lazy or incompetential greedy. I mean I think they
Speaker 3: probably were incompetent and greedy as well.
Speaker 2: Fair well, greed. I shouldn't have brought greed into it.
Speaker 3: Greed should be fun, but greed, right, like incompetence is
Speaker 3: not illegal, and neither is greed.
Speaker 2: Yeah, they certainly didn't break the rules, ye, right. And
Speaker 2: in fact, one of the key under the radar failures
Speaker 2: that week in September in two thousand and eight, when
Speaker 2: Lehman Brothers the investment bank failed and then everybody else
Speaker 2: failed and the government bailed everybody out, was the very
Speaker 2: first money market neutral fund that had been created forty
Speaker 2: years earlier, and was very much like a bank and
Speaker 2: suddenly couldn't give everybody their money back. And so it's
Speaker 2: totally understandable that everybody is angry when one industry blows
Speaker 2: up the economy. And by the way, all the people
Speaker 2: in that industry are getting rich and it's not obvious
Speaker 2: what they're providing to us. But it is in fact
Speaker 2: a really hard problem to solve, like banks are inherently unstable,
Speaker 2: and people love of making things that look like banks
Speaker 2: and are inherently unstable.
Speaker 3: Thank you, Jacob for reminding me of the concept of
Speaker 3: shadow banking. It's it's like real banking, but their headquarters
Speaker 3: are in Mordal. That's such a greatat Yes, oh, good times,
Speaker 3: Good times, Jacob. There are more questions in the mail bag.
Speaker 3: Would you mind if I were to read the next
Speaker 3: question to you because I want to hear your answer
Speaker 3: because you are the author of money, the true story
Speaker 3: of a made up thing, and I feel like this
Speaker 3: question is made for you. One of my friends posted
Speaker 3: this on Facebook, but is it true? This is the
Speaker 3: Facebook post. This is why I keep telling the younger
Speaker 3: generation to stop avoiding cash. I have a fifty pound
Speaker 3: banknote in my pocket. I go to a restaurant and
Speaker 3: pay for dinner with it. The restaurant owner then uses
Speaker 3: the note to pay for the laundry. The laundry owner
Speaker 3: then uses the note to pay the barber. The barber
Speaker 3: will then use the note to pay for shopping. After
Speaker 3: an unlimited number of payments, it will still remain a
Speaker 3: fifty pound value, which has fulfilled its purpose to everyone
Speaker 3: who used it for payment. But if I go to
Speaker 3: a restaurant and pay digitally via card, the bank fees
Speaker 3: for my payment transaction charged to the seller are three percent,
Speaker 3: so around one pound fifty for the fifty pound payment.
Speaker 3: This will also be the case for laundry payment, payment
Speaker 3: to the barber, and so on. Therefore, after thirty transactions,
Speaker 3: the initial fifty pounds will exist at only five pounds,
Speaker 3: and the remaining forty five pounds has become the property
Speaker 3: of the bank. That's not actually how percentages work. But
Speaker 3: that's fine thanks to all the digital transactions and fees.
Speaker 3: Use it or lose it, folks. Once it's gone, we
Speaker 3: won't get it back. Cash is king. Okay, So the
Speaker 3: arithmetic on this is wrong. We don't need to bother
Speaker 3: with that. But Jacob, what about the economics what's your
Speaker 3: reaction to this?
Speaker 2: So that was from Windy a rate and she says,
Speaker 2: if you pay with a fifty pound banknote at the restaurant,
Speaker 2: the restaurant owner then uses the note to pay for
Speaker 2: the laundry and so on.
Speaker 1: Yeah, and the note never gets used up. It just
Speaker 1: goes around and around.
