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Hi everyone, this is Reasonable, a show about economics, business, and politics.
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And I'm Muscarivos.
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I'm very excited to speak with my guest today, Professor America Elizabeth Hummel.
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Professor Huffman has had an extraordinary career in economics and academia that spans over 50 years.
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She was a pioneer in the fields of experimental and behavioral economics, has written dozens of academic papers, and has thousands of citations credited and awarded.
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Professor Huffman has also had an extensive career in university administration.
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She has held the positions of Dean, Provost, and President in 2000, becoming the 20th president of the University of Colorado system.
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She served on numerous nonprofit and for-profit boards, including the National Science Foundation and Target Corporation.
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She's speaking with us from her home in Iowa.
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Professor Hoffman, thank you for joining me.
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You're very welcome.
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I'm happy to be here, Oscar.
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So I just wanted to start with people heard me say experimental and behavioral economics.
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So I was wondering if you could just give us a brief introduction on what is experimental behavioral economics and how is it different from what people would think is regular economics?
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Well, behavioral economics is what people really do, as opposed to what we theorize they should do or they might do.
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So, and experimental is the way that we get at those questions in behavioral economics.
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So for, let me see, what would be a good example?
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Um, why, for example, do people not save despite all the incentives we give to them to save?
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It turns out it it has a it has a behavioral reason that has to do with your how much what your time horizon is.
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And if your time horizon is very short, you're less likely to save, even even if your mother and your father and everybody tells you you've got to save because someday you will be as old as I am and you will want to have money.
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It it's very hard for people to absorb that when there are things they want to buy today.
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Is it fair to say like before experimental, before experimental behavioral economics was was that not accounted for in the field?
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Things like that?
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That's correct.
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So the field was very theoretical.
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And for that reason, a lot of students had trouble connecting with what they were learning in economics.
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Um experimental economics really started in the 1960s, but it didn't become accepted at all in the economics field really until the mid to late 80s.
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Um and uh and it what happened was that there was a market crash in 1987, and the theorists had said that we were beyond market crashes.
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Well, I've lived through five market crashes.
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Um and the experimentalists had already demonstrated that you could produce crashes in the lab in the laboratory, but nobody was listening to them.
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And then the crash of 87 happened.
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I mean, I remember I remember that morning coming to work and the crash was happening, and my co-author, my eventual co-author, who ended up winning the Nobel Prize, not me but him, um his phone was running ringing off the hook that day.
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And this is when all phones were handheld phones.
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It was not, it was not the kind of cell phones we have today.
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So he was sitting at his desk in Arizona fielding phone calls all day from economists and and um writers, journalists about this supposed new phenomenon of the market crash.
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And that was that was the beginning of the acceptance of behavioral economics.
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And that was a perfect example of something that was discovered in the laboratory that was conflicted with the theory at the time, the accepted theory at the time.
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So if I'm if I'm correct, you actually didn't start in the traditional field of economics, right?
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Like I think I read a word that I didn't understand, which was Cliometric.
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Did I is that what it's called?
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Cleometrics.
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Clio is the root Clio is the muse of history, and metrics is metrics.
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So it's basically the study of data or the use of data in economics, in economic history.
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So I started out as a as a historian.
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I actually got a PhD in history, and from there I I migrated into economics through my connection to cleometrics.
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And then you thought there's this new field of economics, I'll get into that, called experimental.
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Is that right?
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That's correct.
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And when I was a graduate student, uh one of the um founders of the field, Charles Plott, was one of my was a professor at Caltech where I was studying in graduate school.
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And basically, I had one more course I had to take at the end of my course, courses at the end of two years in coursework.
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And my advisor at the time said, you've got to take Charlie Plott's experimental course.
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And I said, Why?
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I'm in economic history, and he said, Because that is the next big thing.
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And you you can't leave Caltech without taking a course in experimental, and that changed my life.
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Wow.
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So I did some work in economic history, but most of my highly cited work is in experimental/behavioral economics.
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Which kind of brings me to my next question.
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You you did a ton of research in experimental economics, you know, you worked in all these laboratories, and it kind of struck me that fairly late into your teaching career you were still teaching econ 101.
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Why keep teaching econ 101?
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Because that's where the students get their first introduction to economics.
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And if econ 101 isn't taught properly, then the students' introduction to economics is all messed up.
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And actually at Iowa State, we take teaching of econ 101 very seriously.
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And in fact, since I taught 10 econ 10, I eventually, I eventually stopped teaching it because they wanted me to teach more experimental economics.
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But um, but now we have a coordinator of econ 101.
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It's such an important course that we have somebody who makes sure that the content is pretty much the same across all the courses and takes care of it and makes sure that the particular the graduate students who are teaching it are trained to teach it well.
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So we take very seriously.
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It's it's our it's one of the highest enrolled courses in the university.
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Most of the public, right, the general public does not study economics.
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Uh what are some concepts from economics that the general public you think, hey, if if they applied this to their lives, you know, they would they would have better outcomes.
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So most people think of markets as whatever the price that's they either think of markets as bad things or they think of markets as sort of perfect things that uh that tell you exactly what the price and quantity should be.
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So you so put I think that's not just your generation, it's my generation too.
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I mean, I think the average person has a sort of bifurcated view of markets.
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Either they're wonderful and they they take care of everything, or they're horrible because they don't take care of the poor of the poor.
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When in reality, the the the correct answer is a little bit of both.
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And so certain kinds of goods have what we call external effects.
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So, for example, when you drive your car, if especially if it burns gasoline, but even if it burned, even if it's electric, I can argue there are some externalities associated with the use of electricity.
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But certainly if you drive a gasoline-powered car, you're polluting the environment.
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Every time you get in the car, it's sending CO2 and other noxious gases into the atmosphere that for that have other people have to breathe.
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And I'll tell you, from living in places that have high pollution, I'm an asthmatic.
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It has a big effect on people who are prone to asthma.
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In fact, this morning I was a little worried I was having an asthma attack and wouldn't even be able to do this.
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Um, so every time you drive that gasoline-powered car, it puts stuff in the atmosphere that people like me, that make people like me sick.
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So you are imposing an externality on everyone who has to breathe the air.
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And the the the worse the air is in a in a particular community.
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I mean, central Iowa's not bad, but um the front range of Colorado is horrible for for polluted air.
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And where I grew up in the Northeast is really bad for polluted air as well.
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So um, but you don't you don't you don't pay for that.
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Now you may pay a gas tax, and part of the gas tax has a little bit of effect, but the gas tax is really for to pay for roads, which are important as well.
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So when you drive on the roads, you also have the external effect of just having a little bit of wear and tear on the road.
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Every time you drive down that road, and the gas tax is designed to take care of that, but the gas tax is not designed to charge you for the effect it has on my lungs, for example.
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Sure.
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And I like the way you worded that, and I think about you know, most people kind of fall into the buckets of okay, the the market is is a bad thing, we shouldn't trust it, etc.
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Or, yeah, it is a perfect being and it it can calculate everything and we just need to leave it alone.
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And I think you know, something we would like to do on this show is contemplate, you know, what you just said, which is okay, it's in in this situation it's a little bit of both, in probably most situations, it's a little bit of both, right?
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And how do you find that balance?
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And uh I I want to kind of hone in on that word to use externalities, because um the this concept kind of changed the way I view um regulation, for example, which is um and you please correct me if I'm wrong here, but so the the externality is when you know two parties, there's a transaction, and a third party that's not part of that transaction is affected by that, either in a positive way, because we you kind of gave a negative example, but there's also positive externalities, right?
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Exactly.
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That's it, that's a very that's a very good definition.
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So do you want me to talk for a bit about positive externalities?
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Yeah, if you don't know.
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I think that's a concept.
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Negative externality is generally easier for people to understand when you when you explain it in terms of sort of polluting the air and what it does to people like me who have asthma.
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Um it it most people can get that that idea.
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They don't know exactly what to do with it, and that's the next step.
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But let me first talk about positive extra knowledge, because again, you so you may, for example, let's look at schooling, for example.
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If if if the population is better educated, there's lots of evidence that people live longer, they're more productive, they um they're healthier, they tend to have fewer children, um, so they in in a very real world, in a very real sense, having a more educated population is a is a positive, a positive impact.
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But when you go to when you pay for college, for example, you're just paying for yourself.
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You're not you're not reaping the benefits of what you're giving to other people.
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Now, public the public spending on higher education is one way, so scholarships, for example, is one way to compensate people for the for the social benefit of um of having a more educated population.
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That's probably the best, that's one of the best, one of the most easy to understand examples.
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And there's a reason why we provide elementary and secondary school free for people, and that's because being educated up to a certain point is so valuable that it's it's worth it to the society to pay for it.
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Would vaccines be another example?
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Vaccines are another perfect example, exactly.
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Very controversial, unfortunately, these days, but that's a perfect example.
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So by vaccinating the entire population against measles, which we used to do, you're protecting everyone, even those who because of their health, can't get vaccinated.
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So there are always some people who can't get vaccinated because it would make them sick.
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And so we protect those people by by vaccinating everybody, and we protect everybody else by vaccinating.
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We have eliminated measles, smallpox, polio from practically the entire world, and now they're coming back because we're not vaccinating.
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So, in in that example, let's say the pharmaceutical company is selling this vaccine and you, the consumer, purchase it and take the vaccine, the positive externality there would be that you're helping build herd immunity.
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That would be a positive externality because those people are affected even though they weren't part of that transaction.
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Exactly.
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Exactly.
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And so by allowing a fairly large number of people who do not get sick from the vaccine to opt out of it, you you lower, you lower the herd immunity and you you invite another um pandemic.
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Sure.
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So I read a quote that you were giving to Caltech, actually, you mentioned it earlier, uh, and you said that in these public policy um courses that you teach, you ask the students to check in their politics at the door.
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That's right.
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Can you elaborate on that a little bit?
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What I wanted to do, what I used to do, I'm I'm retired now, but what I used to do was I wanted to, I wanted the students to consider all perspectives, from the most conservative to the most liberal.
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And so I did not want to hear from them what their politics were.
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And I did, I they didn't want to hear from me what my politics were.
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And so my goal in these courses was to get students to think out, I guess a very a way to say it is outside the box for them, to think about all the possible ways that you could address this particular problem.
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I started introducing a unit on pandemics, for example.
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And I would ask students to write a paper, to write a short, like one-page essay on why we should vaccinate, or or an argument, if you wanted to, an argument against vaccination.
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But it had to be grounded in economic theory and economic data.
