The Economist’s Hour Edition

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S1: This ad free podcast is part of your Slate Plus membership. Hello and.

S2: Welcome to The Economist’s hour edition of Slate Money or guide to the business and finance news of the week. I’m Felix Salmon of axioms. I am joined as ever by Emily Peck of Huff Post Hello by Anish Minsky of Breaking Views.

S3: Hello. And rather excitingly I am joined here I am in Washington D.C. this week and I’m joined in his hometown by Binyamin Appelbaum of the New York Times. Hi. You are here to plug a book.

S1: I’m here to plug a book. What’s the book.

S4: It’s called The Economist’s hour and it’s a fast paced exciting thrilling history of the role of economists and public policy.

S3: If you only read one book about the role of economists in public policy this year make it this one. No it really do. It’s got some great stuff in it and we’re going to touch on a bunch of stuff in the book in this episode we are going to talk broadly about economists and whether they have made the world better or worse. We’re going to talk about the value of a human life and how you can put a dollar amount on it. And we are actually going to give you a dollar amount. So if you listen to this episode you’ll find out how much your life is worth. And we you know this is service journalism Exactly.

S5: And we are going to talk about what has been going on between the NBA and China and whether the company’s morals can extend to places like China. It’s a good episode we’ll even you’re going to all amateur Minsky fans are going to love this. We are going to wonk out enormously about the Federal Reserve’s balance sheet and Slate Plus.

S6: So there’s a bunch of cool stuff which you’re going to want listen to.

S3: Coming up on Slate Money Okay so you tell us about your book. It came out when I came out in early September came out and is September. So it’s still fresh. It’s still a newborn version but it is. How would you describe both the elevator pitch.

S7: It’s it’s the history of a revolution that starts in the late 1960s and the early 1970s where economists began to assume a really central role in shaping economic policy in the United States in particular advocating for the government to step back and do a lot less management of the economy to rely much more on markets to allocate resources. And it’s the story of how that happened and what the consequences been.

S1: So with hindsight was this a good idea. No. Was the one word answer one.

S7: I mean it had benefits. There were problems that part of the story gets lost sometimes in the late 60s early 70s listeners were old enough to remember that period or remember that the economy wasn’t doing well there was a lot of concern about back then the bogeyman was Japan rather than China. But there was this sense that we were falling behind and there was a need for new approaches to policy and an important respects. These economists introduced new and beneficial ideas but like many revolutions it went too far. And we’re living with the consequence of that.

S3: And what would you say is the single most deleterious consequence of the invasion of the Economist.

S8: I’m going to cheat and pick three but I’ll do them quickly. The first is that over time growth has slowed down in large part because we’re simply not investing anymore. We’re not relying on government to do the things that government does well. Education for example. The second is that we’ve seen inequality soar. One of the big shifts that you see in this period is that economists really convince policymakers to stop worrying about inequality to stop making equality a goal of public policy. And this is a really important reason that inequality has exploded in recent decades. And the third is that I think that that is straining our democracy. One of the reasons that we’re having trouble getting together and making good collective decisions is that we have less in common with the people is getting strained because we the people have less and less income. Wow.

S3: So the economists are really they really fucked up.

S7: I think it’s a story about Yeah some things that went pretty wrong.

S9: I think one of the interesting things you talk about in the book which I really liked was the role regulation plays in our lives and the role economists played in getting rid of a lot of regulation. My favorite example I think maybe was airlines how there was a big push to get rid of regulation heavy regulation of the airlines that clearly wasn’t working. But then somehow in 2019 we wound up with kind of this what is it three airlines now that have basically a monopoly over air travel. Prices have stopped falling on air travel and sort of a failure of deregulation. And then you compare that to Europe where they’ve still kind of kept an eye on things and there’s cheaper flights and more airlines and more competition.

S3: And how is it how is it that Europe. Europe has more competition on airlines.

S10: When Americans like the deregulatory state it’s the first time in history that it’s been cheaper to fly in Europe than in the United States. Yeah. So I mean I think when we talk about economic policy we often talk about the Fed we talk about taxes. We don’t talk enough about regulation which is really a central part of what modern government does. And the airline story is a fascinating example of this arc because in the early 1970s the airline industry was based it was very expensive. There weren’t a lot of flights. It was basically something that rich people did and that was because the government was tightly regulating the industry. There was literally a board of people here in Washington if you want to fly from Chicago to St. Lewis you needed to come here and get a license. The price was determined by this board what you could serve on the airplanes was determined by this board. And so you basically had this tightly regulated industry. And during the 1970s economists a guy named Alfred Kahn come in and on behalf of the federal government deregulate the airline industry take apart these rules get rid of that board. They literally have a Marine bugler come and play play them out and and all of a sudden airlines are free to fly where they want to to compete on price to compete on service and and you get a huge explosion in air travel and that’s great. But this is where we start talking about revolution that went too far because what happens is that there’s so much eliminate economic regulation that they also stop worrying about industry consolidation. They allow the players to come together and so you go from having you know a whole bunch of small airlines to a smaller and smaller number of larger and larger airlines. And then finally just for big airlines anyone who’s been online and shopped for airfares knows that they don’t compete on price. And meanwhile Europe has been taking a harder line and refusing to allow that consolidation preserving competition managing the marketplace. And the result is that it’s cheaper to fly in Europe.

S11: I think that’s a fair argument that particularly in this instance we saw one point you’re gonna increase competition but then it ends up in kind of crony capitalism. But I’m also kind of curious in in the book because it’s certainly true that you had a lot of politicians begin to point to economists and say economists support these policies. Thus I can do them but it was the politicians themselves who were implementing these policies and it wasn’t as though these ideas didn’t exist just before Milton Friedman came along.

