November 22, 2024 • 42 mins
What really drove the 2008 financial crash? What’s a shadow bank? And what’s the connection between NIMBYs and BANANAs? Tim Harford and Jacob Goldstein answer more of your questions.
Do you have a question for Tim? Please send it in to tales@pushkin.fm.
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Episode Transcript
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Speaker 1 (00:15):
Pushkin. Hello listeners. Tim Harford here, as loyal listeners will know.
Cautionary Tales is a podcast about learning from the mistakes
of the past. But it also seems to me that
we can learn from things that have gone well in
the past, for example, getting Jacob Goldstein on the show
(00:36):
Jacob is Jacob is back for an episode of cautionary Questions.
Hello Jacob.
Speaker 2 (00:41):
What's the opposite of a cautionary tale?
Speaker 1 (00:44):
Uh?
Speaker 2 (00:44):
A salutary tale, A salutary story. I guess we salute you,
jacare we can do better. Let's try and punch that up.
Speaker 1 (00:51):
We'll work on it. For those of you who don't know,
Jacob is the host of Pushkin podcast What's Your Problem,
which is a brilliant show about people who are trying
to make technological progress. He's also the author of the
book Money, The True Story of a Made Up Thing,
and he's the perfect person to help me out. So
all of the questions that you lovely people have been
(01:13):
kind enough to send in, So Jacob, wonderful to have
you back. Of course, our virtual mail bag is bursting
with queries on topics as varied as climate investing and
careers advice. So Jacob Goldstein. Are you ready, Yes, let's
do it.
Speaker 2 (01:52):
So, Tim, we're going to start with a couple of
emails that came in after the last time you and
I talked on the show, and one of the things
we talked about was what happens if AI and robots
take all of our jobs. So the first question about that,
which is frankly really more of a comment, but a
lovely comment, comes from Karen, who writes, Dear Tim Harford,
(02:12):
I was, as usual enjoying your recent Q and A
episode with Jacob Goldstein.
Speaker 1 (02:16):
She's a woman of taste. I like how the thoughts.
Speaker 2 (02:18):
I like her already and your lively discussion about what
happens when everyone loses their jobs to AI. At one
point you said, quote, how would we react if our
desire for mastery, or desire for meaning, or desire to
feel useful if all that had to be satisfied without
having a job, And what would we do? And could
(02:40):
we cope? And I don't know, well, said Tim Harford.
Karen writes, you could just have easily asked what do
people do after they've retired? Fah, She goes on, my
work was very meaningful to me too. I led policy
teams that advise government minister as it was fast paced, exciting, fun, challenging.
(03:02):
I loved my job, so when I retired I wondered
about all the things you expressed concerns about on your show.
Here what's the truth as I see it, Whatever you're
doing for a living, it's not all of you. It
just takes most of your time. All the other parts
of you, al those pushed down by the demands of
capitalist discipline, emerge. Once your time has been freed, then
(03:24):
you find out what else you are, what else makes
you happy, and what else gives you meaning and purpose.
So there is really nothing to fear from our robot overlords.
My very best regards, Karen.
Speaker 1 (03:36):
Wow, way to start the show with our best question,
and the other questions can't possibly be as good as that.
Speaker 2 (03:41):
It's really lovely, right, thoughts, It's.
Speaker 1 (03:43):
Really lovely, and I agree with all of the stuff
about what we do for a living is not all
of us. It's a very interesting thought, though. Is retirement
the same as living your entire life not working because
a robot took your job? And we have some evidence
on this point.
Speaker 2 (04:03):
Tell me what is the finding?
Speaker 1 (04:04):
So these three German economists publish this research just over
a decade ago looking at people's life satisfaction. Turns out
people are quite happy being retired. And if you have
a job and then you retire, nothing happens to your
life satisfaction. You will find before you're fine after, But
if you're unemployed, you're miserable. And if you then retire
(04:25):
from a situation of unemployment, your life satisfaction goes up.
I mean it's the same thing, right, Like you go
from not having a job to not having a job,
But there's something about your identity as a retired person
versus a person who is looking for a job and
can't find a job. It makes a huge difference to
how people feel about themselves.
Speaker 2 (04:45):
Unemployed in the data does not mean a person who
doesn't have a job, right, It means a person who
wants a job and doesn't have a job. And that's
an important difference. And so I wonder in that study
if that difference is actually quite significant, right, Like, if
you want a job and don't have a job, you're
going to be unsatisfied in that dimension, Whereas if you
(05:09):
who don't have a job and don't want a job,
it's fine. That sounds fine, Yeah, yeah, So I.
Speaker 1 (05:15):
Think that's right, Jacob, And I think a lot of
this depends on what people's expectations are, their expectations of themselves,
what they think other people expect of them. But I
would guess there's a huge difference in the scenario where
the robots take everyone's job and we're all basically just
doing you know, hobbies, whatever we want, our living standards
(05:36):
are taken care of by the robots and everyone's in
the same boat, versus a situation where a lot of
people lose their jobs to the robots and a lot
of other people don't, which I think is more likely.
Speaker 2 (05:48):
So traditionally we thought of technological unemployment as happening to
people with lower job skills, right, people with less education,
strong people who were getting replaced by machines. Plainly, the
new wave of generative AI threatens you and me, which
(06:09):
is what.
Speaker 1 (06:10):
Makes it existentially threatening.
Speaker 2 (06:12):
It does people losing their jobs to technology are more
broadly drawn from across the income spectrum and the education spectrum.
How does it change the sort of social implications, Because
on a fundamental level, what we're really talking about is
whether you have a job or not, and how you
feel about that is largely determined by social norms, right.
(06:34):
That's actually what's going on here. It's a status game
to some significant degree, and it's uncomfortable to call it that.
I don't think I like my job because it gives
me status. I think I like my job because it's
fun and I'm contributing something to the world. But obviously
we all care about status, and.
Speaker 1 (06:48):
It does give you status. You have one of the
best jobs in the world. You're a podcast.
Speaker 2 (06:51):
To listen, we're walking right up to the next question
in a very elegant way from Neil. Hello Tim. During
your recent Cautionary Questions episode, Jacob Goldstein jokes that if
AI takes everyone's jobs, the two of you will still
do a free podcast together. I understand the jest, but
it begs the question. By the time AI is good
(07:14):
enough to take over most jobs, won't it also be
better than us at creating entertainment and art. I think
we as humans don't want to admit that as possible,
but it's definitely the goal of AI developers all over
the world at this very moment. I'm curious what that
possibility could mean for humanity and what we might do
to avoid or prepare for it. Thank you for all
(07:34):
your excellent content. The robots have nothing on you.
Speaker 1 (07:39):
Yet. Yes, Jacob, have you heard the podcasting software that
notebook LM have just released? This is a Google product, Tim.
Speaker 2 (07:49):
Not only have I heard it, I uploaded a chapter
of my book about paper money in China and queued
up a moment of it to play for you right now.
You know how we always hear about Marco Polo bringing
back these crazy stories from China, right well, get ready
for this trying out. China was light years ahead of
Europe when it came to money, centuries ahead, to be exact.
(08:12):
We're talking paper money, folks, Yes, centuries before it ever
showed up in Europe. It's wild. It really flips the
script on how we usually think about financial history. Absolutely so,
just to be clear, I just uploaded a chapter of
the book clicked whatever make a podcast, didn't make any choices,
didn't tell it to do anything but that, and that's
(08:34):
what came out.
Speaker 1 (08:35):
And these are two synthetic voices reading a script that
was created by a genitive AI in response to your
wonderful book Money The True story of a made up thing.
And it's pretty good. It's pretty good.
Speaker 2 (08:51):
It's definitely good enough to be very scary.
Speaker 1 (08:55):
I've had worse human podcasters, for sure. So I mean,
maybe this is all happening sooner than we think. But
what Neil is basically driving at is, by the time
the robots take our jobs, won't they also be better
than us? So they will make a better podcast than
we will. They will draw better pictures than we will,
(09:16):
they will write better pros than we will, they will
compose better music than we will, and so on. And
is that a problem. I'm not sure that's the problem.
I'm worried about. The computer already draws better than I do,
and lowbar, respectral, very lowbar. And it's great. I'm like, wow,
I can create art for my hobby projects. That's great.
(09:37):
I'm not doing anybody out of a job, But now
my own creativity is unlocked by the computer. Of course,
maybe there comes a time where I don't need to
do any of that. I just press the button and
the computer just produces everything, and it's better than what
I could produce. Does that matter? I want to add
a wrinkle rinkle away.
Speaker 2 (09:56):
When I was talking about making a podcast with you
after the robots take our jobs, part of what I
was imagining was that somebody would listen, right, Like, not
that we could make a living out of it, We
would be doing it for some audience, right. My hope,
although I really don't know, is that even if AI
(10:17):
makes a better podcast than us, people will listen just
because people like people. And one interesting case to consider
is chess. Right. Chess has this history where first people
were better than machines, and then for a long time
computers could beat people, but a person working with a
(10:39):
computer was better than just a computer, and then a
few years ago that ceased to be the case. And
obviously many many computers can beat every single human being
on earth. But chess players still like are famous among nerds.
Speaker 1 (10:55):
Right.
