What Reese's Cups and Canadian Wildfires Can Teach Us About Economics | Off the Clock

If I fart in an elevator, that's a negative externality.
It harms you. If it's I grow beautiful flowers in
my front yard, that's something that helps you. That's a
positive externality. The work week maybe over bit. The economy,
it never takes time off. I'm justin Wolfer's and this
is Off the Clock, the show where we unwind and
rewind the week's economic years. I'm back once again with
my friend and my favorite economics journalist in the world,
Stacy Vanoxsmith.
I'm really thrilled to be here once again, justin It's
always very wonderful to talk with you, and I am
a columnist of Bloomberg Business Week and co host of
the podcast Everybody's Business, and thrilled to be here.
I just love the fact you said very wonderful, like wonderful,
needed and intensifier.
Yeah it did. It's great to take live in an
age of superlatives.
Our job, our magnif job, is to pick through the
recent economic news. We want to tell you one of
the things you should actually be concerned about, what you
can safely ignore in these days. There's a lot of that,
and maybe we can help you find some silver linings
along the way too, Stacy. We've got a few big
stories to talk about. So first up, we're going to
check in on the latest news out of a Ran.
I'm going to stop sounding so happy when we talk
about that. I'm just happy to see you. We're also
going to discuss what it means for both inflation and
you taught me in your word today skimpflation. Then we're
going to talk briefly, Stacy, I heard you coughing a
little before. We're going to talk about the terrible air
quality afflicting the country right now. But unlike any other show,
we're not here to measure it with an index. We're
here to explore the economics underneath it all. Finally, we're
going to close out with some good news, because good
news always wins.
Yes, I'm especially excited about the good news this week,
especially since I can't go outside because the air is
so bad. But always good to end with the silver lining.
Very happy to be here, and let's jump in. Okay,
justin Iran big news of the week, the big global
news of the week, there was a ceasefire.
It was starting to look like things.
Were on the road towards peace. There wasn't actually a deal,
but it seemed like we were headed towards a deal.
Now it does not seem like we're headed towards a deal.
The straight of.
Horror moves once again closed, and their attacks seemed to
be escalating. And of course for you and me, this
means probably higher oil prices, higher gas prices. But I
would love to hear as an economist, when you hear
this news that the straight of horror moves is once
again closed and there's not an end to this conflict insite, like,
what what do you hear?
What's your take on this?
Yeah, so look extraordinary weak at some level, you know.
So phase one of this, we tried bombs and bragging.
The president discovered that wasn't going to work.
Feez. One, that was our bombs and bragging era.
Yeah, so then we went to let's try a ceasefire.
We have a lot to talk about about the ceasefire.
But the President decided that wouldn't work, so he decided
to go to bombs and bragging. And the current US
started like posture in this war is it didn't work
the first time, so let's try it the second time.
There's literally nothing different In fact, I suspect Sacy. Right now,
you and I can just turn off our microphones. We
could replay this show from a few weeks ago. And
there's no part of me that's joking, because analytically nothing
is different. It's it's it's bombs bragging. I forgot the
third bat blockade, bomb brag blockade. We tried. It turns
out we could blockade a run. They can still blockade
the straight Uphis. We tried making peace. We'll talk about
how hot, and then we're literally back to Boem's blockade bragging.
If at first you don't succeed, try try again. I
guess it's the president's view, but isn't this some amazing
quiet about if you keep trying something? Eiver and I
have aye the crazy one. What's that question?
Is Einstein's definition of insanity?
People who I think do the same thing over and
over expecting a different result. I actually think in this case,
Iran kind of called the president's bluff a little bit.
I mean, remember early on there was all of that,
like really terrifying tough talk about bombing Iran back to
the Stone Age. I think, quite mercifully, the president did
not have the stomach for that or the will or
for whatever reason didn't do that. But then also I
think Iran is like not eager to make peace, and it's.
Kind of calling the president's bluff. And now we're in this,
they call it. What does it? Nacho? Never again? Can
Hormuz open? Now we're in.
Nacho territory? Oh yeah, nacho, We're in a nacho world. Well,
I'm amazed that I can actually teach teach you something
justin for a change. Oh, I wish it were more
sophisticated than nacho.
But but I'll take it.
I you know, honestly, Stacy, we don't have good Mexican
food in Australia. It's true. It's like France that way.
Can you believe.
The tacos and nachos is new to you?
