Podcasts about baumol

A hit like Hamilton can come from nowhere while a sure bet can lose $20 million in a flash. We speak with some of the biggest producers in the game — Sonia Friedman, Jeffrey Seller, Hal Luftig — and learn that there is only one guarantee: the theater owners always win. (Part two of a three-part series.) SOURCES:Debby Buchholz, managing director of La Jolla Playhouse.Sonia Friedman, Broadway producer.Rocco Landesman, Broadway producer, former owner of Jujamcyn Theaters, former chairman of the National Endowment for the Arts.Hal Luftig, Broadway producer.Luis Miranda Jr., political strategist, founding president of the Hispanic Federation, the Northern Manhattan Arts Alliance, Viva Broadway, and The Public Theater.Michael Rushton, professor of arts administration at Indiana University.Jeffrey Seller, Broadway producer.Richard Winkler, Broadway producer.Stacy Wolf, professor of theater at Princeton University. RESOURCES:Theater Kid: A Broadway Memoir, by Jeffrey Seller (2025).Relentless: My Story of the Latino Spirit That Is Transforming America, by Luis Miranda Jr. (2024).Beyond Broadway: The Pleasure and Promise of Musical Theatre Across America, by Stacy Wolf (2019)."‘Hamilton' Inc.: The Path to a Billion-Dollar Broadway Show," by Michael Paulson and David Gelles (New York Times, 2016)."On the Performing Arts: The Anatomy of Their Economic Problems," by W.J. Baumol and W.G. Bowen (The American Economic Review, 1965). EXTRAS:“How to Make the Coolest Show on Broadway,” by Freakonomics Radio (2024).“You Can Make a Killing, but Not a Living,” by Freakonomics Radio (2024).

When workers get more productive, higher wages might follow. So what about jobs that just can’t get more productive? In this episode, we explain why those workers’ wages may rise anyway — a concept called the Baumol effect — with help from an economist who’s also an amateur bassoonist. Plus, the trade deficit is no sweat, a Georgia program trains refugees for tech jobs and we check in with an urban tour guide in Kansas City.

When workers get more productive, higher wages might follow. So what about jobs that just can’t get more productive? In this episode, we explain why those workers’ wages may rise anyway — a concept called the Baumol effect — with help from an economist who’s also an amateur bassoonist. Plus, the trade deficit is no sweat, a Georgia program trains refugees for tech jobs and we check in with an urban tour guide in Kansas City.

When workers get more productive, higher wages might follow. So what about jobs that just can’t get more productive? In this episode, we explain why those workers’ wages may rise anyway — a concept called the Baumol effect — with help from an economist who’s also an amateur bassoonist. Plus, the trade deficit is no sweat, a Georgia program trains refugees for tech jobs and we check in with an urban tour guide in Kansas City.

When workers get more productive, higher wages might follow. So what about jobs that just can’t get more productive? In this episode, we explain why those workers’ wages may rise anyway — a concept called the Baumol effect — with help from an economist who’s also an amateur bassoonist. Plus, the trade deficit is no sweat, a Georgia program trains refugees for tech jobs and we check in with an urban tour guide in Kansas City.

Eli Dourado is on a mission to end the Great Stagnation, that half-century period of economic and technological disappointment that began in the 1970s (what I refer to in my 2023 book, The Conservative Futurist, as the Great Downshift). If we want to turn the page on this chapter of slow progress and deserved skepticism, we're going to have to accept some creative destruction.Dourado believes that the courage to embrace major change is key to meeting our potential. Today on Faster, Please! — The Podcast, I talk with Dourado about the future of the US job market and energy production in a world of AI.Dourado is chief economist at the Abundance Institute, and author of his own Substack newsletter.In This Episode* The dawn of a productivity boom? (1:26)* Growing pains of job market disruption (7:26)* The politics of productivity growth (15:20)* The future of clean energy (23:35)* The road to a breakthrough (30:25)* Reforming NEPA (35:19)* The state of pro-abundance (37:08)Below is a lightly edited transcript of our conversationThe dawn of a productivity boom? (1:26)Pethokoukis:  Eli, welcome to the podcast.Dourado: Thanks for having me on, Jim.I would like to think that what we are experiencing here in the 2020s is the beginnings of an extended productivity boom. We have some good economic data over the past year and a half. I know this is something that you care about, as I do . . . What's your best guess?I think the seeds of a boom are there. There's plenty of low-hanging fruit, but I'd say the last few quarters have not been that great for TFP growth, which is what I followed most closely. So we actually peaked in TFP in the US in Q4, 2021.Now what is that, what is TFP?Total factor productivity. So that's like if you look at inputs and how they translate into outputs.Capital, labor . . .Capital and labor, adjusting for quality, ideally. We've gotten less output for the amount of inputs in the last quarter than we did at the end of 2021. So slight negative growth over the last three years or so, but I think that you're right that there is room for optimism. Self-driving cars are coming. AI has immense potential.My worry with AI is other sociopolitical limits in the economy will hold us back, and you kind of see the news breaking today as we're recording this, is there's a strike at the ports on east coast, and what's at issue there is are we allowed to automate those jobs? Are the owners of the ports allowed to automate those jobs? And if the answer ends up being “no,” then you can say goodbye to productivity gains there. And so I really think the technology is there to do a lot more to kick off a productivity boom, but it's the sociopolitical factors that are slowing us down.And I definitely want to talk about those sociopolitical factors, and the port strike is hopefully not a harbinger. But before I leave this topic, I suppose the super bullish case for productivity is that AI will be so transformative, and so transformative throughout the economy, both automating some things, helping us do other things more efficiently, and creating brand new high-productivity things for us to do that we will have maybe an extended 1990s, maybe more, I might hope?What is your bullish case, and does that bullish case require what they call artificial general intelligence, or human-level, or human-level plus intelligence? Is that key? Because obviously some people are talking about that.Can we have an important productivity boom from AI without actually reaching that kind of science-fictional technology?I don't actually think that you need one-to-one replacement for humans, but you do need to get humans out of the loop in many, many more places. So if you think about the Baumol effect, the idea here is if there are parts of the economy that are unevenly growing in productivity, then that means that the parts of the economy where there is slow productivity growth, perhaps because you have human labor still being the bottleneck, those parts are going to end up being massive shares of the economy. They're going to be the healthcares, the educations, the parts of the economy where we have lots of inflation and increased costs. So the real boom here, to me, is can you replace as many humans as possible? Over the short run, you want to destroy jobs so that you can create a booming economy in which the jobs are still available, but living standards are much higher.If you think about these big chunks of GDP like health, housing, energy, transportation, that's what you need to revolutionize, and so I can think of lots of ways in health that we could use AI to increase productivity. And I also have very little doubt that even current levels of AI could massively increase productivity in health. I think the big question is whether we will be allowed to do it.So you don't need AGI that is as good as a human in every single thing that a human might do to limit the number of humans that are involved in providing healthcare. Housing, I think there's construction robots that maybe could do it, but I think the main limits are, like land use regulation, more sociopolitical. In energy, it's kind of the same thing, NIMBYism is kind of the biggest thing. Maybe there's an R&D component that AI could contribute to. And then in transportation, again, we could automate a lot of transportation. Some of that's happening with autonomous cars, but we are having trouble automating our ports, for example, we're having trouble automating cargo railroads for similar make-work reasons.I think the bull case is you don't need AGI, really, really sophisticated AI that can do everything, but you do need to be able to swap out human workers for even simpler AI functions.I don't actually think that you need one-to-one replacement for humans, but you do need to get humans out of the loop in many, many more places.Growing pains of job market disruption (7:26)I'm sure that some people are hearing you talk about swapping out human workers, replacing human workers. They're thinking, this is a world of vast technologically-driven unemployment; that is what you are describing. Is that what you're describing?Not at all. If we had the kind of productivity boom we're talking about, the economy would be so incredibly hot, and you need that hot market. People have all kinds of fantasies about how good AI could get. Can it substitute for a human in every single thing? And I'm not even positing that. I'm saying if we could just get it good enough to substitute in some things, the economy's going to be booming, it's going to be hot, there will still be things that humans can do that AIs can't. There's lots of things that maybe we want a human to do, even if the AI can do it, and we will be able to afford that a lot better.I think that the world I'm thinking about is one where living standards are way higher for everybody — and higher levels of equality, even. If you have the sort of uneven productivity gains that we've had for the last several decades, where tech does really well, but every other part of the economy does badly, well, that drives a lot of regional inequality, that drives a lot of different kinds of demographic inequality, and if we had broad-base productivity growth, that means better living standards for everybody, and I think that's what we should aim for.When I talk about what you've been referring to as these sociopolitical factors or how we might slow down progress, slow down automation, the whimsical example I use is there being a law saying that yes, you can have kiosks in every McDonald's, but you have to have an employee standing next to the kiosk to actually punch the buttons.As you mentioned with this port worker strike, we don't need my scenario. That is kind of what's happening on these ports, where there could be a lot more automation, but because of both unions and our acquiescence to these unions, we don't have the kind of automation — forget about sci-fi — that doesn't exist in other places in the world. And I wonder if that doesn't sort of encapsulate, at least in this country, the challenge: Can we get our heads around the idea that it's okay in the long run, that there will be some downsides, and some people might be worse off, and we need to take care of those people, but that's the disruption we need to tolerate to move forward?You can't have a growing economy where there's no churn, where there's no displacement, where it's complete, where there's no dynamism. You need to be able to accept some level of change. I sympathize with people whose jobs get destroyed by automation. It is hard, but it's much less hard if the economy is super hot because we've been prioritizing productivity growth, and if that were the case, I think we'd find new jobs for those people very quickly. The process is not automatic, but it's much slower when you have low productivity growth and a stagnant economy than it is when you have high productivity growth and a booming economy.The question I always get is, what about the 60-year-old guy? What's he going to do? And I'm not sure I have a much better answer. Maybe there's other jobs, but it's tough to transition, so maybe the answer there is you cut him a check, you cut that 60-year-old a check, and if you have a high-productivity economy, you have the resources for that to be an option.Right! So that's the other thing is that we can afford to be generous with people if we have a really rapidly growing economy. It's that we don't have the resources if we're stagnating, if we're already overextended fiscally, that's a terrible position to be in because you can't actually afford to be generous. And if there are people that truly, like you said, maybe they're very old and it doesn't make sense to retrain, or something like that, they're near retirement, yeah, absolutely, we can afford that much better when GDP is much higher.Where do you think, as a nation, our head is at as far as embracing or not being fearful of disruption from technological change? If I only looked at where our head was at with trade, I would be very, very worried about entering a period of significant technological disruption, and I would assume that we will see lots and lots of pushback if AI, for instance, is the kind of important, transformative, general purpose technology that I hope it is.Again, if I look at trade, I think, “Boy, there's going to be a lot of pushback.” Then again, when I think about risk broadly, and maybe it's not quite the same thing, I think, “Well, then again, we seem to be more embracing of nuclear energy, which shows maybe — it's not the same thing, but it shows a greater risk tolerance.” And I'm always thinking, what's our societal risk tolerance? Where do you think we're at right now?I think most people, most Americans, don't actually think in those terms. I think most Americans just think about, “How are things going for me?” They kind of evaluate their own life, and if their communities, or whatever, have been struggling due to trade stuff, or something like that, they'll be against it. So I think the people who think in these more high-level terms, it's like societal elites, and I think normal people who have just lived under 50 years of stagnation, they're kind of distrustful of the elites right now: “I don't pay attention to policy that closely, and my life is bad, at least in some dimensions is not as good as I wanted it to be, it's hasn't had the increase that my parents' generation had,” or something like that. And they're very distrustful of elites, and they're very mad, and you see this nihilistic populism popping up.You see kind of a diverse array of responses to this nihilistic populism. Some people might say, “Well yeah, elites really have messed up and we need to do what the common people want.” And then the other people are like, “No, we can't do that. We need to stay the course.” But I think that there's a hybrid response, where it's like, the elites really have done bad, but we don't just want to do what the populists want, we want to just have better elite-led policies, which include things like, we have to take productivity growth seriously, we can't just paper over a lot of the tensions and the conflicts that arise from that, we need to embrace them head-on and do everything we can to produce an economy that is productive, that works for everybody, but maybe not in the way that the populists think it will work.You can't have a growing economy where there's no churn, where there's no displacement, where it's complete, where there's no dynamism. You need to be able to accept some level of change.The politics of productivity growth (15:20)I would love to see what American politics looks like if the rest of this decade we saw the kind of economic productivity and wage growth that we saw in the fat part of the 1990s. We act like the current environment, that's our reality, and that's our reality as far as the eye can see, but I'll tell you, in the early '90s, there was a lot of gloom and doom about the economy, about productivity, how fast we could grow, the rise and fall of great powers, and America was overstretched, and after really three or four years of strong growth, it's like America Triumphant. And I'm wondering if that would be the politics of 2030 if we were able to generate that kind of boom.Yeah, I think that's totally right. And if you look at total factor productivity, which is my KPI [key performance indicator] or whatever, if you look at 1995 to 2005, you were back to almost two percent growth, which is what we had from 1920 to 1973. So you had a slow period from 1973 to 1995, and an even slower period since 2005, and you get back to that two percent. That's the magic number. I think if we had TFP at two percent, that changes everything. That's a game-changer for politics, for civility, for social stability, we'd really be going places if we had that.I was mentioning our reaction to trade and nuclear power. The obvious one, which I should have mentioned, is how we are reacting to AI right now. I think it's a good sign that Congress has not produced some sort of mega regulation bill, that this recent bill in California was not signed by Governor Newsom. Congress has spent time meeting with technologists and economists trying to learn something about AI, both the benefits and risks.And I think the fact that it seems like, even though there was this rush at some point where we needed to have a pause, we needed to quickly regulate it, that seems to have slowed down, and I think that's a good sign that perhaps we're able to hit a good balance here between wanting to embrace the upside and not utterly panicking that we're producing the Terminator.Absolutely. I think AI is something where the benefits are very clear, we're starting to see them already. The harms are extremely hypothetical, it's not evidence-based, it's really a lot of sci-fi scenarios. I think the right attitude in that kind of world is to let things ride for a while. If there are harms that arise, we can address them in narrowly tailored ways.I think government is sometimes criticized for being reactive, but reactive is the right approach for a lot of issues. You don't want to slow things down preemptively. You want to react to real facts on the ground. And if we need to react quickly, okay, we'll react quickly, but in a narrowly tailored way that addresses real harms, not just hypothetical stuff.I love what you're saying there about reaction. I'm a big preparer. I love preparation. If I'm going to go anywhere, I over-prepare for all eventualities, I will bring a messenger bag so if the world should end while I'm out, I'll be okay. I love to prepare. But one lesson I draw from the pandemic is that only gets you so far, preparation, because before the pandemic, there were a gazillion white papers about the possibility of a pandemic, all kinds of plans as a culture, we were sort of marinating in pandemic apocalypse films, maybe about turning us into zombies rather than giving us a disease.And then when we finally have a pandemic, it's like, “Where's the respirators? Where's this, where's that? We didn't have enough of this.” And so, while I'm sure preparation is great, what really helped us is we reacted. We reacted in real time because we're a rich country, we're a technologically advanced country, and we came up with a technological fix in a vaccine. To me — and again, I'm not sure how this is you meant it — but the power of being able to react effectively, boy, that's a pretty good capability of a well-functioning country.Yeah, and a slight difference between the pandemic and AI is it was not the first pandemic. AI is just such a unique set of theorized risks that people are like, nothing like this has ever happened before. This is like the introduction of a brand new super-intelligent species to the planet. This is the first time two intelligent species — if you want to count humans as an intelligent species — two intelligent species will the planet at the same time. And the theorization here is just so far out of the spectrum of our experience that it is hard to even see how you could prepare if those risk materialize. The only intelligent thing that is likely to do any good is to have our eyes open, and let's see what the harms are as they materialize.The problem with coming up with remedies for theorized harms is that the remedies never go away once they're implemented. Safety regulation never gets laxer over time. And so if you're implementing safety regulations because of real safety problems, okay, fair play, to some extent. I think in some dimensions we're too safe, but it kind of makes sense. But if you're doing it to just theorized harms that have never materialized, I think that's a big mistake.And you've written about this fairly recently. To me, there's a good kind of complexity with an economy that you have a high-functioning economy where people can connect, and colleges and universities, and businesses, and entrepreneurs, these networks work together to produce computer chips or large language models. That's a good kind of complexity.But then there's the other kind of complexity, in which you just have layer after layer of bureaucracy, and programs meant to solve a problem that was a problem 20 years ago and is no longer a problem, and that kind of complexity, that's not the kind we want, right?Yeah, I think you want the sophistication in the economy, but in a way that works for everybody. There have to be benefits to it. If you increase the burden of complexity without producing any net benefits, then people start to rebel against it, they start to be indifferent to or apathetic about the health of society. And there's an anthropologist, Joseph Tainter, who wrote this book, The Collapse of Complex Societies, and his theory is that once you have complexity without the marginal benefits of complexity, you're in for a shock, at some point, when people start becoming apathetic or hostile to the current order. And the complexity grows and shrinks as a system, you can't ever just control like, “Oh, let's do more, or let's do one percent less complexity.” Once people start to rebel against it, it snowballs and you could end up with a very bad situation.The problem with coming up with remedies for theorized harms is that the remedies never go away once they're implemented. Safety regulation never gets laxer over time.The future of clean energy (23:35)Nuclear versus solar versus geothermal: What do you like there?Solar panels have massively come down in cost, and we're not that far away from — in sort of number of doublings of deployment, and sort of long-deployment space — we're not that far away from the cost being so low that . . . you could almost round the panels cost to free. It almost makes sense. And the problem is, if you look at the solar electricity costs on utility-scale farms, they have not really moved in the last few years. And I think this is in large part because we're designing the solar farms wrong, we're not designing them for the era of cheap panels, we're designing them, still, to track the sun, and complex mechanisms, and too much space between the panels, and too much mowing required, and all that. So as we adapt to the new paradigm of very, very cheap panels, I think that you'll get lower solar costs.I think the other thing that is obviously complimentary to all of these sources actually is battery innovation. I'm very excited about one particular new cathode chemistry that maybe could drive the cost way, way down for lithium ion batteries. And so you're in a world where solar and batteries is potentially very, very cheap. And so for nuclear and geothermal, they have some advantages over solar.If batteries get cheap, the advantage of not the firmness . . . I think people think that the advantage of these sources versus solar is just that solar is variable and the other sources are constant, but that's less of an advantage if batteries are cheap, and I think you also want batteries to be able to respond to the fluctuations in demand. If we had an entirely nuclear-powered economy, the nuclear plants actually want to run at constant speed. You don't want to ramp them up and down very quickly, but demand fluctuates. And so you still want batteries to be a buffer there and be the lowest-cost way to balance the network.So the things that nuclear and geothermal can really compete on is land density — even gigawatt-scale nuclear where you have these giant exclusion zones and tons of land around them and so on, they're still more dense per acre than solar, and geothermal is maybe even denser because you don't need that exclusion zone, and so they could be much, much better in terms of density.There's an advantage — if you want a lot of power in a city, you probably want that to be supplied by nuclear. If you're more rural, you could do solar. Another possibility is portability. So there's future versions of nuclear that are more mobile. People have talked about space-based nuclear for being able to go to Mars or something like that, you want thermonuclear propulsion and you can't do that with solar. Or powering submarines and stuff. So I think there's always a place for nuclear.And then the other advantage for both nuclear and geothermal is if you don't need to produce electricity. So if you're producing just the heat — it turns out a big part of the cost of any sort of thermal source is converting it to electricity. You have to have these giant steam turbines that are very capital intensive. And so, if you just need heat, say up to 600 degrees C heat for nuclear and maybe 400 degrees C heat for deep geothermal, those are really good sources for doing that, and maybe if we had continued advances in drilling technology for geothermal or if we could figure out the regulatory stuff for nuclear, I think you could have very cheap industrial thermal energy from either of those sources.Nuclear and geothermal are competing against a backdrop where we'll probably have pretty cheap solar, but there's still some advantages and these sources still have some utility and we should get good at both of them.What do you think that energy mix looks like in 25 years, the electrical generation mix for this country?It would be surprising if it wasn't a lot of solar. My friend Casey Handmer thinks it's going to be 90-plus percent solar, and I think that's a little crazy.Do you happen to know what the percent is now?Oh, I don't know. It's probably like three or four or something like that, off the top of my head, maybe less. The other question is, what's the base? I think a lot of people just want to replace the energy we have now with clean energy, and much more we need to be thinking about growing the energy supply. And so I think there's a question of how much solar we could deploy, but then also how much other stuff are we deploying? Let's do a lot of everything. You do have to drive the cost of some of these sources down a bit for it to make sense, but I think we can.And then the real gains happen when maybe some of these . . . what if you could do some sort of conversion without steam turbines? What if you had ways to convert the thermal energy to electricity without running a steam cycle, which is hundreds-of-year-old technology? EssentiallyYou're just finding a new way to heat it up.Yeah, so you look at why has solar come down so much? It's because it's solid-state, easy to manufacture, any manufacturing process improvements just move forward to all future solar panels. If we had thermoelectric generators or other ways of converting the heat to electricity, that could be really great, and then there's other kinds of nuclear that are like solid-state conversion, like alpha voltaics and things like that. So you could have a box with cobalt 60 in it that's decaying and producing particles that you're converting to electricity, and that would be solid state. It's sometimes called a “nuclear battery,” it's not really a battery, but that would be a way to power cars maybe with something like that. That would be awesome.Nuclear and geothermal are competing against a backdrop where we'll probably have pretty cheap solar, but there's still some advantages and these sources still have some utility and we should get good at both of them.The road to a breakthrough (30:25)When, if ever, this century, do you think we get AGI, and when, if ever, this century, do you think we get a commercial fusion reactor?AGI, I'm still not really a 100 percent clear on how it's defined. I think that AI will get increasingly more capable, and I think that's an exciting future. Do we even need to emulate every part of the human brain in silicon? I don't think so. Do we need it to have emotions? Do we need it to have its own independent drive? We definitely don't need it to be a perfect replica of a human brain in terms of every capability, but I think it will get more capable over time. I think there's going to be a lot of hidden ways in which AGI, or powerful AI, or highly capable AI is going to happen slower than we think.I think my base reasoning behind this is, if you look at neurons versus transistors, neurons are about a million times more energy efficient. So six orders of magnitude is kind of what we have to traverse to get something that is equally capable. And maybe there's some tricks or whatever that you can do that means you don't have to be equally capable on an energy basis, but you still need to get four orders of magnitude better. And then the other thing about it is that, if you look at current margins that people are working on, things like the ChatGPT o1 model, it's a lot slower, it does a lot of token generation behind the scenes to get the answer, and I think that that's the kind of stuff that could maybe drive progress.Let's say we have a world where you ask an AI for a cure for cancer, and you run it on a big data center, and it runs for six months or a year, and then it spits out the answer, here's the cure for cancer, that's still a world where we have very, very powerful AI, but it's slow and consumes a lot of resources, but still ultimately worth it. I think that might be where we're headed, in a way, is that kind of setup. And so is that AGI? Kind of. It's not operating the same way as humans are. So this is different.You're not going to fall in love with it. It's nothing like that.I'm pretty uncertain about AGI: A) what it means, but what does it even look like in the end?Fusion, I'll give you a hot take here, which is, I think there will be net energy gain fusion developed in this decade. I think that someone will have it. I think that probably the first people to get it will be doing it in a completely uneconomical way that will never work economically. Most of the people that are working on fusion are working on DT fusion, which is another one of these sources that basically produces heat, and then you use a steam turbine, and then that produces electricity. I think that the steam turbine is just a killer in terms of the added costs.So all these sources are basically fancy ways of boiling water and then running a steam turbine. So what you want to look at is: What is the cheapest way to boil water? With fission, you just hold two magic rocks together and they boil water. With geothermal, you drill a hole in the ground and send water down there and it boils. With these DT fusion reactors, you build the most complex machine mankind has ever seen, and you use that to boil water — that's not going to be as cheap as fission should be. So I think that we'll struggle to compete with fission if we can ever get our act together.There's other kinds of fusion called aneutronic fusion. That's harder to do. I think it's still possible, maybe this decade, that someone will crack it, but that's harder to do. But the nice thing about that is that you can harvest electricity from those plasmas without a steam turbine. So if it's going to be economical fusion, I think it's plausible by 2030 somebody could crack it, but it would be that aneutronic version, and it is just technically a bit harder. You'll see some reports in a couple of years, like, “Oh, these people, they got net energy out of a fusion reactor.” It's like, okay, it's a scientific breakthrough, but look for the cost. Is it going to be competitive with these other sources?Do we even need to emulate every part of the human brain in silicon? I don't think so . . . We definitely don't need it to be a perfect replica of a human brain in terms of every capability, but I think it will get more capable over time.Reforming NEPA (35:19)Do you think we've sort of got a handle, and we've begun to wrangle the National Environmental Policy Act [NEPA] to the ground? Where are we on reforming it so that it is not the kind of obstacle to progress that you've written so much about and been a real leader on?My base scenario is we're going to get reforms on it every two years. So we had some a year and a half ago with the Fiscal Responsibility Act, I think we were possibly going to get some in the lame duck session this year in Congress. None of these reforms are going to go far enough, is the bottom line. I think that the problem isn't going to go away, and so the pressure is going to continue to be there, and we're just going to keep having reforms every two years.And a lot of this is driven by the climate movement. So say what you will about the climate movement, they're the only mainstream movement in America right now that's not complacent, and they're going to keep pushing for, we've got to do something that lets us build. If we want to transform American industry, that means we've got to build, and NEPA gets in the way of building, so it's going to have to go.So I think my baseline case is we get some reforms this year in the lame duck, probably again two years later, probably again two years later, and then maybe like 2030, people have kind of had enough and they just say, “Oh, let's just repeal this thing. We keep trying to reform it, it doesn't work.” And I think you could repeal NEPA and the environment would be fine. I am pro-environment, but you don't need NEPA to protect the environment. I think it's just a matter of coming to terms with, this is a bad law and probably shouldn't exist.I am pro-environment, but you don't need NEPA to protect the environment. I think it's just a matter of coming to terms with, this is a bad law and probably shouldn't exist.The state of pro-abundance (37:08)What is the state of, broadly, a pro-abundance worldview? What is the state of that worldview in both parties right now?I think there's a growing, but very small, part of each party that is thinking in these terms, and I think the vision is not really concrete yet. I think they don't actually know what they're trying to achieve, but they kind of understand that it's something in this general direction that we've been talking about. My hope is that, obviously, the faction in both parties that is thinking this way grows, but then it also develops a little bit more of a concrete understanding of the future that we're trying to build, because I think without that more-concrete vision, you're not actually necessarily tackling the right obstacles, and you need to know where you're trying to go for you to be able to figure out what the obstacles are and what the problems you need to address are.Faster, Please! is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit fasterplease.substack.com/subscribe

