0:15

Pushkin. Hello

0:19

listeners. Tim Harford here, as

0:21

loyal listeners will know. Cautionary Tales

0:23

is a podcast about learning from the mistakes

0:26

of the past. But it also seems to me

0:28

that we can learn from things that have gone well in

0:30

the past, for example, getting

0:32

Jacob Goldstein on the

0:35

show Jacob is

0:37

Jacob is back for an episode of cautionary

0:40

Questions. Hello Jacob.

0:41

What's the opposite of a cautionary tale?

0:44

Uh?

0:44

A salutary tale, A salutary

0:47

story. I guess we salute you, jacare

0:49

we can do better. Let's try and punch that up.

0:51

We'll work on it. For those of you who don't know, Jacob

0:54

is the host of Pushkin podcast

0:56

What's Your Problem, which is a brilliant show about

0:58

people who are trying to make technological progress.

1:01

He's also the author of the book

1:03

Money, The True Story of a

1:05

Made Up Thing, and he's the perfect

1:08

person to help me out. So all of

1:10

the questions that you lovely people

1:12

have been kind enough to send

1:14

in, So Jacob, wonderful to have you back. Of

1:16

course, our virtual mail bag

1:19

is bursting with queries on topics

1:21

as varied as climate investing and careers

1:23

advice. So Jacob

1:25

Goldstein. Are you ready, Yes,

1:29

let's do it.

1:52

So, Tim, we're going to start with a couple of emails that came in

1:54

after the last time you and I talked

1:56

on the show, and one of the things we talked about was

1:58

what happens if AI and robots

2:01

take all of our jobs. So

2:03

the first question about that, which

2:05

is frankly really more of a comment, but a lovely

2:08

comment, comes from Karen, who

2:10

writes, Dear Tim Harford,

2:12

I was, as usual enjoying your recent

2:14

Q and A episode with Jacob Goldstein.

2:16

She's a woman of taste. I like how the thoughts.

2:18

I like her already and your lively

2:21

discussion about what happens when everyone

2:23

loses their jobs to AI. At

2:26

one point you said, quote,

2:29

how would we react if our desire for

2:31

mastery, or desire for meaning, or

2:34

desire to feel useful if all

2:36

that had to be satisfied without having a

2:38

job, And what would we do? And could

2:40

we cope? And I don't know,

2:43

well, said Tim Harford. Karen

2:46

writes, you could just have easily

2:48

asked what do people do

2:51

after they've retired? Fah,

2:54

She goes on, my work was very meaningful

2:56

to me too. I led policy teams that

2:58

advise government minister as it was fast paced,

3:00

exciting, fun, challenging. I loved my job,

3:03

so when I retired I wondered about all

3:05

the things you expressed concerns about

3:07

on your show. Here what's the truth

3:09

as I see it, Whatever

3:12

you're doing for a living, it's not all of you.

3:14

It just takes most of your time. All

3:16

the other parts of you, al those pushed down

3:18

by the demands of capitalist discipline,

3:21

emerge. Once your time has been freed,

3:24

then you find out what else you are, what else

3:26

makes you happy, and what else

3:28

gives you meaning and purpose. So there

3:30

is really nothing to fear from our robot

3:33

overlords. My very best regards,

3:35

Karen.

3:36

Wow, way to start the show with our best

3:38

question, and the other questions can't possibly be as good

3:40

as that.

3:41

It's really lovely, right, thoughts, It's.

3:43

Really lovely, and I agree

3:45

with all of the stuff about

3:47

what we do for a living is not all

3:50

of us. It's a very interesting thought,

3:52

though. Is retirement the same

3:55

as living your entire life

3:58

not working because a robot took your job?

4:00

And we have some evidence on this point.

4:03

Tell me what is the finding?

4:04

So these three German economists publish

4:06

this research just over a decade ago

4:09

looking at people's life satisfaction. Turns

4:11

out people are quite happy being retired. And

4:13

if you have a job and then you retire, nothing

4:16

happens to your life satisfaction. You will find before

4:18

you're fine after, But if

4:21

you're unemployed, you're

4:23

miserable. And if you then retire from

4:26

a situation of unemployment,

4:28

your life satisfaction goes up. I

4:30

mean it's the same thing, right, Like you go from

4:33

not having a job to not having a job, But there's something

4:35

about your identity as a retired person

4:38

versus a person who is looking

4:40

for a job and can't find a job. It makes

4:42

a huge difference to how people feel about themselves.

4:45

Unemployed in the data does

4:47

not mean a person who doesn't have a job, right,

4:49

It means a person who wants a job

4:51

and doesn't have a job. And that's an important

4:54

difference. And so I wonder

4:56

in that study if that difference

4:59

is actually quite significant, right, Like, if

5:02

you want a job and don't have a job, you're

5:04

going to be unsatisfied in that dimension,

5:08

Whereas if you who don't have a job and

5:10

don't want a job, it's

5:12

fine. That sounds fine, Yeah, yeah,

5:15

So I.

5:15

Think that's right, Jacob, And I think a lot of this depends

5:18

on what people's expectations

5:20

are, their expectations of themselves, what they think

5:22

other people expect of them.

5:25

But I would guess there's a huge difference in the scenario

5:27

where the robots take everyone's

5:29

job and we're all basically just

5:32

doing you know, hobbies, whatever we want,

5:35

our living standards are taken care of

5:37

by the robots and everyone's in the same

5:39

boat, versus a situation

5:41

where a lot of people lose

5:43

their jobs to the robots and a lot of other people

5:45

don't, which I think is more likely.