Speaker 2 (10:55):
Magnus Carlson is like a rich guy, he's a superstar,
and people pay lots of money to watch him play
worse chess than a computer. So my hope is we
can be if not the Magnus Carlson's of podcasts, the
whoever is like, you know, way worse than Magnus Carlson,
but still a pretty good chess player.
Speaker 1 (11:14):
Sure, and you may be right, but I think my
point is it's worth playing chess even if nobody watches
you even if it's just you and a friend.
Speaker 2 (11:24):
Yeah, but is it worth making a podcast if nobody
listens that, what are we bothering with the microphones for?
Then you could just call me? Yeah?
Speaker 1 (11:32):
Yeah, Okay, we could have to think it's a podcast
that nobody listens is a fun conversation.
Speaker 2 (11:37):
Welcome to the podcast for no one. I'm Jacob goldstud.
Speaker 1 (11:41):
If people weren't listening, it would be different. But I
think people would still be creating stuff. People would still
be making art, and that will be fine. So that's
my answer to Neil.
Speaker 2 (11:50):
Okay, Tim, We're gonna go from the robot apocalypse to
the climate apocalypse with our next question from Julian, who
writes Dear Tim. Lately, more and more news breaks of
climate change harming the economy. For example, I remember a
recent story about home insurance premiums rising steeply in hazard
(12:12):
zones for flooding storms or landslides. That made me wonder,
isn't there a way to profit from climate change too
that would allow us to hedge against these economic risks?
Could you set up a fund that would act, in
effect like a climate change insurance policy. Excellent show, By
the way, Deep insights told via gripping stories. All the
(12:33):
best from Vienna Julian.
Speaker 1 (12:36):
It's a very interesting question. The thing that immediately springs
to my mind is I once saw one of the
most amazingly persuasive pieces of rhetoric ever that was not
intended to be persuasive, and it was at a commodities conference.
It was a bunch of guys who trade agricultural commodities
and therefore have a big interest in climate variability. But
(13:00):
at the same time, we're culturally Midwestern and therefore climate skeptic.
And the guy giving a talk at this conference was
rather professorial Germanic character. I can't remember if he was
German or Austrian or Swiss. And he was from one
of those big reinsurance companies. He just gave a talk
(13:21):
explaining how they were raising all of their insurance premiums
because of climate change, and showed loads and loads of
data about climate change and how they were changing their
pricing model. And there's a bunch of people who I
think were politically predisposed to be climate skeptics were like, huh,
(13:41):
this guy is not Hillary Clinton and the Dems coming
to take away our freedoms. This guy doesn't want to
persuade us of anything. He's just telling us that the
price of insurance is going up, and here's why. And
I really felt the mood in the room change because
of that talk was fascinating, And what that gets at
is that insurance gives us a kind of truth about
the risks that we face. Because insurance companies operate in
(14:03):
a competitive market, they want to offer the most expensive
premiums they can get away with, but they're forced by
competition to keep the premiums low, and so as the
premiums rise and rise and rise, that generally indicates that
the risk is rising and rising and rising too. So,
to return to Julian's question, is their way to profit
from climate change? I mean your podcast What's your Problem, Jacob,
You've talked to many entrepreneurs who are hoping to make
(14:25):
money while also saving the planet.
Speaker 2 (14:27):
I was thinking about that. It is encouraging to talk
to these people who are very smart and I think
truly believe that the work they're doing will mitigate the
damage from climate change. And the progress has been extraordinary,
right like the fall in the price of solar power
(14:48):
in particular, it's staggering, you know, people are making batteries better,
and there are really hard parts of the problem like
cement and planes, and people are working on that. And
you know, Bill Gates started a venture capital fund called
Breakthrough Energy Ventures that is exactly what Julian is asking about, right, Like,
the point of this fund is to profit from climate
(15:09):
change by helping to solve or mitigate climate change.
Speaker 1 (15:13):
So I think that there are all these hopeful stories
and it is very encouraging, but fundamentally to come back
to this idea of our kind of inverse insurance policy,
I think that the answer is no. Fundamentally, insurance moves
the cost around, so the person whose house got burned
down or the person whose home was destroyed in a hurricane,
(15:36):
they don't have to pay for rebuilding it. Instead, the
insurance company pays, but somebody still has to pay. And
insurance moves that risk around and that's very valuable, but
it doesn't make the cost go away. And climate change
increases these costs and all the insurance in the world
is not going to reduce them in aggregate. It'll shift
them to different people, but it's not going to reduce them.
(15:57):
For that, we need you, We need your sellar panels.
Speaker 2 (15:59):
Jacob, you know, when you put it that way, like
what we really want in terms of moving the economics
is you want the people who are consuming the fossil fuel,
who are flying on the plane, who are eating the
hamburger to pay the full cost of that. Right, you
want to internalize that cost which is now not in
(16:20):
that transaction. And you can do that with a carbon tax. Like,
it's a great idea. You can even have a carbon
tax and then just give everybody the money back. Right,
the government collects money from people for consuming carbon essentially
and then sends a check to everybody in the country
at the end of the year, so the government doesn't
even have to take more money in the aggregate. And
like it's super elegant and it's just politically doesn't really
(16:43):
seem to be happening, but it is in a way
solving the problem fundamentally.
Speaker 1 (16:47):
Absolutely.
Speaker 2 (16:48):
All right, that's enough about that. We'll be back in
just a minute.
Speaker 1 (17:02):
We are back. I'm Tim Harford. I am talking to
the amazing Jacob Goldstein. And this is another of our
Portionary Questions episodes where you have been sending in your
questions and Jacob and I are going to try and
answer them, Jacob, what have you got for me?
Speaker 2 (17:17):
Tim? This is a throwback. It's from Robert who writes, Hi, Tim,
why did no one go to jail after the two
thousand and eight financial crisis? I remember the savings and
loans financial crisis during the Reagan presidency when Charles Keating
was jailed. Love your show, Robert from Illinois.
Speaker 1 (17:38):
Yeah, and a throwback because we first met each other
shortly after the financial crisis.
Speaker 2 (17:43):
In twenty ten, when in the question on everybody's lips
was who's going to jail?
Speaker 1 (17:49):
Yeah, I mean it's not literally true that nobody went
to jail. Bern he made off went to jail, for example.
I mean, I think the short answer is, if you
want people to go to jail, then first they have
to commit a crime. And the weird thing about the
financial crisis is, I don't think many people did commit crimes.
All of this crazy stuff that happened, and all the
outrageous things that people were I think mostly legal, which
(18:12):
is of course the real scandal.
Speaker 2 (18:14):
Yeah, you know, everybody talked about housing and crazy sliced
up bonds built on mortgages, right, that was the sort
of part of the story that everybody heard and told,
and that part of the story is true. But there
is another piece of the story that I actually think
is a really fundamental driver of the crisis that you
(18:36):
didn't hear as much because it's a little more abstract
and a little nerdier. And that is basically that starting
a long time before the crisis, starting in like the
nineteen seventies, there arose in the United States what came
to be called a shadow banking system, where because of
regulations on banks in the US that were set up
(18:58):
after the depression, when there was a giant banking crisis,
clever finance people came up with financial structures that looked
like banks but weren't regulated like banks, And in particular
they look like bank deposits. Right, So a bank deposit
is a weird thing where you put your dollar in
the bank, and you have your deposit and it's worth
(19:20):
a dollar, and then the bank takes your dollar and
lends it out to somebody else, or your thousand dollars
and lends it out to somebody else for a mortgage
that doesn't have to be paid back for thirty years,
and so then there is this inherent fragility in that system, right,
because if we all come back and ask for our money,
the bank won't have it. And it's not because the
bank is greedy or evil or incompetent. It's because of
(19:43):
the fundamental structure of banking. That fragility is inherent in
the fundamental structure of banking. And what happened in the
financial crisis is that there were billions of dollars that
were deposit like they weren't exactly deposits. They weren't insured
by the federal government, but they were in money market
mutual funds, which people may be familiar with and were
explicitly set up to be like a bank deposit, but
(20:05):
could pay higher interests and weren't regulated, And in the
repo market, which is like a weirder version of the
same thing. Let's say, and everybody came and asked for
their money back in two thousand and eight, and of
course the shadow banks, which were not called banks or
shadow banks didn't have it, and that was a core
driver of the crisis. And it wasn't illegal, as you said,
(20:27):
But it's like that is what all financial crises are.
They just have like different flavors, different skins.
Speaker 1 (20:33):
I mean, you say it wasn't because the shadow banks
were lazier, incompetent or greedy. I mean I think they
probably were incompetent and greedy as well.
Speaker 2 (20:40):
Fair well, greed. I shouldn't have brought greed into it.
Greed should be fun greed, right.
Speaker 1 (20:45):
Like incompetence is not illegal, and neither is greed.
Speaker 2 (20:48):
Yeah, they certainly didn't break the rules, right. And in fact,
one of the key under the radar failures that week
in September in two thousand and eight when Lehman Brothers
the investment bank failed, and then everybody else failed and
the government bailed everybody out, was the very first money
market neutral fund that had been created forty years or
(21:10):
and was very much like a bank and suddenly couldn't
give everybody their money back now. And so it's totally
understandable that everybody is angry when one industry blows up
the economy. And by the way, all the people in
that industry are getting rich, and it's not obvious what
they're providing to us. But it is in fact a
really hard problem to solve, Like banks are inherently unstable,
(21:30):
and people love making things that look like banks and
are inherently unstable.