In this episode of Acquisitions Anonymous, hosts Bill D'Alessandro and Michael Girdley dive into a unique opportunity: a youth residential treatment facility with a $750,000 cash flow, up for sale at $5.5 million. The conversation explores key challenges, including recruitment difficulties and staff-to-youth ratios that impact the facility's ability to operate at full capacity. They discuss whether the rural Utah location enhances the value due to outdoor programs or limits it due to labor shortages.Key Points Discussed:- Staffing Challenges: How recruitment issues affect profitability and capacity in residential treatment centers.- Real Estate Considerations: Whether the $2.7 million in real estate valuation is justified and how owning the property factors into the deal.- Mission-Driven Work: The pros and cons of running a business that changes lives but can be emotionally taxing.- Baumol's Cost Disease: A deeper dive into how rising wages in one sector affect staffing costs in others.✉️ Subscribe to our Newsletter and get more deals like this every week**: https://www.acquanon.com/newsletter

In this episode of Acquisitions Anonymous, hosts Bill D'Alessandro and Michael Girdley dive into a unique opportunity: a youth residential treatment facility with a $750,000 cash flow, up for sale at $5.5 million. The conversation explores key challenges, including recruitment difficulties and staff-to-youth ratios that impact the facility's ability to operate at full capacity. They discuss whether the rural Utah location enhances the value due to outdoor programs or limits it due to labor shortages.Key Points Discussed:- Staffing Challenges: How recruitment issues affect profitability and capacity in residential treatment centers.- Real Estate Considerations: Whether the $2.7 million in real estate valuation is justified and how owning the property factors into the deal.- Mission-Driven Work: The pros and cons of running a business that changes lives but can be emotionally taxing.- Baumol's Cost Disease: A deeper dive into how rising wages in one sector affect staffing costs in others.✉️ Subscribe to our Newsletter and get more deals like this every week**: https://www.acquanon.com/newsletter

Prof. Ata Özdemirci ile üniversite tercihleri ve meslek seçimi üzerine yaptığımız sohbet.* Bu üniversiteyi bitirdiğinizde sizin mesleğiniz olmayacak, mesleksiz mezun olacaksınız. Üniversite senin koluna altın bilezik takan yer olmaktan çıktı ve çıkalı çok oldu.* Çok çetrefilli konularda hızlı bir şekilde çözüm geliştirebilen, zamana karşı stres altında olduğunda yaratıcılığını kullanabilen elemanları arıyor iş dünyası.* Şimdi bugünün dünyası ne tarz adama ihtiyaç var? Yapay zeka geldi, yapay zeka işimizi ellerimizden alacak falan. Peki yapay zeka hangi çocuğa ihtiyacımız ortadan kaldırdı?* Gelecekte sadece yapay zeka ile ilgili değil, teknolojinin elimizden alınacağı ve alınmayacağı meslekler diye böyle bir liste vardı. O listenin bir numarasında yani gelecekte insanın yapmaya devam edeceği mesleklerin bir numarasında psikiyatristleri koymuşlardı. İlk beş sırada yaralanlardan bir tanesi de din adamıydı.* Yogaya yetişmek için koşturuyorsanız bir yerlerde bir şeyi yanlış yapıyorsunuz.* Hatta çöp kamyonları da herkesin işine geldi. Artık çöpçüler bile elini çöpe değdirmiyor. Hatta bundan en fazla mutlu olanlar çöpçüler.* Biz yepyeni pırıl pırıl hayatın baharında en verimli olabilecek dönemindeki kişiyi uzman yardımcısı başlangıç pozisyonuna koyuyoruz ve en dandik işi yaptırıyoruz aslında. Excel tabloların tutulması falan. Bu işler biraz sallantıya giriyor ki girsin zaten.* Baumol's cost disease: Baumol EffectProf. Ata Ozdemirci: Yönetim bilimleri hocası. Kitap yazar, sistem kurar, bilgi yayar. Steto.com kurucusu. youtube.com/@ataozdemirci Twitter: @ataozdemirci* Uygarlık tarihi dersleri * Politik Yanlış* Bilimsel Laflamalar Keyifli dinlemeler.[Kayıt tarihi: 25 Haziran 2024]Güncellemelerden haberdar olmak ve daha fazlası (bölüm notları, soru ve yorumlarınız) için: tersaci.substack.com Twitter: @trscbrs Get full access to Ters Açı'dan at tersaci.substack.com/subscribe

Hit by Covid, runaway costs, and a zillion streams of competition, serious theater is in serious trouble. A new hit play called Stereophonic — the most Tony-nominated play in history — has something to say about that. We speak with the people who make it happen every night. (Part one of a two-part series.) SOURCES:David Adjmi, author and playwright.Sonia Friedman, theater producer and founder of Sonia Friedman Productions.John Johnson, theater producer and co-founder of Wagner Johnson Productions.Tom Pecinka, actor.Sarah Pidgeon, actor. RESOURCES:Stereophonic, by David Adjmi, Will Butler, and Daniel Aukin (2023).Lot Six: A Memoir, by David Adjmi (2020)."On the Performing Arts: The Anatomy of Their Economic Problems," by W. J. Baumol and W. G. Bowen (The American Economic Review, 1965).

Martin Sommer in gesprek met hoogleraar prestaties van de overheid en directeur van het Ipse-instituut Jos Blank. Bronnen en links bij deze uitzending: - Het stuk over ambtenarensalarissen in 'Binnenlands bestuur': https://www.binnenlandsbestuur.nl/editie/binnenlands-bestuur-24-2023 - Het artikel over de ziekte van Baumol: https://www.mejudice.nl/artikelen/detail/hoe-de-nederlandse-overheid-al-veertig-jaar-de-ziekte-van-baumol-in-de-publieke-dienstverlening-aanwakkert - Ipse studies: https://www.ipsestudies.nl/- Enkele diagrammen ter onderbouwing van het betoog van Jos Blank: https://docs.google.com/spreadsheets/d/17qboK-qmqfBMsQd4we2iL7fNdLPJcEoL/edit?usp=sharing&ouid=107054198484282180008&rtpof=true&sd=true - Jos Blank kan bereikt worden op j.blank@ipsestudies.nl

This week, we explore the intersection between inflation, public sector pay and productivity, or value for money to the taxpayers who pay the public sector salaries. First, we need a good public service, second workers should be well paid, but third, is there any way of linking public sector wage increases to productivity? If not, then let's be honest with society and say so. We look at Baumol's theory of costs, a bit of old-fashioned insider/outsider dynamics, and the role of multinationals in dragging up public sector wage demands, even though there may be a productivity mismatch. Have our services improved at the same rate as overall wages in the public sector? This episode is a national-scale exploration that's sure to leave you thinking. Join the gang! https://plus.acast.com/s/the-david-mcwilliams-podcast. Hosted on Acast. See acast.com/privacy for more information.

Como se contabiliza o talento? Que valor tem a criatividade? Os mercados da arte regem-se pelas mesmas regras dos outros? Neste episódio vamos falar de artes visuais, de pintura, escultura, mas também de rock and roll e outras formas de arte. Tudo porque a arte é um mercado importante e peculiar. Peculiar na forma como se rege, como modifica as perceções de valor, como eleva determinados artistas ao ‘Olimpo' e deixa outros pelo caminho, aos quais não falta talento. É verdade: a arte também é economia e a nossa dupla de Hugos vai explicar as nuances que tornam este ‘setor' das nossas vidas algo tão importante e, vamos dizê-lo, original até na forma como aborda a própria… Economia. Abramos alas à arte. REFERÊNCIAS E LINKS ÚTEIS A Arte como Bem Económico:  Heffetz, O., & Frank, R. H. (2011). Preferences for Status: evidence and economic implications. in Handbook of Social Economics (vol. 1, pp. 69-91). North-Holland.  Michael Schneider (2007) The Nature, History and Significance of the Concept ofPositional Goods, History of Economics Review, 45:1, 60-81, doi: 10.1080/18386318.2007.11681237  W.J. Baumol and W.G. Bowen (1966). Performing Arts - The Economic Dilemma. A study of problems common to Theater, Opera, Music and Dance. New York, The Twentieth Century Fund.  Veblen, T. (1899). The Theory of the Leisure Class. Oxford University Press. O Mercado da Arte:  Fraiberger, S. P., Sinatra, R., Resch, M., Riedl, C., & Barabási, A. L. (2018). Quantifying Reputation and Success in Art. Science, 362(6416), 825-829.  Resch, M. (2021). How to Become a Successful Artist. Phaidon.  Abbing, H. (2008). Why are Artists Poor?: the exceptional economy of the arts (p. 368). Amsterdam University Press. Uma Perspetiva Económica sobre a Música:  Krueger, A. B. (2019). Rockonomics: a backstage tour of what the music industry can teach us about economics and life. Currency.  Talento, Sorte ou Influência?:  Salganik, M. J., & Watts, D. J. (2008). Leading the herd astray: An experimental study of selffulfilling prophecies in an artificial cultural market. Social psychology quarterly, 71(4), 338- 55.  Goldin, C., & Rouse, C. (2000). Orchestrating impartiality: The impact of “blind” auditions on female musicians. American economic review, 90(4), 715-741. 

Nachum Segal interviews Tefilla Buxbaum of Yad Ezra V'Shulamit, Yossi Baumol of the Makor Chaim Institutions and Andy Goldsmith of AMIT. Plus, he presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

Jim talks with Tobias Dengel about the ideas in his book The Sound of the Future: The Coming Age of Voice Technology. They discuss the idea that voice tech will be the biggest shift since mobile, the problem of public babble, positives & negatives of current voice tech, changing norms around speaking to devices, Wireless Application Protocol (WAP), using LLMs through a voice interface, improving communication cycles for incapacitated people, smart speakers vs smart mics, problems with the voice-to-voice paradigm, multimodal use cases, using voice interfaces for writing, finetuned LLMs in combination with voice tech, using LLMs to check each other, Jim's method for reducing LLM hallucinations, improving agent performance in customer service, the state of the art in voice-to-text, Baumol's cost disease, the Jevons paradox, a golden age of innovation, Talon hands-free input, the possibility of a pushback against public babble, coming changes in medicine, privacy issues & the industry's violation of trust, the uncanny valley, concurrent communication, a new horizon for video games, low-hanging fruit, interfaces between humans and robots, innovations in model testing & training, selecting models, an arms race between models creating content & models curating content, the info agent opportunity, the human capacity for interruptions, defending attention & flow, whether voice tech will make interruptions better or worse, and much more. Transcript The Sound of the Future: The Coming Age of Voice Technology, by Tobias Dengel with Karl Weber Talon JRS EP123 - Jamie Wheal on Recapturing the Rapture Tobias Dengel is president of WillowTree, a TELUS International Company, a global leader in digital product design and development, with 13 offices in North America, South America and Europe, headquartered in Charlottesville VA. The company has been named by Inc. magazine to the Inc. 5000 list of America's fastest growing companies for 11 straight years. WillowTree's clients include some of the best-known brands in the world, such as T Mobile, Mastercard, Capital One, HBO, Fox, Time Warner, PepsiCo, Regal Cinemas, Charles Schwab, Johnson & Johnson, Lidl, Wyndham Hotels, Hilton Hotels, Holiday Inn, Canadian Broadcasting Corp, Synchrony Bank, Edward Jones Investments, and National Geographic. These industry leaders trust WillowTree to design and develop their websites, apps, internal systems and voice interfaces.