5:48

So traditionally we thought of

5:50

technological unemployment as happening

5:53

to people with lower

5:56

job skills, right, people with less education,

5:59

strong people who were getting replaced

6:01

by machines. Plainly, the

6:04

new wave of generative AI threatens

6:08

you and me, which is what.

6:10

Makes it existentially threatening.

6:12

It does people losing their jobs

6:15

to technology are more

6:17

broadly drawn from across the

6:19

income spectrum and the education spectrum.

6:22

How does it change the sort of social implications,

6:24

Because on a fundamental level, what we're

6:26

really talking about is whether

6:28

you have a job or not, and how you feel about

6:31

that is largely determined by social

6:33

norms, right. That's actually what's going on here.

6:35

It's a status game to some significant

6:37

degree, and it's uncomfortable to call it that. I don't

6:40

think I like my job because it gives me status.

6:42

I think I like my job because it's fun and I'm

6:44

contributing something to the world. But obviously

6:46

we all care about status, and.

6:48

It does give you status. You have one of the best jobs

6:50

in the world. You're a podcast.

6:51

To listen, we're walking right up

6:53

to the next question in a very elegant way from

6:56

Neil. Hello Tim. During

6:58

your recent Cautionary Questions

7:00

episode, Jacob Goldstein jokes

7:02

that if AI takes everyone's jobs,

7:05

the two of you will still do a free podcast

7:08

together. I understand the jest,

7:11

but it begs the question. By the

7:13

time AI is good enough to take over most

7:15

jobs, won't it also be better than

7:17

us at creating entertainment and art. I

7:20

think we as humans don't want to admit that

7:22

as possible, but it's definitely the goal of AI

7:24

developers all over the world at this very

7:26

moment. I'm curious what that

7:29

possibility could mean for humanity and

7:31

what we might do to avoid or prepare

7:33

for it. Thank you for all your excellent

7:35

content. The robots have nothing

7:37

on you.

7:39

Yet. Yes, Jacob,

7:42

have you heard the podcasting software

7:44

that notebook LM have just

7:46

released? This is a Google product,

7:49

Tim.

7:49

Not only have I heard it, I uploaded

7:52

a chapter of my book about

7:54

paper money in China and queued

7:56

up a moment of it to play for you right

7:58

now. You know how we always

8:01

hear about Marco Polo bringing back these crazy

8:03

stories from China, right well, get

8:06

ready for this trying out. China was

8:08

light years ahead of Europe when it came to

8:10

money, centuries ahead, to be exact.

8:12

We're talking paper money, folks, Yes, centuries

8:15

before it ever showed up in Europe. It's wild.

8:18

It really flips the script on how we usually

8:20

think about financial history. Absolutely

8:24

so, just to be clear, I just uploaded

8:26

a chapter of the book clicked whatever

8:29

make a podcast, didn't make any

8:31

choices, didn't tell it to do anything but

8:33

that, and that's what came out.

8:35

And these are two synthetic

8:37

voices reading a script

8:40

that was created by a genitive

8:42

AI in response to your wonderful

8:45

book Money The True story of a made up

8:47

thing. And it's pretty

8:49

good. It's pretty good.

8:51

It's definitely good enough to

8:53

be very scary.

8:55

I've had worse human podcasters, for sure.

8:58

So I mean, maybe this is all happening

9:00

sooner than we think. But what

9:03

Neil is basically driving at is, by

9:05

the time the robots take

9:07

our jobs, won't they also be

9:10

better than us? So they will make a

9:12

better podcast than we will.

9:14

They will draw better pictures than we will, they will

9:16

write better pros than we will, they will compose better

9:19

music than we will, and so on. And is

9:21

that a problem. I'm not

9:23

sure that's the problem. I'm worried

9:25

about. The computer already draws better

9:27

than I do, and lowbar,

9:30

respectral, very lowbar. And

9:33

it's great. I'm like, wow, I can create art

9:35

for my hobby projects. That's

9:37

great. I'm not doing anybody out of a job, But

9:39

now my own creativity is unlocked

9:42

by the computer. Of course, maybe

9:44

there comes a time where I don't need to do any of

9:46

that. I just press the button and the computer just

9:48

produces everything, and it's

9:50

better than what I could produce. Does

9:53

that matter? I want to add a wrinkle

9:55

rinkle away.

9:56

When I was talking about making a podcast with

9:59

you after the robots take our jobs, part

10:02

of what I was imagining was that somebody

10:04

would listen, right, Like, not

10:06

that we could make a living out of it, We

10:09

would be doing it for some audience,

10:12

right. My hope, although

10:14

I really don't know, is that even

10:16

if AI makes a better podcast than

10:18

us, people will listen just because

10:21

people like people. And one

10:23

interesting case to consider is

10:26

chess. Right. Chess has this

10:29

history where first people

10:31

were better than machines, and

10:34

then for a long time computers

10:36

could beat people, but a

10:38

person working with a computer was better

10:40

than just a computer, and then a few years ago

10:42

that ceased to be the case. And obviously many

10:45

many computers can beat every single human

10:47

being on earth. But chess

10:50

players still like are

10:53

famous among nerds.

10:55

Right.

10:55

Magnus Carlson is like a rich

10:57

guy, he's a superstar, and people pay

11:00

lots of money to watch him play worse chess

11:02

than a computer. So my hope

11:04

is we can be if not the

11:06

Magnus Carlson's of podcasts,

11:09

the whoever is like, you know,

11:11

way worse than Magnus Carlson, but still a

11:13

pretty good chess player.

11:14

Sure, and you may be right,

11:17

but I think my point is it's

11:20

worth playing chess even if nobody watches you

11:22

even if it's just you and a friend.

