Would a Big Bucket of Cash Really Change
Your Life? Full Transcript
FREAKONOMICS 09/26/2013 | 8:57 am
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This is a transcript of the Freakonomics Radio podcast “Would a Big Bucket of Cash Really
Change Your Life?“
[MUSIC: Louis Thorne, “La Sauterelle”]
Stephen J. DUBNER: The other day, we heard from a Freakonomics Radio listener named
Thomas Appleton. He’d been talking with a friend about giving money to charity, and he had
this idea:
Thomas APPLETON: I was wondering what would be the socioeconomic effects if the 50
wealthiest Americans each selected 50 needy American families and gave each one a one time
gift of $50,000 and repeated the process every year with new beneficiaries? And what if these
efforts were concentrated in, for instance, some of the poorest neighborhoods in Brooklyn?
DUBNER: That’s an interesting question. In economic terms, Thomas is asking about the effects
of a geographically concentrated, one-time unconditional cash transfer – and whether, for
instance, it will lead to real, intergenerational income mobility. (Although the way he put it is, I
admit, much more exciting.) Alright then, why don’t we try it? Let’s see, 50 families, $50,000
each – that’s $2.5 million a year. So who out there wants to fund our experiment? Hello?
Anybody? Nobody? I guess this is what happens when you give your podcast away for free:
nobody wants to pay for anything any more. All right, then, we’ll have to find another way to
answer Thomas’s question.
[THEME]
[MUSIC: Pearl Django, “Saskia” (from Modern Times)]
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen
Dubner.
DUBNER: Okay, so here’s the question we’re trying to answer today: if you’re thinking about
helping poor families, how effective would it be to simply give them a big pile of cash? Would
that change the course of their trajectory over time? Giving away $50,000 may sound like a lot
of money, but if it means helping not only this one family but the next generation, and the next,
it’s probably a bargain, right? Now, there are a couple of problems with trying to answer this
question. The first is that none of you are willing to give me $2.5 million to fund the experiment.
But there’s also this: in order for it to be an experiment, we need to randomize who gets the
money – which also means having a control group, so we can measure the effect of the money.
And also, we need a lot of time. Even if we could give $50,000 to 50 families today, we want to
see the long-term effect of that money – how it affects their children and their grandchildren. So
wouldn’t it be great if, somewhere in history, something like this already happened – that there
was some magical dataset that a couple of scholars could analyze, and write a paper that answers
these questions … ?
Hoyt BLEAKLEY: The paper is “Shocking Behavior: Random Wealth in Antebellum Georgia
and Human Capital Across Generations.”
DUBNER: Well hello! That’s Hoyt Bleakley. He’s an economic historian at the University of
Chicago, currently a visiting scholar at Princeton. He did this research with Joseph Ferrie, an
economist at Northwestern.
DUBNER: So the shocking behavior that we’re talking about is the shock to the system, which is
this lottery, this land lottery that happened in Georgia in the early 19th century, yes?
BLEAKLEY: That’s right. So there’s sort of a little known fun fact from antebellum days which
is that the State of Georgia opened up almost three quarters of its territory to white settlers
through a system of lotteries, as in actually pulling names out of a barrel to randomly give out
land rights.
DUBNER: Now, this land we should say had been confiscated from the Indians, right?
BLEAKLEY: That’s correct. So that’s the less fun part of the fact, which is of course this
happened because of the displacement of the Cherokee and the Creek. And in fact this particular
episode we look at is what gave rise to what’s called the Trail of Tears where the Cherokee were
force marched to Oklahoma under some depraved circumstances.
DUBNER: Okay, so the government of Georgia had a lot of land, and they used to give land
away in a different way, right, a somewhat less random way?
BLEAKLEY: That’s quite a lot less random, something that looks a lot more similar to the way
it had been done for much of the east of the U.S., which is to say that they would issue grants, or
they would have people go out and claim land, and they would be entitled to a certain claim, but
they would also have to show evidence that they’d done something with it.
DUBNER: Got you, so I could say I’ll commit to farming this land and hiring certain people if
you give me the land, something like, some kind of contract like that.
BLEAKLEY: Yeah, that’s right, some evidence of having done something with it. That’s right.
DUBNER: Okay, and why did this lottery come about? What precipitated the need?
BLEAKLEY: Well, so take yourself back to that map that you may have seen in 11th grade in
high school history where the colonies, you know, the new states were claiming land all the way
out to the Mississippi. You might have seen this thing where there is a super elongated map of
New York, and Georgia, and Virginia, all claiming out to the Mississippi. So some enterprising
set of gentlemen decided that they were going to start selling that land that Georgia was
claiming, opening it up for settlement. And the way they did this was they basically bribed a
majority of the legislators in Georgia to make this happen. This generated such a scandal because
in part it wasn’t clear Georgia actually had title to this land, you know, was legally able to give
out the land. Eventually they gave it up. This land was in the state of Mississippi eventually. But
further it generated such a throw-the-rascals-out movement that when they came around to
allocating the part of the state that really was part of Georgia, politicians opted for what they
viewed as the most incorruptible, the most transparent mechanism possible. And they came upon
the lottery as such an idea. And so they went and surveyed the land into a bunch of parcels, set
out a grid. And after that time they started pulling names out of barrels. And essentially every
white male who had lived in Georgia for a few years was eligible to participate. And there was
so much money on the table from participating. Right? It cost you 12 cents to register.
DUBNER: And could you by more than one ticket, or everybody could have just one?
BLEAKLEY: No, this was, don’t think that his was go to the store and buy a ticket. It’s
simply…
DUBNER: It’s not Powerball.
BLEAKLEY: No, you’re basically eligible for one registration. And we estimate that
approximately 100 percent of the people registered.