Yeah, totally new. You melt the cheese. Okay. So I
actually want to come back to the ceasefire because I
think that's where everything went wrong. The I think the
reporting on this has been unusual and unusually bad, which
was the ceasefire was never there never was a deal.
There never was an agreement. And once you understood that
that we would fail to stick to a deal that
we hadn't struck no longer seems so surprising. So what
there was was an agreement that we wanted to reach
an agreement with her. Literally, it was a memory of understanding,
memory and of understanding that we want to get to
an agreement so that we don't bomb the crap out
of each other. But we haven't actually agreed about any
of the issues in particularly nuclear material, the straight up
on mows where there'll be tolls. They never agreed on
any of the issues that they went to war about.
They just agreed that they wanted to agree that there'd
be an agreement.
Now just a start, which is a start?
I don't know, like Stacy, I have a lot of
relationships with different people. I have won with you. I
never look you, and I don't actually have a formal
memory memorandum of understanding that we agree that we want
to get along in the future.
I just think it's a better way unwritten.
Right. So they wrote it, and Stacy, I hereby in
front of our entire platypus audience, state that I hope
that in the future we can find a way to
continue to be friends.
I accept this agreement to agree.
Right, but we haven't figured out what we're going to
do about those annoying habits you have that make me
and so look, the point is, first all, there wasn't
a deal. There was the rhetoric of a deal. The
second thing coming out is we've seen this movie before,
because you and I saw the trade wars and the
trade wars the president kept the clearing a deal. If
you actually went looking for paperwork, like have you struck
a deal, you would never find it. There were It's
a very complicated thing. How do you count deals? Because
the thing is if you call it an agreement to
agree that you haven't agreed upon the actual things you
agree that you want to agree on, then you could
call it deals. But basically nothing really happened. Now, this,
by the way, does suggest a way out for a
run if it wants to take it, which is what
Brits did during the trade war. What a bunch of
what the Japanese did is they walked into a meeting
with the present and they walked out and let him
brag and he said, I've got a deal. The word
deal feels very important, and then he would just make
things up. It's a you are going to give me
a trillion dollars. I think that's what he said. With Japan,
maybe it wasn't a trillion, it was some unbelievable number,
and then the Japanese problemnists have just stood there and
then nothing ever happened.
So there's been a lot of back and forth, but
like you say, no real progress. It just sort of
seems like we've been stuck for months.
Now.
What does this mean for markets, for the economy, for
us trying to take our road trips this summer.
Yeah, so the stuck part I think is actually really
descriptive and really important. Their stacey. So it's earlier on.
In some sense, the biggest concern about Iran was the
intensity of the war. What was the US going to do?
How much damage were we going to take? How much
damage was going to be done in I run, how
much damage was going to be done in the region.
The news that we've learned over the past couple of
weeks it's not about intensity, it's about duration. It's that
both sides are roughly out of ideas. The President has
literally re implemented Phase one as phase two. It's that
their agreement to agree to an agreement that they hope
is agreeable was not actually an agreement, and there was
very little that they agreed on, which means basically, on
the core issues, not particularly closer today than they were
at the beginning of the war. All of which seems
to say, yes, it's possible on any given day one
side or the other will wake up and realize we
need a breakthrough and offer something meaningful. But at the
moment we're having a whole lot of days where we're
waking up and nothing's moving forward, and it raises the
prospect that this will instead of being a six week
war where now it's several months, it'll likely be a
six month war. But I think this question of duration
now is really important. Is this going to be a
six year war? And the economic consequence of that you
can see in futures markets, which is in oil futures markets,
people are betting on what will oil prices be in
the future. Early on in the war, people were mostly
betting about what's going to happen to the oil price today,
next month, the month after. Now they're betting a lot
further out. Our oil price is going to remain high,
presumably under the view that the strait of a laws
remains closed or on and off, or alternatively, they're worried
that there might be other reasons for friction in the
region right now, and so it's already clear, according to
futures markets, that oil prices are going to be high
in the midterms. They'll likely be even behind higher than
they otherwise be during the twenty twenty eight presidential election,
and they may stay higher for quite some time.
It's interesting, by the way, that you should mention futures markets,
because we did make a bet not all that long ago,
a couple of months ago on manifold markets, which is
kind of like call g and polymarket, except no money
is involved, about where gas prices would be. Dozens of
people have waited in justin and people should check it out.
Manifold markets will national gas prices in the US reach
I believe I maybe you were quite optimistic. I was
more pessimistic, and I'm a little sorry to say that
I am winning, because it's bad for the country and
bad for all of us, but I guess good for
my pride.
