(peaceful music)
(driving music)
- This is Free to Exchange, the show
where free markets and free
thinking scholars meet.
I'm your host, Ben Powell.
Economics is everywhere.
If you've been watching the
show, the last six seasons,
you already know that
economics is not just
about stock markets are dollars and cents,
but that instead economic
reasoning can be used
to better understand all sorts of topics.
Today I have with me a master
of the economic way of thinking,
who has a knack for finding
counter-intuitive conclusions
by applying economic reasoning
in a wide variety of situations.
My guest today is Dr. Steven Landsburg.
Dr. Landsburg is a professor of economics
at the University of Rochester,
he's the author of eight books,
including the "Armchair Economist,"
"More Sex is Safer Sex,"
and most recently, "Can
You Outsmart an Economist?"
Steve, welcome to the show.
- Thanks for having me here.
- So today we're gonna do
something a little different.
We're gonna, instead of
sticking with one topic,
we're gonna just kind of use
the economic way of thinking
to shed light on a whole
bunch of different topics,
kind of rapid fire here, maybe.
And following through some of the books
that you've worked on.
So let's start out with one.
I got a new car for my wife recently.
It's got all of these safety features,
airbags everywhere, and bells and whistles
that tell you when people around you,
but the first chapter of your old book,
"The Armchair Economist" is
called, "How Seatbelts Kill?"
What's the logic here?
- The logic is very simple.
It's the logic of incentives.
When your car has more safety features,
it is easier to survive in an accident.
You're less likely to be injured.
You're less likely to be killed
and that means you're more willing
to take a chance of having an accident.
It means people drive more recklessly.
Essentially, you've driven down
the price of reckless driving.
The part of the price of reckless driving
is that you might get killed.
You've driven down that price.
And when you drive down
the price of something,
people demand more of it.
- But my wife doesn't go around saying,
I want to go reckless drive.
She doesn't want to have an accident.
- No, she doesn't say it out loud
and she doesn't, she doesn't
maybe acknowledge it.
But the fact of the matter is
that if I took the doors
off your wife's car,
she would probably drive a
whole lot more carefully.
If I make your car more dangerous,
and this is a very interesting fact
about the way people respond to this.
If I tell people that
when cars are made safer,
people drive more recklessly,
they always, they find
that hard to believe.
They react, they say, oh that's
just doesn't sound right.
And yet, if I tell people that if I made
your car more dangerous,
you would drive more carefully,
everybody believes that.
And it's exactly the same thing
just said in a different way.
If I were to mount a spear
on your steering wheel
pointed directly at your heart,
I guarantee you would do less tailgating.
And in the opposite direction,
when I give you a padded dashboard,
a shatterproof windshield,
seatbelts, safety belts, traction control,
all of those things we see in the data
that people do drive more recklessly,
they do have more accidents.
As it turns out, they die
at roughly the same rate
they were dying at before.
They're safer because
of the safety devices,
but they're also having more accidents.
- So fewer deaths per accident.
- Fewer deaths per
accident, more accidents.
Either of those effects could have been
larger than the other
but when you actually look at the data,
you'll find that they roughly
cancel each other out.
- Now, I totally appreciate this.
'Cause part of the year
I drive an old 1979 car
and I know when I get on the highway,
I'm much more careful in
that than with my modern one,
but that's 'cause I'm thinking about me.
What are the third
party effects with this?
- Well, you know, the third parties,
the pedestrians and the other
people you meet on the road,
the pedestrians don't have seatbelts.
The pedestrians don't
have padded dashboards.
The pedestrians don't have
all those safety features
and so in fact, we see that
as cars are made safer,
pedestrian deaths actually rise.
And we see this not just on the streets,
but also on the NASCAR tracks
where we've got a lot of data.
It's a wonderful thing
because NASCAR is constantly
hundreds of times per year,
instituting new little safety improvements
that are made mandatory for the drivers.
And we see that in the
data that every time
the cars are made safer,
every time the safety features
come in, drivers drive
a little more faster
and they drive around those tracks
and they have more accidents.
And we have a lot more
injuries among the pit crews.
- And profits go up I bet.
- And profits go up
because those accidents
are exactly what people
come to NASCAR to see.
- So in evaluating things, economists
weigh costs and benefits.
Someone listening to you could hear,
okay, so our safety improvements,
we get more accidents,
some extra pedestrian
deaths about the same.
Are they good or bad on net,
the safety improvements?
- You know, a lot of
times I tell my students
about seatbelts and a lot of times
they walk out of class
with the false impression
that I learned in class today
that seatbelts do no good.