DUBNER: Wow, okay. So if we forget the fact, or deny the fact that the land was confiscated
from Native Americans, then this is a pretty equitable way to distribute the land, yes, in that it’s
not giving advantage to people who either have a, you know, corrupt legislator in their family,
friendship, or whatnot, right?
BLEAKLEY: Yeah, I mean you could say that, at least ahead of time it’s an equitable way to do
it because everybody gets the possibility of winning. Of course some people win, some people
lose, which ends up being central to the way we, you know, perform our research.
DUBNER: Okay so tell me just a quick couple facts about this. What share of, you said that
there was virtually 100 percent participation because it was pretty much free to sign up to try to
win some land. What share of people then won? What were my chances of winning?
BLEAKLEY: Yeah, so it was little shy of 20 percent of the people won.
DUBNER: And then how much land are they winning, and I want to know what that land is
worth. And I also want to know how I can convert that land into value. In other words, can I sell
it right away or do I have to actually go and farm or build something on it?
BLEAKLEY: Sure, so in the particular one we analyzed, they were winning 160 acre parcels in
the northwest part of Georgia, so think Atlanta and to the northwest of that. We estimate that
they were winning numbers in the hundreds of dollars, maybe $500 to $800 dollars if you value
this in 1850 units which is when we observe them.
DUBNER: Let’s put that in constant dollars then. It’s worth roughly what today?
BLEAKLEY: Well, it’s worth a lot. It’s worth a lot in the sense…It’s a little bit hard to convert
that into a number today because prices are so different so let me give you two ways of thinking
about that. One is that’s pretty close to the median level of wealth. You know, think about a bell
curve of wealth. We’re basically taking some amount of money that’s approximately equal to
where half the people are above and below that, of the non-winners.
DUBNER: And you’re saying that’s total wealth, all their assets would be worth that much?
BLEAKLEY: Well we don’t observe you know if they own stocks or bonds, or something like
that, but essentially everybody either had their wealth either in land or slaves, and that’s what we
do observe.
DUBNER: Ok. So in other words, if I am essentially penniless, but I happen to be a white male
living in Georgia for a few years and therefore I’m entitled to enter this lottery, I can overnight
have the same amount of wealth that is the median wealth in Georgia?
BLEAKLEY: That’s right.
DUBNER: So for certain people then it will be a life-changing event, not for all but for some,
yes?
BLEAKLEY: It should be, yes, that’s right.
[MUSIC: Jonathan Geer, “Draggin The Bow”]
DUBNER: Okay, so it’s 1832, and the state of Georgia is giving away a bunch of land via a
lottery. Roughly 1 in 5 people who enter the lottery will win. Economically speaking, it’s a
pretty substantial windfall. And for a pair of 21st century researchers, it’s a pretty big windfall
too. This kind of organic randomization, it’s what economists call a natural experiment. It
doesn’t happen every day.
BLEAKLEY: I’m a big fan of the libraries that are run as open stacks where you can kind of
walk up to the books and you can look at them and pull them out, and you can smell them and
everything. You know you get up close and personal with them because a lot of stuff, good stuff,
happens by accident. And in this case, I’ve done a lot of work looking at the economic history of
the southern U.S., which has put me in that part of the library and I’ve seen references to the
lottery system of Georgia, which for a while I just thought, well what could this be, this is some
sideshow, I don’t know what that is. But I was walking past the Georgia section at the University
of Chicago library at some point and see this title that says “The Cherokee Land Lottery,” big,
thick book, walking past it. You know how this is, your brain, it takes a second for you brain to
tell you legs to stop moving. And so I finally, a couple stacks down I turned around and said I
got to go look at this book. I pulled this book out and there are a series of these books about the
lotteries that describe the participants’ names, actual winners, what they won, that sort of thing.
And at that point, you know, I was stunned. Can this really be that they randomized wealth? And
I got on the horn with Joseph Ferrie, who is my coauthor at Northwestern University. He’ spent a
lot of his career tracking people through these historical records. And I said you know, we got to
follow up on these people because this was potentially a life changing event for them.
DUBNER: And not necessarily life changing for you guys, but it’s kind of a diamond in the
rough, or maybe not even in the rough. But to find a pile of data like this, which as you put it is a
shock to the system. In other words, it’s the kind of experiment that an economist today would
love to run, but you can never get permission to, and here it’s been run, right?
BLEAKLEY: Yeah, so the reason why I got so excited about this is, of course, one of the big
questions within economics is about the inequality of outcomes, the distribution of wealth, the
distribution of income. And further that this seems to be something that to a large degree or to
some degree is transmitted across generations. And you know, there’s a lot of questions as to
why there’s this kind of persistence, why the distribution seems to have such a spread to it.
DUBNER: So I guess if I were to guess what you’re thinking then, I would guess that you’re
going to say well okay, so here’s the perfect tool to tease out the question of: do people whose
children and grandchildren do better than them do so because of money and because they use
money in a certain way, or are there other explanations for it? Is that what you were concerned
and excited about?
BLEAKLEY: That’s exactly right.
[MUSIC: Dan Sistos, “Caravan Jam” (from The Road to Euphoria)]
DUBNER: Coming up on Freakonomics Radio: what did Hoyt Bleakley learn? What did the
families who won the land lottery do with their windfall? Did their wealth grow and grow over
the generations?
BLEAKLEY: I was surprised. I think that I would not have expected this at all
DUBNER: And what do we know about contemporary lottery winners?
BLEAKLEY: If you want to be depressed you should read either the academic literature or the
journalistic accounts of lottery winners because they basically waste it, right, blow through the
money very quickly and often times end up worse than how they started, many of them.