Nachum Segal speaks with Yossi Baumol and Rabbi Dovid Goldwasser about the latest news from Israel and he presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

Nachum Segal interviews Liora Tedgi of Ohr Meir U'Bracha and Yossi Baumol of the Makor Chaim Institutions and he presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

In today's episode for 23rd June 2023, we explain why concert ticket prices might seem to be getting more and more expensive each year.

Nachum Segal interviews Elliot Weiselberg, Yossi Baumol and Dan Isaac with Binyomin Rubenstein AKA "Isaac & Rubinstein" and he presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

Hvordan sikrer vi velfærdsstaten i fremtiden? Hvordan måler vi værdiskabelse inden for rammerne af den offentlige sektor? Og hvordan løser vi det såkaldte Baumol-problem – at produktiviteten i det offentlige halter langt bagefter produktiviteten i det private?I dette afsnit af Small Great Nation vender vi de tunge sten, men vær tålmodig, og lyt med, for vi er nødt til at have en fælles samtale om disse spørgsmål. Vi starter den i dag med Carl-Johan Dalgaard, overvismand og professor i økonomi ved Københavns Universitet, for der findes næppe en bedre gæst til at kaste lys over de økonomiske udfordringer, vi går i møde.

Alex Tabarrok is a professor of economics at George Mason University, and a research fellow with the Mercatus Center.Alex is one of the world's best teachers of economics and reaching a large, worldwide audience as the cofounder of Marginal Revolution University and the popular Marginal Revolution blog together with Tyler Cowen.This episode is an intellectual journey that discovers insights that can be used by entrepreneurs and city developers.Alex has been teaching economics for decades, so we start the episodes with our favorite concepts.We talk about the Baumol effect that Alex uses to explain the now infamous price chart: why is it that some goods have become much cheaper (e.g. consumer electronics), while housing, education and healthcare have increased?This informs the thesis of the podcast, which assumes regulatory and political sclerosis are the key obstacles.The Baumol effect pushes back against this explanation.The Baumol effect instead offers a more long-run focused macroeconomic explanation: the success of technology adoption in some areas must necessarily correspond to relatively higher costs in other sectors.The discovery of this effect, however, could be a necessary, not a sufficient explanation. Niklas points at the non-linearity and the many examples of regulation being specific, non-macro factors with a large impact.Alex and Niklas end up agreeing that overregulation is a large part of the problem.We further talk about economic insights such as prediction markets or dominant assurance contracts that entrepreneurs can apply in practice.A problem in the governance of public goods and regulation, however, is that the laws of society are hundreds of years old, and little new innovation is taking place.However, private cities and special economic zones such as Hong Kong, Shenzhen, and Dubai have shaken up the field in the second half of the 20th century. Alex talks especially about the lessons of Gurgaon, a private city in India.Gurgaon has been in many ways remarkably successful, but it also had experienced problems funding large public goods such as sewage and electricity.Alex's recommendation to new city or governance startups like Prospera, Ciudad Morazan or the Catawba DEZ is to think of city development as a “dance between centralization and decentralization”.Towards the end, we take a deep dive into dominant assurance contracts as a mechanism for public goods funding - an idea we could use in city development, but also for venture capital and startup funding.You can help us apply these insights in practice, check out the upcoming builder-focused conferences in Prospera:Supercharging Health 2023 - A Próspera Builders' Summit, April 21-23 on Roatan: https://infinitavc.com/healthbio2023Decentralizing Finance 2023 - A Próspera Builders' Summit, May 5-7 on Roatan: https://infinitavc.com/defi2023

Nachm Segal interviews Yossi Baumol about yesterday's terror attack in Israel and he presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

Nachum Segal interviews Yossi Baumol about the election in Israel, Dr. Michael A. Shmidman, Dean of Touro Graduate School of Jewish Studies and Peter Berkowsky, Director of The International Minyan for the NYC Marathon and presents great Jewish music, the latest news from Israel and Morning Chizuk with Rabbi Dovid Goldwasser.