That's not true.
When you get a seatbelt,
if you drive faster and still
have the same risk of dying
as you had before, you've
gotten a benefit out of that.
People like to drive fast.
The seatbelts are definitely
making people better off
making drivers better off.
I'm not so sure about the pedestrians,
but they're making drivers better off.
They are taking that benefit in a form,
perhaps that you did not
expect them to take it in,
but a person who is driving faster,
having the benefits of getting
where they're going faster
and at no increased risk of dying
is a person you've done some good for.
- Alright, so let's move
on to another topic.
So most people probably haven't thought
about that one before,
but a lot of people have
thought about environmentalism
and recycling and things like that before,
but probably haven't thought
about it like an economist.
The last chapter in one of your books
is called something like
"The Science of Economics
Versus the Religion of Ecology."
What would you like to tell
us about how the economic way
of thinking kind of impacts thinking
about the environment and recycling?
- What I would like people to be aware of
is that the issues that we think of
as environmental issues are always issues
about conflict between
people who want to use
the same resource for
two different things.
There's a patch of land and
somebody wants to use it
as a forest preserve
and somebody else wants to
use it as a parking lot.
When people have different preferences
about the use of a
resource, that's a problem
and we have to figure out
ways to solve those problems.
We have to figure out ways to compromise.
We have to figure out
ways to make decisions
without killing each other,
but there is not a moral aspect
to having one preference over the other.
If you like rabbits and squirrels
and I like a place to park my car,
your preferences are impinging on mine.
My preferences are impinging on yours.
It would be better if they
didn't impinge on each other,
but they do, we have to work that out.
And I think that trying to
paint one side or the other
as evil in these things as happens
so often in public discourse
is just not productive.
It does not address any of the issues
that we really need to address there.
- So I understand that about
conflicting uses of resources,
but some will say it's
just uncontroversial.
Everybody should do.
And I get this from my
kid at school sometimes,
and I know you've suffered with that too,
because everybody should recycle.
Recycling is good.
- Recycling is expensive in many ways.
Not just the process itself,
but the time and the
energy and the thought
that goes into sorting your materials
into different, you know,
I go into a restaurant and they've got
six different kinds of trash cans,
and I'm trying to figure out
what kind of trash goes in,
which can, it's an annoyance,
it's a minor annoyance,
but it's an annoyance.
And maybe if I were to take care
to make sure everything
went in the right can
I would do a minor amount
of good for the environment.
I'm not sure whether the
annoyance is worth that or not.
And I think it's okay for different people
to make that choice in different ways.
- Sure, and in fact, in some
things, some of them say,
we need to recycle
paper to save the trees.
Does this make economic sense?
When we think of incentives?
- Actually it doesn't because if you think
about why people plant
trees, they plant trees
in order to cut them down.
Most new forest growth
is coming from things
like paper companies,
which are planting trees
in order to cut them down.
If you start recycling paper,
there's gonna be less demand for paper.
That means fewer trees
are going to be planted.
And there is no reason to
think that recycling paper
will raise the size of forest.
If anything, it will
shrink the size of forest
just as if everyone were
to stop eating meat,
the size of the cattle
herds would go down.
You don't stop eating meat in order
to make there be more cows in the world.
If we stopped eating meat,
people would stop raising cows.
- And in fact, the great cow emancipation
wouldn't work out very
well for the existing cows.
- Probably not, probably not.
- So switching modes once again
to another one of these topics
where it's, 'cause you're thinking
about the trees example where
it's not just incentives,
we're thinking about
secondary consequences
and how people's behavior reacts.
You have a section in the
"More Sex is Safe Sex" book
about how to read the news
and things that seem straightforward,
helping people, maybe aren't.
And one was the response
to Hurricane Katrina
and bringing in federal aid for people
who had chosen to live in high
risk areas in New Orleans.
Enlighten me with what
your thinking is on that.
- You know, if you have
a policy of bailing out
people who have chosen to
live in high risk areas,
you're gonna make land more
expensive in those areas.
There are people who choose
those high risk areas
because those high risk areas are cheap.
People have different preferences,
different preferences
with regarding to risk
and if there are areas that
are prone to hurricanes,
prone to natural disasters,
one advantage of living in those places
is that you can get land cheap.
And some people are
willing to take those risks
in order to have a place that
they can afford to live in.
As soon as you adopt a government policy
of saying that we're
gonna bail out everyone
who lives in those places
and has a disaster.
The first thing you see is land prices
in those places go up.
Now, people no longer have
that option of choosing
the risky place to live in
order to get a lower price.
