Capitalisn’t: Mailbag—UBI, AI, and Does Luigi Believe in Free Time?

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Matt Hodapp: All right, this week on Capitalisn’t, we are turning the tables. We’re flipping the script. We’re putting the hosts in the hot seat.

My name is Matt Hodapp. Normally, I’m just the producer of this show. My job is to edit the questions Luigi and Bethany ask our guests. But this week, I’m going to be asking questions. Mostly, I’m going to be a stand-in for you, the audience.

We’ve solicited questions from all of you over the last year, either by voicemail, by email, or by just talking to you over Twitter. And this week, we’re going to get you some answers. We’re joining the ranks of all your favorite podcasts. We’re doing the mailbag episode. We’re going full Reddit AMA. You guys ready?

Bethany: With that introduction, I’m a little scared, but fine. Luigi, what do you . . .

Matt Hodapp: There’s nothing too scary. I actually think this first question’s probably the most terrifying question for both of you. What do you both do for fun? We take ourselves very seriously on this show, but when you guys are blowing off steam, when you’re having a good time just enjoying yourself, what do you guys like to do? What are your hobbies?

Bethany: Silence.

Matt Hodapp: I told you it’d be the scariest one.

Luigi: Bethany, why don’t you start?

Bethany: Well, I have two teenage daughters, so my hobbies are somewhat limited by that, although I suppose, is it a hobby to spend time with your teenage daughters?

I do a lot of yoga. I read a lot. I read substantive things, and I have to admit, my favorite way to relax is by reading my daughter’s teenage dystopian fantasy fiction novels. I love those. I started when I was a child with The Lord of the Rings, and I have grown into basically any kind of teenage dystopian fantasy novel. And I love dinner parties with friends and cocktails with friends. I think a dinner party with a mixture of people I know and people I don’t know is one of my favorite things.

Luigi: Many years ago, I was asked this question by an Italian journalist, and I replied that my hobby was to work. And I got so much crap from my friends in Italy that I will not attempt to say the same answer, even if, to some extent, there is an element of truth in that because I do like what I do.

One of my favorite things is to lie in the bathtub and read stuff on my iPad. I like to read everything, including crap. Another thing that is pretty relaxing is to read about Italian politics, number one, because it’s really funny. Number two, now that I live the United States, I can take a more distant view. It’s like a spectator sport rather than something you are directly involved in.

Matt Hodapp: I do know as a producer how much Luigi likes to work because the very first time I suggested we do a re-release episode, where we take a week off and put out one we’ve done before, he was like: “What is that? I’ve never heard of that. Take a week off? That’s not a thing anybody does.”

All right, well in that spirit, that’s enough fun. We’ll get to the economics now.

I think when it comes to this podcast, we’re a pretty intellectually complex group. It’s not entirely for the faint of heart, in the sense that we’re not going to stop and explain certain definitions. We don’t ever really stop and explain what a stock is, what antitrust is. But sometimes I think that exercise can be a little enlightening, especially when we’ve never done it before directly.

I don’t think anyone’s ever directly asked either of you this on the show. What exactly is your definition of capitalism? Luigi, this isn’t a lecture hall, so try and keep it brief. And why exactly do you think it “isn’t” at the moment?

Luigi: Your reminder to be short is basically what my kids and stepkids always say: “It’s not a lecture hall.” So, I will try to be brief.

In the positive sense, I like to equate capitalism to the idea of the free-enterprise system, where people are free to pursue their dreams, whether they are intellectual or businesslike. Of course, within some rules of the game, but doing it without interference or blockages or anything like that.

To me, it is an expression of freedom. There are also a lot of things that go wrong, including the fact that the rules now are designed by the capitalists themselves. I think that, to me, is the “isn’t” part.

Bethany: I think my definition is maybe not so different, although it’s a lot less academic. It’s honestly something I’m still thinking about. I don’t know if you knew this, Luigi, but I’ve actually never taken an economics class. My father would not allow me to take economics in college because he considered it not to be a real science. Sorry.

Luigi: He might be right, he might be right.

