WEBVTT - Interview With Robert Frank: Masters in Business (Audio) 0:00:03.080 --> 0:00:06.040 This week on the podcast, I have Professor Robert Frank. 0:00:06.320 --> 0:00:09.840 He teaches economics and management at the Graduate School up 0:00:09.840 --> 0:00:13.840 in Cornell and is the author of a number of books. UH. 0:00:13.840 --> 0:00:17.400 He's probably best known for The Winner Take All Society, 0:00:17.920 --> 0:00:22.759 a very prescient book published in way ahead of a 0:00:22.800 --> 0:00:27.680 lot of the more recent commentary on changes in society. 0:00:28.280 --> 0:00:31.400 Most recently he's published success in Luck, Good Fortune, in 0:00:31.440 --> 0:00:35.080 the Myth of Meritocracy. It's a fascinating conversation about how 0:00:35.520 --> 0:00:39.000 we all tend to under emphasize and and just not 0:00:39.159 --> 0:00:43.280 realize the impact that random fortune has in our life, 0:00:43.320 --> 0:00:46.920 for both better and worse. He he also wrote a 0:00:47.080 --> 0:00:52.040 textbook with some guy named bed Bernanke on economics. UH. Really, 0:00:52.080 --> 0:00:54.600 I think you'll find this to be a fascinating conversation 0:00:54.720 --> 0:01:00.080 if you're at all interested in how not the politics 0:01:00.120 --> 0:01:04.160 but the economics of of income inequality and how these 0:01:04.200 --> 0:01:08.600 things have developed and what they're subsequent impact is on 0:01:08.760 --> 0:01:13.200 both uh, efficiency and productivity of of the economy and 0:01:13.240 --> 0:01:15.840 what it means for society from the middle class for 0:01:16.000 --> 0:01:19.120 changes in in corporate structures. I think you'll find this 0:01:19.160 --> 0:01:23.240 to be an absolutely fascinating conversation. So with no further 0:01:23.280 --> 0:01:30.480 ado my conversation with Robert Frank. This is Master's in 0:01:30.520 --> 0:01:35.160 Business with Barry Ridholts on Bloomberg Radio. My special guest 0:01:35.240 --> 0:01:39.360 this week is Professor Robert H. Frank. He is a 0:01:39.400 --> 0:01:44.839 professor of management and economics at Cornell's Johnson School of Management. 0:01:45.120 --> 0:01:48.000 That's the graduate school up at Cornell. He has won 0:01:48.160 --> 0:01:52.640 numerous teaching awards and all sorts of other accolades. Comes 0:01:52.640 --> 0:01:55.720 to us with a b. S. And mathematics from Georgia Tech, 0:01:56.120 --> 0:01:59.480 has a master's in statistic and a PhD in economics 0:01:59.800 --> 0:02:02.880 for Berkeley, and is the author of a number of books, 0:02:03.440 --> 0:02:06.800 several of which we'll talk about later today, most recently 0:02:07.000 --> 0:02:11.359 Success in Luck, Good Fortune, and The Myth of Meritocracy. 0:02:11.400 --> 0:02:14.359 I would be remiss if I didn't mention the textbook 0:02:14.840 --> 0:02:18.440 he co wrote with some gentleman named Ben Bernanke, Principles 0:02:18.440 --> 0:02:22.000 of Economics and he He probably is best known for 0:02:22.080 --> 0:02:26.120 a book published in The Winner Take All Society that 0:02:26.200 --> 0:02:29.240 won all sorts of critics Choice Award Notable Book of 0:02:29.240 --> 0:02:32.120 the Year by the New York Times Business Week's Top 0:02:32.160 --> 0:02:37.120 ten list for Robert Frank. Welcome to Bloomberg. What a 0:02:37.160 --> 0:02:40.080 pleasure so that that was the short version of your CV. 0:02:40.240 --> 0:02:42.440 I could have gone on if I if I started 0:02:42.760 --> 0:02:47.359 discussing the published papers, we would be here until next Tuesday. 0:02:48.080 --> 0:02:51.359 But one of the things that really struck me about 0:02:51.400 --> 0:02:56.919 your background is how long you've been studying income inequality? 0:02:56.960 --> 0:03:00.280 How did how did you first get interested in that subject? Uh, 0:03:00.360 --> 0:03:04.440 it's it's become quite fashionable now. I first started writing 0:03:04.440 --> 0:03:07.440 about it, it it was very difficult to find anybody who cared. 