Anyway.
I haven't seen this side of you before. Stacy gloating
Stacy gloating Stacy.
She's not pretty, but.
You bring a certain charm to everything, Stacy, but gloating Stacy.
Just to remind people, I bet that gas would be
down to three sixty by election day. And during that
glorious ceasefire, that long and glorious, beautiful ceasefire, when the
two countries had come to a lasting piece that lasted
up to a week and a half, I was feeling
a bit better about my bet. But Stacy, what's gas
prices right now?
Look?
But here is the thing, justin I think the President
may pull some strings to make sure that you win
this bet.
I've actually had a chat to the teleprompter guy and
I asked him to have the President say some very positive.
It's my favorite story of the week, the fact that,
so I don't know if people haven't heard, the guy
who operates the teleprompter at the White House has been
accused of making bets on calls about what's going to
be in the speech.
I just there's something.
Really charming about I'm like a little bit I know
it's totally dishonest, but I'm a little bit team telepromptery.
My favorite part, and I can do a live action
recreation of it right now, is apparently so say the
bit was where the President was going to say the
word platypus, right, and so teleprompter guy knows where the
word platypus is in the thing. But it turns out
the president doesn't know. This will surprise you, the evidence.
The president doesn't always follow he's teleprompter.
Well, that's true, that is true. There's a little bit
of a yes.
So sometimes teleprompter guy would be there and the President
gets up to the platypus paragraph and he'd skip it. Yeah,
did you know what the teleprompter guy would do. He'd
pull out his phone and undo reverse his bit.
So I just want you want to say it like
a broadcast delay.
He is like the prison's giving a speech and his
job is to move the words up and down the page.
And he's doing that with one hand. He's got his
phone out with the other.
And I just love to say, all we have a
our side hustles in this economy, and I.
Just want to found the dollars that Stacy Vannick Smith
would say side hustle.
Uh, well, I mean, you know you're leaving money on
the table.
On the subject of money on the.
Tape nine cents according to Triple A, Well.
I'm twenty nine cents away from being right.
That's true, that's one way to look at it.
But he'd actually, it makes me sad because we dig
some inflation numbers earlier this week, and they were looking good.
I mean it was I think three point five percent
prices rising on average crist to Kinomy three point five percent,
which is a lot higher than the two percent we want.
But it was moving in the right direction.
Yeah, And more than that, it was less than everyone expected.
So there's a sense that we sort of Inflation generally
tends to be pretty predictable. Once it gets a bit
of momentum, it just keeps on moving, and so surprises
are pretty unusual, and this was a pretty serious surprise. Now, look,
I want to separate a few things out. One, when
you said inflation's three and a half percent, down from
four point two percent, Visseral, that's a huge jump. But
realized that's what we call headline inflation. Headline inflation includes
energy prices, and it turns out energy prices actually fell
last month. And you might be saying, way, it doesn't
feel like there's low inflation. That's right. Remember, inflation's the
rate of change of prices, So the oil price went
from low to really high and then came down to
moderately high. And that's a big part of the story
about win inflation's low, which is we actually had negative
energy inflation. We collect disinflation, but just for one month,
got some bad news. Though I know all of that
was a ceasefire payoff. That was the ceasefire dividend. The
ceasefire went away. The dividend's going to go away, and
so we should expect to see energy prices coming back
up again over the next couple of months. And we're
already seeing it at in financial markets, but we'll see
it at the gas station as well. Well.
Here's the interesting thing too about inflation.
I feel like because prices have been elevated for a
long time, and because consumers are kind of getting fed up,
companies are kind of looking for ways. Companies are paying
higher prices too for imports, because of tariffs, because of
weather events, all these things. Companies are paying higher prices
for the raw materials they used to make the stuff
they sell us, and so they have been dealing with
this interesting dance themselves. And as a result, justin I
there's a lot of inflation just because prices aren't going
up or going up less does not mean inflation is
not getting worse.
I think there's a lot of inflation that we cannot see.
But wait, so there's two things there. Yeah, we cannot
see it, but can the Bureau of Labor Statistics see it?
Also?
No, because because so I asked you to bring something
to our recording today, did you do you have it?
You did, so I'm just going to tell folks. Shall
I reveal it now? Said bring Racey's pinut butter cups.
And I thought to myself, but you told me today
we're going to talk about skimpflation. Yeah, and I thought
this was going to be a story about shrink flation.