You've homogenized things you've made,
you've brought land prices there up,
you've brought land
prices other places down,
you've lowered the range of choice
that's available to people
and I think it's a good thing for people
to have a range of choice.
- So disproportionately then
it's gonna be poor people who are hurt
by such policy probably.
- It's poor people who
tend to make those choices.
It's poor people who like to
be able to have lower quality
goods available to lower price.
Of course they would
prefer not to be poor,
but given that they're poor,
the availability of lower quality goods
at a lower price is a big boon to them.
And if you start forcibly
raising the quality
of those goods as you do, when you
tie land to an agreement
that the government
will help people who run
into trouble on that land,
if you start raising the
quality of those goods
and simultaneously raising
the prices of them,
you're not doing poor people, any favor.
- It's akin to almost mandating
that they all buy Cadillacs.
- Exactly, exactly.
It's mandating that they
buy a higher quality land
than they would prefer to
buy given their incomes.
- And meanwhile, what does it do
to the other population
that's deciding not to live
on the high risk land?
- Well, of course,
they're paying the price
they're paying the price for
bailing other people out.
So it's not clear that
any large group of people
are winners here.
I might say also, this is
a tangential to your point,
but I can't resist mentioning it
when you talk about bailing
people out from disasters.
When we bailed people up
from Hurricane Katrina,
the government spent in
order to rebuild the city
of New Orleans, the
amount of money they spent
came down to $200,000 per
resident of new Orleans.
That's $800,000 per family of four.
Once again, a question of,
I think you want to ask yourself,
if you think about the poor
residents of New Orleans,
who were the ones that
were really trying to help,
did they really prefer
having their city rebuilt
to having cash payments
of $800,000 per family?
Why don't we stop and
think if we're spending
that kind of money about whether we could
spend it in a better way?
- I think that's a great question to ask,
and we're gonna ask more
of them in just a minute.
We're mixing it up here today.
There will be no next guest,
Dr. Landsberg is sticking
around to explore
more provocative topics
with us when we return.
You should stick around too.
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in part by a grant from
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supporting education and the fine arts
in keeping with the philosophy
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as a patron of philanthropic causes.
The Helen Jones foundation.
- Founded in 2013, the
Free Market Institute
at Texas Tech University
promotes this teaching and
study of free market economics.
As part of our programming,
we sponsor a public lecture series
open to students, faculty, staff,
and the general public
in the Lubbock community.
Often the speakers in that series,
are the guests that you see
right here on Free To Exchange
more information is
available at www.fmi.ttu.edu
or by email at free.market@ttu.edu.
Welcome back, still with
me is Dr. Steven Landsburg.
So Steve, you wrote a book with the title
that we gotta talk about
with the kind of keynote
chapter of this book is
it's called "More Sex is Safer Sex."
This is deeply counter
intuitive to most people.
The idea of if more people are having sex,
won't this spread HIV
and other diseases more?
How does economics weigh in on this at all
and come up with more sex is safer sex?
- Well, you know, there
are people out there
who are very promiscuous
and very reckless,
and they've got a history
of a lot of partners
and not taking a lot of care.
When they have more partners,
they are making the
world a less safe place.
No question about that.
And they are analogous to the people
who create air pollution,
not thinking about the
consequences of their actions
and having those consequences
fall on other people.
And for the same reason that the world
has too much pollution,
those people are having too many partners.
- 'Cause they're not
accounting for the fact
that their disease is gonna spread.
- They're not accounting for the costs
that they're imposing on other people.
But the flip side of that is that
if you are a very cautious chaste person
who is very unlikely to be
infected with any disease,
then if you uncharacteristically go out
and find a new partner tonight,
you are making the partner
pool safer for everybody else.
You are making the world
a little less polluted.
The person who goes home with you is going
to have safer sex than they expected.
And you improve the quality
of the average match
in the same way that that
very promiscuous person
is reducing the quality
of the average match.
So the person who
the very chaste person who occasionally
takes an extra partner is
sort of like an anti polluter.
It's a person who cleans up
the air for everyone else
and makes the world a
slightly safer place.
- Or if it was a polluted river
they're the clean bucket
of water being added.
- They're the clean bucket
of water being added.
And that's only part of the story.
The other part of the story
is that when that chaste person--
- Actually, before we get to
the next part of this story,
let's just be clear on this part.
So there's somebody who is
going to be promiscuous tonight.
Then it's a question of
who they're matched with
and adding somebody who is
more personally conservative
into the stream just improves the odds
that they don't have a bad match.