0:03:09.400 --> 0:03:12.559 I think my own interest in it was kindled by 0:03:12.840 --> 0:03:16.799 my interest in biology, where where if you know an 0:03:16.840 --> 0:03:21.600 animal's rank in whatever group, it's alpha beta, what happened, right, 0:03:21.720 --> 0:03:25.840 that's the that's the most powerful predictor of that animal's 0:03:26.000 --> 0:03:29.640 ability to project its stuff into the next round. So 0:03:29.639 --> 0:03:32.400 so if if there's a famine, it's not the high 0:03:32.480 --> 0:03:36.000 ranking animals that starve. The high rank animals typically have 0:03:36.120 --> 0:03:39.800 much better mating opportunities. There's a whole variety of reasons 0:03:39.920 --> 0:03:42.600 for that. But if if you don't care about where 0:03:42.600 --> 0:03:46.360 you rank, you're probably not coming into the world very 0:03:46.360 --> 0:03:49.960 well equipped to deal with the competitive fray that we're in. 0:03:50.760 --> 0:03:54.080 And it is quite a competitive world, especially when it 0:03:54.120 --> 0:03:58.480 comes to economics. On the other hand, Uh, to really 0:03:58.520 --> 0:04:03.720 succeed in today world, it's essential to be a trusted 0:04:03.800 --> 0:04:06.080 member of an effective team. You have to be able 0:04:06.120 --> 0:04:11.000 to be seen by others as trustworthy and cooperative. Really 0:04:11.240 --> 0:04:15.280 effective teams, teams with talented people have their pick. They 0:04:15.320 --> 0:04:18.800 don't need to hire any jerks for their team if 0:04:18.800 --> 0:04:20.760 you're If you're not a person they feel they can 0:04:20.800 --> 0:04:23.640 rely on. When you're out of you and you have 0:04:23.680 --> 0:04:26.080 a chance to serve your own interests at the expense 0:04:26.120 --> 0:04:28.640 of the teams, then why should they have you on 0:04:28.640 --> 0:04:31.480 on their team. They've got better choices. So it's a 0:04:31.600 --> 0:04:35.120 kind of a complex balancing act. You have to be 0:04:35.880 --> 0:04:40.360 somebody who's who's attractive to others and trustworthy in situations 0:04:40.360 --> 0:04:43.360 where you could cheat them, but they have to feel 0:04:43.400 --> 0:04:45.440 confident you won't. But you have to also care about 0:04:45.720 --> 0:04:48.240 getting ahead. So it's a little bit of a balance 0:04:48.400 --> 0:04:53.120 in society versus what we see out in the wild exactly. 0:04:53.240 --> 0:04:56.400 Society has done an enormous amount to try to tame 0:04:57.080 --> 0:05:01.120 the competition. We have all sorts of regulations that prevent arms, 0:05:01.200 --> 0:05:04.200 races that get out of control and nature. But I 0:05:04.240 --> 0:05:08.839 think you know, the income inequality problem is is maybe 0:05:08.839 --> 0:05:11.120 one of the early signs that our attempts to keep 0:05:11.200 --> 0:05:14.560 things in balance have been falling short. So let's talk 0:05:14.600 --> 0:05:17.320 about income inequality a little bit. I want to mention 0:05:17.839 --> 0:05:21.000 it's funny that you said how fashionable it is today. 0:05:21.279 --> 0:05:25.000 I'm gonna pull a quote from either your book it was, 0:05:25.160 --> 0:05:27.599 or it was a paper that you had written around 0:05:27.600 --> 0:05:29.520 the same time the book had come out that I 0:05:29.560 --> 0:05:35.520 thought was fascinating, And this is from quote. The incomes 0:05:35.560 --> 0:05:38.839 of the top one percent have more than doubled in 0:05:38.960 --> 0:05:43.360 real after inflation terms between nineteen seventy nine and nine 0:05:43.640 --> 0:05:47.080 eighty nine, a period during which the meeting income was 0:05:47.200 --> 0:05:50.880 roughly flat and which the bottom quintile the bottom twenty 0:05:51.360 --> 0:05:55.040 of earners, so their incomes actually fall by ten percent. 0:05:55.520 --> 0:05:57.719 Now that sounds like something that could have come out 0:05:58.000 --> 0:06:01.040 a year or two ago, about the prior decade, and 0:06:01.160 --> 0:06:05.360 yet this was not a big issue back I think 0:06:05.400 --> 0:06:08.160 we were just starting to see clear evidence of those 0:06:08.200 --> 0:06:12.839 trends that were beginning. They they began sometime in the 0:06:12.920 --> 0:06:16.520 late sixties or early seventies. There's still some quarreling about 0:06:16.600 --> 0:06:20.440 when the exact moment was. There probably wasn't an exact moment, 0:06:20.480 --> 0:06:24.920 but but as it's gone on, longer, and as the 0:06:25.000 --> 0:06:28.279 multiples have gotten bigger, more and more people have taken interest. 