In his new book, Understandable Economics, Howard Yaruss from NYU argues “Understanding Our Economy Is Easier Than You Think and More Important Than You Know.” Howard is an Adjunct Instructor in economics and business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan and serves on his local community board.
Links relevant to the conversation
Where you can buy Understandable Economics:
Howard Yaruss’s website:
EP159 with Romina Boccia from the Cato Institute on the future U.S. fiscal crisis:
Transcript: Understandable Economics w/ Howard Yaruss, NYU – EP168
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Coming up on Economics Explored.
Howard Yaruss 00:03
I saw reason survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind.
Gene Tunny 00:23
Welcome to the Economics Cxplored podcast a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny broadcasting from Brisbane, Australia. This is episode 168. It’s on a new book I’ve been reading called Understandable Economics, because understanding our economy is easier than you think and more important than you know, the author is Howard Yaruss, and he joins me to talk about his new book this episode. Howard is an adjunct instructor in economics in business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan, and he serves on his local community board. I’m grateful he came onto the show to share his thoughts on how a proper understanding of economics can help people argue for better public policies. Please check out the show notes, relevant links and information and the details of how you can get in touch with any questions or comments. Let me know what you think about what either Howard or I have to say in this episode. I’d love to hear from you. Right now from my conversation with Howard Yaruss on understandable economics. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Howard Yaruss, welcome to the programme.
Howard Yaruss 01:38
Thank you, Gene. It’s great to be here.
Gene Tunny 01:40
Excellent. Good to be chatting with you. Howard, I’m keen to chat with you about your new book, Understanding economics, because understanding our economy is easier than you think. And more important than you know. So how would I like to ask you? Why do you think that understanding our economy is easier than you think? Can we begin with that, please?
Howard Yaruss 02:10
Yes, I think a lot of people are intimidated by economics. Virtually anyone who’s taking a course, taking a course in economics, has been confronted with a bewildering array of formulas, graphs, jargon, those of the people who’ve taken a course the people who haven’t taken a course, understandably, don’t know much don’t know much about it at all. So I think there’s a lot of misunderstanding about economics, but what is economics about? It’s about how society allocates scarce resources. And that’s not a science, like physics or biology, you could just plug some numbers into a formula and get an answer. There are value judgments involved in how we allocate our resources. Our resources involves value judgments. And so it’s, it’s a different type of discipline than a bit different from what most people think it is. And I think what it really is how human beings interact, is easier to understand than the typical economics course, leads people to believe.
Gene Tunny 03:18
Right? What do you think is wrong with a typical economics course, Howard.
Howard Yaruss 03:22
That they begin with a whole bunch of formulas and jargon and graphs. And what we’re talking about is human behaviour. It’s like if you went to a psychiatrist, and they said, Let me plug everything into my formula. The world just doesn’t work that way. There’s, as I as I say, in the book, there’s a reason why a downturn in the economy a severe downturn in the economy, is has the same word is called by the same word as a severe downturn, a psychological downturn for human being or depression. These are psychological phenomenon, they quickly have real world consequences. But again, you can test the industrial capacity of a country right before, lets say, something we’re more accustomed to a recession rather than depression. Fortunately, we’ve had very few depressions, you can test the industrial capacity of a country right before a recession starts. And right after it’s the same, you can test the skill level of the workers right before a recession begins. And right after it’s the same, what’s changed? Outlook. It’s an infectious gloom that takes over. So I think understanding economics requires thinking about human behaviour. And it’s somewhat different from what’s often taught in economics courses.
Gene Tunny 04:43
Rod, okay, we might delve into that a bit later. The other part of your the subtitle is it’s it’s more important than you think. Why do you think that is the case are more important than, you know? Understanding economics
Howard Yaruss 05:00
I was going to rewrite that part of the title, I’d say much more important than, you know, simply because people are told all sorts of things by politicians who have self-serving motives for making certain claims. And I think, because most people don’t take a course in economics, and those who do are, again, faced with a bewildering array of graphs and formulas, so they don’t really get a sense of it. I think people can easily be misled by claims of politicians and other people who have motives to support a particular policy that they want to see enacted. I think it’s essential for people to understand how the economy works a bit better, so that they cannot be as easily fooled, and so that they would support better policies that would make our economy better and more productive.
Gene Tunny 05:53
Okay. So what do you think they’re being fooled about Howard?
Howard Yaruss 05:57
Well I can give you a few examples, this one went off the top of my head. There are a lot of politicians in the US who claimed for years that giving tax cuts to wealthy individuals would increase employment and improve the economy. And if you think about it, why does a business expand not because there are more investors with money, it’s because they’re more consumers wanting to buy their product or service. So if you put more money into the pockets of middle and lower income people, they’re going to spend on goods and services, and businesses are going to be forced to expand and hire new workers to produce those goods and services. If you merely give it to wealthy people who tend not to spend as much of their money, they have a lower propensity to consume, the businesses are not going to expand because they don’t have the additional demand for their product. So that’s an example of something that’s that’s said, by politicians that often misleads people. And it’s not something you need complicated formulas, or very, very specific kind of knowledge to figure that out. You just have to not be intimidated and use your good common sense.