Speaker 2: Right, So, at the risk of being pedantic, I think
Speaker 2: it is relevant to say that is not in fact
Speaker 2: what happens. There is a cost born by the restaurant
Speaker 2: of dealing with cash, right, They pay somebody to account it,
Speaker 2: they pay somebody to take it to the bank, and
Speaker 2: so there is a cost to cash. So the relevant
Speaker 2: question is how does the cost of cash compare to
Speaker 2: the cost of a credit card and also to the
Speaker 2: cost of a debit card. Those two things feel the
Speaker 2: same to us as customers, but as it happens, they're
Speaker 2: not the same to merchants. And for the most part,
Speaker 2: and it varies from country to country, debit cards are
Speaker 2: the cheapest for merchants, then cash is in the middle,
Speaker 2: and credit cards are the most expensive. So like the
Speaker 2: most efficient mode of transaction for the merchant in most
Speaker 2: countries is the debit card, basically because you compare the
Speaker 2: cost of dealing with the cash, of paying people to
Speaker 2: count the money, to take it to the bank, et cetera,
Speaker 2: to the fees they have to pay to use credit
Speaker 2: cards and debit cards. And you know, from a sort
Speaker 2: of first principles perspective, if you just step back and
Speaker 2: think what is most efficient, it should be that a
Speaker 2: card is cheaper. Right, Like, it's obviously costly to deal
Speaker 2: with cash. It's a security risk, you have to actually
Speaker 2: physically move it around, and so on one level we
Speaker 2: should ask, well, why is a card ever more expensive?
Speaker 1: Right?
Speaker 2: And they're paying some amount for credit, right because a
Speaker 2: credit card there's a risk that the bank won't get
Speaker 2: paid back because it is in fact credit. There's a
Speaker 2: risk of fraud, and so that cost is born. Debit
Speaker 2: should be really cheap because you can just have the
Speaker 2: computer at the restaurant ask the computer at the bank, hey,
Speaker 2: does this person have the money in their account? And
Speaker 2: the bank says yes, and the payment goes through and
Speaker 2: it should be very cheap. So there is a question
Speaker 2: why does it cost anything for debit. One answer to
Speaker 2: why is because Visa controls a huge percentage of the
Speaker 2: debit card payment system in the US, and in fact,
Speaker 2: the US Department of Justice, the federal government, is suing
Speaker 2: Visa for basically monopolistic practices in the debit card business.
Speaker 3: I mean, there's a lot wrong with this Facebook post,
Speaker 3: but there is a grain of truth in that there
Speaker 3: is a monopolistic provider, or allegedly monopolistic provider, of these
Speaker 3: payment services and they're raking off a disproportionate fee. On
Speaker 3: the other hand, I mean, Visa, just like the barber,
Speaker 3: and just like the laundromat owner, and just like the
Speaker 3: restaurant owner, Visa is also a business. So if they
Speaker 3: take the money, well, they can also spend the money
Speaker 3: back into the economy. I mean it may feel a
Speaker 3: bit unfair, but I mean the money is still goes around.
Speaker 3: I mean this Facebook post is acting like the thing
Speaker 3: that's scarce is the money, Like the fifty pound note
Speaker 3: is the thing that's potentially scarce, but actually you can
Speaker 3: always make more fifty pound notes if you are the
Speaker 3: central bank. So money is in fact not the thing
Speaker 3: that is scarce. What is scarce is laundromats and restaurants
Speaker 3: and chefs and all of these real resources in the economy,
Speaker 3: and the money, whether it's digital money or whether it's
Speaker 3: paper money is just a way of kind of keeping
Speaker 3: track of things. And then which gets back to your question,
Speaker 3: which is which is the most efficient way of keeping
Speaker 3: track of things? And that's an open question, I think, I.
Speaker 2: Mean efficiency gains are good, right, Like the question does
Speaker 2: matter on the sense that we want to spend as
Speaker 2: little as possible on payment rails. That's fundamentally what this
Speaker 2: is about. We can all get more stuff we like,
Speaker 2: more restaurant meals and nice haircuts if we're spending as
Speaker 2: little as possible moving the money around, right, And so
Speaker 2: we want technology to make it cheaper to move money around.
Speaker 2: Ideally there should be a cheaper way to do it
Speaker 2: than cash, and we're getting there.
Speaker 3: So don't get your economics from Facebook posts. Get your
Speaker 3: economics from Jacob Goldstein. Thank you, Jacob, cautioning tales will
Speaker 3: be back off to this break.
Speaker 2: Tim, let's talk about housing, sure, Fred rights Hi, Tim,
Speaker 2: I absolutely love your podcast. It scratches the itch of
Speaker 2: economics in society and every episode is a great lesson.