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You know, just hearing you talk about that's kind of the attitude I think of people listening, maybe of obviously everybody has their political point of views, and as we start talking about some of these issues like vaccines, you know, people might think, okay, one thing or another.
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But um kind of to your point, is how do you break down, you know, hey, we should go this route, whether it's government intervention or hey, maybe government intervention is part of the problem in this scenario.
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And I I find it's harder and harder to really break down the specific issues and see on this issue, you know, is speaking of externalities, is it fair to say you know the government's role is we want to elevate positive externalities and minimize negative ones?
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Yes, or I I think a better way to put it is we want to force the consumers to internalize, that's the way we put it, to internalize the externalities.
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So we want people to pay the marginal cost or the that they're that they're imposing with negative externalities, or receive the marginal benefit that they're not getting from positive externalities.
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And um the the earliest work on this goes back to the 19th century, and it was basically the idea was you would you would either tax people or provide a payment to people, subsidies, and um and then you would try to figure out what that marginal cost or marginal benefit was.
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And by marginal we mean additional, but the additional cost that this person is imposing on other people, or the additional benefit this person is giving to other people.
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Since then, there I mean economists have suggested you can do things like ban a particular product, or you can force everyone to get vaccinated except those who would be who would get ill from vaccines.
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One is you work with the market, one is you say the market is not working, and we're going to force people to either accept the benefit or avoid the cost.
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Those would be two and state differences.
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And some of them, it turns out that paying people to get vaccinated, for example, just doesn't work.
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They don't not enough people do it to um to actually have any effect.
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So it it seems it turns out that requiring vaccinations for everyone except those who are who have compromised immunity, it actually works better.
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But it but people get very angry when they're told you must get vaccinated.
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Right, right.
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So you mentioned taking those externalities and trying to internalize them.
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I want to kind of focus in on that because kind of to your point, if if you kind of are, you know, hey, let's just let the market figure it out.
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We don't need to mess with it.
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You know, let this marketplace of producers and suppliers and consumers figure it out.
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To your point, unless you have a way of taking that externality and inserting it into the transactions, it it quite literally can never produce that right equilibrium because it's not part of the formula, that externality is not being accounted for.
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There's no incentive in the system that would push either firms or consumers to inter.
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The externality.
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And the price being paid is not a monetary one.
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Well, I mean, it can be monetized, but it isn't a monetary.
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It typically is not a monetary value.
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So I just watched this um documentary.
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Kind of the the timing is kind of funny.
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It's called Plastic Detox on it's on Netflix, if you're interested.
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And I'm sure, I'm sure people listening can kind of put it together what it's about, right?
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So there's a researcher who is following a few couples and she's trying to study fertility and the effects of microplastics, etc.
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And she's very clear that this is not a formal academic study.
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She's actually using the documentary to raise uh funds on to do a formal study.
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Um but they have you know chemists on and different academics talk about and I I couldn't help as we were preparing for the show is to think about okay, so there's all these chemicals that these suppliers are putting into these plastics to make them you know more malleable, firmer, cheaper, etc.
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And consumers are buying it.
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Is for so in this example the externality is the health effects that the way it's harming the consumer.
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Yes.
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The health effects, the the additional garbage effects.
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Um you know, there's this huge peat plastic island in the mid I guess in the middle of the Pacific, that um that is just apparent apparently it's totally gross.
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And um it's just all these things add up.
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But I think the scariest thing is is these microplastics that seem to to get in your bloodstream.
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I mean, I I'm sure I've been exposed to them my whole life.
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Um so once you once you've identified that's probably the the easier part, right?
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Is identifying the externality.
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That's that's probably the that's the easy part.
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The next the next task is you know, if if there is the will to correct it, what are the mechanisms?
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Like you mentioned some earlier, you have t taxes, subsidies, and then just bans, right, sometimes on negative externalities.
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If it turns out that these plastics are as bad as everyb as they seem as a as scientists seem to think they are, the only solution may be to just ban them.
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And if it turns out they're really affecting people's fertility, contributing to the increase in Parkinson's disease, for example.
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Um those are those are two in particular that have been pr proposed uh as um as being caused by the these microplastics.
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And um so that I mean, in and of itself, those two is imp are imposing a huge negative externality on society.
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And and the theory, I guess, or at least some people's theory is that if that if the damage was internalized, that people really wouldn't want to buy that cheap of plastic because it really isn't as cheap as it looks.
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Well, we don't know.
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The problem is it's an empirical question.
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When you impose a tax, you either collect a lot of money or you get people to use less.
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It turns out you can't do both.
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And it depends on this.
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A very slippery concept that I have a lot, I had a lot of trouble teaching to students, I had to have trouble teaching it to the average student, which we call elasticity of demand.
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Basically, by by what percentage do you change your your consumption as a result of a tax, for example.
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And it turns out that if your demand is what we call elastic, it means that you're highly responsive, then people will stop using, will use less and less of this product.
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But if you're if it's if your demand is what we call inelastic, in other words, you die it's not very responsive, then you can collect a lot of money, but people keep using it.
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And the perfect example is cigarettes.
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Because cigarettes are addictive, taxes on cigarettes don't have much effect on smoking.
00:26:49.279 --> 00:26:54.559
What does have an effect on smoking is getting to kids before they start smoking.
00:26:54.960 --> 00:27:07.759
And banning smoking, banning smoking in public places probably had the biggest effect combined with getting kids early and keeping kids from starting smoking.
00:27:07.920 --> 00:27:15.519
Those two things probably had much more effect than cigarette taxes on the percentage of people who smoke.
00:27:15.839 --> 00:27:25.279
By making smoking nasty and unattractive, we were actually able to reduce smoking.
00:27:25.519 --> 00:27:29.680
Another thing that asthmatics feel very strongly about.
00:27:30.079 --> 00:27:30.640
Sure.
00:27:31.359 --> 00:27:40.160
And I think that I keep coming back to externalities because I think it's very, especially in in the US, right?
00:27:40.240 --> 00:27:43.200
We have a very individualistic freedom.
00:27:43.440 --> 00:27:45.279
I can do what I want culture, right?
00:27:45.440 --> 00:27:50.000
So don't don't kind of tell me what to do, mind your own business, etc.
00:27:50.480 --> 00:27:52.480
And I think don't tread on me.
00:27:52.720 --> 00:27:53.599
Yeah, exactly.
00:27:53.759 --> 00:28:04.559
And I think externalities, at least for me, because you know, when I when I started really getting hooked into economics, I you know, I would consider myself pretty free market person.
00:28:04.640 --> 00:28:12.240
And I think externalities really helped me, oh, you know, there is a way to hold both.
00:28:12.480 --> 00:28:17.359
I can still, you know, have respect for the markets and understand it just can't price everything in.
00:28:17.599 --> 00:28:32.160
So the the smoking you you example you gave is it can't, you know, when you when you buy a pack of cigarettes, it's not taking into account um the secondhand smoke, the effect that it's having on another person.
00:28:32.480 --> 00:28:33.039
Right.
00:28:33.839 --> 00:28:39.759
But the cigarette tax was actually designed to try to get people to to smoke less.
00:28:40.000 --> 00:28:46.160
And it's it's very expensive to smoke these days because of the cigarette taxes.
00:28:46.640 --> 00:28:51.519
But once you're addicted, it's really hard to get you to stop.
00:28:52.400 --> 00:29:00.799
Because so because it's an elastic and w when you tax it, you can raise a lot of taxes, but you're not actually changing behavior.
00:29:01.039 --> 00:29:04.240
So then you have to go back to what is the goal of the tax?
00:29:04.400 --> 00:29:12.079
Are you are you actually trying to because now you're creating a different incentive for the government because now you know they like that revenue.
00:29:12.400 --> 00:29:13.039
Exactly.
00:29:13.839 --> 00:29:23.440
It's really it's and the government gets sort of they they get addicted, people in government get addicted to the revenue that comes with the taxes.
00:29:23.599 --> 00:29:33.839
So it's hard for it's hard for them to say, well, we're not we're gonna we're actually gonna change our strategy and try to get people not to start smoking.
00:29:34.160 --> 00:29:40.000
Which kind of reminds me, you know, you hear a lot of people when it comes to like the climate change conversation talk about like a carbon tax.
00:29:40.319 --> 00:29:48.160
And this is this is an example of, you know, some of these taxes theoretically may not do what we think they'll do, right?
00:29:48.319 --> 00:29:53.839
We may actually raise a bunch of tax revenue, which you could argue is a good thing.
00:29:53.920 --> 00:29:59.839
But if the goal is to actually limit carbon, that might not be the best tool.
00:30:00.240 --> 00:30:02.079
Because people might just pay the tax.
00:30:02.720 --> 00:30:07.119
We don't know enough about the elasticity of demand in carbon taxes.
00:30:07.359 --> 00:30:18.720
They've been fairly successful in Europe, um, which has which Europeans have a much lower carbon footprint than Americans do.
00:30:20.000 --> 00:30:39.279
But it would it would really take a worldwide carbon tax to get a to get a handle on what the real elasticity of demand for um using carbon to as fuel.
00:30:39.759 --> 00:30:44.400
Um and I'm I'm not I'm not sure we'll ever get a worldwide carbon tax.
00:30:53.920 --> 00:31:08.400
So we've been kind of talking about okay, when there's an uh a problem that the market seems to be struggling to correct, you know, and some different ways that governments can step in and the rationale for doing so, externalities, etc.
00:31:08.960 --> 00:31:16.000
Um I wanted to kind of talk about when government regulation is actually a bad thing, right?
00:31:16.160 --> 00:31:20.400
Where it and by by that I mean it hurts consumers in the end.
00:31:20.960 --> 00:31:26.559
Um one example that I kind of wanted to propose to you was rent freezes.
00:31:26.720 --> 00:31:38.240
Um I think that's correct me if I'm wrong, but a fairly established one where it's pretty easy to see that that doesn't help housing, but I'd I'd love for you to kind of explain that to us.
00:31:39.039 --> 00:31:42.880
Well, I've got I kind of almost need to draw a graph.
00:31:44.799 --> 00:31:45.680
We'll try to imagine.
00:31:47.039 --> 00:31:52.640
I'm trying to I'm trying to see if I can explain this graph to to your listeners.
00:31:53.119 --> 00:32:16.160
The the issue is that if you freeze the rent at a price that is below the market price, which is typically typically that's what happens, is that somebody decides, and unfortunately, they're they're toying with it again in New York City, and it's just been a disaster every time it's been done in New York City.