S7: So it depends on the ideas.

S12: But there are really instances and for me one of the fascinating things about researching and writing this book is I went into it wondering to what extent it was going to be possible to trace specific ideas from their origin in academic economics into policymaking and into our lives. And it turns out that in many of these cases the paper trail is just remarkably specific and clear and antitrust this question of whether you allow companies to get together and consolidate as they’ve done in the airline sector is a really great example of this because it actually is the case that economists articulated a new version of what antitrust policy should be focused on reducing consumer prices as much as possible treating corporate conduct in general as if it was OK unless you could find specific evidence of harm assuming the corporations were so busy competing that for the most part they didn’t have time to take advantage of customers. This is a model that economists articulate teach to lawyers those lawyers become judges. They continue to cite the economists in their legal opinions and so you can literally see the March of this idea from the minds of very specific economists right into jurisprudence right into law. And the fact that we now have four airlines is really a direct consequence of the ideas that economists talk to politicians.

S13: So I want to pick up on this because the way you’re talking on the big picture level it’s very much like you have a natural prolapse Syrian state of affairs where politicians believe in equality and redistribution and various other noble things and then economists come along and then the politicians kind of get browbeaten by the economists and then suddenly they they start becoming you know libertarian republicans or whatever. And I can see the other side of it. I can see Anna’s point of view as well which is that you get a bunch of politicians who will take any excuse to reduce taxes and do what the rich funders and benefactors tell them to do and they will just pick up on any economist who says the kind of things that they need as an excuse to implement these policies.

S3: So what’s why do you believe that politicians and that’s really good.

S8: I certainly don’t. So I think every story starts somewhere and there’s always a tendency to sort of you know contrast the complexity of what you’re telling with the simplicity of what preceded it. That’s clearly not the case. I mean the world before this economist’s hour was a complicated place where you know the same special interest groups were in competition at the set of ideas was different.

S10: But the politicians were the same venal beings and they were wrestling with how to serve the interests of their constituents and how to you know perform their jobs in much the same way. What changes is the introduction of these new ideas which reshape that competition among interest groups providing ammunition to big businesses allowing them to articulate a case for why what was in their interest was also in the public interest allowing them to compel politicians and end to shift essentially the balance of power in the political system not because politicians were good and then corrupted politicians were the same politicians that they’d been before but because the terms of debate had shifted.

S11: I do think this is an important point though because you know you rightly criticize a number of economists in the book for kind of having so much you know kind of Kubrick’s to think that they can kind of figure out exactly how all of these very very complicated parts of an economy as complicated the United States would work. And then I think that’s a completely fair criticism. However the alternative can often be politicians essentially doing the same thing. So if you’re kind of eliminate or I’m sure you wouldn’t say eliminate but if you wanted to reduce the power of the economists like what would come in its place.

S10: So let’s take a specific example. So one of the ways in which this process unfolds is in the world of deciding whether or not you’re going to implement a specific regulation the government’s thinking about writing a new safety rule should it do it or should it not do it. Is it worth it. And historically that that process was was awfully subjective and economists introduced real discipline in the form of what they called cost benefit analysis where they tried to put a dollar figure as much as possible on both the costs of the policy which often are more straightforward and explicit the cost for example of putting a stronger roof on a car and then the benefit which can be a lot harder to count. You might know for example that stronger rules are likely to save a certain number of people in crashes each year. But then you need to figure out how to put a value on the lives that are being saved. And economists introduced that discipline to the policy making process so without them we’d be much less explicit in our calculus of costs and benefits. It’s very possible that we would make less we’d make less informed choices and that we would not make choices that are as good for a society in the aggregate. And so there is a clear sense in which the presence of economists has improved the decision making process. But again it’s a question of how far do you go with that process. If you put economists into the position of being essentially the sole adjudicators of of the value of a policy and you sort of surrender the role of politics in that process I think that that’s something to be worried about. I think that’s where it goes too far. So you need the economists in the room and you need the politicians in the room and not really talking about is how you strike a balance between those two competing forms of decision making.

S9: I also really liked in the book the section on Taiwan which sort of brought home for me just how much the free markets concept works as sort of this ideology and marketing because in that case the success of Taiwan’s economy was kind of messaged and marketed as a triumph of free markets when in reality the Taiwanese government was carefully managing the country’s industry and growth. And I thought it was interesting the way you sort of like broke open the notion that free markets are going to solve everything bring growth and that there is this other thing going on which is governments are actually needing to and do manage their economies.

S14: Yeah it’s a really fascinating story and sort of getting to learn about it was one of the real pleasures of working on this book and going there and talking to people there.

S10: But it’s a great point because I mean the word free market is a really freighted word and not a very specific word. So relative to mainland China Taiwan absolutely had a free market and benefited from the openness of its economic policies.

S12: But relative to sort of the ideal free market in which everyone’s free to trade with whomever they want and you can move money into the country you can move money out of the country. That wasn’t Taiwan at all. This is a country that very carefully managed the value of its currency in order essentially to encourage exports invested in specific export industries. You know started off for example by by building a power plant to power a fertilizer plant and then requiring its farmers to buy fertilizer from the fertilizer factory allowing them to pay with the rice that they were growing. I mean this was a very intentional construction of an industrial economy that went on for decades and culminated in massive state investment in semiconductors which are still essentially the foundation of Taiwan’s industrial economy. And this process emulated the rise of explicitly emulated the rise of Japan. Japan in turn was emulating the strategies that had been employed by Germany. Germany learned them here in the United States. And so there is this myth about the free market that actually bears very little very little.

S10: It’s not at all the way these stories actually unfolded and in the room along with purified.