Speaker 1 (21:35):
Thank you Jacob for reminding me of the concept of
shadow banking. It's like it's like real banking, but their
headquarters are in mortal That's such a greatat Yes, oh,
good times, Good times, Jacob. There are more questions in
the mail bag. Would you mind if I were to
read the next question to you because I want to
hear your answer because you are the author of money,
(21:59):
the true story of a made up thing, and I
feel like this question is made for you. One of
my friends posted this on Facebook, but is it true?
This is the Facebook post. This is why I keep
telling the younger generation to stop avoiding cash. I have
a fifty pound banknote in my pocket. I go to
a restaurant and pay for dinner with it. The restaurant
owner then uses the note to pay for the laundry.
(22:21):
The laundry owner then uses the note to pay the barber.
The barber will then use the note to pay for shopping.
After an unlimited number of payments, it will still remain
a fifty pound value, which has fulfilled its purpose to
everyone who used it for payment. But if I go
to a restaurant and pay digitally via card, the bank
fees for my payment transaction charged to the seller are
(22:43):
three percent, so around one pound fifty for the fifty
pound payment. This will also be the case for laundry payment,
payment to the barber and so on. Therefore, after thirty transactions,
the initial fifty pounds will exist at only five pounds,
and the remaining forty five pounds has become the property
of the bank. That's not actually how percentages work. But
that's fine thanks to all the digital transactions and fees,
(23:07):
use it or lose it for ax. Once it's gone,
we won't get it back. Cash is king. Okay, So
the arithmetic on this is wrong. We don't need to
bother with that. But Jacob, what about the economics. Well,
it's your reaction to this.
Speaker 2 (23:20):
So that was from Windy, right, and she says if
you pay with a fifty pound bank note at the restaurant,
the restaurant owner then uses the note to pay for
the laundry and so on.
Speaker 1 (23:31):
Yeah, and the note never gets used up. It just
goes around and around. Right.
Speaker 2 (23:35):
So, at the risk of being pedantic, I think it
is relevant to say that is not in fact what happens.
There is a cost born by the restaurant of dealing
with cash, right, they pay somebody to account it, they
pay somebody to take it to the bank, and so
there is a cost to cash. So the relevant question
is how does the cost of cash compare to the
cost of a credit card and also to the cost
(23:57):
of a debit card. Those two things feel the same
to us as customers, but as it happens, they're not
the same to merchants. And for the most part, and
it varies from country to country, debit cards are the
cheapest for merchants, then cash is in the middle, and
credit cards are the most expensive. So like, the most
(24:18):
efficient mode of transaction for the merchant in most countries
is the debit card, basically because you compare the cost
of dealing with the cash, of paying people to count
the money, to take it to the bank, et cetera,
to the fees they have to pay to use credit
cards and debit cards. And you know, from a sort
of first principles perspective, if you just step back and
(24:38):
think what is most efficient, it should be that a
card is cheaper. Right, Like, it's obviously costly to deal
with cash. It's a security risk. You have to actually
physically move it around, and so On one level, we
should ask, well, why is a card ever more expensive?
Speaker 1 (24:55):
Right?
Speaker 2 (24:55):
And they're paying some amount for credit, right because a
credit card there's a risk that the bank won't get
paid back because it is in fact credit, there's a
risk of fraud, and so that cost is born. Debit
should be really cheap because you can just I have
the computer at the restaurant ask the computer at the bank, Hey,
does this person have the money in their account? And
the bank says yes, and the payment goes through, and
(25:17):
it should be very cheap. So there is a question
why does it cost anything for debit. One answer to
why is because Visa controls a huge percentage of the
debit card payment system in the US, and in fact,
the US Department of Justice, the federal government is suing
Visa for basically monopolistic practices in the debit card business.
Speaker 1 (25:41):
I mean, there's a lot wrong with this Facebook post,
but there is a grain of truth in that there
is a monopolistic provider, or allegedly monopolistic provider, of these
payment services and they're raking off a disproportionate fee. Yes.
On the other hand, I mean Visa just like the barber,
and just like the laundromat owner, and just like the
restaurant owner, visa is also a business. So if they
take the money, well, they can also spend the money
(26:03):
back into the economy. I mean it may feel a
bit unfair, but yes, I mean the money still goes around.
I mean this Facebook post is acting like the thing
that's scarce is the money, Like the fifty pound note
is the thing that's potentially scarce, but actually you can
always make more fifty pound notes if you are the
central bank. So money is in fact not the thing
that is scarce. What is scarce is laundromats and restaurants
(26:26):
and chefs and all of these real resources in the economy.
And the money, whether it's digital money or whether it's
paper money, is just a way of kind of keeping
track of things. And then which gets back to your question,
which is which is the most efficient way of keeping
track of things? And that's an open question, I think.
Speaker 2 (26:42):
I mean, efficiency gains are good, right, Like the question
does matter on the sense that we want to spend
as little as possible on payment rails. That's fundamentally what
this is about. We can all get more stuff we like,
more restaurant meals and nice haircuts if we're spending as
little as possible moving the money around, right, and so
(27:02):
we want technology to make it cheaper to move money around.
Ideally there should be a cheaper way to do it
in cash, and we're getting there.
Speaker 1 (27:11):
So don't get your economics from Facebook posts. Get your
economics from Jacob Goldstein. Thank you, Jacob. Caution tales will
be back off to this break.
Speaker 2 (27:28):
Tim, let's talk about housing, sure, Fred Wrights. Hi, Tim,
I absolutely love your podcast. It scratches the itch of
economics in society and every episode is a great lesson.
My question is about housing, Nimbi's and the impact on
the economy. I've long been a believer in the housing
theory of everything and find it appalling that as nearly
(27:52):
everything has gotten more affordable in real terms, housing has
become completely out of reach for younger people, particularly in
the UK. Quite beyond the ethical implications, I'm interested in
your view of its impact from a macroeconomic angle. How
impactful do you think housing reform would be on the
UK economy? How would you deal with Nimbi's from a
behavioral economics slash policy perspective? Thanks Fred.
Speaker 1 (28:18):
I think Fred is completely right. I think the UK
economy desperately needs housing reform. Fundamentally, we've just made it
very very difficult to build houses. And if you make
it very very difficult to build houses, that makes houses
very expensive, and that's a problem in its own right
because people need somewhere to live, but it also damages
the economy because people don't get to move around to
(28:39):
where the jobs are. And it's also inequitable, so it
means that people who are older have a lot more
money than people who are younger, disproportionately because they've just
sat in houses that they bought when they were cheap,
and those houses have got more and more expensive. And
it's also inequitable within generations because, not to put too
fine a point on it, if you are the only
child of parents with a house, you're going to inherit
(29:02):
the house, which is hugely valuable. If you're one of
three or four children, or if your parents never had
a house in the first place, you're not going to
inherit and it becomes incredibly difficult to afford a house.
And so there are a huge number of different economic
problems being caused by the fact that we're just not
willing to let people build more houses. And in a nutshell,
(29:23):
I mean, houses are incredibly expensive in the UK. Fundamentally,
if you let people build houses, the cost of a
house is going to fall to the cost of building
a house. That's how much is going to cost you
to buy a house. It's like whatever it costs to
build a house, which is a lot less than the
market price of a house in the UK at the moment.
Speaker 2 (29:40):
As you may know, houses are also really expensive in
many parts of the United States, and for similar reasons.
But one really interesting and encouraging and surprising thing to
me is that there has actually been some progress on
this in the United States. Not enough to solve the problem,
but enough to suggest that the problem is at least
(30:02):
somewhat solvable. Fred reference Nimby's which means not in my backyard,
which is people who say don't build apartment building was
on my block or whatever.
Speaker 1 (30:10):
That is better than bananas, right, you know what? Banana's
time school build absolutely nothing any anybody I like that.
Speaker 2 (30:18):
In the US, and starting in the Bay Area as
far as I know, you know, in the San Francisco
b area, where houses are extraordinarily expensive, we have had
the Yimbi movement, the Yes in my backyard movement, which
has in the past decade or so scored some real
victories in California. And one of the really interesting things
to me, you know, Fred says, how would you deal
(30:40):
with nimbi's from a behavioral economic slash policy perspective? We
haven't heard that much about the ymbi's, and I have
a theory for why, and that is, as you may
have heard, America is a rather politically polarized place these days,
but the yimby nimbi fight is not particularly polarized. It
is not left coded right coded the way immigration or
(31:04):
capital gains, tax rates or many other things are, which
I I think it's actually great. It means you can
have a rational, as opposed to tribal discussion about it.
So that's one piece of it, and the other piece
of it is somewhat wonkier, but it is this. At
least in the US, the rules about housing we call
it zoning, are typically locally imposed. They're imposed basically at
(31:27):
the city level, and there's a sort of political economy
reason for that, which is homeowners care a lot, and
they show up at the city council meeting and they say,
don't let anybody build apartments in my neighborhood because that'll
lower the value of my house. Right, homeowners don't want
the valid point. It's the whole point. Right, there's this
weird thing where like, yes, houses are too expensive, we
(31:48):
need to lower the value of your house. So instead
of dealing with it at the city level, the yymbies
went to the state and god California to pass laws
overriding cities that said to cities, you basically can't do
exclusionary zoning anymore. You can't say there can only be
single family homes. But in most of California now you
(32:08):
can build what are called adu's additional dwelling units. You
can build a little apartment over the garage or in
your backyard, for example. And other rules like that have
passed the state, so there is encouraging progress. Though houses
are still too expensive.