00:32:16.400 --> 00:32:21.680
So you you put a you you freeze the rent at below the market price.
00:32:21.920 --> 00:32:34.799
And first of all, then you have more consumers trying to rent because the price has gone down, and when the price goes down, more people come out of the woodwork and try to rent.
00:32:35.039 --> 00:32:56.319
At the same time, if you go into the supply curve at a lower at a price below the equilibrium price, landlords are less likely to offer rental properties and less likely to invest in keeping up what rental properties they have.
00:32:56.559 --> 00:33:04.240
So you and so you end up with a huge, what we call excess demand for rental properties.
00:33:04.400 --> 00:33:07.759
So you make the problem worse in some sense.
00:33:08.000 --> 00:33:24.240
There are proportionately more people trying to rent and not being able to find rental or not being able to find well cared for rental properties at this artificially low price.
00:33:24.799 --> 00:33:31.279
And that would be an example of not increased demand, but going up the demand curve?
00:33:31.440 --> 00:33:31.920
Is that right?
00:33:32.240 --> 00:33:33.279
Going down the demand curve.
00:33:33.680 --> 00:33:34.559
Going down to the demand curve.
00:33:36.319 --> 00:33:42.079
Moving down the demand curve to a higher quantity, lower price.
00:33:42.240 --> 00:33:51.119
If you think about the demand curve, that's sloping downward from high price, low quantity to low price, high quantity.
00:33:51.279 --> 00:33:55.279
So I'm trying to explain a graft to you.
00:33:57.359 --> 00:34:01.119
You end up moving down along the demand curve.
00:34:01.279 --> 00:34:03.599
And then the supply curve is the opposite.
00:34:03.680 --> 00:34:17.360
So the supply curve said shows that um people who have houses to rent are more like are more likely to offer houses to rent at higher prices than at lower prices.
00:34:17.519 --> 00:34:21.280
So you're as the what we call as an upward-sloping supply curve.
00:34:21.440 --> 00:34:28.559
I know I'm drawing, I'm drawing it with my hands, and and your your listeners can't can't see what I'm doing.
00:34:28.719 --> 00:34:40.400
Um so you move down to the supply curve to the left, down the demand curve to the right, and you create more, more, more, more excess.
00:34:41.199 --> 00:34:45.519
You create you create more problems than you than you had before.
00:34:46.079 --> 00:34:55.119
And what should happen if, you know, in a in a in a working market, in that example, okay, hey, prices are prices are too high.
00:34:55.360 --> 00:34:58.159
Rent right, people are saying that pri prices are too high.
00:34:58.239 --> 00:34:59.280
What what should happen?
00:34:59.760 --> 00:35:03.440
Well, there are there are a number of different things you could do.
00:35:03.760 --> 00:35:10.800
One of the things is the government could do is to provide rent subsidies for lower income people.
00:35:11.840 --> 00:35:25.119
So, and and that that's been used fairly successfully for a long period of time, but it's sort of gone out of favor as we've gone back to the market's great, um, long live the market.
00:35:25.599 --> 00:35:38.800
Um And on the supply side, because as as as rental uh prices keep going up and up and up, it should create an incentive for builders, right?
00:35:38.960 --> 00:35:46.559
Because now they're saying their profit margins should expand, which should incentivize competitors into the on the supply side, right?
00:35:47.760 --> 00:35:48.960
Yes and no.
00:35:49.199 --> 00:36:01.119
So if the market is at an equilibrium, in other words, if the supply and demand curves cross, and there's you're you're at a point where there's no incentive for any party to move.
00:36:01.280 --> 00:36:07.519
There's no incentive for um landlords to build more, to build or invest in more.
00:36:07.679 --> 00:36:12.960
There's no incentive for renters to come out of the woodwork and buy more.
00:36:13.199 --> 00:36:14.239
So that's what I'm saying.
00:36:14.400 --> 00:36:30.000
One thing you could one thing that has been has been fairly successful in the past is to offer rent subsidies to, say, poor people who can't otherwise purchase, compete.
00:36:30.400 --> 00:36:36.400
And so what that does is to shift to in to shift the demand curve to the right.
00:36:36.559 --> 00:36:41.199
And so it moves the equilibrium price down and quantity up.
00:36:41.360 --> 00:36:44.239
So then then there's an incentive.
00:36:44.880 --> 00:36:51.599
Then there's an incentive to invest in more low c in more lower cost housing.
00:36:52.159 --> 00:37:07.280
And if we had insight into the profitability on the supply side, assuming they're assuming their margins are are large enough where competitors should be coming in on the supply side.
00:37:07.360 --> 00:37:16.400
Hey, this is a really good business, people are making a lot of money, but nobody seems to be coming and competing on the supply side.
00:37:17.679 --> 00:37:21.360
Is that when you would look for, okay, what what is causing that?
00:37:21.519 --> 00:37:24.400
Because that to me would seem somewhat unnatural, right?
00:37:25.280 --> 00:37:32.000
So subsidies that can be given to consumers can also be given to to um builders.
00:37:32.719 --> 00:37:45.039
And one of the proposals that's been bandied about recently is to offer subsidies to builders who will who build low-cost housing.
00:37:45.199 --> 00:37:45.440
Okay.
00:37:45.760 --> 00:37:49.199
And what that does is shift the supply curve out.
00:37:49.840 --> 00:38:03.599
And if you do both, if you give if you give a supply incentive and a demand incentive, then you can move you can move the equilibrium out at without without actually changing the average rental price.
00:38:05.119 --> 00:38:11.360
Well, I think we've given the uh the listeners a bunch to kind of imagine with supply curves and demand curves.
00:38:11.519 --> 00:38:19.440
I want to kind of pivot to um, I mentioned in the introduction you've had a very long career in university administration.
00:38:19.679 --> 00:38:27.920
So I wanted to kind of pivot from your economic expertise to um, you know, your experience in university administration.
00:38:28.320 --> 00:38:32.079
Um I guess my first question is you kind of alluded to it earlier.
00:38:33.199 --> 00:38:44.480
You know, college education has all these positive externalities, even for people who don't pay for college or go to college or school education, I should say.
00:38:45.360 --> 00:38:48.000
What what is what's the purpose of college?
00:38:48.480 --> 00:38:53.840
Well, that's a really good, it depends on which person you're talking about.
00:38:54.079 --> 00:38:57.199
So for the let's let's start with the individual.
00:38:57.360 --> 00:38:58.639
Why would you go to college?
00:38:58.800 --> 00:39:05.519
What why let me speculate as to why you went to college, besides the fact maybe it was fun.
00:39:06.159 --> 00:39:12.559
And and that's I think why a lot of people say, uh, you know, college education, they just have a lot of fun.
00:39:12.880 --> 00:39:19.199
No, when you when you invest in your what you're doing is you're investing in yourself.
00:39:19.840 --> 00:39:25.199
And think about, for example, this explosion of AI.
00:39:25.920 --> 00:39:30.400
That's gonna create a whole new set of jobs that didn't exist.
00:39:30.559 --> 00:39:34.559
We're focusing very much right now on the jobs it's it's going to destroy.
00:39:34.719 --> 00:39:37.519
And there's no question it's gonna destroy a lot of jobs.
00:39:37.840 --> 00:39:41.840
Every major new technological change destroys jobs.
00:39:42.079 --> 00:39:48.400
Going all the way back to the spinning wheel and the the um the loom.
00:39:48.639 --> 00:39:58.239
I mean, the Luddites were the people who destroyed looms because the um the automatic looms were putting them out of work.
00:39:59.119 --> 00:40:04.079
In say 1895, our whole economy was based on the horse.
00:40:04.639 --> 00:40:08.639
By 1920, that whole ecosystem was completely gone.
00:40:10.639 --> 00:40:24.480
Everybody whose livelihood depended on taking care of horses, building carriages, to, you know, creating creating things that that enhanced the horse economy, those jobs were gone.
00:40:24.800 --> 00:40:32.159
But a whole new set of jobs were created that had to do with gasoline powered engines and cars and trucks.
00:40:32.400 --> 00:40:43.440
And you think about in the 90s, the um personal computer eliminated tons of middle management jobs, but created a whole bunch of new jobs.
00:40:43.599 --> 00:40:47.280
And we don't look back and say, oh, I wish we had didn't have computers.
00:40:49.199 --> 00:40:56.400
Ditto smartphones, again, revolutionized the um the job market.
00:40:56.559 --> 00:40:58.320
That's what's happening in AI.
00:40:58.480 --> 00:41:11.519
And having a college education from a statistical point of view, you are more likely to be able to be able to survive the AI revolution with a college education.
00:41:11.599 --> 00:41:18.000
You are more likely to be able to adjust your life, adjust what you do.
00:41:18.239 --> 00:41:20.639
I mean, you're already what you're working on now.
00:41:20.800 --> 00:41:26.320
I mean, the digital marketplace is part of this revolution.
00:41:27.280 --> 00:41:30.960
And if you hadn't gone to college, you probably would not.
00:41:31.519 --> 00:41:41.440
Now, certainly some people like, you know, some of the tech the tech pros, they're just so smart that they didn't need to go to college.
00:41:41.679 --> 00:41:53.519
But the average person is not that smart and he and needs a college education to as a sort of a backstop during difficult times.
00:41:54.320 --> 00:42:02.960
And this is a we're in a very challenging time between between the AI revolution and the attack on on higher education that's coming.
00:42:03.119 --> 00:42:07.280
Um it's it's getting really hard for young people.
00:42:07.440 --> 00:42:10.559
Um, but without a college education, it's even harder.
00:42:10.880 --> 00:42:16.480
So from your perspective, there's a there there's a huge personal value.
00:42:16.719 --> 00:42:24.800
I mean, there's so much evidence that uh a college education, people who have college education make more money in the short run and the long run.
00:42:24.960 --> 00:42:30.159
They're their life, their life, they're they're happier, they're wealthier, etc.
00:42:31.039 --> 00:42:34.239
Um, they're more likely to save for retirement.
00:42:34.400 --> 00:42:42.880
I mean, I can go down the long list of things from a statistical point of view that um you benefit from going to college.
00:42:43.119 --> 00:42:49.760
But if but it but it the the society also benefits tremendously from having an having an educated.
00:42:50.079 --> 00:42:52.880
Um again, I go back to the AI revolution.
00:42:53.039 --> 00:43:01.119
There's a whole new workforce that is needed to produce these AI, these AI benefits.
00:43:03.119 --> 00:43:05.920
They're not just gonna come by accident.