S3: My favorite example of a state supported export sector is is keep up which everyone thinks of as being like that. This thing that just appeared on the international scene and suddenly every single 13 year old in the world is bopping along to some Korean boy band. But it was 100 percent a strategic export initiative by the Korean government.

S11: Wow. Yeah and I think this is a good point because I think one of the failures of the Washington Consensus this idea of like free capital free trade is that countries are at different stages of development and as you point out like if you’re looking at how the U.S. developed how Germany developed how all of these different countries developed it was not from having completely open markets. However the argument then becomes once you do become developed at what point do you start to kind of loosen those strings and that is that is complicated because it’s kill you if you have a government that has tremendous control over the economy. It’s sometimes challenging for them to give that up.

S3: Okay so that is the perfect segue way too because I really want to talk about this. We have a music here which is what just happened with the NBA in China. We have China is the classic example of a country which has been developing was poor has you know become richer and richer is now you know in most respects a middle income country is growing much faster than any developed country and has just an insanely large degree of control and growing degree of control over everything that happens in the economy.

S13: No it’s nowhere close to being a free market and that control is now being exercised not only within China but outside China in places like tweets from NBA managers.

S5: And there was this idea which I think is now completely proven false that as China got richer it would liberalize. And that hasn’t happened yet. So what did you think about this latest exercise of not particularly soft power by the Chinese.

S10: Well big picture I think it’s fascinating for exactly the reason you said for a very long time our policymakers and our corporate leaders explicitly justified engagement with China by arguing that essentially working with them was the best way to you know expose them to American values and the American system of government and that they would inevitably move in that direction. And so if you went to China and didn’t criticize them openly silence was essentially the best form of criticism because ultimately your message would get home and they would accept that you were right. And that looks ridiculous in retrospect. China has developed on its own terms it has in many ways hardened its commitment to its form of government. And what we’re now seeing is that it is asserting a provocative not just to control the way that American corporations behave in China but to control the behavior of American corporations outside of China. And that frankly is is a real that’s a real problem and a real challenge to the United States and and to the role that corporations play in our society. Because you really want to start worrying when you’re in a position where another country with a very different set of government and a very different set of values is is essentially directing the behavior of your own companies of your own citizens that I think is worrisome.

S15: Yeah I mean I think we’ve. Because this isn’t a you know it’s not a new thing in the sense that we’ve had companies you know we had all the airlines over the last few years and the recently have you know Tiffany’s thing for Saatchi. Like all of these different companies and it tends to be the same thing which is China gets angry and then whatever happens they just undo they pull it down.

S3: It’s invariably I mean historically it has been about considering Taiwan to be a country that’s been the big one.

S9: But there’s been lots of other ones as well three tiers Taiwan Tibet and Tiananmen Square. Traditionally you’re supposed to stay away. And now that there’s a fourth letter but it’s H it’s Hong Kong. Can’t talk about that either.

S15: Well I’m curious to see what exactly is going to happen here because what we’ve seen is actually a tad different. By which I just mean that the initial response from the NBA is exactly what we’ve seen in the past being like Oh no no no one should have ever really said that but we’re not we’re gonna pretend we care about free speech. However then you know Silver Adam Silver the head of the NBA has kind of altered that a bit and it’s been interesting is you did have this game that was played in China and you did have a lot of people who went to it. And so I’m kind of curious that if China’s bluff is called a little bit. If other companies then may say do we necessarily always have to react in the most extreme possible way when China starts to kind of push back on us. What’s the incentive not to.

S9: Well the NBA has I think I’m not the first to say this has unique leverage in China. There’s only one NBA. It’s a pretty special situation and China has had love for American basketball for a long long time whereas like a company like Versace or even Apple could pull out of China and be replaced by other companies. There’s only one NBA and possibly China needs the NBA in a way it doesn’t need these other companies.

S16: I’m skeptical that we’re seeing real pushback from the NBA. I mean Adam Silver came out gave a very nice statement about how much he loves free speech and he should be applauded for saying it. But the fact remains that you know the last thing the Houston Rockets have done is to reprimand their general manager and send out their star player to apologize. We haven’t heard anything more from them since then.

S3: I love that he came out he came out and said this is this is James Harden right. He came out and said we apologize. And he didn’t actually say what he was apologizing for. No one knows what he was apologizing for but he’s just apologizing.

S14: Yes he’s very very tactful.

S15: I mean I agree. Mean I’m not saying that 100 percent OK. This is you know things are changing. But I think even the fact we’re talking about this because as I said this is not actually a new really new thing. But this is the first time it’s ever gotten this much press and obviously partly that relates to the fact that it’s the NBA and that’s popular. But I also think you can’t completely divorce it from what’s been going on with U.S. and China in the last few years.

S9: I also think this kind of exposes the lie of the Wolk brand or the company. I mean there’s just no such thing. There are limits and it’s governments allow companies to be enlightened or not enlightened and in the U.S. especially lately with sort of an abdication of ethics from you know the White House I feel like a lot of companies have tried to kind of like jump into the breach or something and it’s just it’s wholly inadequate. And I feel like one of the things that’s kind of triggering about this NBA episode is kind of exposes a bit of that. You know companies aren’t governments they can’t they can’t just come out and support free speech in this thing well hand but they don’t.

S3: I mean this is this is what Eric pansy wrote in my CEO’s newsletter this week because why should I write it when I have colleagues who can write when you said it for me which is much easier. Which is basically that American companies in particular but all companies really globally have very parochial morals and that they can stand up and talk about how weak they are and how much they believe in in various high minded ideals within U.S. borders. But the minute they get into their corporate jet and fly to Beijing they leave those models behind because it’s not real morals. Well I mean I mean yes basically I think I think if they were genuine morals then they would be universal. I mean that kind of there’s no such thing as a as a moral code which kind of ends at your national borders right.

