RoboPod and the Perpetual Money Machine - Cautionary Questions 2 AI transcript and summary - episode of podcast Cautionary Tales with Tim Harford

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Episode: RoboPod and the Perpetual Money Machine - Cautionary Questions 2

Author: Pushkin Industries
Duration: 00:42:41

Episode Shownotes

Take the Cautionary Tales listener survey here: https://www.surveymonkey.com/r/HCHGGZ3 What really drove the 2008 financial crash? What’s a shadow bank? And what’s the connection between NIMBYs and BANANAs? Tim Harford and Jacob Goldstein answer more of your questions. Do you have a question for Tim? Please send it in to [email protected]

omnystudio.com/listener for privacy information.

Summary

In this episode of 'Cautionary Tales,' Tim Harford and Jacob Goldstein address the implications of AI on employment and identity, suggesting that fulfillment can be found outside traditional work roles. The conversation shifts to climate change impacts on insurance, the fragility of the shadow banking system leading to the 2008 financial crisis, and the pressing need for housing reform in both the UK and the US, highlighting community resistance embodied by NIMBY and BANANA sentiments. Their discourse underscores the importance of understanding financial systems and social dynamics in driving economic changes.

Go to PodExtra AI's episode page (RoboPod and the Perpetual Money Machine - Cautionary Questions 2) to play and view complete AI-processed content: summary, mindmap, topics, takeaways, transcript, keywords and highlights.

Full Transcript

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00:01:42 Speaker_12
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If you have an iPhone, you can apply for an Apple Card right this moment in the Wallet app. It's that easy. Just promise to come back and listen to the rest of the episode.

00:02:35 Speaker_03
Hello listeners, Tim Harford here. As loyal listeners will know, Cautionary Tales is a podcast about learning from the mistakes of the past. But it also seems to me that we can learn from things that have gone well in the past.

00:02:47 Speaker_03
For example, getting Jacob Goldstein on the show. Jacob is back for an episode of Cautionary Questions. Hello, Jacob. What's the opposite of a cautionary tale? A salutary tale.

00:03:02 Speaker_02
A salutary story. Yeah, I guess.

00:03:05 Speaker_03
We salute you, Jacob.

00:03:06 Speaker_02
We can do better.

00:03:07 Speaker_03
Let's try and punch that up. We'll work on it. For those of you who don't know, Jacob is the host of Pushkin podcast, What's Your Problem?, which is a brilliant show about people who are trying to make technological progress.

00:03:18 Speaker_03
He's also the author of the book, Money, The True Story of a Made-Up Thing. And he's the perfect person to help me answer all of the questions that you lovely people have been kind enough to send in. So, Jacob, wonderful to have you back.

00:03:33 Speaker_03
Of course, our virtual mailbag is bursting with queries on topics as varied as climate investing and careers advice. So, Jacob Goldstein, are you ready? Yes. Let's do it.

00:04:08 Speaker_02
So Tim, we're going to start with a couple of emails that came in after the last time you and I talked on the show. And one of the things we talked about was, what happens if AI and robots take all of our jobs?

00:04:19 Speaker_02
So the first question about that, which is frankly really more of a comment, but a lovely comment, comes from Karen, who writes, Dear Tim Harford, I was, as usual, enjoying your recent Q&A episode with Jacob Goldstein. She's a woman of taste.

00:04:34 Speaker_02
I like how this starts. I like her already. And your lively discussion about what happens when everyone loses their jobs to AI. At one point you said, quote,

00:04:46 Speaker_02
How would we react if our desire for mastery, our desire for meaning, our desire to feel useful, if all that had to be satisfied without having a job, and what would we do? And could we cope? And I don't know. Well said, Tim Harford.

00:05:02 Speaker_02
Karen writes, you could just have easily asked, what do people do after they've retired? She goes on, my work was very meaningful to me too. I led policy teams that advised government ministers. It was fast paced, exciting, fun, challenging.

00:05:18 Speaker_02
I loved my job. So when I retired, I wondered about all the things you expressed concerns about on your show. Here is the truth as I see it. Whatever you're doing for a living, it's not all of you. It just takes most of your time.

00:05:33 Speaker_02
All the other parts of you, all those pushed down by the demands of capitalist discipline, emerge once your time has been freed. Then you find out what else you are, what else makes you happy, and what else gives you meaning and purpose.

00:05:46 Speaker_02
So, there is really nothing to fear from our robot overlords. My very best regards, Karen. Wow.

00:05:53 Speaker_03
Way to start the show with our best question. The other questions can't possibly be as good as that. It's really lovely, right? Thoughtful? It's really lovely and I agree with all of the stuff about what we do for a living is not all of us.

00:06:07 Speaker_03
It's a very interesting thought though. Is retirement the same as living your entire life not working because a robot took your job. And we have some evidence on this point. Tell me, what is the finding?

00:06:21 Speaker_03
So these three German economists published this research just over a decade ago, looking at people's life satisfaction. Turns out people are quite happy being retired.

00:06:30 Speaker_03
And if you have a job and then you retire, nothing happens to your life satisfaction. You were fine before, you're fine after. But if you're unemployed,

00:06:40 Speaker_03
you're miserable, and if you then retire from a situation of unemployment, your life satisfaction goes up. I mean, it's the same thing, right?

00:06:48 Speaker_03
Like, you go from not having a job to not having a job, but there's something about your identity as a retired person versus a person who is looking for a job and can't find a job. It makes a huge difference to how people feel about themselves.

00:07:01 Speaker_02
Unemployed in the data does not mean a person who doesn't have a job, right? It means a person who wants a job and doesn't have a job. And that's an important difference.

00:07:11 Speaker_02
And so I wonder, in that study, if that difference is actually quite significant, right? Like, if you want a job and don't have a job, you're going to be unsatisfied in that dimension. Whereas if you don't have a job and don't want a job,

00:07:29 Speaker_02
That sounds fine.