00:43:06.159 --> 00:43:10.719
They're gonna come because people, well-educated people, create them.
00:43:13.039 --> 00:43:17.280
And going back going back to something we talked about earlier, right?
00:43:17.599 --> 00:43:20.639
Positive externalities, I think you already mentioned it.
00:43:20.719 --> 00:43:34.239
If uh in addition to all those personal um benefits that somebody who's educated would get, society at large benefits from having an educated populist.
00:43:34.800 --> 00:43:41.360
Which kind of begs the question is okay, you were you were a university president, right?
00:43:41.599 --> 00:43:43.599
You you've kind of saw this firsthand.
00:43:44.400 --> 00:43:46.880
College has gotten very expensive for people.
00:43:47.199 --> 00:43:55.920
Um is what's the role of the market here, and what's the role of of governments?
00:43:57.519 --> 00:43:59.760
Well, that's a that's a that's a very difficult question.
00:44:01.360 --> 00:44:13.920
Because it's college has gotten so expensive because um states and the federal government have disinvested in col in higher education.
00:44:14.159 --> 00:44:18.880
It has not become more expensive if you look at the spending per student.
00:44:19.119 --> 00:44:26.719
It's been it's been pretty much the same, adjusted for inflation for the last 20 plus years.
00:44:28.239 --> 00:44:41.440
But what has happened, one of the things that has happened, is that states and the federal government have disinvested in in higher education and students have been asked to pay a higher a higher percentage of the cost.
00:44:42.159 --> 00:44:44.480
And and we're just talking about the students there.
00:44:44.559 --> 00:44:51.440
We haven't even touched on all the all the research that that universities do and add to this to this country.
00:44:51.599 --> 00:44:53.920
I don't know if you want to say a little bit about that.
00:44:55.760 --> 00:44:56.159
I do.
00:44:56.320 --> 00:44:56.719
I do.
00:44:56.880 --> 00:44:58.480
That was going to be my next point.
00:44:58.719 --> 00:45:16.320
The thing that is one of the things that is really disturbing me right now is the disinvestment in research of all kinds, from vaccines to cancer research to even space research.
00:45:16.480 --> 00:45:19.280
You say, well, why should we spend money on space?
00:45:20.079 --> 00:45:21.440
Your smartphone.
00:45:23.199 --> 00:45:27.679
Your spark smartphone grew out of space research.
00:45:27.920 --> 00:45:29.440
You want to give up your smartphone?
00:45:29.840 --> 00:45:30.239
Right.
00:45:30.719 --> 00:45:43.440
Well, I think it's difficult for people to understand why, you know, whenever grants or all this public funding that goes to universities from from the government, it can kind of sound like, well, why do they need the money?
00:45:43.679 --> 00:45:48.239
Um But it it it really isn't just to line the pockets of the university.
00:45:48.320 --> 00:45:54.480
It's it's to help them do research that really the private sector just doesn't have the incentive to do.
00:45:55.039 --> 00:46:01.360
So basic research, which is that's probably the most important kind of research that is funded by the government.
00:46:01.599 --> 00:46:02.960
We call basic research.
00:46:03.119 --> 00:46:15.599
It's basically looking at things like cells and nanoparticles and and um Higgs boson, things that you probably have no idea what they are.
00:46:16.400 --> 00:46:24.639
But they but they underli they they underlie all the science that eventually becomes marketable.
00:46:24.880 --> 00:46:41.519
But that science takes so long, takes so long and so such a long time to come to fruition that there that you that for-profit companies have don't have an incentive to invest in it.
00:46:41.599 --> 00:46:44.239
And it's very hard to get the intellectual property.
00:46:44.400 --> 00:46:51.119
I mean, how do you get intellectual property out of an mRNA, out of mRNA, for example?
00:46:51.360 --> 00:46:59.519
And would you give me a little, I want to I want to I want to make a plug for NRNA, mRNA technology.
00:46:59.840 --> 00:47:00.559
Yeah, take your time.
00:47:01.679 --> 00:47:07.519
Because a lot of people got really scared by it because of COVID, of the COVID shots.
00:47:08.000 --> 00:47:11.679
This is a technology that was literally sitting on the shelf.
00:47:12.000 --> 00:47:19.440
It had been developed over a long period of time, and nobody had quite figured out how to apply it.
00:47:20.000 --> 00:47:35.039
Speaking of something that it's really difficult to get the to get private industry to invest in, if you if you know this is important, if the scientists know this is important, but they have not figured out an application, it's literally sitting there.
00:47:35.199 --> 00:47:36.400
And that's what happened.
00:47:36.639 --> 00:48:07.840
So with when the when the when when the call for COVID, when when President Trump in his first term made a huge investment in um creating a uh vaccine for COVID, Moderna, which had the patent on the mRNA vaccine and was not getting anything out of it, was able in a weekend to turn it around and start testing, start creating this vaccine because they had this technology.
00:48:08.000 --> 00:48:17.280
And now we're discovering that it may, it may solve, it may cure cancer, it may create, it may create vaccines for lots of other things.
00:48:17.519 --> 00:48:34.960
And and the the scare of the fear that people got about mRNA vaccine vaccines from COVID is is hampering um the research that might save millions of lives.
00:48:36.079 --> 00:48:41.119
And you know, each of each of your listeners might, their life might be saved.
00:48:42.800 --> 00:48:53.360
If we can fast track the mRNA, the technology the mRNA technology that is again sitting there.
00:48:53.599 --> 00:49:13.119
And scientists know scientists know what it does, but it's gonna take some time to devise the vaccines, devise the treatments, test them to make sure that they actually work and don't make people sicker, which by the way, the COVID vaccine was heavily tested.
00:49:13.280 --> 00:49:18.960
But again, it just seemed to come so fast, I think that people just didn't didn't trust it.
00:49:19.519 --> 00:49:52.559
And it's such a good point of you mentioned incentives a couple times, but it's such a it's such a good reminder that, you know, of why we need both, you know, to allow the market to create the products it's going to create, but also, you know, a a government that's kind of putting its thumb on the scale on in the areas that we want, like research and mRNAs, because you know, the private sector may not have the incentives or the time horizon to really invest in a technology that may or may not be profitable.
00:49:53.119 --> 00:49:55.760
Um so it's a time horizon.
00:49:56.079 --> 00:50:06.800
So um another example w which oh no, I'm I'm not I'm not gonna go into the auctions, the uh spectrum auctions.
00:50:06.960 --> 00:50:09.679
I think that's a bit much people can Google it at a particular time.
00:50:10.079 --> 00:50:10.880
Spectrum auctions.
00:50:11.119 --> 00:50:18.639
But it spectrum Google spectrum auctions, and and the research goes back to the 1970s in economics.
00:50:18.800 --> 00:50:40.559
And it was my it was it was research that was funded by the the National Science Foundation in the 1970s and early 1980s, and only became only only became something that that was applied in the in the marketplace that people could see in the 2010s.
00:50:42.159 --> 00:51:01.519
I think that's an important point to make is that a lot of these technologies that are are running and profiting some of the largest companies that people can think of were built on research done at universities by taxpayer funding.
00:51:02.559 --> 00:51:03.519
Exactly.
00:51:03.920 --> 00:51:04.639
Exactly.
00:51:04.800 --> 00:51:13.599
And this was this this actually it comes out of the Manhattan Project that developed the bomb that um won the war, essentially.
00:51:13.920 --> 00:51:24.960
And um it was it was realizing that that if you've seen Oppenheimer, and of course, then there are problems with the with the bomb as well, um, let's face it.
00:51:25.280 --> 00:51:46.480
But um it was the success of the government providing the basic funding and scientists basically leaving leaving their labs around the world and coming and working in this one place altogether for a period of time that resulted in the atomic bomb.
00:51:46.800 --> 00:52:00.800
And whatever you think about the atomic bomb, that it's that model that is really successful in getting in jump starting new research.
00:52:01.679 --> 00:52:04.000
Well, I think that is a great place to end.
00:52:04.800 --> 00:52:08.880
Elizabeth Hoffman, Professor Hoffman, thank you for joining me today.
00:52:09.440 --> 00:52:11.440
Well, thank you for asking me.
00:52:13.599 --> 00:52:20.000
Elizabeth Hoffman has spent five decades teaching and contributing to the field of economics and higher education.
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In 2010, she was awarded the Carolyn Schaum Bell Award from the American Economic Association.
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In 2024, she was inducted into the Colorado Women's Hall of Fame.
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She retired in 2025.
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For more information, you can visit her website, Elizabeth HoffmanEconomist.com.
00:52:40.719 --> 00:52:42.480
Thank you for listening to Reasonable.
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The show was produced by me, Oscar Ravis.
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If you'd like to submit a question or have a guess you'd like to appear on the show, you can email contact at reasonablepond.com.
00:52:52.719 --> 00:52:56.239
Again, that's contact at reasonablepom.com.
00:52:56.639 --> 00:53:01.280
If you haven't subscribed to the show, please do so and share this episode with a friend.
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Thank you.
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Hi everyone, this is Reasonable, a show about economics, business, and politics.
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And I'm Muscarivos.
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I'm very excited to speak with my guest today, Professor America Elizabeth Hummel.
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Professor Huffman has had an extraordinary career in economics and academia that spans over 50 years.
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She was a pioneer in the fields of experimental and behavioral economics, has written dozens of academic papers, and has thousands of citations credited and awarded.
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Professor Huffman has also had an extensive career in university administration.
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She has held the positions of Dean, Provost, and President in 2000, becoming the 20th president of the University of Colorado system.
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She served on numerous nonprofit and for-profit boards, including the National Science Foundation and Target Corporation.
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She's speaking with us from her home in Iowa.
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Professor Hoffman, thank you for joining me.
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You're very welcome.
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I'm happy to be here, Oscar.
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So I just wanted to start with people heard me say experimental and behavioral economics.
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So I was wondering if you could just give us a brief introduction on what is experimental behavioral economics and how is it different from what people would think is regular economics?
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Well, behavioral economics is what people really do, as opposed to what we theorize they should do or they might do.
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So, and experimental is the way that we get at those questions in behavioral economics.
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So for, let me see, what would be a good example?
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Um, why, for example, do people not save despite all the incentives we give to them to save?
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It turns out it it has a it has a behavioral reason that has to do with your how much what your time horizon is.
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And if your time horizon is very short, you're less likely to save, even even if your mother and your father and everybody tells you you've got to save because someday you will be as old as I am and you will want to have money.
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It it's very hard for people to absorb that when there are things they want to buy today.
