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episode is brought to you by AARP. Ten

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years from today, Lisa Schneider will trade in

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a pack of dogs. As the

0:59

owner of her own dog rescue, that is.

1:01

A second act made possible by the reskilling

1:04

courses Lisa's taking now with AARP to help

1:06

make sure her income lives as long as

1:08

she does. And she can finally run with

1:10

the big dogs. And the small

1:12

dogs, who just think they're big dogs. That's

1:14

why the younger you are,

1:16

the more you need AARP.

1:18

Learn more at aarp.org/skills. My

1:27

guest today, Daron Asimoglu, is a professor

1:29

of economics at MIT and co-author of

1:31

a number of influential books written for

1:33

a popular audience, including Why Nations Fail

1:36

and Power in Progress. He

1:38

is also, without a doubt, one

1:40

of the greatest economists I have ever met. Historical

1:44

processes really shape economic relations

1:46

and we cannot understand the

1:49

economy today without understanding where we're

1:51

coming from in terms of history.

1:55

Welcome to People I Mostly Admire with Steve

1:57

Levitt. Doron

2:03

tackles huge questions at the intersection

2:05

of politics and economics. Why

2:08

are some countries rich and others poor? How

2:10

does democracy take hold and what factors allow it

2:13

to survive? Who benefits and

2:15

who loses from new technologies? I've

2:18

left every conversation I've ever had with

2:20

Doron amazed by his insight

2:22

into how the world works. I

2:24

hope that's true again today. I

2:31

want to talk about your stature

2:33

in the academic community because I

2:35

think even people who know and

2:37

like your public-facing work, they probably

2:39

have no idea about what a

2:41

giant you are within academics. So

2:44

let's start with citations of your work. That's

2:47

one of the most commonly used metrics

2:49

of a scholar's impact. I looked

2:51

this up yesterday because I knew we'd be talking. You

2:54

have 226,000 citations according to Google Scholar. When

3:01

I saw that number, I practically fell out

3:03

of my chair. Wow.

3:06

For purposes of comparison, I looked

3:08

up my own citation numbers and I've had a

3:10

pretty good academic career. We're the

3:13

exact same age and you have more

3:15

than five times as many citations as

3:17

I do. In fact, I think

3:19

you are the most cited economist in the

3:21

world over the last two decades. That

3:24

must feel pretty good. Thank you

3:27

for saying that, Steve. But of course, citations

3:30

are just one of the metrics and

3:33

I wouldn't say that I have had

3:35

more influence on academic thinking and knowledge

3:37

than you. The difference between you and

3:39

me, I think, is that I

3:41

wrote about fun stuff that doesn't matter

3:43

and you write about important stuff that

3:45

does matter and people listen

3:47

to you and I think that's valuable. But

3:49

anyway, let me stop complimenting you. Let's just

3:51

talk about your books, okay? So

3:54

back in 2012, you and James

3:56

Robinson published a book called Why

3:58

Nations Fail, the origins of power.

4:00

prosperity, and poverty. And

4:02

I remember at the time thinking it took

4:04

a lot of audacity to tackle

4:07

a topic that was so huge

4:09

and so fundamental and so complex

4:11

that it wasn't likely to have

4:13

an easy answer, and

4:15

that you offered a really simple hypothesis.

4:18

What's the basic idea in that book? It's

4:21

about human choices.

4:23

When people look at the big

4:25

gulf that exists between rich and

4:27

poor countries, they often think of

4:29

factors such as geography or culture,

4:32

which are essentially out of the

4:34

control of most people. But

4:37

how we organize society, which

4:39

we broadly refer to as institutions,

4:42

those are the root causes. So

4:44

whether you have democratic governance or not,

4:46

how you control corruption, how you structure

4:48

the tax system, how you enforce or

4:51

fail to enforce property rights, for whose

4:53

interests you enforce property rights. But

4:56

then we take one

4:58

step away from perhaps the

5:00

simplest economics approach, and we say

5:02

it's all about politics and conflict

5:05

when you think which type of

5:07

institutions, which type of economic arrangements

5:09

are going to prevail. One

5:12

thing I love about that book is

5:14

the seemingly endless parade of case studies

5:16

you present in support of that idea.

5:19

But my single favorite one in the book

5:21

comes from an academic paper that you and

5:24

Simon Johnson and Jim Robinson published

5:26

in the American Economic Review in

5:29

2001, I think. And

5:32

this is just a brilliantly clever

5:34

paper. Can you describe

5:37

this paper you did about the

5:39

residual impacts of colonialism? That's

5:42

a really important paper for my

5:44

own intellectual development because I

5:46

have always been interested in history.