0:06:28.360 --> 0:06:30.520 And you know, there's been a lot of very serious 0:06:30.560 --> 0:06:33.240 work in recent decades on it. Well you you were 0:06:33.279 --> 0:06:38.599 writing Picketty type stuff twenty years before Pickety was writing them. Yeah. 0:06:38.680 --> 0:06:43.039 Well it's not always who gets there first, who wins 0:06:43.080 --> 0:06:46.360 the prize. Yeah, Picketty has gotten a lot of very 0:06:46.400 --> 0:06:50.240 well justified attention on these issues, and he's done the 0:06:50.279 --> 0:06:53.080 rest of us who are in the trenches writing about 0:06:53.120 --> 0:06:55.719 this subject and enormous service. You know, we can we 0:06:55.760 --> 0:06:58.800 can now write a piece on on the issue and 0:06:58.839 --> 0:07:01.320 people will pay attention to it, whereas it would have 0:07:01.360 --> 0:07:05.080 gone lost in the shuffles. So that's that's a really 0:07:05.120 --> 0:07:09.680 interesting point I find. First, it's amazing how similar the 0:07:09.760 --> 0:07:14.960 data sounds twenty years ago to today. That's astonishing. But 0:07:16.120 --> 0:07:19.400 was income inequality all that obvious back then to people 0:07:19.400 --> 0:07:22.920 who were looking at it? Was the boom in technot 0:07:22.960 --> 0:07:26.000 remember nineties, a huge boom in technology. The stock market 0:07:26.040 --> 0:07:29.320 was on fire. Well, we just otherwise occupied and not 0:07:29.360 --> 0:07:34.520 paying attention. How did this slip by relatively unnoticed right 0:07:34.520 --> 0:07:37.280 in the middle of the nineties. Yeah, I think that's 0:07:37.320 --> 0:07:40.320 a great question, and I don't have a compelling answer 0:07:40.360 --> 0:07:45.120 for it. Uh. It if you take the early onset 0:07:45.200 --> 0:07:49.560 of the date range the late sixties as the the 0:07:49.640 --> 0:07:54.760 time when income inequality started growing rapidly, then uh, plenty 0:07:54.800 --> 0:07:56.880 of time for a lot of people to have noticed it. 0:07:56.920 --> 0:08:00.080 And many people did notice it. It's just that the 0:08:00.080 --> 0:08:02.840 the subject hadn't really caught on as a as one 0:08:02.880 --> 0:08:06.320 of general interest. I'm Barry Ridhults. You're listening to Masters 0:08:06.360 --> 0:08:09.600 in Business on Bloomberg Radio. My special guest today is 0:08:09.640 --> 0:08:14.000 Professor Robert Frank. He teaches up at Cornell both economics 0:08:14.040 --> 0:08:17.520 and management. Let's talk a little bit about the winner 0:08:17.560 --> 0:08:21.760 take all society. The book you co authored in that 0:08:22.360 --> 0:08:26.240 seems to be quite prescient about a variety of changes 0:08:26.280 --> 0:08:29.800 that have taken place in uh in our economy. Let 0:08:29.800 --> 0:08:33.320 me let me start out with a quote. What do 0:08:33.520 --> 0:08:38.920 Boris Becker, Alan Dershowitz, Diane Sawyer, Michael Jordan's, L McPherson, 0:08:38.960 --> 0:08:42.760 and John Griffin all have in common? They are beneficiaries 0:08:42.840 --> 0:08:45.920 of the winner take all markets. Now, what's interesting is 0:08:46.480 --> 0:08:50.640 how memorable all those names are. And still, unless you're 0:08:50.640 --> 0:08:53.680 a millennial, you probably know who all those names are. 0:08:53.760 --> 0:08:57.160 Kas there was a lot of longevity to it. Explain 0:08:57.240 --> 0:09:02.200 to us what the winner take all society is there. 