11:24

Yeah, but is it worth making a podcast

11:27

if nobody listens that, what are

11:29

we bothering with the microphones for? Then you could just

11:31

call me? Yeah?

11:32

Yeah, Okay, we could have to think it's a podcast

11:34

that nobody listens is a fun conversation.

11:37

Welcome to the podcast for no one. I'm Jacob

11:39

goldstud.

11:41

If people weren't listening, it would be different. But I

11:43

think people would still be creating stuff.

11:45

People would still be making art, and that will

11:47

be fine. So that's my answer to Neil.

11:50

Okay, Tim, We're gonna go

11:52

from the robot apocalypse to the

11:55

climate apocalypse with our next question from

11:57

Julian, who writes Dear

12:00

Tim. Lately, more and more

12:02

news breaks of climate change

12:04

harming the economy. For example,

12:07

I remember a recent story about home

12:09

insurance premiums rising steeply

12:11

in hazard zones for flooding storms

12:14

or landslides. That made me wonder,

12:16

isn't there a way to profit from climate

12:18

change too that would allow us to hedge

12:21

against these economic risks? Could

12:23

you set up a fund that would act, in effect

12:26

like a climate change insurance policy.

12:28

Excellent show, By the way, Deep insights

12:31

told via gripping stories. All

12:33

the best from Vienna Julian.

12:36

It's a very interesting question. The

12:39

thing that immediately springs to my mind is

12:41

I once saw one of the most amazingly persuasive

12:44

pieces of rhetoric ever that

12:47

was not intended to be persuasive, and it was at

12:49

a commodities conference.

12:51

It was a bunch of guys who trade

12:54

agricultural commodities and

12:56

therefore have a big interest in climate

12:59

variability. But at the same time, we're culturally

13:02

Midwestern and therefore climate

13:04

skeptic. And the guy giving a talk

13:06

at this conference was rather

13:09

professorial Germanic character.

13:11

I can't remember if he was German or Austrian

13:14

or Swiss. And he was from

13:17

one of those big reinsurance companies.

13:19

He just gave a talk explaining how

13:22

they were raising all of their insurance premiums

13:25

because of climate change, and showed loads and loads

13:27

of data about climate change

13:29

and how they were changing their pricing

13:31

model. And there's a bunch of people

13:34

who I think were politically

13:36

predisposed to be climate skeptics

13:39

were like, huh, this guy

13:41

is not Hillary Clinton and the Dems

13:44

coming to take away our freedoms. This guy doesn't

13:46

want to persuade us of anything. He's just telling

13:48

us that the price of insurance is going up, and

13:50

here's why. And I really felt

13:52

the mood in the room change because

13:55

of that talk was fascinating, And

13:57

what that gets at is that insurance gives

13:59

us a kind of truth about the risks that

14:01

we face. Because insurance companies operate in a

14:03

competitive market, they want to offer the

14:05

most expensive premiums they can get away with, but

14:08

they're forced by competition to keep the

14:10

premiums low, and so as the premiums

14:12

rise and rise and rise, that generally indicates

14:14

that the risk is rising and rising and rising too. So,

14:17

to return to Julian's question, is

14:19

their way to profit from climate change? I mean your

14:21

podcast What's your Problem, Jacob, You've talked to many

14:23

entrepreneurs who are hoping to make

14:25

money while also saving the planet.

14:27

I was thinking about that. It is encouraging

14:31

to talk to these people who

14:33

are very smart and I think truly

14:36

believe that the work they're doing will

14:39

mitigate the damage from climate change.

14:42

And the progress has been

14:44

extraordinary, right like the fall in the

14:46

price of solar power in particular,

14:49

it's staggering, you know, people are making

14:51

batteries better, and there are really hard parts

14:53

of the problem like cement and planes,

14:56

and people are working on that. And

14:58

you know, Bill Gates started a venture capital

15:01

fund called Breakthrough Energy Ventures that

15:03

is exactly what Julian is asking about,

15:05

right, Like, the point of this fund is

15:07

to profit from climate change

15:10

by helping to solve or mitigate

15:12

climate change.

15:13

So I think that there are all these hopeful

15:15

stories and it is very encouraging, but fundamentally

15:18

to come back to this idea of our

15:20

kind of inverse insurance policy, I

15:23

think that the answer is no. Fundamentally,

15:27

insurance moves the

15:29

cost around, so the

15:31

person whose house got burned down or

15:33

the person whose home was destroyed in a hurricane,

15:36

they don't have to pay for rebuilding it. Instead,

15:38

the insurance company pays, but somebody

15:40

still has to pay. And insurance moves

15:43

that risk around and that's very valuable, but

15:45

it doesn't make the cost go away.

15:48

And climate change increases these costs

15:50

and all the insurance in the world is

15:52

not going to reduce them in aggregate. It'll

15:54

shift them to different people, but it's not going to

15:56

reduce them. For that, we need you, We need

15:58

your sellar panels.

15:59

Jacob, you know, when you put it that way,

16:01

like what we really want in terms

16:04

of moving the economics

16:07

is you want the people who are consuming

16:09

the fossil fuel, who are flying on the plane,

16:11

who are eating the hamburger to pay

16:14

the full cost of that. Right, you want

16:16

to internalize that

16:19

cost which is now not in that transaction.

16:21

And you can do that with a carbon

16:23

tax. Like, it's a great idea. You can even

16:25

have a carbon tax and then just give everybody

16:28

the money back. Right, the government collects money from

16:30

people for consuming carbon

16:32

essentially and then sends a check to everybody

16:34

in the country at the end of the year, so the government doesn't

16:37

even have to take more money in the aggregate. And

16:39

like it's super elegant and

16:41

it's just politically doesn't really seem to be

16:43

happening, but it is in a way solving

16:45

the problem fundamentally.