5:49

And my thinking was historical

5:52

processes really shape economic relations,

5:54

and we cannot understand the

5:56

economy today without understanding where

5:58

we're coming from. in

6:00

terms of history. And one of the

6:02

really important historical events, of course,

6:05

is colonialism. When you look

6:07

at the former European colonies today, you

6:10

see a tremendous amount of

6:12

inequality. Some places like the

6:14

US, Australia, Canada, Singapore are

6:17

very, very rich among the richest nations,

6:19

and some of them, many of the

6:22

colonies or former colonies in sub-Saharan Africa

6:25

or the Caribbean or Peru, Bolivia,

6:28

are very, very poor. The

6:30

right question perhaps isn't what's the

6:32

impact of colonialism in the abstract, but

6:35

think about what different

6:38

types of historical legacies

6:40

colonialism has created. And

6:42

those legacies are really related

6:45

to institutions. We've started thinking

6:47

about why is it that the US

6:49

got something very

6:51

different from colonialism than,

6:53

say, Peru. In Peru, they

6:56

wanted to set up what we call an

6:58

extractive system, an institutional structure

7:00

so they will be able to extract

7:02

valuables and human labor

7:04

out of that area. And

7:06

given the conditions that they encountered on

7:09

the ground, they succeeded. In

7:11

the US, they were more confused about what they

7:13

wanted to do, and when they

7:15

tried to set up similar extractive institutions,

7:17

they failed, so at the end, self-governing

7:20

institutions started emerging. But

7:22

why the US? Why not Chile

7:24

or Brazil? This is where

7:26

we started thinking. They probably

7:28

encountered different conditions, and

7:31

one very important one was whether they could

7:33

actually go and settle in those places. So

7:35

we wanted to understand why is it that people

7:38

went to the United States and settled there, and

7:40

they didn't go to Nigeria and settle to the

7:42

same extent. And one obvious answer is, of course,

7:45

Europeans themselves did not have immunity

7:47

against some of the biggest killers

7:49

that were around the world, such

7:52

as malaria, yellow fever, and other

7:54

gastrointestinal diseases. As a result,

7:57

the disease environment at the time

7:59

had a first order effect on

8:01

settlements, settlements had an impact on

8:03

the early institutions and then we

8:05

documented the pathways via which early

8:07

institutions lasted to today. And that

8:09

was our strategy for teasing out

8:11

the effects of institutions, but at

8:14

the same time also bring the

8:16

history of colonialism into economics. If

8:18

we hit that down to lunch as you started this

8:20

paper, I would have told you there's

8:22

no way you're ever going to, number one, come up

8:24

with a simple explanation. And number two, convince

8:27

anybody that it's really true. And that

8:29

was what was so startling, I think,

8:32

to economists when we read this

8:34

paper, is that by

8:36

so methodically collecting data and

8:39

integrating that with the history, you

8:42

were able to trace this out. And

8:44

I guess most economists, because we don't

8:46

think about institutions, it never would have

8:48

occurred to me that England would set

8:50

up different institutions, different sets of laws

8:53

in places where settlers went versus where

8:55

they were just trying to take advantage

8:57

of indigenous people, but in fact they

8:59

set up really different rules in those places.

9:02

And then again, as an economist,

9:04

I wouldn't think that what they

9:06

did hundreds of years ago, why

9:08

would that affect their institutions today?

9:10

So much has changed. But then

9:12

you show so convincingly that actually

9:14

these institutions just persisted. And then

9:17

of course the last amazing piece

9:19

of the puzzle is that then

9:21

you can show that these places

9:23

that kind of by chance got

9:25

these different institutions hundreds of years

9:27

ago, there's incredible differences in the

9:29

current level of economic development and

9:31

incomes there. And for me, that's exactly

9:34

what economics should be about. Thank you

9:36

for saying that, Steve. I think we

9:38

were very lucky. And then we were

9:40

also fortunate that I think the profession

9:43

was really open-minded and open to these

9:45

different approaches. So we put a lot

9:47

of effort, but luck was important in

9:50

this as well. Yeah, I

9:52

think people underestimate the role of luck

9:55

in academic research. Lots

9:57

of times you have good ideas and you can't

9:59

find them. the data or maybe of what

10:01

seem like good ideas and the data don't

10:03

cooperate maybe because the data aren't right or

10:05

maybe because the idea is not good. I'm

10:07

just saying my own experience it's rare that

10:10

everything comes together. I would guess that

10:13

of the papers I began thinking

10:15

about writing probably only

10:17

one in ten ever turned

10:19

into anything any good. How

10:21

about for you? It's hard to know what

10:24

begin thinking about means

10:26

because I think I have

10:28

lots of crazy ideas and then I have the

10:30

good sense of not investing much time in some

10:32

of them. But after I start

10:34

a project I think

10:36

it's one in two that gets abandoned

10:40

but that of course is only

10:42

a selected subset of ideas and sometimes

10:44

it's very painful. You invest weeks, months and

10:46

then you realize this is not going

10:48

to work. One thing I would say

10:50

for abandoned projects sometimes I learn a lot from that

10:53

process so it's not all wasted

10:55

time. The

11:04

concept of creative destruction

11:06

it's idea that new technologies or

11:08

new ways of organizing society can

11:11

provide huge benefits but they

11:13

often do harm to the existing elites

11:16

who are extracting enormous amounts of wealth

11:18

from the existing system which

11:20

means that the elite frequently

11:22

resist innovations. You give fascinating

11:24

examples in the book Why

11:27

Nations Fail. Like there was this guy

11:29

named William Lee who invented something

11:32

called a stocking frame that dramatically sped up

11:34

the rate at which people could knit and

11:37

one would expect this guy would get a hero's

11:39

welcome but you've tell the story in the book

11:41

that it was quite the opposite. One

11:44

of the things that the economic

11:46

growth process brings is disruptive change

11:49

and this is a very complex issue. You

11:52

can have new technologies be

11:54

really negative on some populations.

