61. Was Austan Goolsbee’s First Visit to the Oval Office Almost His Last?

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My guest today is Austin Goolsby.

He's a top academic economist and he was chairman of the Council of Economic Advisors in the Obama administration.

But his talents extend far beyond economics.

He's a national champion debater.

He was named Washington's funniest celebrity.

And he even made Salon's list of sexiest men.

I said, look, you're telling everybody you're the skinny guy with the funny name.

You stole my bit.

That's been my bit for 10 years.

Welcome to People I Mostly Admire with Steve Levitt.

I first met Austin roughly 30 years ago on the first day of MIT's economics PhD program.

I immediately despised him.

All of the first years were quiet and nervous, except Austin.

He blew into the room, booming voice, unflappably confident, acting more like a faculty member than a new student.

I turned to the person next to me and I whispered, who does that guy think he is?

My neighbor responded, he thinks he's Austin Goolsby.

It turns out, even before Austin got to graduate school, he was already a legend in economic circles.

As much as I initially wanted to dislike Austin, I couldn't.

He was smart, the funniest person I'd ever met, and also remarkably kind and thoughtful despite the bluster.

We became close friends, partners in crime trying to survive MIT, and we've been colleagues at the University of Chicago for 25 years.

We wrote a textbook together and we live a few houses away from one another.

Austin loves to talk and he's good at it.

So my main task today will be to get him started and to stay out of the way.

Austin, it's always great to talk with you.

We've known each other for 30 years and it's been so much fun watching you go from being an unknown, brash young PhD student to a well-known, still equally brash thought leader.

Professional economists go to this thing called the AEA meetings, the American Economic Association meetings.

And I have some recollection that you started going to those when you were like 15 years old.

I definitely went in high school.

I just went to the panels, and that just seemed like the coolest thing in the world.

And then when I went to college, I had a series of really fabulous mentors and professors and the old great economist, Jim Tobin, it was supposed to be the last class he ever taught was my freshman year.

And I was like, I've got to find a way to get into that class.

So if you get my transcript, it says I accelerated and I was a sophomore for six months and then I dropped back down.

You worked with a future Nobel laureate while you were at Yale, Jim Heckman.

Jim Heckman, it's true.

He was amazingly kind to me.

And as best I can tell, he did not like the fact that Yale department is like spread out in all these buildings.

So it can be isolated.

And so he was starved to talk to people.

And so there I show up.

I'm an undergrad.

He would sit me down.

He would tell me about econometrics.

And you'll remember when I got to graduate school, it kind of ruined me.

Both Tobin and Heckman went so far out of their way.

to mentor and talk about economics.

It was thrilling.

I was like, if this is what undergrad is like, imagine how long you get to talk to people when you're in graduate school.

So I show up and you and I share the advisor, Jim Paterba.

I go to Jim Paterba's office.

I'm wanting a two-hour sit-down.

And he's like, get out.

What are you doing here?

Weren't you also a national champion debater?

Yeah.

We were the national team of the year.

And our nemesis, who we defeated over and over and over, was Ted Cruz, the now senator from Texas.

Oh, I didn't know that.

So you were this national champion debater, but whenever I would run into someone else who had overlapped at Yale, I would just say for fun, oh, did you know some guy named Austin Gooseby?

And it was crazy because invariably people knew you.

And the thing that every one of them said was, this guy was the best improvisational comic that has ever walked the planet.

I mean, you were legendary.

What made you so good at that?

So if you met people who were from serious worlds like academics, they would say, oh, that guy's great at improv.

Anybody from improv like, yeah, he's okay.

He's in the group.

It's extremely hard to truly be funny.

But if you go into something where no one is funny, then even the slightest bit funny, they're like, that guy's hilarious.

There are so many lessons from improv that are really wonderful lessons for life.

And one of them is when you're out there doing improv and you have nothing, everything is a yes and world.

What do you mean by that?

So if somebody says something, puts something out in a skit, no matter how random it is, you accept that as a gift and then you're like, yes.

And the quickest way to turn a scene into nothing is to reject an idea.

Somebody's like, wow, look at those elephants.

And then you say, those aren't elephants.