Speaker 2: My question is about housing, Nimbi's and the impact on
Speaker 2: the economy. I've long been a believer in the housing
Speaker 2: theory of everything, and find it appalling that as nearly
Speaker 2: everything has gotten more affordable in real terms, housing has
Speaker 2: become completely out of reach for younger people, particularly in
Speaker 2: the UK. Quite beyond the ethical implications, I'm interested in
Speaker 2: your view of its impact from a macroeconomic angle. How
Speaker 2: impactful do you think housing reform would be on the
Speaker 2: UK economy? How would you deal with Nimbi's from a
Speaker 2: behavioral economics slash policy perspective? Thanks Fred.
Speaker 3: I think Fred is completely right. I think the UK
Speaker 3: economy desperately needs housing reform. Fundamentally, we've just made it
Speaker 3: very very difficult to build houses. And if you make
Speaker 3: it very very difficult to build houses, that makes houses
Speaker 3: very expensive, and that's problem in its own right because
Speaker 3: people need somewhere to live. But it also damages the
Speaker 3: economy because people don't get to move around to where
Speaker 3: the jobs are. And it's also inequitable, so it means
Speaker 3: that people who are older have a lot more money
Speaker 3: than people who are younger, disproportionately because they've just sat
Speaker 3: in houses that they bought when they were cheap, and
Speaker 3: those houses have got more and more expensive. And it's
Speaker 3: also inequitable within generations because not to put too fine
Speaker 3: a point on it. If you are the only child
Speaker 3: of parents with a house, you're going to inherit the house,
Speaker 3: which is hugely valuable. If you're one of three or
Speaker 3: four children, or if your parents never had a house
Speaker 3: in the first place, you're not going to inherit and
Speaker 3: it becomes incredibly difficult to afford a house. And so
Speaker 3: there a huge number of different economic problems being caused
Speaker 3: by the fact that we're just not willing to let
Speaker 3: people build more houses. And in a nutshell, I mean
Speaker 3: houses are incredibly expensive in the UK. Fundamentally, if you
Speaker 3: let people build houses, the cost of a house is
Speaker 3: going to fall to the cost of building a house.
Speaker 3: That's how much is going to cost you to buy
Speaker 3: a house. It's like whatever it costs to build a house,
Speaker 3: which is a lot less than the market price of
Speaker 3: a house in the UK at the moment.
Speaker 2: As you may know, houses are also really expensive in
Speaker 2: many parts of the United States and for similar reasons.
Speaker 2: But one really interesting and encouraging and surprising thing to
Speaker 2: me is that there has actually been some progress on
Speaker 2: this in the United States. Not enough to solve the problem,
Speaker 2: but enough to suggest that the problem is at least
Speaker 2: somewhat solvable. Fred reference Nimby's, which means not in my backyard,
Speaker 2: which is people who say, don't build apartment buildings on
Speaker 2: my block or whatever, better than bananas, right, you know
Speaker 2: what banana stands for, build absolutely nothing anywhere to anybody.
Speaker 1: I like that.
Speaker 2: In the US, and starting in the Bay Area as
Speaker 2: far as I know, you know, in the San Francisco
Speaker 2: bar area, where houses are extraordinarily expensive, we have had
Speaker 2: the Yimbi movement, the yes in my backyard movement, which
Speaker 2: has in the past decade or so scored some real
Speaker 2: victories in California. And one of the really interesting things
Speaker 2: to me, you know, Fred says, how would you deal
Speaker 2: with nimbi's from a behavioral economic slash policy perspective? We
Speaker 2: haven't heard that much about the ymbi's and I have
Speaker 2: a theory for why, and that is, as you may
Speaker 2: have heard, America is a rather politically polarized place these days,
Speaker 2: but the YMBI Nimbi fight is not particularly polarized. It
Speaker 2: is not left coded right coded the way immigration or
Speaker 2: capital gains, tax rates or many other things are, which
Speaker 2: I think is actually great. It means you can have
Speaker 2: a rational as opposed to tribal discussion about it. So
Speaker 2: that's one piece of it, and the other piece of
Speaker 2: it is somewhat wonkier, but it is this. At least
Speaker 2: in the US, the rules about housing, we call it zoning,
Speaker 2: are typically locally imposed. They're imposed basically at the city level.
