Speaker 1: Pushkin. Hello listeners. Tim Harford here, as loyal listeners will know.
Speaker 1: Cautionary Tales is a podcast about learning from the mistakes
Speaker 1: of the past. But it also seems to me that
Speaker 1: we can learn from things that have gone well in
Speaker 1: the past, for example, getting Jacob Goldstein on the show
Speaker 1: 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?
Speaker 1: Uh?
Speaker 2: A salutary tale, A salutary story. I guess we salute you,
Speaker 2: jacare we can do better. Let's try and punch that up.
Speaker 1: We'll work on it. For those of you who don't know,
Speaker 1: Jacob is the host of Pushkin podcast What's Your Problem,
Speaker 1: which is a brilliant show about people who are trying
Speaker 1: to make technological progress. He's also the author of the
Speaker 1: book Money, The True Story of a Made Up Thing,
Speaker 1: and he's the perfect person to help me out. So
Speaker 1: all of the questions that you lovely people have been
Speaker 1: kind enough to send in, So Jacob, wonderful to have
Speaker 1: you back. Of course, our virtual mail bag is bursting
Speaker 1: with queries on topics as varied as climate investing and
Speaker 1: careers advice. So Jacob Goldstein. Are you ready, Yes, let's
Speaker 1: 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 the 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? Fah, She goes on, my
Speaker 2: work was very meaningful to me too. I led policy
Speaker 2: teams 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 what's 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, al 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 overlords.
Speaker 2: My very best regards, Karen.
Speaker 1: Wow, way to start the show with our best question,
Speaker 1: and the other questions can't possibly be as good as that.
Speaker 2: It's really lovely, right, thoughts, It's.
Speaker 1: Really lovely, and I agree with all of the stuff
Speaker 1: about what we do for a living is not all
Speaker 1: of us. It's a very interesting thought, though. Is retirement
Speaker 1: the same as living your entire life not working because
Speaker 1: a robot took your job? And we have some evidence
Speaker 1: on this point.
Speaker 2: Tell me what is the finding?
Speaker 1: So these three German economists publish this research just over
Speaker 1: a decade ago looking at people's life satisfaction. Turns out
Speaker 1: people are quite happy being retired. And if you have
Speaker 1: a job and then you retire, nothing happens to your
Speaker 1: life satisfaction. You will find before you're fine after, But
Speaker 1: if you're unemployed, you're miserable. And if you then retire
Speaker 1: from a situation of unemployment, your life satisfaction goes up.
Speaker 1: I mean it's the same thing, right, Like you go
Speaker 1: from not having a job to not having a job,
Speaker 1: But there's something about your identity as a retired person
Speaker 1: versus a person who is looking for a job and
Speaker 1: can't find a job. It makes a huge difference to
Speaker 1: 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: who don't have a job and don't want a job,
Speaker 2: it's fine. That sounds fine, Yeah, yeah, So I.
Speaker 1: Think that's right, Jacob, And I think a lot of
Speaker 1: this depends on what people's expectations are, their expectations of themselves,
Speaker 1: what they think other people expect of them. But I
Speaker 1: would guess there's a huge difference in the scenario where
Speaker 1: the robots take everyone's job and we're all basically just
Speaker 1: doing you know, hobbies, whatever we want, our living standards
Speaker 1: are taken care of by the robots and everyone's in
Speaker 1: the same boat, versus a situation where a lot of
Speaker 1: people lose their jobs to the robots and a lot
Speaker 1: of other people don't, which I think 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,
Speaker 2: strong people who were getting replaced by machines. Plainly, the
Speaker 2: new wave of generative AI threatens you and me, which
Speaker 2: is what.
Speaker 1: 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, and.
Speaker 1: It does give you status. You have one of the
Speaker 1: best jobs in the world. You're a podcast.