Bethany: Anyway, I think of capitalism theoretically as the belief in a free-market system where individuals are responsible for pursuing their economic dreams, and by so doing, that’s going to add to the well-being of a society by creating opportunity not only for those individuals but for others in the society. It’s going to lift everybody up. And that it’s the fairest of playing fields that you can possibly have, as opposed to the state putting its thumb on the scale. That’s what I think of as capitalism in an ideal world.

I think the “isn’t” comes about much for the very same reason that Luigi does. Over time, those who can work the levers of power become in control of those levers of power. And so, it’s not a fair playing field; it’s crony capitalism.

I also think where it goes wrong is when something that makes a great deal of money for the individuals who do it isn’t actually good for society and doesn’t actually provide jobs for other people, where the economic opportunity created is extremely narrow instead of broad. And, to me, that’s an “isn’t” as well.

Matt Hodapp: One of America’s biggest companies and group of companies that seem to be making people richer and not adding what everybody would consider a positive to society is social media. Our first listener question comes to us about our most recent episode with Jonathan Haidt.

In that episode, we discussed using age verification on social media as a way to stem some of the negative side effects that we see these apps having on young people, specifically, but it could be older people as well. But this listener called in to say he wasn’t so sure.

Alex: Hi, Luigi and Bethany. My name is Alex, and I’m an avid listener of the excellent show. As a professional systems engineer and an amateur parent, I have to comment on your last show with Jonathan Haidt. Your thinking of the subject strikes me as completely wrong handed.

First of all, there is no reliable way to perform age verification online, and nobody has the slightest idea how to even approach that without a willing invasion into everyone’s privacy, not only of the underage.

Secondly, not all problems can be solved with technology, and this is one of them. It can only be solved by good parenting. We do teach our children how to stay safe in the streets, and we need to teach them how to stay safe online. And we have to teach them how not to get addicted to social media. It is our responsibility. Thanks again for your thoughtful and topical shows. Take care. Bye.

Luigi: I have to admit, I’m not a software engineer, so I don’t know the details of age verification, but it seems to me that if you have some form of electronic ID, you can verify the age of the person. And, clearly, people below 18 don’t have that, and so they can’t connect.

I think that maybe this is calling for an e-identity issued by the state, where we can verify somebody is above 18. I don’t think we need to violate privacy much because you don’t need to reveal what year you were born. When you show your ID, you actually reveal your birthdate. But if you have a system of verification, the verification can only check that you are above 18, and that’s it. And if you don’t have that, you don’t get the service of the social media.

Bethany: Yeah, I have a slightly different answer. Well, I actually agree with this. When we had asked Jonathan Haidt how he responded to the controversy about his book, and he said it wasn’t controversial, I was surprised because this is the area that has been really controversial with people pointing out online that the very kids who most need social media are the ones who wouldn’t be able to have a parent helping them because they’re looking for ways around their parents and looking for a community or a source of help that might be external to their parents.

I really like the idea of much more focus on when kids could have phones, having phones in school, thinking about broader solutions to this, like a revocation of section 230. I see the age-verification issue as being very important in and of itself, but not being core to this issue of how we rein in the use of social media for kids.

By the way, I do have a lot more optimism about this than I did when we talked to Jonathan Haidt. I thought he was a little bit in la-la land about the idea that parents would ever come together to create groups refusing to let their kids have phones or that local politicians would do anything about it. And I think that actually is all happening at a national level, and that, to me, offers the biggest hope going forward.

Matt Hodapp: Yeah. I think that kind of responds to the second half of their question, which I also thought was interesting, even in a larger sense beyond social media. So many times, the issues we talk about, the issues and problems we find with capitalism that we talk about on the show, there’s this immediate assumption to jump to, it’s something wrong with the system, either markets or governments. We need to change something there to fix this problem with capitalism, but sometimes, is it more accurate to say that it’s just something wrong with us and our culture and the people within the system? I wonder how you both think about that distinction.