11:57

The Luddites were against

12:00

mechanized weaving, but they

12:02

weren't completely wrong in thinking that's not going

12:04

to be good for us. You know, weaver

12:07

wages fell quite dramatically after

12:09

the power loom was

12:11

introduced. But there are other instances

12:13

where new technologies are going to

12:15

create some losers, but there are going to

12:17

be many, many more and

12:19

bigger winners out of it, consumers, workers,

12:22

and so on. But there might be

12:24

monopolies, especially politically connected monopolies, that would

12:26

resist them. It's not just

12:29

whether I'm a monopolist, but it's also

12:31

I am a political elite. I have

12:34

disproportionate political power and social and

12:37

economic change is going to alter

12:39

the balance of power in society.

12:41

And the William Lee example is

12:43

just a simple economic aspect of

12:46

this, where people were really worried,

12:48

including Queen Elizabeth, that once

12:50

you have this much better knitting,

12:53

this would create mass unemployment and

12:55

Queen Elizabeth wasn't internalizing the plight

12:57

of low-skilled workers. But she thought

13:00

that this would actually destabilize her

13:02

reign. And that's why the pure

13:04

economic issue of

13:07

William Lee's stocking frame became a

13:09

political one. He wanted a patent,

13:11

right? And she refused to grant him a patent.

13:13

She said, if I do this, what will happen

13:15

to all my subjects? So I'm curious,

13:17

I've thought about this a lot and I've wondered, do

13:20

you think that power is missing

13:22

from formal economic models because

13:25

it's just really hard to integrate into the

13:27

map? Or because economists just

13:29

haven't considered the role of power important

13:31

enough to try to capture? I think

13:34

both. So I am

13:36

completely with you and that's actually

13:38

what triggered all of the work

13:40

that I started doing with Jim

13:42

Robinson and then with Simon Johnson.

13:44

That's what triggered the Why Nations

13:46

Fail book, which you have so

13:48

kindly explained in a masterful

13:50

way. And that's also what

13:52

motivated my more recent book, Power and

13:54

Progress. I don't like repeating myself,

13:57

but both books have power in their titles

13:59

or subtitles. I think it's so

14:01

important and it's understudied. Another

14:03

point that you make really forcefully

14:06

in your book is the importance

14:08

of property rights. And by that

14:10

I mean having the confidence as

14:13

an individual or as a company that

14:15

the things that you own won't be

14:17

stolen by thieves or expropriated by the

14:20

government. Living in

14:22

the United States in the 21st century, it seems

14:25

normal, almost inevitable that

14:28

there's rule of law, there are property

14:30

rights, that there's democracy. But looking back

14:32

over human history, and I hadn't really

14:34

fully understood this until I read Why

14:37

Nation Fell, not only are

14:39

all of these pretty rare, but

14:41

the set of circumstances that led

14:43

to rule of law and property

14:45

rights and democracy taking hold, first

14:47

in England and then spreading, it

14:50

actually seems somewhat miraculous that at

14:52

some point early on an autocrat

14:55

didn't stop the whole process, derail

14:57

it, and go back to this

15:00

central control of all the

15:02

assets. Is that your feeling as well that we got lucky

15:04

in some sense to get where we are? I

15:07

think there is absolutely an

15:09

element of luck or contingency. On

15:12

the other hand, what we

15:14

see, for example, emerge in

15:16

England sometime in the

15:18

17th century with political power

15:21

balance shifting away from the

15:23

monarchy, that wasn't the

15:26

first time this was tried. The Roman

15:28

Republic, Ancient Greece, city-states

15:30

in Indian subcontinent, some civilizations

15:33

in the New World, some in

15:35

Africa, had also experimented with

15:38

more participatory governments and some of

15:40

them with different notions of property

15:42

rights, many of them did not

15:44

survive. And what's miraculous in some

15:46

sense is that with all sorts

15:48

of ups and downs, what

15:51

started for the perhaps

15:53

20th time in the

15:55

17th century gradually

15:57

spread and became more successful.

16:00

And at times it looked like it wasn't

16:02

going to. I mean, who in the middle

16:04

of the Nazi and fascist takeover of Europe

16:06

in the 1930s would have

16:09

thought, okay, the future of democracy is secure.

16:12

So we had a pretty rough patch. We'll

16:17

be right back with more of my conversation with

16:19

Geron Osamogu after this short break. This

16:31

episode is brought to you by AARP. Ten

16:34

years from today, Lisa Schneider will trade

16:36

in her office job to become the leader of a

16:38

pack of dogs. As the owner

16:40

of her own dog rescue, that is. A

16:42

second act made possible by the reskilling

16:44

courses Lisa's taking now with AARP to

16:46

help make sure her income lives as long

16:48

as she does. And she can finally run

16:50

with the big dogs. Almost small dogs.

16:52

Who just think they're big dogs? That's

16:55

why the younger you are, the more you need AARP. Learn

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4th now at Menards. I

17:38

want to talk about your most recent book.

17:41

It's co-authored with Simon Johnson and it's

17:44

called Power in Progress. It

17:46

came out in May of 2023. So

17:48

this is a book about technology

17:51

and prosperity. And it

17:53

comes to a very different conclusion

17:55

than most people would expect from

17:58

economists as authors. You

18:01

conclude that technological advances haven't

18:03

proved as wonderful as most

18:06

economists would believe. You have

18:08

a lot of examples in the book of

18:11

technologies which create a lot of

18:13

good, but almost all

18:15

of that good is gobbled up by a set

18:17

of elites, and it leaves the rest of society

18:19

no better off. Could you run through a few

18:21

of those concrete examples? So in

18:24

the middle of the 18th century,

18:26

the U.S. South got

18:28

completely transformed by

18:31

an equipment called the cotton gin,

18:34

which enabled the cleaning of the

18:36

type of cotton that the

18:38

South was suitable for its growth.