Gene Tunny 07:14
Yeah. Okay. Now, you’re saying that you think there are some issues with the way economics is typically presented? Is it just not presented in in an intuitive enough fashion? Because when I read your book, I saw a lot of good economics in there. I don’t, I just want to, I just want to understand where you’re coming from with this book. Is it that you’re you’re not saying that a lot of economics is bad, it’s just not well presented? What’s your actual position here? How could I ask you that, Please?
Howard Yaruss 07:49
I think you said it very well. It’s not taught very well. First of all, let’s start at the beginning. Most people, at least in the United States, don’t learn economics, it’s not required in secondary school here. What is required is trigonometry. Which to me seems to use a technical term crazy. And I have a lot of respect for math, I was a math major. So the fact that we require something like trigonometry, and don’t require economics is shocking, to say the least, when it is taken at the college level, it there are all these assumptions made perfect information, everyone’s rational 100% of the time, and the real world doesn’t work that way. I live on the Upper West Side of Manhattan, which is a fairly affluent neighbourhood, about 40% of the retail spaces are empty. Many retail spaces have been empty for decades, that, according to economist shouldn’t, just shouldn’t be. Why why are people greedy? We always assume landlords are greedy. Why? Why are greedy landlords seeking zero income? There’s a disconnect there. And I think a lot of people are confused by this phenomenon. And the answer is that the real world doesn’t work perfectly. According to these models with all of these assumptions, I know economic the economics profession, is trying to there’s behavioural economics now. But the point is, people people, it’s people should be able to make some of these judgments on their own, they should be able to understand some of this on their own, because if they, if they don’t, they can easily be manipulated or misled by people who have ulterior motives.
Gene Tunny 09:33
Right. Okay. Now, I saw in your conclusion that originally this book was titled, economics for activists it was its focus was the people who were troubled by our economic system, yet optimistic enough to engage in activism in the belief that change was not only possible, but also that they could play a role in making it happen. Okay, what sort of activists are you talking about here? Howard, are we talking About the Occupy Wall Street? Are we talking about, I mean, who exactly is this pitch at, this book?
Howard Yaruss 10:08
oh, all activists and what and what I had in mind is people who are fed up with the current system and those include Occupy Wall Street, the Donald Trump voters, the Tea Party, and I know Australia has has their equivalent of these groups, there are a lot of people frustrated with the way our economy is going I call it the winner take all economy in the book, that the people who are doing well are doing better than ever, and the people who are not doing well are stagnating at best. And these kinds of actions is exactly what I’m talking about. What happened to Occupy Wall Street, Donald Trump, the Tea Party, they haven’t made life better for anyone. And my hope is that by understanding how the economy works, people would support more constructive policies that would make life better. What originally was he title of the book was understandable economics, because you can’t improve a system you don’t understand. If people don’t understand something, they can’t work to improve it, or if they try working to improve it, if they become an activist that their efforts may be for not. So the goal is to arm readers with the tools to understand what in fact, would improve the economy. And what on the other hand is a false medicine, is a false cure for the economic ills we are suffering.
Gene Tunny 11:30
Okay. Can I ask you about the fact that you grouped tea party with Occupy Wall Street? So is it your view that they’re both coming from the same frustration that and but they’re both got different, those two groups have different prescriptions or different recommendations. I mean, they’re both after different things, aren’t they? But are you saying they’re both motivated by the same? The same concerns?
Howard Yaruss 12:02
Why is it said there are some similarities between the two groups and some differences? What are the similarities, they’re frustrated with our current system, they both clearly have that in common. And at the risk of sounding cynical, they both didn’t achieve very much. I think what they were different is Occupy Wall Street had a specific flaw in that they did not recognise that it’s the political system, that effects change. That’s the system we live in. Unless there’s a revolution and there hasn’t been one. That’s the system we live in. So they were particularly ineffective in that they did not have a mechanism for getting people who had views similar to theirs into the legislature to effect change. They basically shot themselves in the foot by not doing that. On the other hand, the Tea Party was extremely successful, getting people into the legislature, the problem is just cutting the government without giving thought to what is the government what the government does is use, what useful things the government does. And what non useful things the government does is not really helpful to the average person either. The point I make in the book is how I use highways as an analogy. Cars are great for getting people from one place to another. But if there were no rules on the highway, people could drive on either whatever side they wanted, if eight year olds could drive, drunk drivers could drive, if there were no speed limits, and people could do whatever they wanted on the road, the road would not work. There have to be clear rules. Obviously, rules that are overly burdensome, shouldn’t be there. But the highway just cannot function without rules. It’s the same thing with a market economy. If there aren’t clear rules, it can function.
Gene Tunny 13:54
Yeah, yeah. Can I ask you about this, this point you made before that, to be able to affect change, and to be able to, to really participate? You need to understand how the economy works. What do you think of the key principles? Do you set this out in your book? Could you What do you think are the big things that we should understand in terms of how the economy works?