16:47

Absolutely.

16:48

All right, that's enough about that. We'll

16:50

be back in just a minute.

17:02

We are back. I'm Tim Harford. I

17:04

am talking to the amazing Jacob Goldstein.

17:07

And this is another of our Portionary

17:09

Questions episodes where you have

17:11

been sending in your questions and Jacob and

17:14

I are going to try and answer them, Jacob,

17:16

what have you got for me?

17:17

Tim? This is a throwback. It's

17:19

from Robert who writes,

17:22

Hi, Tim, why did

17:24

no one go to jail after the two thousand

17:26

and eight financial crisis? I remember

17:29

the savings and loans financial crisis

17:31

during the Reagan presidency when Charles Keating

17:33

was jailed. Love your show, Robert

17:36

from Illinois.

17:38

Yeah, and a throwback because we

17:41

first met each other shortly after the financial

17:43

crisis.

17:43

In twenty ten, when in the question on everybody's

17:46

lips was who's going to jail?

17:49

Yeah, I mean it's not literally

17:51

true that nobody went to jail. Bern he made off went to jail,

17:53

for example. I mean, I think the short

17:55

answer is, if you want people to go

17:57

to jail, then first they have to commit a crime.

17:59

And the weird thing about the financial crisis

18:02

is, I don't think many people did

18:04

commit crimes. All of this crazy

18:06

stuff that happened, and all the outrageous things that people

18:10

were I think mostly legal, which

18:12

is of course the real scandal.

18:14

Yeah, you know, everybody talked about housing

18:17

and crazy sliced up

18:19

bonds built on mortgages, right, that

18:22

was the sort of part of the

18:24

story that everybody heard

18:26

and told, and that part of the story is true.

18:28

But there is another piece of the story that I

18:31

actually think is a really

18:33

fundamental driver of the crisis that

18:35

you didn't hear as much because

18:38

it's a little more abstract and a little nerdier.

18:42

And that is basically that starting

18:44

a long time before the crisis, starting

18:46

in like the nineteen seventies, there arose

18:49

in the United States what came

18:52

to be called a shadow banking system, where

18:54

because of regulations on banks

18:57

in the US that were set up after the depression,

18:59

when there was a giant banking crisis, clever

19:02

finance people came up with financial

19:05

structures that looked like banks but weren't

19:07

regulated like banks, And in particular

19:09

they look like bank deposits. Right, So

19:11

a bank deposit is a weird thing where

19:14

you put your dollar in the bank, and

19:17

you have your deposit and it's

19:19

worth a dollar, and then the bank takes your dollar

19:22

and lends it out to somebody else, or your

19:24

thousand dollars and lends it out to somebody else for

19:26

a mortgage that doesn't have to be paid back for

19:28

thirty years, and so then

19:30

there is this inherent fragility

19:32

in that system, right, because if

19:35

we all come back and ask for our money, the bank

19:37

won't have it. And it's not because the bank is greedy

19:40

or evil or incompetent. It's

19:42

because of the fundamental structure of banking.

19:45

That fragility is inherent in the fundamental structure

19:47

of banking. And what happened in the financial

19:49

crisis is that there

19:51

were billions of dollars that were

19:53

deposit like they weren't exactly deposits.

19:56

They weren't insured by the federal government, but they

19:58

were in money market mutual funds,

20:00

which people may be familiar with and were

20:02

explicitly set up to be

20:04

like a bank deposit, but could pay higher interests and weren't

20:07

regulated, And in the repo market, which

20:09

is like a weirder version of the same thing.

20:11

Let's say, and everybody

20:14

came and asked for their money back in two thousand

20:16

and eight, and of course the

20:18

shadow banks, which were not called banks

20:20

or shadow banks didn't have it, and that was

20:23

a core driver of the crisis. And it wasn't

20:25

illegal, as you said, But it's

20:27

like that is what all financial

20:29

crises are. They just have like different

20:31

flavors, different skins.

20:33

I mean, you say it wasn't because the shadow banks

20:36

were lazier, incompetent or greedy. I mean

20:38

I think they probably were incompetent and greedy

20:40

as well.

20:40

Fair well, greed. I shouldn't have brought greed

20:43

into it. Greed should be fun greed, right.

20:45

Like incompetence is not illegal, and neither

20:47

is greed.

20:48

Yeah, they certainly didn't break the rules,

20:50

right. And in fact, one

20:53

of the key under the radar failures

20:56

that week in September in

20:58

two thousand and eight when Lehman

21:00

Brothers the investment bank failed, and then

21:02

everybody else failed and the government bailed everybody

21:04

out, was the very first money market

21:07

neutral fund that had been created forty years or

21:10

and was very much like a bank

21:12

and suddenly couldn't give everybody

21:14

their money back now. And so it's totally

21:16

understandable that everybody is angry when

21:19

one industry blows up the economy. And by the way,

21:21

all the people in that industry are getting rich, and it's

21:23

not obvious what they're providing to us. But

21:25

it is in fact a really hard problem

21:27

to solve, Like banks are inherently

21:30

unstable, and people love making things

21:32

that look like banks and are inherently

21:34

unstable.