18:42

And once the cotton gin was in

18:44

action, the U.S. South became the

18:46

biggest exporter of cotton in the world, and

18:50

it fueled the Industrial Revolution. The

18:52

beginning of the Industrial Revolution was

18:54

all about textiles and all about

18:56

cotton. And many, many,

18:58

many people made fabulous fortunes

19:02

out of cotton plantations, cotton intermediation

19:04

exports, and all sorts of other

19:06

things that are linked to cotton

19:09

production. So you would

19:11

think this is an innovation that

19:13

just creates all sorts of

19:15

benefits. But then look again, and you'll

19:18

see that the people who were actually

19:20

doing the production of cotton, the enslaved

19:22

black workers of the U.S. South, they

19:25

did not benefit. In fact, their

19:27

conditions got much worse because they were moved

19:29

to the deep South where

19:31

the cotton plantations were. They started

19:33

working longer hours under harsher conditions.

19:37

So in this instance, who has

19:39

power? Completely determined

19:42

how unequally the gains from

19:44

this new, very clever

19:47

machinery were divided in

19:49

society, and they were divided very unequally. That's

19:52

a great example. You also have other

19:54

examples where you've got what people might

19:56

call smoothly functioning markets, so not relying

19:58

on coercion and slavery. where

20:00

innovations again don't have the expected

20:03

benefits. Could you run through

20:05

one or two of those? I think for that

20:07

I would come to the more modern period because

20:10

the first 100 years of the Industrial Revolution

20:12

were still pretty harsh in terms

20:15

of how workers were treated. But over

20:17

the last four and a half decades,

20:19

let's say, the US economy

20:22

has been on an innovation binge. All

20:25

sorts of amazing widgets, apps, and

20:28

new equipment have been

20:30

invented and put to use in

20:32

the production process. Robots, advanced machinery,

20:35

software systems, now

20:37

artificial intelligence. You

20:40

would expect that this is going to bring benefits

20:42

that are broadly shared. But

20:45

in the United States inequality has skyrocketed

20:47

and in a very peculiar way where

20:50

it's not just that some people have

20:52

benefited more, it's that people

20:54

with very specialized skills,

20:56

management consultants, software programmers,

20:59

people who have very high levels of

21:01

education like medical doctors,

21:03

their wages, their incomes, in

21:07

real terms are increasing very

21:09

rapidly. But workers

21:11

with high school education, even

21:13

associate degrees, even

21:15

some people with college degrees are

21:18

seeing their real incomes decline quite

21:20

sharply. So it's a

21:22

very lopsided way in which the economy

21:24

has evolved over those last 45 years.

21:27

And why? Part of it is

21:29

because we've put a lot of that

21:31

digital technology to use in automating work.

21:34

And when you automate work, you take

21:36

tasks away from certain groups of workers.

21:38

Many of the high school educated workers

21:41

used to work in offices or on factory

21:43

floors as blue-colored workers. Those have been the

21:45

tasks that have been automated and they don't

21:48

have as good labor market opportunities. They don't have

21:50

access to good jobs. So they've lost

21:52

out while other people have made

21:55

a pretty good amount of

21:57

money. discuss

22:01

not only that there are different kinds

22:04

of innovation, so in particular there's automation

22:06

that we just talked about, and

22:08

then there are different innovations that complement

22:11

workers, that make workers more productive. But

22:13

what I found really interesting in your

22:15

book is you make a point, which

22:17

is that it's not deterministic

22:19

whether you follow the path of automation

22:22

or you follow the path of making

22:24

workers more productive through innovation. Those

22:26

are choices that arise out of the way

22:29

society is structured. That's one of my

22:31

most firmly held views,

22:34

and it's not like an ideological hang-up,

22:37

or by this point it might have become

22:39

so. But that's what I started

22:43

exploring 30 years ago

22:45

when I first became an assistant

22:47

professor at MIT. I started

22:50

thinking about, well, economists are making a

22:52

lot of progress in thinking about what's

22:54

the rate of technological progress, what's the

22:56

rate of economic growth, but they're not

22:58

asking about what type of technologies we're

23:00

developing, who are we trying

23:03

to help with those technologies. Men,

23:05

women, skilled workers and unskilled workers, workers

23:07

in the US, workers in India, which

23:10

sectors, which types of activities.

23:13

And that process really culminated

23:16

in thinking about choice versus an

23:18

economic matter. I'm going

23:20

to look at the profits that I can make from

23:22

different types of technologies. And then as a social process,

23:24

there are going to be some pressures

23:27

on me from society at large. I'm going

23:29

to have certain ideas, what Simon and I

23:31

call visions, which is the likely

23:33

path that I can push this technology and what

23:35

sort of damages on others are acceptable

23:38

and which ones are beyond the

23:40

pale. So all of these issues

23:42

come in this choice architecture. But

23:44

a very important part

23:46

of new innovations is

23:48

creating new tasks, new activities

23:51

for workers. Look at

23:53

people around you. If you

23:55

think of the tasks that people

23:57

perform as medical doctors, academics, software

24:00

programmers, up writers, design

24:03

workers. Most of these tasks did not

24:05

exist 50, 60 years ago. Even

24:07

when you look at a well-defined profession such as

24:09

a journalist or a medical

24:11

doctor or an academic, most of the things

24:13

that we do such as podcasts, Zoom calls,

24:16

doing complex visualizations, those were not

24:19

tasks that an academic in the

24:21

1950s could do. The

24:23

technology for creating those tasks was

24:25

invented only over the last 30,

24:27

40 years. Those sets of tasks

24:30

are really

24:33

important for our

24:35

ability to generate value and therefore for

24:37

the incomes that we earn. So this

24:39

is at the heart of how we

24:42

create economic growth and how

24:44

we distribute the gains from economic growth.