Bethany: It does go to this core question of personal responsibility. I remember after the global financial crisis, I actually wrote an op-ed, for which I got more hate mail than about anything I’ve ever done because it was about how this was personal responsibility. People shouldn’t have taken out mortgages they couldn’t afford.

I actually regret that op-ed because sometime after that, I stumbled on data from Washington Mutual showing how customers would come to them and really, really want to take out a 30-year fixed-rate mortgage and how they were instead instructed to get the person to take out anything but—a much less safe loan—because they could turn around and sell that loan to Wall Street for more money. The person who came in looking to do the right thing for themselves was actively steered into a bad choice through all sorts of psychological manipulation.

I started to think, OK, personal responsibility is only half the story. There has to be a two-way street of personal responsibility, yes, and corporate responsibility on the other hand.

Luigi: I also changed my views a bit. I’ve always believed in personal responsibility, and I still believe in personal responsibility—however, with two caveats.

There are situations in which there is an enormous imbalance of knowledge sophistication. You have to make the more-sophisticated person somewhat responsible. I was at a presentation of a seminar where a European economist, a French economist, showed how in France before the financial crisis, they were selling a lot of bank deposits with complicated derivative positions associated with that. Many Americans were completely shocked that this could even take place because I think that with all the defects of the US system, I think that at least for deposits, it probably would not be possible.

Of course, you say, it’s personal responsibility not to take out those positions, but a lot of people are not that sophisticated, and I think that is the responsibility of the bank not to trick them.

The other thing that is very important is, what is more efficient? Everybody always is very outraged about the fact that McDonald’s was forced to pay several million because a woman who bought a coffee at a McDonald’s stand got the coffee spilled and had severe injuries to her thighs and blah, blah, blah, et cetera, et cetera.

Everybody says, oh, but it’s personal responsibility not to do this stupid thing. But they ignore the fact that McDonald’s was making the temperature of the water particularly high to extract more coffee out of the given amount of beans.

I have to say that I always thought that the fact that they made McDonald’s responsible was a good idea, but it felt like an even better idea when I was on a flight once, and the flight attendant basically spilled some tea over my crotch. I was terrified because I tried to get out, but I had a seat belt on. You try to get out, and you are blocked by the seat belt. I was really in a panic.

The good news is, first of all, I had thick pants, but more importantly, the temperature of the water was not that high. The reason why the coffee and the tea that you get on the plane taste like (expletive), pardon my French, is because they don’t reach the right temperature. But the reason why they don’t reach the right temperature is because they know that people make mistakes. The only way to get this done is by creating a responsibility on the side of the entity that finds it easier to fix the problem. In this case, it is the airline.

Bethany: I think the ultimate embodiment of this issue, in some ways, is the existence of the FDA. I do have very libertarian friends who say the FDA shouldn’t exist. People should be on their own to figure out whether a drug works or whether it doesn’t work—personal responsibility.

But the FDA neatly encapsulates both your issue, Luigi, of the cost to society as well as this issue of sophistication. Should people really be on their own to evaluate what a drug company is telling them about the efficacy and safety of a drug? What are the costs to society if we leave people to do that on their own and just allow drug companies to sell anything they want to sell? I think you’d pretty quickly answer, oh, the costs to society are really high, and most people are not sophisticated enough to evaluate drug data by themselves. To me, the FDA always forces the issue into very practical, concrete terms.

Matt Hodapp: But the cost to protect people’s crotches on the airplanes is that I have to drink (expletive) coffee on flights, and I don’t know about paying that cost.

But to the last thing you said, in terms of protecting people, I mean, one macro way . . . We’ve talked a lot on this show about meritocracy, and I think we’ve probably got more questions from listeners about our poverty episode with Senator Phil Gramm and Matthew Desmond than any other episode we did. Two of those questions stuck with me. I’m going to play them in a second.

I think there’s this question that when you look at a macro level, when you look at inequality, when you look at poverty, how responsible are people then for their own poverty or where they are in terms of the inequality scale? I’m going to play one, we can react to that, and then I’m going to play the next one.