[UNDERWRITING]
[MUSIC: 3 Leg Torso, “B&G’s” (from Astor In Paris)]
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen
Dubner.
DUBNER: So a pair of economists, Hoyt Bleakley and Joseph Ferrie, found a fascinating data
set from a fascinating moment in history — a big land lottery in Georgia in 1832. They realized
they could use this data, along with U.S. Census data, to follow families over time, comparing
lottery winners to losers, to see how this shock of sudden wealth affected those families. Did the
kids in these families acquire more “human capital,” as economists call it? Did they get more
education, and did they parley that education into even more wealth a generation or two down
the road?
BLEAKLEY: So, we see a really huge change in the wealth of the individuals, but we don’t see
any difference in human capital. We don’t see that the children are going to school more. If you
father won the lottery or lost the lottery the school attendance rates are pretty much the same, the
literacy rates are pretty much the same. As we follow those sons into adulthood, their wealth
looks the same, you know, in a statistical sense. Whether their father won the lottery or lost the
lottery their occupation looks the same. The grandchildren aren’t going to school more, the
grandchildren aren’t more literate.
DUBNER: Wow. Alright, so two questions for you. One: were you surprised? I would have
certainly assumed that the families who won the lottery and had a lot of money would have used
it to do what we think most parents should do with their kids, which is get them more education,
get them more prepared for a good career and so on. Were you surprised?
BLEAKLEY: I was surprised. I would not have expected this at all. This was a period where
people were sending their children to school to a small degree. This is a period where it looked
like poverty, at least in the cross section seemed to be an impediment to doing that, you know,
school attendance rates of the very rich versus the very poor differed by 60 percent. And yet
when you used this, you know, random wealth drop to move the very poor into the middle, it did
not move them along that path, which you observed.
DUBNER: So my next question then would be where does this money go? You’re saying that
the next generation doesn’t maintain the wealth, what happens to this wealth then? Does it just
dissipate?
BLEAKLEY: Where did it go? Well, you know, this is a period where you didn’t necessarily
have access to good retirement assets apart from the stuff you owned right around you. You
could imagine that the families that won used this for themselves, right, sent their children off to
do something else.
DUBNER: To do something else meaning what they would have done what the parents not won
the money?
BLEAKLEY: Yeah, basically.
DUBNER: Now, could it be that what you found is true for this particular setting, the agrarian
Southern U.S. in the 19th century, and for whatever reason human capital just wasn’t so valued
and wasn’t sought after.
BLEAKLEY: The question is how generic or how much does it generalize to other contexts.
And I think you’ve hit on the key thing, which is how much was human capital valued and how
much was human capital constrained. On the former question, I guess I would say it looks like
human capital was valued in the sense that people did send their children to school, people who
were literate did make more money, people who had more money did make those investments in
their children with a greater, you know, propensity. It just maybe wasn’t that the constraint was
particularly important, at least to the men who won or lost the lottery, that’s a key point, which is
that there may have been a lot of money on the table, but they just didn’t care because they
didn’t care enough about their kids.
DUBNER: But you know, it gets to a few questions, a few issues that we’re talking about a lot
these days in society, generally, income inequality and income mobility, the whole idea of the
American Dream as one could do much better a generation down the road, that our economy
affords that opportunity. What you’ve identified in one setting is where a shock of wealth didn’t
snowball and turn into a “better” life for the generation and the next generation. So I’m curious if
you can extrapolate or generalize at all to you know, the broader U.S. or maybe to the present
day from what you’ve learned. I mean, if we look at a map of the U.S. today that shows where
income mobility is high and low, the deep South including Georgia is pretty much the
headquarters of low income mobility. So is it that you’ve found an example of that or is it that
you found something larger than that, which is that wealth alone is not what turns into greater
generational wealth?
BLEAKLEY: I would make two observations, one is that we actually observe pretty strong
persistence of outcomes across generations in our sample of lottery losers, right, so think of that
as the control what it would have been absent that. And the numbers that we get from that are
actually comparable to what we get for modern estimates of persistence of wealth, of persistence
of education, literacy, etc. And so I don’t think that this is a particularly exceptional thing in the
sense that there is mobility, but there’s also persistence. And we kind of fall within the range of
that. But it still comes back to the question of whether, you know, I think is as true today as it is
then, is are the disadvantages that might be present for children that are in poor households are
they present because there’s not enough resources, there’s not enough money at the poor
household, or is it because there’s not enough of something else? Right? Maybe the resources
have to come from outside the household, be it say a good public school. Maybe the resources
have to come from the parents, but the parents don’t know how to provide it in terms of
nurturing, in terms of reading and communicating ideas to their children, etc.
DUBNER: But if we wanted to blow your research up, your research concerns a small place in
time, and a small geographical place. If we wanted to totally and irresponsibly explode it and try
to create some grand generalizations, we would say, well look, plainly the viewpoint, which
holds that giving people, giving poor people money, just giving them money doesn’t work,
because they don’t use it to produce what we, the people who give them money want them to use
it for, which is to make their lives and their children’s lives appreciably better through getting
more education and so on, right? It’d be very easy for let’s say a politician who believes in that
position to read your paper and say, hey, I’ve got a University Of Chicago and a Northwestern
economist telling me this is hardcore proof of what I’ve been saying all along. Is it?
BLEAKLEY: Well, certainly for these…If the politician were contemplating, you know, giving
wealth to these people in the 1830s, certainly that policy would be, that analysis would be right
on. As you said, there are issues about generalizing it. But let’s do the wild extrapolation. I think
you’re right to say this is not evidence that what’s missing is money at the household level, right,
because we don’t know that it would be spent on these things that we want. That doesn’t mean
that there’s nothing to be done, it’s just it doesn’t mean that money is the solution, right, or at
least money that gets given to them, to those fathers, mothers.