24:47

So there are technologies that

24:49

automate tests and people already do and

24:52

when those happen the people who own

24:54

the technology, they get all

24:57

the benefits and the people who are automated

24:59

away, well tough luck, right? They no longer

25:01

have the job they used to have and

25:03

a lot of their skills now are not

25:05

useful anymore. They're now competing in a market

25:07

where there's more people competing for fewer jobs

25:10

and they suffer. And then the flip side

25:13

is what you just described so well which

25:15

is that when technologies come

25:17

in that allow an academic

25:20

like you or me to be more productive

25:22

or even a good example

25:25

might be in a typically lower-skilled

25:27

job, the job of the auto

25:29

mechanic has changed dramatically because technology

25:32

now allows that auto mechanic to

25:34

observe what's going on in the car

25:37

through all sorts of complex systems in

25:39

a way that never could have been

25:41

observed before. That job has been transformed

25:44

but not necessarily eliminated.

25:47

100% and I love the fact

25:49

that you gave an example from an auto mechanic

25:51

because naive thinking might be we're going

25:53

to create new tasks but they're only just going

25:55

to be for the very, very well educated and

25:57

in fact history doesn't support that. The

26:00

example that Simon and I give quite centrally

26:02

in the book is Henry Ford's factories,

26:05

which were at the forefront of

26:08

automation. They introduced decentralized energy sources,

26:11

new electrical machinery, the interchangeable part

26:13

system, and then turning into the

26:15

assembly line. So they automated

26:17

a lot of tasks, but at the

26:19

same time, they created these new tasks

26:21

for automechanics. We've been

26:23

talking mostly about the past. You also

26:25

have strong opinions about

26:27

the present, and you think

26:30

that the big tech companies

26:32

have made disastrous choices, focusing

26:35

on machine learning and AI

26:37

instead of working towards

26:39

machines that are more useful to

26:42

people. Is that a fair assessment? Yeah,

26:44

I would say that's a fair assessment. Let

26:47

me put that in the context of

26:50

the current AI debate. I am completely

26:52

on board with people in Silicon Valley

26:54

who say AI is an

26:56

amazing technology, has a lot of potential.

26:59

But the issues that we talked about, which

27:01

is choice about the direction

27:03

of technology, who is going to

27:05

benefit from it? Who is going to control information?

27:08

Whether we're going to automate work or whether we're going to

27:10

create new tasks. All of those are up

27:12

for grabs. And in

27:15

the area of inequality and wages,

27:17

I link this very

27:20

strongly to different

27:22

ways in which we've conceptualized what

27:25

we want from computers. One

27:27

idea, very influential, goes

27:30

back to the brilliant British

27:32

mathematician Alan Turing, absolutely

27:34

brilliant person. But

27:36

he also shaped the way that

27:38

computer science and artificial intelligence evolved

27:41

by emphasizing that what we want

27:43

from these machines is autonomous machine

27:45

intelligence. But what we want is

27:48

what Simon and I call machine usefulness. We want

27:50

them to be complements to humans. And you see

27:52

that this is going to lead to

27:55

a much more balanced vision

27:57

where sometimes machines are going to perform

27:59

tasks, but sometimes they're going to enable us to

28:01

perform new tasks as humans, and they're going to

28:03

put human agency at the center. And

28:06

in history, actually, in recent history,

28:08

you see many periods in which

28:10

this machine usefulness ideas are

28:13

quite important in the industry. And when

28:15

they are, they lead to phenomenally important

28:17

innovations, the computer mouse, hyperlink

28:19

hypertext, menu-driven computers. They all came out

28:22

of this view that we have to

28:24

use digital technologies to make humans more

28:26

capable. But especially

28:28

with the more recent AI

28:31

wave, what we are doing

28:33

is not putting machines in charge. The

28:35

machines, even large language models such as

28:37

GPT-4 and chat GPT, are not that

28:39

capable to be in charge. What we're

28:41

doing is we're putting a very small

28:43

elite who controls those machines, who controls

28:45

those algorithms in charge. So we're back

28:47

to power again. You're

28:52

listening to People I Mostly

28:54

Admire with Steve Levitt and

28:56

his conversation with Dharone Asimovlu.

29:00

After this short break, he'll return

29:02

to talk about why the U.S.

29:04

economy changed drastically in the 1970s. This

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4th now at Menards. In

30:20

the time we have left, I want to get

30:22

Derone's take on the economic performance since

30:24

World War II and especially what's

30:27

been going right and wrong in recent decades. Although

30:29

Derone is greatly admired by University of

30:31

Chicago economists, I suspect he

30:34

believes that Chicago-style thinking has done

30:36

more harm than good. After

30:41

World War II, the world

30:43

at large experienced a kind

30:45

of growth in prosperity that

30:47

was shared that I

30:50

don't think there's any precedent for it in

30:52

the history of mankind. One

30:55

could say there are a lot of different reasons for that, but

30:57

you would argue that it is really this

31:00

idea of the right kind of innovations

31:02

that are creating new tests and jobs

31:05

for workers, along with laws and

31:07

strong unions that made sure these gains were

31:10

shared broadly. You would say that's

31:12

the reason we had this amazing 40-year run.