0:09:02.280 --> 0:09:05.760 There's a kind of market we've seen, uh, this market 0:09:05.800 --> 0:09:09.200 structure going back a long long time. Actually, Uh, it 0:09:09.360 --> 0:09:13.800 was written about in the nineteenth century in similar terms 0:09:13.840 --> 0:09:16.120 to the ones we use to describe it. It's a 0:09:16.200 --> 0:09:22.959 market where if you have a task that can be 0:09:23.040 --> 0:09:28.320 done market wide by a single person, then essentially you've 0:09:28.320 --> 0:09:32.840 got the conditions for a big tournament. Uh. It's it's 0:09:32.920 --> 0:09:36.040 a valuable task. Typically if somebody can serve the whole market, 0:09:36.840 --> 0:09:42.400 and if there are thousands of houses of people trying 0:09:42.400 --> 0:09:45.199 to be anointed the person who gets to do that, 0:09:45.679 --> 0:09:48.920 then the competition is pretty bitter and there's a lot 0:09:48.920 --> 0:09:51.760 of bunching of talent and effort. All the people who 0:09:51.800 --> 0:09:54.319 are finalists in that contest are going to be really, 0:09:54.360 --> 0:09:59.440 really good, but typically one will emerge, and it will 0:09:59.480 --> 0:10:03.240 be some one who's uh maybe a little bit better 0:10:03.280 --> 0:10:06.000 than most of the others, but rarely the best contestant. 0:10:06.520 --> 0:10:09.920 He's also had a lucky break or two along the way. 0:10:09.960 --> 0:10:13.920 But when the winner emerges, there's a huge difference between 0:10:13.960 --> 0:10:17.400 the reward that person gets and the rewards received by 0:10:17.559 --> 0:10:21.280 others who were really so close to being as good 0:10:21.320 --> 0:10:23.640 that no one could really tell. It was almost an 0:10:23.720 --> 0:10:27.560 arbitrary choice to anoint the winner. And and so you 0:10:27.679 --> 0:10:31.560 get a situation where you know, most people feel comfortable 0:10:31.600 --> 0:10:35.240 if somebody works one percent harder than others, there is 0:10:35.280 --> 0:10:37.720 one percent more talented, I'll fine, let and be paid 0:10:37.760 --> 0:10:40.679 one percent more. But here, here you have some but 0:10:40.840 --> 0:10:44.680 he emerge who's one percent more talented, And and uh, 0:10:44.840 --> 0:10:48.040 that person might earn ten thousand times as much as 0:10:48.280 --> 0:10:50.800 as the others who are almost as equal. So let's 0:10:50.840 --> 0:10:55.400 let's use Michael Jordan as an example. Wins six NBA finals, 0:10:56.720 --> 0:10:59.480 which was a huge run, but at the same time 0:11:00.080 --> 0:11:04.600 has this amazing set of endorsement deals. He makes hundreds 0:11:04.600 --> 0:11:08.800 of millions, literally hundreds of millions more then he's paid 0:11:08.840 --> 0:11:11.720 as an athlete to do all his endorsements and other 0:11:11.760 --> 0:11:16.320 business ventures. And at the time, nobody else is even 0:11:16.360 --> 0:11:19.400 close to him. Yeah, there there would be plenty of 0:11:19.440 --> 0:11:23.400 people who would do his job for a tiny fraction 0:11:23.600 --> 0:11:26.040 of what he gets. You would, I'm guessing I would 0:11:26.040 --> 0:11:29.240 have been willing. But you have more hit than me, 0:11:29.360 --> 0:11:32.600 so you can you can do that? Well, it's not 0:11:32.640 --> 0:11:35.400 all you need you watch you watch the highlight reel 0:11:35.480 --> 0:11:38.000 of Michael Jordan's and you think you're seeing something in 0:11:38.000 --> 0:11:41.600 slow motion, because it really does seem that he's hanging 0:11:41.640 --> 0:11:45.520 in mid air for thirty five seconds, making decisions on 0:11:45.559 --> 0:11:50.600 the fly that are not only instantaneous, but three steps 0:11:50.600 --> 0:11:53.839 ahead of everybody else, and then executing on those decisions 0:11:54.360 --> 0:11:57.280 while hanging in midair. So so maybe he's not the 0:11:57.320 --> 0:11:59.960 best example of a winner who's only a little bit 0:12:00.000 --> 0:12:03.120 better than the others. Maybe maybe give us another example 0:12:03.200 --> 0:12:07.760 like Secretariat, he won thirty lengths. But but typically it's 0:12:07.760 --> 0:12:10.200 not it's not that far ahead of the field. When 0:12:10.200 --> 0:12:12.080 we see a winner emerged, you know, it could have 0:12:12.120 --> 0:12:14.240 been any one of a number of people who emerged 0:12:14.480 --> 0:12:18.520 that way. And and well, you mentioned Alan Dershowitz or 0:12:18.559 --> 0:12:21.880 Al McPherson or John Grisham. There are a lot of 0:12:21.920 --> 0:12:26.520 fantastic novelists who sell millions of books. Is that and 0:12:26.600 --> 0:12:30.800 their books become movies? Is John Grisham a winner take all? 0:12:31.440 --> 0:12:36.480 He's definitely an example of someone who's been a really 0:12:36.520 --> 0:12:39.560 big winner in a winner take all market. So not 0:12:39.640 --> 0:12:41.480 only have the books done well, but you know, a 0:12:41.559 --> 0:12:44.559 dozen of his books have become really big movies. And 0:12:44.559 --> 0:12:49.040 and the surest way to publish a best seller is 0:12:49.080 --> 0:12:52.880 to have already published one. Uh, if you've published two, 0:12:53.000 --> 0:12:55.160 then you're even more likely to have a best seller. 