00:07:30 Speaker_03
Yeah. So I think that's right, Jacob. And I think a lot of this depends on what people's expectations are, their expectations of themselves, what they think other people expect of them.

00:07:41 Speaker_03
But I would guess there's a huge difference in the scenario where the robots take everyone's job, and we're all basically just

00:07:49 Speaker_03
doing hobbies, whatever we want, our living standards are taken care of by the robots, and everyone's in the same boat, versus a situation where a lot of people lose their jobs to the robots and a lot of other people don't, which I think is more likely.

00:08:05 Speaker_02
So, traditionally, we thought of technological unemployment as happening to people with lower job skills, right? People with less education, strong people who were getting replaced by machines. Plainly, the new wave of generative AI threatens

00:08:24 Speaker_02
you and me, which is what makes it existentially threatening. It does. People losing their jobs to technology are more broadly drawn from across the income spectrum and the education spectrum. How does it change the sort of social implications?

00:08:41 Speaker_02
Because on a fundamental level, what we're really talking about is Whether you have a job or not and how you feel about that is largely determined by social norms, right? That's actually what's going on here.

00:08:52 Speaker_02
It's a status game to some significant degree, and it's uncomfortable to call it that. I don't think I like my job because it gives me status. I think I like my job because it's fun and I'm contributing something to the world.

00:09:02 Speaker_02
But obviously we all care about status. And it does give you status. You have one of the best jobs in the world. You're a podcaster. Listen, we're walking right up to the next question in a very elegant way from Neil. Hello, Tim.

00:09:14 Speaker_02
During your recent Cautionary Questions episode, Jacob Goldstein jokes that if AI takes everyone's jobs, the two of you will still do a free podcast together. I understand the jest.

00:09:27 Speaker_02
But it begs the question, by the time AI is good enough to take over most jobs, won't it also be better than us at creating entertainment and art?

00:09:36 Speaker_02
I think we as humans don't want to admit that is possible, but it's definitely the goal of AI developers all over the world at this very moment. I'm curious what that possibility could mean for humanity and what we might do to avoid or prepare for it.

00:09:50 Speaker_02
Thank you for all your excellent content. The robots have nothing on you yet.

00:09:57 Speaker_03
Yes. Jacob, have you heard the podcasting software that Notebook LM have just released? This is a Google product.

00:10:05 Speaker_02
Tim, not only have I heard it, I uploaded a chapter of my book about paper money in China and queued up a moment of it to play for you right now.

00:10:16 Speaker_08
You know how we always hear about Marco Polo bringing back these crazy stories from China? Right. Well, get ready for this try now. China was light years ahead of Europe when it came to money.

00:10:27 Speaker_09
Centuries ahead, to be exact.

00:10:29 Speaker_08
We're talking paper money, folks.

00:10:30 Speaker_09
Yeah.

00:10:31 Speaker_08
Centuries before it ever showed up in Europe.

00:10:34 Speaker_09
It's wild. It really flips the script on how we usually think about financial history.

00:10:38 Speaker_08
Absolutely.

00:10:40 Speaker_02
So just to be clear, I just uploaded a chapter of the book, clicked whatever, make a podcast, didn't make any choices, didn't tell it to do anything but that, and that's what came out.

00:10:52 Speaker_03
And these are two synthetic voices reading a script that was created by a generative AI in response to your wonderful book, Money, the True Story of a Made-Up Thing. It was pretty good. It's pretty good. It's definitely good enough to be very scary.

00:11:11 Speaker_03
I've heard worse human podcasters for sure. So I mean, maybe this is all happening sooner than we think. But what Neil is basically driving at is, by the time the robots take our jobs, won't they also be better than us?

00:11:27 Speaker_03
So they will make a better podcast than we will. They will draw better pictures than we will. They will write better prose than we will. They will compose better music than we will, and so on. And is that a problem?

00:11:39 Speaker_03
I'm not sure that's the problem I'm worried about. The computer already draws better than I do. Low bar, respectfully. Very low bar. And it's great. I'm like, wow, I can create art for my hobby projects. That's great. I'm not doing anybody out of a job.

00:11:56 Speaker_03
But now my own creativity is unlocked by the computer. Of course, maybe there comes a time where I don't need to do any of that. I just press the button, and the computer just produces everything. And it's better than what I could produce.

00:12:09 Speaker_03
Does that matter?

00:12:10 Speaker_02
I want to add a wrinkle. A wrinkle away. When I was talking about making a podcast with you after the robots take our jobs, part of what I was imagining was that somebody would listen, right?

00:12:22 Speaker_02
Like, not that we could make a living out of it, but that we would be doing it for some audience, right? My hope, although I really don't know, is that even if AI makes a better podcast than us, people will listen just because people like people.

00:12:39 Speaker_02
And one interesting case to consider is chess, right? Chess has this history where first people were better than machines, and then for a long time computers could beat people, but a person working with a computer was better than just a computer.

00:12:58 Speaker_02
And then a few years ago, that ceased to be the case. And obviously, many, many computers can beat every single human being on Earth. But... Chess players still, like, are famous among nerds, right? Magnus Carlsen. Magnus Carlsen's a rich guy.

00:13:14 Speaker_02
It's a superstar, and people pay lots of money to watch him play worse chess than a computer.

00:13:20 Speaker_02
So my hope is we can be, if not the Magnus Carlsens of podcasting, the whoever is, like, you know, way worse than Magnus Carlsen, but still a pretty good chess player. Sure.

00:13:32 Speaker_03
And you may be right, but I think my point is, It's worth playing chess even if nobody watches you, even if it's just you and a friend.

00:13:41 Speaker_02
Yeah. But is it worth making a podcast if nobody listens? Then what are we bothering with the microphones for? Then you could just call me. Yeah, we could have this thing. It's a podcast that nobody listens to. It's a phone conversation.

00:13:53 Speaker_02
Welcome to the podcast for no one. I'm Jacob Goldstein.