Speaker 1 (32:22):
It's a problem that can be solved.
Speaker 2 (32:24):
Okay, Tim, this one is for you. It's from Benji
from Brisbane. He writes, Hi, Tim, and all appreciate you
taking the time to read my question. What happened to
Mohammad Yunis and Gramine Bank. There was so much promise
with microfinance as a tool for good in helping the
underbanked in developing economies. Kind regards Benji.
Speaker 1 (32:46):
So the short answer is Mohammed Unis is now a
senior advisor to the Government of Bangladesh and won a
Nobel Prize not for economics but for peace. So he's
doing fine. So microfinance is basically the idea that you
give very small loans to entrepreneurs in very poor communities,
(33:09):
low interest rates, and they can use that to build
their business. So Unus was famous for saying, all people
are entrepreneurs. And the founding story of Gramine Bank, which
is the microfinance outfit that he started. He was an economist.
He went to a village near the university in Bangladesh
where he worked, and he found that these local women
(33:29):
were weaving baskets and selling these baskets and that's how
they made their money. But they had to borrow money
from the village money lender to pay for the materials
to make the baskets, and the village money lender was
charging them ten percent a day, just an astonishingly high
interest rate. I did the maths. Once that interest rate
(33:50):
would turn one cent into larger than the entire US
government debt over the course of a year, so it's
a very high interest rate. And UNUS came in and said,
I'll lend you money. I won't charge you much interest.
These women borrowed money off him and they paid it
back and it was fine. And suddenly not having to
pay ten percent on top of your cost every day
was the difference between grinding inescapable poverty and the chance
(34:14):
to build your own small business. So it's a lovely idea.
The development economists came in and said, well, this sounds great,
but does it actually work? And they found mixed pictures.
So it was a really interesting study in South Africa
which was conducted by Dean Carlon and Jonathan Zinman to
development economists, and they found that people borrowing money from
(34:37):
what seemed pretty much like a payday loan company at
very high interest rates. I think it was two hundred
percent annual percentage interest rate. They randomized it so that
some people who this company were going to turn down
for loans at random, some of them were offered loans anyway,
and the people who at random were offered the loans
versus at random were not offered the loans. The ones
(34:58):
who got the loans were doing much better six months later,
so really interesting RANDOMI as well, So even this very
expensive credit was great because what they were doing was
they were using the loan to I don't know, buia
suit to go to a job interview or to fix
their bike in order to stay in employment. But other
research was more mixed, and I think the fundamental idea
that the reason why people are poor in poor countries
(35:21):
is because they don't have access to cheap loans. I mean,
there's so much else going on, so it's only ever
going to be a part of the story. The other
really interesting thing is the commercial companies came in. So
there was a one called Compatamos in Mexico, which was
just a huge business that was lending money at pretty
(35:41):
high rates and making a lot of money, and it
was just about to do an IPO, I think, and
that made all the founders of this organization very rich,
and Unice was like, this is outrageous. He was trying
to excommunicate them from the microfinance movement because they were
too commercial. But the problem is there was always shades
of gray between kind of nonprofit microfinance and the money
(36:04):
lender who Unice was originally worried about even nonprofit microfinance.
They're not lending people loans at zero interest. Even the
nonprofits are often lending at fifty sixty seventy percent a year.
And the reason is you're making such small loans for
such a short period of time, like maybe you're lending
(36:24):
somebody like fifty dollars for three months. Unless you charge
a big interest rate, you'll feel on that is like
fifty cents, yeah, and it's just not enough to cover
your costs. And so it's this fine line between what
is abusive money lending and what is nonprofit microfinance. It's
harder to draw that line than you think. So it's
(36:45):
a fascinating area. But that is what happened to Mohammed
Unis and the Gramming Bank.
Speaker 2 (36:50):
Clearly, people are deeply, deeply uncomfortable fundamentally with the idea
of lending money at interest, right, Like we've gotten used
to it in the developed world with a mortgage or
a car loan. But if you look historically, lots of
places there were rules for thousands of years that said
nobody's allowed to lend money at interest because it's fundamentally bad.
(37:12):
It's unnatural, right, and you don't have that with most
other businesses, and I think that's part of what is
going on here, Like lending money at interest makes people
morally uncomfortable, and so when you have someone riding in
and being morally righteous by lending money at interest, it's
going to get complicated.
Speaker 1 (37:27):
Have we got time for one more question, Jacob? We do?
Speaker 2 (37:30):
Our last question, Tim comes from Ella, who writes, Hi, Tim,
I've been listening to your podcast for a while now.
I'm a big fan, and you seem very insightful across
a range of topics. So I was wondering if you
could help me out with the problem I've run into recently.
I'm in my second year of UNI studies physics. If
you're curious, and I keep getting asked what I want
(37:51):
to do for a career path aside from further academics,
I'm not really sure what there is that I like
the sound of, and I know eventually I will have
to finish my education. I do know that I'm in
the right field. I just don't know what jobs are
waiting for me on the other side of my studies.
Do you think I should be worrying about where I'm
going to end up or as a more go with
the flow attitude fine for something this serious. Thanks for
(38:15):
the help, Ella.
Speaker 1 (38:17):
So this is where I hope that Ella's parents aren't
listening to this podcast, because I'm going to tell Ellen
not to worry. I think go with the flow is fine.
I mean, physics is such a desirable degree. I'm sure
you'll have no trouble finding somebody to give you a
job in the end. So Jacob and I are collectively
over one hundred, so we're basically two old geezers. We're
(38:40):
probably not really very well qualified to give you advice.
But when I look back at my career, I didn't
know what I wanted to do when I went to university.
I didn't know what I wanted to do when I
left university. I didn't have any particular plans to become
a journalist or a writer. And in fact, I didn't
become a journalist or a writer until I was nearly thirty.
(39:01):
And I think all of the things that I did
in my twenties, some of them were mistakes, some of
them were not, but they all kind of contribute to
who I am now. If there's something that you're really
passionate about and you've got this vision, you want to
chase it. That's fine. But I think it is also
fine to experiment and to try different things and to
see if you like them. What do you think, Jacob?
Speaker 2 (39:22):
Certainly I agree. I mean I majored in English, which,
unlike physics, gave me no fundamentally useful skills except for
a living right Like. I still think all the time
of stuff that I read in college, and I'm certainly
glad that I studied English. But I think this, when
you're in college, people say, oh, what are you studying?
And then you say what you're studying? And then the
next question, in a sort of robotic way, is what
(39:45):
do you want to do with that?
Speaker 1 (39:46):
The thing I.
Speaker 2 (39:47):
Wish I had known when I was in college is
the people asking don't actually care, right Like I felt
all this pressure of like, oh my god, everybody wants
to know what I am going to do. They don't
actually want to know. They're not really thinking that much
about you. They're just making conversation, They're just talking about
the weather, right. I mean it in a good way
when I say other people don't care. Everybody is mostly
(40:08):
thinking about themselves.
Speaker 1 (40:10):
I would praise it slightly differently. I would say, there's
no pressure, there's just curiosity. They're just interested.
Speaker 2 (40:15):
They're not even that interested, is my take. They're just
making small talk. And like recognizing small talk as small
talk is a hugely empowering thing, and it's fine, Like
we're just social animals following norms and asking a college
student what they want to do is just what people do.
So I would say to Ella, just make up an
answer and know in your heart that you're going to
figure it out. And people love hiring physicists. Wall Street
(40:38):
is full of physicists, and consulting firms are full of physicists.
Anybody who can think hard about the most difficult problems
in the world in a quantitative way is going to
be eminently employable.
Speaker 1 (40:48):
And you know, another thing you can do with an
undergraduate degree in physics is a postgraduate degree in economics. Twist, Jacob,
Thank you so much for joining me.
Speaker 2 (41:00):
Tim, It's so fun. I truly would do it for
free even if nobody listened.
Speaker 1 (41:05):
Thank you so much, Jacob, and thanks to all of
you for sending in your questions. We will be back
again on our regular schedule with another classic episode of
Cautionary Tales but in the meantime, happy Thanksgiving to our
us listeners and if you have a question for us,
please send it in to Tales at Pushkin dot fm.
That's t a l e. S. Tales at Pushkin dot fm.
(41:29):
Thank you, We love hearing from you. Cautionary Tales is
written by me Tim Harford with Andrew Wright. For a
full list of our sources, see the show notes at
Timharford dot com. The show is produced by Alice Fines
with Marilyn Rust. The sound design and original music of
the work of Pascal Wise. Sarah Nix edited the script.
(41:54):
Cautionary Tales features the voice talents of Ben Crow, Melanie Guttridge,
Stella Harford, Gemma Saunders and Rufus Wright. The show wouldn't
have been possible without the work of Jacob Weisberg, Ryan Dilly,
Greta Cohne, Eric Handler, Carrie Brody, Christina Sullivan, Kira Posey
and Owen Miller. Cautionary Tales is a production of Pushkin Industries.
(42:18):
It's recorded at ward Or Studios in London by Tom Garry.