21:35

Thank you Jacob for reminding

21:37

me of the concept of shadow banking. It's like

21:40

it's like real banking, but their headquarters

21:42

are in mortal That's such

21:44

a greatat Yes, oh, good

21:46

times, Good times, Jacob. There

21:49

are more questions in the mail bag. Would

21:51

you mind if I were to read the next question

21:54

to you because I want to hear your answer

21:56

because you are the author of money,

21:59

the true story of a made up thing, and I feel like this

22:01

question is made for you. One of

22:03

my friends posted this on Facebook, but

22:05

is it true? This is the Facebook

22:08

post. This is why I keep telling

22:10

the younger generation to stop avoiding

22:12

cash. I have a fifty pound banknote

22:15

in my pocket. I go to a restaurant and

22:17

pay for dinner with it. The restaurant owner

22:19

then uses the note to pay for the laundry. The

22:21

laundry owner then uses the note to pay the

22:23

barber. The barber will then use the

22:25

note to pay for shopping. After an

22:28

unlimited number of payments, it will still remain

22:30

a fifty pound value, which has fulfilled

22:32

its purpose to everyone who used it for payment.

22:35

But if I go to a restaurant

22:37

and pay digitally via card,

22:40

the bank fees for my payment transaction charged

22:42

to the seller are three percent, so

22:44

around one pound fifty for the fifty pound

22:47

payment. This will also be the case

22:49

for laundry payment, payment to the barber and so

22:51

on. Therefore, after thirty transactions,

22:54

the initial fifty pounds will exist

22:56

at only five pounds, and the remaining

22:59

forty five pounds has become the property

23:01

of the bank. That's not actually how percentages work. But that's

23:03

fine thanks to all the digital

23:06

transactions and fees, use

23:08

it or lose it for ax. Once it's

23:10

gone, we won't get it back. Cash

23:13

is king. Okay, So the arithmetic on this

23:15

is wrong. We don't need to bother with that. But Jacob, what

23:17

about the economics. Well, it's your reaction to this.

23:20

So that was from Windy, right,

23:22

and she says if you pay

23:24

with a fifty pound bank note at the restaurant,

23:27

the restaurant owner then uses the note

23:29

to pay for the laundry and so on.

23:31

Yeah, and the note never gets used up.

23:33

It just goes around and around. Right.

23:35

So, at the risk of being pedantic,

23:37

I think it is relevant to say that is

23:39

not in fact what happens. There is

23:41

a cost born by the restaurant

23:43

of dealing with cash, right, they pay somebody to account

23:46

it, they pay somebody to take it to the bank, and so there

23:48

is a cost to cash. So the relevant

23:51

question is how does the cost of

23:53

cash compare to the cost of

23:55

a credit card and also to the

23:57

cost of a debit card. Those two things

23:59

feel the same to us as customers, but as

24:01

it happens, they're not the same

24:03

to merchants. And for the most

24:06

part, and it varies from country to

24:08

country, debit cards are the

24:10

cheapest for merchants, then

24:13

cash is in the middle, and credit

24:15

cards are the most expensive. So

24:17

like, the most efficient mode of transaction

24:19

for the merchant in most countries is

24:21

the debit card, basically because you compare

24:24

the cost of dealing with the cash, of paying

24:27

people to count the money, to take it to the bank, et cetera,

24:29

to the fees they have to pay to use

24:31

credit cards and debit cards. And

24:33

you know, from a sort of first

24:36

principles perspective, if you just step

24:38

back and think what is most efficient, it

24:41

should be that a card is cheaper. Right, Like, it's

24:43

obviously costly to deal with

24:46

cash. It's a security risk. You have to

24:48

actually physically move it around, and

24:50

so On one level, we should ask,

24:53

well, why is a card ever more expensive?

24:55

Right?

24:55

And they're paying some amount for credit,

24:58

right because a credit card there's a risk that the bank won't

25:00

get paid back because it is in fact credit, there's

25:02

a risk of fraud, and so that

25:04

cost is born. Debit should

25:07

be really cheap because you can just I

25:09

have the computer at the restaurant ask

25:11

the computer at the bank, Hey, does this person

25:13

have the money in their account? And the bank says yes,

25:16

and the payment goes through, and it should

25:18

be very cheap. So there is a

25:20

question why does it cost anything for debit.

25:23

One answer to why is

25:25

because Visa controls a

25:27

huge percentage of the

25:29

debit card payment system in the

25:32

US, and in fact, the US Department

25:34

of Justice, the federal government is suing

25:36

Visa for basically monopolistic

25:38

practices in the debit card business.

25:41

I mean, there's a lot wrong with this Facebook post,

25:43

but there is a grain of truth in that there is a monopolistic

25:46

provider, or allegedly monopolistic provider,

25:49

of these payment services and they're

25:51

raking off a disproportionate fee. Yes. On the

25:53

other hand, I mean Visa just like

25:56

the barber, and just like the laundromat

25:58

owner, and just like the restaurant owner, visa is also

26:00

a business. So if they take the money, well, they

26:02

can also spend the money back into the economy.

26:04

I mean it may feel a bit unfair, but yes, I mean the

26:07

money still goes around. I

26:09

mean this Facebook post is acting

26:11

like the thing that's scarce is the money, Like

26:13

the fifty pound note is the thing that's

26:16

potentially scarce, but actually you

26:18

can always make more fifty pound notes if you

26:20

are the central bank. So money is in

26:22

fact not the thing that is scarce. What is scarce

26:24

is laundromats and restaurants

26:26

and chefs and all of these real resources

26:29

in the economy. And the money, whether

26:31

it's digital money or whether it's paper

26:33

money, is just a way of kind of keeping track of

26:35

things. And then which gets back to your question, which is

26:37

which is the most efficient way of

26:39

keeping track of things? And that's an open question,

26:42

I think.

26:42

I mean, efficiency gains are good,

26:45

right, Like the question does matter on

26:47

the sense that we want to spend as

26:49

little as possible on payment

26:52

rails. That's fundamentally what this is about.