00:13:58 Speaker_03
If people weren't listening, it would be different. But I think people would still be creating stuff. People would still be making art. And that will be fine. So that's my answer to Neil.

00:14:07 Speaker_02
OK, Tim, we're going to go from the robot apocalypse to the climate apocalypse with our next question from Julian, who writes, Dear Tim, Lately, more and more news breaks of climate change harming the economy.

00:14:23 Speaker_02
For example, I remember a recent story about home insurance premiums rising steeply in hazard zones for flooding, storms, or landslides.

00:14:31 Speaker_02
That made me wonder, isn't there a way to profit from climate change, too, that would allow us to hedge against these economic risks? Could you set up a fund that would act in effect like a climate change insurance policy? Excellent show, by the way.

00:14:46 Speaker_02
Deep Insights told via gripping stories. All the best from Vienna, Julian.

00:14:53 Speaker_03
It's a very interesting question. The thing that immediately springs to my mind is I once saw one of the most amazingly persuasive pieces of rhetoric ever that was not intended to be persuasive. And it was at a commodities conference.

00:15:08 Speaker_03
It was a bunch of guys who trade agricultural commodities. and therefore have a big interest in climate variability, but at the same time were culturally Midwestern and therefore climate skeptic.

00:15:22 Speaker_03
And the guy giving a talk at this conference was a rather professorial Germanic character. I can't remember if he was German or Austrian or Swiss. And he was from one of those big reinsurance companies.

00:15:36 Speaker_03
He just gave a talk explaining how they were raising all of their insurance premiums because of climate change and showed loads and loads of data about climate change and how they were changing their pricing model.

00:15:49 Speaker_03
And this bunch of people who I think were politically predisposed to be climate skeptics were like, huh. This guy is not Hillary Clinton and the Dems coming to take away our freedoms. This guy doesn't want to persuade us of anything.

00:16:04 Speaker_03
He's just telling us that the price of insurance is going up and here's why. And I really felt the mood in the room change because of that talk. It was fascinating.

00:16:13 Speaker_03
And what that gets at is that insurance gives us a kind of truth about the risks that we face because insurance companies operate in a competitive market.

00:16:21 Speaker_03
They want to offer the most expensive premiums they can get away with, but they're forced by competition to keep the premiums low.

00:16:27 Speaker_03
And so as the premiums rise and rise and rise, that generally indicates that the risk is rising and rising and rising too. So to return to Julian's question, is there a way to profit from climate change?

00:16:37 Speaker_03
I mean, your podcast, What's Your Problem, Jacob, you've talked to many entrepreneurs who are hoping to make money while also saving the planet. I was thinking about that.

00:16:45 Speaker_02
It is. encouraging to talk to these people who are very smart and I think truly believe that the work they're doing will mitigate the damage from climate change. And the progress has been extraordinary, right?

00:17:02 Speaker_02
Like the fall in the price of solar power in particular. It's staggering. You know, people are making batteries better. And there are really hard parts of the problem, like cement and planes. And people are working on that.

00:17:14 Speaker_02
And, you know, Bill Gates started a venture capital fund called Breakthrough Energy Ventures. That is exactly what Julian is asking about, right?

00:17:22 Speaker_02
Like the point of this fund is to profit from climate change by helping to solve or mitigate climate change.

00:17:30 Speaker_03
So I think there are all these hopeful stories and it is very encouraging, but fundamentally to come back to this idea of a kind of inverse insurance policy, I think that the answer is no. Fundamentally, insurance moves the cost around.

00:17:47 Speaker_03
So, the person whose house got burned down, or the person whose home was destroyed in a hurricane, they don't have to pay for rebuilding it. Instead, the insurance company pays. But somebody still has to pay, and insurance moves that risk around.

00:18:00 Speaker_03
And that's very valuable, but it doesn't make the cost go away. And climate change increases these costs, and all the insurance in the world is not going to reduce them in aggregate.

00:18:11 Speaker_03
It'll shift them to different people, but it's not going to reduce them. For that, we need your solar panels, Jacob.

00:18:17 Speaker_02
You know, when you put it that way, like what we really want in terms of moving the economics is you want the people who are consuming the fossil fuel, who are flying on the plane, who are eating the hamburger, to pay the full cost of that, right?

00:18:32 Speaker_02
You want to internalize that cost, which is now not in that transaction. And you can do that with a carbon tax. It's a great idea. You can even have a carbon tax and then just give everybody the money back. Right.

00:18:45 Speaker_02
The government collects money from people for consuming carbon, essentially, and then sends a check to everybody in the country at the end of the year. So the government doesn't even have to take more money in the aggregate.

00:18:55 Speaker_02
And like, it's super elegant and it's just politically doesn't really seem to be happening. But it is in a way solving the problem fundamentally.

00:19:04 Speaker_03
Absolutely.

00:19:05 Speaker_02
All right. That's enough about that. We'll be back in just a minute.

00:19:17 Speaker_12
This is Malcolm Gladwell from Revisionist History. So we are, we're sitting in what?

00:19:25 Speaker_15
We're sitting in a 1988 BMW 325 IS. And describe the way in which it's been modified. It has no interior. That's where it begins. Not even a steering wheel is what I was looking for.

00:19:38 Speaker_15
Yeah, right now there's no steering wheel, although I can fix that in a second. And what's the appeal of a late 80s BMW 325?

00:19:47 Speaker_15
Well, it's almost like the perfection of a recipe that BMW began in the 60s, which is to take, you know, a really beautifully made inline six engine, rear wheel drive, and just like an incredibly balanced and fun to drive car. Yeah. Yeah.

00:20:03 Speaker_15
Let me give a little sneak peek. I need to connect the battery. The battery is disconnected. Wait, the battery is in the back of it. The battery is actually under the rear seat. Oh, I see.

00:20:17 Speaker_15
So it has an absolutely perfect balance between front and rear, rear way. Exactly. Yeah. So yes, turn it on. Let's hear it.