So shrink flash is when portion saces get smaller.
Yes, so the price will stay the same of your
whatever peanut butter cups, So get less of it. And
that's the way companies can save money but not raise prices,
because we're getting best consumers pretty fed up with prices
going on.
My kids went to town and I said, when you're
in there, I said to my daughter, could you please
pick me up Racey's peanut bot of cops, which, by
the way, I don't actually eat. And I didn't tell
her it was for a piece on shrink flation, and
so she came back with king size, king size.
Go Matilda, I love it.
Isn't that the opposite of shrink flation that she brought
me king size?
Well, this is the thing. We are not talking about
shrink flation. Although shrinkflation has been happening all over the economy.
If you've ever noticed, like you open chips and they're like, hey,
wait a minute, I.
Thought the chips used to start here and now they
start here.
I mean, that's been happening, new trend happening that you
cannot see.
But Jess, okay, well, don't worry. I went back to
the store. Look what I got, regular sized ones.
I appreciate this so much.
But by the way, they were next to do you
know how many brands?
How many star cups did you buy?
Well, so they had miniature size, small size, snack size.
The number of SKUs of Riese's peanut butter cups is unbelievable,
and I don't even like them because I don't really
like peanut butter. But then I discovered, look at this,
there's something called Reese's Barbie.
Justin how many Reese's products do you have in friend
of you.
Okay, So Reese's Bark. This stuff is the bomb. It's great.
But guess what, I had to go to the drug
store for this, and so I'm going, I'm like, I'm
buying Reese's. I don't even like Riese's. Bloody Stacey's making
me buy Reese's. Why do I have the way candy
I don't like? So I picked up some candy.
I do like Nesley Crunch, Babe, I love a crunch. Okay,
so you.
Have ruined my health for the summer. It's all sitting
here right next to me. But I recommend the Bark.
There's some economics and all of this. There's Stacy or
are you just finding me on all this?
Yeah?
So I reported a story about this, this trend of skimplation,
and it started because so Brad Rees, who is the
grandson of the man who invented Reese's peanut buttercuffs, wrote
this open letter to Hershey's Hershe's bought Reese's back in
the sixties. So Brad Reese eats peanut buttercuffs every day,
but he ate a product.
Back in Wait, can we just pause?
He's called brad Rees his name is Brad Res.
I mean, like, if I would Brad Reese the inheritor
of the race's fortune, yeah, an origin, I I would
put my full name on my dting profile. I would
just want everyone to know.
Like the peanut buttercup, well, he wears he loves to
go out in like Reese's gear. So he has this
like National Car Racing jacket that's like bright orange and
says Reese's across the chest and he loves to wear
this out because he says, people come up to him
and they want to take pictures with him and they're like,
are you related, and he says yes, but he's he tried.
I had this product, these hearts. It was for Valentine's
Day this year, and he ate them. And he had
this very interesting experience. So I brought a little clip
of tape from my interview with Brads.
Here's what he said.
I literally had two bites and I had to spit
it out, and I was just like, what is this?
And of course I immediately inspected the ingredients. There's no milk, chocolate,
there's no cocoa butter. It said chocolate candy and peanut
butter cream. They're actually degrading the ingredients. I've literally got
hundreds and hundreds of letters emails from people saying thank you,
thank your fun. It was going nuts.
So Brad wrote this open letter to Hershey's saying you've
ruined my family's brand.
It doesn't taste like chocolate and peanut butter anymore.
Hundreds of people wrote back, being like, you're right, it
doesn't taste this same. And the reason it doesn't taste
the same is the thing called skimflation. And I have
to shout out Greg Rizalski from Planet Money who coined
this term skimflation. But it is essentially when companies will
swap out ingredients for cheaper alternatives.
So like chocolate, you know, cocoa prices have gotten so.
High in the last few years that that companies are
trying to grapple with this. They don't want to keep
raising prices, so they're like, okay, how can we continue
to make our candy and use something that seems like
chocolate but doesn't cost as much. So they'll use like
vegetable oils and palm oils, and then that is when
you'll see things like chocolate candy show up if you look.
Because the FDA regulates this, So you can't just say
something's chocolate or peanut butter. If you call it peanut
butter has to be ninety percent peanuts. If it's not
ninety percent peanuts, you have to call it peanut butter
cream or peanut butter crem and.
If it's not, I think ten.
Points crim if it's French cream, if it's.