Speaker 2: And there's a sort of political economy reason for that,
Speaker 2: which is homeowners care a lot and they show up
Speaker 2: at the city council meeting and they say, don't let
Speaker 2: anybody build apartments in my neighborhood because that'll lower the
Speaker 2: value of my house.
Speaker 1: Right, homeowners don't want the valid point.
Speaker 2: It's the whole point. Right, there's this weird thing where like, yes,
Speaker 2: houses are too expensive, we need to lower the value
Speaker 2: of your house. So instead of dealing with it at
Speaker 2: the city level, the ymbies went to the state and
Speaker 2: god California to pass laws overriding cities that said to cities,
Speaker 2: you basically can't do exclusionary zoning anymore. You can't say
Speaker 2: there can only be single family homes. But in most
Speaker 2: of California now you can build what are called ADUs,
Speaker 2: additional dwelling units. You can build a little apartment over
Speaker 2: the garage or in your backyard, for example, and other
Speaker 2: rules like that have passed the state. So there is
Speaker 2: encouraging progress. Though houses are still too expensive.
Speaker 1: It's a problem that can be solved.
Speaker 2: Okay, Tim, this one is for you. It's from Benji
Speaker 2: from Brisbane. He writes, Hi, Tim, and all appreciate you
Speaker 2: taking time to read my question. What happened to Mohammad
Speaker 2: Yunis and Gramin Bank. There was so much promise with
Speaker 2: microfinance as a tool for good in helping the underbanked
Speaker 2: in developing economies. Kind regards Benji.
Speaker 3: So the short answer is Mohammed Unis is now a
Speaker 3: senior advisor to the Government of Bangladesh and won a
Speaker 3: Nobel Prize not for economics but for peace. So he's
Speaker 3: doing fine. So microfinance is basically the idea that you
Speaker 3: give very small loans to entrepreneurs in very poor communities
Speaker 3: at low interest rates and they can use that to
Speaker 3: build their business. So Unus was famous for saying all
Speaker 3: people are entrepreneurs. And the founding story of Gramine Bank,
Speaker 3: which is the microfinance outfit that he started. He was
Speaker 3: an economist. He went to a village near the university
Speaker 3: in Bangladesh where he worked and he found that these
Speaker 3: local women were weaving baskets and selling the baskets and
Speaker 3: that's how they made their money. But they had to
Speaker 3: borrow money from the village money lender to pay for
Speaker 3: the materials to make the baskets, and the village money
Speaker 3: lender was charging them ten percent a day, just an
Speaker 3: astonishingly high interest rate. I did the maths moths that
Speaker 3: interest rate would turn one cent into larger than the
Speaker 3: entire US government debt over the course of a year,
Speaker 3: so it's a very high interest rate. And UNUS came
Speaker 3: in and said, I'll lend you money. I won't charge
Speaker 3: you much interest. These women borrowed money off him and
Speaker 3: they paid it back and it was fine. And suddenly,
Speaker 3: not having to pay ten percent on top of your
Speaker 3: cost every single day was the difference between grinding inescapable
Speaker 3: poverty and the chance to build your own small business.
Speaker 1: So it's a lovely idea.
Speaker 3: The development economists came in and said, well, this sounds great,
Speaker 3: but does it actually work? And they found mixed pictures.
Speaker 3: So it was a really interesting study in South Africa
Speaker 3: which was conducted by Dean car and Jonathan Zinman to
Speaker 3: development economists and they found that people borrowing money from
Speaker 3: what seemed pretty much like a payday loan company at
Speaker 3: very high interest rates. I think it was two hundred
Speaker 3: percent annual percentage interest rate. They randomized it so that
Speaker 3: some people who this company were going to turn down
Speaker 3: for loans at random, some of them were offered loans anyway,
Speaker 3: and the people who at random were offered the loans
Speaker 3: versus at random were not offered the loans. The ones
Speaker 3: who got the loans were doing much better six months later,
Speaker 3: so really interesting RANDOMI as well, So even this very
Speaker 3: expensive credit was was great because what they were doing
Speaker 3: was they were using the loan to I don't know,
Speaker 3: buy a suit, to go to a job interview, or
Speaker 3: to fix their bike in order to stay in employment.
Speaker 3: But other research was more mixed, and I think the
Speaker 3: fundamental idea that the reason why people are poor in
Speaker 3: poor countries is because they don't have access to cheap loans.