00:20:28 Speaker_05
Oh, yes.

00:20:35 Speaker_13
And this is your first BMW? My second.

00:20:39 Speaker_14
Oh no, Lucas, you can't say that. Wait, what was your second? What was your first?

00:20:44 Speaker_15
It was a 1989 535i. Oh, that's right. But you owned that with a bunch of other people. Yeah, yeah. So this is my first, my first, you know, sole BMW. Solely owned. Solely owned BMW.

00:20:58 Speaker_12
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00:22:45 Speaker_11
T-Mobile for Business recently teamed up with Malcolm Gladwell for a new episode of Revisionist History to talk about how 5G is enabling the use of AI to deliver transformative and sometimes life-saving innovation.

00:22:55 Speaker_12
Hello, hello, Malcolm Gladwell here. Today, I wanted to share a very special conversation I had recently, hosted by my good friends at T-Mobile for Business, about how AI is changing our world. Tell us about the problem you're trying to solve.

00:23:10 Speaker_01
When we think about emergency events, and really at the majority of the world, the primary tool set that firefighters use is a radio to communicate their status to the outside operation. Pretty reasonable to expect that people can become disoriented.

00:23:26 Speaker_07
So when I realized that technology was important was when I realized that many of the most vexing healthcare challenges that we saw in my own family, we realized that there was just significant lack of resources.

00:23:43 Speaker_06
You know, from a T-Mobile for Business perspective, like how can we take this incredible, best in the nation 5G network and how can we harness some very specific capabilities?

00:23:56 Speaker_11
Listen to this episode of Revisionist History on the iHeartRadio app, available now.

00:24:02 Speaker_03
We are back. I'm Tim Harford. I am talking to the amazing Jacob Goldstein. And this is another of our Cautionary Questions episodes, where you have been sending in your questions, and Jacob and I are going to try and answer them.

00:24:15 Speaker_03
Jacob, what have you got for me? Tim, this is a throwback.

00:24:19 Speaker_02
It's from Robert, who writes, hi, Tim. Why did no one go to jail after the 2008 financial crisis? I remember the savings and loans financial crisis during the Reagan presidency when Charles Keating was jailed. Love your show. Robert from Illinois.

00:24:38 Speaker_03
Yeah, and a throwback because we first met each other shortly after the financial crisis. In 2010, when the question on everybody's lips was, who's going to jail? Yeah. I mean, it's not literally true that nobody went to jail.

00:24:52 Speaker_03
Bernie Madoff went to jail, for example. I mean, I think the short answer is, If you want people to go to jail, then first they have to commit a crime. And the weird thing about the financial crisis is I don't think many people did commit crimes.

00:25:05 Speaker_03
All of this crazy stuff that happened and all the outrageous things that people did were, I think, mostly legal, which is, of course, the real scandal.

00:25:14 Speaker_02
Yeah, you know, everybody talked about housing and crazy sliced up bonds built on mortgages, right? That was the sort of part of the story that everybody heard and told. And that part of the story is true.

00:25:28 Speaker_02
But there is another piece of the story that I actually think is a really fundamental driver of the crisis that you didn't hear as much. because it's a little more abstract and a little nerdier.

00:25:42 Speaker_02
And that is basically that starting a long time before the crisis, starting in like the 1970s, there arose in the United States what came to be called a shadow banking system, where because of regulations on banks in the U.S.

00:25:57 Speaker_02
that were set up after the Depression, when there was a giant banking crisis, clever finance people came up with financial structures that looked like banks, but weren't regulated like banks. And in particular, they look like bank deposits, right?

00:26:11 Speaker_02
So a bank deposit is a weird thing where you put your dollar in the bank and you have your deposit and it's worth a dollar.

00:26:20 Speaker_02
And then the bank takes your dollar and lends it out to somebody else or your thousand dollars and lends it out to somebody else for a mortgage that doesn't have to be paid back for 30 years.

00:26:30 Speaker_02
And so then there is this inherent fragility in that system, right? Because if we all come back and ask for our money, the bank won't have it. And it's not because the bank is greedy or evil or incompetent.

00:26:42 Speaker_02
It's because of the fundamental structure of banking. That fragility is inherent in the fundamental structure of banking. And what happened in the financial crisis is that. There were billions of dollars that were deposit-like.

00:26:54 Speaker_02
They weren't exactly deposits, they weren't insured by the federal government, but they were in money market mutual funds, which people may be familiar with, and were explicitly set up to be like a bank deposit but could pay higher interest and weren't regulated, and in the repo market, which is like a weirder version of the same thing, let's say.

00:27:13 Speaker_02
Everybody came and asked for their money back in 2008. And of course, the shadow banks, which were not called banks or shadow banks, didn't have it. And that was a core driver of the crisis.

00:27:24 Speaker_02
And it wasn't illegal, as you said, but it's like that is what all financial crises are. They just have like different flavors, different skins.

00:27:33 Speaker_03
I mean, you said it wasn't because the shadow banks were lazy or incompetent or greedy. I mean, I think they probably were incompetent and greedy as well.

00:27:40 Speaker_02
Fair.

00:27:42 Speaker_03
I shouldn't have brought greed into it.

00:27:43 Speaker_02
Greed should be fine.

00:27:45 Speaker_03
Incompetence is not illegal and neither is greed.

00:27:48 Speaker_02
Yeah. They certainly didn't break the rules, right? And in fact,

00:27:53 Speaker_02
One of the key under-the-radar failures that week in September in 2008, when Lehman Brothers, the investment bank, failed and then everybody else failed and the government bailed everybody out, was the very first money market mutual fund that had been created 40 years earlier.

00:28:10 Speaker_02
and was very much like a bank, and suddenly couldn't give everybody their money back. And so it's totally understandable that everybody is angry when one industry blows up the economy.