Brian Potter is the author of the excellent Construction Physics blog, where he discusses why the construction industry has been slow to industrialize and innovate.He explains why:* Construction isn't getting cheaper and faster,* We should have mile-high buildings and multi-layer non-intersecting roads,* “Ugly” modern buildings are simply the result of better architecture,* China is so great at building things,* Saudi Arabia's Line is a waste of resources,* Environmental review makes new construction expensive and delayed,* and much much more!Watch on YouTube. Listen on Apple Podcasts, Spotify, or any other podcast platform. Read the full transcript here.Follow me on Twitter for updates on future episodes.More really cool guests coming up; subscribe to find out about future episodes!You may also enjoy my interviews with Tyler Cowen (about talent, collapse, & pessimism of sex). Charles Mann (about the Americas before Columbus & scientific wizardry), and Austin Vernon about (Energy Superabundance, Starship Missiles, & Finding Alpha).If you end up enjoying this episode, I would be super grateful if you share it, post it on Twitter, send it to your friends & group chats, and throw it up wherever else people might find it. Can't exaggerate how much it helps a small podcast like mine.A huge thanks to Graham Bessellieu for editing this podcast and Mia Aiyana for producing its transcript.Timestamps(0:00) - Why Saudi Arabia's Line is Insane, Unrealistic, and Never going to Exist (06:54) - Designer Clothes & eBay Arbitrage Adventures (10:10) - Unique Woes of The Construction Industry  (19:28) - The Problems of Prefabrication (26:27) - If Building Regulations didn't exist… (32:20) - China's Real Estate Bubble, Unbound Technocrats, & Japan(44:45) - Automation and Revolutionary Future Technologies (1:00:51) - 3D Printer Pessimism & The Rising Cost of Labour(1:08:02) - AI's Impact on Construction Productivity(1:17:53) - Brian Dreams of Building a Mile High Skyscraper(1:23:43) - Deep Dive into Environmentalism and NEPA(1:42:04) - Software is Stealing Talent from Physical Engineering(1:47:13) - Gaps in the Blog Marketplace of Ideas(1:50:56) - Why is Modern Architecture So Ugly?(2:19:58) - Advice for Aspiring Architects and Young Construction PhysicistsTranscriptWhy Saudi Arabia's Line is Insane, Unrealistic, and Never going to Exist Dwarkesh Patel Today, I have the pleasure of speaking with Brian Potter, who is an engineer and the author of the excellent Construction Physics blog, where he writes about how the construction industry works and why it has been slow to industrialize and innovate. It's one of my favorite blogs on the internet, and I highly, highly recommend that people check it out. Brian, my first question is about The Line project in Saudi Arabia. What are your opinions? Brian Potter It's interesting how Saudi Arabia and countries in the Middle East, in general, are willing to do these big, crazy, ambitious building projects and pour huge amounts of money into constructing this infrastructure in a way that you don't see a huge amount in the modern world. China obviously does this too in huge amounts, some other minor places do as well, but in general, you don't see a whole lot of countries building these big, massive, incredibly ambitious projects. So on that level, it's interesting, and it's like, “Yes, I'm glad to see that you're doing this,” but the actual project is clearly insane and makes no sense. Look at the physical arrangement layout–– there's a reason cities grow in two dimensions. A one-dimensional city is the worst possible arrangement for transportation. It's the maximum amount of distance between any two points. So just from that perspective, it's clearly crazy, and there's no real benefit to it other than perhaps some weird hypothetical transportation situation where you had really fast point-to-point transportation. It would probably be some weird bullet train setup; maybe that would make sense. But in general, there's no reason to build a city like that. Even if you wanted to build an entirely enclosed thing (which again doesn't make a huge amount of sense), you would save so much material and effort if you just made it a cube. I would be more interested in the cube than the line. [laughs] But yeah, those are my initial thoughts on it. I will be surprised if it ever gets built. Dwarkesh Patel Are you talking about the cube from the meme about how you can put all the humans in the world in a cube the size of Manhattan? Brian Potter Something like that. If you're just going to build this big, giant megastructure, at least take advantage of what that gets you, which is minimum surface area to volume ratio.Dwarkesh Patel Why is that important? Would it be important for temperature or perhaps other features? Brian Potter This is actually interesting because I'm actually not sure how sure it would work with a giant single city. In general, a lot of economies of scale come from geometric effects. When something gets bigger, your volume increases a lot faster than your surface area does. So for something enclosed, like a tank or a pipe, the cost goes down per thing of unit you're transporting because you can carry a larger amount or a smaller amount of material. It applies to some extent with buildings and construction because the exterior wall assembly is a really burdensome, complicated, and expensive assembly. A building with a really big floor plate, for instance, can get more area per unit, per amount of exterior wall. I'm not sure how that actually works with a single giant enclosed structure because, theoretically, on a small level, it would apply the same way. Your climate control is a function of your exterior surface, at some level, and you get more efficient climate control if you have a larger volume and less area that it can escape from. But for a giant city, I actually don't know if that works, and it may be worse because you're generating so much heat that it's now harder to pump out. For examples like the urban heat island effect, where these cities generate massive amounts of waste heat, I don't know if that would work if it didn't apply the same way. I'm trying to reach back to my physics classes in college, so I'm not sure about the actual mechanics of that. Generally though, that's why you'd want to perhaps build something of this size and shape. Dwarkesh Patel What was the thought process behind designing this thing? Because Scott Alexander had a good blog post about The Line where he said, presumably, that The Line is designed to take up less space and to use less fuel because you can just use the same transportation across. But the only thing that Saudi Arabia has is space and fuel. So what is the thought process behind this construction project? Brian PotterI get the sense that a lot of committees have some amount of success in building big, impressive, physical construction projects that are an attraction just by virtue of their size and impressiveness. A huge amount of stuff in Dubai is something in this category, and they have that giant clock tower in Jeddah, the biggest giant clock building and one of the biggest buildings in the world, or something like that. I think, on some level, they're expecting that you would just see a return from building something that's really impressive or “the biggest thing on some particular axis”. So to some extent, I think they're just optimizing for big and impressive and maybe not diving into it more than that. There's this theory that I think about every so often. It's called the garbage can theory of organizational decision-making, which basically talks about how the choices that organizations make are not the result of any particular recent process. They are the result of how, whenever a problem comes up, people reach into the garbage can of potential solutions. Then whatever they pull out of the garbage can, that's the decision that they end up going with, regardless of how much sense it makes. It was a theory that was invented by academics to describe decision-making in academia. I think about that a lot, especially with reference to big bureaucracies and governments. You can just imagine the draining process of how these decisions evolve. Any random decision can be made, especially when there's such a disconnect between the decision-makers and technical knowledge.Designer Clothes & eBay Arbitrage Adventures Dwarkesh PatelTell me about your eBay arbitrage with designer clothes. Brian Potter Oh man, you really did dive deep. Yeah, so this was a small business that I ran seven or eight years ago at this point. A hobby of mine was high-end men's fashion for a while, which is a very strange hobby for an engineer to have, but there you go. That hobby centers around finding cheap designer stuff, because buying new can be overwhelmingly expensive. However, a lot of times, you can get clothes for a very cheap price if you're even a little bit motivated. Either it shows up on eBay, or it shows up in thrift stores if you know what to look for. A lot of these clothes can last because they're well-made. They last a super, super, super long time–– even if somebody wore it for 10 years or something, it could be fine. So a lot of this hobby centered around finding ways to get really nice clothes cheaply. Majority of it was based around eBay, but it was really tedious to find really nice stuff on eBay. You had to manually search for a bunch of different brands, filter out the obviously bad ones, search for typos in brands, put in titles, and stuff like that. I was in the process of doing this, and I thought, “Oh, this is really annoying. I should figure out a way to automate this process.” So I made a very simple web app where when you searched for shoes or something, it would automatically search the very nice brands of shoes and all the typos of the brand name. Then it would just filter out all the junk and let you search through the good stuff. I set up an affiliate system, basically. So anybody else that used it, I would get a kick of the sales. While I was interested in that hobby, I ran this website for a few years, and it was reasonably successful. It was one of the first things I did that got any real traction on the internet, but it was never successful in proportion to how much effort it took to maintain and update it. So as I moved away from the hobby, I eventually stopped putting time and effort into maintaining the website. I'm curious as to how you even dug that up. Dwarkesh Patel I have a friend who was with you at the Oxford Refugees Conference, Connor Tabarrok. I don't know if you remember him. Brian Potter Nice. Dwarkesh Patel Yeah. Finding other information about you on the internet was quite difficult actually. You've somehow managed to maintain your anonymity. If you're willing to reveal, what was the P&L of this project? Brian Potter Oh, it made maybe a few hundred dollars a month for a few years, but I only ever ran it as a side hobby business, basically. So in terms of time per my effort or whatever, I'm sure it was very low. Pennies to an hour or something like that. Unique Woes of The Construction Industry   Dwarkesh Patel A broad theme that I've gotten from your post is that the construction industry is plagued with these lossy feedback loops, a lack of strong economies of scale, regulation, and mistakes being very costly. Do you think that this is a general characteristic of many industries in our world today, or is there something unique about construction? Brian Potter Interesting question. One thing you think of is that there are a lot of individual factors that are not unique at all. Construction is highly regulated, but it's not necessarily more regulated than medical devices or jet travel, or even probably cars, to some extent, which have a whole vat of performance criteria they need to hit. With a couple of things like land use, for example, people say, “Oh, the land requirements, could you build it on-site,” explaining how those kinds of things make it difficult. But there is a lot that falls into this category that doesn't really share the same structure of how the construction industry works.I think it's the interaction of all those effects. One thing that I think is perhaps underappreciated is that the systems of a building are really highly coupled in a way that a lot of other things are. If you're manufacturing a computer, the hard drive is somewhat independent from the display and somewhat independent from the power supply. These things are coupled, but they can be built by independent people who don't necessarily even talk to each other before being assembled into one structured thing. A building is not really like that at all. Every single part affects every single other part. In some ways, it's like biology. So it's very hard to change something that doesn't end up disrupting something else. Part of that is because a job's building is to create a controlled interior environment, meaning, every single system has to run through and around the surfaces that are creating that controlled interior. Everything is touching each other. Again, that's not unique. Anything really highly engineered, like a plane or an iPhone, share those characteristics to some extent. In terms of the size of it and the relatively small amount you're paying in terms of unit size or unit mass, however, it's quite low. Dwarkesh Patel Is transportation cost the fundamental reason you can't have as much specialization and modularity?Brian Potter Yeah, I think it's really more about just the way a building is. An example of this would be how for the electrical system of your house, you can't have a separate box where if you needed to replace the electrical system, you could take the whole box out and put the new box in. The electrical system runs through the entire house. Same with plumbing. Same with the insulation. Same with the interior finishes and stuff like that. There's not a lot of modularity in a physical sense. Dwarkesh Patel Gotcha. Ben Kuhn  had this interesting comment on your article where he pointed out that many of the reasons you give for why it's hard to innovate in construction, like sequential dependencies and the highly variable delivery timelines are also common in software where Ben Koon works. So why do you think that the same sort of stagnation has not hit other industries that have superficially similar characteristics, like software? Brian Potter How I think about that is that you kind of see a similar structure in anything that's project-based or anything where there's an element of figuring out what you're doing while you're doing it. Compared to a large-scale manufacturing option where you spend a lot of time figuring out what exactly it is that you're building. You spend a lot of time designing it to be built and do your first number of runs through it, then you tweak your process to make it more efficient. There's always an element of tweaking it to make it better, but to some extent, the process of figuring out what you're doing is largely separate from the actual doing of it yourself. For a project-based industry, it's not quite like that. You have to build your process on the fly. Of course, there are best practices that shape it, right? For somebody writing a new software project or anything project-based, like making a movie, they have a rough idea for how it's going to go together. But there's going to be a lot of unforeseen things that kind of come up like that. The biggest difference is that either those things can often scale in a way that you can't with a building. Once you're done with the software project, you can deploy it to 1,000 or 100,000, or 1 million people, right? Once you finish making a movie, 100 million people can watch it or whatever. It doesn't quite look the same with a building. You don't really have the ability to spend a lot of time upfront figuring out how this thing needs to go. You kind of need to figure out a way to get this thing together without spending a huge amount of time that would be justified by the sheer size of it. I was able to dig up a few references for software projects and how often they just have these big, long tails. Sometimes they just go massively, massively over budget. A lot of times, they just don't get completed at all, which is shocking, but because of how many people it can then be deployed to after it's done, the economics of it are slightly different. Dwarkesh Patel I see, yeah. There's a famous law in software that says that a project will take longer than you expect even after you recount for the fact that it will take longer than you expect. Brian Potter Yeah. Hofstadter's law or something like that is what I think it is. Dwarkesh Patel Yeah. I'm curious about what the lack of skill in construction implies for startups. Famously, in software, the fact that there's zero marginal cost to scaling to the next customer is a huge boon to a startup, right? The entire point of which is scaling exponentially. Does that fundamentally constrain the size and quantity of startups you can have in construction if the same scaling is not available?Brian Potter Yeah, that's a really good question. The obvious first part of the answer is that for software, obviously, if you have a construction software company, you can scale it just like any other software business. For physical things, it is a lot more difficult. This lack of zero marginal cost has tended to fight a lot of startups, not just construction ones. But yeah, it's definitely a thing. Construction is particularly brutal because the margins are so low. The empirical fact is that trying what would be a more efficient method of building doesn't actually allow you to do it cheaper and get better margins. The startup that I used to work at, Katerra, their whole business model was basically predicated on that. “Oh, we'll just build all our buildings in these big factories, get huge economies of scale, reduce our costs, and then recoup the billions of dollars that we're pumping into this industry or business.” The math just does not work out. You can't build. In general, you can't build cheap enough to kind of recoup those giant upfront costs. A lot of businesses have been burned that way. The most success you see in prefabrication type of stuff is on the higher end of things where you can get higher margins. A lot of these prefab companies and stuff like that tend to target the higher end of the market, and you see a few different premiums for that. Obviously, if you're targeting the higher end, you're more likely to have higher margins. If you're building to a higher level of quality, that's easier to do in a factory environment. So the delta is a lot different, less enormous than it would be. Building a high level of quality is easier to do in a factory than it is in the field, so a lot of buildings or houses that are built to a really high level of energy performance, for instance, need a really, really high level of air sealing to minimize how much energy this house uses. You tend to see a lot more houses like that built out of prefab construction and other factory-built methods because it's just physically more difficult to achieve that on-site. The Problems of Prefabrication Dwarkesh Patel Can you say more about why you can't use prefabrication in a factory to get economies of scale? Is it just that the transportation costs will eat away any gains you get? What is going on? Brian PotterThere's a combination of effects. I haven't worked through all this, we'll have to save this for the next time. I'll figure it out more by then. At a high level, it's that basically the savings that you get from like using less labor or whatever is not quite enough to offset your increased transportation costs. One thing about construction, especially single-family home construction, is that a huge percentage of your costs are just the materials that you're using, right? A single-family home is roughly 50% labor and 50% materials for the construction costs. Then you have development costs, land costs, and things like that. So a big chunk of that, you just can't move to the factory at all, right?  You can't really build a foundation in a factory. You could prefab the foundation, but it doesn't gain you anything. Your excavation still has to be done on-site, obviously. So a big chunk can't move to the factory at all. For ones that can, you still basically have to pay the same amount for materials. Theoretically, if you're building truly huge volume, you could get material volume discounts, but even then, it's probably not looking at things like asset savings. So you can cut out a big chunk of your labor costs, and you do see that in factory-built construction, right? These prefab companies are like mobile home companies. They have a small fraction of labor as their costs, which is typical of a factory in general, but then they take out all that labor cost while they still have their high material costs, and then they have overhead costs of whatever the factory has cost them. Then you have your additional overhead cost of just transporting it to site, which is pretty limited. The math does not really work out in favor of prefab, in terms of being able to make the cost of building dramatically cheaper. You can obviously build a building in a prefab using prefab-free methods and build a successful construction business, right? Many people do. But in terms of dramatically lowering your costs, you don't really see that. Dwarkesh Patel Yeah, yeah. Austin Vernon has an interesting blog post about why there's not more prefabricated homes. The two things he points out were transportation costs, and the other one was that people prefer to have homes that have unique designs or unique features. When I was reading it, it actually occurred to me that maybe they're actually both the result of the same phenomenon. I don't know if I'm pronouncing it correctly, but have you heard of the Alchian-Allen theorem in economics? Brian Potter Maybe, but I don't think so. Dwarkesh Patel Basically, it's the idea that if you increase the cost of some category of goods in a fixed way––let's say you tax oranges and added a $1 tax to all oranges, or transportation for oranges gets $1 more expensive for all oranges––people will shift consumption towards the higher grade variety because now, the ratio of the cost between the higher, the more expensive orange and the less expensive orange has decreased because of the increase in fixed costs. It seems like you could use that argument to also explain why people have strong preferences for uniqueness and all kinds of design in manufactured houses. Since transportation costs are so high, that's basically a fixed cost, and that fixed cost has the effect of making people shift consumption towards higher-grade options. I definitely think that's true. Brian PotterI would maybe phrase this as, “The construction industry makes it relatively comparatively cheap to deliver a highly customized option compared to a really repetitive option.” So yeah, the ratio between a highly customized one and just a commodity one is relatively small. So you see a kind of industry built around delivering somewhat more customized options. I do think that this is a pretty broad intuition that people just desire too much customization from their homes. That really prevents you from having a mass-produced offering. I do think that is true to some extent. One example is the Levittown houses, which were originally built in huge numbers–– exactly the same model over and over again. Eventually, they had to change their business model to be able to deliver more customized options because the market shipped it. I do think that the effect of that is basically pretty overstated. Empirically, you see that in practice, home builders and developers will deliver fairly repetitive housing. They don't seem to have a really hard time doing that. As an example, I'm living in a new housing development that is just like three or four different houses copy-pasted over and over again in a group of 50. The developer is building a whole bunch of other developments that are very similar in this area. My in-laws live in a very similar development in a whole different state. If you just look like multi-family or apartment housing, it's identical apartments, you know, copy-pasted over and over again in the same building or a bunch of different buildings in the same development. You're not seeing huge amounts of uniqueness in these things. People are clearly willing to just live in these basically copy-pasted apartments. It's also quite possible to get a pretty high amount of product variety using a relatively small number of factors that you vary, right? I mean, the car industry is like this, where there are enough customization options. I was reading this book a while ago that was basically pushing back against the idea that the car industry pre-fifties and sixties we just offering a very uniform product. They basically did the math, and the number of customization options on their car was more than the atoms in the universe. Basically just, there are so many different options. All the permutations, you know, leather seats and this type of stereo and this type of engine, if you add it all up, there's just a huge, massive number of different combinations. Yeah, you can obviously customize the house a huge amount, just by the appliances that you have and the finishes that are in there and the paint colors that you choose and the fixtures and stuff like that. It would not really theoretically change the underlying way the building comes together. So regarding the idea that the fundamental demand for variety is a major obstruction, I don't think there's a whole lot of evidence for that in the construction industry. If Construction Regulation Vanished… Dwarkesh Patel I asked Twitter about what I should ask you, and usually, I don't get interesting responses but the quality of the people and the audience that knows who you are was so high that actually, all the questions I got were fascinating. So I'm going to ask you some questions from Twitter. Brian Potter Okay. Dwarkesh Patel 0:26:45Connor Tabarrok asks, “What is the most unique thing that would or should get built in the absence of construction regulation?”Brian Potter Unique is an interesting qualifier. There are a lot of things that just like should get built, right? Massive amounts of additional housing and creating more lands in these really dense urban environments where we need it, in places like San Francisco–– just fill in a big chunk of that bay. It's basically just mud flat and we should put more housing on it. “Unique thing” is more tricky. One idea that I really like (I read this in the book, The Book Where's My Flying Car),  is that it's basically crazy that our cities are designed with roads that all intersect with each other. That's an insane way to structure a material flow problem. Any sane city would be built with multiple layers of like transportation where each one went in a different direction so your flows would just be massively, massively improved. That just seems like a very obvious one.If you're building your cities from scratch and had your druthers, you would clearly want to build them and know how big they were gonna get, right? So you could plan very long-term in a way that so these transportation systems didn't intersect with each other, which, again, almost no cities did. You'd have the space to scale them or run as much throughput through them as you need without bringing the whole system to a halt. There's a lot of evidence saying that cities tend to scale based on how much you can move from point A to point B through them. I do wonder whether if you changed the way they went together, you could unlock massively different cities. Even if you didn't unlock massive ones, you could perhaps change the agglomeration effects that you see in cities if people could move from point A to point B much quicker than they currently can. Dwarkesh Patel Yeah, I did an episode about the book, where's my flying car with Rohit Krishnan. I don't know if we discussed this, but an interesting part of the book is where he talks about transistor design. If you design transistors this way, can you imagine how slow they would be? [laughs] Okay, so Simon Grimm asks, “What countries are the best at building things?”Brian Potter This is a good question. I'm going to sort of cheat a little bit and do it in terms of space and time, because I think most countries that are doing a good job at building massive amounts of stuff are not ones that are basically doing it currently.The current answer is like China, where they just keep building–– more concrete was used in the last 20 years or so than the entire world used in the time before that, right? They've accomplished massive amounts of urbanization, and built a lot of really interesting buildings and construction. In terms of like raw output, I would also put Japan in the late 20th century on there. At the peak of the concern and wonder of “Is Japan gonna take over the world?”, they were really interested in building stuff quite quickly. They spent a lot of time and effort trying to use their robotics expertise to try to figure out how to build buildings a lot more quickly. They had these like really interesting factories that were designed to basically extrude an entire skyscraper just going up vertically.All these big giant companies and many different factories were trying to develop and trying to do this with robotics. It was a really interesting system that did not end up ever making economic sense, but it is very cool. I think big industrial policy organs of the government basically encouraged a lot of these industrial companies to basically develop prefabricated housing systems. So you see a lot of really interesting systems developed from these sort of industrial companies in a way that you don't see in a lot of other places. From 1850 to maybe 1970 (like a hundred years or something), the US was building huge massive amounts of stuff in a way that lifted up huge parts of the economy, right? I don't know how many thousands of miles of railroad track the US built between like 1850 and 1900, but it was many, many, many thousands of miles of it. Ofcourse, needing to lay all this track and build all these locomotives really sort of forced the development of the machine tool industry, which then led to the development of like better manufacturing methods and interchangeable parts, which of course then led to the development of the automotive industry. Then ofcourse, that explosion just led to even more big giant construction projects. So you really see that this ability to build just big massive amounts of stuff in this virtuous cycle with the US really advanced a lot of technology to raise the standard of development for a super long period of time. So those are my three answers. China's Real Estate Bubble, Unbound Technocrats, and JapanDwarkesh Patel Those three bring up three additional questions, one for each of them! That's really interesting. Have you read The Power Broker, the book about Robert Moses? Brian Potter I think I got a 10th of the way through it. Dwarkesh Patel That's basically a whole book in itself, a 10th of the way. [laughs] I'm a half of the way through, and so far it's basically about the story of how this one guy built a startup within the New York state government that was just so much more effective at building things, didn't have the same corruption and clientelism incompetence. Maybe it turns into tragedy in the second half, but so far it's it seems like we need this guy. Where do we get a second Robert Moses? Do you think that if you had more people like that in government or in construction industries, public works would be more effectively built or is the stagnation there just a result of like other bigger factors? Brian Potter That's an interesting question. I remember reading this article a while ago that was complaining about how horrible Penn Station is in New York. They're basically saying, “Yeah, it would be nice to return to the era of like the sort of unbound technocrat” when these technical experts in high positions of power in government could essentially do whatever they wanted to some extent. If they thought something should be built somewhere, they basically had the power to do it. It's