Speaker 2: To listen, we're walking right up to the next question
Speaker 2: in a very elegant way from Neil. Hello Tim. During
Speaker 2: your recent Cautionary Questions episode, Jacob Goldstein jokes that if
Speaker 2: AI takes everyone's jobs, the two of you will still
Speaker 2: do a free podcast together. I understand the jest, but
Speaker 2: it begs the question. By the time AI is good
Speaker 2: enough to take over most jobs, won't it also be
Speaker 2: better than us at creating entertainment and art. I think
Speaker 2: 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.
Speaker 1: Yet. Yes, Jacob, have you heard the podcasting software that
Speaker 1: notebook LM have just released? 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 2: You know how we always hear about Marco Polo bringing
Speaker 2: back these crazy stories from China, right well, get ready
Speaker 2: for this trying out. China was light years ahead of
Speaker 2: Europe when it came to money, centuries ahead, to be exact.
Speaker 2: We're talking paper money, folks, Yes, centuries before it ever
Speaker 2: showed up in Europe. It's wild. It really flips the
Speaker 2: script on how we usually think about financial history. Absolutely so,
Speaker 2: just to be clear, I just uploaded a chapter of
Speaker 2: the book clicked whatever make a podcast, didn't make any choices,
Speaker 2: didn't tell it to do anything but that, and that's
Speaker 2: what came out.
Speaker 1: And these are two synthetic voices reading a script that
Speaker 1: was created by a genitive AI in response to your
Speaker 1: wonderful book Money The True story of a made up thing.
Speaker 1: And it's pretty good. It's pretty good.
Speaker 2: It's definitely good enough to be very scary.
Speaker 1: I've had worse human podcasters, for sure. So I mean,
Speaker 1: maybe this is all happening sooner than we think. But
Speaker 1: what Neil is basically driving at is, by the time
Speaker 1: the robots take our jobs, won't they also be better
Speaker 1: than us? So they will make a better podcast than
Speaker 1: we will. They will draw better pictures than we will,
Speaker 1: they will write better pros than we will, they will
Speaker 1: compose better music than we will, and so on. And
Speaker 1: is that a problem. I'm not sure that's the problem.
Speaker 1: I'm worried about. The computer already draws better than I do,
Speaker 1: and lowbar, respectral, very lowbar. And it's great. I'm like, wow,
Speaker 1: I can create art for my hobby projects. That's great.
Speaker 1: I'm not doing anybody out of a job, But now
Speaker 1: my own creativity is unlocked by the computer. Of course,
Speaker 1: maybe there comes a time where I don't need to
Speaker 1: do any of that. I just press the button and
Speaker 1: the computer just produces everything, and it's better than what
Speaker 1: I could produce. Does that matter? I want to add
Speaker 1: 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, We
Speaker 2: would be doing it for some audience, right. My hope,
Speaker 2: although I really don't know, is that even if AI
Speaker 2: makes a better podcast than us, people will listen just
Speaker 2: because people like people. And one interesting case to consider
Speaker 2: is chess. Right. Chess has this history where first people
Speaker 2: were better than machines, and then for a long time
Speaker 2: computers could beat people, but a person working with a
Speaker 2: computer was better than just a computer, and then a
Speaker 2: few years ago that ceased to be the case. And
Speaker 2: obviously many many computers can beat every single human being
Speaker 2: on earth. But chess players still like are famous among nerds.
Speaker 1: Right.
Speaker 2: Magnus Carlson is like a rich guy, he's a superstar,
Speaker 2: and people pay lots of money to watch him play
Speaker 2: worse chess than a computer. So my hope is we
Speaker 2: can be if not the Magnus Carlson's of podcasts, the
Speaker 2: whoever is like, you know, way worse than Magnus Carlson,
Speaker 2: but still a pretty good chess player.
Speaker 1: Sure, and you may be right, but I think my
Speaker 1: point is it's worth playing chess even if nobody watches
Speaker 1: you 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? Yeah?