00:28:21 Speaker_02
And by the way, all the people in that industry are getting rich, and it's not obvious what they're providing to us. But it is, in fact, a really hard problem to solve.

00:28:28 Speaker_02
Like, banks are inherently unstable, and people love making things that look like banks and are inherently unstable.

00:28:35 Speaker_03
Thank you, Jacob, for reminding me of the concept of shadow banking. It's like real banking, but their headquarters are in Mordor.

00:28:43 Speaker_02
That's great.

00:28:45 Speaker_03
Yes. Oh, good times, good times. Jacob, there are more questions in the mailbag. Would you mind if I were to read the next question to you?

00:28:54 Speaker_03
Because I want to hear your answer, because you are the author of Money, the True Story of a Made-Up Thing, and I feel like this question is made for you. One of my friends posted this on Facebook, but is it true? This is the Facebook post.

00:29:09 Speaker_03
This is why I keep telling the younger generation to stop avoiding cash. I have a £50 banknote in my pocket. I go to a restaurant and pay for dinner with it. The restaurant owner then uses the note to pay for the laundry.

00:29:21 Speaker_03
The laundry owner then uses the note to pay the barber. The barber will then use the note to pay for shopping. After an unlimited number of payments, it will still remain a £50 value which has fulfilled its purpose to everyone who used it for payment.

00:29:35 Speaker_03
But... If I go to a restaurant and pay digitally via card, the bank fees for my payment transaction charged to the seller are 3%, so around £1.50 for the £50 payment. This will also be the case for laundry payment, payment to the barber, and so on.

00:29:52 Speaker_03
Therefore, after 30 transactions, the initial £50 will exist at only £5, and the remaining £45 has become the property of the bank. That's not actually how percentages work, but that's fine. Thanks to all the digital transactions and fees.

00:30:07 Speaker_03
Use it or lose it, folks. Once it's gone, we won't get it back. Cash is king. OK, so the arithmetic on this is wrong. We don't need to bother with that. But Jacob, what about the economics? What's your reaction to this?

00:30:20 Speaker_02
So that was from Windy, right? And she says, if you pay with a £50 banknote at the restaurant, the restaurant owner then uses the note to pay for the laundry and so on. Yeah. And the note never gets used up. It just goes around and around. Right.

00:30:35 Speaker_02
So at the risk of being pedantic, I think it is relevant to say that is not, in fact, what happens. There is a cost borne by the restaurant of dealing with cash, right? They pay somebody to count it. They pay somebody to take it to the bank.

00:30:47 Speaker_02
And so there is a cost to cash. So the relevant question is, how does the cost of cash compare to the cost of a credit card and also to the cost of a debit card?

00:30:59 Speaker_02
Those two things feel the same to us as customers, but as it happens, they're not the same to merchants. And for the most part, and it varies from country to country, debit cards are the cheapest for merchants.

00:31:12 Speaker_02
then cash is in the middle and credit cards are the most expensive. So like the most efficient mode of transaction for the merchant in most countries is the debit card.

00:31:22 Speaker_02
Basically because you compare the cost of dealing with the cash, of paying people to count the money, to take it to the bank, et cetera, to the fees they have to pay to use credit cards and debit cards.

00:31:33 Speaker_02
And you know, from a sort of first principles perspective, if you just step back and think what is most efficient, It should be that a card is cheaper, right? Like it's obviously costly to deal with cash. It's a security risk.

00:31:47 Speaker_02
You have to actually physically move it around. And so on one level, we should ask, well, why is a card ever more expensive, right? And they're paying some amount for credit, right?

00:31:58 Speaker_02
Because a credit card, there's a risk that the bank won't get paid back because it is, in fact, credit. There's a risk of fraud. And so that cost is borne.

00:32:05 Speaker_02
Debit should be really cheap because you can just have the computer at the restaurant, ask the computer at the bank, hey, does this person have the money in their account? And the bank says, yes.

00:32:16 Speaker_02
And the payment goes through, and it should be very cheap. So there is a question, why does it cost anything for debit? One answer to why is because Visa controls a huge percentage of the debit card payment system in the U.S. And in fact, the U.S.

00:32:33 Speaker_02
Department of Justice, the federal government, is suing Visa for basically monopolistic practices in the debit card business.

00:32:41 Speaker_03
I mean, there's a lot wrong with this Facebook post, but there is a grain of truth in that there is a monopolistic provider or allegedly monopolistic provider of these payment services and they're raking off a disproportionate fee.

00:32:53 Speaker_03
On the other hand, I mean, Visa, just like the barber and just like the laundromat owner and just like the restaurant owner, Visa is also a business. So if they take the money, well, they can also spend the money back into the economy.

00:33:05 Speaker_03
I mean, it may feel a bit unfair, but I mean, the money still goes around. I mean, this Facebook post is acting like the thing that's scarce is the money, that the £50 note is the thing that's potentially scarce.

00:33:17 Speaker_03
But actually, you can always make more £50 notes if you are the central bank. So money is in fact not the thing that is scarce. What is scarce is laundromats and restaurants and chefs and all of these real resources in the economy.

00:33:29 Speaker_03
And the money, whether it's digital money or whether it's paper money, is just a way of kind of keeping track of things. And then which gets back to your question, which is, which is the most efficient way of keeping track of things?

00:33:40 Speaker_03
And that's an open question, I think.

00:33:42 Speaker_02
I mean, efficiency gains are good, right? Like, the question does matter in the sense that we want to spend as little as possible on payment rails. That's fundamentally what this is about.

00:33:54 Speaker_02
We can all get more stuff we like, more restaurant meals and nice haircuts, if we're spending as little as possible moving the money around, right? And so we want technology to make it cheaper to move money around.

00:34:06 Speaker_02
Ideally, there should be a cheaper way to do it than cash. And we're getting there.

00:34:11 Speaker_03
So don't get your economics from Facebook posts. Get your economics from Jacob Goldstein. Thank you, Jacob. Cautionary Tales will be back after this break.