31:14

Is that a fair assessment? Absolutely, yes, 100

31:16

percent. You summarized it really well.

31:19

But what the U.S. economy achieved and many

31:22

of the other industrialized nations achieved during

31:24

that period is really

31:26

remarkable. On average,

31:29

real wages grew

31:31

about 2.5 percent every year. So

31:34

what that means is that if you

31:36

look at a worker who starts at

31:39

20, by the time he or she

31:41

is 40, their income would have almost

31:43

doubled. That's the

31:46

breakneck pace of economic growth

31:48

for workers. And

31:50

then when you look at how different types

31:52

of workers fared, was this just

31:54

driven because there were some very

31:56

well-educated, very skilled workers who

31:58

reaped all the benefits. No, it's actually

32:00

the opposite. Wages at the bottom grew

32:03

slightly faster than wages at the top. So

32:06

inequality remained stable or declined, not just

32:08

in the United States, but in many

32:10

of these industrialized nations. And that's because

32:13

we used new technologies in a way

32:15

that helped low-skilled workers who

32:17

worked with their hands, workers who were

32:19

employed in the service industry. Those people

32:22

became more productive and employers then wanted

32:24

to hire them and pay them

32:26

more. So that's the story of

32:28

post-World War II until about the 1970s.

32:32

And then in the 1970s, everything

32:35

goes haywire from this perspective, right? This

32:37

is where inequality starts to explode and

32:40

people with less education really,

32:42

really suffer. So there

32:44

might be many reasons why everything went haywire

32:47

in the 70s, but

32:49

the reason you put forth is

32:51

that we made bad choices. And

32:54

indeed, the one person

32:57

who is most to blame for

33:00

everything bad about America since the 1970s, you

33:03

would say it's Milton Friedman, the king of Chicago

33:05

economists, am I right? Oh, I wouldn't say he's

33:07

the most to blame. I wouldn't go that far.

33:10

Okay, he's at the heart. I

33:12

mean, the ideas he had are

33:14

really central to how economic activity

33:16

changed. I would say the

33:19

following. Look, I think

33:21

there are different ways of running

33:23

corporations. One is

33:26

you essentially do

33:28

it in a very cold, calculating

33:31

way that says, let

33:34

me run this corporation just for

33:37

the profit motive. And that's what

33:39

we assume in economics, that most corporations are

33:41

like that. But I think

33:43

reality is a little bit different. If

33:46

you're a boss and suddenly you get a

33:48

big windfall, what you thought was not a

33:50

great product suddenly becomes a great product. Most

33:52

people would say, well, then I would actually

33:54

share some of those gains with the workers

33:56

as well. That's not

33:58

what we assume in our model. because

34:00

we say, well, that's more profits

34:02

for the shareholders. But many companies

34:05

have this more complex social relationship

34:07

with their stakeholders, their customers, their

34:10

workers, perhaps even broader

34:12

society. And that's not

34:14

always inefficient. And I think

34:17

both kinds of corporations have always

34:19

co-existed, but they

34:21

have very different implications for

34:23

who benefits from economic growth.

34:26

And they are under different types of stresses.

34:29

And what happened in the

34:31

late 1970s and 80s is

34:34

both ideological and economic shifts

34:37

have created much more

34:40

powerful forces towards the profit

34:42

motive. And one sort

34:44

of factors for this was

34:46

related to competition from Japan, then

34:48

competition from China, and all sorts

34:50

of other cost-cutting pressures on corporations.

34:53

But another one was ideological, and this

34:55

is the famous New York Times

34:58

Magazine article that

35:00

Milton Friedman wrote and said,

35:03

the only social responsibility of business

35:05

is shareholder value. That's

35:08

the world we should strive for.

35:10

And I think that really created

35:12

a very different mindset among managers

35:14

or a justification for managers and

35:16

shareholders to sideline workers. And

35:19

that took two forms. First of all, they

35:21

didn't share the gains as much, the fact

35:23

that unions were getting weaker facilitated

35:25

that. And second, it also

35:28

fueled more use of automation, because if you think

35:30

of your labor costs as a cost to be

35:32

cut, then you welcome all sorts of

35:34

automation devices that are going to enable you to cut

35:36

those costs. So it was

35:38

a broader social and economic change.

35:40

And I think Milton Friedman captured

35:42

the essence of it. And

35:45

I think he was very influential because he was very

35:47

eloquent, he was very respected, and he was

35:49

a very good marketer of these

35:51

ideas. But he is not single-headedly

35:53

to blame. So

36:05

I want to end on a lighter note. I'm

36:08

almost certain that you will not remember the first

36:10

time that we spoke to one another, do you?