Am If it's French, yes, And then for chocolate, if
it doesn't have a certain amount of actual cocoa pod
in there, then you have to call it chocolate chocolate candy.
And this is becoming kind of more prevalent because actually,
so there's the wholesale price inflation index, which is the
price that companies pay for the ingredients and the raw
materials they buy. Those prices have risen faster than the
prices we pay, which means the companies are eating some
of those costs or finding ways to avoid them, and
so there's been this rise of skimflation. So if you
notice things taste different, like your favorite peanut buttercups taste different,
then okay, just I want to get your your thoughts
on this peanut butter cup.
I don't want to miss this. I'm not really a nope,
and you're not a peanut person.
And it's had to talk when you got Recie's cups
in your mouth. The things I do for you and
for science.
No, it's it's noble but nothing.
I wouldn't like them. But can you cold Brad and
tell them they're not bad?
Well this may be because of Brad because after he
wrote this open letter on LinkedIn, it got reposted all
over social media and her she's actually responded and said
that they were going back to the original formula.
You know, I think that it succeeded because this actually
says it comes with paint up and it calls them
paintut butter cups. She has milk, chocolate, painut but up there.
You can't talk when you have one in your mouth,
which is proof it's.
Painut but up, but it's tasting good to you.
I'm ready to make Raci's the official panup but a.
Cup the candy of the summer. I brought some to
you just because.
I didn't want to feel platypus economics. I This, by
the way, is not a paid segment, but I just
had my first. No one has ever managed to get
me to try a peanut butter cup before.
And economics got you to try the peanut butter cup.
No, it's Stacey annic Smith who did that.
I appreciate, but she said this is very interesting.
There is some economics. I'm going to have one more
bite then I'll get to the economics.
Yes, and have one too.
It's actually good. I might look when my kids go
trick or treating, I never steal their peanut butter cups,
but I might now I'm gonna see if I can
do the rest of the podcast with a big gob
of peanut butter on the roof of my mouth. Wish
is both black. So what's interesting here? As you're talking
about so what you're calling skimflation because you're from the
planet money world, where you all have to have amazing
names and make everything catchy. We in economics would call
these unmeasured quality change. Now the Bureau of Labor Statistics
tries to measure quality because it doesn't want you know.
I really appreciate how much you're loving these peanut butter cups.
As an audio experience, this might be quite unusual. And
if anyone wants to a cup ASMR, I'm ready to
do it. For the right price, it's good. So we
always do want to measure quality change, right, So if
something gets better over time and it's the same price,
that's sort of like it got cheaper.
Sort of the BLS measure quality change.
Okay, So it's really important. So for things like computers.
Once you think about your phone, Yeah, the first iPhone
you got probably had eight megabram and it want to
cost another one hundred dollars to get the version it
had sixteen megabram. And then when the iPhone two came out,
maybe it had sixteen megabram. So that's sort of like
you just saved one hundred dollars. And so that's how
they try and do it. They it's called a doning
price adjustment, but you basically figure out how much of
people willing to pay more for the extra features, and
then you say, what extra features did we get? And
then you say, oh, it's as if the price fell
by that much. And it's really really important for technology
because honestly, the price of phone hasn't phones hasn't changed years.
It's been eight hundred bucks, you know, plus one it's
one hundred bucks ever since the first iPhone. But of
course today's iPhone is a device that fifteen years ago
would have sold for four hundred thousand dollars, and a
lot of the improvements in our quality of life come
out of come out of that. So they do try
to measure quality change now. The problem is it's hard
to measure it with everything. So they can have a
whole bunch of nerds. They have like a division whose
job is to measure quality change with technology because it's
such a big deal. I haven't checked this, but I
have a funny feeling they do not have a peanut
butter cup division doing atonic price adjustments yet.
Yeah.
The other thing that's interesting about this is we normally
think about quality change as being positive, right, because goods
get better over time the computer's advanced cars AVN.
This is how companies compete, right, a better But this
is a form of intitification, and so same price was product,
it's effectively a price rise.
Anyway, Stacey, I'm never going to think about unmeasured quality
change the same way without thinking about that big gob
a pinup butter right there. And I think we should
do all less shows this way.
I agree.
I mean it is interesting to think about the different
ways inflation shows up. And I one of the things
that did come up in this because it just seems
like you can be like the companies are evil, uh,
is that the companies are stressed out because we've gotten
pretty price sensitive after all these years of inflation. We're
getting squeezed, so companies feel like they can't raise prices.
And if you shrink, you can shrink packages to a point,
but then it starts.