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Is it fair to say like before experimental, before experimental behavioral economics was was that not accounted for in the field?
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Things like that?
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That's correct.
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So the field was very theoretical.
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And for that reason, a lot of students had trouble connecting with what they were learning in economics.
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Um experimental economics really started in the 1960s, but it didn't become accepted at all in the economics field really until the mid to late 80s.
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Um and uh and it what happened was that there was a market crash in 1987, and the theorists had said that we were beyond market crashes.
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Well, I've lived through five market crashes.
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Um and the experimentalists had already demonstrated that you could produce crashes in the lab in the laboratory, but nobody was listening to them.
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And then the crash of 87 happened.
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I mean, I remember I remember that morning coming to work and the crash was happening, and my co-author, my eventual co-author, who ended up winning the Nobel Prize, not me but him, um his phone was running ringing off the hook that day.
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And this is when all phones were handheld phones.
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It was not, it was not the kind of cell phones we have today.
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So he was sitting at his desk in Arizona fielding phone calls all day from economists and and um writers, journalists about this supposed new phenomenon of the market crash.
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And that was that was the beginning of the acceptance of behavioral economics.
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And that was a perfect example of something that was discovered in the laboratory that was conflicted with the theory at the time, the accepted theory at the time.
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So if I'm if I'm correct, you actually didn't start in the traditional field of economics, right?
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Like I think I read a word that I didn't understand, which was Cliometric.
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Did I is that what it's called?
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Cleometrics.
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Clio is the root Clio is the muse of history, and metrics is metrics.
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So it's basically the study of data or the use of data in economics, in economic history.
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So I started out as a as a historian.
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I actually got a PhD in history, and from there I I migrated into economics through my connection to cleometrics.
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And then you thought there's this new field of economics, I'll get into that, called experimental.
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Is that right?
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That's correct.
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And when I was a graduate student, uh one of the um founders of the field, Charles Plott, was one of my was a professor at Caltech where I was studying in graduate school.
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And basically, I had one more course I had to take at the end of my course, courses at the end of two years in coursework.
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And my advisor at the time said, you've got to take Charlie Plott's experimental course.
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And I said, Why?
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I'm in economic history, and he said, Because that is the next big thing.
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And you you can't leave Caltech without taking a course in experimental, and that changed my life.
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Wow.
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So I did some work in economic history, but most of my highly cited work is in experimental/behavioral economics.
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Which kind of brings me to my next question.
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You you did a ton of research in experimental economics, you know, you worked in all these laboratories, and it kind of struck me that fairly late into your teaching career you were still teaching econ 101.
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Why keep teaching econ 101?
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Because that's where the students get their first introduction to economics.
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And if econ 101 isn't taught properly, then the students' introduction to economics is all messed up.
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And actually at Iowa State, we take teaching of econ 101 very seriously.
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And in fact, since I taught 10 econ 10, I eventually, I eventually stopped teaching it because they wanted me to teach more experimental economics.
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But um, but now we have a coordinator of econ 101.
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It's such an important course that we have somebody who makes sure that the content is pretty much the same across all the courses and takes care of it and makes sure that the particular the graduate students who are teaching it are trained to teach it well.
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So we take very seriously.
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It's it's our it's one of the highest enrolled courses in the university.
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Most of the public, right, the general public does not study economics.
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Uh what are some concepts from economics that the general public you think, hey, if if they applied this to their lives, you know, they would they would have better outcomes.
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So most people think of markets as whatever the price that's they either think of markets as bad things or they think of markets as sort of perfect things that uh that tell you exactly what the price and quantity should be.
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So you so put I think that's not just your generation, it's my generation too.
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I mean, I think the average person has a sort of bifurcated view of markets.
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Either they're wonderful and they they take care of everything, or they're horrible because they don't take care of the poor of the poor.
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When in reality, the the the correct answer is a little bit of both.
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And so certain kinds of goods have what we call external effects.
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So, for example, when you drive your car, if especially if it burns gasoline, but even if it burned, even if it's electric, I can argue there are some externalities associated with the use of electricity.
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But certainly if you drive a gasoline-powered car, you're polluting the environment.
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Every time you get in the car, it's sending CO2 and other noxious gases into the atmosphere that for that have other people have to breathe.
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And I'll tell you, from living in places that have high pollution, I'm an asthmatic.
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It has a big effect on people who are prone to asthma.
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In fact, this morning I was a little worried I was having an asthma attack and wouldn't even be able to do this.
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Um, so every time you drive that gasoline-powered car, it puts stuff in the atmosphere that people like me, that make people like me sick.
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So you are imposing an externality on everyone who has to breathe the air.
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And the the the worse the air is in a in a particular community.
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I mean, central Iowa's not bad, but um the front range of Colorado is horrible for for polluted air.
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And where I grew up in the Northeast is really bad for polluted air as well.
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So um, but you don't you don't you don't pay for that.
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Now you may pay a gas tax, and part of the gas tax has a little bit of effect, but the gas tax is really for to pay for roads, which are important as well.
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So when you drive on the roads, you also have the external effect of just having a little bit of wear and tear on the road.
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Every time you drive down that road, and the gas tax is designed to take care of that, but the gas tax is not designed to charge you for the effect it has on my lungs, for example.
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Sure.
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And I like the way you worded that, and I think about you know, most people kind of fall into the buckets of okay, the the market is is a bad thing, we shouldn't trust it, etc.
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Or, yeah, it is a perfect being and it it can calculate everything and we just need to leave it alone.
00:11:25.360 --> 00:11:39.919
And I think you know, something we would like to do on this show is contemplate, you know, what you just said, which is okay, it's in in this situation it's a little bit of both, in probably most situations, it's a little bit of both, right?
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And how do you find that balance?
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And uh I I want to kind of hone in on that word to use externalities, because um the this concept kind of changed the way I view um regulation, for example, which is um and you please correct me if I'm wrong here, but so the the externality is when you know two parties, there's a transaction, and a third party that's not part of that transaction is affected by that, either in a positive way, because we you kind of gave a negative example, but there's also positive externalities, right?
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Exactly.
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That's it, that's a very that's a very good definition.
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So do you want me to talk for a bit about positive externalities?
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Yeah, if you don't know.
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I think that's a concept.
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Negative externality is generally easier for people to understand when you when you explain it in terms of sort of polluting the air and what it does to people like me who have asthma.
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Um it it most people can get that that idea.
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They don't know exactly what to do with it, and that's the next step.
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But let me first talk about positive extra knowledge, because again, you so you may, for example, let's look at schooling, for example.
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If if if the population is better educated, there's lots of evidence that people live longer, they're more productive, they um they're healthier, they tend to have fewer children, um, so they in in a very real world, in a very real sense, having a more educated population is a is a positive, a positive impact.
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But when you go to when you pay for college, for example, you're just paying for yourself.
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You're not you're not reaping the benefits of what you're giving to other people.
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Now, public the public spending on higher education is one way, so scholarships, for example, is one way to compensate people for the for the social benefit of um of having a more educated population.
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That's probably the best, that's one of the best, one of the most easy to understand examples.
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And there's a reason why we provide elementary and secondary school free for people, and that's because being educated up to a certain point is so valuable that it's it's worth it to the society to pay for it.
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Would vaccines be another example?
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Vaccines are another perfect example, exactly.
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Very controversial, unfortunately, these days, but that's a perfect example.
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So by vaccinating the entire population against measles, which we used to do, you're protecting everyone, even those who because of their health, can't get vaccinated.
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So there are always some people who can't get vaccinated because it would make them sick.
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And so we protect those people by by vaccinating everybody, and we protect everybody else by vaccinating.
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We have eliminated measles, smallpox, polio from practically the entire world, and now they're coming back because we're not vaccinating.
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So, in in that example, let's say the pharmaceutical company is selling this vaccine and you, the consumer, purchase it and take the vaccine, the positive externality there would be that you're helping build herd immunity.
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That would be a positive externality because those people are affected even though they weren't part of that transaction.
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Exactly.
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Exactly.
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And so by allowing a fairly large number of people who do not get sick from the vaccine to opt out of it, you you lower, you lower the herd immunity and you you invite another um pandemic.
00:16:12.320 --> 00:16:12.879
Sure.
00:16:13.679 --> 00:16:31.519
So I read a quote that you were giving to Caltech, actually, you mentioned it earlier, uh, and you said that in these public policy um courses that you teach, you ask the students to check in their politics at the door.
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That's right.
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Can you elaborate on that a little bit?
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What I wanted to do, what I used to do, I'm I'm retired now, but what I used to do was I wanted to, I wanted the students to consider all perspectives, from the most conservative to the most liberal.
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And so I did not want to hear from them what their politics were.
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And I did, I they didn't want to hear from me what my politics were.
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And so my goal in these courses was to get students to think out, I guess a very a way to say it is outside the box for them, to think about all the possible ways that you could address this particular problem.
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I started introducing a unit on pandemics, for example.
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And I would ask students to write a paper, to write a short, like one-page essay on why we should vaccinate, or or an argument, if you wanted to, an argument against vaccination.
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But it had to be grounded in economic theory and economic data.
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You know, just hearing you talk about that's kind of the attitude I think of people listening, maybe of obviously everybody has their political point of views, and as we start talking about some of these issues like vaccines, you know, people might think, okay, one thing or another.
00:18:05.119 --> 00:18:21.279
But um kind of to your point, is how do you break down, you know, hey, we should go this route, whether it's government intervention or hey, maybe government intervention is part of the problem in this scenario.
00:18:21.519 --> 00:18:41.680
And I I find it's harder and harder to really break down the specific issues and see on this issue, you know, is speaking of externalities, is it fair to say you know the government's role is we want to elevate positive externalities and minimize negative ones?
00:18:43.039 --> 00:18:55.200
Yes, or I I think a better way to put it is we want to force the consumers to internalize, that's the way we put it, to internalize the externalities.
00:18:55.680 --> 00:19:12.640
So we want people to pay the marginal cost or the that they're that they're imposing with negative externalities, or receive the marginal benefit that they're not getting from positive externalities.
00:19:12.960 --> 00:19:36.960
And um the the earliest work on this goes back to the 19th century, and it was basically the idea was you would you would either tax people or provide a payment to people, subsidies, and um and then you would try to figure out what that marginal cost or marginal benefit was.
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And by marginal we mean additional, but the additional cost that this person is imposing on other people, or the additional benefit this person is giving to other people.
00:19:49.920 --> 00:20:08.480
Since then, there I mean economists have suggested you can do things like ban a particular product, or you can force everyone to get vaccinated except those who would be who would get ill from vaccines.