If you like the show, please remember to share, rate
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and if you want to hear the show, add free
sign up to Pushkin Plus on the show page on
Apple Podcasts, or at pushkin dot fm, slash plus
Pushkin. Hello listeners. Tim Harford here, as loyal listeners will know.
Cautionary Tales is a podcast about learning from the mistakes
of the past. But it also seems to me that
we can learn from things that have gone well in
the past, for example, getting Jacob Goldstein on the show
(00:36):
Jacob is Jacob is back for an episode of cautionary Questions.
Hello Jacob.
Speaker 2 (00:41):
What's the opposite of a cautionary tale?
Speaker 1 (00:44):
Uh?
Speaker 2 (00:44):
A salutary tale, A salutary story. I guess we salute you,
jacare we can do better. Let's try and punch that up.
Speaker 1 (00:51):
We'll work on it. For those of you who don't know,
Jacob is the host of Pushkin podcast What's Your Problem,
which is a brilliant show about people who are trying
to make technological progress. He's also the author of the
book Money, The True Story of a Made Up Thing,
and he's the perfect person to help me out. So
all of the questions that you lovely people have been
(01:13):
kind enough to send in, So Jacob, wonderful to have
you back. Of course, our virtual mail bag is bursting
with queries on topics as varied as climate investing and
careers advice. So Jacob Goldstein. Are you ready, Yes, let's
do it.
Speaker 2 (01:52):
So, Tim, we're going to start with a couple of
emails that came in after the last time you and
I talked on the show, and one of the things
we talked about was what happens if AI and robots
take all of our jobs. So the first question about that,
which is frankly really more of a comment, but a
lovely comment, comes from Karen, who writes, Dear Tim Harford,
(02:12):
I was, as usual enjoying your recent Q and A
episode with Jacob Goldstein.
Speaker 1 (02:16):
She's a woman of taste. I like how the thoughts.
Speaker 2 (02:18):
I like her already and your lively discussion about what
happens when everyone loses their jobs to AI. At one
point you said, quote, how would we react if our
desire for mastery, or desire for meaning, or desire to
feel useful if all that had to be satisfied without
having a job, And what would we do? And could
(02:40):
we cope? And I don't know, well, said Tim Harford.
Karen writes, you could just have easily asked what do
people do after they've retired? Fah, She goes on, my
work was very meaningful to me too. I led policy
teams that advise government minister as it was fast paced, exciting, fun, challenging.
(03:02):
I loved my job, so when I retired I wondered
about all the things you expressed concerns about on your show.
Here what's the truth as I see it, Whatever you're
doing for a living, it's not all of you. It
just takes most of your time. All the other parts
of you, al those pushed down by the demands of
capitalist discipline, emerge. Once your time has been freed, then
(03:24):
you find out what else you are, what else makes
you happy, and what else gives you meaning and purpose.
So there is really nothing to fear from our robot overlords.
My very best regards, Karen.
Speaker 1 (03:36):
Wow, way to start the show with our best question,
and the other questions can't possibly be as good as that.
Speaker 2 (03:41):
It's really lovely, right, thoughts, It's.
Speaker 1 (03:43):
Really lovely, and I agree with all of the stuff
about what we do for a living is not all
of us. It's a very interesting thought, though. Is retirement
the same as living your entire life not working because
a robot took your job? And we have some evidence
on this point.
Speaker 2 (04:03):
Tell me what is the finding?
Speaker 1 (04:04):
So these three German economists publish this research just over
a decade ago looking at people's life satisfaction. Turns out
people are quite happy being retired. And if you have
a job and then you retire, nothing happens to your
life satisfaction. You will find before you're fine after, But
if you're unemployed, you're miserable. And if you then retire
(04:25):
from a situation of unemployment, your life satisfaction goes up.
I mean it's the same thing, right, Like you go
from not having a job to not having a job,
But there's something about your identity as a retired person
versus a person who is looking for a job and
can't find a job. It makes a huge difference to
how people feel about themselves.
Speaker 2 (04:45):
Unemployed in the data does not mean a person who
doesn't have a job, right, It means a person who
wants a job and doesn't have a job. And that's
an important difference. And so I wonder in that study
if that difference is actually quite significant, right, Like, if
you want a job and don't have a job, you're
going to be unsatisfied in that dimension, Whereas if you
(05:09):
who don't have a job and don't want a job,
it's fine. That sounds fine, Yeah, yeah, So I.
Speaker 1 (05:15):
Think that's right, Jacob, And I think a lot of
this depends on what people's expectations are, their expectations of themselves,
what they think other people expect of them. But I
would guess there's a huge difference in the scenario where
the robots take everyone's job and we're all basically just
doing you know, hobbies, whatever we want, our living standards
(05:36):
are taken care of by the robots and everyone's in
the same boat, versus a situation where a lot of
people lose their jobs to the robots and a lot
of other people don't, which I think is more likely.
Speaker 2 (05:48):
So traditionally we thought of technological unemployment as happening to
people with lower job skills, right, people with less education,
strong people who were getting replaced by machines. Plainly, the
new wave of generative AI threatens you and me, which
(06:09):
is what.
Speaker 1 (06:10):
Makes it existentially threatening.
Speaker 2 (06:12):
It does people losing their jobs to technology are more
broadly drawn from across the income spectrum and the education spectrum.
How does it change the sort of social implications, Because
on a fundamental level, what we're really talking about is
whether you have a job or not, and how you
feel about that is largely determined by social norms, right.
(06:34):
That's actually what's going on here. It's a status game
to some significant degree, and it's uncomfortable to call it that.
I don't think I like my job because it gives
me status. I think I like my job because it's
fun and I'm contributing something to the world. But obviously
we all care about status, and.
Speaker 1 (06:48):
It does give you status. You have one of the
best jobs in the world. You're a podcast.
Speaker 2 (06:51):
To listen, we're walking right up to the next question
in a very elegant way from Neil. Hello Tim. During
your recent Cautionary Questions episode, Jacob Goldstein jokes that if
AI takes everyone's jobs, the two of you will still
do a free podcast together. I understand the jest, but
it begs the question. By the time AI is good
(07:14):
enough to take over most jobs, won't it also be
better than us at creating entertainment and art. I think
we as humans don't want to admit that as possible,
but it's definitely the goal of AI developers all over
the world at this very moment. I'm curious what that
possibility could mean for humanity and what we might do
to avoid or prepare for it. Thank you for all
(07:34):
your excellent content. The robots have nothing on you.
Speaker 1 (07:39):
Yet. Yes, Jacob, have you heard the podcasting software that
notebook LM have just released? This is a Google product, Tim.
Speaker 2 (07:49):
Not only have I heard it, I uploaded a chapter
of my book about paper money in China and queued
up a moment of it to play for you right now.
You know how we always hear about Marco Polo bringing
back these crazy stories from China, right well, get ready
for this trying out. China was light years ahead of
Europe when it came to money, centuries ahead, to be exact.
(08:12):
We're talking paper money, folks, Yes, centuries before it ever
showed up in Europe. It's wild. It really flips the
script on how we usually think about financial history. Absolutely so,
just to be clear, I just uploaded a chapter of
the book clicked whatever make a podcast, didn't make any choices,
didn't tell it to do anything but that, and that's
(08:34):
what came out.
Speaker 1 (08:35):
And these are two synthetic voices reading a script that
was created by a genitive AI in response to your
wonderful book Money The True story of a made up thing.
And it's pretty good. It's pretty good.
Speaker 2 (08:51):
It's definitely good enough to be very scary.
Speaker 1 (08:55):
I've had worse human podcasters, for sure. So I mean,
maybe this is all happening sooner than we think. But
what Neil is basically driving at is, by the time
the robots take our jobs, won't they also be better
than us? So they will make a better podcast than
we will. They will draw better pictures than we will,
(09:16):
they will write better pros than we will, they will
compose better music than we will, and so on. And
is that a problem. I'm not sure that's the problem.
I'm worried about. The computer already draws better than I do,
and lowbar, respectral, very lowbar. And it's great. I'm like, wow,
I can create art for my hobby projects. That's great.
(09:37):
I'm not doing anybody out of a job, But now
my own creativity is unlocked by the computer. Of course,
maybe there comes a time where I don't need to
do any of that. I just press the button and
the computer just produces everything, and it's better than what
I could produce. Does that matter? I want to add
a wrinkle rinkle away.
Speaker 2 (09:56):
When I was talking about making a podcast with you
after the robots take our jobs, part of what I
was imagining was that somebody would listen, right, Like, not
that we could make a living out of it, We
would be doing it for some audience, right. My hope,
although I really don't know, is that even if AI
(10:17):
makes a better podcast than us, people will listen just
because people like people. And one interesting case to consider
is chess. Right. Chess has this history where first people
were better than machines, and then for a long time
computers could beat people, but a person working with a
(10:39):
computer was better than just a computer, and then a
few years ago that ceased to be the case. And
obviously many many computers can beat every single human being
on earth. But chess players still like are famous among nerds.
Speaker 1 (10:55):
Right.
Speaker 2 (10:55):
Magnus Carlson is like a rich guy, he's a superstar,
and people pay lots of money to watch him play
worse chess than a computer. So my hope is we
can be if not the Magnus Carlson's of podcasts, the
whoever is like, you know, way worse than Magnus Carlson,
but still a pretty good chess player.