a facet of this problem of how it's really, really hard to get stuff built in the US currently. I'm sure that a part of it is that you don't see these really talented technocrats occupy high positions of government where they can get stuff done. But it's not super obvious to me whether that's the limiting factor. I kind of get the sense that they would end up being bottlenecked by some other part of the process. The whole sort of interlocking set of institutions has just become so risk averse that they would end up just being blocked in a way that they wouldn't when they were operating in the 1950s or 1960s.Dwarkesh Patel Yeah, yeah, that's interesting. All right, so speaking of Japan, I just recently learned about the construction there and how they just keep tearing stuff down every 30 to 40 years and rebuilding it. So you have an interesting series of posts on how you would go about building a house or a building that lasts for a thousand years. But I'm curious, how would you build a house or a building that only lasts for 30 or 40 years? If you're building in Japan and you know they're gonna tear it down soon, what changes about the construction process? Brian Potter Yeah, that's interesting. I mean, I'm not an expert on Japanese construction, but I think like a lot of their interior walls are basically just paper and stuff like that. I actually think it's kind of surprising that last time I looked, for a lot of their homes, they use a surprising post and beam construction method, which is actually somewhat labor-intensive to do. The US in the early 1800s used a pretty similar method. Then once we started mass producing conventional lumber, we stopped doing that because it was much cheaper to build out of two-by-fours than it was to build big heavy posts. I think the boring answer to that question is that we'd build like how we build mobile homes–– essentially just using pretty thin walls, pretty low-end materials that are put together in a minimal way. This ends up not being that different from the actual construction method that single-family homes use. It just even further economizes and tightens the use of materials–– where a single-family home might use a half inch plywood, they might try to use three-sixteenths or even an eighth inch plywood or something like that. So we'd probably build a pretty similar way to the way most single-family homes and multi-family homes are built currently, but just with even tighter use of materials which perhaps is something that's not super nice about the way that you guys build your homes. But... [laughs]Dwarkesh Patel Okay, so China is the third one here. There's been a lot of talk about a potential real estate bubble in China because they're building housing in places where people don't really need it. Of course, maybe the demographics aren't there to support the demand. What do you think of all this talk? I don't know if you're familiar with it, but is there a real estate bubble that's created by all this competence in building? Brian PotterOh, gosh, yeah, I have no idea. Like you, I've definitely heard talk of it and I've seen the little YouTube clips of them knocking down all these towers that it turns out they didn't need or the developer couldn't, finish or whatever. I don't know a huge amount about that. In general, I wish I knew a lot more about how things are built in China, but the information is in general, so opaque. I generally kind of assume that any particular piece of data that comes out of China has giant error bars on it as to whether it's true or not or what the context surrounding it is. So in general, I do not have a hard opinion about that. Dwarkesh Patel This is the second part of Simon's question, does greater competence and being able to build stuff translate into other good outcomes for these countries like higher GDP or lower rents or other kinds of foreign outcomes? Brian Potter That's a good question. Japan is an interesting place where basically people point to it as an example of, “Here's a country that builds huge amounts of housing and they don't have housing cost increases.” In general, we should expect that dynamic to be true. Right? There's no reason to not think that housing costs are essentially a supply-demand problem where if you built as much as people wanted, the cost would drop. I have no reason to not think that's true. There is a little bit of evidence that sort of suggests that it's impossible to build housing enough to overcome this sort of mechanical obstacle where the cost of it tends to match and rise to whatever people's income level are. The peak and the sort of flattening of housing costs in Japan also parallel when people basically stopped getting raises and income stopped rising in Japan. So I don't have a good sense of, if it ends up being just more driven by some sort of other factors. Generally though I expect the very basic answer of “If you build a lot more houses, the housing will become cheaper.”Dwarkesh PatelRight. Speaking of how the land keeps gaining value as people's income go up, what is your opinion on Georgism? Does that kind of try and make you think that housing is a special asset that needs to be more heavily taxed because you're not inherently doing something productive just by owning land the way you would be if you like built a company or something similar?Brian Potter I don't have any special deep knowledge of Georgism. It's on my list of topics to read more deeply about. I do think in general, taxing encourages you to produce less of something for something that you can't produce less of. It's a good avenue for something to tax more heavily. And yeah, obviously if you had a really high land value tax in these places that have a lot of single-family homes in dense urban areas, like Seattle or San Francisco, that would probably encourage people to use the land a lot more efficiently. So it makes sense to me, but I don't have a ton of special knowledge about it. Dwarkesh Patel All right, Ben Kuhn asked on Twitter, “What construction-related advice would you give to somebody building a new charter city?”Brian Potter That is interesting. I mean, just off the top of my head, I would be interested in whether you could really figure out a way to build using a method that had really high upfront costs. I think it could otherwise be justified, but if you're gonna build 10,000 buildings or whatever all at once, you could really take advantage of that. One kind of thing that you see in the sort of post-World War II era is that we're building huge massive amounts of housing, and a lot of times we're building them all in one place, right? A lot of town builders were building thousands and thousands of houses in one big development all at once. In California, it's the same thing, you just built like 6 or 10 or 15,000 houses in one big massive development. You end up seeing something like that where they basically build this like little factory on their construction site, and then use that to like fabricate all these things. Then you have something that's almost like a reverse assembly line where a crew will go to one house and install the walls or whatever, and then go to the next house and do the same thing. Following right behind them would be the guys doing the electrical system, plumbing, and stuff like that. So this reverse assembly line system would allow you to sort of get these things up really, really fast, in 30 days or something like that. Then you could have a whole house or just thousands and thousands of houses at once. You would want to be able to do something similar where you could just not do the instruction the way that the normal construction is done, but that's hard, right? Centrally planned cities or top-down planned cities never seem to do particularly well, right? For example, the city of Brasilia, the one that was supposed to be a planned city— the age it goes back to the unfettered technocrat who can sort of build whatever he wants. A lot of times, what you want is something that will respond at a low level and organically sort out the factories as they develop. You don't want something that's totally planned from the top-down, that's disconnected from all the sorts of cases on the ground. A lot of the opposition to Robert Moses ended up being that in a certain form, right? He's bulldozing through these cities that are these buildings and neighborhoods that he's not paying attention to at all. So I think, just to go back to the question, trying to plan your city from the top down doesn't have a super, super great track record. In general, you want your city to develop a little bit more organically. I guess I would think to have a good sort of land-use rules that are really thought through well and encourage the things that you want to encourage and not discourage the things that you don't want to discourage. Don't have equity in zoning and allow a lot of mixed-use construction and stuff like that. I guess that's a somewhat boring answer, but I'd probably do something along those lines. Dwarkesh Patel Interesting, interesting. I guess that implies that there would be high upfront costs to building a city because if you need to build 10,000 homes at once to achieve these economies of scale, then you would need to raise like tens of billions of dollars before you could build a charter city. Brian Potter Yeah, if you were trying to lower your costs of construction, but again, if you have the setup to do that, you wouldn't necessarily need to raise it. These other big developments were built by developers that essentially saw an opportunity. They didn't require public funding to do it. They did in the form of loan guarantees for veterans and things like that, but they didn't have the government go and buy the land. Automation and Revolutionary Future Technologies Dwarkesh Patel Right, okay, so the next question is from Austin Vernon. To be honest, I don't understand the question, you two are too smart for me, but hopefully, you'll be able to explain the question and then also answer it. What are your power rankings for technologies that can tighten construction tolerances? Then he gives examples like ARVR, CNC cutting, and synthetic wood products. Brian Potter Yeah, so this is a very interesting question. Basically, because buildings are built manually on site by hand, there's just a lot of variation in what ends up being built, right? There's only so accurately that a person can put something in place if they don't have any sort of age or stuff like that. Just the placement itself of materials tends to have a lot of variation in it and the materials themselves also have a lot of variation in them. The obvious example is wood, right? Where one two by four is not gonna be exactly the same as another two by four. It may be warped, it may have knots in it, it may be split or something like that. Then also because these materials are sitting just outside in the elements, they sort of end up getting a lot of distortion, they either absorb moisture and sort of expand and contract, or they grow and shrink because of the heat. So there's just a lot of variation that goes into putting a building up.To some extent, it probably constrains what you are able to build and how effectively you're able to build it. I kind of gave an example before of really energy efficient buildings and they're really hard to build on-site using conventional methods because the air ceiling is quite difficult to do. You have to build it in a much more precise way than what is typically done and is really easily achieved on-site. So I guess in terms of examples of things that would make that easier, he gives some good ones like engineered lumber, which is where you take lumber and then grind it up into strands or chips or whatever and basically glue them back together–– which does a couple of things. It spreads all the knots and the defects out so they are concentrated and everything tends to be a lot more uniform when it's made like that. So that's a very obvious one that's already in widespread use. I don't really see that making a substantial change.I guess the one exception to that would be this engineered lumber product called mass timber elements, CLT, which is like a super plywood. Plywood is made from tiny little sheet thin strips of wood, right? But CLT is made from two-by-four-dimensional lumber glued across laminated layers. So instead of a 4 by 9 sheet of plywood, you have a 12 by 40 sheet of dimensional lumber glued together. You end up with a lot of the properties of engineered material where it's really dimensionally stable. It can be produced very, very accurately. It's actually funny that a lot of times, the CLT is the most accurate part of the building. So if you're building a building with it, you tend to run into problems where the rest of the building is not accurate enough for it. So even with something like steel, if you're building a steel building, the steel is not gonna be like dead-on accurate, it's gonna be an inch or so off in terms of where any given component is. The CLT, which is built much more accurately, actually tends to show all these errors that have to be corrected. So in some sense, accuracy or precision is a little bit of like a tricky thing because you can't just make one part of the process more precise. In some ways that actually makes things more difficult because if one part is really precise, then a lot of the time, it means that you can't make adjustments to it easily. So if you have this one really precise thing, it usually means you have to go and compensate for something else that is not built quite as precisely. It actually makes advancing precision quite a bit more complicated. AR VR, is something I'm very bullish on. A big caveat of that is assuming that they can just get the basic technology working. The basic intuition there is that right now the way that pieces are, when a building is put together on site, somebody is looking at a set of paper plans, or an iPad or something that tells them where everything needs to go. So they figure that out and then they take a tape measure or use some other method and go figure out where that's marked on the ground. There's all this set-up time that is really quite time consuming and error prone. Again, there's only so much accuracy that a guy dragging a tape 40 feet across site being held by another guy can attain, there's a limit to how accurate that process can be. It's very easy for me to imagine that AR would just project exactly where the components of your building need to go. That would A, allow you a much higher level of accuracy that you can easily get using manual methods. And then B, just reduce all that time it takes to manually measure things. I can imagine it being much, much, much faster as well, so I'm quite bullish on that. At a high level and a slightly lower level, it's not obvious to me if they will be able to get to the level where it just projects it with perfect accuracy right in front of you. It may be the case that a person moving their head around and constantly changing their point of view wont ever be able to project these things with millimeter precision––it's always gonna be a little bit jumpy or you're gonna end up with some sort of hard limit in terms of like how precisely you can project it. My sense is that locator technology will get good enough, but I don't have any principle reason believing that. The other thing is that being able to take advantage of that technology would require you to have a really, really accurate model of your building that locates where every single element is precisely and exactly what its tolerances are. Right now, buildings aren't designed like that, they are built using a comparatively sparse set of drawings that leaves a lot to sort of be interpreted by the people on site doing the work and efforts that have tried to make these models really, really, really precise, have not really paid off a lot of times. You can get returns on it if you're building something really, really complex where there's a much higher premium to being able to make sure you don't make any error, but for like a simple building like a house, the returns just aren't there. So you see really comparatively sparse drawings. Whether it's gonna be able to work worth this upfront cost of developing this really complex, very precise model of where exactly every component is still has to be determined. There's some interesting companies that are trying to move in this direction where they're making it a lot easier to draw these things really, really precisely and whave every single component exactly where it is. So I'm optimistic about that as well, but it's a little bit TBD. Dwarkesh Patel This raises a question that I actually wanted to ask you, which is in your post about why there aren't automatic brick layers. It was a really interesting post. Somebody left in an interesting comment saying that bricks were designed to be handled and assembled by humans. Then you left a response to that, which I thought was really interesting. You said, “The example I always reach for is with steam power and electricity, where replacing a steam engine with an electric motor in your factory didn't do much for productivity. Improving factory output required totally redesigning the factory around the capabilities of electric motors.” So I was kind of curious about if you apply that analogy to construction, then what does that look like for construction? What is a house building process or building building process that takes automation and these other kinds of tools into account? How would that change how buildings are built and how they end up looking in the end? Brian Potter I think that's a good question. One big component of the lack of construction productivity is everything was designed and has evolved over 100 years or 200 years to be easy for a guy or person on the site to manipulate by hand. Bricks are roughly the size and shape and weight that a person can move it easily around. Dimensional lumber is the same. It's the size and shape and weight that a person can move around easily. And all construction materials are like this and the way that they attach together and stuff is the same. It's all designed so that a person on site can sort of put it all together with as comparatively little effort as possible. But what is easy for a person to do is usually not what is easy for a machine or a robot to do, right? You typically need to redesign and think about what your end goal is and then redesign the mechanism for accomplishing that in terms of what is easy to get to make a machine to do. The obvious example here is how it's way easier to build a wagon or a cart that pulls than it is to build a mechanical set of legs that mimics a human's movement. That's just way, way, way easier. I do think that a big part of advancing construction productivity is to basically figure out how to redesign these building elements in a way that is really easy for a machine to produce and a machine to put together. One reason that we haven't seen it is that a lot of the mechanization you see is people trying to mechanize exactly what a person does. You'd need a really expensive industrial robot that can move exactly the way that a human moves more or less. What that might look like is basically something that can be really easily extruded by a machine in a continuous process that wouldn't require a lot of finicky mechanical movements. A good example of this technology is technology that's called insulated metal panels, which is perhaps one of the cheapest and easiest ways to build an exterior wall. What it is, is it's just like a thin layer of steel. Then on top of that is a layer of insulation. Then on top of that is another layer of steel. Then at the end, the steel is extruded in such a way that it can like these inner panels can like lock together as they go. It's basically the simplest possible method of constructing a wall that you can imagine. But that has the structural system and the water barrier, air barrier, and insulation all in this one really simple assembly. Then when you put it together on site, it just locks together. Of course there are a lot of limitations to this. Like if you want to do anything on top of like add windows, all of a sudden it starts to look quite a bit less good. I think things that are really easy for a machine to do can be put together without a lot of persistent measurement or stuff like that in-field. They can just kind of snap together and actually want to fit together. I think that's kind of what it looks like. 3D Printer Pessimism & The Rising Cost of LabourDwarkesh Patel What would the houses or the buildings that are built using this physically look like? Maybe in 50 to 100 years, we'll look back on the houses we have today and say, “Oh, look at that artisanal creation made by humans.” What is a machine that is like designed for robots first or for automation first? In more interesting ways, would it differ from today's buildings? Brian Potter That's a good question. I'm not especially bullish on 3D building printing in general, but this is another example of a building using an extrusion process that is relatively easy to mechanize. What's interesting there is that when you start doing that, a lot of these other bottlenecks become unlocked a little bit. It's very difficult to build a building using a lot of curved exterior surfaces using conventional methods. You can do it, it's quite expensive to do, but there's a relatively straightforward way for a 3D-printed building to do that. They can build that as easily as if it was a straight wall. So you see a lot of interesting curved architecture on these creations and in a few other areas. There's a company that can build this cool undulating facade that people kind of like. So yeah, it unlocks a lot of options. Machines are more constrained in some things that they can do, but they don't have a lot of the other constraints that you would otherwise see. So I think you'll kind of see a larger variety of aesthetic things like that. That said, at the end of the day, I think a lot of the ways a house goes together is pretty well shaped to just the way that a person living inside it would like to use. I think Stewart Brand makes this point in––Dwarkesh Patel Oh, How Buildings Learn. Brian Potter There we go. He basically makes the point that a lot of people try to use dome-shaped houses or octagon-shaped houses, which are good because, again, going back to surface area volume, they include lots of space using the least amount of material possible. So in some theoretical sense, they're quite efficient, but it's actually quite inconvenient to live inside of a building with a really curved wall, right? Furniture doesn't fit up against it nicely, and pictures are hard to hang on a really curved wall. So I think you would see less variation than maybe you might expect. Dwarkesh Patel Interesting. So why are you pessimistic about 3D printers? For construction, I mean. Brian Potter Yeah, for construction. Oh God, so many reasons. Not pessimistic, but just there's a lot of other interesting questions. I mean, so the big obvious one is like right now a 3D printer can basically print the walls of a building. That is a pretty small amount of the value in a building, right? It's maybe 7% or 8%, something like that. Probably not more than 10% of the value in a building. Because you're not printing the foundation, you're not printing like the overhead vertical, or the overhead spanning structure of the building. You're basically just printing the walls. You're not even really printing the second story walls that you have in multiple stories. I don't think they've quite figured that out yet. So it's a pretty small amount of value added to the building. It's frankly a task that is relatively easy to do by manual labor. It's really pretty easy for a crew to basically put up the structure of a house. This is kind of a recurring theme in mechanization or it goes back to what I was talking about to our previous lead. Where it takes a lot of mechanization and a lot of expensive equipment to replace what basically like two or three guys can do in a day or something like that. The economics of it are pretty brutal. So right now it produces a pretty small value. I think that the value of 3D printing is basically entirely predicated on how successful they are at figuring out how to like deliver more components of the building using their system. There are companies that are trying to do this. There's one that got funded not too long ago called Black Diamond, where they have this crazy system that is like a series of 3D printers that would act simultaneously, like each one building a separate house. Then as you progress, you switch out the print head for like a robot arm. Cause a 3D printer is basically like a robot arm with just a particular manipulator at the end, right?So they switch out their print head for like a robot arm, and the robot arm goes and installs different other systems like the windows or the mechanical systems. So you can figure out how to do that reliably where your print head or your printing system is installing a large fraction of the value of the building. It's not clear to me that it's gonna be economic, but it obviously needs to reach that point. It's not obvious to me that they have gotten there yet. It's really quite hard to get a robot to do a lot of these tasks. For a lot of these players, it seems like they're actually moving away from that. I think in ICON is the biggest construction 3D printer company in the US, as far as I know. And as far as I know, they've moved away from trying to install lots of systems in their walls as they get printed. They've kind of moved on to having that installed separately, which I think has made their job a little bit easier, but again, not quite, it's hard to see how the 3D printer can fulfill its promises if it can't do anything just beyond the vertical elements, whichare really, for most construction, quite cheap and simple to build. Dwarkesh Patel Now, if you take a step back and talk how expensive construction is overall, how much of it can just be explained by the Baumol cost effect? As in labor costs are increasing because labor is more productive than other industries and therefore construction is getting more expensive. Brian Potter I think that's a huge, huge chunk of it. The labor fraction hasn't changed appreciably enough. I haven't actually verified that and I need to, but I remember somebody that said that they used to be much different. You sent me some literature related to it. So let's add a slight asterisk on that. But in general the labor cost has remained a huge fraction of the overall cost of the building. Reliably seeing their costs continue to rise, I think there's no reason to believe that that's not a big part of it. Dwarkesh Patel Now, I know this sounds like a question with an obvious answer, but in your post comparing the prices of construction in different countries, you mentioned how the cost of labor and the cost of materials is not as big a determiner of how expensive it is to construct in different places. But what does matter? Is it the amount of government involvement and administrative overhead? I'm curious why those things (government involvement and administrative overhead) have such a high consequence on the cost of construction. Brian Potter Yeah, that's a good question. I don't actually know if I have a unified theory for that. I mean, basically with any heavily regulated thing, any particular task that you're doing takes longer and is less reliable than it would be if it was not done right. You can't just do it as fast as on your own schedule, right? You end up being bottlenecked by government processes and it reduces and narrows your options. So yeah, in general, I would expect that to kind of be the case, but I actually don't know if I have a unified theory of how that works beyond just, it's a bunch of additional steps at any given part of the process, each of which adds cost. Dwarkesh Patel Yeah. Now, one interesting trend we have in the United States with construction is that a lot of it is done by Latino workers and especially by undocumented Latino workers. What is the effect of this on the price and the quality of construction? If you have a bunch of hardworking undocumented workers who are working for below-market rates in the US, will this dampen the cost of construction over time? What do you think is going to happen? Brian Potter I suspect that's probably one of the reasons why the US has comparatively low construction costs compared to other parts of the world. Well, I'll caveat that. Residential construction, which is single-family homes and multi-family apartment buildings all built in the US and have light framed wood and are put together, like you said, by a lot of like immigrant workers. Because of that, it would not surprise me if those wages are a lot lower than the equivalent wage for like a carpenter in Germany or something like that. I suspect that's a factor in why our cost of residential construction are quite low. AI's Impact on Construction ProductivityDwarkesh Patel Overall, it seems from your blog post that you're kind of pessimistic, or you don't think that different improvements in industrialization have transferred over to construction yet. But what do you think is a prospect of future advances in AI having a big impact on construction? With computer vision and with advances in robotics, do you think we'll finally see some carry-over into construction productivity or is it gonna be more of the same? Brian Potter Yeah, I think there's definitely gonna be progress on that axis. If you can wire up your computer vision systems, robotic systems, and your AI in such a way that your capabilities for a robot system are more expanded, then I kind of foresee robotics being able to take a larger and larger fraction of the tasks done on a typical construction site. I kind of see it being kind of done in narrow avenues that gradually expand outward. You're starting to see a lot of companies that have some robotic system that can do one particular task, but do that task quite well. There's a couple of different robot companies that have these little robots for like drawing wall layouts on like concrete slabs or whatever. So you know exactly where to build your walls, which you would think would not be like a difficult problem in construction, but it turns out that a lot of times people put the walls in the wrong spot and then you have to go back and move them later or just basically deal with it. So yeah, it's basically a little Roomba type device that just draws the wall layout to the concrete slab and all the other systems as well–– for example, where the lines need to run through the slab and things like that. I suspect that you're just gonna start to see robotics and systems like that take a larger and larger share of the tasks on the construction site over time. Dwarkesh Patel Yeah, it's still very far away. It's still very far away. What do you think of Flow? That's Adam Neumann's newest startup and backed with $350 million from Andreeseen Horowitz.Brian Potter I do not have any strong opinions about that other than, “Wow, they've really given him another 350M”. I do not have any particularly strong opinions about this. They made a lot they make a lot of investments that don't make sense to me, but I'm out of venture capital. So there's no reason that my judgment would be any good in this situation–– so I'm just presuming they know something I do not. Dwarkesh Patel I'm going to be interviewing Andreeseen later this month, and I'm hoping I can ask him about that.Brian Potter You know, it may be as simple as he “sees all” about really high variance bets. There's nobody higher variance in the engine than Adam Neumann so, maybe just on those terms, it makes sense. Dwarkesh Patel You had an interesting post about like how a bunch of a lot of the knowledge in the construction industry is informal and contained within best practices or between relationships and expectations that are not articulated all the time. It seems to me that this is also true of software in many cases but software seems much more legible and open source than these other physical disciplines like construction despite having a lot of th