Howard Yaruss 14:23
I read a survey and it was an international survey so I’m sure it included Australia, of economic students, and they asked them where new money came from, and the majority couldn’t answer it. How could you talk about resources or equality and not know where money comes from? Again, if you want to improve a system, you have to have some understanding of it. So I think what I tried to do in the book is give some foundational knowledge about how the economy works, how trade works, how the central bank in the United States, the Federal Reserve System, affects the economy and how they create new money. So people have a basic understanding of the foundational components of the economy. And then I talk about different aspects of the economy. And I hope readers reach their own conclusion as to what makes sense, but at least they do it in an informed and intelligent way. As opposed to, we’re talking about the people who supported Donald Trump or Occupy Wall Street, they’re expressing their frustration, but they’re not pointing people in the direction of something that would improve the lives of the average life for the average person.
Gene Tunny 15:40
I think it’d be good how, if you give a just a rundown of how you explain that, or just take us through that, that where money comes from, I think that would be really useful. I’d recommend. If you’re listening in the audience, I would recommend this book, I think there’s a lot of really good stuff in there. And I really loved your chapter on trade. I loved your chapter on industry policy, your, your criticism of the bailouts, and maybe we can chat about that later. But to start with, if you can explain, Well, how do you how do you explain to people where money comes from, I think that would be really useful?
Howard Yaruss 16:20
Yes, well, I have the quote in the book, that all money, all new money is loaned into existence. And again, the average economics student didn’t know that. And in the book, I tried, I tried in the book to make it very user friendly. To write with a sort of basic style, it’s supposed to read like, readable narrative nonfiction, but how money is loaned into existence is, as you know, is not the easiest thing to explain. Basically, when a bank lends money to someone, they’re not grabbing the cash from someone’s account, this is not like, I have to make a very contemporary joke. FTX, they take people’s cryptocurrency and do with it what they want, the bank merely creates new money, it’s totally created brand new money. That’s what a licenced bank does, in virtually every country in the world. So that’s how new money is created, it’s created through bank lending. And the money can go away, when the when the loan is repaid, it disappears. So it’s how critical it is to understand that I’m not sure what people’s particular frustrations are or what their particular interests are. But to understand where money comes from and how it’s created, it’s basically important to anyone who wants to get more involved in these kinds of issues, to understand them better. And ideally, to have an impact on policy, you have to understand the basics before you can go ahead and get involved in, in assessing policy.
Gene Tunny 17:59
Right, okay. And it’s certainly important for macro economic policy we’ve had, because of how our monetary policy has pushed down borrowing costs, and then there’s been a huge explosion in credit for housing here in Australia. And that’s pushed up property prices and and that’s also help keep the boom going. We’ve had this incredible post COVID Boom, that I think will probably end.
Howard Yaruss 18:28
We’ve had this here too. I think the whole developed world is having inflation, eight, nine 10%. It’s an important issue for people understand, I also talked in the book about hyperinflation. Inflation is a problem, clearly a problem that needs to be dealt with. But it’s not a civilization ending kind of problem like hyperinflation, hyperinflation almost always results in nation collapse and death, which is fundamentally different from just eight or 9%. Inflation. It’s, it’s again, it’s not a good thing. But people have to separate the two and, and they make it very, very clear point in the book that I don’t think there’s any advanced nations, certainly not the United States or Australia, that’s risking hyperinflation, which is a whole level, a problem on a whole nother level. We do have inflation, which is a problem, but it’s you need to separate it from the kind of hyperinflation inflation that for instance, brought us nuts, Nazi Germany.
Gene Tunny 19:25
And what do you say about the Fed? How do you say anything about their quantitative easing policies that they’ve had over the last decade and a half?
Howard Yaruss 19:35
Well, we see inflation. So I think that speaks a lot more loudly than anything I can say. If, if their policies were more effective, we wouldn’t be having inflation. So the suggestion is or the inference is that they were hit the accelerator a little too heavily. Yeah, yeah. Yeah, for sure. And now they’re slamming on the brakes. A lot of people claim they may be slamming the brake too heavily, because there’s, as you know, there’s this very significant lag between them hitting the brakes and the car coming to a stop. And it’s very hard to know how hard to tap the brakes as the car slowing down, but it may not be slowing down enough. My own personal opinion is that we’re going to see a assuming, again, there’s so many assumptions here, that the war in Ukraine doesn’t doesn’t escalate, that the supply chains get sorted out that there isn’t another problem that arises on the horizon, we’ll probably see the effects of all the central banks, their attempt to rein in inflation to start having some success.
Gene Tunny 20:44
Yeah, yeah. Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 21:22
Now back to the show. Okay, can I ask you about what you see as the false solutions? I think you suggested before that economics helps us understand how the economy works, what sound policy responses would be. And then also, what are some of the dead ends to go down or false solutions? What would some of those be?