Speaker 1: Yeah, Okay, we could have to think it's a podcast
Speaker 1: that nobody listens is a fun conversation.
Speaker 2: Welcome to the podcast for no one. I'm Jacob goldstud.
Speaker 1: If people weren't listening, it would be different. But I
Speaker 1: think people would still be creating stuff. People would still
Speaker 1: be making art, and that will be fine. So that's
Speaker 1: my answer to Neil.
Speaker 2: Okay, Tim, We're gonna go from the robot apocalypse to
Speaker 2: the climate apocalypse with our next question from Julian, who
Speaker 2: writes Dear Tim. Lately, more and more news breaks of
Speaker 2: climate change harming the economy. For example, I remember a
Speaker 2: recent story about home insurance premiums rising steeply in hazard
Speaker 2: 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 2: Could you set up a fund that would act, in
Speaker 2: effect like a climate change insurance policy. Excellent show, By
Speaker 2: the way, Deep insights told via gripping stories. All the
Speaker 2: best from Vienna Julian.
Speaker 1: It's a very interesting question. The thing that immediately springs
Speaker 1: to my mind is I once saw one of the
Speaker 1: most amazingly persuasive pieces of rhetoric ever that was not
Speaker 1: intended to be persuasive, and it was at a commodities conference.
Speaker 1: It was a bunch of guys who trade agricultural commodities
Speaker 1: and therefore have a big interest in climate variability. But
Speaker 1: at the same time, we're culturally Midwestern and therefore climate skeptic.
Speaker 1: And the guy giving a talk at this conference was
Speaker 1: rather professorial Germanic character. I can't remember if he was
Speaker 1: German or Austrian or Swiss. And he was from one
Speaker 1: of those big reinsurance companies. He just gave a talk
Speaker 1: explaining how they were raising all of their insurance premiums
Speaker 1: because of climate change, and showed loads and loads of
Speaker 1: data about climate change and how they were changing their
Speaker 1: pricing model. And there's a bunch of people who I
Speaker 1: think were politically predisposed to be climate skeptics were like, huh,
Speaker 1: this guy is not Hillary Clinton and the Dems coming
Speaker 1: to take away our freedoms. This guy doesn't want to
Speaker 1: persuade us of anything. He's just telling us that the
Speaker 1: price of insurance is going up, and here's why. And
Speaker 1: I really felt the mood in the room change because
Speaker 1: of that talk was fascinating, And what that gets at
Speaker 1: is that insurance gives us a kind of truth about
Speaker 1: the risks that we face. Because insurance companies operate in
Speaker 1: a competitive market, they want to offer the most expensive
Speaker 1: premiums they can get away with, but they're forced by
Speaker 1: competition to keep the premiums low, and so as the
Speaker 1: premiums rise and rise and rise, that generally indicates that
Speaker 1: the risk is rising and rising and rising too. So,
Speaker 1: to return to Julian's question, is their way to profit
Speaker 1: from climate change? I mean your podcast What's your Problem, Jacob,
Speaker 1: You've talked to many entrepreneurs who are hoping to make
Speaker 1: 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 1: So I think that there are all these hopeful stories
Speaker 1: and it is very encouraging, but fundamentally to come back
Speaker 1: to this idea of our kind of inverse insurance policy,
Speaker 1: I think that the answer is no. Fundamentally, insurance moves
Speaker 1: the cost around, so the person whose house got burned
Speaker 1: down or the person whose home was destroyed in a hurricane,
Speaker 1: they don't have to pay for rebuilding it. Instead, the
Speaker 1: insurance company pays, but somebody still has to pay. And
Speaker 1: insurance moves that risk around and that's very valuable, but
Speaker 1: it doesn't make the cost go away. And climate change
Speaker 1: increases these costs and all the insurance in the world
Speaker 1: is not going to reduce them in aggregate. It'll shift
Speaker 1: them to different people, but it's not going to reduce them.
Speaker 1: For that, we need you, We need your sellar panels.