Then it goes nowhere.

There is no step two.

So I think what I hear you're saying is in life, if somebody says something totally idiotic, you're saying it's better to say, oh, God, that's brilliant.

And let's do this other thing.

Well, yeah, kind of, but it's more like somebody gives you something random.

And then you say, how do we combine that thing with some other thing?

to make something that's even funnier and better.

All of improv is literally thinking on your feet.

And I usually say that for teaching, I learned more being in an improv group than getting a PhD plus undergrad.

Every class you ever took combined taught you less about how to teach a class than one year and it being in an improv group.

So what do you do differently in class, say, than probably I do because of your improv experience?

I don't know.

You want awards and stuff.

So probably nothing.

You probably do it better than me.

But I'm usually teaching the MBAs and it's case-based.

So it's really a discussion-based class where we're trying to explain sometimes deep economic content about strategy, about platforms and competition,

but it's very improvised.

One of the things I struggle with teaching is when I ask a question and a student says something that it's just 100% dead wrong.

And I never know whether to just say, that is so wrong that I don't know what to say next, or should I say, hey, that's pretty good.

That's funny because I thought you were going to say the opposite.

It's much harder if somebody just comes right out in the first minute and gives you the correct answer.

If they give you something that's 100% wrong in a way that opens the conversation, as long as you've established a certain level of trust among the students that people are willing to speak.

But as long as you have that, a wrong answer is in some sense a right answer because it allows us to have more of a conversation.

In a lecture setting, maybe it's different.

My very first class I was teaching, it was a lecture, it was micro, and a student raised his hand and said,

this thing you're talking about, I believe I could explain it better than you.

Is it okay if I get up and explain it?

And I was like, uh, okay.

And so this guy, Larry, gets up.

He just kind of shoves me out of the way.

This guy was an engineer.

And it was the part of class where it was like, why should you price at the spot where the marginal revenue and the marginal cost are going to be equal?

And if you're not teaching it with calculus, you're doing a little hand-waving explanation.

for what it means and how should you think about it.

And his engineering mindset was like, you just take a derivative.

But the thing was, a bunch of the people didn't have calculus.

And then the class is getting mad at me.

They're like, why did you let him take over the class?

And I can't get it back.

So the class finishes and I'm like, oh, man, this is bad.

I lost control.

What am I going to do?

And I went to lunch.

Merton Miller was there and he was a Nobel Prize winner in finance.

I said, Mert, I need your help.

Student took over.

Everybody's mad.

He wasn't as clear.

And Mert said, well, Milton Friedman gave me the advice when I got here in 1961, and I'm going to give it to you.

The University of Chicago, the second you set foot on the campus, never give up the chalk.

Never give up the chalk.

Now, in the 90s, a friend called you up and said he just met the future president of the United States.

Can you tell me that story?

So my friend Greg Jacobs was in my improv group in college.

He was in Chicago and he worked at this radio show that was on WGN.

So he calls me and he goes, I just met somebody that's going to be the president of the United States.

And I said, who is he?

Is he some governor?

He's some senator?

No, he said he's the first African-American editor of the Harvard Law Review.

And his name is Barack Obama.

And this is like 1994 or 1995.

And I was like, nobody named Barack Obama is going to be the president of the United States.

What are you talking about?

So fast forward a couple of years, Obama runs for Congress and he's defeated by like 50 points.

So I'm calling and I'm razzing my friend.

I was like, you thought he's going to be the president.

That guy who just got crushed by Bobby Rush by 50 points.

Greg would always say, no, no, just wait, just wait.

He's so great.

People are going to see it.

He's going to be president.

And he was right.

When you heard he was running for the Illinois Senate seat, you reached out to Brock on your own, right?

Not exactly.

Michelle Obama was way more famous than Barack Obama was.

She had a major job at the University of Chicago.

She was like the head of community relations for the hospital, which is a prominent position.

And Barack Obama was my state senator.

We had a bunch of common friends.

Our oldest kid was at the lab school in between the two Obama daughters.

So I had seen Barack Obama around at birthday parties and stuff like that, but I didn't really know him.

And he decided to run for the U.S.

Senate.