Howard Yaruss 21:49
Well, I already mentioned one in the tax cuts for the wealthy to spur the economy. We see in England that in a period of inflation, the government proposed tax cuts for the wealthy, which is just throwing more money out there, creating more inflation. So that’s definitely a false solution. I’m not sure what the problem was. But it’s definitely a bad policy idea. That seems to be in response to I don’t know what. So that’s one example of something in the United States, we’ve had a debate about Social Security, pensions for older people. And there’s always this talk of the government running out of money, Social Security going bankrupt. And as Alan Greenspan, the former chair of the Federal Reserve System, once said, It can’t run out of money. The United States government can always create money. What it is, it’s a question of will and will not, it’s a question of politics and not economics. It’s a decision as to whether we, as a society wants to devote our resources to these things. And that takes us back to what we just discussing at the very beginning. It’s not like physics, where you plug certain variables into a formula and outcomes an answer. It’s a value judgement about how we, as a society want to use our resources. Do we want to help people in their old age and obviously tax workers to do that or not? And again, there’s no formula that will give you an objectively right answer on that. What, what we need to do is have people understand the trade off, and then make an informed decision as to what they want. And I want to give one example, I serve on my local community board here in New York City. And we talk about different projects, like a bathroom in a park, or an elevator in a subway station. And these all sound great, but then I look at the price of these things. And a bathroom in a park is $4 million to put in. To make one subway station handicap accessible, which involves in all fairness, putting in multiple elevators. Yeah, it’s $70 million. That seven, zero million. And so again, people need to be cognizant of these economic issues because it all comes down in that case to a cost benefit analysis. And all of these things are good, Social Security is good. But there is no formula that’s going to give you the right answer to that. Although I think even if there were a formula it would tell you the $4 million bathroom doesn’t make sense. But the point is, this is a value judgement. It’s something that people shouldn’t rely on economic experts because there’s no objectively right answer for that. It’s something that people have to get an understanding of how it works, and then apply their own values to that issue and make the decision for themselves.
Gene Tunny 24:55
Yeah, I think that’s, that’s right. This is one of the points I’ve been trying to make on this. show over the years as I’ve been, as I’ve been doing it is that, you know, we economists need to be honest or need to be. Yeah, we need to realise that there are in decision making value judgments come into play. And often the best thing economists can do is outline what are the trade offs and, and what we expect will happen. And then it’s up to any decision typically involves a value judgement. Yeah, I’m just saying, Yeah, essentially, I agree with you. I agree with you there with Social Security. I’ve had a guest on the show, Romina Boccia, she was at Cato I forget, I’ll put it in the show notes. I think it was Cato or Heritage. But she’s very concerned about Social Security. And look, if you project it out, and you don’t, it is going to add to the deficit. And, like, you can think about that two ways. And I guess that’s what you’re saying, it depends on your values, you could, if you, you could try and limit that spending, you could reduce the entitlement or constrain it. Or you could just raise taxes to address the deficit. And making that choice, to an extent, depends on values. But I think what economists should be saying is that if you do make the choice to fund the higher social security, then you need higher taxes, and there are efficiency costs associated with that. And I mean, that’s the way how I’d be trying to frame it. What what do you think about that, Howard?
Howard Yaruss 26:41
Well, it’s again, it’s a trade off, I think we, in a democracy, should decide how society uses resources. And we shouldn’t make the decision in that context. It’s running out of money, you need to cut it with your personal finances, you have a job, that’s an issue, it’s finite, with a nation, there are all sorts of trade offs that can be made. And people need to understand this is not a crisis situation. There’s in the United States, the $22 trillion of goods and services created every year. And if we are committed to certain programmes we have, we have the ability to support them. It’s it’s not something that there’s a finite amount of money there that can only be used, I will go back to the first President George Bush, when he was talking about education, which I think is the most important investment of society could make it to keep itself wealthy, and not only wealthy but happy and secure. Again, I’d make the point in the book, you could look at places like Congo, and Venezuela and to a large extent Russia, which have enormous resources, natural resources, and yet they’re relatively poor countries. And you could look at Germany or Switzerland or Israel, which really don’t have any or Japan or any resources, and they become quite wealthy. What’s the difference? Human capital. And so the original, the first President Bush said, with regard to education, we have the will to fund it, but not the wallet. Well, I think he had it totally backwards, we’re a very rich country. And it’s there’s the question of just allocation of resources, which is, again, something that I think people who haven’t studied economics don’t understand the concept of opportunity cost that, that you can have, if you if some, if you prioritise something enough, you can have it, but you just have to realise that you’re not going to you’re going to have less of something else.
Gene Tunny 28:38
Yeah, absolutely. I think that’s an important concept. And you talk about how what we’ve got in this in advanced economies, we have a mixed economy, and, and in different countries, they make different judgments about the scale of government versus the private sector. And, and, you know, us is one where it’s, I mean, there’s still obviously, government plays a very substantial, significant role in the economy, but not as much as say, in Scandinavian countries or in France or, or Germany. So I think that’s a good point.
Howard Yaruss 29:14
All along a spectrum. Yeah. Yeah. I think it’s easy to fall into that trap of, are you capitalist or are you socialist? We’re all basically the same. It’s just that some countries are a little further on the spectrum of government spending, and some countries are a little less on the spectrum of government spending. We all basically have free markets that are regulated by the government. It’s not a question of socialism that they throw around the word socialism in the United States all the time. The textbook definition is where the government controls the means of production. I don’t think that’s what anyone’s talking about. And I make the point in the book pretty emphatically that all these isms can sometimes warp understanding of what’s going on in the economy, the way to understand what’s going on in the economy is to actually look at what’s going on. And that get involved in all this esoteric theoretical discussion of different types of economic systems.
Gene Tunny 30:11
Yeah. A lot of people are interested in crypto currencies. What does your book say about cryptocurrencies, Howard?