Denise: My name is Denise. I was calling with a concern about the transfer-payment research during your most recent episode over poverty. The concern I had was that it did not discuss the requirements or the limitations of those payments. For Medicaid, food stamps, TANF, one, they all differ from state to state. Two, the income requirements differ. For a lot of them, people find that once they do start working, they lose those benefits. And yet, the benefits they are able to get through working won’t pay for what they need.

For example, a person who has Medicaid for their children, once they begin working, no longer qualify for that Medicaid if they make too much over that. But the amount of money that they’re making doesn’t allow them to afford health insurance through their job and still be able to provide for their families. And so, that’s a big issue. I’m just kind of concerned with the fact that that wasn’t brought up, but what was shared was that people may not want to work. It just seemed very skewed, like, oh, it’s going to keep them from working. No, sometimes they’re not allowed to work.

Luigi: Denise illustrates very, very well the issue of disincentives for any form of subsidies. She says correctly that when you start working, you might lose some of the benefits of Medicaid, and that is an implicit tax to work. And so, a lot of people are disincentivized from working. That’s one of the main arguments why conservatives don’t want to have those subsidies to begin with.

I don’t think it is, per se, sufficient to say we shouldn’t have them, but I think we should be concerned, and we should generally try to smooth things over because otherwise, we’ll have a tax on work that is negative in many dimensions, including the fact that there are psychological and learning benefits from working, and we don’t want people to be induced not to do so.

Bethany: I agree with that. I think, though, part of the other issue that she was getting at is that there are a lot of jobs you can have where you can work and you still can’t make enough money to survive, to feed your children, to have health insurance.

I remember being really struck by that during the pandemic. There was some research from the GAO showing that some of America’s largest companies in nine or 10 states, if you had a full-time job at those companies, you couldn’t earn enough to support a family, and you couldn’t earn enough to have health insurance.

That goes to this broader question that I think David Autor had brought up, which is the structure of work and of pay. Isn’t it a deeper economic problem that there are all these jobs where you can work full time and still not make enough to survive? That’s the biggest disincentive to work. Then, that’s a structural problem.

Luigi: And, by the way, some form of universal Medicare would solve the problem. In Europe, where you have national healthcare, you have a lot of other problems, but you don’t have this one.

Matt Hodapp: Universal healthcare. Luigi and Bethany, the socialists. All right.

OK, I’m going to play the second question. What I like about this question is that many times we talk at the theoretical level on this show, and I think sometimes we forget about the humanity of people that are really stuck in these gaps.

Speaker 107: I just want to share one anecdote with you of a real person in America who is trapped in poverty and really can’t escape. She’s in her late thirties on Social Security Disability, and she gets just enough money to be able to afford an unbelievably bad, unhealthy place to live. And that unhealthiness of that home environment is what’s causing a lot of her disability to continue.

She cannot work because she can’t afford a healthy place to live. I mean, it’s riddled with mold and all kinds of other horrible, toxic environmental things. She cannot afford a place to live where she can get healthy enough that she could actually work at a job, that she could afford a place to live that would be healthy enough. She’s completely trapped in a catch-22. There’s no way out. Thank you.

Matt Hodapp: Obviously, you can’t just straight up give advice to people, but when you are thinking about these gaps and people stuck in these situations, and we think about capitalism, what should we do?

Bethany: I think it’s a terribly complex question because you don’t want to give people so much that they don’t have to work for all sorts of reasons. Not only is that tricky economically for our society, but so much research has shown that it’s important for people to work to have a sense of self.

On the other hand, things like this become this terribly vicious circle, where you provide just enough for somebody to survive but not to thrive. The fact that they can’t thrive means that they can’t get out of the trap they’re in. I think it’s heartbreaking, and I’m actually really unsure what the answer is broadly. Narrowly, you want to say, the right answer is to fix things for this person. But on the broad societal level, I don’t know. What do you think, Luigi?

Luigi: I think that capitalism makes much more sense when there is some form of equality of starting points or equality of opportunities. Clearly, this is not the case in this particular situation. Diseases and disabilities are clearly a very important element that should be considered. That’s the reason why it makes sense to have disability insurance and all the things that come with it.