0:12:55.400 --> 0:12:57.760 And and then once you've got a string of them, 0:12:58.120 --> 0:13:01.240 the movie people start bidding against one other for the rights. Yeah, 0:13:01.320 --> 0:13:05.040 the the rewards really do explode once you're on a 0:13:05.120 --> 0:13:08.120 successful track. But but if you would go back early 0:13:08.480 --> 0:13:12.560 in a person's career, it wouldn't be so clear that 0:13:12.559 --> 0:13:14.840 that would be the person who would emerge and become 0:13:15.440 --> 0:13:17.680 the big winner. Even in Michael Jordan's case, he was 0:13:17.800 --> 0:13:21.240 cut from the basketball team at a couple of stages 0:13:21.440 --> 0:13:24.439 school right, didn't do well. What about j K Rowland? 0:13:24.440 --> 0:13:27.360 I think her book was turned down a dozen different 0:13:27.360 --> 0:13:31.920 publishing shops and and she just on a lark published 0:13:32.480 --> 0:13:36.040 a detective novel or who Done It under a pseudonym 0:13:36.200 --> 0:13:40.400 after she quit the Harry Potter series, And the book 0:13:40.440 --> 0:13:44.880 got good reviews but sold tepidly. Vantil was revealed, it 0:13:44.920 --> 0:13:51.000 was leaked that the author really was j K. It's 0:13:51.120 --> 0:13:53.720 shot to the top of the best seller lists. So yeah, 0:13:53.960 --> 0:13:57.320 having been successful is the is the biggest thing that 0:13:57.320 --> 0:14:00.200 that can assure your success in the next round. So, 0:14:00.200 --> 0:14:03.840 so what impact does this star system have on society 0:14:03.960 --> 0:14:07.880 and what does it mean for the long term economic 0:14:07.920 --> 0:14:12.400 efficiency of of how things run well, It's got good 0:14:12.480 --> 0:14:16.080 aspects to it. And also someone's that ought to concern us. 0:14:16.160 --> 0:14:20.600 So if you think of piano manufacture in the last century, 0:14:20.680 --> 0:14:23.440 it was a local industry. Why because it costs so 0:14:23.520 --> 0:14:26.280 much to ship pianos that if if if you try 0:14:26.320 --> 0:14:28.560 to sell one too far from the factory, the shipping 0:14:28.600 --> 0:14:32.160 costs would eat you alive. And and then canals opened 0:14:32.240 --> 0:14:38.200 up railroads, the market expanded enormously that could be served 0:14:38.200 --> 0:14:41.239 by a single producer. So the good thing for consumers 0:14:41.280 --> 0:14:45.040 if there really were some producers who are better than others, 0:14:45.080 --> 0:14:47.440 now they could extend their reach, so you'd you'd be 0:14:47.480 --> 0:14:50.280 buying a better piano than you would have had access 0:14:50.320 --> 0:14:53.880 to before. The downside of that is that it tends 0:14:53.920 --> 0:14:57.000 to lead to an enormous increase in the concentration of income. 0:14:57.640 --> 0:15:01.720 The people who were thriving in local markets before now 0:15:01.760 --> 0:15:03.640 they compete to see who's going to be the one 0:15:03.680 --> 0:15:08.240 who dominates the broader market that's now serviceable by these firms. 0:15:08.520 --> 0:15:12.440 Since transportation costs are low, and and the losers in 0:15:12.480 --> 0:15:15.440 that contest, they've got to go find something else to do. Basically, 0:15:15.720 --> 0:15:18.840 I'm Barry Ridholts. You're listening to Masters in Business on 0:15:18.880 --> 0:15:23.000 Bloomberg Radio. My special guest today is Professor Robert Frank 0:15:23.120 --> 0:15:27.680 of Cornell, and we were discussing earlier how the middle 0:15:27.720 --> 0:15:31.400 class has begun to fall behind, going back as far 0:15:31.440 --> 0:15:34.440 as the nineteen sixties or seventies, you put out a 0:15:34.440 --> 0:15:39.440 book called falling Behind, How rising inequality harms the middle class. 