And his policy director of the Senate campaign, they called me and said, could you help us on economic stuff?

And I was like, you're talking about Michelle Obama's husband?

I was like, yeah, of course I'll help.

The main opponent had dropped out of the race.

The Republicans in state could not agree.

They drafted Alan Keyes, a guy from Maryland, to move to Illinois and run for the Senate.

This thing was ancient philosophy, conservatism.

At a press conference, they asked about reparations,

and he said his plan was that we should follow the model of the ancient Romans and waive all the descendants of slaves from federal taxation for two generations.

And he said, my opponent will not qualify because he is not the descendant of a slave and was saying he's not a real African-American.

So the campaign contacts me and says, can you figure out how much that plan would cost?

And I was like, I can't even begin to tell you how possible it would be to figure that out, but I go get the statistics of income and I can give you a spreadsheet that you could at least have a number to back up what you said.

And I said, but let me ask you a question.

Do you want a net present value?

Do you want me to just add up 40 years of numbers?

Their thing was, whatever's the biggest.

I was like, okay.

So I go through, I make some imputations.

I put it all in the spreadsheet.

The answer is $8 trillion.

And they're like, that's perfect.

$8 trillion.

That's what we want.

So I send this memo that Alan Keyes proposes replacing the income tax with a sales tax, waiving housing, food, clothing, transportation, senior citizens, and poor people so it won't be regressive.

Essentially the entire basis of it.

Yeah, no.

And so they're like, what would the rate have to be if they did that?

And I'm like, in my world, if you put a 40% tax on some things and zero on other things, they're going to shift what they buy.

Like, how much am I supposed to assume for that?

They're like, whatever is the biggest.

So they actually bring me down to the debate.

And Alan Keyes kept saying publicly to Obama, you need to talk to the economists.

And they'll tell you that what you say is nonsense.

So at the debate, Obama goes, I found an economist.

at the University of Chicago and he's here in the audience tonight.

And Professor Goolsby's analyzed your thing, and he says your plan would have to raise the sales tax rate to 68%

or something like that.

And then Key said, That's not my plan.

And then they went to the next topic.

That was my role.

And when it was done, they said, You got to go meet with Obama.

So you'd never even met him at this point.

I hadn't met him face to face.

I just sent all these memos from Professor Goolsby.

So I knock on the green room door and he opens it.

And I said, I'm Professor Goolsby.

And he's like, What?

I thought I I had a 69-year-old guy with a pipe and a tweed jacket.

And he said, what is with Goolsby?

And I said, look, you're telling everybody you're the skinny guy with the funny name.

You stole my bit.

That's been my bit for 10 years.

He laughs.

He never called me Professor Goolsby again.

So I get the impression in politics that there's a sharp line drawn between what you were doing, so advising on policy, and then maybe the strategy around the campaign.

And that the people who do the strategy tend to have all the power.

Is that a fair assessment?

Oh, yeah, 100%.

Academics had a conception in their mind of how it must work is policy people come up with a bunch of ideas that they hand to the strategy people and they package it well.

And that's just totally not how it works.

The best analogy is if you're the policy person, you're like one of those guys with the gas can at the NASCAR race who jump over the thing and they're frantically running and pumping with gas and get the tires

and get them back out on the road.

But like, you're not driving.

If you think you're driving, you're in the wrong line of business.

So, of course, Obama wins and you join the Council of Economic Advisors and eventually you become the chair of the council.

So an economist's job in the administration is partly to help guide policy, but also it's to say that the policies the administration chooses that they make good economic sense, even when they don't.

That's so different from academics.

Did you find that role uncomfortable?

I didn't find actually that to be that much of attention because Obama's decision-making process was a pretty good one.

He was quite sensible and a guy with good judgment.

And so I didn't find that there were really that many things where it was like, oh, all the policy people think we should do A, but they're just going to have to do B because Harry Reid said so.

I thought that would be a bigger thing than it was.

I went in not really willing to sacrifice the ideals too much.

I filled out on CEA Letterhead the day I arrived a resignation letter that I folded up and kept in my wallet every day I was there.

Wow.

I wasn't going there to try to find a new career, and I always knew that I wanted to come back to the university.