00:34:28 Speaker_12
This is Malcolm Gladwell from Revisionist History. So we are sitting in what?

00:34:35 Speaker_15
We're sitting in a 1988 BMW 325is. And describe the way in which it's been modified. It has no interior. That's where it begins. Not even a steering wheel, as far as I can tell.

00:34:49 Speaker_15
Yeah, right now there's no steering wheel, although I can fix that in a second. And what's the appeal of a late 80s BMW 325?

00:34:57 Speaker_15
Well, it's almost like the perfection of a recipe that BMW began in the 60s, which is to take, you know, a really beautifully made inline six engine, rear wheel drive, and just like an incredibly balanced and fun to drive car. Yeah. Yeah.

00:35:14 Speaker_15
Let me give a little sneak peek. I need to connect the battery. The battery is disconnected. Wait, the battery is in the back of it. The battery is actually under the rear seat. Oh, I see. Just that's it.

00:35:28 Speaker_15
That's so it has an absolutely perfect balance between front and rear, rear, rear way. Exactly. Yeah. So, yes, turn it on. Let's hear it.

00:35:38 Speaker_05
Oh, yes.

00:35:46 Speaker_13
And this is you. This is your first BMW. My second.

00:35:50 Speaker_14
Oh no, Lucas, you can't say that. Wait, what was your second?

00:35:53 Speaker_15
What was your first? It was a 1989 535i. Oh, yes. This is, but you own that with a bunch of other people. Yeah, yeah. So this is my first, my true, my first, you know, sole BMW. Solely owned. Solely owned BMW.

00:36:08 Speaker_12
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00:36:29 Speaker_12
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00:36:48 Speaker_11
T-Mobile for Business recently teamed up with Malcolm Gladwell for a new episode of Revisionist History to talk about how 5G is enabling the use of AI to deliver transformative and sometimes life-saving innovation.

00:36:58 Speaker_12
Hello, hello, Malcolm Gladwell here. Today, I wanted to share a very special conversation I had recently posted by my good friends at T-Mobile for Business about how AI is changing our world. Tell us about the problem you're trying to solve.

00:37:13 Speaker_01
When we think about emergency events, and really at the majority of the world, the primary tool set that firefighters use is a radio to communicate their status to the outside operation. Pretty reasonable to expect that people can become disoriented.

00:37:29 Speaker_07
So when I realized that technology was important was when I realized that many of the most vexing healthcare challenges that we saw in my own family, we realized that there was just significant lack of resources.

00:37:46 Speaker_06
You know, from a T-Mobile for Business perspective, like, how can we take this incredible, best-in-the-nation 5G network and how can we harness some very specific capabilities?

00:37:59 Speaker_11
Listen to this episode of Revisionist History on the iHeartRadio app, available now.

00:38:08 Speaker_12
When I'm reporting a season of revisionist history, I'll admit, I rack up a lot of expenses.

00:38:13 Speaker_12
There's archival fees, travel expenses, meals, research materials, books, my very own Pushkin Plus subscription, so I can hear the episodes early on Apple Podcasts, of course. It all adds up.

00:38:25 Speaker_12
And that's where my no-annual-fee Apple Card comes into play. Now, every time I pull out my iPhone, double-click and tap to pay, I'm getting 3% cash back on all purchases at Apple and 2% on everything else when I use Apple Pay.

00:38:40 Speaker_12
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00:38:54 Speaker_12
If you have an iPhone, you can apply for an Apple Card right this moment in the Wallet app. It's that easy. Just promise to come back and listen to the rest of the episode.

00:39:18 Speaker_02
Tim, let's talk about housing. Sure. Fred writes, Hi Tim, I absolutely love your podcast. It scratches the itch of economics in society and every episode is a great lesson. My question is about housing, NIMBYs, and the impact on the economy.

00:39:36 Speaker_02
I've long been a believer in the housing theory of everything and find it appalling that, as nearly everything has gotten more affordable in real terms, housing has become completely out of reach for younger people, particularly in the UK.

00:39:50 Speaker_02
Quite beyond the ethical implications, I'm interested in your view of its impact from a macroeconomic angle. How impactful do you think housing reform would be on the UK economy?

00:40:00 Speaker_02
How would you deal with NIMBYs from a behavioral economics slash policy perspective? Thanks, Fred.

00:40:08 Speaker_03
I think Fred is completely right. I think the UK economy desperately needs housing reform. Fundamentally, we've just made it very, very difficult to build houses. And if you make it very, very difficult to build houses, that makes houses very expensive.

00:40:20 Speaker_03
And that's a problem in its own right, because people need somewhere to live, but it also damages the economy, because people don't get to move around to where the jobs are. And it's also inequitable.

00:40:32 Speaker_03
So it means that people who are older have a lot more money than people who are younger, disproportionately, because they've just sat in houses that they bought when they were cheap, and those houses have got more and more expensive.

00:40:43 Speaker_03
And it's also inequitable within generations, because not to put too fine a point on it, if you are the only child of parents with a house, you're going to inherit the house, which is hugely valuable.

00:40:54 Speaker_03
If you're one of three or four children, or if your parents never had a house in the first place, you're not going to inherit, and it becomes incredibly difficult to afford a house.

00:41:03 Speaker_03
And so there are a huge number of different economic problems being caused by the fact that we're just not willing to let people build more houses. And in a nutshell, I mean, houses are incredibly expensive in the UK.

00:41:15 Speaker_03
Fundamentally, if you let people build houses, the cost of a house is going to fall to the cost of building a house. That's how much it's going to cost you to buy a house.

00:41:24 Speaker_03
It's like whatever it costs to build a house, which is a lot less than the market price of a house in the UK at the moment.

00:41:30 Speaker_02
As you may know, houses are also really expensive in many parts of the United States and for similar reasons.