Howard Yaruss 30:19
Well, I make the analogy that it actually is, in a certain way, very similar to the US dollar or the Australian currency. It’s something that’s created totally out of thin air. The big difference is who creates, I don’t know, who creates Bitcoin, or Dogecoin, for that matter, but I know exactly who creates the US dollar. It’s the Federal Reserve System. I know exactly who the people are. I know exactly what the rules they operate under. I know exactly who to turn to if there’s a problem. When it comes to cryptocurrencies, we don’t know any of that. If you have a problem, we’ve all had problems with our checking account. And we know how frustrating it is to call customer service. But could you imagine if your quote unquote bank didn’t even exist, there doesn’t have any employees and doesn’t even have a customer service number to begin with? And I think we’re going to see more problems with cryptocurrencies because it’s just something created out of thin air by people. We don’t know operating under rules they claim they have but how do we know we have them in Bitcoin suddenly doubled the number of tokens out there? Who would we sue? What recourse would anyone have?
Gene Tunny 31:30
Yeah, exactly. And I mean, you mentioned what’s happening with the news around FTX. Is it and Sam Bankman-friedand here what we’ve seen in the news recently, yeah, yeah. Yeah.
Howard Yaruss 31:45
As I’m concerned, he was supposedly FTX was supposedly a place people could use to store their cryptocurrency. Well, if it’s not there, it was stolen. It was misappropriated. So I think it’s this is something that the prosecutors need take a look at.
Gene Tunny 32:04
Yeah, it’s all very confusing. I mean, I thought the great benefit of crypto was this decentralisation. And then suddenly, people are losing all this money, because they’re involved with this exchange.
Howard Yaruss 32:19
It’s decentralised. But the question is, what we were discussing before, there need to be rules, there are literally no rules with regard to this. So it’s like going to a highway driving on a highway where there are literally no rules. People could drive at any speed on any side, and do anything they want. If eventually there’s going to be a crash. If enough people come to that highway, you guaranteed a crash.
Gene Tunny 32:44
Yeah, yeah, for sure. What I liked about your chapter on money, was that you talked about how a lot of the value or the value of the US dollar is that you can pay bills in it right? Or you can, you can, people will accept it. It’s widely accepted. And it’s a fiction that everyone believes in. So I think that was a little something along those lines, I’m trying to remember the exact words used, but that’s essentially what Milton Friedman, how he described it. I mean, all money is fiction. So I thought that was, that was good. Okay. Now, what about modern monetary theory, which is another popular topic? What are your few things to say about modern monetary theory in your book? Could you take us through that Howard?
Howard Yaruss 33:39
Well, the most amusing thing I say about it is that it’s not particularly modern. It’s not a theory. And yes, it has to do with money. So I’ll give it that. Basically, they’re saying that the government can create as much money as it wants, as long as it doesn’t create inflation. That’s, I don’t understand why that’s anything new. Everyone knows that the government has printing presses and they could create as much money as they want. What I think is interesting about what they say is that the government should not be constrained by a balanced budget, that we all know it can produce as much money as they want. The modern monetary theorists say they should be able to create as much money as they want, as long as they don’t cause inflation. And arguably, that’s right. They if they’re printing money, and it’s not causing inflation, that really is a free lunch, if if you create an extra $10 and magically, an extra sandwich appears. That’s that’s literally a free lunch. The problem is, you need some constraint. And that’s why we have the central banking system we have today. Because if politicians could just rev up the printing presses, and print money for whatever They want tax cuts for their donors, giant spending programmes, you have the catastrophic problem we discussed before hyperinflation. And yes, if politicians could show adequate constraint, restraint rather. Yeah, I guess it makes sense. I think there are lost opportunities when the Fed is a little parsimonious with the money, and the economy could be more robust. But I think the downside risk of the politicians running amok and printing too much money and having the lose, lose control over that risk is too great, because that’s, again, a nation ending kind of risk. So I agree with what they say. I just don’t agree with their conclusion that we should turn trust, trust our politicians to show proper restraint. If we gave them the right to rev up the printing presses and print whatever they needed or wanted.
Gene Tunny 35:59
Yeah. Exactly. Okay. Do you say anything about climate change in the book, Howard, the solutions to climate change, or if that’s really to worry about?
Howard Yaruss 36:13
Not really, included in the book is the fact that if we want change, if people want change, then they have to assert themselves, it doesn’t happen on its own. If, if company if there’s a company that is doing something that people don’t like they need to, to promote policies that would rein in that behaviour. And it’s the same with climate change, that people need to be clear that this is something that is important to them, and that they want, because that’s how our political system works. Again, economics is not like physics, you don’t put things into a formula and outcomes and answer, it’s, it’s, it’s what you can get people to agree to do. And the more people understand, and this is a perfect example, the more people understand the harm we’re doing to our climate, the more they’re likely to support regulations that would rein in climate change. Ignorance is a threat to good policy. And that’s the whole point of the book. It’s to get people to think about it more, to understand it more. And I make it very clear in the epilogue, I passionately believe we would have better public policy if people had a better understanding of what’s going on, not only in the economy, but in with regard to climate change as well.
Gene Tunny 37:34
Okay. In terms of better public policy, one thing I liked in your book was your analysis of bailout. So you were highly critical of the bailouts that occurred, or the all of the assistance that went to was it to airlines in the States and other companies? Airlines as an example? Yeah, yeah. You were highly critical of that during the, during the pandemic. Could you explain your logic there, please, Howard?