I don’t know the specific details in this case, but I suspect that the problem is that it is very difficult to administer disability insurance in a way that is accurate. And so, people tend to underprovide disability insurance, and this is the crack in the system in which this person is finding herself, and I think it is terrible. But as Bethany was saying, I think that the solution to dramatically expand the minimum may have some other effects. This is a very difficult trade-off to work out.

Bethany: You do want to believe that these are the places where communities can make a difference. It isn’t so much at the state level, as a state policy, as it is at the community and the local level, except that I think that too often, in our modern world—well, in any world—it just doesn’t work that way. People prefer to walk by and not look at what they don’t want to see.

Matt Hodapp: Obviously, we talk a lot about antitrust on this podcast, and so, we did get a number of antitrust questions. The first one that we got comes from a fellow business professor, Luigi.

Speaker 118: Hi, Bethany and Luigi, thank you for all the great podcasts. I’m an economist who teaches economics to MBA students. As you’d expect, I find my students generally think about M&A from a purely business context. And so, I find myself often trying to explain to them the regulatory side of things: the consumer-welfare standard and how regulators will mostly be looking at the impact of mergers on consumers—on prices, quality, innovation, et cetera.

However, in looking at some recent cases and the new draft merger guidelines, and in statements from the FTC and DOJ, it seems that regulators might be signaling that they’re going to use merger review to try to protect the economics of suppliers as well.

The case I have in mind is the blocked merger of Penguin Random House and Simon & Schuster. My impression was that this was blocked because regulators thought the merger would allow these companies to lower the prices that they pay to their suppliers, which in this case means the authors of books.

Might this lead to blocking of mergers that would otherwise be beneficial to consumers? Let’s suppose two companies wanted to merge and that the merged entity would gain enough power to be able to pay their suppliers 20 percent less, which might allow them to reduce the prices they charge consumers by 15 percent. Would this merger be allowed to go through? Would it be blocked? Should it be allowed? I would love to get your thoughts or maybe some of your guests’ thoughts on this topic.

Luigi: Thank you very much for this question, which is very, very important. Actually, to some extent, this shows the effect of the rhetoric on consumer welfare because the fact that antitrust was designed also to prevent situations of monopsonies, not only monopolies, is something that goes back to the Sherman Act itself and certainly was also present in the merger guidelines in 2011 or ’12, when Carl Shapiro was the head of the research department of DOJ.

Monopsony is a situation where there is, in the limit, only one potential buyer. The case of Penguin and Simon & Schuster is not exactly of a monopsony but oligopsony, which means very few buyers, but there’s no doubt that if you concentrate too much in one side of the market, you are going to pay too little to providers.

One of the most famous cases that has been brought by antitrust is a case about nurses. We all know how important nurses are in healthcare, and we know that there is a shortage of nurses. What we don’t know is that part of the shortage of nurses is due to the fact that hospitals pay nurses too little. Why do they pay too little? They merge, and they tend to keep the prices of nurses below what the market equilibrium would be.

That’s the reason why we need to import a lot of nurses from the Philippines because it doesn’t pay for a lot of people in this country to study as a nurse and become a nurse. I think that there is no doubt, in my view, that one of the intents of antitrust is to prevent abuse of market power, not only on the selling side but also on the buying side.

Bethany: I have an easy answer to that because of the specific case that our listener invoked, which meant paying writers 20 percent less. So, just no, no, no, no, no, we should not be allowed to pay writers 20 percent less.

In all seriousness, actually, I think that it points to a really confounding aspect of life, which is that it’s always so much easier if you can simplify. I understand the consumer statute because it was a way to take often a really complex set of facts and say, OK, this is the only thing that matters. This is all we’re going to look at. Isn’t it easy now?

But the problem is it’s not easy because in an economy, the consumers are sometimes the same people as the producers of the product. It’s all an integrated picture. And I’m for, in many cases, more of an embrace of complexity and nuance as opposed to dangerous oversimplification.