00:41:38 Speaker_02
But one really interesting and encouraging and surprising thing to me is that there has actually been some progress on this in the United States. Not enough to solve the problem, but enough to suggest that the problem is at least somewhat solvable.

00:41:53 Speaker_02
Fred referenced NIMBYs, which means not in my backyard, which is people who say don't build apartment buildings on my block or whatever.

00:42:00 Speaker_03
They're better than bananas, right? You know what banana stands for? Build absolutely nothing anywhere near anybody.

00:42:07 Speaker_02
I like that. In the U.S., and starting in the Bay Area, as far as I know, you know, in the San Francisco Bay Area, where houses are extraordinarily expensive, we have had the YIMBY movement, the Yes In My Backyard movement,

00:42:20 Speaker_02
which has, in the past decade or so, scored some real victories in California. And one of the really interesting things to me — you know, Fred says, how would you deal with NIMBYs from a behavioral economics-slash-policy perspective?

00:42:33 Speaker_02
We haven't heard that much about the YIMBYs, and I have a theory for why, and that is As you may have heard, America is a rather politically polarized place these days. But the Yimby-Nimby fight is not particularly polarized.

00:42:49 Speaker_02
It is not left-coded, right-coded the way immigration or capital gains tax rates or many other things are, which I think is actually great. It means you can have a rational as opposed to tribal discussion about it. So that's one piece of it.

00:43:06 Speaker_02
And the other piece of it is somewhat wonkier, but it is this. At least in the U.S., the rules about housing, we call it zoning, are typically locally imposed. They're imposed basically at the city level.

00:43:19 Speaker_02
And there's a sort of political economy reason for that, which is homeowners care a lot. And they show up at the city council meeting and they say, don't let anybody build apartments in my neighborhood because that'll lower the value of my house.

00:43:32 Speaker_02
Right. Homeowners don't want the value. Which is probably the point, right? It's the whole point, right? There's this weird thing where like, yes, houses are too expensive. We need to lower the value of your house.

00:43:40 Speaker_02
So instead of dealing with it at the city level, the Yimbys went to the state and got California to pass laws overriding cities that said to cities, you basically can't do exclusionary zoning anymore.

00:43:53 Speaker_02
You can't say there can only be single family homes. But in most of California now, you can build what are called ADUs, additional dwelling units. You can build a little apartment over the garage or in your backyard, for example.

00:44:05 Speaker_02
And other rules like that have passed the state. So there is encouraging progress, though houses are still too expensive. It's a problem that can be solved. OK, Tim, this one is for you. It's from Benji from Brisbane. He writes, hi, Tim and all.

00:44:20 Speaker_02
Appreciate you taking the time to read my question. What happened to Muhammad Yunus and Grameen Bank? There was so much promise with microfinance as a tool for good in helping the underbanked in developing economies. Kind regards, Benji.

00:44:36 Speaker_03
So the short answer is Muhammad Yunus is now a senior advisor to the government of Bangladesh and won a Nobel Prize, not for economics but for peace. So he's doing fine. So microfinance is basically the idea that you give very It's

00:45:07 Speaker_03
And the founding story of Grameen Bank, which is the microfinance outfit that he started, he was an economist, he went to a village near the university in Bangladesh where he worked, and he found that these local women were weaving baskets and selling these baskets and that's how they made their money.

00:45:23 Speaker_03
But they had to borrow money from the village moneylender. to pay for the materials to make the baskets. And the village money lender was charging them 10% a day. Just an astonishingly high interest rate. I did the maths once.

00:45:39 Speaker_03
That interest rate would turn one cent into larger than the entire US government debt over the course of a year. So it's a very high interest rate. And Yunus came in and said, I'll lend you money, I won't charge you much interest.

00:45:52 Speaker_03
These women borrowed money off him and they paid it back and it was fine.

00:45:55 Speaker_03
And suddenly the not having to pay 10% on top of your costs every single day was the difference between grinding inescapable poverty and the chance to build your own small business. So it's a lovely idea.

00:46:08 Speaker_03
The development economists came in and said, well, this sounds great, but does it actually work? And they found mixed pictures.

00:46:17 Speaker_03
So it was a really interesting study in South Africa, which was conducted by Dean Carlin and Jonathan Zinman, two development economists. And they found that people borrowing money from what seemed pretty much like a payday loan company,

00:46:30 Speaker_03
At very high interest rates, I think it was 200% annual percentage interest rate, they randomized it so that some people who this company were going to turn down for loans, at random some of them were offered loans anyway.

00:46:43 Speaker_03
And the people who at random were offered the loans versus at random were not offered the loans, the ones who got the loans were doing much better six months later. So really interesting randomized trial.

00:46:53 Speaker_03
So even this very expensive credit was great because what they were doing was they were using the loan to, I don't know, buy a suit to go to a job interview. or to fix their bike in order to stay in employment.

00:47:03 Speaker_03
But other research was more mixed and I think the fundamental idea that the reason why people are poor in poor countries is because they don't have access to cheap loans. I mean, there's so much else going on.

00:47:16 Speaker_03
So it's only ever going to be a part of the story. The other really interesting thing is the commercial companies came in.

00:47:23 Speaker_03
So there was one called Compatamos in Mexico, which was just a huge business that was lending money at pretty high rates and making a lot of money. And it was just about to do an IPO, I think.

00:47:35 Speaker_03
And it made all the founders of this organization very rich. And Yunus was like, this is outrageous. He was trying to excommunicate them from the microfinance. movement because they were too commercial.

00:47:46 Speaker_03
But the problem is, there was always shades of grey between kind of non-profit microfinance and the moneylender who Eunice was originally worried about. Even non-profit microfinance, they're not lending people loans at zero interest.

00:48:05 Speaker_03
Even the non-profits are often lending at 50, 60, 70% a year. And the reason is, you're making such small loans for such a short period of time, like maybe you're lending somebody like $50 for three months.