Howard Yaruss 38:03
Oh, certainly, we gave billions of dollars to the airlines. But what did we get for it? Were the planes going to disappear? The planes are there, they were grounded, because there was a pandemic going on. But they don’t, they wouldn’t fall into the earth. So by giving money to the airlines, we were just saving the management of the airlines and the shareholders of the airlines. What what a lot of European countries did is they actually funded the wages of workers, which would have made a lot more sense and would have been a lot cheaper. Instead, we threw enormous amounts of cash at the airlines. And I think I don’t remember the exact figure in the book, I think it came out to about $750,000 per employee, we could have saved a lot of money by just paying the wages of the employees saving the employees. And the airplanes would save themselves, they’re not disappearing. So they’d sit there on the tarmac, the shareholders would get hit very hard, which is unfortunate. But given that there are finite resources, I don’t think they’re at the front of the queue in terms of warranting a handout. And when the economy came back there, the airplanes can be put back into service. So the point I’m making in the book is bailouts help management and shareholders as opposed to what Europe did, helping individual employees or or not offering assistance at all, and the assets would stay there and be acquired presumably by another company.
Gene Tunny 39:36
Yeah, yeah. I think that’s, that’s a good point. And remember, during the pandemic, there was a Silicon Valley, one of the billionaires in Silicon Valley who was making that point on or a similar point on CNBC and I thought, you know, that’s a that’s a that’s a good way of looking at it. And yeah, I think, you know, the way you go through it in your book is great. So I’d recommend your book for that. on that issue. It’s a key issue in industry policy. So I think that’s great.
Howard Yaruss 40:09
Okay, I’m just gonna add that that’s, that’s another great example of how people are misled that the hotels are going to go away, the airplanes and the airlines are going to go away if we don’t offer them a bailout, the hotels are there. There’s bricks and mortar, if they don’t get the bail, if they don’t collapse, the planes are there. The executives, if they lose their jobs, don’t get to fly them off and take them wherever they want to take them, then there, it’s just the management and the shareholders that are the risks. Now, not the actual wealth of the country, the actual infrastructure, the hotels, the air, the aeroplanes, they’re, they’re not going to go anywhere, whether or not there’s a bailout.
Gene Tunny 40:49
Yeah, yeah. Good point. Okay. I just want to go back over, go back to this winner takes all economy, you mentioned that early on, is that what you see is one of the big challenges in advanced economies at the moment? And what exactly brought this about? I think, if you could take us through that I think your book does a good job of explaining how we’ve ended up with what you call a winner takes all economy, or at least an economy where, at least in the US in, in Australia, it’s we haven’t had the same increase. And it’s a bit of an argument about whether we’ve had an increase in income inequality, certainly in wealth inequality. But could you explain what you know, what’s led to this winner takes all economy, please. And what in your view, economics suggests is a way we could get out of it. Or your logic suggests there’s a way we could get out of it.
Howard Yaruss 41:48
I teach this subject and I love one word answers. And I can give you a one word answer to that. And they’ll give you a more expensive answer the one word answer the internet, basically, the cost free platform that enables Jeff Bezos, or any of these big companies to do their business, internationally with no costs, has enabled the best providers to have economies of scale that have been able have enabled them to grow much larger than any company was able to grow before, before the internet era. For instance, in 1950, if you were selling clothing in New York, and wanted to sell clothing in somewhere in Australia, that was incredibly difficult. Just the phone calls alone wouldn’t cost a fortune. And now, it’s cost free. It’s frictionless. They’re the ultimate economies of scale. So Jeff Bezos can do his business, internationally, and basically take all so technology actually, it’s not just the internet, it’s technology in general, has facilitated this winner take all in the book, I use the example of musicals before 100 years ago, every city of any size, have a musical where people want to hear live music, and now he’s just flicking it on your computer. There are a few major international stars who provide the music. And I’ll add that not only do they provide the music, but they provide their performance in infinite number of times whenever you’re interested in hearing it, based upon one performance. That wasn’t the case 100 years ago. So yes, the best performers in New York City 100 years ago, probably or definitely earned more than the mediocre performers somewhere in Indiana. But the point is that many people earn livings in connection with that business. And now there are just a much smaller number of people. And the earnings are much more concentrated among the most popular performers.
Gene Tunny 43:52
Raw. Yeah, yeah. And what about the role of there’s obviously the role of monopolies or market power in this?
Howard Yaruss 44:01
Absolutely. Because with this, these economies of scale, we’re natural monopolies what economists would call natural monopolies develop. And you see this in ride sharing with Uber. I mentioned Amazon, information Google, social, social networking with Facebook, there are many more natural monopolies because of these economies of scale. And it’s a problem. Why is it a problem? Your Facebook’s free. Why is that a problem? Because you lose, you lose innovation when there’s a monopoly there’s no incentive to innovate. And as they really consolidate the monopoly, it’s, it’s it reduces opportunity for workers. And this is again fueling the winner take all phenomenon that the average worker has fewer options for potential places to work. Certainly entrepreneurship is foreclosed, you can’t go up against these behemoths. And so there’s a shift of resources from labour to capital, when you have these kinds, when business gains more power in this way.