0:15:39.600 --> 0:15:42.680 And again, some of the data points in this are 0:15:42.800 --> 0:15:47.880 just astonishing. I want to reference the toil index, uh 0:15:48.240 --> 0:15:50.440 from a paper you put out in two thousand eleven. 0:15:51.080 --> 0:15:55.200 Listen to this data. This is astonishing. Between nine seventy 0:15:55.480 --> 0:16:00.320 and two thousand, the median earner would have gone from 0:16:00.320 --> 0:16:03.640 working a little more than forty hours a week in 0:16:03.760 --> 0:16:06.640 order to be able to afford the median priced home 0:16:07.320 --> 0:16:11.200 to working close to seventy hours a week, almost double. 0:16:11.800 --> 0:16:15.160 How did that happen? Yeah, it was the monthly number 0:16:15.200 --> 0:16:17.280 of hours you had to work in order to earn 0:16:17.400 --> 0:16:20.880 enough money to gain access to the median price house. 0:16:21.200 --> 0:16:24.200 And and that's an interesting number because if you're in 0:16:24.240 --> 0:16:27.680 the middle you would earn in the middle. You would 0:16:27.680 --> 0:16:30.800 want to send your kids to a school of at 0:16:30.840 --> 0:16:33.360 least average quality, and to do that you have to 0:16:33.360 --> 0:16:36.480 buy the median price house because, as is true in 0:16:36.480 --> 0:16:41.120 every country, school quality tracks house prices in the neighborhoods 0:16:41.240 --> 0:16:44.480 very closely. So so every parent wants to do that. 0:16:45.200 --> 0:16:49.080 Houses have gotten bigger during that time. That's partly why 0:16:49.400 --> 0:16:51.480 families have to work more hours to be able to 0:16:51.480 --> 0:16:55.800 afford access to the median house. And it's just that 0:16:55.840 --> 0:16:58.400 others like them are spending a higher percentage of their 0:16:58.400 --> 0:17:02.160 income too, so you've got to match what they do 0:17:02.320 --> 0:17:04.440 or else you fall behind. And it's your kids who 0:17:04.440 --> 0:17:07.400 go to schools with the metal detectors out front. What 0:17:07.400 --> 0:17:11.040 what has the addition of a second bread winner in 0:17:11.080 --> 0:17:15.600 a household done to this this data? Uh so, that's 0:17:15.640 --> 0:17:19.520 a really interesting question. In the fifties we had one 0:17:19.800 --> 0:17:23.640 earner families. Now it's much more common to have two earners. 0:17:24.480 --> 0:17:27.160 So families should be doing much better. Well, they don't 0:17:27.160 --> 0:17:29.680 seem to be doing much better. And and one reason 0:17:29.920 --> 0:17:32.000 is that a lot of the extra money has gone 0:17:32.000 --> 0:17:35.760 into a bidding war four houses in the better school districts, 0:17:36.240 --> 0:17:38.359 so we've got more money. Now, what's what's the first 0:17:38.359 --> 0:17:41.000 thing we want to do? Send our kids to better schools. Well, 0:17:41.119 --> 0:17:44.360 other families want to do that too, And it's as 0:17:44.440 --> 0:17:48.680 if everybody stands up to see better. Nobody sees any 0:17:48.720 --> 0:17:51.480 better than before. We just bid up the prices of 0:17:51.560 --> 0:17:54.640 the houses in the better school districts. Half of all 0:17:54.760 --> 0:17:57.560 kids go to bottom half schools, the same as before. 0:17:57.440 --> 0:18:00.600 There's no way around that. That math is there. That's 0:18:00.640 --> 0:18:06.240 that's the cruel dilemma that inequality confronts people with. That 0:18:06.440 --> 0:18:10.320 lake will be gone exists just in fiction, and all 0:18:10.320 --> 0:18:13.040 of the children are not above average. It can't be, 0:18:13.359 --> 0:18:15.560 cannot be. Let me let me throw another data point 0:18:15.560 --> 0:18:19.640 out that I thought was fascinating. From UH falling behind, 0:18:20.359 --> 0:18:23.240 the share of total income going to the top one 0:18:23.320 --> 0:18:29.560 percent of earners was eight point nine percent in By 0:18:29.640 --> 0:18:33.480 two thousand and seven, it had risen to twenty three 0:18:33.480 --> 0:18:38.560 and a half percent, just about tripling. During the same period, 0:18:38.640 --> 0:18:44.200 the average inflation adjusted hourly wage declined by more than 0:18:44.320 --> 0:18:47.560 seven percent. So the meeting, So last time we looked 0:18:47.600 --> 0:18:50.800 at this date, in the top one percent we're growing, 0:18:50.840 --> 0:18:55.240 the bottom we're falling, and the median was flat. Here 0:18:55.280 --> 0:18:58.080 we see the top one percent growing much more in 0:18:58.119 --> 0:19:02.400 this time period, and and the average is actually falling. 