00:20:13.759 --> 00:20:29.680
One is you work with the market, one is you say the market is not working, and we're going to force people to either accept the benefit or avoid the cost.
00:20:30.319 --> 00:20:34.640
Those would be two and state differences.
00:20:34.960 --> 00:20:40.000
And some of them, it turns out that paying people to get vaccinated, for example, just doesn't work.
00:20:41.519 --> 00:20:49.440
They don't not enough people do it to um to actually have any effect.
00:20:49.680 --> 00:21:00.640
So it it seems it turns out that requiring vaccinations for everyone except those who are who have compromised immunity, it actually works better.
00:21:00.960 --> 00:21:05.519
But it but people get very angry when they're told you must get vaccinated.
00:21:05.920 --> 00:21:06.960
Right, right.
00:21:08.000 --> 00:21:14.000
So you mentioned taking those externalities and trying to internalize them.
00:21:14.079 --> 00:21:23.200
I want to kind of focus in on that because kind of to your point, if if you kind of are, you know, hey, let's just let the market figure it out.
00:21:23.359 --> 00:21:25.519
We don't need to mess with it.
00:21:25.680 --> 00:21:33.279
You know, let this marketplace of producers and suppliers and consumers figure it out.
00:21:33.759 --> 00:21:50.720
To your point, unless you have a way of taking that externality and inserting it into the transactions, it it quite literally can never produce that right equilibrium because it's not part of the formula, that externality is not being accounted for.
00:21:51.599 --> 00:21:59.519
There's no incentive in the system that would push either firms or consumers to inter.
00:22:00.480 --> 00:22:01.519
The externality.
00:22:01.920 --> 00:22:05.359
And the price being paid is not a monetary one.
00:22:06.240 --> 00:22:09.920
Well, I mean, it can be monetized, but it isn't a monetary.
00:22:10.160 --> 00:22:13.599
It typically is not a monetary value.
00:22:14.400 --> 00:22:17.200
So I just watched this um documentary.
00:22:17.359 --> 00:22:19.279
Kind of the the timing is kind of funny.
00:22:19.440 --> 00:22:23.519
It's called Plastic Detox on it's on Netflix, if you're interested.
00:22:23.759 --> 00:22:28.160
And I'm sure, I'm sure people listening can kind of put it together what it's about, right?
00:22:28.319 --> 00:22:36.240
So there's a researcher who is following a few couples and she's trying to study fertility and the effects of microplastics, etc.
00:22:36.720 --> 00:22:40.640
And she's very clear that this is not a formal academic study.
00:22:40.799 --> 00:22:46.079
She's actually using the documentary to raise uh funds on to do a formal study.
00:22:46.480 --> 00:23:06.079
Um but they have you know chemists on and different academics talk about and I I couldn't help as we were preparing for the show is to think about okay, so there's all these chemicals that these suppliers are putting into these plastics to make them you know more malleable, firmer, cheaper, etc.
00:23:07.519 --> 00:23:09.599
And consumers are buying it.
00:23:10.640 --> 00:23:18.480
Is for so in this example the externality is the health effects that the way it's harming the consumer.
00:23:20.799 --> 00:23:21.440
Yes.
00:23:21.920 --> 00:23:26.559
The health effects, the the additional garbage effects.
00:23:26.799 --> 00:23:42.079
Um you know, there's this huge peat plastic island in the mid I guess in the middle of the Pacific, that um that is just apparent apparently it's totally gross.
00:23:42.640 --> 00:23:46.720
And um it's just all these things add up.
00:23:46.799 --> 00:23:53.759
But I think the scariest thing is is these microplastics that seem to to get in your bloodstream.
00:23:53.920 --> 00:23:58.400
I mean, I I'm sure I've been exposed to them my whole life.
00:23:58.559 --> 00:24:02.640
Um so once you once you've identified that's probably the the easier part, right?
00:24:02.720 --> 00:24:04.240
Is identifying the externality.
00:24:04.400 --> 00:24:06.799
That's that's probably the that's the easy part.
00:24:07.039 --> 00:24:13.359
The next the next task is you know, if if there is the will to correct it, what are the mechanisms?
00:24:13.519 --> 00:24:21.759
Like you mentioned some earlier, you have t taxes, subsidies, and then just bans, right, sometimes on negative externalities.
00:24:24.319 --> 00:24:33.920
If it turns out that these plastics are as bad as everyb as they seem as a as scientists seem to think they are, the only solution may be to just ban them.
00:24:34.079 --> 00:24:46.640
And if it turns out they're really affecting people's fertility, contributing to the increase in Parkinson's disease, for example.
00:24:47.279 --> 00:24:59.279
Um those are those are two in particular that have been pr proposed uh as um as being caused by the these microplastics.
00:24:59.920 --> 00:25:12.319
And um so that I mean, in and of itself, those two is imp are imposing a huge negative externality on society.
00:25:12.960 --> 00:25:26.799
And and the theory, I guess, or at least some people's theory is that if that if the damage was internalized, that people really wouldn't want to buy that cheap of plastic because it really isn't as cheap as it looks.
00:25:28.480 --> 00:25:29.599
Well, we don't know.
00:25:30.720 --> 00:25:34.400
The problem is it's an empirical question.
00:25:35.200 --> 00:25:44.880
When you impose a tax, you either collect a lot of money or you get people to use less.
00:25:45.119 --> 00:25:47.680
It turns out you can't do both.
00:25:47.920 --> 00:25:49.279
And it depends on this.
00:25:49.519 --> 00:26:00.240
A very slippery concept that I have a lot, I had a lot of trouble teaching to students, I had to have trouble teaching it to the average student, which we call elasticity of demand.
00:26:00.799 --> 00:26:11.599
Basically, by by what percentage do you change your your consumption as a result of a tax, for example.
00:26:11.920 --> 00:26:24.640
And it turns out that if your demand is what we call elastic, it means that you're highly responsive, then people will stop using, will use less and less of this product.
00:26:26.079 --> 00:26:36.319
But if you're if it's if your demand is what we call inelastic, in other words, you die it's not very responsive, then you can collect a lot of money, but people keep using it.
00:26:36.400 --> 00:26:38.799
And the perfect example is cigarettes.
00:26:39.119 --> 00:26:48.880
Because cigarettes are addictive, taxes on cigarettes don't have much effect on smoking.
00:26:49.279 --> 00:26:54.559
What does have an effect on smoking is getting to kids before they start smoking.
00:26:54.960 --> 00:27:07.759
And banning smoking, banning smoking in public places probably had the biggest effect combined with getting kids early and keeping kids from starting smoking.
00:27:07.920 --> 00:27:15.519
Those two things probably had much more effect than cigarette taxes on the percentage of people who smoke.
00:27:15.839 --> 00:27:25.279
By making smoking nasty and unattractive, we were actually able to reduce smoking.
00:27:25.519 --> 00:27:29.680
Another thing that asthmatics feel very strongly about.
00:27:30.079 --> 00:27:30.640
Sure.
00:27:31.359 --> 00:27:40.160
And I think that I keep coming back to externalities because I think it's very, especially in in the US, right?
00:27:40.240 --> 00:27:43.200
We have a very individualistic freedom.
00:27:43.440 --> 00:27:45.279
I can do what I want culture, right?
00:27:45.440 --> 00:27:50.000
So don't don't kind of tell me what to do, mind your own business, etc.
00:27:50.480 --> 00:27:52.480
And I think don't tread on me.
00:27:52.720 --> 00:27:53.599
Yeah, exactly.
00:27:53.759 --> 00:28:04.559
And I think externalities, at least for me, because you know, when I when I started really getting hooked into economics, I you know, I would consider myself pretty free market person.
00:28:04.640 --> 00:28:12.240
And I think externalities really helped me, oh, you know, there is a way to hold both.
00:28:12.480 --> 00:28:17.359
I can still, you know, have respect for the markets and understand it just can't price everything in.
00:28:17.599 --> 00:28:32.160
So the the smoking you you example you gave is it can't, you know, when you when you buy a pack of cigarettes, it's not taking into account um the secondhand smoke, the effect that it's having on another person.
00:28:32.480 --> 00:28:33.039
Right.
00:28:33.839 --> 00:28:39.759
But the cigarette tax was actually designed to try to get people to to smoke less.
00:28:40.000 --> 00:28:46.160
And it's it's very expensive to smoke these days because of the cigarette taxes.
00:28:46.640 --> 00:28:51.519
But once you're addicted, it's really hard to get you to stop.
00:28:52.400 --> 00:29:00.799
Because so because it's an elastic and w when you tax it, you can raise a lot of taxes, but you're not actually changing behavior.
00:29:01.039 --> 00:29:04.240
So then you have to go back to what is the goal of the tax?
00:29:04.400 --> 00:29:12.079
Are you are you actually trying to because now you're creating a different incentive for the government because now you know they like that revenue.
00:29:12.400 --> 00:29:13.039
Exactly.
00:29:13.839 --> 00:29:23.440
It's really it's and the government gets sort of they they get addicted, people in government get addicted to the revenue that comes with the taxes.
00:29:23.599 --> 00:29:33.839
So it's hard for it's hard for them to say, well, we're not we're gonna we're actually gonna change our strategy and try to get people not to start smoking.
00:29:34.160 --> 00:29:40.000
Which kind of reminds me, you know, you hear a lot of people when it comes to like the climate change conversation talk about like a carbon tax.
00:29:40.319 --> 00:29:48.160
And this is this is an example of, you know, some of these taxes theoretically may not do what we think they'll do, right?
00:29:48.319 --> 00:29:53.839
We may actually raise a bunch of tax revenue, which you could argue is a good thing.
00:29:53.920 --> 00:29:59.839
But if the goal is to actually limit carbon, that might not be the best tool.
00:30:00.240 --> 00:30:02.079
Because people might just pay the tax.
00:30:02.720 --> 00:30:07.119
We don't know enough about the elasticity of demand in carbon taxes.
00:30:07.359 --> 00:30:18.720
They've been fairly successful in Europe, um, which has which Europeans have a much lower carbon footprint than Americans do.
00:30:20.000 --> 00:30:39.279
But it would it would really take a worldwide carbon tax to get a to get a handle on what the real elasticity of demand for um using carbon to as fuel.
00:30:39.759 --> 00:30:44.400
Um and I'm I'm not I'm not sure we'll ever get a worldwide carbon tax.