Speaker 1 (11:14):
Sure, and you may be right, but I think my
point is it's worth playing chess even if nobody watches
you even if it's just you and a friend.
Speaker 2 (11:24):
Yeah, but is it worth making a podcast if nobody
listens that, what are we bothering with the microphones for?
Then you could just call me? Yeah?
Speaker 1 (11:32):
Yeah, Okay, we could have to think it's a podcast
that nobody listens is a fun conversation.
Speaker 2 (11:37):
Welcome to the podcast for no one. I'm Jacob goldstud.
Speaker 1 (11:41):
If people weren't listening, it would be different. But I
think people would still be creating stuff. People would still
be making art, and that will be fine. So that's
my answer to Neil.
Speaker 2 (11:50):
Okay, Tim, We're gonna go from the robot apocalypse to
the climate apocalypse with our next question from Julian, who
writes Dear Tim. Lately, more and more news breaks of
climate change harming the economy. For example, I remember a
recent story about home insurance premiums rising steeply in hazard
(12:12):
zones for flooding storms or landslides. That made me wonder,
isn't there a way to profit from climate change too
that would allow us to hedge against these economic risks?
Could you set up a fund that would act, in
effect like a climate change insurance policy. Excellent show, By
the way, Deep insights told via gripping stories. All the
(12:33):
best from Vienna Julian.
Speaker 1 (12:36):
It's a very interesting question. The thing that immediately springs
to my mind is I once saw one of the
most amazingly persuasive pieces of rhetoric ever that was not
intended to be persuasive, and it was at a commodities conference.
It was a bunch of guys who trade agricultural commodities
and therefore have a big interest in climate variability. But
(13:00):
at the same time, we're culturally Midwestern and therefore climate skeptic.
And the guy giving a talk at this conference was
rather professorial Germanic character. I can't remember if he was
German or Austrian or Swiss. And he was from one
of those big reinsurance companies. He just gave a talk
(13:21):
explaining how they were raising all of their insurance premiums
because of climate change, and showed loads and loads of
data about climate change and how they were changing their
pricing model. And there's a bunch of people who I
think were politically predisposed to be climate skeptics were like, huh,
(13:41):
this guy is not Hillary Clinton and the Dems coming
to take away our freedoms. This guy doesn't want to
persuade us of anything. He's just telling us that the
price of insurance is going up, and here's why. And
I really felt the mood in the room change because
of that talk was fascinating, And what that gets at
is that insurance gives us a kind of truth about
the risks that we face. Because insurance companies operate in
(14:03):
a competitive market, they want to offer the most expensive
premiums they can get away with, but they're forced by
competition to keep the premiums low, and so as the
premiums rise and rise and rise, that generally indicates that
the risk is rising and rising and rising too. So,
to return to Julian's question, is their way to profit
from climate change? I mean your podcast What's your Problem, Jacob,
You've talked to many entrepreneurs who are hoping to make
(14:25):
money while also saving the planet.
Speaker 2 (14:27):
I was thinking about that. It is encouraging to talk
to these people who are very smart and I think
truly believe that the work they're doing will mitigate the
damage from climate change. And the progress has been extraordinary,
right like the fall in the price of solar power
(14:48):
in particular, it's staggering, you know, people are making batteries better,
and there are really hard parts of the problem like
cement and planes, and people are working on that. And
you know, Bill Gates started a venture capital fund called
Breakthrough Energy Ventures that is exactly what Julian is asking about, right, Like,
the point of this fund is to profit from climate
(15:09):
change by helping to solve or mitigate climate change.
Speaker 1 (15:13):
So I think that there are all these hopeful stories
and it is very encouraging, but fundamentally to come back
to this idea of our kind of inverse insurance policy,
I think that the answer is no. Fundamentally, insurance moves
the cost around, so the person whose house got burned
down or the person whose home was destroyed in a hurricane,
(15:36):
they don't have to pay for rebuilding it. Instead, the
insurance company pays, but somebody still has to pay. And
insurance moves that risk around and that's very valuable, but
it doesn't make the cost go away. And climate change
increases these costs and all the insurance in the world
is not going to reduce them in aggregate. It'll shift
them to different people, but it's not going to reduce them.
(15:57):
For that, we need you, We need your sellar panels.
Speaker 2 (15:59):
Jacob, you know, when you put it that way, like
what we really want in terms of moving the economics
is you want the people who are consuming the fossil fuel,
who are flying on the plane, who are eating the
hamburger to pay the full cost of that. Right, you
want to internalize that cost which is now not in
(16:20):
that transaction. And you can do that with a carbon tax. Like,
it's a great idea. You can even have a carbon
tax and then just give everybody the money back. Right,
the government collects money from people for consuming carbon essentially
and then sends a check to everybody in the country
at the end of the year, so the government doesn't
even have to take more money in the aggregate. And
like it's super elegant and it's just politically doesn't really
(16:43):
seem to be happening, but it is in a way
solving the problem fundamentally.
Speaker 1 (16:47):
Absolutely.
Speaker 2 (16:48):
All right, that's enough about that. We'll be back in
just a minute.
Speaker 1 (17:02):
We are back. I'm Tim Harford. I am talking to
the amazing Jacob Goldstein. And this is another of our
Portionary Questions episodes where you have been sending in your
questions and Jacob and I are going to try and
answer them, Jacob, what have you got for me?
Speaker 2 (17:17):
Tim? This is a throwback. It's from Robert who writes, Hi, Tim,
why did no one go to jail after the two
thousand and eight financial crisis? I remember the savings and
loans financial crisis during the Reagan presidency when Charles Keating
was jailed. Love your show, Robert from Illinois.
Speaker 1 (17:38):
Yeah, and a throwback because we first met each other
shortly after the financial crisis.
Speaker 2 (17:43):
In twenty ten, when in the question on everybody's lips
was who's going to jail?
Speaker 1 (17:49):
Yeah, I mean it's not literally true that nobody went
to jail. Bern he made off went to jail, for example.
I mean, I think the short answer is, if you
want people to go to jail, then first they have
to commit a crime. And the weird thing about the
financial crisis is, I don't think many people did commit crimes.
All of this crazy stuff that happened, and all the
outrageous things that people were I think mostly legal, which
(18:12):
is of course the real scandal.
Speaker 2 (18:14):
Yeah, you know, everybody talked about housing and crazy sliced
up bonds built on mortgages, right, that was the sort
of part of the story that everybody heard and told,
and that part of the story is true. But there
is another piece of the story that I actually think
is a really fundamental driver of the crisis that you
(18:36):
didn't hear as much because it's a little more abstract
and a little nerdier. And that is basically that starting
a long time before the crisis, starting in like the
nineteen seventies, there arose in the United States what came
to be called a shadow banking system, where because of
regulations on banks in the US that were set up
(18:58):
after the depression, when there was a giant banking crisis,
clever finance people came up with financial structures that looked
like banks but weren't regulated like banks, And in particular
they look like bank deposits. Right, So a bank deposit
is a weird thing where you put your dollar in
the bank, and you have your deposit and it's worth
(19:20):
a dollar, and then the bank takes your dollar and
lends it out to somebody else, or your thousand dollars
and lends it out to somebody else for a mortgage
that doesn't have to be paid back for thirty years,
and so then there is this inherent fragility in that system, right,
because if we all come back and ask for our money,
the bank won't have it. And it's not because the
bank is greedy or evil or incompetent. It's because of
(19:43):
the fundamental structure of banking. That fragility is inherent in
the fundamental structure of banking. And what happened in the
financial crisis is that there were billions of dollars that
were deposit like they weren't exactly deposits. They weren't insured
by the federal government, but they were in money market
mutual funds, which people may be familiar with and were
explicitly set up to be like a bank deposit, but
(20:05):
could pay higher interests and weren't regulated, And in the
repo market, which is like a weirder version of the
same thing. Let's say, and everybody came and asked for
their money back in two thousand and eight, and of
course the shadow banks, which were not called banks or
shadow banks didn't have it, and that was a core
driver of the crisis. And it wasn't illegal, as you said,
(20:27):
But it's like that is what all financial crises are.
They just have like different flavors, different skins.
Speaker 1 (20:33):
I mean, you say it wasn't because the shadow banks
were lazier, incompetent or greedy. I mean I think they
probably were incompetent and greedy as well.
Speaker 2 (20:40):
Fair well, greed. I shouldn't have brought greed into it.
Greed should be fun greed, right.
Speaker 1 (20:45):
Like incompetence is not illegal, and neither is greed.
Speaker 2 (20:48):
Yeah, they certainly didn't break the rules, right. And in fact,
one of the key under the radar failures that week
in September in two thousand and eight when Lehman Brothers
the investment bank failed, and then everybody else failed and
the government bailed everybody out, was the very first money
market neutral fund that had been created forty years or
(21:10):
and was very much like a bank and suddenly couldn't
give everybody their money back now. And so it's totally
understandable that everybody is angry when one industry blows up
the economy. And by the way, all the people in
that industry are getting rich, and it's not obvious what
they're providing to us. But it is in fact a
really hard problem to solve, Like banks are inherently unstable,
(21:30):
and people love making things that look like banks and
are inherently unstable.