[MUSIC: Louis Thorne, “Mon Verrerie”]
DUBNER: It’s funny, Hoyt, because we actually had a listener write to us recently and say, you
know, I really like your show, but god it’s depressing. It’s like you take all this good news out
there, and all these good ideas, and good plans, and nice intentions and show how, you know,
people game the system, or they don’t work. Now, I disputed this a little bit. I actually think that
we’re extremely optimistic and kind of hunting always for ideas that do work well. But I’ll be
honest with you, you’ve depressed the crap out of me, Hoyt. Because you’ve taken a very basic
idea and belief, which is that poverty is addressable by a very simple intervention, which is
giving money to poor people, and you’re saying based on this evidence that’s just not a solid
argument, at least when made that narrowly, right?
BLEAKLEY: No, that’s right. There may be something that you can give to them, but money is
not that something, at least in this episode.
DUBNER: Alright, let me ask you this, not that this is going to be any less depressing, but it
might be a little more entertaining. Have you looked at all on literature on modern lotteries and
what happens to people who win them, and whether they do a better job of encouraging human
capital acquisition among their offspring?
BLEAKLEY: Oh, no if you want to be depressed you should read either the academic literature
or the journalistic accounts of lottery winners because they basically waste it, right, blow through
the money very quickly and often times end up worse than how they started, many of them. Now
it bears mentioning that what distinguishes that group from this one is that it’s a very select
group of people who go play the lottery every day at the convenience store, right? We
economists like to refer to the lottery as a tax on people who don’t understand math, because,
you know, in statistical terms it’s a negative expected value, right? You pay more in than you
expect to get back out. And that’s different from what we saw in the Georgia lotteries to allocate
land because these people, they understood expected value, because they paid 12 cents to
basically get 100 dollars of expected value. So that is a pretty clear decision. But I think it helps
understand, to some extent, our results in the sense that when you select a particular group of the
population and you either give them money or you cajole them to get more schooling by bribing
them with a cash transfer or cellphone minutes or what have you, you have to ask whether there
is some other set of characteristics that they have that makes it hard for them then to take
advantage of those opportunities. And maybe there’s an intervention that helps them better
manage those other characteristics, right, that makes it such that that’s less of a disadvantage for
them. Whereas giving them something, you say well, this was great for me, it will be great for
you, that’s perhaps not the right approach.
[MUSIC: Pearl Django, “Rhythm Oil” (from Mystery Pacific)]
DUBNER: So … did we depress you too? I hope not but I suspect that we may have. Okay, how
about this then: why don’t you send us some non-depressing ideas for future episodes. Our e-
mail is [email protected]. And maybe we can turn your ideas into “Freakonomics Radio:
Good News Edition.” It might be the shortest podcast we’ve ever made. Or maybe – who knows
– maybe you will overwhelm us with uplifting ideas for future episodes. In which case we’ll be
the ones who won the lottery. And we promise not to blow it.
This is a transcript of the Freakonomics Radio podcast “Pontiff-icating on the Free-Market
System.”
[MUSIC: The San Andreas Fault, “Bags Unlimited” (from Encantada)]
Stephen J. DUBNER: Hey podcast listeners. We know you’re a pretty smart group of people.
But how smart? Are you smarter than a fifth grader? Of course you are. But are you smarter than
… an economics Ph.D. who’s won all kinds of gaudy economics awards? I think you are! Let me
explain. A few months ago, we asked you for the first time to go to Freakonomics.com and make
a donation to support Freakonomics Radio. And Steve Levitt — he’s my Freakonomics co-
author, the guy with the economics Ph.D. — here’s what he thought would happen:
Steven D. LEVITT: The chance that someone’s going to get done with their run, go back and
take a shower, and then log onto a computer and give you money? I think that is really close to
zero.
DUBNER: So, you think we’ll raise close to zero dollars?
LEVITT: I do, actually.
DUBNER: Well, Levitt was wrong. We raised more than zero dollars — quite a bit more, I’m
happy to say. In fact, Levitt and the people here at WNYC, our public-radio station, they were
kind of shocked by how supportive you were. So to those of you who did give — thanks! And if
you haven’t donated yet — let’s shock them some more. Just go to Freakonomics.com, hit the
donate button, and there’s still time to claim your donation on this year’s tax return. And now
you have a good New Year’s resolution too: keep proving smart people wrong. Now for today’s
program.
[THEMATIC SOUND EFFECT]
[GREGORIAN CHANT]
DUBNER: Every once in a while, the Pope issues some kind of statement reflecting the views of
the Catholic Church. Usually, it’s just the hardcore faithful who pay much attention. This time
was different…
Brian WILLIAMS: Pope Francis is getting a lot of attention tonight for the mission statement he
issued for the Catholic Church he would like to see in the future.
Lawrence KUDLOW: I just was so surprised because that language…I understand… the pope’s
job is not to proselytize about free market capitalism. Ok, I get that.
John ALLEN: The strongest language of this document called has to do with critiquing what he
calls a kind of crude and naive faith in the free market. And insisting that the Church has to be a
change agent on things like income inequality, spreading unemployment, the environment, war
and peace.
DUBNER: You may be wondering what the Pope is expecting to happen when he talks about the
miseries of the free-market system. Yeah, we were wondering that too.
[THEME]
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the
hidden side of everything. Here’s your host, Stephen Dubner.