To get a little weird. So this is one of
the ways that they're trying. And I talked with a
bunch of like consumer advocates and things like that who said, oh, yeah,
this is getting to be kind of the norm, and
now they have new technology. Actually also spoke with this
woman in Jersey who is this professional taster and companies
come to her when they say, we want something that
tastes like peanut butter but involves no peanuts or fewer peanuts,
and she has like teams that help them reformulate these things.
And it's becoming this huge business, especially like as crops
become more difficult to come by, you know, like cocoa
and coffee and things like that and more expensive, I
think we can maybe expect to see more of this
but it is another form of inflation.
It's just maybe less. It's like sneaky inflation.
What I love about this, listen, is that our audience
now understands whenever they walk past the candy oile, there
is an economics list and rot there now sticy. It's
not just a candy oil. I have a funny feeling
for you walked outside right now. They want be an
economic explicitly whiting for you. Tell me about that, listen.
Well, I'm glad I have all these peanut butter cups
so that I can eat my feelings.
But I am in New York.
And by the way, your producer Megan is in ann Arbor,
and we are both experiencing really terrible air quality right now,
like we're not supposed to go outside.
I went to.
Walk to get a coffee this morning, which is like
ten minutes, and my throat is still sore.
Even though it looks really beautiful, it's like a dangerous
really it's nuts.
I mean, yesterday the air was all gray, but today
it's apparently worse, one sixty eight on the AQR or
AQI scale. And this actually got me thinking, and I'm very,
very excited to have you here to ask about this
because I know that economists will talk about something like
clean air does not seem like an economics issue necessarily,
but it is called a public good and it's kind
of a special it has special qualities and economics. Do
you mind just talking a little bit about what a
public good is and kind of how economists think about this.
Yep, So first of all, like, of course, clean air
is an economic issue. There's no issue on Stacey that
you've ever raised with me or I've said, are you.
As the economist?
Yes, and you, by the way, we should say, are
safely out of this situation on the keep on in
the keep I don't know.
Well, if you make fun of me for that, I'm
going to make fun of you for being in Brooklyn.
Are you kidding?
I'm jealous. I'm so jealous. Me and Meghan are just jealous. Inside.
I am on my family vacation and I am going
to go swim in the water after this, which just
makes me miss.
Australia really and put a price on that.
You can. In fact, real estate is more expensive closer
to the water from which you can infer people like
being near the water. Don't ever tell me you can't
put a price on something, Stacy. That's your point about
clean air. Stacy, let me ask you a question. You
just told me you went for coffee and your throat hurt. Yeah, okay,
Now I want to know, is there a lot of
economics there? Would you be willing to find a magic
drug that got rid of that sore throat? Would you
buy it for a dollar?
Yeah?
Would you buy it for ten dollars? Yes, sounds like
you're right on the fence.
Yeah, ten dollars, but I would Yeah.
We just priced it the value of clean air to Stacey.
Oh yeah, it's ten dollars.
Because the walk and getting the coffee stays the same
other way. But you'd be willing to pay ten bucks
every time you go for a walk for clean air?
Sounds like, Actually, you know, if you do that every
day or every time you walk, how many times do
you outside in the day. I know you're in New York.
A said never, But.
That's not true. We have to walk everywhere.
I don't have a car, so I'm outside anytime I
want to go anywhere and do anything, I have to
go outside.
If we put a toll on clean air, how many
times would you have to pay a ten dollar toll.
How many times would you have to pay a day?
I mean probably at least sixty, because if.
Every time I left indoors to go outside, yeah, sixty.
So then now you're telling me your value clean air.
It's sixty dollars a day, right, and there's three hundred
and sixty five days in a year. And you love multiplication.
I know that that's eighteen thousand dollars a year, roughly
twenty thousand dollars a year. So Stacy just told me
she holds an asset in her portfolio, which is access
to clean air, that she values at twenty thousand dollars.
And I believe in Brooklyn there's lots and lots of people.
How many people are there in Brooklyn?
Many millions?
Okay, So therefore there's many billions of dollars worth of
value in clean air. So the economic stakes, all I'm
doing is taking a very common sense observation. Stacy doesn't
like getting a sore throat, and I'm saying, how valuable
is it? And it turns out extraordinarily valuable? Okay, we
agree that it's valuable. Hey, Stacy, I am currently near
the beach. The air here is clean How much do
you think I have to pay for it?
Nothing?