Speaker 1 (21:35):
Thank you Jacob for reminding me of the concept of
shadow banking. It's like it's like real banking, but their
headquarters are in mortal That's such a greatat Yes, oh,
good times, Good times, Jacob. There are more questions in
the mail bag. Would you mind if I were to
read the next question to you because I want to
hear your answer because you are the author of money,
(21:59):
the true story of a made up thing, and I
feel like this question is made for you. One of
my friends posted this on Facebook, but is it true?
This is the Facebook post. This is why I keep
telling the younger generation to stop avoiding cash. I have
a fifty pound banknote in my pocket. I go to
a restaurant and pay for dinner with it. The restaurant
owner then uses the note to pay for the laundry.
(22:21):
The laundry owner then uses the note to pay the barber.
The barber will then use the note to pay for shopping.
After an unlimited number of payments, it will still remain
a fifty pound value, which has fulfilled its purpose to
everyone who used it for payment. But if I go
to a restaurant and pay digitally via card, the bank
fees for my payment transaction charged to the seller are
(22:43):
three percent, so around one pound fifty for the fifty
pound payment. This will also be the case for laundry payment,
payment to the barber and so on. Therefore, after thirty transactions,
the initial fifty pounds will exist at only five pounds,
and the remaining forty five pounds has become the property
of the bank. That's not actually how percentages work. But
that's fine thanks to all the digital transactions and fees,
(23:07):
use it or lose it for ax. Once it's gone,
we won't get it back. Cash is king. Okay, So
the arithmetic on this is wrong. We don't need to
bother with that. But Jacob, what about the economics. Well,
it's your reaction to this.
Speaker 2 (23:20):
So that was from Windy, right, and she says if
you pay with a fifty pound bank note at the restaurant,
the restaurant owner then uses the note to pay for
the laundry and so on.
Speaker 1 (23:31):
Yeah, and the note never gets used up. It just
goes around and around. Right.
Speaker 2 (23:35):
So, at the risk of being pedantic, I think it
is relevant to say that is not in fact what happens.
There is a cost born by the restaurant of dealing
with cash, right, they pay somebody to account it, they
pay somebody to take it to the bank, and so
there is a cost to cash. So the relevant question
is how does the cost of cash compare to the
cost of a credit card and also to the cost
(23:57):
of a debit card. Those two things feel the same
to us as customers, but as it happens, they're not
the same to merchants. And for the most part, and
it varies from country to country, debit cards are the
cheapest for merchants, then cash is in the middle, and
credit cards are the most expensive. So like, the most
(24:18):
efficient mode of transaction for the merchant in most countries
is the debit card, basically because you compare the cost
of dealing with the cash, of paying people to count
the money, to take it to the bank, et cetera,
to the fees they have to pay to use credit
cards and debit cards. And you know, from a sort
of first principles perspective, if you just step back and
(24:38):
think what is most efficient, it should be that a
card is cheaper. Right, Like, it's obviously costly to deal
with cash. It's a security risk. You have to actually
physically move it around, and so On one level, we
should ask, well, why is a card ever more expensive?
Speaker 1 (24:55):
Right?
Speaker 2 (24:55):
And they're paying some amount for credit, right because a
credit card there's a risk that the bank won't get
paid back because it is in fact credit, there's a
risk of fraud, and so that cost is born. Debit
should be really cheap because you can just I have
the computer at the restaurant ask the computer at the bank, Hey,
does this person have the money in their account? And
the bank says yes, and the payment goes through, and
(25:17):
it should be very cheap. So there is a question
why does it cost anything for debit. One answer to
why is because Visa controls a huge percentage of the
debit card payment system in the US, and in fact,
the US Department of Justice, the federal government is suing
Visa for basically monopolistic practices in the debit card business.
Speaker 1 (25:41):
I mean, there's a lot wrong with this Facebook post,
but there is a grain of truth in that there
is a monopolistic provider, or allegedly monopolistic provider, of these
payment services and they're raking off a disproportionate fee. Yes.
On the other hand, I mean Visa just like the barber,
and just like the laundromat owner, and just like the
restaurant owner, visa is also a business. So if they
take the money, well, they can also spend the money
(26:03):
back into the economy. I mean it may feel a
bit unfair, but yes, I mean the money still goes around.
I mean this Facebook post is acting like the thing
that's scarce is the money, Like the fifty pound note
is the thing that's potentially scarce, but actually you can
always make more fifty pound notes if you are the
central bank. So money is in fact not the thing
that is scarce. What is scarce is laundromats and restaurants
(26:26):
and chefs and all of these real resources in the economy.
And the money, whether it's digital money or whether it's
paper money, is just a way of kind of keeping
track of things. And then which gets back to your question,
which is which is the most efficient way of keeping
track of things? And that's an open question, I think.
Speaker 2 (26:42):
I mean, efficiency gains are good, right, Like the question
does matter on the sense that we want to spend
as little as possible on payment rails. That's fundamentally what
this is about. We can all get more stuff we like,
more restaurant meals and nice haircuts if we're spending as
little as possible moving the money around, right, and so
(27:02):
we want technology to make it cheaper to move money around.
Ideally there should be a cheaper way to do it
in cash, and we're getting there.
Speaker 1 (27:11):
So don't get your economics from Facebook posts. Get your
economics from Jacob Goldstein. Thank you, Jacob. Caution tales will
be back off to this break.
Speaker 2 (27:28):
Tim, let's talk about housing, sure, Fred Wrights. Hi, Tim,
I absolutely love your podcast. It scratches the itch of
economics in society and every episode is a great lesson.
My question is about housing, Nimbi's and the impact on
the economy. I've long been a believer in the housing
theory of everything and find it appalling that as nearly
(27:52):
everything has gotten more affordable in real terms, housing has
become completely out of reach for younger people, particularly in
the UK. Quite beyond the ethical implications, I'm interested in
your view of its impact from a macroeconomic angle. How
impactful do you think housing reform would be on the
UK economy? How would you deal with Nimbi's from a
behavioral economics slash policy perspective? Thanks Fred.
Speaker 1 (28:18):
I think Fred is completely right. I think the UK
economy desperately needs housing reform. Fundamentally, we've just made it
very very difficult to build houses. And if you make
it very very difficult to build houses, that makes houses
very expensive, and that's a problem in its own right
because people need somewhere to live, but it also damages
the economy because people don't get to move around to
(28:39):
where the jobs are. And it's also inequitable, so it
means that people who are older have a lot more
money than people who are younger, disproportionately because they've just
sat in houses that they bought when they were cheap,
and those houses have got more and more expensive. And
it's also inequitable within generations because, not to put too
fine a point on it, if you are the only
child of parents with a house, you're going to inherit
(29:02):
the house, which is hugely valuable. If you're one of
three or four children, or if your parents never had
a house in the first place, you're not going to
inherit and it becomes incredibly difficult to afford a house.
And so there are a huge number of different economic
problems being caused by the fact that we're just not
willing to let people build more houses. And in a nutshell,
(29:23):
I mean, houses are incredibly expensive in the UK. Fundamentally,
if you let people build houses, the cost of a
house is going to fall to the cost of building
a house. That's how much is going to cost you
to buy a house. It's like whatever it costs to
build a house, which is a lot less than the
market price of a house in the UK at the moment.
Speaker 2 (29:40):
As you may know, houses are also really expensive in
many parts of the United States, and for similar reasons.
But one really interesting and encouraging and surprising thing to
me is that there has actually been some progress on
this in the United States. Not enough to solve the problem,
but enough to suggest that the problem is at least
(30:02):
somewhat solvable. Fred reference Nimby's which means not in my backyard,
which is people who say don't build apartment building was
on my block or whatever.
Speaker 1 (30:10):
That is better than bananas, right, you know what? Banana's
time school build absolutely nothing any anybody I like that.
Speaker 2 (30:18):
In the US, and starting in the Bay Area as
far as I know, you know, in the San Francisco
b area, where houses are extraordinarily expensive, we have had
the Yimbi movement, the Yes in my backyard movement, which
has in the past decade or so scored some real
victories in California. And one of the really interesting things
to me, you know, Fred says, how would you deal
(30:40):
with nimbi's from a behavioral economic slash policy perspective? We
haven't heard that much about the ymbi's, and I have
a theory for why, and that is, as you may
have heard, America is a rather politically polarized place these days,
but the yimby nimbi fight is not particularly polarized. It
is not left coded right coded the way immigration or
(31:04):
capital gains, tax rates or many other things are, which
I I think it's actually great. It means you can
have a rational, as opposed to tribal discussion about it.
So that's one piece of it, and the other piece
of it is somewhat wonkier, but it is this. At
least in the US, the rules about housing we call
it zoning, are typically locally imposed. They're imposed basically at
(31:27):
the city level, and there's a sort of political economy
reason for that, which is homeowners care a lot, and
they show up at the city council meeting and they say,
don't let anybody build apartments in my neighborhood because that'll
lower the value of my house. Right, homeowners don't want
the valid point. It's the whole point. Right, there's this
weird thing where like, yes, houses are too expensive, we
(31:48):
need to lower the value of your house. So instead
of dealing with it at the city level, the yymbies
went to the state and god California to pass laws
overriding cities that said to cities, you basically can't do
exclusionary zoning anymore. You can't say there can only be
single family homes. But in most of California now you
(32:08):
can build what are called adu's additional dwelling units. You
can build a little apartment over the garage or in
your backyard, for example. And other rules like that have
passed the state, so there is encouraging progress. Though houses
are still too expensive.