Matt Hodapp: You mentioned the David Autor episode, and we talked a lot about AI in that episode. Obviously, people are very concerned about how AI is going to change our economy, how it’s going to change our systems. Usually, when that conversation gets brought up, UBI gets brought up, universal basic income, that gets thrown around a lot. We’ve talked about UBI quite a bit on this show, and one of our listeners called in because he noticed a pattern that he wanted to comment on.

Speaker 124: Love you guys and the show, but I have a gripe. Every time you bring up universal basic income, you bounce straight to commentary on the dignity of work that makes it clear you assume a UBI regime would destroy all jobs, which is, pardon the pun, lazy thinking.

In evidence, I hold out to you the American working wealthy. Millions of people have investments sufficient to pay ourselves annual income higher than any feasible UBI. Most of us still work, many because this is the sort of job you must have to accumulate that wealth as middle and corporate executives or in the professions. Many of us work well in excess of 40 hours a week and complain about it. People will even work when it isn’t required to meet our basic needs. QED.

Now, perhaps under a UBI regime, no one would take ill-defined, poorly paid, wage-theft-prone jobs with unpleasant physical or emotional working conditions. But we don’t want anyone to have those kinds of jobs, right? Employers will have to design better jobs, but shouldn’t they be doing that anyway to be competitive for the best workers?

I am no longer a UBI fanboy. We will do better under a regime in which jobs are well-designed, decently compensated, and easily available, but even a UBI scheme would be superior to what we have now, and it would not push everyone out of workforce participation. Thank you, guys. I appreciate all the good work and no more lazy thinking. Bye-bye.

Bethany: Oh, my God, that’s so funny because as soon as he started talking and as soon as the subject of UBI came up, I thought, but the dignity of work. Oops.

Anyway, I actually thought his perspective is incredibly valuable and important, and I don’t have much more to say. I think he’s right. Luigi?

Luigi: First of all, thanks for the call. I think it was very apropos and very funny.

The risk I see is that we think that there is not a problem as long as we put UBI in place, regardless of whether the UBI will demotivate work or not. What is funny is just before we had Denise saying, oh, but actually, if you lose some money or Medicare by working, you might not work anymore. So, there are some disincentive effects of work. Now, I understand that one is contingent, the other is noncontingent, but there might be some disincentive effect to work.

But most importantly, we need to understand that there will be a revolution in the world of working and that people will find themselves in the situation of losing jobs that are not just a source of income. They are a source of pride, they are a source of position in the community, they are a source of entertainment, they are a source of a lot of other things. Replacing them just with UBI will not do it.

Then there is the issue of the cost of UBI, but this is for another day. But I think that even if we know that, the issue of the value of work that will be lost by AI is very important. After all, think about what happened in the Midwest with the deaths of despair. It is not that these people were starving. They had some form of subsidy, but their lives were destroyed because they lost their jobs. And losing a job very often means losing the possibility of building a family, losing your sense of respect, and the sense of respect others have for you, and so on and so forth. So, I would not be so cavalier as saying, let AI rip and pay everybody a UBI.

Bethany: I think the implicit assumption that our listener is making is that the ability of people to do something else would spur companies to create better jobs. I’m not sure that’s actually the case. I have my own dystopian fantasy novel being written in my head, and it is based on a conspiracy theory of sorts, which is that a lot of the proponents of UBI are tech billionaires.

Of course they are, because if you can create an entire class of people who have the money just barely to consume more and more of your content, then why wouldn’t you do that? Whatever the cost is, especially in the short term. And so, I’m a little cynical about the idea that the effect of this would be to push companies to create better jobs. It might be just to create an entire class of nothing but consumers.

Matt Hodapp: There are some prominent people out there who have said that the AI revolution is going to be so intense that we basically need to think up an entirely new economics. Are you guys that concerned about it, or do you think it’s just going to get absorbed into capitalism, and we’ll figure it out and it’ll be totally fine?