Alex Tabarrok is a professor of economics at George Mason University. He joins the podcast to talk about his involvement in Operation Warp Speed, a uniquely successful federal government project. Richard asks how broadly applicable its lessons are, whether or not we could do something similar for cancer, and why economists and public health officials had such divergent opinions on the need to speed up the process of approving and distributing a vaccine. Alex also discusses the Baumol effect, which he argues can explain much about rising costs in healthcare and education. Richard pushes back on the theory as a sufficient explanation, and asks whether a simple libertarian story better fits the facts, arguing that government support for these industries also plays a major role.They then go on to talk about the rise of crypto, why America is severely under-policed, and how recent years have seen the collapse of challenges to liberal democracy. This podcast was originally released by the Salem Center.Listen in podcast form or watch on YouTube.Links:* Paul Mango, Warp Speed: Inside the Operation That Beat COVID, the Critics, and the Odds.* Eric Helland and Alex Tabarrok, “Why Are the Prices So Damn High?”* “Under policed” tag at Marginal Revolution.* Richard Hanania, “The Year of Fukuyama.” Get full access to Center for the Study of Partisanship and Ideology at www.cspicenter.com/subscribe

Alex Tabarrok is a professor of economics at George Mason University. He joins the podcast to talk to Richard Hanania about his involvement in Operation Warp Speed, a uniquely successful federal government project. Richard asks how broadly applicable its lessons are, whether or not we could do something similar for cancer, and why economists and public health officials had such divergent opinions on the need to speed up the process of approving and distributing a vaccine. Alex also discusses the Baumol effect, which he argues can explain much about rising costs in healthcare and education. Richard pushes back on the theory as a sufficient explanation, and asks whether a simple libertarian story better fits the facts, arguing that government support for these industries also plays a role. The conversation then goes on to talk about the rise of crypto, why America is severely under-policed, and how recent years have seen the collapse of challenges to liberal democracy.

Luisteraars! Rutger zou op een tournee door de Amerika's trekken om zijn boek aan de man te brengen, maar omikron gooide roet in het eten. Maar de gast was al geboekt, het ontoegankelijke gesprek al gepland! Ik praat met Coen Teulings, voormalig directeur van het CPB, en thans econoom. We hebben het vooral over alle plannen van het nieuwe kabinet: is het een probleem dat het kabinet zo veel geld uitgeeft? En, leuk dat we het geld uitgeven, maar hebben we ook de handjes: zijn er wel de mensen om al dat werk te doen? Bijvoorbeeld in de kinderopvang. Is het wel verstandig om 95 procent van de kinderopvangkosten door de overheid te laten betalen? En al die financiering van grote investeringen via fondsen (mobiliteitsfonds, stikstoffonds, klimaatfonds): is dat een goed plan? We hebben het ook over de uitspraak van de Hoge Raad, waardoor de vermogensheffing in gevaar is gekomen. Best een beetje een vreemd verhaal. En ook: een slechte zaak als spaargeld minder zwaar wordt belast dan aandelen, aldus Teulings. En natuurlijk weer een rondje van de rubriek overgewaardeerd of ondergewaardeerd. Schatten we de Hongaarse econoom János Kornai wel op waarde? Dat wil je weten. Leesvoer bij deze aflevering: • Meer informatie over box 3 kun je vinden in dit artikel van NLFiscaal: Politiek: Pinokkio en vermogensbelasting.(https://corr.es/ba1792) • We bespraken ook de Hongaarse econoom János Kornai, die onlangs overleden is maar wiens nalatenschap hier goed samengevat wordt: Economics of socialism and transition: The life and work of János Kornai, 1928-2021. (https://corr.es/9560fd) • En je kunt verder duiken in de wet van Baumol via The Baumol Effect, te lezen op Marginal REVOLUTION. (https://corr.es/1d256d)

Luisteraars! Rutger zou op een tournee door de Amerika's trekken om zijn boek aan de man te brengen, maar omikron gooide roet in het eten. Maar de gast was al geboekt, het ontoegankelijke gesprek al gepland! Ik praat met Coen Teulings, voormalig directeur van het CPB, en thans econoom. We hebben het vooral over alle plannen van het nieuwe kabinet: is het een probleem dat het kabinet zoveel geld uitgeeft? En, leuk dat we het geld uitgeven, maar hebben we ook de handjes: zijn er wel de mensen om al dat werk te doen? Bijvoorbeeld: in de kinderopvang. Is het wel verstandig om 95 procent van de kinderopvangkosten door de overheid te laten betalen? En al die financiering van grote investeringen via fondsen (mobiliteitsfonds, stikstoffonds, klimaatfonds): is dat een goed plan? We hebben het ook over de uitspraak van de Hoge Raad, waardoor de vermogensheffing in gevaar is gekomen. Best een beetje een vreemd verhaal. En ook: een slechte zaak als spaargeld minder zwaar wordt belast dan aandelen, aldus Teulings. En natuurlijk weer een rondje van de rubriek overgewaardeerd of ondergewaardeerd. Schatten we de Hongaarse econoom János Kornai wel op waarde? Dat wil je weten. Leesvoer bij deze aflevering • Meer informatie over box 3 kun je vinden in dit artikel van NLFiscaal: Politiek: Pinokkio en vermogensbelasting.(https://corr.es/ba1792) • We bespraken ook de Hongaarse econoom János Kornai, die onlangs overleden is maar wiens nalatenschap hier goed samengevat wordt: Economics of socialism and transition: The life and work of János Kornai, 1928-2021. (https://corr.es/9560fd) • En je kunt verder duiken in de wet van Baumol via The Baumol Effect, te lezen op Marginal REVOLUTION. (https://corr.es/1d256d)

Originally aired on 3/6/2017 Kevin Clark is a philanthropy consultant, product manager, and composer working to help artists thrive. He is the brains behind the New Music USA project platform, and speaks and writes about arts economics, technology in the arts and non-profit worlds, and philanthropy. During the course of our conversation, we talked about some of the interesting up-and-coming organizations that he consults for, making art sustainable, Baumol's cost disease, and fundraising with Kickstarter. Links: Kevin Clark Twitter CASH Music Live Music Project

Nachum Segal presents great Jewish music, the latest news from Israel, Morning Chizuk with Rabbi Dovid Goldwasser an interview with Yossi Baumol of Makor Chaim and a NEW MUSIC ALERT! with Mordechai Shapiro.