00:30:53.920 --> 00:31:08.400
So we've been kind of talking about okay, when there's an uh a problem that the market seems to be struggling to correct, you know, and some different ways that governments can step in and the rationale for doing so, externalities, etc.
00:31:08.960 --> 00:31:16.000
Um I wanted to kind of talk about when government regulation is actually a bad thing, right?
00:31:16.160 --> 00:31:20.400
Where it and by by that I mean it hurts consumers in the end.
00:31:20.960 --> 00:31:26.559
Um one example that I kind of wanted to propose to you was rent freezes.
00:31:26.720 --> 00:31:38.240
Um I think that's correct me if I'm wrong, but a fairly established one where it's pretty easy to see that that doesn't help housing, but I'd I'd love for you to kind of explain that to us.
00:31:39.039 --> 00:31:42.880
Well, I've got I kind of almost need to draw a graph.
00:31:44.799 --> 00:31:45.680
We'll try to imagine.
00:31:47.039 --> 00:31:52.640
I'm trying to I'm trying to see if I can explain this graph to to your listeners.
00:31:53.119 --> 00:32:16.160
The the issue is that if you freeze the rent at a price that is below the market price, which is typically typically that's what happens, is that somebody decides, and unfortunately, they're they're toying with it again in New York City, and it's just been a disaster every time it's been done in New York City.
00:32:16.400 --> 00:32:21.680
So you you put a you you freeze the rent at below the market price.
00:32:21.920 --> 00:32:34.799
And first of all, then you have more consumers trying to rent because the price has gone down, and when the price goes down, more people come out of the woodwork and try to rent.
00:32:35.039 --> 00:32:56.319
At the same time, if you go into the supply curve at a lower at a price below the equilibrium price, landlords are less likely to offer rental properties and less likely to invest in keeping up what rental properties they have.
00:32:56.559 --> 00:33:04.240
So you and so you end up with a huge, what we call excess demand for rental properties.
00:33:04.400 --> 00:33:07.759
So you make the problem worse in some sense.
00:33:08.000 --> 00:33:24.240
There are proportionately more people trying to rent and not being able to find rental or not being able to find well cared for rental properties at this artificially low price.
00:33:24.799 --> 00:33:31.279
And that would be an example of not increased demand, but going up the demand curve?
00:33:31.440 --> 00:33:31.920
Is that right?
00:33:32.240 --> 00:33:33.279
Going down the demand curve.
00:33:33.680 --> 00:33:34.559
Going down to the demand curve.
00:33:36.319 --> 00:33:42.079
Moving down the demand curve to a higher quantity, lower price.
00:33:42.240 --> 00:33:51.119
If you think about the demand curve, that's sloping downward from high price, low quantity to low price, high quantity.
00:33:51.279 --> 00:33:55.279
So I'm trying to explain a graft to you.
00:33:57.359 --> 00:34:01.119
You end up moving down along the demand curve.
00:34:01.279 --> 00:34:03.599
And then the supply curve is the opposite.
00:34:03.680 --> 00:34:17.360
So the supply curve said shows that um people who have houses to rent are more like are more likely to offer houses to rent at higher prices than at lower prices.
00:34:17.519 --> 00:34:21.280
So you're as the what we call as an upward-sloping supply curve.
00:34:21.440 --> 00:34:28.559
I know I'm drawing, I'm drawing it with my hands, and and your your listeners can't can't see what I'm doing.
00:34:28.719 --> 00:34:40.400
Um so you move down to the supply curve to the left, down the demand curve to the right, and you create more, more, more, more excess.
00:34:41.199 --> 00:34:45.519
You create you create more problems than you than you had before.
00:34:46.079 --> 00:34:55.119
And what should happen if, you know, in a in a in a working market, in that example, okay, hey, prices are prices are too high.
00:34:55.360 --> 00:34:58.159
Rent right, people are saying that pri prices are too high.
00:34:58.239 --> 00:34:59.280
What what should happen?
00:34:59.760 --> 00:35:03.440
Well, there are there are a number of different things you could do.
00:35:03.760 --> 00:35:10.800
One of the things is the government could do is to provide rent subsidies for lower income people.
00:35:11.840 --> 00:35:25.119
So, and and that that's been used fairly successfully for a long period of time, but it's sort of gone out of favor as we've gone back to the market's great, um, long live the market.
00:35:25.599 --> 00:35:38.800
Um And on the supply side, because as as as rental uh prices keep going up and up and up, it should create an incentive for builders, right?
00:35:38.960 --> 00:35:46.559
Because now they're saying their profit margins should expand, which should incentivize competitors into the on the supply side, right?
00:35:47.760 --> 00:35:48.960
Yes and no.
00:35:49.199 --> 00:36:01.119
So if the market is at an equilibrium, in other words, if the supply and demand curves cross, and there's you're you're at a point where there's no incentive for any party to move.
00:36:01.280 --> 00:36:07.519
There's no incentive for um landlords to build more, to build or invest in more.
00:36:07.679 --> 00:36:12.960
There's no incentive for renters to come out of the woodwork and buy more.
00:36:13.199 --> 00:36:14.239
So that's what I'm saying.
00:36:14.400 --> 00:36:30.000
One thing you could one thing that has been has been fairly successful in the past is to offer rent subsidies to, say, poor people who can't otherwise purchase, compete.
00:36:30.400 --> 00:36:36.400
And so what that does is to shift to in to shift the demand curve to the right.
00:36:36.559 --> 00:36:41.199
And so it moves the equilibrium price down and quantity up.
00:36:41.360 --> 00:36:44.239
So then then there's an incentive.
00:36:44.880 --> 00:36:51.599
Then there's an incentive to invest in more low c in more lower cost housing.
00:36:52.159 --> 00:37:07.280
And if we had insight into the profitability on the supply side, assuming they're assuming their margins are are large enough where competitors should be coming in on the supply side.
00:37:07.360 --> 00:37:16.400
Hey, this is a really good business, people are making a lot of money, but nobody seems to be coming and competing on the supply side.
00:37:17.679 --> 00:37:21.360
Is that when you would look for, okay, what what is causing that?
00:37:21.519 --> 00:37:24.400
Because that to me would seem somewhat unnatural, right?
00:37:25.280 --> 00:37:32.000
So subsidies that can be given to consumers can also be given to to um builders.
00:37:32.719 --> 00:37:45.039
And one of the proposals that's been bandied about recently is to offer subsidies to builders who will who build low-cost housing.
00:37:45.199 --> 00:37:45.440
Okay.
00:37:45.760 --> 00:37:49.199
And what that does is shift the supply curve out.
00:37:49.840 --> 00:38:03.599
And if you do both, if you give if you give a supply incentive and a demand incentive, then you can move you can move the equilibrium out at without without actually changing the average rental price.
00:38:05.119 --> 00:38:11.360
Well, I think we've given the uh the listeners a bunch to kind of imagine with supply curves and demand curves.
00:38:11.519 --> 00:38:19.440
I want to kind of pivot to um, I mentioned in the introduction you've had a very long career in university administration.
00:38:19.679 --> 00:38:27.920
So I wanted to kind of pivot from your economic expertise to um, you know, your experience in university administration.
00:38:28.320 --> 00:38:32.079
Um I guess my first question is you kind of alluded to it earlier.
00:38:33.199 --> 00:38:44.480
You know, college education has all these positive externalities, even for people who don't pay for college or go to college or school education, I should say.
00:38:45.360 --> 00:38:48.000
What what is what's the purpose of college?
00:38:48.480 --> 00:38:53.840
Well, that's a really good, it depends on which person you're talking about.
00:38:54.079 --> 00:38:57.199
So for the let's let's start with the individual.
00:38:57.360 --> 00:38:58.639
Why would you go to college?
00:38:58.800 --> 00:39:05.519
What why let me speculate as to why you went to college, besides the fact maybe it was fun.
00:39:06.159 --> 00:39:12.559
And and that's I think why a lot of people say, uh, you know, college education, they just have a lot of fun.
00:39:12.880 --> 00:39:19.199
No, when you when you invest in your what you're doing is you're investing in yourself.
00:39:19.840 --> 00:39:25.199
And think about, for example, this explosion of AI.
00:39:25.920 --> 00:39:30.400
That's gonna create a whole new set of jobs that didn't exist.
00:39:30.559 --> 00:39:34.559
We're focusing very much right now on the jobs it's it's going to destroy.
00:39:34.719 --> 00:39:37.519
And there's no question it's gonna destroy a lot of jobs.
00:39:37.840 --> 00:39:41.840
Every major new technological change destroys jobs.
00:39:42.079 --> 00:39:48.400
Going all the way back to the spinning wheel and the the um the loom.
00:39:48.639 --> 00:39:58.239
I mean, the Luddites were the people who destroyed looms because the um the automatic looms were putting them out of work.
00:39:59.119 --> 00:40:04.079
In say 1895, our whole economy was based on the horse.
00:40:04.639 --> 00:40:08.639
By 1920, that whole ecosystem was completely gone.
00:40:10.639 --> 00:40:24.480
Everybody whose livelihood depended on taking care of horses, building carriages, to, you know, creating creating things that that enhanced the horse economy, those jobs were gone.
00:40:24.800 --> 00:40:32.159
But a whole new set of jobs were created that had to do with gasoline powered engines and cars and trucks.
00:40:32.400 --> 00:40:43.440
And you think about in the 90s, the um personal computer eliminated tons of middle management jobs, but created a whole bunch of new jobs.
00:40:43.599 --> 00:40:47.280
And we don't look back and say, oh, I wish we had didn't have computers.
00:40:49.199 --> 00:40:56.400
Ditto smartphones, again, revolutionized the um the job market.
00:40:56.559 --> 00:40:58.320
That's what's happening in AI.
00:40:58.480 --> 00:41:11.519
And having a college education from a statistical point of view, you are more likely to be able to be able to survive the AI revolution with a college education.
00:41:11.599 --> 00:41:18.000
You are more likely to be able to adjust your life, adjust what you do.
00:41:18.239 --> 00:41:20.639
I mean, you're already what you're working on now.
00:41:20.800 --> 00:41:26.320
I mean, the digital marketplace is part of this revolution.
00:41:27.280 --> 00:41:30.960
And if you hadn't gone to college, you probably would not.
00:41:31.519 --> 00:41:41.440
Now, certainly some people like, you know, some of the tech the tech pros, they're just so smart that they didn't need to go to college.
00:41:41.679 --> 00:41:53.519
But the average person is not that smart and he and needs a college education to as a sort of a backstop during difficult times.