00:48:17 Speaker_03
Unless you charge a big interest rate, your fee on that is like 50 cents. And it's just not enough to cover your costs. Yeah. And so it's this fine line between what is abusive money lending and what is non-profit microfinance.

00:48:32 Speaker_03
It's harder to draw that line than you think. So it's a fascinating area, but that is what happened to Muhammad Yunus and Grameen Bank.

00:48:40 Speaker_02
Clearly, people are deeply, deeply uncomfortable fundamentally with the idea of lending money at interest, right? Like, we've gotten used to it in the developed world with a mortgage or a car loan.

00:48:52 Speaker_02
But if you look historically, lots of places, there were rules for thousands of years that said nobody's allowed to lend money at interest because it's fundamentally bad. It's unnatural, right? have that with most other businesses.

00:49:06 Speaker_02
And I think that's part of what is going on here. Lending money at interest makes people morally uncomfortable. And so when you have someone riding in and being morally righteous by lending money at interest, it's going to get complicated.

00:49:17 Speaker_02
Have we got time for one more question, Jacob? We do. Our last question, Tim, comes from Ella, who writes, hi, Tim. I've been listening to your podcast for a while now. I'm a big fan. And you seem very insightful across a range of topics.

00:49:32 Speaker_02
So I was wondering if you could help me out with a problem I've run into recently. I'm in my second year of uni studies—physics, if you're curious—and I keep getting asked what I want to do for a career path.

00:49:43 Speaker_02
Aside from further academics, I'm not really sure what there is that I like the sound of, and I know eventually I will have to finish my education.

00:49:51 Speaker_02
I do know that I'm in the right field, I just don't know what jobs are waiting for me on the other side of my studies. Do you think I should be worrying about where I'm going to end up?

00:50:00 Speaker_02
Or is a more go-with-the-flow attitude fine for something this serious? Thanks for the help, Ella.

00:50:24 Speaker_03
So Jacob and I are collectively over 100. So we're basically two old geezers. We're probably not really very well qualified to give you advice. But when I look back at my career, I didn't know what I wanted to do when I went to university.

00:50:38 Speaker_03
I didn't know what I wanted to do when I left university. I didn't have any particular plans to become a journalist or a writer. And in fact, I didn't become a journalist or a writer until I was nearly 30.

00:50:51 Speaker_03
And I think all of the things that I did in my 20s, some of them were mistakes, some of them were not, but they all kind of contributed to who I am now.

00:51:01 Speaker_03
If there's something that you're really passionate about, and you've got this vision, you want to chase it, that's fine. But I think it is also fine to experiment and to try different things and to see if you like them. What do you think, Jacob?

00:51:12 Speaker_03
Certainly, I agree.

00:51:13 Speaker_02
I mean, I majored in English, which, unlike physics, gave me no fundamentally useful skills, except for living, right? Like, I still think all the time of stuff that I read in college, and I'm certainly glad that I studied English. But I think this.

00:51:27 Speaker_02
When you're in college, people say, oh, what are you studying? And then you say what you're studying. And then the next question, in a sort of robotic way, is what do you want to do with that?

00:51:36 Speaker_02
The thing I wish I had known when I was in college is the people asking don't actually care. Right? Like I felt all this pressure of like, oh my God, everybody wants to know what I am going to do. They don't actually want to know.

00:51:48 Speaker_02
They're not really thinking that much about you. They're just making conversation. They're just talking about the weather. Right? I mean it in a good way when I say other people don't care. Everybody is mostly thinking about themselves.

00:52:00 Speaker_02
I would phrase it slightly differently. I would say there's no pressure. There's just curiosity. They're just interested. They're not even that interested is my take. They're just making small talk.

00:52:09 Speaker_02
And like recognizing small talk as small talk is a hugely empowering thing. And it's fine. Like we're just social animals following norms and asking a college student what they want to do is just what people do.

00:52:20 Speaker_02
So I would say to Ella, just make up an answer. and know in your heart that you're going to figure it out. And people love hiring physicists. Wall Street is full of physicists and consulting firms are full of physicists.

00:52:31 Speaker_02
Anybody who can think hard about the most difficult problems in the world in a quantitative way is going to be eminently employable.

00:52:38 Speaker_03
And you know, another thing you can do with an undergraduate degree in physics is a postgraduate degree in economics. Twist! Jacob, thank you so much for joining me. Tim, it's so fun. I truly would do it for free, even if nobody listened.

00:52:55 Speaker_03
Thank you so much, Jacob. And thanks to all of you for sending in your questions. We will be back again on our regular schedule with another classic episode of Cautionary Tales. But in the meantime, happy Thanksgiving to our US listeners.

00:53:08 Speaker_03
And if you have a question for us, please send it in to tales at pushkin.fm. That's T-A-L-E-S, Tales. at pushkin.fm. Thank you. We love hearing from you. Cautionary Tales is written by me, Tim Harford, with Andrew Wright.

00:53:28 Speaker_03
For a full list of our sources, see the show notes at timharford.com. The show is produced by Alice Fiennes with Marilyn Rust. The sound design and original music are the work of Pascal Wise. Sarah Nix edited the scripts.

00:53:44 Speaker_03
Cautionary Tales features the voice talents of Ben Crow, Melanie Gutteridge, Stella Harford, Gemma Saunders, and Rufus Wright.

00:53:52 Speaker_03
The show wouldn't have been possible without the work of Jacob Weisberg, Ryan Dilley, Greta Cohn, Eric Sandler, Carrie Brody, Christina Sullivan, Keira Posey, and Owen Miller. Cautionary Tales is a production of Pushkin Industries.

00:54:08 Speaker_03
It's recorded at Wardour Studios in London by Tom Berry. If you like the show, please remember to share, rate and review. It does really make a difference to us.

00:54:19 Speaker_03
And if you want to hear the show ad-free, sign up to Pushkin Plus on the show page on Apple Podcasts or at pushkin.fm slash plus.

00:54:40 Speaker_09
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