26:54

We can all get more stuff we like, more restaurant

26:56

meals and nice haircuts

26:59

if we're spending as little as possible moving

27:01

the money around, right, and so we want technology

27:04

to make it cheaper to move money around. Ideally

27:07

there should be a cheaper way to do it in cash,

27:09

and we're getting there.

27:11

So don't get your economics from

27:13

Facebook posts. Get your economics

27:15

from Jacob Goldstein. Thank you, Jacob. Caution

27:18

tales will be back off to this break.

27:28

Tim, let's talk about housing, sure,

27:31

Fred Wrights. Hi,

27:33

Tim, I absolutely love your

27:35

podcast. It scratches the

27:38

itch of economics in society and every

27:40

episode is a great lesson. My question

27:42

is about housing, Nimbi's and the

27:44

impact on the economy. I've

27:46

long been a believer in the housing theory of everything

27:49

and find it appalling that as

27:51

nearly everything has gotten more affordable

27:54

in real terms, housing has become completely

27:56

out of reach for younger people, particularly

27:58

in the UK. Quite beyond the ethical

28:01

implications, I'm interested in your view

28:03

of its impact from a macroeconomic

28:05

angle. How impactful do

28:07

you think housing reform would be on the UK

28:09

economy? How would you deal with Nimbi's

28:11

from a behavioral economics slash

28:14

policy perspective? Thanks

28:16

Fred.

28:18

I think Fred is completely right. I think

28:20

the UK economy desperately needs housing

28:23

reform. Fundamentally, we've just made it very

28:25

very difficult to build houses. And if you make

28:27

it very very difficult to build houses, that makes

28:29

houses very expensive, and that's a problem

28:31

in its own right because people

28:34

need somewhere to live, but it also damages the economy

28:37

because people don't get to move around

28:39

to where the jobs are. And it's also

28:41

inequitable, so it means that

28:43

people who are older have a lot more money than people

28:45

who are younger, disproportionately because

28:48

they've just sat in houses that they bought when

28:50

they were cheap, and those houses have got more and more expensive.

28:53

And it's also inequitable within

28:55

generations because, not to put too fine a point

28:57

on it, if you are the only child of

28:59

parents with a house, you're going to inherit

29:02

the house, which is hugely valuable.

29:04

If you're one of three or four children, or

29:07

if your parents never had a house in the first place,

29:09

you're not going to inherit and it becomes incredibly

29:11

difficult to afford a house. And

29:13

so there are a huge number of different economic

29:15

problems being caused by the fact that we're just

29:17

not willing to let people

29:20

build more houses. And in a nutshell,

29:23

I mean, houses are incredibly expensive in the UK.

29:25

Fundamentally, if you let people build houses,

29:27

the cost of a house is going to fall

29:30

to the cost of building a house. That's

29:33

how much is going to cost you to buy a house. It's like whatever

29:35

it costs to build a house, which is a lot less

29:38

than the market price of a house in the UK at

29:40

the moment.

29:40

As you may know, houses are also

29:43

really expensive in many

29:45

parts of the United States, and for similar reasons.

29:48

But one really interesting and encouraging

29:51

and surprising thing to me is

29:53

that there has actually been some progress

29:55

on this in the United States. Not

29:58

enough to solve the problem, but enough to suggest

30:00

that the problem is at least somewhat

30:02

solvable. Fred reference Nimby's

30:05

which means not in my backyard, which is people

30:07

who say don't build apartment building was

30:09

on my block or whatever.

30:10

That is better than bananas, right, you know what? Banana's

30:12

time school build absolutely nothing any anybody

30:17

I like that.

30:18

In the US, and starting in the

30:20

Bay Area as far as I know, you know, in the San Francisco

30:23

b area, where houses are extraordinarily

30:25

expensive, we have had the Yimbi

30:28

movement, the Yes in my backyard movement,

30:30

which has in the past decade or so scored

30:33

some real victories in California.

30:36

And one of the really interesting things to

30:38

me, you know, Fred says, how would you deal with nimbi's

30:40

from a behavioral economic slash policy perspective?

30:43

We haven't heard that much about the ymbi's,

30:45

and I have a theory for why, and that

30:48

is, as you may

30:50

have heard, America is a rather politically

30:52

polarized place these days, but

30:55

the yimby nimbi fight is

30:57

not particularly polarized. It

31:00

is not left coded right

31:02

coded the way immigration

31:04

or capital gains, tax rates or

31:07

many other things are, which I I think it's actually

31:09

great. It means you can have a

31:12

rational, as opposed to tribal discussion

31:14

about it. So that's one piece of it, and

31:16

the other piece of it is somewhat

31:18

wonkier, but it is this. At

31:20

least in the US, the rules about

31:22

housing we call it zoning, are

31:25

typically locally imposed. They're imposed

31:27

basically at the city level, and there's

31:29

a sort of political economy reason for that,

31:31

which is homeowners care a

31:33

lot, and they show up at the city council meeting

31:36

and they say, don't let anybody build apartments

31:39

in my neighborhood because that'll lower

31:41

the value of my house. Right, homeowners don't

31:43

want the valid point. It's the whole point.

31:45

Right, there's this weird thing where like, yes, houses are too

31:47

expensive, we need to lower the value of your house.

31:50

So instead of dealing with it at

31:52

the city level, the yymbies went to the

31:54

state and god California to pass

31:56

laws overriding cities that

31:59

said to cities, you basically can't

32:01

do exclusionary zoning anymore. You can't

32:03

say there can only be single family

32:06

homes. But in most of California now

32:08

you can build what are called adu's additional

32:10

dwelling units. You can build a little apartment over the

32:12

garage or in your backyard, for example.

32:15

And other rules like that have passed the state,

32:17

so there is encouraging progress.