[MUSIC: Matthew Aguiluz, “Early Morning Tea”]
DUBNER: Today we’re talking about Pope Francis’s recent broadside against the global
economy. Our story begins with the economist Jeffrey Sachs, who remembers the very day he
found out that economics, the way it’s taught and learned in academia, represents only a sliver of
a shard of a smidgen of how economics actually happens in the real world. The year was 1985;
the place, Bolivia:
Jeffrey SACHS: I remember from the first moment, literally of getting off the airplane actually
taking a deep breath and finding no oxygen there because you’re about 13,000 feet above sea
level, that my mouth was absolutely agape and amazed, and I’ve never ceased that feeling. What
I had learned in the classroom was such a small part of what one needs to understand to be able
to apply tools of economics effectively that I’ve regarded the next 28 years as really being an
extraordinarily intensive learning curve. And I continue to feel that way. The world’s very
complicated. What we can learn from theory and from models and from econometrics is very
useful. But if it’s done divorced from practice I think it is almost inevitably, profoundly
misleading.
[MUSIC: The Diplomats Of Solid Sound, “Shadow Of Your Soul” (from Let’s Cool One)]
DUBNER: Jeff Sachs has spent his career trying to keep that marriage alive – the economic
theory and modeling that happens in universities, and the practice of economics, out in the
world. These days, he’s known as a globetrotting, poverty-fighting, economic superhero, an
adviser to the United Nations and director of the Earth Institute at Columbia University.
SACHS: I began as an academic economist joining the faculty at Harvard University in 1980.
DUBNER: He was awarded tenure at just 28. When he went to Bolivia, he was asked to help
tame that country’s hyperinflation. Really, it was hyper-hyper-hyperinflation: in one year, prices
had risen by about 20,000 percent.
SACHS: And I worked in Latin America very extensively for several years after the work in
Bolivia…
DUBNER: In 1989, he was contacted by an official in the Polish government, looking for some
economic advice.
SACHS: And I told them that I would be interested but frankly as long as my hero, the Solidarity
leader Lech Walesa, was under house arrest, I wasn’t really able to do it.
DUBNER: And you know what happens next, right?
SACHS: And he called me back a few weeks later and said well we’re making a deal with
Solidarity, things are moving, would you come? And I became Poland’s economic advisor, and
communism fell, and I was there and played some role in helping to design the transition from a
completely collapsed and defunct, centrally planned economy back to a market economy.
DUBNER: Sachs’s work in Poland became a calling card for much of the former Soviet Union,
including the mother ship, Russia…
SACHS: …working with Gorbachev and Yeltsin, and many leaders around the region on this
transition back from the failed communist era.
DUBNER: With that on his resume, Sachs was called upon to work on economic reform in India
and China…
SACHS: And then in 1995 another quite decisive turn for me was an invitation to Zambia and to
see what this experience and these lessons might mean for Africa.
[MUSIC: Color Radio, “Future Product” (from Architects)]
DUBNER: By now, the focus of his work had shifted a bit…
SACHS: I became quite engaged in the fight against AIDS and malaria and the challenge of
fighting extreme poverty.
DUBNER: The World Health Organization asked him to help scale up the fight against disease
in poor countries…
SACHS: And from that I was asked by Kofi Annan to advise him on the newly born Millennium
Development Goals.
DUBNER: And ever since, Jeff Sachs has been at the very center of the fight against global
poverty:
SACHS: And Ban Ki-moon very kindly asked me to continue in that capacity when he became
Secretary General. And so, I am, for a dozen years now, the lead adviser to the secretary general
on the fight against extreme poverty.
DUBNER: Okay, so you’re a special adviser to the U.N. on issues of poverty, and development,
and you’ve advised many heads of state on the same and on their economies, what about popes?
Have you ever sat down with popes and talked to them about these issues?
SACHS: Well, I have indeed.
DUBNER: First there was Pope John Paul II, the Polish pope. He was particularly interested in
the economic reforms that Sachs had worked on in Poland.
SACHS: And I was very, very lucky that he wanted to make an encyclical about teachings of the
economy, what’s the role of a market economy? And so this was an extraordinary experience. He
gathered a group of diverse economists of different faiths, different countries. He greeted every
one of us in our native languages. It was the most extraordinary day.
DUBNER: After offering advice for that encyclical, Sachs met the pope again, eight years later,
as part of the Jubilee Year.
SACHS: And I was part of the Jubilee Campaign to drop the debt for poor countries. And that
was a little bit different visit because that one was with Bono and Bob Geldof, and the pope, and
Quincy Jones, and then a few others, so it was a pretty interesting day in the Castel Gandolfo.
DUBNER: But if you are a person of Jeff Sachs’s intellect, and track record, and temperament,
you aren’t necessarily limited to one Pope per lifetime.
SACHS: Then recently I saw and met this new, absolutely wonderful, wondrous Pope Francis at
the Vatican last month and have been quite involved with the Pontifical Academy of Social
Sciences in recent months discussing the challenges of poverty, because this is at the core of
Pope Francis’s interests.
DUBNER: And so, when Pope Francis recently published a document calling the global
economy a “dictatorship” in which “the powerful feed upon the powerless” – well, we
we thought that Jeff Sachs would be a pretty good person to ask about it:
SACHS: First let me say I am a believer in a market economy and I would imagine Pope Francis,
too, is a believer in a market economy, but what the Church has taught is the idea that first an
economy needs a moral framework.
DUBNER: So we’re here today primarily to talk about this new document that Pope Francis has
published — technically it’s called apostolic exhortation, it’s called “Evangelii Gaudium,” or the
“Joy of the Gospel.” I guess my first question before we get into the particulars, particularly the
economic particulars, is: Were you involved in any way? You describe these earlier meetings
with Pope John Paul II to talk about economics as they would make their way into that
encyclical. Were you involved in any way in the crafting of this particular message?
SACHS: No, not in this document. But I am an avid reader of it.
DUBNER: OK, so even if you weren’t an avid reader you would have heard about it by now.