S9: It’s what you’re allowed to like your behavior expands to the boundaries set by the politicians and the government and the Constitution.

S4: I mean morality is a cultural phenomenon and I think that there is I think that one wants to be careful about arguing that American companies are not entitled to some extent to behave differently in other countries. That that seems baseline reasonable but it is clear that you know there are instances in which companies have historically asserted that there was some moral reason not to be doing business in a particular country apartheid South Africa stands out as an obvious example of that phenomenon. You can get to a point where there is a consensus that the behavior of a specific country is sufficiently objectionable that the corporate sector is going to take notice of it.

S3: Except for I think that if you look objectively at what China is doing with the goods. If you look objectively at what Saudi Arabia is doing in Yemen look these are worse than what South Africa was doing in the 1980s. So like we we’ve blown past that one.

S15: Well I’m not yet overnight so I got to say what is not respected but I think it is worse it is.

S3: I mean you know they are murdering millions of people. It is objectively worse. I’m not defending apartheid for a minute but this is object. Like the reason why we are doing business with Saudi Arabia and with China is because they have a fuck ton of money in the way in the way that South Africa just didn’t do a lot more because of South African apartheid South Africa was the size of China. We would have been doing business there.

S9: I mean you could just look at I think I sent around that piece it was Peter Kafka I think in on Vox which talked about Apple and China and I mean the stakes are just so high for Apple particularly it’s like billions of dollars Apple can’t just be purely ethical and moral at this point it’s too entrenched there. It would lose so much money now it’s the same of the NBA.

S15: I mean it’s like some 4 billion dollars. So it’s it’s and it’s hard because you don’t want to say like oh well you shouldn’t have any ethical standards but then it’s like you are a business that’s making money. So it’s complicated.

S9: It’s not I can never be ethical at the end of the day it’s all about the money.

S17: So then you agree with Milton Friedman that social responsibility of a business is to make money for shareholders that the social life governments and regulator. Agree with that.

S4: Yeah I think that businesses themselves can be said to have socialist I’m not sure why it’s unreasonable to ask businesses to uphold certain ethical standards in their business it is much harder if you’re relying solely on external forces to constrain the behavior of businesses. You need businesses to have some sense of obligation for example you know to not committing fraud to not taking advantage of their customers. If all you’re relying on is regulators to prevent those kinds of abuses you’re in a very difficult situation and you’re going to see a lot more misbehavior. So I’m not at all willing to say that companies have no social obligation. I think they absolutely do. Corporations are creations of the state. They are part of our society. They have an obligation to behave as part of our society. I think it’s very difficult to think that the tricky questions are around what that means exactly and at what point a company should constrain its behavior or its business in a foreign country. Those are really hard questions.

S9: But the baseline idea that companies have no social obligations makes me very uncomfortable you don’t think they have no social obligations to be clear I just think they can’t be left alone to to have them on their own. They need to be regulated. There need to be laws that say no fraud.

S18: You know I’ll just leave it to the companies.

S13: But I want to ask you about what’s a good example of the company having you know living up to its social obligations above and beyond any profit motive and doing something not because it is being forced to by regulators but just because it’s the right thing to do especially in this sort of international arena.

S4: So I think we probably have a lot more examples than we realize. I think American companies in general undertake you know fairly wide ranging efforts above and beyond their baseline obligations and all sorts of areas you know corporate recycling programs efforts you know Pepsi Cola has this wide ranging program for example to identify safe sources of drinking water in the countries where it operates. You know there’s obviously a marketing value to that. I don’t want to represent that you know we’re witnessing an instance of perfect altruism but it is the case that American corporations often engage in ways that extend beyond their their bottom line needs. And and you know the converse is also true that we do see instances of companies refraining from doing business with countries whose behavior they regard as so objectionable. It’s clear that the more money they’re making in a place the harder it is to convince them to stop doing business there. But it happens. It has been known to happen in the past and will in the future. There are companies that brand themselves Patagonia is an obvious example of this it’s a company that really makes a big point of its social responsibility you know and and has had to modify the way that does business. In order to maintain that image because its customers expect that standard of behavior from that company. So I think there’s lots of examples of it in practice.

S3: Many of them sort of are quiet and go unnoticed but I think there’s plenty of examples and to be fair I think the most obvious one is just Facebook and Twitter and even Google all of which are banned in China and none of which are changing anything really to try and get unbanned in China.

S13: MARK ZUCKERBERG I remember I’m a little bit about whether he wanted to be in China and then eventually came out and said You know what. There is nothing we can do within our sort of ethical framework that would get us approved in China if we were to do everything the Chinese government wanted. That would violate everything we stand for and therefore we’re just going to give up on China. And that was the right thing to do.

S9: I mean we promised to try and just just recently we saw Google trying to go back to China and offered to create a search product that would you know fit within the boundaries of what China allows and the only reason they’re not doing it is because their employees stood up and said No way.

S11: Yeah and I think this is just where we’re going to run into these issues more and more. We just we it’s the US has been had been the dominant power for so long and in a sense this made it a little bit easier for countries because we were just this enormous market. But now as you have China becoming again in many ways the kind of equal to the United States in terms of a market. This is going to bring up questions over and over again that we have not had to deal with in a while and the answers aren’t simple.

S9: And I did have one question Is this part of people talking lately about a great decoupling between China and the U.S. is the kind of hub the furor over NBA and China kind of a sign that this is happening like Farhad Manjoo had a column in The Times that was like American companies just shouldn’t do business in China anymore and it kind of seems like that’s what the president wants in a way. Yeah I think it’s a sign of tensions but sign of tension.

S4: I think it’s the opposite right. I think the extent of the fear underscores how deeply intertwined these two countries are. People might want a great uncoupling but you know what we’re taught this conversation really highlights how hard it is to imagine that actually happening.