Speaker 3: I mean, there's so much else going on, so it's
Speaker 3: only ever going to be a part of the story.
Speaker 3: The other really interesting thing is the commercial companies came in.
Speaker 3: So there was a one called Compatamos in Mexico, which
Speaker 3: was just a huge business that was lending money at
Speaker 3: pretty high rates and making a lot of money, and
Speaker 3: it was just about to do an IPO, I think.
Speaker 3: And it was that made all the founders of this
Speaker 3: organization very rich, and Unice was like, this is outrageous.
Speaker 3: He was trying to excommunicate them from the microfinance movement
Speaker 3: because they were too commercial.
Speaker 1: But the problem is there.
Speaker 3: Was always shades of gray between kind of nonprofit microfinance
Speaker 3: and the money lender who Unice was originally worried about.
Speaker 3: Even nonprofit microfinance, they're not lending people loans at zero interest.
Speaker 3: Even the nonprofits are often lending at fifty, sixty, seventy
Speaker 3: percent a year. And the reason is you're making such
Speaker 3: small loans for such a short period of time, like
Speaker 3: maybe you're lending somebody like fifty dollars for three months.
Speaker 3: Unless you charge a big interest rate, your fee on
Speaker 3: that is like fifty yeah, and it's just not enough
Speaker 3: to cover your costs.
Speaker 1: Yeah.
Speaker 3: And so it's this fine line between what is abusive
Speaker 3: money lending and what is nonprofit microfinance. It's harder to
Speaker 3: draw that line than you think. So it's a fascinating area,
Speaker 3: but that is what happened to Mohammed Unis and the
Speaker 3: Grami Bank.
Speaker 2: Clearly, people are deeply, deeply uncomfortable fundamentally with the idea
Speaker 2: of lending money at interest, right, Like we've gotten used
Speaker 2: to it in the developed world with a mortgage or
Speaker 2: a car loan. But if you look historically, lots of
Speaker 2: places there were rules for thousands of years that said
Speaker 2: nobody's allowed to lend money at interest because it's fundamentally bad.
Speaker 2: It's unnatural, right, and you don't have that with most
Speaker 2: other businesses. And I think that's part of what is
Speaker 2: going on here, Like lending money at interest makes people
Speaker 2: morally uncomfortable, and so when you have someone riding in
Speaker 2: and being morally righteous by lending money at interest, it's
Speaker 2: going to get complicated.
Speaker 1: Have we got time for one more question, Jacob? We do?
Speaker 2: Our last question too, comes from Ella, who writes, Hi, Tim,
Speaker 2: I've been listening to your podcast for a while now.
Speaker 2: I'm a big fan, and you seem very insightful across
Speaker 2: a range of topics. So I was wondering if you
Speaker 2: could help me out with the problem I've run into recently.
Speaker 2: I'm in my second year of UNI studies physics. If
Speaker 2: you're curious, and I keep getting asked what I want
Speaker 2: to do for a career path aside from further academics.
Speaker 2: I'm not really sure what there is that I like
Speaker 2: the sound of, and I know eventually I will have
Speaker 2: to finish my education. I do know that I'm in
Speaker 2: the right field. I just don't know what jobs are
Speaker 2: waiting for me on the other side of my studies.
Speaker 2: Do you think I should be worrying about where I'm
Speaker 2: going to end up? Or is a more go with
Speaker 2: the flow attitude fine for something this serious. Thanks for
Speaker 2: the help, Ella.
Speaker 3: So this is where I hope that Ella's parents aren't
Speaker 3: listening to this podcast, because I'm going to tell Ellen
Speaker 3: not to worry. I think go with the flow is fine.
Speaker 3: I mean, physics is such a desirable degree. I'm sure
Speaker 3: you'll have no trouble finding somebody to give you a
Speaker 3: job in the end. So Jacob and I are collectively
Speaker 3: over one hundred so we're basically two old geezers. We're
Speaker 3: probably not really very well qualified to give you advice.
Speaker 3: But when I look back at my career, I didn't
Speaker 3: know what I wanted to do when I went to university.
Speaker 3: I didn't know what I wanted to do. When I
Speaker 3: left university, I didn't have any particular plans to become
Speaker 3: a journalist or a writer, and in fact, I didn't
Speaker 3: become a journalist or a writer until I was nearly thirty.