Luigi: I think it does require us to rethink economics from the fundamentals. Maybe not entirely new, but a lot of changes. Already, the world of data, the digital world, is quite different from the physical world. Some of the things that were taken for granted in the physical world, they don’t hold anymore in the digital one. There is more natural tendency to monopolies in the digital world.

AI probably is going to change things even more dramatically. History suggests that when we have had innovation, we found other jobs for people to do. I hope that’s true. I don’t think that this is a mathematical proof that this is going to happen. It’s a regularity that holds until it doesn’t.

We know some of the mechanisms, but there is no economic theorem that tells you, even with all the assumptions of a theorem, that, for sure, the jobs will be replaced. We need to be very much alert because this might easily trigger some social unrest. And I think that is a very problematic one.

Matt Hodapp: We’re going to do predictions. You guys ready? Prediction time. We had some shocks in the stock market the last few months, which led to news cycles about whether we’re headed for a recession or not. Luigi, Bethany, are you following Warren Buffett and putting all your money into T-bills?

Luigi: No. Even if, I have to say, Warren Buffett most of the time gets it right. So, it is a little bit scary to hear that that is what he says.

Matt Hodapp: So, we should be putting our money into T-bills.

Luigi: I don’t know, because the guy is also not exactly young, so given his age, he should have everything in T-bills.

But this aside, this cycle has been quite unusual in many dimensions because we have seen a significant tightening of the Fed, with some real effects on real estate, but not a dramatic slowdown in the economy. My suspicion is that a lot has to do with immigration, in particular illegal immigration. Illegal immigration had the effect of increasing demand, at the same time keeping prices relatively low because there is downward pressure on wages. Now that even the Biden administration has started to crack down on immigration, maybe we have the natural effect of the Fed tightening, which is a recession.

Bethany: I’m no better with economic predictions than I am with political predictions. In terms of my own finances, I have a very weird quirk of personality that I am so intensely interested in all of this, but only from the perspective of a writer and a journalist. When it comes to managing my own personal finances, I unfortunately have less than zero interest, to the point where I just cannot even bear to think about it—to my own detriment, by the way. I’m not advocating for other people to be like this.

Matt Hodapp: Business journalists and economics professors aren’t trying to make money on the market. I don’t think anyone believes you, but we won’t push you.

Luigi: Actually, you should believe us.

Matt Hodapp: Final question.

Bethany: You should believe us, absolutely.

Luigi: You know, the children of cobblers don’t have shoes. I think that is exactly the story. OK, so can I go?

Matt Hodapp: No, I have one more question. I have three more minutes.

Luigi: OK.

Matt Hodapp: I’m the host here. I get to say when the interview ends.

One of your favorite questions that you always like to ask our guests is, if you were king or queen for a day, what would you change? I’m going to give you two options. You’re either the president of the United States or the president of the Fed. You can pick which one you want. We’re making you king of either of those for the day. What would you do differently to fix capitalism, to fix the economy, to fix all of these problems? What would you do?

Bethany: I think I might just ban lobbying in every single way, shape, or form. Just done.

Luigi: This is an interesting question because you said president of the United States, and I say king when I ask the question, or queen, and there’s a huge difference between the two. The president of the United States cannot do anything, basically. He can use the bully pulpit, but de facto he doesn’t have a lot of power.

I was trying to think, what can you do? Banning lobbying, Bethany, is a great idea, except that you can’t because it’s part of the US Constitution. And so, short of abolishing the First Amendment, which I doubt you will be able to do, you can’t do it in the most dramatic form. I think that the problem is not easy.

Matt Hodapp: Too smart for your own good. OK, what if I made you king, Luigi? What are you doing? Bethany’s getting rid of lobbying. What are you doing?

Luigi: Oh, if I were king, I would abdicate and give the power to Bethany as a queen.

Bethany: Oh, that might be my favorite answer ever. That is totally awesome. Of course, I would have no clue what to do with it, but that’s OK.

Matt Hodapp: Now all of our listeners know how slippery you both are trying to nail you down on specific things.

This has been great. Thank you for answering all of our questions. And to our listeners, if you have more questions, please continue to send them in. I’m sure we’ll do this again sometime in the future.