S3: Let’s jump back into your car roots for a minute here. Yeah because there’s this thing which has been going on for what like 40 years now where you look at a regulation like car roofs should be stronger because that saves more lives and then rather than just saying great car roof should be stronger because that saves more lives. You do a cost benefit analysis and you put a dollar amount on the value of each marginal life saved and then you work out whether it makes financial sense to impose that cost on to the automakers and if the if investment of like 20 bucks would save a thousand lives and obviously you do it. But if an investment of a billion dollars would save two lives and you don’t because lives aren’t worth half a billion dollars and this is this is this new sort of technocratic approach to safety regulation.

S7: So after World War Two the federal government the Air Force creates a think tank on the beach in California called the rand institution where they basically say we’re going to have scientists working for the government will pay them well let them be on the beach. And the first question they put to these great minds is what’s the most efficient way to kill everyone in the Soviet Union.

S8: And so these guys work out the problem for a while and they come back and say we figured it out what you do is you get a lot of cheap airplanes and load them up with a lot of bombs and sell them into the teeth of the Soviet defenses and they may shoot down a bunch of them but enough of them are going to get through to obliterate the Soviet Union and they take this document to their only client the Air Force and present it and therefore it looks at them and says Well what about the pilots.

S7: You know they’re basically proposing a kamikaze attack on the Soviet Union the Air Force of course is run by pilots. They wanted to know why Rand wasn’t more worried about the value of pilots. And it’s a good question. And Rand said well we couldn’t put a price tag on pilots we know much bombs cost you know much airplanes cost. We don’t know much pilots cost. And that begins a real process.

S10: So at that time across the federal government more and more agencies are asking questions like this and relying on economists to answer them. And it becomes clear that a central and recurring issue in these calculations. A dam designed to prevent flooding. A car safety feature designed to prevent accidents is how much are those lives worth. And this debate and effort to answer the question continues for quite some time. The guy who finally figures it out as a guy named Thomas showing and what he says basically is earlier attempts had relied on things like the value of a life insurance policy although of course most people’s life insurance policies would rather live so we can assume that the value understates their own valuation of their lives. And he said what you want to do is ask people how much their lives are worth. Well what does that mean in practice. Some of his students figure out that you can sort of extract an estimate of that by comparing the amounts of money that people make with the risk of death in their jobs. So for example the people who clean the insides of the windows of skyscrapers are paid less than the people who clean the outsides of the windows of skyscrapers. Because if you’re on the outside of the building there is a greater risk of injury or death and you can extract from that a sense of the value that people are putting on their own lives. And by the early 1970s economists are beginning to use essentially that technique to arrive at estimates of the value of preventing a single death. And over time that methodology becomes the core of this cost benefit analysis process that is now used to evaluate the vast majority of federal regulations.

S3: The current valuation is about 10 million dollars but it changes from context to context.

S7: So this is one of the things that’s completely fascinating about it. It’s this technocratic process based on these you know careful studies. But in practice what happens is that you see you know for example during George W. Bush’s administration the value of human life declines. The Obama administration comes into office and it increases. Well what’s going on. Well they’re monkeying with the numbers. So the Bush administration comes in and says hey you know what.

S8: Maybe the lives of old people aren’t worth as much because they’re going to die sooner. And they proposed this as a methodology or maybe you know which I think is true. Well yeah but maybe an old person puts a higher value on it remaining year of life.

S3: I mean that’s probably true that maybe the value per year of life is higher but the overall value of the life the net present value of the life if you will is lower. I think this is the deeply intuitive argument that gratitude Berg is making. You know we have to listen to young people when it comes to something like global warming because the old people are going to be dead by the time the worst effects happen and yet in a funny way.

S7: So when the Obama administration comes in they commissioned a study on whether the value of children’s lives is worth more. And they conclude that they are worth more. So what you basically have is you know you can agree even that that younger lives have more value than older lives. And it’s still a question of whether you want that to push up your baseline number or to push down your baseline number.

S3: And of course you also run into massive sort of lobbying noise from the AARP and people like that who are like How dare you put a lower value on old lives and so these decisions become incredibly politicized.

S9: It was sort of the end of the line for the economists versus the politicians. It’s like we have to listen to the old people.

S3: They’re actually quite valuable to us mostly because they vote yes in very large numbers.

S11: And I also talk about how all of this is just essentially based on estimates right cause it’s like if you’re trying to determine if someone has enough life insurance you’re going to be estimating how much they’re going to make over their life versus how much they’re going to consume. And the discount rate then you’re using on that you factor in like well how risky is their job. I mean there are a lot of different things like that. So you’re never gonna get any like perfect number here.

S3: I mean it’s kind of shows no one no one is pretending that’s a perfect number. But there is a science to this and it’s a kind of weirdly distasteful science which no one really likes looking straight in the eye and they kind of like it when a bunch of economists and actually is disappear off into a dark room and do it without drawing too much attention to themselves and the people who do it in the glare of public opinion and the people who do it in public basically there’s only one person I know who does it a lot in public and that’s Ken Feinberg. He’s a really unique person on a bunch of different levels. Like Ken Feinberg get keeps on getting these jobs of putting values on human life precisely because he is the one person who can do that in public and not just get torn apart. And I don’t know anyone else who can do it.

S12: It is clearly very hard to do. And the more they’re as you say there is a reason that they sort of rapid in technology. I mean these are choices we have to make when when we decide to implement a new regulation we are inherently placing a value on human life and making that choice explicit is surely better than leaving it unspoken and unconsidered it allows us to make more informed choices.