Gene Tunny 45:16
Yeah, yeah. And so what in your view is the is a way to address this winner takes all economy? If you? I mean, I’m assuming you think it’s, it needs to be addressed. It’s not something that we need to spur innovation. I mean, it’s not actually I think probably most people agree that there’s a problem with big tech so far across the political spectrum. So, or across the economics profession to.
Howard Yaruss 45:45
This is a perfect example of what we were talking before about regulation. Here’s a question. I’m a lawyer that Facebook has had hate speech or a speech that motivated people to commit all sorts of crimes on its site throughout the world. Why isn’t there a potential liability there, and in the United States, they’re exempted from liability. But because they claim to be like a town square, but they’re not a town square, they prioritise certain speech over others. For instance, on Twitter, I tweet something it’s going to get, it’s going to be replicated many fewer times. And if someone else tweets something, so they are curating, they are involved in amplifying certain speech. So I don’t know why they’re exempt from free speech, from the laws governing libel and slander. So that’s one thing we were not we’re sort of asleep at the wheel in a way, we are not regulating these companies the way we need to regulate them. Every monopoly is different, or companies get monopolies for all sorts of reasons. And the government needs to look at them, it has the tools, it just needs to employ them to make sure they’re not abusing their market power. Because ultimately, if they do that, it’s not good for the economy. And it’s not good for workers.
Gene Tunny 47:09
Right? So would you break up any of these big tech companies?
Howard Yaruss 47:15
Well, there are such incredible economies of scale with a social networking site, you don’t want to go to a social networking site that only has a few people. So I think the government is going to have to look at, for instance, I talked before a moment ago about legal liability, to the extent they promote certain speech, and it causes harm, maybe they should be on the hook for that. And maybe they would be more equitable, and more fair, in running their business, if that were the case. So I think that, again, every monopoly is different. I think the government needs to look at them, and make sure we’re getting the best social benefit from them. Because again, they are natural monopolies in my opinion, if I wanted to set up a social networking site, I could set it up. But Facebook has 3 billion users, I’d have one, none’s going to it. I think, I think given that the government needs to, to impose some fair rules so that society gets the maximum benefit out of it.
Gene Tunny 48:15
Right? And what about inequality? How do you propose dealing with that? How would you see that as a substantial problem? Do you and how would you deal with it?
Howard Yaruss 48:26
Yeah, as we have more of a winner take all economy, there’s more of a gap between the people who are doing well, and the people who are not doing well. And that’s a great failing of a society as as our economy grows, on average, most people should do better. And that’s what was so great about America and Australia for so many years, people bought into the system. And to the extent that people are alienated by the system, I saw a recent survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind. I make the point in the book that since roughly 1800, we evolved from a society where the vast majority of people were food insecure to a society where the average person does quite well. And so we have to keep that, that we have to continue that to make sure that people buy into the system and we continue to grow.
Gene Tunny 49:31
Right, and what measures in your view would be required to do that? Are we talking but yeah, exactly what measures would be needed?
Howard Yaruss 49:41
Well, in the United States, there was a lot of talk a few years ago about a universal basic income that we may get so efficient. John Maynard Keynes talked about this. There was a writer I think his name was Edward Bellamy in the in the late 1800s, who talked about this how’s this It got so wealthy, that people, many people just didn’t have to work. And we could just have an income and benefit from automation. And the fact that society would be so efficient, we haven’t reached that point yet, in my opinion, I don’t think we’ve reached that point in anyone’s opinion. So that’s not going to work. But what can work is, is to have a more progressive tax system. And let me be clear what I’m talking about. In the United States, hedge fund managers pay a lower tax rate than teachers and firemen. That’s ridiculous. Again, to use a technical term, that we people need a better understanding of exactly what the 10s of 1000s of pages in the tax code are doing, and try to have a more reasonable, a more equitable approach to the way we allocate society’s resources. So off the top of my head, I would say that better funding for education to give people opportunity, certainly increase the tax rate on hedge fund managers. So it’s at least as great as teachers and fire man. Warren Buffett always says that he pays a lower tax rate than his secretary, that makes no sense. So that’s one easy place I would start to have a to provide more opportunity to the average person, I would I would have higher taxes for the people who who’ve enormously benefited from this winner take all economy and provide more resources to, for instance, for education, so as to maximise the chances that children growing up today can participate in contribute to this kind of economy.
Gene Tunny 51:40
Right. Yeah, I think certainly there’s some issues with the tax code in the States, I did an episode with Steve Rosenthal, from Urban Institute, do must have been toward the end of last year, just on the rules that you’re talking about, so I think is it carried interest?
Howard Yaruss 52:03
There’s a rule of carried interest exactly the provision that allows hedge fund and venture capital executives to basically have their income taxed at capital gains rates, which rates are lower than personal income rates. But I’ll raise a bigger issue, why should investment income be taxed at a lower rate than working income? I think that’s something that should be changed. And not only is it equitable, but by having the two types of taxation, you make the whole tax code so much more complicated, you introduce all sorts of distortions that people go through, so as to re-characterise their earned income, as investment income, it throws friction into the economy. And so that’s something that I think needs to be corrected. Again, to make it more equitable and more efficient. There are companies that have meetings in Bermuda, to leave the United States, because of tax reasons, that literally makes no sense. That’s a lost opportunity for the American hospitality industry, and just a colossal waste of resources. That’s something that needs to be looked at. And, frankly, when the tax code is 10s of 1000s of pages, I think the Internal Revenue Service is going to be out manned, by the whole army of lawyers and accountants that businesses and wealthy individuals have, it has to be simplified.