Right? Okay, So that's the problem, which is air is unpriced,
and so if I wanted to go outside and harm
the air, how much am I going to have to
pay for that?
Like if you start a big charcoal grill? Yeah?
Nothing, yeah, or you know it, a big can of beans.
I'm sorry, that's the astral way.
All of the peanut butter cups, that's.
Right, Wait, depend up, but but cups make your hard.
I don't know. I think if you eat all of
those that there will be consequences.
Maybe we can have another bet. Okay. So look, here's
a very special type of good. We do call it
a public good. Here's the problem. Effectively, no one owns it,
which is I can't stop you from using it, and
I can't stop you from hurting it. When I can't
stop you from using it, then I've got no incentive.
Then I can't stop you from using clean air. Therefore
you can just take it for free, which means if
I want to set up a business that provides clean air,
my business isn't going to be very successful. And so
therefore no one's going to enter the clean air production business.
Yeah, there's no incentive like to protect it.
Right, So imagine I came up with a wonderful air
cleaning innovation, but it would clean the air over all
of the state of New York. No one's going to
I'm not going to say ten bucks to breathe my ear.
I'm going to say nine bucks to give you a
good deal. But no one's going to pay it because
they're just going to walk out to the front door
and drink it in. They're what we call a free rider.
They're going to enjoy the benefits of clean air without
paying the price. And so therefore the benefits of producing
clean air the money I can get selling it zero, right,
And the cost of producing clean air is I have
to invent a crazy machine. And so therefore markets tend
to underproduce public goods.
So you might you mean under price or underproduce.
Well, because it's underpriced, we don't produce much of it.
So explain that maybe because and also if you don't
mind naming some other public goods other than clean air,
like national security as one, which is interesting.
Yeah, I'm going to come back to how I talk
to my students about this. So there are some goods.
The technical word is non excludable. What I mean by
non excludable is if I produce it, I can't stop
you from just using it.
You can't be like stazy, no breathing the air unless
you pay me. Okay.
That then means you can benefit without pain. Yes, that
then means there's not much of an incentive for me
to produce it. So non excludability is really really important
to use the language of economics. Non excludability creates an externality,
which is, if I were to create clean air.
Oh, this is economists favorite word is externalities.
Isn't it? It's such a good day.
First, I got there negative and positive externalities, right, okay.
So the externality here is you can benefit without as
a result of my actions. Okay. And because a public
good has got a second thing, which is called non rival,
which is, if you have clean air, there's still enough
air left everyone else.
Oh right, like me breathing and clean air doesn't mean
there's less clean air for you.
So non rival and non excludable that defines a public good.
And the problem with public goods is so let's think
about some examples. Clean air is one I can't stop
you from breathing it. National defense. If I would have
set up a firm that kept America is safe, and
I would to send you a bill every year, you
just not pay the bill, right answer. Therefore, the private
sector will never produce national defense. Because of that, we
ask the government to do it for us instead. So
when something's a public good usually, now here's an important distinction.
The government doesn't have to produce it. The government has
to pay for it. Because you're not going to pay,
you're going to free ride because it's non excludable. So
national defense is another one. Fireworks, fireworks displays. I can't
stop you looking at the sky. Yeah, what's hard is
that sunshine? Isn't isn't the sun beautiful? Yes? And now
the public goood? And anytime you see a public good,
you should be asking yourself, Oh, this is the sort
of thing like clean air that markets won't produce enough of.
Can we maybe ask our government to help? And that's
why we might really think government should be involved in
clean air. Right, that's what's going on with public.
Because we do, as you said, we need it, like
the economy needs public The irony is even though they're
not priced and we may not value them as much
as we should because they're not priced.
The economy can't really function without.
Them, right. Another way of saying this is when we're
in a situation where it's as if no one owns something,
then no one will take care of it. Oh, that's
the more negative view of human nature.
No, no, I think, But that's true.
Nobody's like has to own it, right Like if you are,
if you are in if you know what, if you
have the special Recee's peanut buttercup rest, you will guard it.
You will protect it, yep, you will sue people who
try to harm it or whatever. But if it's something
that everybody benefits from, then nobody owns it, which is wonderful.
Nobody can take it from you, and nobody protects it.
The other really nice example is if I think of
a new mathematical theorem and if I write it down,
you now know my theorem, and no one's going to
force you to pay me to use my theorem. If
it was a movie, I have copyright law and you'd
pay to see my movie. But it's a mathematical theorem,
and as a result, that's another form of public good,
which is why we think governments ought to subsidize fundamental
research and development because otherwise it will be underproduced, because
it is very much a public good.