Speaker 2: Jacob, you know, when you put it that way, like
Speaker 2: what we really want in terms of moving the economics
Speaker 2: is 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. Like,
Speaker 2: it's a great idea. You can even have a carbon
Speaker 2: 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, 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 1: We are back. I'm Tim Harford. I am talking to
Speaker 1: the amazing Jacob Goldstein. And this is another of our
Speaker 1: Portionary Questions episodes where you have been sending in your
Speaker 1: questions and Jacob and I are going to try and
Speaker 1: answer them, Jacob, what have you got for me?
Speaker 2: Tim? 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 jailed. Love your show, Robert from Illinois.
Speaker 1: Yeah, and a throwback because we first met each other
Speaker 1: shortly after the financial crisis.
Speaker 2: In twenty ten, when in the question on everybody's lips
Speaker 2: was who's going to jail?
Speaker 1: Yeah, I mean it's not literally true that nobody went
Speaker 1: to jail. Bern he made off went to jail, for example.
Speaker 1: I mean, I think the short answer is, if you
Speaker 1: want people to go to jail, then first they have
Speaker 1: to commit a crime. And the weird thing about the
Speaker 1: financial crisis is, I don't think many people did commit crimes.
Speaker 1: All of this crazy stuff that happened, and all the
Speaker 1: outrageous things that people were I think mostly legal, which
Speaker 1: 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 look 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 thousand dollars
Speaker 2: and lends it out to somebody else for a mortgage
Speaker 2: 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 1: I mean, you say it wasn't because the shadow banks
Speaker 1: were lazier, incompetent or greedy. I mean I think they
Speaker 1: probably were incompetent and greedy as well.
Speaker 2: Fair well, greed. I shouldn't have brought greed into it.
Speaker 2: Greed should be fun greed, right.
Speaker 1: Like incompetence is not illegal, and neither is greed.
Speaker 2: Yeah, they certainly didn't break the rules, right. And in fact,
Speaker 2: one of the key under the radar failures that week
Speaker 2: in September in two thousand and eight when Lehman Brothers
Speaker 2: the investment bank failed, and then everybody else failed and
Speaker 2: the government bailed everybody out, was the very first money
Speaker 2: market neutral fund that had been created forty years or
Speaker 2: and was very much like a bank and suddenly couldn't
Speaker 2: give everybody their money back now. And so it's totally
Speaker 2: understandable that everybody is angry when one industry blows up
Speaker 2: the economy. And by the way, all the people in
Speaker 2: that industry are getting rich, and it's not obvious what
Speaker 2: they're providing to us. But it is in fact a
Speaker 2: really hard problem to solve, Like banks are inherently unstable,
Speaker 2: and people love making things that look like banks and
Speaker 2: are inherently unstable.
Speaker 1: Thank you Jacob for reminding me of the concept of
Speaker 1: shadow banking. It's like it's like real banking, but their
Speaker 1: headquarters are in mortal That's such a greatat Yes, oh,
Speaker 1: good times, Good times, Jacob. There are more questions in
Speaker 1: the mail bag. Would you mind if I were to
Speaker 1: read the next question to you because I want to
Speaker 1: hear your answer because you are the author of money,
Speaker 1: the true story of a made up thing, and I
Speaker 1: feel like this question is made for you. One of
Speaker 1: my friends posted this on Facebook, but is it true?
Speaker 1: This is the Facebook post. This is why I keep
Speaker 1: telling the younger generation to stop avoiding cash. I have
Speaker 1: a fifty pound banknote in my pocket. I go to
Speaker 1: a restaurant and pay for dinner with it. The restaurant
Speaker 1: owner then uses the note to pay for the laundry.
Speaker 1: The laundry owner then uses the note to pay the barber.
Speaker 1: The barber will then use the note to pay for shopping.