32:20

Though houses are still too expensive.

32:22

It's a problem that can be solved.

32:24

Okay, Tim, this one is for you. It's

32:26

from Benji from Brisbane. He writes,

32:28

Hi, Tim, and all appreciate you

32:31

taking the time to read my question. What

32:33

happened to Mohammad Yunis and Gramine

32:35

Bank. There was so much promise with

32:38

microfinance as a tool for good

32:40

in helping the underbanked in developing economies.

32:43

Kind regards Benji.

32:46

So the short answer is Mohammed Unis

32:48

is now a senior advisor to the Government of Bangladesh

32:51

and won a Nobel Prize not for economics

32:53

but for peace. So he's doing fine.

32:56

So microfinance is basically

32:58

the idea that you give

33:01

very small loans

33:04

to entrepreneurs in very

33:06

poor communities, low

33:09

interest rates, and they can use that

33:11

to build their business. So Unus was famous for

33:13

saying, all people are entrepreneurs.

33:17

And the founding story of Gramine

33:19

Bank, which is the microfinance outfit

33:21

that he started. He was an economist.

33:23

He went to a village near the university

33:26

in Bangladesh where he worked, and he

33:28

found that these local women were weaving

33:30

baskets and selling these baskets and that's how they

33:32

made their money. But they had to

33:34

borrow money from the village money lender to

33:37

pay for the materials to

33:39

make the baskets, and the village

33:42

money lender was charging them ten percent a

33:44

day, just an astonishingly

33:47

high interest rate. I did the maths.

33:49

Once that interest rate would turn one

33:51

cent into larger than the entire

33:53

US government debt over the course of a year,

33:56

so it's a very high interest rate. And UNUS

33:58

came in and said, I'll lend you money. I won't

34:00

charge you much interest. These women borrowed

34:02

money off him and they paid it back and it was fine.

34:05

And suddenly not having to pay ten

34:07

percent on top of your cost every day

34:09

was the difference between grinding

34:12

inescapable poverty and the chance to build

34:14

your own small business. So it's a lovely

34:16

idea. The development economists

34:19

came in and said, well, this sounds great,

34:22

but does it actually work? And they

34:24

found mixed pictures. So

34:27

it was a really interesting study in South

34:29

Africa which was conducted by Dean Carlon

34:31

and Jonathan Zinman to development economists,

34:34

and they found that people borrowing money

34:36

from what seemed pretty much like a payday

34:38

loan company at very high

34:40

interest rates. I think it was two hundred percent

34:42

annual percentage interest rate. They

34:45

randomized it so that some people who this

34:47

company were going to turn down for loans

34:50

at random, some of them were offered loans anyway,

34:53

and the people who at random

34:55

were offered the loans versus at random

34:57

were not offered the loans. The ones who got the loans

34:59

were doing much better six months later, so

35:01

really interesting RANDOMI as well, So even this very

35:03

expensive credit was great because

35:05

what they were doing was they were using the loan to I don't

35:08

know, buia suit to go to a job interview or

35:10

to fix their bike in order to stay in

35:12

employment. But other

35:14

research was more mixed, and

35:16

I think the fundamental idea that the reason

35:19

why people are poor in poor countries is

35:21

because they don't have access to cheap loans. I

35:24

mean, there's so much else going on, so it's

35:26

only ever going to be a part of the story. The

35:28

other really interesting thing is the commercial

35:31

companies came in. So there

35:33

was a one called Compatamos in Mexico,

35:36

which was just a huge business

35:39

that was lending money at pretty

35:41

high rates and making a lot of money, and it

35:43

was just about to do an IPO, I think, and

35:46

that made all the founders of this organization very

35:48

rich, and Unice was like, this is outrageous.

35:50

He was trying to excommunicate them from the microfinance

35:54

movement because they were too commercial.

35:56

But the problem is there was always

35:59

shades of gray between kind of

36:01

nonprofit microfinance and

36:03

the money lender who Unice was originally

36:06

worried about even

36:09

nonprofit microfinance. They're

36:11

not lending people loans

36:13

at zero interest. Even the

36:15

nonprofits are often lending at fifty sixty

36:18

seventy percent a year. And the reason

36:20

is you're making such small loans for such

36:22

a short period of time, like maybe you're

36:24

lending somebody like fifty dollars for three

36:26

months. Unless you charge a big

36:28

interest rate, you'll feel on that is like fifty

36:31

cents, yeah, and it's just not enough to

36:33

cover your costs. And

36:35

so it's this fine line between what is

36:37

abusive money lending and what is

36:40

nonprofit microfinance. It's

36:42

harder to draw that line than you think. So

36:45

it's a fascinating area. But that is

36:47

what happened to Mohammed Unis and the Gramming Bank.

36:50

Clearly, people are deeply, deeply

36:53

uncomfortable fundamentally

36:55

with the idea of lending money at interest,

36:57

right, Like we've gotten used to it in the developed

36:59

world with a mortgage or a car loan.

37:02

But if you look historically, lots

37:05

of places there were rules for thousands

37:07

of years that said nobody's allowed to lend

37:09

money at interest because it's fundamentally

37:11

bad. It's unnatural, right, and you don't

37:14

have that with most other businesses, and I think

37:16

that's part of what is going on here, Like lending

37:18

money at interest makes people morally uncomfortable,

37:21

and so when you have someone riding in and being morally

37:23

righteous by lending money at interest, it's going

37:25

to get complicated.

37:27

Have we got time for one more question, Jacob? We

37:29

do?

37:30

Our last question, Tim comes from Ella,

37:33

who writes, Hi, Tim, I've

37:35

been listening to your podcast for a while now.