- It improves their odds, that
they don't have a bad match.
- Okay, so that's the
first part of the story.
- That's the first part.
Now the second part of
the story is empirically
much more important, although
a little more macabre
and that is that if a
relatively chaste person
goes out tonight and finds a new partner,
that new partner might
have a terrible disease.
And if you are that very chaste person,
you might get infected.
You might go home and you
might die with that disease
and that's great because
we just killed the virus.
The virus dies with you.
If somebody is going
to be infected tonight,
I want it to be you and
not Promiscuous Pete,
who's gonna spread it to 20
other people before he dies.
The chaste person going out
there and getting infected
is perhaps preventing a
more promiscuous person
from getting infected.
And therefore is
preventing 20 other people
from picking up the disease
from that promiscuous person.
So, unfortunately you can't
use this as a pickup line
in a bar, you can't go into a bar and say,
you should go home with me because
think how wonderful it would be
if I infected you with
something and you died
and took the virus with you.
But that's the whole point.
The whole point is that
there is a disconnect
between what's in your private interest
and what's in the social interest,
a theme that comes up in
economics all the time.
You actually do the world of service
if you go out there, get
the virus and die with it,
you have no incentive to
go out there and do that.
- I'm pretty sure there's
nobody inspired at home.
This is a Sunday morning show saying, ah,
you know what, I'm gonna go make
the world a better place tonight.
- But this is exactly a
theme that runs through
all of economics.
A lot of times people don't
have the right incentives
to make the world a better place
and we have to think about
the consequences of that.
The wonderful thing about
free markets of course,
is that so often, so much more
often than you might expect,
they do give people exactly
the right incentives,
but we don't want to take that for granted
and we want to recognize
that that's not always true.
- Sometimes it might not be true,
but it might not be obvious
what a corrective is.
I mean, what is it
corrective in this situation?
- A corrective in this situation ideally,
would be to subsidize people,
subsidize chaste people to have more sex
and at the same time
tax promiscuous people
for having more sex.
But that's very hard to do
because you don't know
who the chaste people are
and who the promiscuous people are.
You can't tell by looking
so, you know, you can
toy with what would be
some of the ideal correctives to this
and then even when you
come up with what you think
is the ideal corrective that we're gonna,
if you're very chaste and
you find a new partner,
we're gonna give you $50.
Even if you come up
with something like that
and you believe that
ideally it would work,
then you have to still ask yourself,
do we want to give governments the power
to do this kind of thing?
Because once you make
governments more powerful
in order for them to be able
to follow good policies,
you've also made them a
little more powerful in ways
that they might use to follow
bad policies in the future.
So, and that same thing comes up
if we go back to pollution,
we want governments to tax polluters.
We think that's a good thing,
but when we give them the power to tax,
they don't always use it wisely.
So we want to stop and think about that.
- And they could overshoot
as much as undershoot
in terms of corrections.
And give us an idea of the
magnitude in this market,
this hookup market, if you will,
of a relatively chaste person, what's the
numbers that would minimize disease
and is that really what government
or we should be wanting anyway?
- What we have based on
work done by Michael Kramer,
who's an economist at Harvard
who also knows a lot about epidemiology,
he estimates that if you have fewer
than two and a quarter partners per year,
and if you were to raise yourself up
to two and a quarter partners per year,
but not go past that,
you would reduce the spread of HIV.
- But that's not necessarily
the optimal number
of partners, excuse me,
for weighing both costs and benefits of--
- Correct, if you went to
two and a quarter partners,
you would be lowering the cost of,
you would be lowering
the amount of disease.
If you go a little
beyond two and a quarter,
you are perhaps raising
the amount of disease,
a small amount but also raising the amount
of sexual pleasure people
are having by so much
that socially it's probably worth it.
And so we would,
if we take account of those benefits,
we probably want to bring
you up a bit above two
and a quarter partners, not
all the way to 20 partners,
because then we're turning
you into Promiscuous Pete.
- The polluter.
- Right.
- Nothing like a little
talk about the costs
and benefits of sex for Sunday morning.
So moving on from that topic,
your new, your latest book,
"Can You Outsmart an Economist?"
has a whole bunch of
different puzzles and oddities
where people's first
intuition is often wrong.
So let's take a couple
of examples from that.
So one, actually,
since we're sitting at
Texas Tech University,
students do evaluations of professors
and disproportionately people
who are more beautiful,
more handsome, get better evaluations.
Students just shallow
that's what most people are gonna think.
- Absolutely, now in "Can
You Outsmart an Economist?"
many of the little puzzles in that book
are cases where the whole moral
is to think beyond the obvious.