Speaker 1: After an unlimited number of payments, it will still remain
Speaker 1: a fifty pound value, which has fulfilled its purpose to
Speaker 1: everyone who used it for payment. But if I go
Speaker 1: to a restaurant and pay digitally via card, the bank
Speaker 1: fees for my payment transaction charged to the seller are
Speaker 1: three percent, so around one pound fifty for the fifty
Speaker 1: pound payment. This will also be the case for laundry payment,
Speaker 1: payment to the barber and so on. Therefore, after thirty transactions,
Speaker 1: the initial fifty pounds will exist at only five pounds,
Speaker 1: and the remaining forty five pounds has become the property
Speaker 1: of the bank. That's not actually how percentages work. But
Speaker 1: that's fine thanks to all the digital transactions and fees,
Speaker 1: use it or lose it for ax. Once it's gone,
Speaker 1: we won't get it back. Cash is king. Okay, So
Speaker 1: the arithmetic on this is wrong. We don't need to
Speaker 1: bother with that. But Jacob, what about the economics. Well,
Speaker 1: it's your reaction to this.
Speaker 2: So that was from Windy, right, and she says if
Speaker 2: you pay with a fifty pound bank note 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. Right.
Speaker 2: So, at the risk of being pedantic, I think it
Speaker 2: is relevant to say that is not in fact what happens.
Speaker 2: There is a cost born by the restaurant of dealing
Speaker 2: with cash, right, they pay somebody to account it, they
Speaker 2: pay somebody to take it to the bank, and so
Speaker 2: there is a cost to cash. So the relevant question
Speaker 2: is how does the cost of cash compare to the
Speaker 2: cost of a credit card and also to the cost
Speaker 2: of a debit card. Those two things feel the same
Speaker 2: to us as customers, but as it happens, they're not
Speaker 2: the same to merchants. And for the most part, and
Speaker 2: it varies from country to country, debit cards are the
Speaker 2: cheapest for merchants, then cash is in the middle, and
Speaker 2: credit cards are the most expensive. So like, the most
Speaker 2: efficient mode of transaction for the merchant in most countries
Speaker 2: is the debit card, basically because you compare the cost
Speaker 2: of dealing with the cash, of paying people to count
Speaker 2: 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 I have
Speaker 2: the 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 1: I mean, there's a lot wrong with this Facebook post,
Speaker 1: but there is a grain of truth in that there
Speaker 1: is a monopolistic provider, or allegedly monopolistic provider, of these
Speaker 1: payment services and they're raking off a disproportionate fee. Yes.
Speaker 1: On the other hand, I mean Visa just like the barber,
Speaker 1: and just like the laundromat owner, and just like the
Speaker 1: restaurant owner, visa is also a business. So if they
Speaker 1: take the money, well, they can also spend the money
Speaker 1: back into the economy. I mean it may feel a
Speaker 1: bit unfair, but yes, I mean the money still goes around.
Speaker 1: I mean this Facebook post is acting like the thing
Speaker 1: that's scarce is the money, Like the fifty pound note
Speaker 1: is the thing that's potentially scarce, but actually you can
Speaker 1: always make more fifty pound notes if you are the
Speaker 1: central bank. So money is in fact not the thing
Speaker 1: that is scarce. What is scarce is laundromats and restaurants
Speaker 1: and chefs and all of these real resources in the economy.
Speaker 1: And the money, whether it's digital money or whether it's
Speaker 1: paper money, is just a way of kind of keeping
Speaker 1: track of things. And then which gets back to your question,
Speaker 1: which is which is the most efficient way of keeping
Speaker 1: track of things? And that's an open question, I think.
Speaker 2: I mean, efficiency gains are good, right, Like the question
Speaker 2: does matter on the sense that we want to spend
Speaker 2: as little as possible on payment rails. That's fundamentally what
Speaker 2: this 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: in cash, and we're getting there.
Speaker 1: So don't get your economics from Facebook posts. Get your
Speaker 1: economics from Jacob Goldstein. Thank you, Jacob. Caution tales will
Speaker 1: be back off to this break.