I ask Alex Tabarrok about the Grand Innovation Prize, the Baumol effect, and Dominant Assurance Contracts. Alex Tabarrok is a professor of economics at George Mason University and with Tyler Cowen a founder of the online education platform http://MRU.org. Follow me on Twitter for my podcast and blog: https://twitter.com/dwarkesh_sp Follow Alex Tabarrok: https://twitter.com/ATabarrok Alex Tabarrok's and Tyler Cowen's excellent blog: https://marginalrevolution.com/ 00:00 Intro 00:34 Grand Innovation Prize 08:45 Prizes vs grants 14:10 Baumol effect 27:50 On Bryan Caplan's case against education 31:35 Scaling education online 48:50 Declining research productivity 52:15 Dominant Assurance Contracts 58:40 Future of governance 1:04:05 On Robin Hanson's Futarchy 1:06:02 Beating Adam Smith 1:08:35 Our Warfare-Welfare State 1:19:30 The Great Stagnation vs The Innovation Renaissance 1:21:40 Advice to 20 year old

Frank Miroslav interviews Jahed Momand about Johanna Bockman's Markets in the Name of Socialism. They discuss venture propaganda, right-wing socialist printers that go brrrr, the assumptions behind neoclassical economics and communist billionaires. Jahed proposes anarchist public policy and confirms that Jeffery Sachs is Actually The Worst. Markets in the Name of Socialism, Johanna Bockman https://www.sup.org/books/title/?id=21002 Philosophy of Economics, Don Ross https://www.goodreads.com/book/show/18690307-philosophy-of-economics Why Nations Fail, Daron Acemoglu and James Robinson https://en.wikipedia.org/wiki/Why_Nations_Fail Jeffery Sachs https://en.wikipedia.org/wiki/Jeffrey_Sachs Market Socialism Wikipedia Page https://en.wikipedia.org/wiki/Market_socialism Economic Stars Swing Left, Noah Smith https://www.bloomberg.com/opinion/articles/2015-01-07/economics-stars-swing-left Being in the World https://en.wikipedia.org/wiki/Heideggerian_terminology#Being-in-the-world Capital as Power, Jonathan Nitzan Shimshon Bichler https://www.amazon.com/Capital-Power-Creorder-Political-Economy/dp/0415496802 Critique of the Gotha Program, Karl Marx https://en.wikipedia.org/wiki/Critique_of_the_Gotha_Program Socially Necessary Labour Time https://en.wikipedia.org/wiki/Socially_necessary_labour_time Bullshit Jobs, David Graeber https://theanarchistlibrary.org/library/david-graeber-bullshit-jobs Zero to One, Peter Thiel https://en.wikipedia.org/wiki/Zero_to_One Competition Is For Losers, Comrade Peter Thiel https://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536 Homebrew Industrial Revolution, Kevin Carson https://kevinacarson.org/publication/hir/ Cost Disease https://en.wikipedia.org/wiki/Baumol's_cost_disease 3d printing medical hardware https: https://glia.org

When tech culture only celebrates creation, it risks ignoring those who teach, criticize, and take care of others. https://www.theatlantic.com/technology/archive/2015/01/why-i-am-not-a-maker/384767/ The Real World of TechnologyAdam Smith’s pin factorywhat I wrote aboutFacebook community moderatorAs Kate Losse has notedvery low costthe Searle’s "Chinese room" take Baumol’s cost diseasetrajectory of wages in the U.S.recent newsletterSubmit a letterDebbie ChachraTwitter

S2E7: Global Competition Policy and Japan’s Society 5.0   Guests: Philippe Aghion, Economist and Professor at College de France, The London School of Economics, and Harvard University Yuko Harayama,  Former Executive Member of Japan’s Council for Science, Technology and Innovation Policy This week on The AI Element we zoom out to look at how AI is impacting, and is being impacted by, global economic policies. Policy is hugely important for AI’s development and implementation. Though each application of AI differs from business to business and country to country, there are often similar patterns and concerns that arise, like the fear of automation replacing jobs and of increasing inequalities. Policy makers across the globe are trying to tackle these concerns to ensure they are creating a positive outcome for all.  This week we have two guests who are going to teach us about how AI is impacting growth and a radical new approach in Japan to guiding science and innovation. Our first guest Philippe Aghion is a world-renowned economist who tells us about the impact of AI on economic growth and why that growth may not be shared equally. His interview is a lesson about why innovation today without competition will lead to less innovation in the future.  Our second guest Yuko Harayama co-wrote Japan’s 5 year plan for technology and innovation and was a leader in developing Japan’s national AI strategy. She tells us about Japan’s radical new approach to technology policy and how, rather than giving a strict roadmap for technology development, they created a vision of a society technology developers should abide by. She calls it Society 5.0.  00:37 - Intro  02:51 - AI’s Impact on Economic Growth  05:36 - Aghion, Jones & Jones - Artificial Intelligence and Economic Growth 06:27 - Aghion, Bergeaud, Boppart, Klenow, Li - Theory of Falling Growth and Rising Rents 06:56  - AI, Superstar Firms and Competition  13:03 - G7 ministers ‘agree in principle’ on deal taxing digital taxing digital giants 13:56 - W.T.O Allows China to Impose Trade Sanctions on U.S. Goods  14:36 - Acemoglu & Restrepo - Robots and Jobs: Evidence from US Labor Markets  14:36 - The Fall of the Labor Share and the Rise of Superstar Firms 16:39 - AI and Innovation  17:42 - Baumol’s cost disease   18:55 - Gaby Aghion, fashion designer: Co-founder of Chloe House, which revitalized French fashion in the 1950s  19:54 - Society 5.0 19:54 - Artificial Intelligence Technology Strategy  19:54 -Government of Japan - The 5th Science and Technology Basic Plan 20:45 - Society 5.0 Powerpoint 29:29 - Society 5.0 and Global Policy  29:45 - OECD - Artificial Intelligence  31:53 - United Nations Activities on Artificial Intelligence (AI)  33:31 - Optimism and Persistence  33:46 - Encyclopedia Britannica - Pangloss  Additional Links  TED Talk - Yuko Harayama - Why Society 5.0    --------   S2E7 : Politique de concurrence mondiale et Société japonaise 5.0    Philippe Aghion, Économiste et Professeur au Collège de France, à l'Université de Harvard, et à la London School of Economics Yuko Harayama, Ancien membre exécutif du Conseil japonais pour la politique scientifique, technologique et d'innovation Cette semaine, au balado The AI Element, nous abordons la façon dont l’IA a une incidence sur les politiques économiques mondiales et comment elle est influencée en retour par celles-ci. Les politiques sont extrêmement importantes pour le développement et la mise en œuvre de l’IA. Bien que chaque application de l’IA diffère d’une entreprise à l’autre et d’un pays à l’autre, il existe souvent des modèles et des préoccupations similaires, comme la crainte que l’automatisation ne remplace les emplois et n’accroisse les inégalités. Les décideurs du monde entier s’efforcent de répondre à ces préoccupations pour s’assurer qu’elles débouchent sur un résultat positif pour tous.  Cette semaine, nous avons deux invités qui vont nous expliquer l’incidence de l’IA sur la croissance et une nouvelle ap

Topics: Baumol's Cost Disease, small-town America, Aristotle's PHYSICS, and starting a businessScot Bertram talks with Hillsdale associate Professor of Economics Charles Steele about the merits of Baumol's Cost Disease. Tim Carney discusses his recent Washington Examiner cover story on small-town America. Lee Cole, from Hillsdale's philosophy department briefs us on Aristotle's PHYSICS. And Kevin Meyers, a Hillsdale graduate, tells us about starting his business, Lucy Darling.See omnystudio.com/listener for privacy information.

Topics: Baumol's Cost Disease, small-town America, Aristotle's PHYSICS, and starting a business Scot Bertram talks with Hillsdale associate Professor of Economics Charles Steele about the merits of Baumol's Cost Disease. Tim Carney discusses his recent Washington Examiner cover story on small-town America. Lee Cole, from Hillsdale's philosophy department briefs us on Aristotle's PHYSICS. And Kevin Meyers, a Hillsdale graduate, tells us about starting his business, Lucy Darling.

One of the most remarkable aspects of the last few generations is that for the first time in human history, at least to this degree, stuff has been getting cheaper while human labor gets more valuable. It’s a technology-enabled humanist revolution! At the same time, labor-intensive sectors like healthcare and education have become more expensive relative to the declining price of goods. Economists call this the “Baumol effect,” though it’s sometimes referred to as the “cost disease.” But economist Alex Tabarrok joins the show to discuss how that curse might actually be a blessing in disguise and how the Baumol effect radically disrupts our preconceived notions about effective government policies.Why are some prices getting higher while innovation causes the lowering of other prices? Why has the price of education gone up? What is the Baumol Effect? How can we substitute for skilled labor?Further Reading:Why Are the Prices So Damn High?, written by Eric Helland and Alexander TabarrokMarginal RevolutionStubborn Attachments, written by Tyler CowenRelated Content:The Automation Revolution is Upon Us, Building Tomorrow PodcastWill Artificial Intelligence Take Your Job?, Building Tomorrow PodcastOn Innovation: Don’t Ask for Permission, Building Tomorrow Podcast See acast.com/privacy for privacy and opt-out information.

My guest for this episode is Alex Tabarrok, the Bartley J. Madden Chair in Economics at the Mercatus Center and Professor of Economics at George Mason University, blogger at Marginalrevolution.com, co-founder of Marginal Revolution University and co-author with Eric Helland of "Why Are The Prices So Damn High?" which is short, free book and which we discuss on the show.Alex has written many other books and papers and there is a theme of thinking about innovation throughout his work. Several years ago he wrote a book on the topic called "Launching the Innovation Renaissance" which we also touch on as well as how the era of a country's birth affects its institutional makeup, how national rivalries can generate positive externalities (pop quiz: what was NASA's budget as a % of US GDP at its peak?), whether and why there has been a decline in innovation (and what's the difference between innovation, entrepreneurship and economic growth?), where we might look for a model of education reform and how we might get there (what would a hollywood-style investment in education reform look like?) including Alex's own observations in launching his own education platform (marginal revolution university!), and much more!Show Notes:https://notunreasonable.com/2022/01/07/alex-tabarrok-on-innovation-and-the-baumol-effect/

Last week I reviewed Alex Tabarrok and Eric Helland’s Why Are The Prices So D*mn High?. On Marginal Revolution, Tabarrok wrote: SSC does have some lingering doubts and points to certain areas where the data isn’t clear and where we could have been clearer. I think this is inevitable. A lot has happened in the post World War II era. In dealing with very long run trends so much else is going on that answers will never be conclusive. It’s hard to see the signal in the noise. I think of the Baumol effect as something analogous to global warming. The tides come and go but the sea level is slowly rising I was pretty disappointed by this comment. T&H’s book blames cost disease on rising wages in high-productivity sectors, and consequently in education and medicine. My counter is that wages in high productivity sectors, education, and medicine are not actually rising. This doesn’t seem like an “area where you could have been clearer”. This seems like an existential challenge to your theory! Come on! Since we’re not getting an iota of help from the authors, we’re going to have to figure this out ourselves. The points below are based on some comments from the original post and some conversations I had with people afterwards. 1. Median wages, including wages in high-productivty sectors like manufacturing, are not rising I originally used this chart to demonstrate:

508 is a show about Worcester. This week, we talk about obsolete transit, bad student homelessness stats, the coming corn famine, and the Baumol cost effect. Audio: Download the mp3 or see more formats. Subscribe with iTunes | Subscribe with Google Play | Contact Info | Twitter feed | RSS

Why have prices for services like health care and education risen so much over the past fifty years? When I looked into this in 2017, I couldn’t find a conclusive answer. Economists Alex Tabarrok and Eric Helland have written a new book on the topic, Why Are The Prices So D*mn High? (link goes to free pdf copy, or you can read Tabarrok’s summary on Marginal Revolution). They do find a conclusive answer: the Baumol effect. T&H explain it like this: In 1826, when Beethoven’s String Quartet No. 14 was first played, it took four people 40 minutes to produce a performance. In 2010, it still took four people 40 minutes to produce a performance. Stated differently, in the nearly 200 years between 1826 and 2010, there was no growth in string quartet labor productivity. In 1826 it took 2.66 labor hours to produce one unit of output, and it took 2.66 labor hours to produce one unit of output in 2010. Fortunately, most other sectors of the economy have experienced substantial growth in labor productivity since 1826. We can measure growth in labor productivity in the economy as a whole by looking at the growth in real wages. In 1826 the average hourly wage for a production worker was $1.14. In 2010 the average hourly wage for a production worker was $26.44, approximately 23 times higher in real (inflation-adjusted) terms. Growth in average labor productivity has a surprising implication: it makes the output of slow productivity-growth sectors (relatively) more expensive. In 1826, the average wage of $1.14 meant that the 2.66 hours needed to produce a performance of Beethoven’s String Quartet No. 14 had an opportunity cost of just $3.02. At a wage of $26.44, the 2.66 hours of labor in music production had an opportunity cost of $70.33. Thus, in 2010 it was 23 times (70.33/3.02) more expensive to produce a performance of Beethoven’s String Quartet No. 14 than in 1826. In other words, one had to give up more other goods and services to produce a music performance in 2010 than one did in 1826. Why? Simply because in 2010, society was better at producing other goods and services than in 1826. Put another way, a violinist can always choose to stop playing violin, retrain for a while, and work in a factory instead. Maybe in 1826, when factory owners were earning $1.14/hour and violinists were earning $5/hour, so no violinists would quit and retrain. But by 2010, factory workers were earning $26.44/hour, so if violinists were still only earning $5 they might all quit and retrain. So in 2010, there would be a strong pressure to increase violinists’ wage to at least $26.44 (probably more, since few people have the skills to be violinists). So violinists must be paid 5x more for the same work, which will look like concerts becoming more expensive.

Avec Julie Deliquet, metteuse en scène et scénographe (« Fanny et Alexandre », en février, à la Comédie française, Jeanne Candel co-diretrice du Théâtre de l’Aquarium et Jean Robert-Charrier, directeur du théâtre de la porte Saint Martin.4 millions d’entrées dans les théâtres publics en 2017, 4 millions dans les théâtres privés, presque tous à Paris. Ces dernières années, le nombre de spectateurs est en progression lente mais constante, sans oublier les 460 conservatoires et les troupes d’amateurs si nombreuses qu’elles ne sauraient être recensées. Non seulement le théâtre n’est pas affecté par la révolution numérique, mais il en tire peut-être profit en offrant une alternative de chair et d’os aux divertissements virtuels…Pour autant, est-il raisonnable de « monter une pièce » ? Économiquement, c’est un peu plus coûteux chaque année : les spectacles vivants ne peuvent gagner en productivité qu’à la marge de la marge : le même acteur ne peut pas jouer deux protagonistes d’une même pièce, le même décor ne peut pas figurer un hôpital et un jardin. Scientifiquement, cela s’appelle la loi de Baumol : le théâtre souffre d’un différentiel de productivité́ avec le reste de l’économie qui induit une croissance inexorable de ses coûts relatifs. L’État intervient pour contrer ou adoucir les effets de cette loi. Il occupe donc une place de plus en plus importante dans l’offre de spectacles, avec ses cinq Théâtres nationaux, ses 70 Scènes nationales et ses 38 Centres dramatiques nationaux. Cela entraine-t-il une uniformisation de cette offre ? Un alignement des carrières artistiques sur certaines carrières de la fonction publique ? L’offre du privé constitue-t-elle une alternative ? La loi de 2003 sur le mécénat a-t-elle modifié la donne ? Le financement participatif offre-t-il une nouvelle perspective ?

On this episode of the Knowledge Project Podcast, I chat with Patrick Collison, co-founder and CEO of the leading online payment processing company, Stripe. If you’ve purchased anything online recently, there’s a good chance that Stripe facilitated the transaction. What is now an organization with over a thousand employees and handling tens of billions of dollars of online purchases every year, began as a small side experiment while Patrick and his brother John were going to college.   During our conversation, Patrick shares the details of their unlikely journey and some of the hard-earned wisdom he picked up along the way. I hope you have something handy to write with because the nuggets per minute in this episode are off the charts. Patrick was so open and generous with his responses that I’m really excited for you to hear what he has to say. Here are just a few of the things we cover: The biggest (and most valuable) mistakes Patrick made in the early days of Stripe and how they helped him get better The characteristics that Patrick looks for in a new hire to fit and contribute to the Stripe company culture What compelled he and his brother to move forward with the early concept of Stripe, even though on paper it was doomed to fail from the start The gaps Patrick saw in the market that dozens of other processing companies were missing — and how he capitalized on them The lessons Patrick learned from scaling Stripe from two employees (he and his brother) to nearly 1,000 today How he evaluates the upsides and potential dangers of speculative positions within the company How his Irish upbringing influenced his ability to argue and disagree without taking offense (and how we can all be a little more “Irish”) The power of finding the right peer group in your social and professional circles and how impactful and influential it can be in determining where you end up. The 4 ways Patrick has modified his decision making process over the last 5 years and how it’s helped him develop as a person and as a business leader (this part alone is worth the listen) Patrick’s unique approach to books and how he chooses what he’s going to spend his time reading ...life in Silicon Valley, Baumol’s cost disease, and so, so much more. Patrick truly is one of the warmest, humblest and down to earth people I’ve had the pleasure to speak with and I thoroughly enjoyed our conversation together. I hope you will too! GO PREMIUM: Support the podcast, get ad-free episodes, transcripts, and so much more: https://fs.blog/knowledge-project-premium/  

Before you make up your mind about “Free College,” have a listen to this episode. Danny Anderson is joined by Matthew Filipic, former VP of Business and Fiscal Affairs at Wright State University, for a detailed exploration of the context and history of an idea that Bernie Sanders' campaign has recently thrust into the political spotlight. Topics: Richard Shatten and Ohio's problems with educational attainment The historical importance of college in America: “The Rising Tide” Income gains lessen in the 1970s State withdraw of support for public higher education University of California system and City College of New York as prior examples of state support Higher education, “The Baumol Disease,” and the necessity of inefficiency The burden of Medicaid upon individual states Resistance to tax increases by the public Danny's modest proposal: Single Payer Healthcare as solution to free college Current Free College proposals New York Proposal The problems for private colleges Oregon, Tennessee, and Rhode Island versions of “free college” Targeting money to populations that need it The Sanders plan versus the Clinton plan Avoiding “perverse incentives” in national funding of “free college” Free college and student motivation What we've lost as a society in neglecting higher education Links: Richard Shatten Bio http://www.crainscleveland.com/article/20100524/FREE/305249995/richard-shatten The Baumol Disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease New York's tuition-free college program sparks debates and defenses http://ift.tt/2psEJkG New York Republicans have an alternative to Governor Cuomo's free tuition plan http://ift.tt/2lS9ErH Most of Oregon's free-tuition dollars aren't going to poor students http://ift.tt/2mXikL4 The drawbacks to New York State's free college plan (essay) | Inside Higher Ed http://ift.tt/2qmyUYM HOPE changes may mean fewer women, minorities at UGA http://ift.tt/2xfTQ82 HOPE Scholarship: The cons - Atlanta Magazine http://ift.tt/2xaIKAv Free-Tuition Program Transforms a University http://ift.tt/2wNplDs Please go to iTunes and leave a review: https://itunes.apple.com/us/podcast/the-sectarian-review/id1031613670?mt=2 Also, visit and like our Facebook page to access more content: https://www.facebook.com/SectarianReview/

In this lively conversation -- from our recent annual tech and policy summit in Washington, D.C. -- Axios' Dan Primack interviews a16z co-founder Marc Andreessen about the two major narratives dominating discussions about the tech industry right now: the industry is building stupid stuff; and tech is “evil” (or at least has an outsized impact, is destroying jobs). Part of the problem, Andreessen argues, is that we don't have enough technological innovation: With higher productivity growth, we'd have higher economic growth and more opportunity. But without enough opportunity, we're all at risk on all sides of the ideological spectrum. And actually, both the "tech is stupid" and "tech is evil" narratives are true... in different sectors [hint: those afflicted by Baumol's cost disease]. So what then are the roles for policymakers and and entrepreneurs in addressing these issues, including jobs? Ultimately, Andreessen argues, success in Silicon Valley isn't really about good idea vs. bad idea at all … and it's all eventually political. (Bonus: why Andreessen stopped tweeting!)