And it’s made a lot of news for a variety of reasons. There wasn’t that much in the document
about economics per se, but what there was was quite trenchant, statements about the economy,
calling unfettered capitalism “a new tyranny.” So my first question for you is this, knowing a lot
about economics, knowing a lot about poverty, knowing quite a bit about popes, too, and the way
they try to send a message like this, first of all who actually wrote this exhortation? Did Pope
Francis, do you think, write the whole thing or most of it himself? Or does he have some
economists on staff who he brings in for different parts, particularly the economic sections?
SACHS: Well, I would imagine this is his voice, because this seems very authentically his
message to the world. And much of what the pope talks about in the analysis, the preferential
option for the poor is a famed and justifiably so Church doctrine. The universal destination of
goods is another phrase that he uses, and those who have read through Church teachings as I
have over the years know these phrases and these concepts. But, of course, what Pope Francis is
bringing is something extraordinarily vivid and fresh, and his message really is that he’s infusing
the exhortation with the very spirit of going forth and being out in the community. That’s partly
the Jesuit background and it’s partly his holding Jesus’ own teachings as the most central part of
the Church’s message.
DUBNER: Let me read from you one brief passage from the exhortation about the economy.
Pope Francis writes, “Today everything comes under the laws of competition and the survival of
the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find
themselves excluded and marginalized without work, without possibilities, without any means of
escape.” So Jeff, I’m curious, is the description here from Pope Francis accurate, that the laws of
competition result in masses of people who are excluded and marginalized? Is that what causes
the majority of poverty that you’ve seen around the world?
SACHS: Well, I resonate with this for a number of reasons. In the end, while there can be
property rights and market forces, they are not sacrosanct to use an appropriate word in this
context.. They must serve a bigger purpose. And one of those purposes is that there should be the
ability of every human being to meet basic needs, and to have basic human dignity. And I think
that this is what the Church calls the preferential option for the poor. What Jesus said is he who
feeds the least among thee, feeds me. That the Church’s attention is to the most marginalized, the
most destitute, those outside. Now I’ve taught for a number of years, on the, let’s say the more
analytical side of this that there is the reality of poverty traps. And that is you can have a
functioning market economy, but for some reason pockets of that market economy in the word
can be so impoverished, so destitute, so devoid of the most basic things needed, whether it’s food
supply, freshwater, ability to fight malaria, ability to pave a road from the hinter land, that the
economy is actually trapped. And you can even see what should be done, but our capital markets
don’t work well enough, and our ability to see that there’s a way out of this doesn’t just allow for
this kind of bootstrap rising out of poverty. And so when I wrote the book, The End of Poverty,
in 2005, I use the metaphor of the ladder of development, and I said that it is often crucial to help
the poorest of the poor get onto the ladder. After you’re on the ladder of development, then you
can walk up the rungs, and market forces are very powerful, and they can carry people, help
them climb the rungs, but if you’re not even on the ladder, and there are a lot of reasons why that
might be that I emphasized over the years, many disagree with me, but I’ll keep fighting for what
I see with my own eyes and what I’ve been able to gather, that helping those that are excluded
get into a process where markets work for them and not against them is extremely important.
DUBNER: So I would argue that the view that you just expressed there is a somewhat nuanced
one. Maybe even an extremely nuanced one. And I think to most people who hear it, certainly
most people who listen to a program like this would say well yes, absolutely, that resonates, and
it makes sense, and it’s doable and all those things. I guess my question to you is this, compared
to what the pope has written about capitalism and how it can or can’t work, it was much heavier
on the can’t work part and here’s why it doesn’t work, and yes we need to reintroduce a moral
framework to capitalism. But I guess what I don’t read in it is a pragmatic means of approaching
or building said framework. So can you help us kind of sort that through? In other words what is
the pope actually calling for in terms of practical steps, in terms of less or more regulation, in
terms of more open or more regulated markets? Can you give us any kind of insight into what
that vision might be?
SACHS: I think I can. First, he makes very clear in this document, he’s not a policy maker,
policy analyst, politician. This is a spiritual text. It is not a policy framework. And I think this is
very important. What he’s really talking about here is what is just in a few lines after the ones
you quoted a phrase that I think is very powerful and very correct, the globalization of
indifference. He’s talking about the fact that we have lost even a moral sensibility of the
suffering that is around us of those who are battling extreme poverty, or hunger, or disease, or all
of them. And that what he is calling on the Church to do in going forth and entering the
community and spreading the gospel as he sees it is to break that moral indifference. Now, I was
at the Vatican just a few days ago for a very practical discussion about programmatic things,
because the church also has a huge network of clinics, hospitals, schools. It’s very much engaged
all over the world, including throughout Africa, of course, where I come into contact a lot with
Church institutions providing life-saving social services. So there are a lot of pragmatic things to
say. I discussed how information technology can be mobilized to improve healthcare delivery, to
improve education, very specific kinds of things and there was hug interest in that, not only high
abstraction. But I think what the pope is really talking about here is breaking that indifference.
And I have to say I see this very much, this indifference. It really does weigh on me very
heavily. And I’ll give you an example, Stephen, recently the Global Fund to Fight AIDS, TB,
and malaria came up for its financial replenishment, a three-year replenishment. I was one of the
architects of that global fund 12 years ago. And at the time, George Bush said look we won’t let
money stand in the way, you show that this works and the money will be there. Well, this fund
has saved millions of lives. It’s delivered. And yet when it came to the replenishment just now, it
couldn’t raise the funds for the minimum package. It was saying that it needed at a minimum to
fight these three diseases $5 billion a year. Mind you, hundreds of millions of people and their
lives are at stake. Five billion dollars we know in macroeconomics is nothing in this world, and
yet they could not raise $5 billion a year. They raised $4 billion a year. And that may not sound
so consequential, but when you’re in a village and the rapid diagnostic tests aren’t there, there’s
a medical stock out, the antiretrovirals aren’t there, this is life and death. And since I’m living in
a neighborhood where if not down the block, then a few blocks away, or a couple miles away are
billionaire hedge fund owners taking home personally paychecks of a billions dollars for the
year, the fact that we can’t come up with $5 billion for this institution from all worldwide
sources is the globalization of indifference. And the pope says the culture of prosperity deadens
us. This is what he’s really talking about.