Speaker 2: Tim, let's talk about housing, sure, Fred Wrights. 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 1: I think Fred is completely right. I think the UK
Speaker 1: economy desperately needs housing reform. Fundamentally, we've just made it
Speaker 1: very very difficult to build houses. And if you make
Speaker 1: it very very difficult to build houses, that makes houses
Speaker 1: very expensive, and that's a problem in its own right
Speaker 1: because people need somewhere to live, but it also damages
Speaker 1: the economy because people don't get to move around to
Speaker 1: where the jobs are. And it's also inequitable, so it
Speaker 1: means that people who are older have a lot more
Speaker 1: money than people who are younger, disproportionately because they've just
Speaker 1: sat in houses that they bought when they were cheap,
Speaker 1: and those houses have got more and more expensive. And
Speaker 1: it's also inequitable within generations because, not to put too
Speaker 1: fine a point on it, if you are the only
Speaker 1: child of parents with a house, you're going to inherit
Speaker 1: the house, which is hugely valuable. If you're one of
Speaker 1: three or four children, or if your parents never had
Speaker 1: a house in the first place, you're not going to
Speaker 1: inherit and it becomes incredibly difficult to afford a house.
Speaker 1: And so there are a huge number of different economic
Speaker 1: problems being caused by the fact that we're just not
Speaker 1: willing to let people build more houses. And in a nutshell,
Speaker 1: I mean, houses are incredibly expensive in the UK. Fundamentally,
Speaker 1: if you let people build houses, the cost of a
Speaker 1: house is going to fall to the cost of building
Speaker 1: a house. That's how much is going to cost you
Speaker 1: to buy a house. It's like whatever it costs to
Speaker 1: build a house, which is a lot less than the
Speaker 1: market price of 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 building was
Speaker 2: on my block or whatever.
Speaker 1: That is better than bananas, right, you know what? Banana's
Speaker 1: time school build absolutely nothing any anybody 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: b 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 yimby 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 I think it's actually great. It means you can
Speaker 2: have a rational, as opposed to tribal discussion about it.
Speaker 2: So that's one piece of it, and the other piece
Speaker 2: of it is somewhat wonkier, but it is this. At
Speaker 2: least in the US, the rules about housing we call
Speaker 2: it zoning, are typically locally imposed. They're imposed basically at
Speaker 2: the city level, and there's a sort of political economy
Speaker 2: reason for that, which is homeowners care a lot, and
Speaker 2: they show up at the city council meeting and they say,
Speaker 2: don't let anybody build apartments in my neighborhood because that'll
Speaker 2: lower the value of my house. Right, homeowners don't want
Speaker 2: the valid point. It's the whole point. Right, there's this
Speaker 2: weird thing where like, yes, houses are too expensive, we
Speaker 2: need to lower the value of your house. So instead
Speaker 2: of dealing with it at the city level, the yymbies
Speaker 2: went to the state and god California to pass laws
Speaker 2: overriding cities that said to cities, you basically can't do
Speaker 2: exclusionary zoning anymore. You can't say there can only be
Speaker 2: single family homes. But in most of California now you
Speaker 2: can build what are called adu's additional dwelling units. You
Speaker 2: can build a little apartment over the garage or in
Speaker 2: your backyard, for example. And other rules like that have
Speaker 2: passed the state, so there is encouraging progress. Though houses
Speaker 2: 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 the time to read my question. What happened to
Speaker 2: Mohammad Yunis and Gramine Bank. There was so much promise
Speaker 2: with microfinance as a tool for good in helping the
Speaker 2: underbanked in developing economies. Kind regards Benji.