37:37

I'm a big fan, and you seem very

37:39

insightful across a range of topics.

37:42

So I was wondering if you could help me out with the problem

37:44

I've run into recently. I'm

37:46

in my second year of UNI studies physics.

37:49

If you're curious, and I keep getting

37:51

asked what I want to do for a career path aside

37:53

from further academics, I'm not really sure

37:56

what there is that I like the sound of, and

37:58

I know eventually I will have to finish my education.

38:01

I do know that I'm in the right field. I just

38:04

don't know what jobs are waiting for me on the other

38:06

side of my studies. Do you think I should

38:08

be worrying about where I'm going to end up or

38:10

as a more go with the flow attitude fine

38:12

for something this serious. Thanks

38:14

for the help, Ella.

38:17

So this is where I hope that Ella's parents

38:19

aren't listening to this podcast, because

38:21

I'm going to tell Ellen not to worry. I think

38:23

go with the flow is fine. I

38:26

mean, physics is such a desirable

38:29

degree. I'm sure you'll have no trouble

38:31

finding somebody to give you a job in the end.

38:34

So Jacob and I are collectively

38:36

over one hundred, so we're basically two old

38:38

geezers. We're probably not really very

38:41

well qualified to give you advice. But when

38:43

I look back at my career, I

38:45

didn't know what I wanted to do when I went to

38:47

university. I didn't know what I wanted

38:49

to do when I left university. I

38:52

didn't have any particular plans to become

38:54

a journalist or a writer. And

38:56

in fact, I didn't become a journalist or a writer

38:58

until I was nearly thirty.

39:01

And I think all of the things that I did in

39:04

my twenties, some of them were mistakes,

39:06

some of them were not, but they all kind of contribute

39:09

to who I am now. If

39:11

there's something that you're really passionate about and you've

39:13

got this vision, you want to chase it. That's fine.

39:16

But I think it is also fine to

39:18

experiment and to try different things and to see if

39:20

you like them. What do you think, Jacob?

39:22

Certainly I agree. I mean I majored in English,

39:24

which, unlike physics, gave me

39:26

no fundamentally useful skills

39:29

except for a living right Like. I still think

39:31

all the time of stuff that I read in college, and

39:33

I'm certainly glad that I studied English. But

39:35

I think this, when you're in college, people

39:38

say, oh, what are you studying? And then you say

39:40

what you're studying? And then the next question,

39:43

in a sort of robotic way, is what

39:45

do you want to do with that?

39:46

The thing I.

39:47

Wish I had known when I was in college is

39:49

the people asking don't actually care,

39:52

right Like I felt all this pressure of like, oh

39:54

my god, everybody wants to know what I am going

39:56

to do. They don't actually want to know. They're

39:58

not really thinking that much about you. They're

40:01

just making conversation, They're just

40:03

talking about the weather, right. I mean

40:05

it in a good way when I say other people don't

40:07

care. Everybody is mostly thinking about themselves.

40:10

I would praise it slightly differently. I would say, there's no

40:12

pressure, there's just curiosity. They're just interested.

40:15

They're not even that interested, is my take.

40:17

They're just making small talk. And like recognizing

40:20

small talk as small talk is a hugely

40:22

empowering thing, and it's fine, Like we're

40:24

just social animals following

40:27

norms and asking a college student what they want

40:29

to do is just what people do. So I would

40:31

say to Ella, just make up an answer

40:33

and know in your heart that you're going to figure it out.

40:35

And people love hiring physicists. Wall Street

40:38

is full of physicists, and consulting firms are full

40:40

of physicists. Anybody who can think

40:42

hard about the most difficult problems in

40:44

the world in a quantitative way is going to be

40:47

eminently employable.

40:48

And you know, another thing you can do with an

40:50

undergraduate degree in physics is a postgraduate

40:53

degree in economics. Twist,

40:57

Jacob, Thank you so much for joining me.

41:00

Tim, It's so fun. I truly

41:02

would do it for free even if nobody

41:04

listened.

41:05

Thank you so much, Jacob, and thanks to

41:07

all of you for sending in your questions. We

41:09

will be back again on our regular schedule

41:11

with another classic episode of Cautionary

41:14

Tales but in the meantime, happy

41:16

Thanksgiving to our us listeners and if you

41:18

have a question for us, please send

41:20

it in to Tales at

41:22

Pushkin dot fm. That's

41:24

t a l e. S. Tales at

41:27

Pushkin dot fm.

41:29

Thank you, We love hearing from you. Cautionary

41:34

Tales is written by me Tim Harford

41:37

with Andrew Wright. For a full

41:39

list of our sources, see the show notes at

41:41

Timharford dot com.

41:43

The show is produced by Alice Fines with

41:46

Marilyn Rust. The sound design and

41:48

original music of the work of Pascal

41:50

Wise. Sarah Nix edited

41:52

the script. Cautionary Tales

41:55

features the voice talents of Ben Crow,

41:57

Melanie Guttridge, Stella Harford,

41:59

Gemma Saunders and Rufus Wright. The

42:02

show wouldn't have been possible without the

42:04

work of Jacob Weisberg, Ryan

42:07

Dilly, Greta Cohne, Eric Handler,

42:09

Carrie Brody, Christina Sullivan, Kira

42:12

Posey and Owen Miller. Cautionary

42:15

Tales is a production of Pushkin Industries.

42:18

It's recorded at ward Or Studios in London

42:21

by Tom Garry. If

42:23

you like the show, please remember to

42:25

share, rate and review. It doesn't

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really make a difference to us and if

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you want to hear the show, add free

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sign up to Pushkin Plus on the

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show page on Apple Podcasts,

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or at pushkin dot fm,

42:39

slash plus