All right, justin I need a little bit of good
news right now. I'm a little sad, speaking of externalities,
I cannot externalize myself for the entire weekend. Apparently, yes,
you can watch some movies or something.
So you managed to do that. It took me a
while to realize you were using it in a in
a more human sense. If there's a word with an
economics and a human meaning, you know, I only hear
one of them.
Anyway, make a really bad segue joke and look after yourself.
But Stacy, I get it. You're like, it feels like
plagues and locusts out there, doesn't it a little?
It feels like, yes, we just had one hundred and
five degree day a couple of days ago.
It's yeah, and read ray and Orange.
Tell me about it, Stacy. One of the tricks you
taught me, and I love it and I'm going to
repeat it every week is if we only had a
newspaper every fifty years, Yes, you think about the extraordinary
things that would teach us. It would look at the
extraordinary ways in which our world is becoming more positive,
clean and more beautiful, more prosperous, more enjoyable.
Yes, progress, we'd see all the progress right, And because
we read our newspaper every day instead, we miss that story.
So you want to be cheered up, and I want
to be cheered up. So let's think about something over
that longer time horizon. My favorite fact for the week
is renewable energy. The world just added its largest annual
increase in renewable power capacity, and renewables now account for
just under half of all installed power capacity on the planet. Look,
there's two things here. I want to pause on both
of them. One is what an astonishing achievement. The other
is notice that for most of us, the internal stories
we tell about the environments are really negative because we
see bad news and we hear bad news.
But the reality feel bad news. Bad news drips us inside.
You go outside and you breathe bad news. But the
reality is we're making progress. The human ingenuity. Innovation is
a beautiful thing, and it's all around us. And while
we worry about our planet, it's also saving our planet.
Oh that is a beautiful silver lining.
Yes that I'm going to carry that with me this
weekend as a very positive externality, a positive internality.
Oh now you got into internalities that I only talk
about those with my therapist.
Yeah, are there internalities or only externalities?
Maybe maybe that's for another week. I don't know.
I'm going to give you one sentence on it. Okay,
I'm going to give you a whole paragraph because I
love this idea. And externality is when I take an
action that affects other people. If I find in an elevator,
that's a negative externality, it harms you. If it's I
grow beautiful flowers in my front yard, that's something that
helps you. That's a positive externality. Okay, so I harm you.
Internalities come from a different idea. It comes from the
idea that there's not just one Stacy and one justin.
There's many Stacy's. There's today Stacy, there's twenty twenty seven Stacy,
twenty twenty eight Stacy, and so on, and sometimes we
make choices that affect our future selves. For instance, I
know you notice this, Stacy, I worked out last week,
which is why my muscles are rippling. That's going to be.
Rad I was going to say something but it seemed
off topic.
I never worry about harassing in the middle of one
of these. I'm I'm only going to feel great about it.
But what that means is that twenty twenty eight, Justin
is going to be in a lot better shape because
of the work twenty twenty six Justin did. A lot
of the choices we make, you can think about as
being a bargain between our current and our future selves. Now,
let's come back and think about bad choices that we make.
If I told you I packed I smoked a packet
of cigarettes, I might have done that to make me
feel good today, but I did it because I didn't
really care about the health of that bastard Justin in
the future, who's going to end up dying of cancer.
That's what an internality is. It's an externality within yourself,
but within the multiple versions of yourself, when you aren't
taking account of the costs and benefits that the creating
your futureself.
Like I over, I spent more money than I had
I didn't see for retirement.
I yeah, I ate too many peanut butter cups and
men for that station.
Okay, very welcome.
I try to spread my positive externalities around where I can.
This has been off the clock, on the hook, and
on the recess. But off the Clock is the Economics podcast,
in which Stacy and I slow down, review the week
that was and try to sort out what really mattered. Stacy,
are you going to come back in a couple of
weeks fround next installment?
I'll be here.
I'll be here, probably hopefully having gone outside at some point.
Great. And in the meantime, make sure to subscribe. Grab
yourself a new, higher quality peanut butter cup. They come
highly endorsed with no advertising money. I have to call
Brad Reeth and let me also say, if you enjoyed
any part of this, including the live eating demonstrations, make
sure you like subscribe and tell your mates this is
the only place where you can see two economics wonks
eating peanut butter based products.
I think that's it to say.
In the meantime, stay curious.