Speaker 1: So the short answer is Mohammed Unis is now a
Speaker 1: senior advisor to the Government of Bangladesh and won a
Speaker 1: Nobel Prize not for economics but for peace. So he's
Speaker 1: doing fine. So microfinance is basically the idea that you
Speaker 1: give very small loans to entrepreneurs in very poor communities,
Speaker 1: low interest rates, and they can use that to build
Speaker 1: their business. So Unus was famous for saying, all people
Speaker 1: are entrepreneurs. And the founding story of Gramine Bank, which
Speaker 1: is the microfinance outfit that he started. He was an economist.
Speaker 1: He went to a village near the university in Bangladesh
Speaker 1: where he worked, and he found that these local women
Speaker 1: were weaving baskets and selling these baskets and that's how
Speaker 1: they made their money. But they had to borrow money
Speaker 1: from the village money lender to pay for the materials
Speaker 1: to make the baskets, and the village money lender was
Speaker 1: charging them ten percent a day, just an astonishingly high
Speaker 1: interest rate. I did the maths. Once that interest rate
Speaker 1: would turn one cent into larger than the entire US
Speaker 1: government debt over the course of a year, so it's
Speaker 1: a very high interest rate. And UNUS came in and said,
Speaker 1: I'll lend you money. I won't charge you much interest.
Speaker 1: These women borrowed money off him and they paid it
Speaker 1: back and it was fine. And suddenly not having to
Speaker 1: pay ten percent on top of your cost every day
Speaker 1: was the difference between grinding inescapable poverty and the chance
Speaker 1: to build your own small business. So it's a lovely idea.
Speaker 1: The development economists came in and said, well, this sounds great,
Speaker 1: but does it actually work? And they found mixed pictures.
Speaker 1: So it was a really interesting study in South Africa
Speaker 1: which was conducted by Dean Carlon and Jonathan Zinman to
Speaker 1: development economists, and they found that people borrowing money from
Speaker 1: what seemed pretty much like a payday loan company at
Speaker 1: very high interest rates. I think it was two hundred
Speaker 1: percent annual percentage interest rate. They randomized it so that
Speaker 1: some people who this company were going to turn down
Speaker 1: for loans at random, some of them were offered loans anyway,
Speaker 1: and the people who at random were offered the loans
Speaker 1: versus at random were not offered the loans. The ones
Speaker 1: who got the loans were doing much better six months later,
Speaker 1: so really interesting RANDOMI as well, So even this very
Speaker 1: expensive credit was great because what they were doing was
Speaker 1: they were using the loan to I don't know, buia
Speaker 1: suit to go to a job interview or to fix
Speaker 1: their bike in order to stay in employment. But other
Speaker 1: research was more mixed, and I think the fundamental idea
Speaker 1: that the reason why people are poor in poor countries
Speaker 1: is because they don't have access to cheap loans. I mean,
Speaker 1: there's so much else going on, so it's only ever
Speaker 1: going to be a part of the story. The other
Speaker 1: really interesting thing is the commercial companies came in. So
Speaker 1: there was a one called Compatamos in Mexico, which was
Speaker 1: just a huge business that was lending money at pretty
Speaker 1: high rates and making a lot of money, and it
Speaker 1: was just about to do an IPO, I think, and
Speaker 1: that made all the founders of this organization very rich,
Speaker 1: and Unice was like, this is outrageous. He was trying
Speaker 1: to excommunicate them from the microfinance movement because they were
Speaker 1: too commercial. But the problem is there was always shades
Speaker 1: of gray between kind of nonprofit microfinance and the money
Speaker 1: lender who Unice was originally worried about even nonprofit microfinance.
Speaker 1: They're not lending people loans at zero interest. Even the
Speaker 1: nonprofits are often lending at fifty sixty seventy percent a year.