Gene Tunny 53:30
Yeah, I have a lot of issues with tax. I’ll have to come back to them in a future. Just interested in your thoughts on how to deal with that. Okay. Now, how would we better start wrapping up. I’ve been really grateful for your time. I mean, this has been this has been terrific talking about your new book, which I think yeah, I certainly recommend reading it. There’s a lot of good stuff in there. I’m probably more concerned about debt, you’re suggesting in your book that, you know, the federal debts. It’s not a huge concern, I guess it depends on how you characterise it. And your point is that it’s something that you can manage over time. But I should ask you about that. I mean, what is your view on the US federal debt and the fact that the US is running, you’re running a structural budget deficit, aren’t you, which is quite substantial, you’re not? You’re not raising enough revenue to pay for the spending. Do you see that, do you see that as something that has to be fixed up? I mean, you do have to be ultimately concerned to some extent about the debt and will you want to try and stabilise the percent of GDP, what’s your exact view on the debt, please in the States?
Howard Yaruss 54:51
This is such an important issue. It’s like the allocation of society’s resources that I tried to give people the foundational knowledge so that they in turn can reach an informed conclusion on their own. What I do in the book 20 trillion – 30 trillion. I don’t know about you, I can’t get my head around it. So what I do in the book is divide the national debt by the 330 million Americans and I come up with a national debt of roughly six to $8,000 per person with an annual interest payment of roughly $1,045 a person. And so there’s the question, Is that sustainable? Is that an existential threat to the United States? And I make the point that virtually everyone who went to medical school or started a business has bought a home for that matter has a debt hanging over their heads greater than that. The question is to just step back and offer some insight, try to offer some insight is that if the debt is growing faster than the economy, there could be a problem. Yeah, I mean, yet grow at the rate of the economy. It’s like, you owe a certain amount of money. If your income doubled, and your debt coverage doubled. It’s not a problem. It’s only when the debt is growing faster than the economy are issues raised. And yes, our debt has been growing faster than the economy, not significantly faster. The past fiscal year in the United States, the deficit was half of what it was in the preceding year. And so well, we have to watch it. But the question is, do people feel comfortable with this level of debt, I also make the point that when you say it’s a crisis, this debt is being paid, we have to pay it. But to whom is it being paid, two thirds of the payment goes to other Americans. So this is merely a transfer of money, from taxpayers to bondholders, which quite frankly, overlap enormously. Wealthy people tend to pay higher taxes, and wealthy people tend to own more bonds, poor people tend to pay lower taxes, poor people tend to own fewer bonds. So it’s really just moving most, two thirds of it is literally moving money from one pocket of the left pocket of a American to the right pocket of American, it doesn’t necessarily do any harm. A third of the interest payment, roughly 300, and some odd dollars here does go abroad. And you know, there are questions about that. But the question is, is $300 a year, per American in a $22 trillion economy? An existential nation bankrupting kind of issue? And personally, I don’t think it is, but you might reach the conclusion as that it is, and and vote and promote policies accordingly.
Gene Tunny 57:43
Right oh well, look out I think your book does, yeah, it makes a contribution. I think it’s got a place. It’s in this emerging genre of economics for everybody. I chatted with some people from the UK early this year, they had a book, what is the economy? I think it fits nicely in that, in that genre. To finish with, what do you think is different? Or what’s special about your book? Or what are the main? What do you think should be the major takeaway, or if there’s anything else, any other thoughts you’d like to make? Before we wrap up, please, that’d be great.
Howard Yaruss 58:21
I appreciate your asking that. And I think my book is, is is special, or I’ll go as far as saying it’s unique, in that it does, it tries not to have a political perspective, it tries to be fair, it tries to give the foundational knowledge to people so that they can reach their own conclusions as to what makes sense for the economy. Or there are points at which I do say something, but I make it very clear that it’s my opinion. And I make it clear why I’m saying so I think the book is accessible. It’s one of the only books on economics that has no formulas, their jargon, no graphs, it’s supposed to read like narrative nonfiction. And I hope it can reach an audience that ordinarily would would not learn about economics, but would pick up the book, read it, become more informed, more able to understand what’s going on in the economy, and hopefully, support better policies that would benefit not only their lives, but yours in mind, frankly,
Gene Tunny 59:20
That’s terrific. I just thought when you said about no equations. There’s a joke that John Kenneth Galbraith used to make in some of his books where he said that his publisher told him that every time there’s an equation in the book, it cuts sales in half. That’s what he heard you didn’t want to have any equations because it’s bad for sales. Okay. Howard Yaruss from NYU that’s been terrific. I really enjoyed the conversation. Thanks so much.
Howard Yaruss 59:51
Yeah, I really enjoyed it. Thank you.
Gene Tunny 59:55
Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to email@example.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.
Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au.
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