00:41:54.320 --> 00:42:02.960
And this is a we're in a very challenging time between between the AI revolution and the attack on on higher education that's coming.
00:42:03.119 --> 00:42:07.280
Um it's it's getting really hard for young people.
00:42:07.440 --> 00:42:10.559
Um, but without a college education, it's even harder.
00:42:10.880 --> 00:42:16.480
So from your perspective, there's a there there's a huge personal value.
00:42:16.719 --> 00:42:24.800
I mean, there's so much evidence that uh a college education, people who have college education make more money in the short run and the long run.
00:42:24.960 --> 00:42:30.159
They're their life, their life, they're they're happier, they're wealthier, etc.
00:42:31.039 --> 00:42:34.239
Um, they're more likely to save for retirement.
00:42:34.400 --> 00:42:42.880
I mean, I can go down the long list of things from a statistical point of view that um you benefit from going to college.
00:42:43.119 --> 00:42:49.760
But if but it but it the the society also benefits tremendously from having an having an educated.
00:42:50.079 --> 00:42:52.880
Um again, I go back to the AI revolution.
00:42:53.039 --> 00:43:01.119
There's a whole new workforce that is needed to produce these AI, these AI benefits.
00:43:03.119 --> 00:43:05.920
They're not just gonna come by accident.
00:43:06.159 --> 00:43:10.719
They're gonna come because people, well-educated people, create them.
00:43:13.039 --> 00:43:17.280
And going back going back to something we talked about earlier, right?
00:43:17.599 --> 00:43:20.639
Positive externalities, I think you already mentioned it.
00:43:20.719 --> 00:43:34.239
If uh in addition to all those personal um benefits that somebody who's educated would get, society at large benefits from having an educated populist.
00:43:34.800 --> 00:43:41.360
Which kind of begs the question is okay, you were you were a university president, right?
00:43:41.599 --> 00:43:43.599
You you've kind of saw this firsthand.
00:43:44.400 --> 00:43:46.880
College has gotten very expensive for people.
00:43:47.199 --> 00:43:55.920
Um is what's the role of the market here, and what's the role of of governments?
00:43:57.519 --> 00:43:59.760
Well, that's a that's a that's a very difficult question.
00:44:01.360 --> 00:44:13.920
Because it's college has gotten so expensive because um states and the federal government have disinvested in col in higher education.
00:44:14.159 --> 00:44:18.880
It has not become more expensive if you look at the spending per student.
00:44:19.119 --> 00:44:26.719
It's been it's been pretty much the same, adjusted for inflation for the last 20 plus years.
00:44:28.239 --> 00:44:41.440
But what has happened, one of the things that has happened, is that states and the federal government have disinvested in in higher education and students have been asked to pay a higher a higher percentage of the cost.
00:44:42.159 --> 00:44:44.480
And and we're just talking about the students there.
00:44:44.559 --> 00:44:51.440
We haven't even touched on all the all the research that that universities do and add to this to this country.
00:44:51.599 --> 00:44:53.920
I don't know if you want to say a little bit about that.
00:44:55.760 --> 00:44:56.159
I do.
00:44:56.320 --> 00:44:56.719
I do.
00:44:56.880 --> 00:44:58.480
That was going to be my next point.
00:44:58.719 --> 00:45:16.320
The thing that is one of the things that is really disturbing me right now is the disinvestment in research of all kinds, from vaccines to cancer research to even space research.
00:45:16.480 --> 00:45:19.280
You say, well, why should we spend money on space?
00:45:20.079 --> 00:45:21.440
Your smartphone.
00:45:23.199 --> 00:45:27.679
Your spark smartphone grew out of space research.
00:45:27.920 --> 00:45:29.440
You want to give up your smartphone?
00:45:29.840 --> 00:45:30.239
Right.
00:45:30.719 --> 00:45:43.440
Well, I think it's difficult for people to understand why, you know, whenever grants or all this public funding that goes to universities from from the government, it can kind of sound like, well, why do they need the money?
00:45:43.679 --> 00:45:48.239
Um But it it it really isn't just to line the pockets of the university.
00:45:48.320 --> 00:45:54.480
It's it's to help them do research that really the private sector just doesn't have the incentive to do.
00:45:55.039 --> 00:46:01.360
So basic research, which is that's probably the most important kind of research that is funded by the government.
00:46:01.599 --> 00:46:02.960
We call basic research.
00:46:03.119 --> 00:46:15.599
It's basically looking at things like cells and nanoparticles and and um Higgs boson, things that you probably have no idea what they are.
00:46:16.400 --> 00:46:24.639
But they but they underli they they underlie all the science that eventually becomes marketable.
00:46:24.880 --> 00:46:41.519
But that science takes so long, takes so long and so such a long time to come to fruition that there that you that for-profit companies have don't have an incentive to invest in it.
00:46:41.599 --> 00:46:44.239
And it's very hard to get the intellectual property.
00:46:44.400 --> 00:46:51.119
I mean, how do you get intellectual property out of an mRNA, out of mRNA, for example?
00:46:51.360 --> 00:46:59.519
And would you give me a little, I want to I want to I want to make a plug for NRNA, mRNA technology.
00:46:59.840 --> 00:47:00.559
Yeah, take your time.
00:47:01.679 --> 00:47:07.519
Because a lot of people got really scared by it because of COVID, of the COVID shots.
00:47:08.000 --> 00:47:11.679
This is a technology that was literally sitting on the shelf.
00:47:12.000 --> 00:47:19.440
It had been developed over a long period of time, and nobody had quite figured out how to apply it.
00:47:20.000 --> 00:47:35.039
Speaking of something that it's really difficult to get the to get private industry to invest in, if you if you know this is important, if the scientists know this is important, but they have not figured out an application, it's literally sitting there.
00:47:35.199 --> 00:47:36.400
And that's what happened.
00:47:36.639 --> 00:48:07.840
So with when the when the when when the call for COVID, when when President Trump in his first term made a huge investment in um creating a uh vaccine for COVID, Moderna, which had the patent on the mRNA vaccine and was not getting anything out of it, was able in a weekend to turn it around and start testing, start creating this vaccine because they had this technology.
00:48:08.000 --> 00:48:17.280
And now we're discovering that it may, it may solve, it may cure cancer, it may create, it may create vaccines for lots of other things.
00:48:17.519 --> 00:48:34.960
And and the the scare of the fear that people got about mRNA vaccine vaccines from COVID is is hampering um the research that might save millions of lives.
00:48:36.079 --> 00:48:41.119
And you know, each of each of your listeners might, their life might be saved.
00:48:42.800 --> 00:48:53.360
If we can fast track the mRNA, the technology the mRNA technology that is again sitting there.
00:48:53.599 --> 00:49:13.119
And scientists know scientists know what it does, but it's gonna take some time to devise the vaccines, devise the treatments, test them to make sure that they actually work and don't make people sicker, which by the way, the COVID vaccine was heavily tested.
00:49:13.280 --> 00:49:18.960
But again, it just seemed to come so fast, I think that people just didn't didn't trust it.
00:49:19.519 --> 00:49:52.559
And it's such a good point of you mentioned incentives a couple times, but it's such a it's such a good reminder that, you know, of why we need both, you know, to allow the market to create the products it's going to create, but also, you know, a a government that's kind of putting its thumb on the scale on in the areas that we want, like research and mRNAs, because you know, the private sector may not have the incentives or the time horizon to really invest in a technology that may or may not be profitable.
00:49:53.119 --> 00:49:55.760
Um so it's a time horizon.
00:49:56.079 --> 00:50:06.800
So um another example w which oh no, I'm I'm not I'm not gonna go into the auctions, the uh spectrum auctions.
00:50:06.960 --> 00:50:09.679
I think that's a bit much people can Google it at a particular time.
00:50:10.079 --> 00:50:10.880
Spectrum auctions.
00:50:11.119 --> 00:50:18.639
But it spectrum Google spectrum auctions, and and the research goes back to the 1970s in economics.
00:50:18.800 --> 00:50:40.559
And it was my it was it was research that was funded by the the National Science Foundation in the 1970s and early 1980s, and only became only only became something that that was applied in the in the marketplace that people could see in the 2010s.
00:50:42.159 --> 00:51:01.519
I think that's an important point to make is that a lot of these technologies that are are running and profiting some of the largest companies that people can think of were built on research done at universities by taxpayer funding.
00:51:02.559 --> 00:51:03.519
Exactly.
00:51:03.920 --> 00:51:04.639
Exactly.
00:51:04.800 --> 00:51:13.599
And this was this this actually it comes out of the Manhattan Project that developed the bomb that um won the war, essentially.
00:51:13.920 --> 00:51:24.960
And um it was it was realizing that that if you've seen Oppenheimer, and of course, then there are problems with the with the bomb as well, um, let's face it.
00:51:25.280 --> 00:51:46.480
But um it was the success of the government providing the basic funding and scientists basically leaving leaving their labs around the world and coming and working in this one place altogether for a period of time that resulted in the atomic bomb.
00:51:46.800 --> 00:52:00.800
And whatever you think about the atomic bomb, that it's that model that is really successful in getting in jump starting new research.
00:52:01.679 --> 00:52:04.000
Well, I think that is a great place to end.
00:52:04.800 --> 00:52:08.880
Elizabeth Hoffman, Professor Hoffman, thank you for joining me today.
00:52:09.440 --> 00:52:11.440
Well, thank you for asking me.
00:52:13.599 --> 00:52:20.000
Elizabeth Hoffman has spent five decades teaching and contributing to the field of economics and higher education.
00:52:20.239 --> 00:52:27.280
In 2010, she was awarded the Carolyn Schaum Bell Award from the American Economic Association.
00:52:28.079 --> 00:52:32.480
In 2024, she was inducted into the Colorado Women's Hall of Fame.
00:52:32.719 --> 00:52:34.800
She retired in 2025.
00:52:35.440 --> 00:52:40.239
For more information, you can visit her website, Elizabeth HoffmanEconomist.com.
00:52:40.719 --> 00:52:42.480
Thank you for listening to Reasonable.
00:52:42.639 --> 00:52:45.280
The show was produced by me, Oscar Ravis.
00:52:45.840 --> 00:52:52.480
If you'd like to submit a question or have a guess you'd like to appear on the show, you can email contact at reasonablepond.com.
00:52:52.719 --> 00:52:56.239
Again, that's contact at reasonablepom.com.
00:52:56.639 --> 00:53:01.280
If you haven't subscribed to the show, please do so and share this episode with a friend.
00:53:01.599 --> 00:53:02.480
Thank you.