36:13

I do, I do, I do. We even started

36:16

like talking about some new research I was

36:18

really excited about. I don't think, wait, that's

36:20

not the first, I don't think you remember

36:22

the very first conversation. That was in the

36:24

corridors of MIT, that's right. In the corridors,

36:26

okay. Even before that, okay, it

36:28

must have been 1994 or even 1993. 93,

36:32

yeah, when I first arrived. I arrived at MIT

36:35

July 1993. Okay, so in

36:38

1993, you had arrived

36:40

and you were a faculty member, okay. I

36:42

was a graduate student. And

36:44

I remember thinking, how does

36:46

a guy from Turkey, who's

36:49

the exact same age as me, already

36:51

have a job at MIT, the best economics department

36:53

in the world? Well, you know what I thought

36:55

is that, you know, this guy is going to

36:57

go to much farther places than I am. Why

37:00

is he still a PhD student? Yeah, okay, you

37:02

didn't know anything about me yet because you'd never

37:04

talk to me, okay. So I thought

37:06

to myself, I better start doing

37:09

whatever De Rone is doing. To begin in

37:11

that direction, I read a paper

37:13

that you'd published and I didn't think you had hardly any

37:15

papers published back in 1993 or 94. And

37:18

I remember I picked up a

37:20

copy of your paper that was published

37:23

in a British journal called The Economic

37:25

Journal. And I was too shy

37:27

to actually go to your office and talk to

37:29

you. But one day, I was

37:31

in the bathroom and I was standing at

37:33

a urinal and you just happened

37:35

to walk in and stand at a nearby

37:37

urinal. And I'm not sure why I

37:39

had the courage to talk to you at the urinal, but not

37:42

in your office. But I said, hey,

37:44

I enjoyed your article in The Economic

37:46

Journal. And I remember you

37:49

being flabbergasted that I had read it. And

37:52

then still standing in the bathroom, I asked you a

37:54

bunch of questions about the paper and you answered them.

37:57

And that was the very end.

38:00

auspicious way in which you and I

38:02

first met. And I suspect

38:04

that many people, if they

38:06

had been a fly on the wall watching

38:08

that first awkward interaction, they would

38:11

not have imagined that things would turn out so great for

38:13

both of us. Yeah, we've been

38:15

both lucky, but I think it was very clear

38:17

from the beginning that you were going to high

38:19

places, Steve, I must say. Oh,

38:22

thank you for that. You were one of the few

38:24

who thought that. Certainly my classmates didn't think that. What's

38:27

next for you? You're so good at

38:29

research, and it would be pity for

38:31

you to move on. But I could

38:33

also see you playing an important role

38:36

in public policy or politics, either

38:38

in the US or an international

38:40

organization, or in you

38:42

being a person of Armenian descent born

38:45

and raised in Turkey, in

38:47

one of those two countries. Thank you. I

38:49

actually thought about what

38:51

would suit me best, and I don't

38:53

think politics would. I think

38:56

there's just too much backstabbing in

38:58

politics and too much grandstanding. I

39:01

would love to have an influence on

39:03

policy because I think there are important

39:06

issues, but I hope my

39:08

influence would be from afar. But I want

39:10

to keep on doing what I've

39:12

done over the last few decades.

39:15

Academically, I think I want to continue on the

39:17

analysis of AI. I think this is going to

39:19

be a formative technology

39:22

with huge consequences for democracy, for

39:25

mental health, for inequality. So I think we

39:28

need more economic analysis of that, how to

39:30

regulate it. I also want

39:32

to think about something we touched

39:35

briefly. Economic relations are

39:37

not separate from community

39:39

interactions. So how do

39:42

we think of local

39:44

communities and how they shape economic incentives

39:46

and how what's going on with the

39:48

economy overlays with

39:50

the changes in community structure,

39:53

segregation, less civic

39:55

participation in this country and around

39:58

the world. want

40:00

to bring some of the other things that

40:02

we talked about a little bit more formally, which is

40:05

about ideas. Ideas

40:07

play less of a role in both

40:09

political science and economics than they deserve.

40:12

New ideas shape how new political

40:15

coalitions are formed, how we view

40:17

new economic arrangements. So how do

40:19

we actually make sense of new

40:21

ideas coming up, which ideas are

40:23

going to become accepted? How

40:25

do we think of the conflict between ideas or

40:27

the marketplace for ideas? I think those are really

40:29

interesting questions that I want to explore more. When

40:35

I started studying economics, I wanted

40:37

to answer exactly the type of questions that Ron

40:39

has been tackling over the course of his career.