Speaker 1: And the reason is you're making such small loans for
Speaker 1: such a short period of time, like maybe you're lending
Speaker 1: somebody like fifty dollars for three months. Unless you charge
Speaker 1: a big interest rate, you'll feel on that is like
Speaker 1: fifty cents, yeah, and it's just not enough to cover
Speaker 1: your costs. And so it's this fine line between what
Speaker 1: is abusive money lending and what is nonprofit microfinance. It's
Speaker 1: harder to draw that line than you think. So it's
Speaker 1: a fascinating area. But that is what happened to Mohammed
Speaker 1: Unis and the Gramming 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, Tim 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 as a more go with
Speaker 2: the flow attitude fine for something this serious. Thanks for
Speaker 2: the help, Ella.
Speaker 1: So this is where I hope that Ella's parents aren't
Speaker 1: listening to this podcast, because I'm going to tell Ellen
Speaker 1: not to worry. I think go with the flow is fine.
Speaker 1: I mean, physics is such a desirable degree. I'm sure
Speaker 1: you'll have no trouble finding somebody to give you a
Speaker 1: job in the end. So Jacob and I are collectively
Speaker 1: over one hundred, so we're basically two old geezers. We're
Speaker 1: probably not really very well qualified to give you advice.
Speaker 1: But when I look back at my career, I didn't
Speaker 1: know what I wanted to do when I went to university.
Speaker 1: I didn't know what I wanted to do when I
Speaker 1: left university. I didn't have any particular plans to become
Speaker 1: a journalist or a writer. And in fact, I didn't
Speaker 1: become a journalist or a writer until I was nearly thirty.
Speaker 1: And I think all of the things that I did
Speaker 1: in my twenties, some of them were mistakes, some of
Speaker 1: them were not, but they all kind of contribute to
Speaker 1: who I am now. If there's something that you're really
Speaker 1: passionate about and you've got this vision, you want to
Speaker 1: chase it. That's fine. But I think it is also
Speaker 1: fine to experiment and to try different things and to
Speaker 1: 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?
Speaker 1: 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 I am going to do. They don't
Speaker 2: actually want to know. They're not really thinking that much
Speaker 2: about you. They're just making conversation, They're just talking about
Speaker 2: the weather, right. I mean it in a good way
Speaker 2: when I say other people don't care. Everybody is mostly
Speaker 2: thinking about themselves.
Speaker 1: I would praise it slightly differently. I would say, there's
Speaker 1: 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 1: And you know, another thing you can do with an
Speaker 1: undergraduate degree in physics is a postgraduate degree in economics. Twist, Jacob,
Speaker 1: Thank you so much for joining me.
Speaker 2: Tim, It's so fun. I truly would do it for
Speaker 2: free even if nobody listened.
Speaker 1: Thank you so much, Jacob, and thanks to all of
Speaker 1: you for sending in your questions. We will be back
Speaker 1: again on our regular schedule with another classic episode of
Speaker 1: Cautionary Tales but in the meantime, happy Thanksgiving to our
Speaker 1: us listeners and if you have a question for us,
Speaker 1: please send it in to Tales at Pushkin dot fm.
Speaker 1: That's t a l e. S. Tales at Pushkin dot fm.
Speaker 1: Thank you, We love hearing from you. Cautionary Tales is
Speaker 1: written by me Tim Harford with Andrew Wright. For a
Speaker 1: full list of our sources, see the show notes at
Speaker 1: Timharford dot com. The show is produced by Alice Fines
Speaker 1: with Marilyn Rust. The sound design and original music of
Speaker 1: the work of Pascal Wise. Sarah Nix edited the script.
Speaker 1: Cautionary Tales features the voice talents of Ben Crow, Melanie Guttridge,
Speaker 1: Stella Harford, Gemma Saunders and Rufus Wright. The show wouldn't
Speaker 1: have been possible without the work of Jacob Weisberg, Ryan Dilly,
Speaker 1: Greta Cohne, Eric Handler, Carrie Brody, Christina Sullivan, Kira Posey
Speaker 1: and Owen Miller. Cautionary Tales is a production of Pushkin Industries.
Speaker 1: It's recorded at ward Or Studios in London by Tom Garry.
Speaker 1: If you like the show, please remember to share, rate
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