Speaker 3: And I think all of the things that I did
Speaker 3: in my twenties, some of them were mistakes, some of
Speaker 3: them were not, but they all kind of contributed to
Speaker 3: who I am now. If there's something that you're really
Speaker 3: passionate about, and you've got this vision you want to
Speaker 3: chase it, that's fine. But I think it is also
Speaker 3: fine to experiment and to try different things and to
Speaker 3: see if you like them. What do you think, Jacob?
Speaker 2: Certainly I agree. I mean I majored in English, which,
Speaker 2: unlike physics, gave me no fundamentally useful skills except for
Speaker 2: a living right like, I still think all the time
Speaker 2: of stuff that I read in college, and I'm certainly
Speaker 2: glad that I studied English. But I think this, when
Speaker 2: you're in college, people say, oh, what are you studying?
Speaker 2: And then you say what you're studying, and then the
Speaker 2: next question, in a sort of robotic way, is what
Speaker 2: do you want to do with that? The thing I
Speaker 2: wish I had known when I was in college is
Speaker 2: the people asking don't actually care. Right, Like I felt
Speaker 2: all this pressure of like, oh my god, everybody wants
Speaker 2: to know what.
Speaker 1: I am going to do.
Speaker 2: They don't actually want to know. They're not really thinking
Speaker 2: that much about you. They're just making conversation. They're just
Speaker 2: talking about the weather, right. I mean it in a
Speaker 2: good way. When I say other people don't care, everybody
Speaker 2: is mostly thinking about themselves.
Speaker 3: I would phrase it slightly differently. I would say there's
Speaker 3: no pressure, there's just curiosity. They're just interested.
Speaker 2: They're not even that interested, is my take. They're just
Speaker 2: making small talk. And like recognizing small talk as small
Speaker 2: talk is a hugely empowering thing, and it's fine, Like
Speaker 2: we're just social animals following norms and asking a college
Speaker 2: student what they want to do is just what people do.
Speaker 2: So I would say to Ella, just make up an
Speaker 2: answer and know in your heart that you're going to
Speaker 2: figure it out. And people love hiring physicists. Wall Street
Speaker 2: is full of physicists, and consulting firms are full of physicists.
Speaker 2: Anybody who can think hard about the most difficult problems
Speaker 2: in the world in a quantitative way is going to
Speaker 2: be eminently employable.
Speaker 3: And you know another thing you can do with an
Speaker 3: undergraduate degree in physics is a postgraduate degree in economics. Twist, Jacob,
Speaker 3: Thank you so much for joining me.
Speaker 2: Tim, It's so fun. I truly would do it for free,
Speaker 2: even if nobody listened.
Speaker 3: Thank you so much, Jacob, and thanks to all of
Speaker 3: you for sending in your questions. We will be back
Speaker 3: again on our regular schedule with another classic episode of
Speaker 3: Cautionary Tales, but in the meantime, happy Thanksgiving to our
Speaker 3: us listeners, and if you have a question for us,
Speaker 3: please send it in to Tales at Pushkin dot fm.
Speaker 1: That's t a l e. S.
Speaker 3: Tales at Pushkin dot fm. Thank you, We love hearing
Speaker 3: from you. Cautionary Tales is written by me Tim Harford
Speaker 3: with Andrew Wright. For a full list of our sources,
Speaker 3: see the show notes at Timharford dot com. The show
Speaker 3: is produced by Alice Fines, with Marilyn Rust. The sound
Speaker 3: design and original music for the work of Pascal Wise.
Speaker 3: Sarah Nix edited the script. Cautionary Tales features the voice
Speaker 3: talents of Ben Crowe, Melanie Guttridge, Stella Harford, Jemma Saunders,
Speaker 3: and rufus Wright. The show wouldn't have been possible without
Speaker 3: the work of Jacob Weisberg, Ryan Dilly, Greta Cohen, Eric Sandler,
Speaker 3: Carrie Brody, Christina Sullivan, Kira Posey and Owen Miller. Cautionary
Speaker 3: Tales is a production of Pushkin Industries. It's recorded at
Speaker 3: ward Or Studios.
Speaker 1: In London by Tom Barry. If you like the show,
Speaker 1: please remember to share, grate and review.
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