40:43

But by the end of my second year in the

40:45

PhD program, it was clear to me

40:47

I did not have the talent to make progress

40:49

on those big questions. It just

40:51

wasn't the way my brain worked. Thank

40:53

God I had the good sense and

40:55

the self-awareness to build a great career

40:58

around answering fun little questions. Every

41:00

once in a while, I wonder what

41:02

might have been. What if I'd gone

41:04

after the big tough questions? Maybe I

41:07

could have done something amazing. And

41:09

I always come to the same conclusion. There's

41:11

only one way I could have been successful on that

41:13

path. If D'Rone let me be his

41:15

co-author, I don't think I would have

41:17

added anything, but I could have stolen some of the

41:20

credit. If you want more of

41:22

D'Rone Osamoglu's thinking, my two favorite books of his

41:24

are the ones we talked about today. My

41:26

Nations Fail and his most recent book,

41:29

Power and Progress. Now

41:33

it's part of the show where we answer a

41:35

listener question. And Morgan,

41:37

our producer, as always joins me to

41:39

help out. Hi, Steve. So

41:42

a listener named Megan had a

41:45

question about why suicide negates life

41:47

insurance policies, particularly

41:49

standard ones that are included in

41:51

a typical corporate benefits package. What

41:54

do you think? So this is a great

41:56

question, and I think the right way to think about it

41:58

is by working through the incentives. of the various

42:00

parties involved. So let's start with the insurance

42:02

companies. It's really easy

42:04

to understand why they would

42:07

exclude suicides from payouts. What

42:09

could be easier than for someone who's

42:11

suicidal, often a young person with a

42:14

very long life expectancy, so their life

42:16

insurance policy is really cheap, could

42:18

get a huge policy, and it

42:20

could be financially very costly to

42:22

the insurance companies. So it's really

42:25

easy to understand why

42:27

this exclusion would be in

42:29

place. Okay, but Megan raises

42:31

the point about corporate benefits packages,

42:33

meaning someone gets a job and

42:35

then a life insurance policy is

42:38

part of the package that goes along

42:40

with that job. So I think Megan

42:42

is exactly right, because who really thinks that

42:44

someone who's suicidal is going to research which

42:46

companies have the most generous life insurance policies

42:49

and would go to the trouble of applying

42:51

to and trying to get a job at

42:53

one of those companies? So I think Megan

42:55

has really nailed it. I just

42:57

think in practice, this is

42:59

just arcane enough and complicated enough that

43:02

I wouldn't expect insurance companies to try

43:04

to change that because it doesn't really

43:06

work in their benefit in the first

43:08

place. Okay, but you were really

43:11

excited about this question. Do you have

43:13

anything else that made you excited?

43:16

I do. I actually had a

43:18

student 20 years ago named Sin

43:20

Yusing who wrote a paper on

43:22

this topic that looked even more

43:24

carefully and more deeply at the

43:26

incentives involved and found really remarkable

43:28

results. So one

43:30

important institutional detail we haven't talked about yet

43:33

is that in the US, it's only in

43:35

the first two years of your insurance policy

43:37

that if you commit suicide, it

43:40

isn't paid out. So after that, it's

43:42

treated like any other cause of death.

43:44

So Sin Yusing thought more deeply about

43:46

incentives. He put himself in the shoes

43:49

of someone who's suicidal and he thought, if I

43:51

wanted to help my family, I

43:53

could buy a life insurance policy,

43:55

but rather than committing suicide in

43:58

an obvious way, I could do it with a it through

44:00

the form of an accident. And

44:02

indeed, when he looked at the data,

44:04

accidents were highly elevated in the first

44:07

two years of having a new life

44:09

insurance policy. As soon as

44:11

that two year window passed, the

44:13

extra accidents, they disappeared, and

44:16

instead, the suicide rate quadrupled.

44:18

Really, I thought it was such

44:20

a fascinating paper, because it captured

44:23

what happens so often in

44:26

economic systems, which is the life

44:28

insurance companies put in a policy.

44:30

They think they've solved the problem,

44:32

but then clever people with strong

44:34

incentives turned out to be

44:36

far more inventive than the insurance companies,

44:38

and they find a way to get

44:40

paid out in their policies that

44:42

the insurance company hadn't really imagined. So

44:46

Megan raises a great point that

44:48

societal norms around

44:51

suicide and mental health

44:53

are changing, and suicide is now

44:55

thought to be

44:57

really a byproduct of severe

45:00

mental health issues, rather than

45:02

something someone is doing to

45:04

themselves. Do you

45:07

see change in societal

45:09

norms influencing insurance

45:12

companies? When I first

45:14

thought about Megan's question, I

45:16

have to admit I was a little bit

45:18

dismissive. I thought there's no way that the

45:20

insurance companies would ever change this rule, even

45:23

for corporate programs. But now,

45:25

as I put myself in the

45:27

shoes of a life insurance

45:29

CEO, and I think

45:31

through the changing norms, and I think about

45:33

how society views mental health, I

45:36

think I would be inclined to make

45:38

that change on corporate programs. So not

45:40

for individual life insurance, but for corporate

45:42

life insurance programs, because I don't think

45:44

it would cost life insurance companies very

45:46

much financially, but it would be

45:48

a reflection of how society feels

45:51

and it would feel like the right

45:53

thing to do. It's not that often

45:55

that we get a listener question

45:57

that makes me think about something and change

45:59

the rules. my mind, but Megan, you

46:01

have succeeded today in changing my view

46:03

on this issue. Thanks so much

46:05

for writing, Megan. If you have a question for us,

46:07

we can be reached at Pima at

46:09

freakonomics.com. That's P-I-M-A at freakonomics.com. We read

46:12

every email that's sent and we look

46:14

forward to reading yours. In

46:18

two weeks, my guest will be Kat Bohannon, who

46:21

has written an absolutely stunning book.

46:23

It's called Eve, How the Female

46:25

Body Drove 200 Million Years

46:27

of Human Evolution. The

46:29

most important thing we ever did was

46:31

get our hands on the levers of

46:34

reproduction to overcome our most basic

46:36

problem, which is that we suck

46:38

at making babies. As

46:40

always, thanks for listening, and we'll see you back soon. People

46:45

I mostly admire is part

46:47

of the Freakonomics Radio Network,

46:49

which also includes Freakonomics Radio,

46:52

No Stupid Questions, and The

46:54

Economics of Everyday Things. All

46:56

our shows are produced by

46:58

Stitcher and Renbud Radio. This

47:00

episode was produced by Julie

47:03

Kanfer with help from Lyric

47:05

Boudich and mixed by Jasmine

47:07

Kringer. We had research

47:09

assistants from Daniel Moritz-Rabson. Our theme

47:12

music was composed by Luis Guerra.

47:14

We can be reached

47:17

at Pima at freakonomics.com.

47:19

That's P-I-M-A at freakonomics.com.

47:22

Thanks for listening. I

47:29

wish everyone thought it was an honor to be on

47:31

my podcast. Of course they do. Of course they do,

47:33

Steve. They may not be as

47:35

upfront about it as I am, but I'm sure

47:38

they all do. No, they mostly turn me down.

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