0:19:02.720 --> 0:19:06.440 So what's the drivers of this? You know, I think 0:19:06.440 --> 0:19:10.359 it's the same technological changes that Phil Cook and I 0:19:10.440 --> 0:19:13.639 talked about, and that indeed Alfred Marshall had talked about 0:19:14.160 --> 0:19:19.560 in the eighteen nineties. As technology, let's the most able 0:19:19.640 --> 0:19:23.760 performers in each domain extend their reach. Uh, there's just 0:19:23.840 --> 0:19:26.080 gonna be a bigger slice of the market that they 0:19:26.080 --> 0:19:29.800 can effectively serve, and then the bidding for their services 0:19:29.800 --> 0:19:33.320 heats up. We don't need more than two or three 0:19:33.359 --> 0:19:36.800 sopranos at this point. Uh. A hundred years ago, the 0:19:36.840 --> 0:19:40.919 only way to listen to music was but now we 0:19:41.000 --> 0:19:44.720 listen to music mostly in recorded form. Once the master 0:19:44.880 --> 0:19:49.200 discs have been stamped out, they can make copies MP 0:19:49.320 --> 0:19:54.159 three's other media or essentially zero cost to copy. And 0:19:54.200 --> 0:19:58.760 so the real trick is to find the performer who's 0:19:58.960 --> 0:20:01.760 better and at least in the public's eye by a 0:20:01.800 --> 0:20:05.600 small margin, people want that performer and no other. So 0:20:06.000 --> 0:20:10.600 this this leads to a really interesting question. You have 0:20:10.720 --> 0:20:15.960 the current impact of technology and globalization and automation and 0:20:16.080 --> 0:20:20.080 more and more of the winner take all society pre 0:20:20.600 --> 0:20:24.320 nineteenth century, it was almost a feudal system where you 0:20:24.440 --> 0:20:28.440 had the one local monarch and everybody worked for them. 0:20:28.480 --> 0:20:31.800 That almost leads me to think that the post World 0:20:31.840 --> 0:20:36.600 War two middle class was an aberration. That's a theme 0:20:36.640 --> 0:20:41.440 in Thomas Picketty's book, that the period of post war 0:20:41.680 --> 0:20:45.560 relative equality was the aberration, not the I think the 0:20:45.560 --> 0:20:48.879 assumption along had been well, that's normal, and we're moving 0:20:48.880 --> 0:20:52.040 away from it. I don't think, uh, that issue is 0:20:52.040 --> 0:20:56.960 completely settled. But the technological forces that are causing incomes 0:20:57.000 --> 0:21:00.399 to concentrate at the top, those haven't even a gun 0:21:00.480 --> 0:21:03.520 to finish playing out. You know, Amazon is going to 0:21:03.600 --> 0:21:08.399 continue displacing retailers until they're almost aren't any more retailers, 0:21:08.440 --> 0:21:11.240 and we're a long way from that happening. I'm Barry 0:21:11.320 --> 0:21:14.840 Ridhalt's you're listening to Masters in Business on Bloomberg Radio. 0:21:15.280 --> 0:21:18.800 My special guest today is Professor Robert Frank. He is 0:21:18.840 --> 0:21:21.760 the author of Success in Luck, good Fortune, and the 0:21:21.800 --> 0:21:25.960 Myth of Meritocracy, as well as the Winner Take All 0:21:26.119 --> 0:21:31.400 Society and Principles of Economics, say textbook co written with 0:21:31.440 --> 0:21:35.399 some guy named Ben bernanke. Uh, let's jump right into 0:21:35.480 --> 0:21:38.040 success in Law because This is a topic that I 0:21:38.080 --> 0:21:44.480 find absolutely fascinating. Part of the reason is in this series, 0:21:44.760 --> 0:21:48.080 in these interviews that I do, you would be amazed 0:21:48.119 --> 0:21:51.920 at how many billionaires say and of course I got 0:21:52.000 --> 0:21:54.119 lucky early in my career, or this happened and it 0:21:54.200 --> 0:21:56.600 was just good fortune. And I know a lot of 0:21:56.600 --> 0:22:00.879 people think that that's just a false humility. But I 0:22:00.920 --> 0:22:05.680 think and have observed that folks really, especially people who 0:22:05.680 --> 0:22:09.480 were wildly success I don't mean hey, good job, good career, whatever, 0:22:09.840 --> 0:22:14.879 I mean wildly successful, winner, take all top of their field. Billionaires, 0:22:15.640 --> 0:22:19.359 Many of them referenced the role of luck in their success. 