You look at the way people are behaving,
it looks like they're behaving shallowly,
or it looks like they're
behaving irrationally
but in fact, if you think
about the incentives
people were facing, the
behavior is explained.
Yes, more beautiful teachers
are consistently rated more
highly by their students.
And yes, that looks like
students are being shallow.
- But--
- But, if you think about it,
beautiful people have
a lot of career options
that other people don't
have, not just in Hollywood,
not just in modeling,
but in sales, retail,
anything that involves
dealing with the public,
beauty is an advantage.
So a beautiful person who
chose to teach college
is a person who on average
gave up a lot of other opportunities
in order to teach college
and on average, those are gonna be people
who really want to be in the classroom.
They're enthusiastic about it.
They're gonna do better jobs.
By contrast, those of us who are
a little more ordinary looking,
maybe some of us are in
that college classroom
just because it was the
only option available to us.
And on average, we're not going to be
as good in the classroom.
So, you know, as I say in, "Can
You Outsmart an Economist?"
if you show me a lighthouse keeper
with movie star, good looks,
I will show you the world's
best light housekeeper
because if he gave up
a career in Hollywood
to keep that light house,
he really cared about doing a good job.
Beauty does not have to be a qualification
for the job you're doing
as long as it's a qualification
for some other job,
it's going to be correlated
with doing a good job
and theme throughout "Can
You Outsmart an Economist?"
is to look for the logic
behind the obvious.
- Right and in this
case it's that they have
a higher cost of taking
that job, so they must
really want that job.
- Exactly.
- So another one is and maybe you can give
just a quick background on the situation.
In a lot of societies, boys
are preferred over girls.
- By parents for having children.
- Right, and then when we
look at adoption markets,
when they adopt children,
girls are chosen over boys.
- People ask for,
in those same societies,
where the parents are
all eager to have sons.
The adoption agencies are overwhelmed
with requests for girls.
Looks a little strange, looks a little,
maybe irrational doesn't make sense.
But if you look beyond the
obvious what's going on,
if I live in one of those societies
where I know all my neighbors prefer boys,
and I'm looking to adopt,
I know that at that adoption agency,
in order for a boy to
be put up for adoption,
the parents have to really feel
like he's a troublesome child.
Maybe he's got an illness,
maybe he's poorly behaved.
A lot of the girls on the other hand at
that adoption agency are there
just because they're girls
and the parents didn't want a girl.
So if I care about having a
healthy well behaved child,
my odds are a lot better if I take a girl,
even if I would have preferred a boy,
I don't just prefer a boy.
I also prefer healthy and well-behaved,
my odds are much better if I take a girl,
because there are so many
healthy well-behaved girls
that got put at that adoption
agency just for being girls.
So once again, if you think
about costs and benefits,
if you think about incentives,
it all becomes clear.
- Just for people watching.
How much does this apply
to the United States
verse other societies around
the world do you think?
We do have some evidence
from the United States
that parents prefer boys
and in fact in my book
"More Sex is Safer Sex,"
I presented a lot of that evidence.
I have come around to believe
that that evidence is less convincing
than I thought it was
when I wrote that book.
And in fact in "Can You
Outsmart an Economist?"
which is a more recent book,
I mentioned that I now find that evidence
a little less convincing than I did then,
but people can read both books
and see the arguments both ways.
- They can buy both of them.
In fact, so your most recent
one, where is this available?
If you go to outsmartaneconomist.com,
that's all one word,
the website outsmartaneconomists.com,
you can not only find
out how to read the book
and not only read the reviews,
but you can read the
first chapter for free.
So if you think this
might be the book for you,
go to outsmartaneconomist.com,
read the first chapter for free
and if you like it, the
ordering information
is right there on that page.
- Alright well, thank
you for a provocative
Sunday morning conversation.
It's a pleasure.
- Thank you very much
for having me.
- Understanding economics is like
getting a set of eyeglasses
when you have blurry vision.
Economic eyeglasses take
a blurry, confusing world
and help us better see the connections
between different things and
how things actually function.
Today, we had a guy with a
great set of economic eyeglasses
addressing a whole bunch of
topics, kind of in rapid fire.
I bet you, some of you
raised your eyebrows
while he talked about some of these.
Maybe you were convinced on some,
maybe not on others, probably
not on a whole bunch of them.
But it's an invitation to look further
into the economic way of thinking,
possibly by reading some of the books
that we discussed or
just exploring economics
more generally, or even tuning in
to the next episode of this show.
I'll see you next time.
(light guitar music)