S10: It’s also important to recognize as you say that this process cannot be purely scientific. These are estimates they reflect values. One thing that has been hotly debated is whether more painful deaths we should seek to prevent more assiduously if you’re going to die of cancer is that worse than dying in a car crash because you know it’s sort of a prolonged and miserable death. There’s just lots of questions that you encounter that are fundamentally normative even in the context of you know what is presented as a sign.

S9: I thought it was interesting to how I’m thinking of your book through sort of a gendered lands because it is all almost all entirely men you know coming up with these theories that then shape our policies and in the end the question of valuing life it seems like in the beginning Lazar valued you know back in slave owning times you know the value of a life was you know how much a slave could you know get on the on the market and then it comes then it changes to how much is a worker worth. And when you think about you know the value of life in those terms and then you think about how much is a woman worth if she is not quote unquote productive and earning money then what does it mean and I just was wondering if anyone had thought about that.

S3: You know back when we were valuing human life based on productivity and worth to lawyer if you remember when we when we had method Varadero and you know there was an entire financial superstructure built around the slave industry. And the slaves were like securitized.

S9: Right. And it’s a toxic notion to think of you know valuing a human life based on their productivity or their status as a as a worker and yeah ultimately that’s what it always comes down to even Ken Feinberg does that he he adjusts.

S3: He will do the net present value calculations and decide that someone who is earning a million dollars a year had a higher value on their life than someone who is earning fifty thousand dollars a year. And then he will adjust it so they become closer together. But he still leaves the Delta.

S11: Well that to me is just ridiculous. But I think that to me it would be a little bit more accurate if you said we’re not valuing you it’s impossible to value human life. It’s you know however you can value human capital and I think that to me that’s fundamentally often what is their doing. And that’s also slightly makes more sense than to say to actually value human life.

S10: But they are valuing human life in the sense that what they’re doing is deciding how much of our resources we should expend to preserve human lives. And the difficulty in doing that that you’re highlighting is real. And it’s a fundamental limitation of economic policy which is that there’s a tendency to focus on things that can be quantified. And it leads to a discounting of the things that count. And so it’s true that our assessment of the value of human life rests largely on economic output rather than other intangible forms of social value and contribution to society.

S4: It’s not that women are valued less than men if they earn less than men. These estimates are applied in a non gendered way. But the fact remains that economics as a tool of policymaking one of its constraints one of its blind spots is is that it focuses on the things that can be quantified.

S9: I would push back a little bit on that because I would say the non-working women’s economic output isn’t actually valued in our society. There are no women who do all kinds of work and the work gets assigned a zero value.

S3: Now that’s true. The question is whether their lives are valued low.

S12: So right the government doesn’t differentiate you know if it’s trying to figure out how many people are going to die in auto accidents it doesn’t assign a lower multiplier to the lives of female victims right. Okay.

S3: Well my favorite like one Kish jokes if you hang out with development types in a bar at about 10:00 at night after a couple rounds of drinks everyone will start making jokes about colleagues and someone will say oh quality and then everyone will start laughing because it’s it’s an it’s an inherently ludicrous thing on some level. But on the other hand people still use qualities because for exactly the reasons you’re talking about there’s no better alternative.

S10: So you tell us what a quality value is a quality adjusted life year and the basic concept is this. If I tell you that you have five more years to live and I ask you whether you’d rather spend those five years out and about living a full life or in a hospital bed on life support are you capable of deciding which of those two states you would prefer. Most people probably would agree that it’s better to have you know full mobility for use of your faculties for enjoyment of your senses. And so this is an effort basically to you know it sort of gets down to some of the questions we are talking about with age but also that even if you’re going to even beyond taking count of how many years a person may have left the quality of those years is a significant variable as well. And so you can sort of refine this methodology further and further and further to try and get a sense of what’s actually valuable and qualities are used as Felix suggests in the international development context as an analytical tool. The United Kingdom uses them in its cost benefit analysis. It’s a refinement of this methodology.

S3: Are they on some level ludicrous or are they.

S8: No I don’t think it’s ludicrous.

S13: I mean as I just suggested I think you know conceptually we can all agree that a person on life support in a hospital bed is experiencing something that I guess my question is at some at some point you run into sort of practical limitations or like should I mean in your sort of ideal world to just stop valuing human lives and start to value inequalities instead.

S8: No I think you’re still valuing human lives if you’re valuing quality. That’s just a form of the valuation of human lives. No I think as I said you know that this is either implicit or explicit in regulatory decision making and we’re better off if it’s explicit. And I think we’d be even better off if we were more explicit about what we’re doing and we made sure that we were having a discussion that is seeded in a political context. I’m not sure why economists have any special ability to decide whether cancer deaths should be valued more highly than car crashes. That is fundamentally a choice that a society could make. But it doesn’t seem to me a choice that can be made through some type but this is clearly something the society.

S3: This is a choice. This is a conversation that society does not want to have. This is one of those things where if you talk to like normal people and say Can we have a clear and transparent and open conversation about the value of a human life in dollar terms they’re like No you run up against an incredibly strong human reluctance to do this in public.

S15: I I think this is just one more example of a real limitation with economics is that economics models are all perfect. Until you add humans and then pretty much it’s not not so much anymore because humans just don’t behave as they’re supposed to be you don’t need to have a new England town meeting for the entire United States right.

S16: You can rely on the mechanisms of representative governance to provide this kind of input to the economists. We don’t need grandma to wrestle with the value she places on the remaining years of her life. But maybe we ought to have Congress engaging a little bit more with the way that regulators are using these methodologies.

S3: Have you met members of Congress. Let’s have a numbers round people. Emily did you bring a number. Got one.