[MUSIC: Seks Bomba, “Cal Tjader” (from Thanks and Goodnight)]
DUBNER: Coming up on Freakonomics Radio … The president of CREDO – that’s the
Catholic Research Economic Discussion Organization – isn’t quite so sour on the global
economy:
Joseph KABOSKI: …More people have escaped extreme poverty in the past 25 years in part
through the growth of China and India than in any period of human history…
DUBNER: And Jeff Sachs talks about what it’s like to be a moralist in economist’s clothing:
DUBNER: Do your economist peers, especially from the old days, consider you something of a
heretic in taking morality so seriously?
SACHS: I think so.
[THEME]
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen
Dubner.
[MUSIC: Spencer Garn, “Living In Harmony”]
DUBNER: Pope Francis recently published an apostolic exhortation called “Evangelii
Gaudium,” describing the role of the Catholic Church in the modern world. He was particularly
critical of income inequality, calling unfettered capitalism “a new tyranny.” Not everyone agreed
with the Pope. Rush Limbaugh, for instance …
RUSH LIMBAUGH: I gotta be very careful. I have been numerous times to the Vatican. It
wouldn’t exist without tons of money. But regardless, what this is, somebody has either written
this for him or gotten to him. This is just pure Marxism coming out of the mouth of the pope.
There’s no such…unfettered capitalism? That doesn’t exist anywhere. Unfettered capitalism is
a liberal socialist phrase to describe the United States.
KABOSKI: Sure, I mean, the first thing is Pope Francis is wholeheartedly not a Marxist.
DUBNER: That’s Joe Kaboski. He’s an economics professor at Notre Dame.
KABOSKI: Yeah. I’m a cradle Catholic. I’ve been Catholic my whole life. I’m a daily
communicant, so I mean, Catholicism is central to my life.
DUBNER: Kaboski does research on development and growth around the world.
KABOSKI: And I’m also the president of CREDO, which is Catholic Research Economist
Discussion Organization, which is a professional society. I want to emphasize again that also for
the Rush Limbaugh crowd is that you don’t want to read this as an economic document. And in
fact there’s many places in the document where the pope has said, I’ve gone into a great level of
detail because I want you to think about how these things concern the practical implications for
the Church’s mission. That’s what he’s about, thinking about the practical implications for the
Church’s mission. And the economy is not completely separate from that. But that’s not what
he’s talking about.
DUBNER: All right, so we all agree that the Pope isn’t writing an economic prescription – but
what is he saying about the economy?
KABOSKI: You know I think, so…the pope has a point on a number of fronts. And you know,
markets aren’t perfect, and ethics are important. I think that’s one of the things he’s trying to say.
And as just an example of that, I have an immigrant friend who went to buy a car and had, you
know, he doesn’t speak English, has no information, and the person ended up charging her twice
what the car was worth. There’s an ethical thing, that’s ethically wrong for someone to take
advantage of your misinformation. So ethics are important in markets. You know, finance
obviously is not perfect. Globalization itself isn’t perfect. You know, I do work in Kenya.
There’s a town called Malindi. If you go to Malindi, there’s a lot of people from the West, from
Italy who are working for NGOs, missionaries, doing all sorts of work to help the people of
Malindi, and there’s another segment of people from the exact same countries that are coming
for basically child sex trade. Child sex is a market. You know, that’s an impact of globalization
that’s not entirely positive. So I think the pope has some important things, the idea that growth
doesn’t cure everything. But on the other hand, we’ve never seen an example of any country that
has escaped extreme poverty because of foreign aid or NGOs. And more people have escaped
extreme poverty in the past 25 years in part through the growth of China and India than in any
period of human history. And all of these miracle countries, miracle in the economic sense,
China, South Korea, Taiwan, Hong Kong, Singapore, you know, Chile down in Latin America,
they’ve all grown through high levels of trade, market economies. And that’s important. The
importance of a market economy you can see no better than South Korea and North Korea. I
mean, North Korea people are starving to death and dire poverty. And South Korea is basically a
high income country at this point, and it’s because of 40 years of intense growth versus opposed
to 40 years of stagnation or even going down.
[MUSIC: Ed Hartman, “Two Guitars”]
DUBNER: As much as Joe Kaboski and Jeff Sachs insist that the Pope’s “Evangelii Gaudium” is
not an economic treatise – well, here we are, talking about the economics of it. And so are a lot
of other people. What will all those conversations produce? Many millions of people, if not
billions, have become disillusioned with capitalism in recent years; will the Pope’s words tilt that
disillusion into something more productive? Here’s Jeff Sachs again:
SACHS: The dynamics of society are indeed extraordinarily rich and complex. And we know
that material forces, the forces of the market if you will, of technology drive a lot of change. We
know that politics, which means how power is organized and used has huge effects. And we also
know that beliefs and ideas and moral principles can also have very powerful effects, but which
ones work and in which ways is a very difficult thing to know and to guess. And, of course, it
was Stalin who famously sniffed at the pope well how many divisions does he have? And the
pope’s institution outlasted Stalin’s institution. And it turns out that ideas can matter a lot. And I
do think that there is some hope, and I regard it as more than a passing need for a kind of new
awareness. And I say this not only because of the problems of wealth and poverty by the way,
but because I believe that at least as large, an existential crisis is unfolding with the physical
environment. We also have a globalization of indifference over climate change. We have lots of
deniers, we have lots of skeptics. But I believe that the science is as strong as can be to tell us
that we’re, as a species, we’re moving in a reckless and largely uncharted and very dangerous
direction for our planet. And one needs to break through there as well. And while this
exhortation does not discuss the environment at length, it does talk about protecting God’s
creation and our moral mandate and practical need to do it. So I think the stakes are quite high.