Speaker 1 (32:22):
It's a problem that can be solved.
Speaker 2 (32:24):
Okay, Tim, this one is for you. It's from Benji
from Brisbane. He writes, Hi, Tim, and all appreciate you
taking the time to read my question. What happened to
Mohammad Yunis and Gramine Bank. There was so much promise
with microfinance as a tool for good in helping the
underbanked in developing economies. Kind regards Benji.
Speaker 1 (32:46):
So the short answer is Mohammed Unis is now a
senior advisor to the Government of Bangladesh and won a
Nobel Prize not for economics but for peace. So he's
doing fine. So microfinance is basically the idea that you
give very small loans to entrepreneurs in very poor communities,
(33:09):
low interest rates, and they can use that to build
their business. So Unus was famous for saying, all people
are entrepreneurs. And the founding story of Gramine Bank, which
is the microfinance outfit that he started. He was an economist.
He went to a village near the university in Bangladesh
where he worked, and he found that these local women
(33:29):
were weaving baskets and selling these baskets and that's how
they made their money. But they had to borrow money
from the village money lender to pay for the materials
to make the baskets, and the village money lender was
charging them ten percent a day, just an astonishingly high
interest rate. I did the maths. Once that interest rate
(33:50):
would turn one cent into larger than the entire US
government debt over the course of a year, so it's
a very high interest rate. And UNUS came in and said,
I'll lend you money. I won't charge you much interest.
These women borrowed money off him and they paid it
back and it was fine. And suddenly not having to
pay ten percent on top of your cost every day
was the difference between grinding inescapable poverty and the chance
(34:14):
to build your own small business. So it's a lovely idea.
The development economists came in and said, well, this sounds great,
but does it actually work? And they found mixed pictures.
So it was a really interesting study in South Africa
which was conducted by Dean Carlon and Jonathan Zinman to
development economists, and they found that people borrowing money from
(34:37):
what seemed pretty much like a payday loan company at
very high interest rates. I think it was two hundred
percent annual percentage interest rate. They randomized it so that
some people who this company were going to turn down
for loans at random, some of them were offered loans anyway,
and the people who at random were offered the loans
versus at random were not offered the loans. The ones
(34:58):
who got the loans were doing much better six months later,
so really interesting RANDOMI as well, So even this very
expensive credit was great because what they were doing was
they were using the loan to I don't know, buia
suit to go to a job interview or to fix
their bike in order to stay in employment. But other
research was more mixed, and I think the fundamental idea
that the reason why people are poor in poor countries
(35:21):
is because they don't have access to cheap loans. I mean,
there's so much else going on, so it's only ever
going to be a part of the story. The other
really interesting thing is the commercial companies came in. So
there was a one called Compatamos in Mexico, which was
just a huge business that was lending money at pretty
(35:41):
high rates and making a lot of money, and it
was just about to do an IPO, I think, and
that made all the founders of this organization very rich,
and Unice was like, this is outrageous. He was trying
to excommunicate them from the microfinance movement because they were
too commercial. But the problem is there was always shades
of gray between kind of nonprofit microfinance and the money
(36:04):
lender who Unice was originally worried about even nonprofit microfinance.
They're not lending people loans at zero interest. Even the
nonprofits are often lending at fifty sixty seventy percent a year.
And the reason is you're making such small loans for
such a short period of time, like maybe you're lending
(36:24):
somebody like fifty dollars for three months. Unless you charge
a big interest rate, you'll feel on that is like
fifty cents, yeah, and it's just not enough to cover
your costs. And so it's this fine line between what
is abusive money lending and what is nonprofit microfinance. It's
harder to draw that line than you think. So it's
(36:45):
a fascinating area. But that is what happened to Mohammed
Unis and the Gramming Bank.
Speaker 2 (36:50):
Clearly, people are deeply, deeply uncomfortable fundamentally with the idea
of lending money at interest, right, Like we've gotten used
to it in the developed world with a mortgage or
a car loan. But if you look historically, lots of
places there were rules for thousands of years that said
nobody's allowed to lend money at interest because it's fundamentally bad.
(37:12):
It's unnatural, right, and you don't have that with most
other businesses, and I think that's part of what is
going on here, Like lending money at interest makes people
morally uncomfortable, and so when you have someone riding in
and being morally righteous by lending money at interest, it's
going to get complicated.
Speaker 1 (37:27):
Have we got time for one more question, Jacob? We do?
Speaker 2 (37:30):
Our last question, Tim comes from Ella, who writes, Hi, Tim,
I've been listening to your podcast for a while now.
I'm a big fan, and you seem very insightful across
a range of topics. So I was wondering if you
could help me out with the problem I've run into recently.
I'm in my second year of UNI studies physics. If
you're curious, and I keep getting asked what I want
(37:51):
to do for a career path aside from further academics,
I'm not really sure what there is that I like
the sound of, and I know eventually I will have
to finish my education. I do know that I'm in
the right field. I just don't know what jobs are
waiting for me on the other side of my studies.
Do you think I should be worrying about where I'm
going to end up or as a more go with
the flow attitude fine for something this serious. Thanks for
(38:15):
the help, Ella.
Speaker 1 (38:17):
So this is where I hope that Ella's parents aren't
listening to this podcast, because I'm going to tell Ellen
not to worry. I think go with the flow is fine.
I mean, physics is such a desirable degree. I'm sure
you'll have no trouble finding somebody to give you a
job in the end. So Jacob and I are collectively
over one hundred, so we're basically two old geezers. We're
(38:40):
probably not really very well qualified to give you advice.
But when I look back at my career, I didn't
know what I wanted to do when I went to university.
I didn't know what I wanted to do when I
left university. I didn't have any particular plans to become
a journalist or a writer. And in fact, I didn't
become a journalist or a writer until I was nearly thirty.
(39:01):
And I think all of the things that I did
in my twenties, some of them were mistakes, some of
them were not, but they all kind of contribute to
who I am now. If there's something that you're really
passionate about and you've got this vision, you want to
chase it. That's fine. But I think it is also
fine to experiment and to try different things and to
see if you like them. What do you think, Jacob?
Speaker 2 (39:22):
Certainly I agree. I mean I majored in English, which,
unlike physics, gave me no fundamentally useful skills except for
a living right Like. I still think all the time
of stuff that I read in college, and I'm certainly
glad that I studied English. But I think this, when
you're in college, people say, oh, what are you studying?
And then you say what you're studying? And then the
next question, in a sort of robotic way, is what
(39:45):
do you want to do with that?
Speaker 1 (39:46):
The thing I.
Speaker 2 (39:47):
Wish I had known when I was in college is
the people asking don't actually care, right Like I felt
all this pressure of like, oh my god, everybody wants
to know what I am going to do. They don't
actually want to know. They're not really thinking that much
about you. They're just making conversation, They're just talking about
the weather, right. I mean it in a good way
when I say other people don't care. Everybody is mostly
(40:08):
thinking about themselves.
Speaker 1 (40:10):
I would praise it slightly differently. I would say, there's
no pressure, there's just curiosity. They're just interested.
Speaker 2 (40:15):
They're not even that interested, is my take. They're just
making small talk. And like recognizing small talk as small
talk is a hugely empowering thing, and it's fine, Like
we're just social animals following norms and asking a college
student what they want to do is just what people do.
So I would say to Ella, just make up an
answer and know in your heart that you're going to
figure it out. And people love hiring physicists. Wall Street
(40:38):
is full of physicists, and consulting firms are full of physicists.
Anybody who can think hard about the most difficult problems
in the world in a quantitative way is going to
be eminently employable.
Speaker 1 (40:48):
And you know, another thing you can do with an
undergraduate degree in physics is a postgraduate degree in economics. Twist, Jacob,
Thank you so much for joining me.
Speaker 2 (41:00):
Tim, It's so fun. I truly would do it for
free even if nobody listened.
Speaker 1 (41:05):
Thank you so much, Jacob, and thanks to all of
you for sending in your questions. We will be back
again on our regular schedule with another classic episode of
Cautionary Tales but in the meantime, happy Thanksgiving to our
us listeners and if you have a question for us,
please send it in to Tales at Pushkin dot fm.
That's t a l e. S. Tales at Pushkin dot fm.
(41:29):
Thank you, We love hearing from you. Cautionary Tales is
written by me Tim Harford with Andrew Wright. For a
full list of our sources, see the show notes at
Timharford dot com. The show is produced by Alice Fines
with Marilyn Rust. The sound design and original music of
the work of Pascal Wise. Sarah Nix edited the script.
(41:54):
Cautionary Tales features the voice talents of Ben Crow, Melanie Guttridge,
Stella Harford, Gemma Saunders and Rufus Wright. The show wouldn't
have been possible without the work of Jacob Weisberg, Ryan Dilly,
Greta Cohne, Eric Handler, Carrie Brody, Christina Sullivan, Kira Posey
and Owen Miller. Cautionary Tales is a production of Pushkin Industries.
(42:18):
It's recorded at ward Or Studios in London by Tom Garry.
If you like the show, please remember to share, rate
and review. It doesn't really make a difference to us
and if you want to hear the show, add free
sign up to Pushkin Plus on the show page on
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Host
Tim Harford
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I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.