What follows is an edited transcript of my discussion with Ray March about the economics of medicine and health insurance. We had a fascinating and far-reaching discussion about health care policy, both in the United States and Canada, as well as some cases of entrepreneurship in the medical sector. This includes a slightly awkward discussion of the development of sexual pharmacology, the early experiments with nitrates and Viagra, and the, uhhh, "firmness" those drugs produce. Enjoy! Petersen: My guest today is Ray March of Texas Tech University. Ray, welcome to Economics Detective Radio. March: Thanks for having me. Petersen: So our topic today is the economics of medicine. Ray's research concerns entrepreneurship and regulation in medicine. Let's start by talking about this idea of entrepreneurship in medicine. The medical field isn't like Silicon Valley. You can't just launch a pharmaceutical company out of your parents' garage. In fact, the whole field is tightly regulated and controlled by the government both in the United States and Canada, other countries. So how do people in the medical field still manage to be entrepreneurial? March: Entrepreneurship is fundamentally a question about how do I find resources I have now and put them towards their best use and that will help me turn a profit and therefore we have market signals. You're right to point out medicine is a much more regulated area compared to other service industries but what makes medicine entrepreneurial is that there's always a void to discover, there's always a need to find better uses and better cures or better ways to treat patients. And because the government is usually behind the curve in terms of the advancement of science---and this is particularly true in health science and medicine---there's always opportunities for entrepreneurship. And a lot of my research explains or tries to explore what are these areas of medicine or of health just more broadly that the government is not involved in because they're not necessarily aware that this is an emerging field. And that leaves room for scientists and more broadly entrepreneurs to come and fill in gaps. Petersen: Okay. So, when you say the government is behind the curve, a big part of that is the Food and Drug Administration, the FDA, in the United States. And of course it has its equivalent in other countries as well. So, tell me a little bit about the FDA. So, if I discovered a new drug, what kind of process would it take for me to bring it to market in the United States? March: If you want to go through the FDA procedure usually takes between 12 and 20 years and somewhere around a billion dollars of investment. You bring it to the FDA, you go through initial screening which is "Is the drug effective?" "Can it actually do what you purport it can do?" That's phase one. Phase two is a little bit larger clinical trial so instead of 30 people you go through 1,000 people. And you have to report that it's also effective. Then you get into safety which is what the FDA was originally intended to do was to eliminate the worry that they were going to be unsafe drugs on the market. Then you have to go through a clinical trial about typically 3,000 people to show that it doesn't hurt them. Beyond that, you've got phase four which is approval, you get your drug approved and even the drug is approved, you are not quite off the hook. Yet you still have to have post surveillance. And post surveillance is, it's approved but if we find any problem outside on the market or we find that we didn't pick up with something in our very detailed clinical study, we find there is some kind of problem, then we can remove the drug and that typically lasts 14 to 16 years. Petersen: Okay, so it's an extremely long process. Long and costly and we hear sort of horror stories about before there was an FDA---before there was regulation of medicine---you'd have people sell snake oil or tonics, miracle cures that really just made people sick. Doesn't it help to have a process in place to prevent the kind of things that might damage people's health? March: Absolutely. I wouldn't deny that it's not helpful to have processes in place to weed out effective treatments from ineffective treatments. The question that I'd like to mention is who does the planning? Do we need to have the federal government with the FDA come in and say if you want to prescribe a drug legally or use a medical device legally you go through our process or does it make more sense to open it up broader and have competition? And that is where the entrepreneurs would find ways to treat elements and diseases and in effect, those are weeded out through the market process. Petersen: Yeah so what I like in your research is that you've actually found cases of course of both kinds: of the FDA sort, of the public government regulation of drugs and also private regulation or private discovery of new uses of drugs. So, let's talk about your paper on entrepreneurship in off-label drug prescription. So, you look specifically at the off-label uses for three specific drugs: Aspirin, Viagra and---I might pronounce this wrong---Minoxidil? March: No, perfect Minoxidil. Petersen: Yeah, Minoxidil. Okay. So, first what is an off-label drug use? And why does it matter? March: The off-label use of a drug is using a drug for a purpose that's not approved for by the FDA. So, in the case of Aspirin, Aspirin is approved for pain relief or in the paper I say it's not just used for pain relief doctors also prescribe it to prevent myocardial infarction and other heart-related conditions. So, in general, when you use a drug off-label, you are saying I'm prescribing it for use that hasn't gone through the rigors of the FDA's regulation. It hasn't gone through the four phases and the post surveillance, which in the United States is perfectly legal. But the reason that off-label becomes very important---and full disclosure, in the United States one out of four drugs is prescribed off-label, that is, one out of four pills you're taking is not for the approved FDA use---is that it allows doctors and pharmaceutical companies to be entrepreneurs, to find the best alternative use of medication, which the FDA in theory, could do, but because the process of approving drugs is so long and costly and often lags behind what medical professionals typically find 15-20 years ahead of the pace. Petersen: Okay, but it seems contradictory that that would be legal because as you said the FDA is not just checking for safety, but for effectiveness. And if you're using Aspirin as a blood thinner, it hasn't been tested for that purpose. So isn't that a contradiction and shouldn't the FDA have some kind of interest in making sure these off-label drugs are effective? March: So there's been put forth regulations on, or just people trying to get off-label drugs regulated so that you can't prescribe it for any use. And in some cases, there are instances where it is illegal to use a drug for off-label use. For example, if I'm a doctor, I can't prescribe you 40 Oxycontin in a bottle of liquor and then you can do physician-assisted suicide. I can't do that. But the FDA, it does have some sort of an interest, from a public choice perspective, that they want to regulate all use of pharmaceuticals which it hasn't deemed safe. But I think this is where my research sort of comes into play here. The FDA is so far behind the curve, I don't think it's really aware of how these drugs are being prescribed. And if we look at the case of Aspirin, Aspirin, the initial hypothesis put forth by Lawrence Craven---he was an entrepreneurial cardiologist---said that aspirin could be used to prevent heart attacks. This was in the 1940s. And a good period of 30 years went by before this really took off in the mainstream where this became a very common procedure to avoid heart attacks, or heart disease, other cardiovascular things. And the FDA only really got around to approving Aspirin in 1996---I believe this was the first year to approve it for preventative care. So, I think there is an interest on behalf of the FDA but I think it's also just the FDA is very slow. I don't think it's able to stay ahead of medicine or to regulate some of these uses. Petersen: It's shocking to me that people would advocate to extend regulation to these off-label uses because if it's one in four pills in the United States, if you then banned those uses, wouldn't one in four patients then become sicker? Who's doing this advocating? March: One of the key distinctions to keep in mind is keeping you safe is not helping necessarily, it's not curing you. And those are two distinct things a lot of people won't necessarily think through the implications of when they want to advocate the FDA should have more power. Petersen: Okay, so that's one argument I've heard is that if the FDA approves a drug that then goes and poisons people and it turns out it wasn't safe after all then, it would be a huge political fiasco maybe the head of the FDA could get fired or definitely the people who were directly responsible for approving that drug. But if the FDA simply delays approving a drug and the same number of people die on account of not getting it---people whose lives would have been saved by it---then, the incentives are kind of asymmetrical. The error of omission is punished less harshly or not at all compared to the error of commission. March: Absolutely. I mean that's the seen and the unseen. What's seen is that the FDA is keeping all these drugs going constrained or not, keeping them off the market because they want consumers to be safe and they want to run through these clinical tests again. But what you don't see is that people who are in dire situations that need this to feel better or to function or even save their lives. You don't necessarily account for that when you account for the cost of the FDA. So, it's one thing to say it's 20 years of approval and a billion dollars or 1.2 billion dollars to have the drug approved, but you also don't account for the lives that are waiting to get ahold of this drug. Petersen: So, even though there's this huge process to sort of block, or to slow down drugs from reaching the market so that they can be tested and checked and made sure they're safe and effective. Still most drugs, when companies do develop drugs they earn most of their money in the U.S. market because of the strong patent system there. So, there's something to be said for having at least these incentives for the drug companies to develop these things and to keep technology marching along. Can you speak to some of the differences between the U.S. and other countries with respect to pharmaceutical development? March: Well, in terms of IP---and you're absolutely right that IP is a critical component of a lot of pharmaceutical companies' balance sheets---because they're going to invest large sums of money and large sums of time. Then if they go and put their drug on the market and then a generic comes out four or five months later, then there goes the profit margin. So that's an important component of U.S. pharmaceutical companies, where certainly European and in some cases, the Canadian pharmaceutical come and try to get their stuff approved by the FDA so they can get stronger patent rights. But a lot of that is somewhat misleading. So, for instance there's no real reason medically that you should have one drug or that one drug is necessarily going to treat a huge variety of patients. When drugs go generic, you don't see just a drug go generic and it becomes the same drug, you see generics vary in their chemical structure. This way it's not just the drug becomes cheaper because there's no patent preventing other people from making this pharmaceutical or engaging in this chemical composition, but they vary the composition so they can better suit other consumers. So, it's not necessarily the case that when drugs go generic they all become the same and just immediately the price drops. There's a better service towards the consumer market. Petersen: Yes. So, having these patents, on the one hand, they create the incentive to develop new things but on the other hand, they take away all the benefits of market competition which includes not only lower prices but also some of these sort of marginal improvements and developments in serving more niche markets and things like that. So, where do we see competition in the drug market? You have a paper called "The Substance of Entrepreneurship and the Entrepreneurship of Substances" which is a wonderful title by the way, do you want to talk a little bit about the entrepreneurship of substances? March: Sure what I tried to develop, or what me and my co-authors tried to develop in that paper is you have entrepreneurial theory which takes various forms whether you look at the Kirznerian theory or Baumol's theory and we try to adapt that for what I do is the market for pharmaceuticals. In that paper I examine off-label drug prescription too, but I try to explain how does the entire process work. So, given we have severe, very stringent regulatory structure set forth by the FDA and we have these conflicting patent rights, how is it that we actually see entrepreneurship in treating people? And off-label, one, it creates alternative uses of resources which is what entrepreneurship is in a nutshell, is find the best use for scarce means and then when they find better uses for existing drugs---so Aspirin, Minoxidil, Viagra like I talked about in my other paper---these findings get distributed through medical journals which is the system of how do we figure out which drugs are safe to treat various illnesses that we previously weren't aware of. Pharmaceutical sales representatives are going to also play a role in doing that, but they're not supposed to disclose too much information about off-label drug prescriptions, that's another regulation. But fundamentally what you have there is a system of feedback. So, without the FDA's involvement physicians and pharmaceutical companies are able to find alternative uses for their drugs. So, instead of Viagra being used to reduce cholesterol essentially or to reduce congestion in the heart, it's better used for sexual performance in males. And a lot of this was found in clinical trials which then got introduced in the U.S. market through voluntary tests which then became part of medical journals, which then were introduced into specialized medical journals to make sure that this information was distributed to urologists, or doctors of various disciplines and then that's how the market emerged for sexual pharmacology, which was largely an entrepreneurial act by urologists saying "We think sexual performance is not, for lack of a better word, all in your head. We actually think there's a physiological problem here and we think we can use pharmaceuticals to solve this." Petersen: So, you're saying that the main purpose of Viagra, the one that we've all heard of, that was not its original use? March: Oh no. Viagra was developed for heart congestion. Petersen: Wow, I did not know that. March: When you think of a little blue pill you think of erectile dysfunction for sexual performance, but no originally it was for---I'll tell the entire story, hope this goes to a family friendly audience---the story was this is developed in Britain, they started sending out these pills in an early clinical trial, they send them out to 30 or 100 middle-aged men, people you would think would be suspect for heart congestion and they send out the pills and they phone and they say "Okay, how is it? You feel like you have less heart palpitations? We will run your blood and we'll see what your actual congestion is." And it didn't seem to be very effective in that, this is about halfway through a 30 day trial, and they say "Okay, well send the pills back" and then nobody sent them back. So they were questioning "Why has nobody sent the pills back?" and they started getting reports, "Well it was actually helping with this other thing." And then they said "Well we need to develop this drug for sexual performance. This is going to be a blockbuster." Petersen: And before that there wasn't an interest in, or doctors were interested maybe more in saving lives. So it's almost like the market for sexual performance enhancing drugs sort of came from the consumers themselves. Before this nobody said "Hey you know what would we be great? A pill that enhances things in the bedroom." So, it's interesting. So they learned from the customers what their customers wanted. March: Yes, in this case directly. The field of what's called sexual pharmacology---so treating sexual problems with drugs---it largely emerges in the United States originally not Britain, and it's in the 1950s. And it's a group of, I believe, is about half a dozen to twenty urologists treating urological problems. They come to the conclusion that sexual problems are not all in your head, so it's not a psychological problem why sexual performance is not up to par, you're having these issues in the bedroom. It can actually be a physiological problem, so there's a problem with your sexual organs. And so they start experimenting with what were essentially nitrates, so things that affect blood flow and they start injecting them originally in themselves. So in the urologists' actual selves they would test that then test firmness, for lack of a better word, then they would say "Okay, we think this can help our patients we're going to prescribe these off-label." Patients would go, they would increase their sexual performance, this starts getting out in medical journals. And then over across the ocean, you have Britain which sort of serendipitously comes across Viagra and finds out this little blue pill can actually do this too. They enter the U.S. market. So it's an international competition but it all originally starts with an entrepreneurial idea saying, "No, we think we have a better way to treat sexual dysfunction." Petersen: Right. And yet they had to get over the idea that it was all---I don't know, this with would have been before the days when people also maybe believed strongly in mental illness because---the idea of something being "all in your head" in the age where we're all very aware that mental illness is an illness and it is related to physical things in your brain; the fact that something's all in your head doesn't mean necessarily that it's not real but this was the 50's, when maybe people philosophically didn't see things that way. March: Right the 1950s---there was some awareness of mental illness in the 1950s---the 1950s is when you start to have anti-psychotics, it's when they start to see we can help people that have previously been institutionalized by giving them these drugs which uptake into the brain, which can help you alleviate manias and depression, or anxiety. But the predominant theory for sexual dysfunction---it wasn't even called that back then, but what we can call for this podcast sexual dysfunction---was that this is a psychological problem so, the male couldn't perform---this is also true for females but what we were focusing on here is males---if the male couldn't perform it was some form of anxiety, so he needed to undergo psychotherapy or some kind of sexual therapy. And then he would go through that again and again until the point where he was comfortable enough performing sexually and that would somehow dissipate the problem. But entrepreneur urologists come in and say "No." There's alternative explanations. It's not just that he has anxiety. It could be there's something actually physiologically wrong. And this is sort of a new idea because that, one, it's a whole new idea to say no the sexual performance is not always linked to your mental state or your perceived anxiety, but that we can actually treat this with injections, or with nitrates or with drugs and drugs that already exist on the market because we believe this is a blood flow problem. They had it tested on themselves so they were pretty confident in their theory. But then to go ahead and give it to patients and then give patients the ability to self-medicate. All of this progress was a period of 20 or 25 years for them to progress to that stage to where ED can be treated---be self-treated really---without the use of psychotherapy which was inconsistently effective. And then we get to the point where you can just inject an oral tablet, that's where Viagra comes in. All of this comes about because of an entrepreneurial awareness to say "No, we don't think that the medical professional is treating this condition correctly." Petersen: So, one thing you talk about in your paper is the idea of superfluous entrepreneurship. What is that and how has it occurred in drug markets? March: Superfluous entrepreneurship as we go about it in this paper is the idea, given you're an entrepreneur in a regulatory state which prohibits you from discovering more effective ways to distribute goods, what happens to the goods you distribute? Are you distributing as effectively as you could without said regulation? And one of the ones we analyze in the paper is the development of insulin. I'm sure you and your viewers are aware of what insulin is, a diabetic who can't produce his insulin or doesn't produce enough, the Type-one and Type-two, needs to inject that when he eats carbs so he can manage his blood sugar and avoid diabetic complications. So, when insulin originally hits the market we've got to go back to, I want to say the 1920s, when they first started doing animal insulin. We have pig insulin and we have bovine insulin which saved thousands of diabetics' lives at the time, but they have side effects. As you can imagine, insulin is a hormone, if you inject animal hormones in you, there's going to be some side effects. And so by the time you get around to the 1940s we start finding ways, medical science advances enough to where we can synthetically produce human hormones, which is what modern insulin is, a human insulin. But the fear of the regulators is now that we can synthetically make hormones we don't necessarily know what are the side effects of synthetic hormones. And so in 1941 Congress passes what's literally called "The Insulin Act" which is if you're going to prescribe, or you're going to try to create a life-saving medication, which is what insulin is to diabetics, to Type-one diabetics especially, it has to go through additional rigorous testing. So what that means is the release of human insulin on the U.S. market is delayed, so diabetics who need to receive their insulin are still taking bovine and pig insulin, which is okay but when there was a clearly better alternative being human insulin available, you end up with superfluous discovery so instead of investing time---and this is what happens in the insulin market---you invest time and effort into finding ways to reduce complications from injecting bovine insulin, or find ways to change the what's called the duration event, so how long insulin last in your bloodstream trying to find ways to manipulate that or make that better. You have a better alternative which is to immediately bring in human insulin and treat diabetics using that and that doesn't become possible in the U.S. market because of these delayed regulations. Eventually insulin does get on the market but you have a prolonged period where people are noticeably getting worse treatment than what's available. Petersen: Right, and that's a very long period. I read in your paper they didn't approve human insulin until 1983 and did you say 1940s was when they discovered it? March: I believe 1941 was when it was first available for clinical testing and this was all done in Germany. Petersen: So 42 years. March: Right, of taking animal hormones. Petersen: Yes. So, the superfluous element of entrepreneurship is we have some kind of problem, people are willing to pay to have that problem solved. We have a cheap way of providing this subjective benefit to people, but the cheapest, best way that people would do in a free market is somehow blocked or illegal and so people entrepreneurship around regulation. Is that correct? March: You certainly see that in illicit drug markets, but yes that's also true in some pharmaceutical markets. I want to get this drug approved in the United States. I have human insulin which is better than cow and so I want to get approved in the United States. There's a big market for diabetics in the United States but the additional regulation makes it tough. So, I can find a way to circumvent that, either bring it on the black market, the illicit drug component, or I have to say no I can't compete in the United States because it is going to take too long, I'm just going to prescribe it over here in Germany or in Asia. And what that does, that just limits the entrepreneurial aspect of bringing better cures to market. So it's a superfluous effort you could say, marketing this drug in Asia or different countries in Europe instead of the United States. Those are all resources that could have been diverted towards something, or towards marketing the drug in the United States where you could argue it would be the highest value of use. Petersen: Right. And in your paper you also talk about delta nine THC found in marijuana, which is a treatment for nausea. Can you talk about that? That's illegal of course because it's from marijuana. March: That's an example where there's tons of medications out there for nausea, but the one you find in the medical marijuana derivative has been shown as particularly effective in difficult cases. So take cases where the typical forms of treatment which would normally help people---now we have more difficult cases---we're no longer allowed to prescribe these drugs we have to find synthetic uses of these drugs. So any time you take a synthetic use you're necessarily making the complications which you would face when the drug interacts with your body, they become a little bit more widespread. So you open yourself up to the treatment being less effective, but you also get more of a probability of these tail effects, where things you wouldn't necessarily see happen occur in your body. So, you make the drug. In some cases it's less effective, but you also can potentially make it more dangerous, which is the superfluous act. I am trying to use synthetic drugs to treat cases or treat illnesses when there's a better alternative in the background. So, I'm just trying to find a new and better way to make a potentially dangerous drug safer when there are already safer drugs available. Petersen: So a previous guest of this show, Mark Thornton, who you cite in your paper has argued that in the case of illicit drug markets, what the entrepreneurs do is to make them easier to smuggle by making them more concentrated, have a stronger effect for a smaller mass so they can be hidden in places where they're smuggled across borders or from the place they're produced to the place where they're sold. One example would of course be moonshine, so during the depression they obviously weren't selling low-alcohol-content wine because it would be so costly to smuggle that to people. They instead got the super strong moonshine and it was actually very dangerous. So, I suppose that's kind of an example of superfluous entrepreneurship, getting around the burdens placed on you, when in legal markets, of course, you don't have to always make things more concentrated and easier to smuggle because you don't have to smuggle them. March: Right exactly. Entrepreneurship is finding---I have my product, I eventually face competition because I'm making a profit, how do I make my product better? And so when you have to change the institutional setting to where now I have a product that I'm selling but it's technically illegal to sell this product, where can I put my efforts best for us to continue making a profit? In illicit markets it can just be the concentration, right? You mentioned the moonshine and the nine THC is another great example which is the main content of marijuana which people used to get high, you see the potency of these get much higher because that's primarily what you're trying to do is to sell the THC content to potential marijuana users. So instead of trying to find appropriate levels of THC or finding what you call niche, just accessories towards consuming marijuana which would differentiate the markets and serve consumers better, that is no longer profitable revenue and that's no longer a profitable or viable way to compete with people that are selling marijuana. Now it's how do I smuggle? How do I become a better or more active smuggler? And that's to raise the content of THC. Petersen: Or to get people onto drugs like cocaine that are significantly more potent per weight. I guess the great point made by Thornton is that by criminalizing these things, by criminalizing milder drugs in particular, you create a market for stronger ones. March: Right. Because that's how you compete on the margin for things like that. Yes. Petersen: So what other kinds of entrepreneurship do you see in the United States in medicine? I've heard about people sort of getting around the medical system, joining collectives where they pay directly to their doctor, trying to get away from the sort of hybrid insurance system that you have down there. March: That has become an alternative. And I don't know if I want to say an alternative market. But there has emerged a need for people to get outside of the larger insurance---that's the word I'm looking for---to get outside of the mainstream insurance market and to niche themselves into more specialized markets. So, with the passage of the Affordable Care Act right now, everybody has to have health insurance or you pay a massive penalty. You've standardized insurance, which in some cases maybe there's nothing wrong in having a standardized package of insurance. When you try to blanket that over the population of the United States you leave out specialized cases. So to give you a specific example what you see now in the market for diabetic treatment is now that insurance has become standardized to treat diabetics, you see less prescriptions written for specialized forms of insulin or insulin that acts faster or insulin that has a longer duration period. Now you see just generic insulin is being prescribed. Which is fine because the majority of diabetics are type-two diabetics and that's what they typically use, but then that leaves out cases of people with pancreatic cancer or type-one diabetics who need specialized insulin in order to better suit their individual illnesses, and you don't see that specialized treatment. So that leaves the market open for specialized insurance, or people that are going to co-ops, private alternatives where you pay into essentially a fund and 50 or so people will contribute 100 dollars a month. If one of them gets sick, they'll use the money in that fund to help this person overcome an illness they've come down with or any injury that's kept them outside of work. I think a lot of those entrepreneurial aspects are trying to get out of standardized medicine, standardized insurance but again because all of this is more or less dictated by the government you don't have the wiggle room to compete on the margins, what you have to do is go completely outside of a highly regulated market. That's what you're seeing marginally with insurance. You don't see as much of that in medicine. Medicine is a little more tightly controlled than insurance, even in the insurance market even today, but it's interesting. So, I think in the future there's going to emerge especially a larger market for these different forms of health insurance. It will help to treat people who have religious affiliations when they don't want to have insurance that helps to cover birth control or abortions for people that are in their group or they are pooled in the same insurance group. But also just people that aren't getting the kind of treatment they want. And this allows them to actually have health insurance for lack of a better word. I need a specialized form of treatment or I actually come down with a rare illness that the standard treatment is not going to help me with, I need to have insurance as a means to cover it and I think that's what you're seeing in the market with what you describe. Petersen: Right. So, I live in Canada and we have single payer, which ultimately is like post-Obamacare having private insurance companies but then having everyone legally required to get the insurance and then having those insurance companies having the government dictate what they provide and require them to take on people with preexisting conditions. It's almost like just some sort of weird way of replicating single payer just while maintaining the veneer of a private system but in Canada we have single payer officially. And there are some myths about it. So, we don't have socialized medicine per se. Doctors are not public servants but they can only accept payment from the government on your behalf, so sort of like maybe a private prison in the United States where they're kind of private but the only customer they can legally take on is the government. March: Which you wouldn't typically describe as a market. The market is to serve the consumers. Petersen: When the consumer is like a private contractor, serving the government. But of course we also restrict---you're not allowed to buy healthcare or medical care outside of the single payer system. There have been some court cases recently with people trying to argue for a right to do this but the typical thing to do is to cross the border to the States or fly to Southeast Asia to get your unapproved---or in order to pay for your own medicine. And the sort of justification for this is they don't want people competing up the prices of medical services, medical goods. I guess they like their monopsony status as the only buyer of medical services. But whenever I find myself arguing against the system or saying something to the effect of "Hey this is a pure private good, why don't we let the free market provide it the way we do with our food and shelter and other things that are very important for living?" I get really smart people arguing against me and some of the things they say are "Can you point to a country with free market healthcare that works?" and I have to say "Well there isn't a country with pure free market healthcare" Singapore is 50/50 and maybe that's as close as you get. But I guess to get to my question, why does every country intervene so strongly in medicine? What is it about medicine that that makes people really want to control it and have it centrally planned or regulated? March: Sure. I think that's the fundamental question of health economics. Analyzed from the perspective of an economist, how much is the market able to take care of the sick or those less able to take care of themselves and how much do you need state interference or government involvement to make a successful health company or healthcare system work? The way I'd like to think about health economics if we get outside of just focusing on insurance or treatment of rare illnesses or pre-existing conditions or asymmetric information and all these complex issues that people like to point and say, "See that's where the market fails in healthcare, that's why you have to have a government." Fundamentally what we're looking at is how do you deal with uncertainty? We have more or less ways of assessing risk, where we know your risk increases of lung disease if you smoke a cigarette as a simplified example. But how do we purely deal with uncertainty? So, I'm an insurance company and I take you on as a client, I don't know your health status. Various regulations make it impossible for me to find that out. But I don't know your health status. I don't know if in five years you're going to develop cancer, if you're going to be healthy for the next 30 or 40 years. How is it ideal with that as an insurance provider or if I'm a doctor how do I know you're going to use this pharmaceutical responsibly or how do I know that these other clinical trials I've seen where this has helped the patient with your condition is going to help you because there's heterogeneity in how people respond to things. But fundamentally this uncertainty both in the provision of healthcare and in medical science itself, these permeate medicine. We're never fully going to be able to reduce the uncertainty. There's always going to be that element of the simple fact that we don't know. And I think that provokes the idea in a lot of people's heads that with no centralized plan we're not able to address this uncertainty. So we need to have the government come in and say health premiums need to be this or guarantee a system where even if you don't have health insurance you'll be taken care of if you need to go to the emergency room. Or if you come down with a very rare illness there will be pharmaceutical stock up in the hospital. I just think that in general, the uncertainty drives a lot of people to look toward centralization or to develop a centralized plan to try to mitigate that. But a lot of those efforts are somewhat short sighted because when you centralize things you don't take advantage of the uncertainty aspect of anything you just put all of the decision-making power within a federal bureau, the FDA or the federal government or even the USDA to some degree. At least in the United States, I know Canada has similar governmental bodies up there. But when you do that you divorce decision-making from the knowledge and you also divorce it from the incentive, like when we talked about what if the FDA doesn't have an incentive to release potentially dangerous drugs? Or as a pharmaceutical company if they see profits, they absolutely would, even if it is somewhat risky. So, I think the motivation primarily in why we don't see free healthcare or a free market in health insurance or competing systems of determining whether drugs are safe or effective is that there's a primary fear with people how do we address this uncertainty. Petersen: So there are various elements of the uncertainty. If I'm an insurance company I might worry that the people who come buying insurance, there's an adverse selection problem so the people who come to me for insurance are going to be the people who are the least healthy or the people who expect, for some reason that maybe I can't observe, to get sick. And that means based on the fact that only people likely to get sick are coming to me, I need to charge very high premiums for my insurance. And so it's the classic market for lemons problem: The very fact that someone's selling you their used car maybe tells you that the car is a lemon. And the fact that you think it's a lemon means you won't pay very much for it, meaning that anyone who doesn't have a lemon wouldn't be willing to sell. So, at least with that, it seems that pooling everyone into the same pool helps. But on the other hand you do lose competitiveness. So, one example I've heard is the cost of rhinoplasty---the plastic surgery to make your nose look better---since that's not paid, since governments perhaps rightly see that as it's not life-threatening, it's not important and we're not going to pay for it, you pay for it yourself. And we see that the cost of a rhinoplasty has fallen dramatically over the years. And whereas life-saving surgery, you look at healthcare and housing and I guess university tuition, those are the three big things that consistently go up in cost over the years. Do you know a lot about the market for plastic surgery? March: Not a whole lot. I do know that because it's not regular you have means of competing and you have essentially competition to provide you with care to make your nose look better or for facial reconstructive surgery and similar things. I do know that a lot of cases like when you get breast augmentation you have to replace the inserts or whatever they're called. You have to replace those every set amount of years and you get routine inspections to make sure there's nothing going on with the surgical procedure, nothing wrong with the implant and all of that is done privately. So, it's interesting because getting plastic surgery is not necessarily a simple procedure. Just because the FDA is not involved in the procedure because there's not federal guidelines about when or when not you can do this procedure, how the procedure should be performed, it doesn't mean that the procedure is simple. As you pointed out, it's not life-saving but it's still surgery and there are still risks and complications. What we typically don't hear, with the exception of maybe a few TV shows, that sort of shock people, we don't hear about these horrible things going wrong on the surgical table when people get nose jobs. And I think a lot of that has to do with because they have to compete to make sure people are happy with the outcome but they also have to make sure, again if the procedure is safe and its efficacy. You look better when you're done and nothing happens to you or receive complications, you get infections from surgeries. So you do see that a lot in the United States. I want to go just briefly back into the adverse selection problem which I think is broadly the main argument for why you need to have government involvement in health insurance. Because you have that selection problem where only sick people want insurance and then insurance companies only want to provide really minimal standard care so you have that sort of mismatch and that would be a bad scenario for all. But to the extent that's true, it's based upon how is the insurance company is able to segment the market. So, if you're comparatively healthier than me and you just want to have catastrophic care, so something that if you were involved in a horrible accident and nobody could have planned for it, you need to have emergency care. You pay pretty low premiums and then the deductible is higher whereas someone like me I'm a type-one diabetic who needs to have consistent care throughout their life in order to maintain their health, their premiums should be a little bit higher but then the deductible should be a little bit lower since I have to keep taking insulin. But the problem is if they're not able to segment the market, and I think the reason they can't segment the market is because it's illegal to segment the market. What you don't have, they are two different forms of insurance. You don't have the insurance for sickly Ray me, or healthy you. You don't have means to compete on those margins, all you have is various plans. You buy into them, you have health insurance costs go up because there's less competition and the reasons we have explained before. So a lot of what you see with the adverse selection problem is a lack of marketing and the lack of marketing stems from the fact that it's illegal to do a lot of the research that health insurance companies want to do. Petersen: So, because deep down it seems so unfair that you could have a huge cost throughout your life just because you got sick through no fault of your own, we want people to pay the same. But then in doing so we create the adverse selection problem and it's sort of the old lady who swallowed the fly. We have to swallow the spider to eat the fly and eventually we're swallowing a single-payer healthcare system to put everyone in the same risk pool to deal with the problems that our initial minor intervention to try to make insurance more fair caused. March: Right. So what we would end up doing in that situation is that you would have to pay premiums, I would have to pay premiums we want to equal them out because it's unfair that you should have to be subsidized me for lack of a better word. Well, that means that you end up paying more in premiums than you actually wanted health insurance, I would end up paying less because we have to even out. More fundamentally if you want to address the fairness question---I think a lot of people do approach this from the aspect of fairness---is, one, why is it somewhat unfair for me as someone with a chronic illness to not have access to healthcare on a competitive market where I can decide which program I want, where I can assess my own risk, and where I can decide based upon my medical needs how at best to treat my illness; whereas someone like you who doesn't have a chronic illness places a completely different set of incentives? So when they pool us all they end up doing is limiting both of our choices. I think a fundamental question to ask there is which one of those is more or less fair? Petersen: Right. So, what sort of institutional changes, big or small---obviously some things are more politically feasible than others---but what institutional changes would you like to see to improve on our system? March: By "our" you mean the US system? Petersen: Yes, or in the systems worldwide that have similarly been adopted for similar reasons by many different countries. March: Sure. If we segment along the lines of there's health insurance and there's actual health products or health services. I would primarily start with the approval of pharmaceuticals. And I say that because a significant portion of the illnesses and conditions in the United States are treated with pharmaceuticals. So, if we're able to allow competing access to approval processes, that would drastically lower the cost of drugs. If you lower the cost of drugs, health insurance becomes less vital, certainly in my situation but in a lot of people's situations who need access to pharmaceuticals. The access to insurance becomes less important because there's less of a risk that you won't be able to afford the treatment if you need it. And I think that would push back insurance into---for lack of a better word---a more appropriate role. Insurance is supposed to be, there's a potential down the road that something bad will happen or I will develop an illness, I'll get sick, I'll break something, whatever you want to call it. I don't know if that's going to happen but if it does I want to make sure my livelihood or my standard of living continues as best it can. That's what actual insurance is. There's a chance that you could crash your car someday. And if your car is totaled you want to have repairs, you want a new car, that's why you buy car insurance. But now when we have health insurance we say "oh no health insurance covers your routine doctor, it's going to cover some aspect of your drugs if you get a prescription, it's going to cover procedures from other people in this case because everything is pooled." But you don't see your progressive car insurance company pay for your oil change. That's a different thing. That's routine care. And I think if you reduce the cost of entry into medical devices and pharmaceuticals, so you reduce back the power of the FDA, you would naturally see health insurance go back into the proper insurance role. You could make an argument on the other way too as if you let insurance companies compete, premiums would go down. People would self-select into consuming health care products or not consuming health care products more effectively. That would drive down the cost. But I think the primary problem here is there's a restriction of access to medical devices and to pharmaceuticals and once you allow for a market and that health insurance no longer competes on those margins it would compete on margins of trying to ascertain risk of whether that would happen or not down the road. Petersen: So when you talk about pooling or when you talk about making approval cheaper, is that the system where two or more countries agree that a drug only needs to be approved in one of the countries to be allowed in all of them? March: That's one method. I was thinking more along the lines of within the United States could have private companies that would give you gold and silver standards of approval for pharmaceutical X and drug Y. And then people based on that would decide, okay I want to take this drug or I want to take that one, or physicians would have more access to information based on that than waiting for the FDA to approve. That's more what I was thinking about. On an international level that gets interesting because developing a drug in Europe and in Canada is completely different than developing that in the United States. The difference in the rigors of the approval process is what drives a lot of those conflicts but in terms of how you agree that everyone is going to come up with the same approval process method, I'm less optimistic about that because I think there's a public choice story behind it. Pharmaceutical companies want the approval process to be tough. So, like you said you can't develop pharmaceuticals in your basement despite your chemical knowledge. I do think there's more of a hope in the future though for less emphasis on FDA approval and more for private raters or private ratings to come in and say these drugs have been shown safe or for pharmaceutical companies to interact with private laboratories or clinical testing facilities to say, okay we passed these tests, and we communicate that our product is safe without the FDA Petersen: Right. And at the very least you could remove the effectiveness criteria from the FDA. Just say that the president or Congress could just tell the FDA, your job is just to check safety. Now if people want to take an ineffective drug, as long as it's safe they can do that. There's the idea of right to try. Have you heard of that? March: I have a segment of that in one of my pieces. I think that's very interesting because that's completely illegal action but you have certain states that will say okay if a drug is within phase three---that's when we start to do the safety testing with the FDA---and you say someone has an illness, they're in an insufferable pain, we know they're going to die, let's give them a shot to take this drug. And whether or not that helps or not is kind of secondary but it's a circumvention like we talked about earlier of the going around the FDA, which is a federal governing body, you are not supposed to be able circumvent that at the state level. But you go around and you give people access to potentially life-saving medication. But me being more of a market-oriented economist, I wonder what if you did that not just for life-saving drugs but for other drugs? And granted there are risks with every single drug, basically including water has certain risks to it. But given that there are risks associated with every drug, what would emerge in a freer market where you could better ascertain the safety of these drugs or the efficacy of these drugs? Petersen: So do you have any closing thoughts, anything we didn't mention? March: I guess one last concluding thought with regards to health economics I just want to reiterate that health economics is fundamentally a question about which set of institutions is best able to deal with uncertainty. And uncertainty in the sense where we just don't have clearly defined answers. Who would be better able to protect the population of a country from an epidemic or who would be better able to take care of the mentally ill, which is a set of illnesses we don't know very much about, or who is better able to find alternative uses of pharmaceuticals given their potential potency to be able to help people, and the potential side effects? And the debate is still very lively. It's to what level do we need centralization in order to answer these questions and to what level do the discovery processes of the market---for lack of a better word---how are we able to address these questions better? My research asks a question of if you don't have centralization what is the alternative? What are examples---not necessarily of entirely free health care systems---what are examples of private mechanisms working in the medical field and thus far I've found pretty convincing results that the private market is able to handle some pretty difficult situations, some pretty uncertain situations and when compared to the centralized alternative they fair fairly well. Petersen: My guest today has been Ray March. Ray, thanks for being part of Economics Detective Radio. March: Thanks for having me.  

In this episode of JM in the AM Yeshiva League Sports returns to JM in the AM with Elliot Weiselberg and the inaugural YLS Update of the 5774, '13-'14 season. Also, Nachum Segal welcomes Rabbi Yigal Segal for a Homeward Bound preview and Yossi Baumol to discuss the annual American Friends of Sderot Gala Dinner