S9: Yeah I brought 1978. That is the year that we passed in this country the pregnancy discrimination act and it was in the news this week because there was a whole hubbub over Elizabeth Warren who said she was fired in 1971 because she was pregnant and school teachers were allowed to teach while they were pregnant. And I was not happy about that story because it was silly because in 1971 school teachers weren’t allowed to teach while they were pregnant. So fired not fired was a matter of semantics but I enjoyed how the story kind of played out in the media because we just got a lot of stories about pregnancy discrimination which longtime listeners of this podcast will know is one of my obsessions. And it was just a good conversation that came out of the whole thing.

S11: And I think it also was just an indication of how a lot of people don’t realize that it was really not that long ago that this is I mean where it was obviously still have pregnancy discrimination but it was not that long ago that the level of overt discrimination. I think people don’t realize this is not something that was a hundred years ago.

S9: Right exactly. It was just it wasn’t even considered discriminate no it was just the way it was.

S3: My number is minus zero point zero two percent which is the yield that Greece paid on its latest auction of three month Treasury bills. Yes people Greece has now joined the list of countries which have negative yielding debt which is kind of amazing all a bunch of levels because there were very few corporations which have negative yields in that and Greece is a lot less credit worthy than many corporations and so there is something unique about sovereign debt that accounts for essentially all of the negative yielding out there. I’m not entirely clear why.

S15: Well because you have also central governments by buying the debt. I feel like it is faster. I mean it is faster to see this in Greece and lastly partly it’s because they they have been able to offer in real relative to other European nations it they can still offer more yield. I realize it’s negative. So it’s kind of a little bit of hard to conceptualize that but the other ideas like do you think they’re going to default the next three weeks. Probably not.

S3: But you could meet you could make the same argument about a bunch of Swiss pharmaceutical companies right. Maybe they are issuing that and negative yields and they just haven’t really been noticing. Did you bring.

S14: No I didn’t know I was supposed to but I guess I’d go back to that 10 million number which is that the value of statistical life the number that the government says you and DI and all of us.

S3: Is this like written down somewhere. They’ve it is it’s curiously round.

S14: So it’s not exactly 10 adjust for inflation so. It’s around 10 million.

S3: It’s 10 million and it’s 10 million like 2017 dollars.

S9: Yeah I don’t want adjust the minimum wage but it’s just so.

S3: So the B inflate through is like CPI it rises with consumer prices rises with consumer price. So every every day that you’re like bottle of Coke goes up a little bit in price you the value of your life goes up a little.

S7: Look I mean you really hang a little bit more for consumer goods you should know that your own value is increasing too.

S15: That’s brilliant. So my number is of one point three billion and that is the amount that Ecuador is supposed to save by getting rid of its fuel subsidies which has caused tremendous number of kind of riots. And you’ve actually had Lenin Marino’s government have to flee the capital. You’ve had death and five capitalist countries who still in the country is in the country doesn’t exactly need luck also somewhat came back to the capital left again. It’s a whole thing. But this is yet another indication of just when you inherit a country from a regime that essentially like totally destroyed the economy but left it really really in really bad shape. It is very hard to change that because the changes you have to make people hate and then you have to flee the capital not not to mention there’s a bunch of crazy economy political chaos going on next door in Peru as well it is true yeah that there is a corruption story and then even related to outbreak the lavish Otto Reich. You know it’s interesting yeah.

S3: It’s really hard to keep up with non Trump related news these days but it’s a lot of it.

S14: It’s true in South America in particular is an area the northern part of South America. I’d say things are not going well. I mean I guess in Brazil they’re not going that great either.

S1: I mean Argentina aren’t exactly taken with all Yeah. Yeah I mean maybe there’s a little bit of Chile which is OK. They have a refugee problem now right.

S3: Yes ma’am. That’s not Colombia but yes all of the regions around Venezuela are countries and everyone everyone is doing badly. Okay I think we wrap this one up. We are going to have a Slate Plus segment on the bed. So all you sleepless listeners. We actually get to geek out about monetary policy on this show everyone else that. That’s it for us this week.

S19: Many thanks to listening. Many thanks not only to just me Molly but also to Melissa Kaplan for producing. And we will talk to you next week on sleep money.

S3: OK. Fed policy. Take it away.

S15: Okay so the Fed came out this week and said that they are going to start expanding their balance sheet again and was having wonky and sleep like idiots this. And of course some people are like Wait is this QE. And the one thing that like they tried to say over it over it over again is this is not QE. This is different than quantitative easing.

S3: OK. So Binyamin Appelbaum who for many years was by far the most well-connected and the doyen of Fed reporters. You can explain to us what is the Fed balance sheet. Why does it matter.

S7: And is this quantitative easing it can do at least the first two of those things. So the Fed’s balance sheet is basically the Fed’s way of controlling interest rates in the broader economy.

S10: You can think of it as sort of a reservoir of water or of money that it can add to or drain a little bit to influence interest rates and through that mechanism to influence broader economic conditions in the wake of the financial crisis the way that the Fed drove down interest rates was by accumulating huge piles of government securities treasury bonds and mortgage backed securities that that it basically pitched. Each time it acquired one of those it put it credit at the bank that sold the instrument essentially for that and and thereby drove down to it was it was soaking up the available bonds in the marketplace. And that forced investors to either compete for the remaining bonds by offering to accept lower interest rates or by moving their money into higher risk instruments which had the same effect of driving down interest rates so that that was the core QE policy was basically an effort to reduce interest rates by systematically reducing the availability of investments and specifically long term interest rates right.

S11: Because this is this is how QE was a bit different because it really has also altered how monetary policy is done because before QE when you didn’t have a lot of excess reserves you did repo reverse repo outright transactions and that was essentially how the federal funds rate was targeted. Now because you have all of these abundant reserves they’ve actually changed how they control interest rates and now it’s related to the interest they pay on excess reserves as well as the rate on reverse repo. So it really has actually significantly changed how monetary policy works.