0:22:19.600 --> 0:22:22.720 Why is that? I think that's a great thing when 0:22:22.760 --> 0:22:24.760 you see it happen, and you do see it happen. 0:22:25.119 --> 0:22:27.560 I have no successful people who are very quick to 0:22:27.600 --> 0:22:30.040 acknowledge that they had breaks and wouldn't be where they 0:22:30.040 --> 0:22:33.440 are now except for them. But still there are many 0:22:33.640 --> 0:22:37.080 who who whose position seems to be I did it 0:22:37.119 --> 0:22:39.640 all on my own. I think think back to two 0:22:39.680 --> 0:22:43.359 thousand and twelve when Elizabeth Warren gave her you didn't 0:22:43.440 --> 0:22:48.320 build that speech. It was a video that went viral 0:22:48.359 --> 0:22:51.520 and had millions of angry comments directed at her. What 0:22:51.600 --> 0:22:55.280 did she say? She said, you built a business, it succeeded. 0:22:55.359 --> 0:22:58.399 That's great, but just remember you shift your goods to 0:22:58.480 --> 0:23:00.879 market on roads. The rest of has helped build you. 0:23:00.960 --> 0:23:05.080 Hired workers the community, pay to educate. Police and firemen 0:23:05.119 --> 0:23:08.160 that we hired helped protect you. Part of the social 0:23:08.200 --> 0:23:10.760 contract is to pay forward, so the next group that 0:23:10.800 --> 0:23:14.199 comes along will enjoy those same opportunities to succeed that 0:23:14.280 --> 0:23:18.960 you did. Uh. I don't hear anything controversial in those remarks, 0:23:19.080 --> 0:23:21.320 but people were very angered by them. And so if 0:23:21.359 --> 0:23:24.840 you if you tell a rich person who's beginning with 0:23:25.080 --> 0:23:27.960 the posture I did it all myself, that hey, you 0:23:28.000 --> 0:23:32.360 were lucky also, which is almost always true. Uh, they 0:23:32.440 --> 0:23:34.960 tend to hear you saying that, oh, you don't belong 0:23:35.000 --> 0:23:39.359 where you were your skillful that's not the message. No, 0:23:39.720 --> 0:23:42.880 the people who win in these markets are almost invariably 0:23:43.000 --> 0:23:45.800 really skillful, and they work really hard. So so it's 0:23:45.800 --> 0:23:48.840 in a way natural that when they try to explain 0:23:48.920 --> 0:23:51.679 to themselves why do they succeed, that they focus on 0:23:51.720 --> 0:23:55.119 their hard work and talent. That's a big pack factor 0:23:55.200 --> 0:23:57.400 and what did bring them to the top. But they 0:23:57.400 --> 0:24:00.520 were also very lucky. So so let's take an example 0:24:00.960 --> 0:24:03.720 from the book that I thought was pretty fascinating. How 0:24:03.800 --> 0:24:07.880 lucky of a guy was Bill Gates. Oh, Bill Gates, Uh, 0:24:08.040 --> 0:24:12.720 to his everlasting credit is really quick to acknowledge how 0:24:12.800 --> 0:24:15.480 lucky he was. He had one of the few schools 0:24:15.520 --> 0:24:18.000 that had a computer lab in it. He was born 0:24:18.040 --> 0:24:21.760 in nine didn't exist where if if he had been 0:24:21.760 --> 0:24:24.640 born ten years earlier, that wouldn't have existed. If he'd 0:24:24.640 --> 0:24:28.040 been ten years later being born, every people would have 0:24:28.040 --> 0:24:31.240 been all over that already. He was there at the 0:24:31.320 --> 0:24:34.840 right time. He got access to the computer labs at 0:24:34.840 --> 0:24:38.080 the University of Washington, like an actual lab with real 0:24:38.119 --> 0:24:42.399 time response, not the punch cards up the hill and 0:24:42.400 --> 0:24:45.119 wait three days to see what happened. He was in 0:24:45.200 --> 0:24:47.560