DUBNER: Jeff, let me ask you about the environment, because it’s an interesting point. He does
write, “The thirst for power and possessions knows no limits in this system, which tends to
devour everything which stands in the way of increased profits. Whatever is fragile, like the
environment, is defenseless before the interests of a deified market, which become the only
rule.” So he is talking about economic concepts here, externalities and market failures, and I’d be
curious to know how you see these kind of problems, again wearing the hat of both an economist
and a humanitarian and almost a philosopher of poverty by this point. I’d love you to talk to me
about the optimal balance, not just on the environmental point, but on the whole economic point.
I think that’s what’s really challenging for people is how to get their head around this.
SACHS: Well let me mention just an example, it may sound like a digression, but I think it’s
relevant. I worked in Poland and in Russia after the communist system collapsed. One of the
things that was extremely powerful in Poland was the fact that the Catholic Church was there
almost as a guardian of the society and of some decency, and standards, and while the Church
was not engaged in the reforms in any way in particular, and on specifics, probably was not too
enthusiastic about some of the market liberalization and so forth, the fact of the matter is it gave
a context to the government and to the society that really held in check massive corruption, that
helped the Polish people to hold together through a very difficult period, and help Poland come
out as a great success story, rapid economic growth, rapid improvements of living standards, and
a fully functioning democracy. In Russia I felt very strongly that, the Russian Orthodox Church
had of course been suborned by the Communist Party, all civil society had been crushed, there
were not organized institutions that could discipline the government and say, “Come on, hold
back on that mega corruption.” And I watched the difference close up. It was very subtle, very
complicated, but I believe that the moral framework that Poland found itself in, not explicitly,
but as part of its history, as part of its culture, as part of the role of the Church and its
institutions, played a very important role in helping Poland through the crisis. And the fact that
the Communist Party in Russia and the Soviet Union and its brutality had they’d basically
slaughtered civil society and brought the Church under state control with all that that entailed,
meant that you didn’t have that kind of moral framework that could help to stop what eventually
became an orgy of corruption. So this is a very perhaps a general, I hope not an esoteric point,
but that’s why I’m a believer in these things, that all of this matters and that reminding ourselves,
and especially hearing it from a pope, that there needs to be a moral framework, that our
indifference, our brazenness, our hard-heartedness, is no favor to ourselves or to the functioning
of our societies, can be extremely powerful in opening eyes and making people rethink.
DUBNER: It’s so interesting, you know, if you look at the history of economics itself you see
that there used to be a lot of moral sentiment, literally from Adam Smith, in thinking about what
economics was, or how economics works. These days, however, economics and economists are
not known for trafficking in moral statements or moral judgments as you put it. Often the moral
view is considered kind of naive or passé. I’m curious, do your economist peers, especially from
the old days, consider you something of a heretic in taking morality so seriously?
SACHS: I think so. And I do feel that this is a very, very real issue. I find it absolutely necessary
for the orientation that I take as what this whole field is about and how I view my own attempts
to practice it as inevitably requiring that moral framework anyway. But I think that once you
have that perspective and I must throw in an Aristotelian idea that happiness means also that our
institutions comport with our deep human nature, including our human nature as social animals.
To my mind it brings it back full turn that we need the morality not only to know what we’re
doing but for our institutions to have a chance at delivering things that humanity wants. And as
the pope talks about in this exhortation sometimes these days even the ideas of moral sentiments
are viewed with derision or scorn. That is true and incredibly dangerous. He says here that,
“Ethics has come to be viewed with a certain scornful derision. It seems as counterproductive,
too human…” and so forth. And this I think one could say, I’ll say it both analytically and
normatively and prescriptively, if we view ethics in that way as silly, a nuisance, a hindrance,
we’re going to get everything wrong.
[MUSIC: Laura Ault, “The Greatest Thing” (from The Greatest Thing)]
DUBNER: It’s easy to be skeptical, even cynical, when you hear the leader of the Catholic
Church describe the global economy as exclusive and exploitive and too rich for its own good –
because those are the very criticisms that could have been levied against the Church itself for
quite a few centuries. Even today, the Vatican is hardly a shining example of financial rectitude.
So if you wanted to, you could dismiss the Pope’s message here as a pot-calling-the-kettle-black
situation, or just a statement of moral platitudes. You could also accuse him of throwing out the
baby with the bathwater – highlighting the obvious failures of a free-market system while failing
to highlight the perhaps even more obvious victories. But those are easy outs. It’s harder – and, I
would argue, much more admirable – to go for the balancing act, to figure out how to keep the
baby and clean up the bathwater. It strikes me that that’s what Jeff Sachs is going for. He doesn’t
sound like most of the economists we talk to on this program – really, he doesn’t sound much
like anybody. What struck me most is his ability to be the ultimate non-extremist. Most
conversations these days, especially in the political sphere, tend to take one side and ride it hard,
wiping out all nuance, refusing to acknowledge any strength in an opponent’s argument. But Jeff
Sachs argues for the power of the market and the power of morality. A voice like his probably
shouldn’t be so rare – but it is. In the new year, here’s hoping for more.