S10: Right. They used to operate on scarcity right. They basically used to constrain the supply of available reserves to the point where banks actually had to compete for those reserves in order to meet regulatory requirements. And by flooding the financial system with reserves by creating this huge amount of reserves they essentially you know that mechanism no longer works and they had to substitute a new mechanism for fixing short term interest rates.

S3: So. OK. So what does it mean that the Fed wants to increase its balance.

S8: So the Fed a couple of years ago started reducing its holdings. And each time it took the bond each time paid by returning bonds to the marketplace it was basically removing reserves from the marketplace. And so this this pool of reserves was was getting smaller and smaller. And the problem is that in the intervening years the Fed’s the baseline amount of reserves that the financial system needed had increased. In part the amount of currency in circulation had increased the size of the financial system it increased the size the economy had increased and it turned out that the Fed was moving down toward the sort of necessary level of reserves a little bit more quickly than it had appreciated. And it was beginning to create conditions of scarcity earlier than it had anticipated doing so. And that that created a problem in bond markets that started to freak people out.

S11: Yes. So what you saw in the money markets was we talked about this a few weeks ago you had more people wanted to access cash than there were people willing to give them cash is only thinking of bank reserves you kind of want to think about it as cash basically liquidity like you can.

S3: So I want think we’ve because we did talk about this a few weeks ago I don’t disappear back into the repo market so I just want it because that’s important for what’s happening now. That’s right. So basically is this move by the Fed just a reaction to the chaos in the repo markets and in the money markets and the like woops we came down to what is effectively a much higher lower bound than we thought that was and so we’re going to start building up our balance sheets a little bit just to make sure that this repo chaos doesn’t happen again.

S20: I do think it should be understood in those terms if if by QE what you mean is a concerted effort to stimulate the economy and and in a big part of QE perhaps most important part of QE was its communications value that it was coordinated with an effort to cut and to hold down interest rates and it was a way for the Fed to say basically listen we’re committed to keeping rates low and you can tell because you know we’ve acquired all of these bonds and we’re sitting on them. That is not what’s happening right now we’re not seeing a renewed concerted coordinated communication strategy around you know around interest rates what we’re seeing is the Fed saying mechanically we got this wrong. We missed our mark and we need to we need to recalibrate.

S3: So I had an interesting conversation with Neel Kashkari this week who’s on the president of the Central Bank of Minneapolis the Federal Reserve Bank of Minneapolis.

S12: They don’t get to have their own sound.

S3: They don’t get their own the Federal Reserve Bank. You know there are many Federal Reserve banks in America why have one when you can have twelve. In any case he he was annoyed. He was clearly peeved by the whole thing. And he said listen we have this thing called the discount window. Banks need money they can borrow as much money as they want directly from the Fed from the discount window. There’s no liquidity constraint all the liquidity in the world is just sitting there behind the window and they’re just refusing to go up to that window and just access all of this amazing liquidity. And if they refuse to do that that’s on them why should we. Why should it be on us. And they’re all saying you know the banks don’t want to go to that window. They think it looks bad. It’s like you know wearing loafers with jeans or something and they they really don’t want to do that. And if they’re not going to do it then you need to do something else. Whose fault is is it the bank’s fault for not going to the discount window is it the Fed’s fault for not realizing that the banks will just never go to the.

S15: Well this is but what happened here was not even that they necessarily had to go to the discount window. The issue is that they didn’t even that. But how. However I think so the amount of excess reserves that a lot of these banks had. So the amount of cash basically beyond what they were required to hold they certainly could have lent that out. However part of the reason they didn’t do that is because as a result of the crisis a lot of the internal risk models at these banks have changed to become more conservative. So they are going to have to keep a higher basic like you can think of it as a higher level of cash than they would have in the past and higher than what regulators require on top of that. Because now of a lot of these regulations each dollar that you can lend is more valuable and repo was not particularly profitable. So that’s another reason why banks weren’t going to jump in it had to do with basically like a business decision which might not necessarily have been great for the liquidity of the market but it wasn’t necessarily the wrong business decision.

S8: And this highlights something really important which is that there is you know it’s a little bit misleading to think of this as cash because it’s not perfectly fundable there are different pots of money doing different jobs and you can have a shortage in one pot even if the system as a whole has plenty of money in theory. And I think the answer to your question is straightforward this is the Fed’s fault. One of their primary jobs is to make sure that the plumbing is working and there was you know the plumbing was stopping up and for them to say you know well why didn’t you go get your water from the other sink is just kind of beside the point.

S9: How does the Fed increasing its balance sheet solve the repo problem. I don’t quite get it.

S11: So basically what what’s happening is that the you can think of it is that when they increase their balance sheet they’re going to be increasing the excess reserves in the system the excess reserves and the system is the amount of money that can be lent in in markets like the repo market. So if you have a higher level of reserves people are going to be more apt to lend out that money in the repo market. That’s why thank you.

S3: All right. We have now solved the repo problem. We’ve decided this isn’t monetary policy and we can all cross. One thing to worry about of all list because we have so many other things to worry about.

S18: I think reserve amount is all too much. I’m sorry to interrupt you but yes the reserves amount is so much money. Oh my God. It’s one point four trillion dollars right now down from 2.8 trillion in 2014. That number just explodes my brain that’s all. Thank you.

S17: Yeah I mean the balance sheet is love as I said. Well that your time reserves that’s like reserves. It’s crazy. So much money. Trillions trillions. I don’t have that much in reserve. You are not too big to fail. That’s the price.

S3: If only I had one point a trillion dollars in reserve. Then I would my life would be very different.

S9: I guess I’d be worth more than ten million dollars.