So if they were going to ask me to do something that was too far outside what I was comfortable with, I'll just go back to my job.

So you were there in the middle of the financial crisis.

Yeah, it was horrible.

That was horrible.

And you're being asked to answer these very hard questions quickly

on a huge range of topics.

Yes.

What was your approach to that?

I would have felt hopelessly underqualified for that role.

I was clueless, but I didn't know that.

I was probably close to being killed many times.

The thing that I do think is the biggest difference between the world of policy and the world of academics is that in academics, the standard of evidence is like really high and the time pressure is very low.

So you have to get the right answer, but you have forever to get it.

And in Washington, it's 100% the opposite.

The time pressure is extraordinarily intense and the standard standard of evidence is pretty darn low.

There was a moment when Rahm Emmanuel's management styles yelling, and you get that to me by five o'clock.

And the assignment was something about housing finance.

It was like, we need to have an alternative housing finance system by Friday.

You go out and you find whatever evidence there is.

and you got to make a decision.

I called an expert in this area and he wasn't there and I left a message.

It was like Wednesday, no call Wednesday, no call Thursday comes Friday.

We have to do it.

The next week he calls back.

He's like, ah, you want to talk about housing finance?

I'm like, no, that was last week.

That's done.

It's totally fine to call other experts and piggyback off of their expertise.

That's true in campaigns too.

Much of the job is not you.

coming up with the ideas yourself.

It's tapping into this whole team of economists at the CEA or the whole universe of economists outside the government to get the ideas because you got to come up with it by Friday.

The other big difference from academics is in academics, we pick our problems, right?

Yeah, that's true, too.

You have a hundred ideas that come in your head and you throw out 99, you go with one.

But in Washington, they pick the problem for you.

You got to answer it whether you know how or not.

Yeah.

There was one day I woke up and I'd be getting dressed, putting on a coat and tie and a badge and the whole thing.

And my wife was like, in one sense, you're a distinguished economist.

That's been your career.

But in a different way, you're like a 21-year-old intern.

Like, this is their first job in corporate America.

And I was like, yeah, you know what?

Maybe this is the first real job that I've had, but real jobs are horrible.

This is the worst.

If this is what they're like, who needs that?

You're listening to people I mostly admire with Steve Levitt and his conversation with Austin Goolsby.

After this short break, they'll return to talk about the 2008 financial crisis.

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Hey, Morgan, how are you today?

Good, thanks.

So a listener named Hedonist wants to know what you mean when you say you like to, quote, play with data.

Can you share some of the tricks or tools that you use when you're analyzing data?

So my approach to data is really simple.

When I first get a data set, I'd like to look at the data to literally go column by column or row by row, just to begin to understand

what the stories might be in there.

It's not the approach that most people take with data.

Most people immediately jump to whatever question they want to answer.

They have a question in mind and say, can these data answer that question.

And I have to say, in most of my academic papers, there will be a table or a figure that makes it to the final published product two or three years later that comes out of the first 30 minutes of my being with the data where I'm just asking the simplest possible questions.

Is the variable I care about going up or down?

Is there a relationship at all between some X variable and some Y variable?

I really want to know the data.

Before I treat it like a scientist, I treat it a little bit more like an artist.

I just want to know it and feel it it and experience it before I try to demand from it answers.

Can you describe what makes a data set good or usable for those of us who don't deal with data on a daily basis?

Whenever I'm thinking about new data set, I ask myself, what is it about this particular data set that is different from any data set I've ever had.

What's unique that will actually let me answer a question differently?

And if I can't put my finger on anything that makes it unique, then I know I'm not going to have a good outcome.

Give me an example of a data set that had something that you'd never seen before.

Well, a great example is one of the silliest data sets I've ever used, which was a data set offered to me by an ex-economist who had quit the profession and decided that his job should be to deliver bagels and donuts to office parks.

And of course, when he first mentioned the data set to me, it sounds so silly.

But what was so interesting is that because this guy was so OCD, he had entered into a spreadsheet the exact number of bagels and donuts he had delivered.

He had incredible cost data.

He had written down exactly how much each bagel and donut had cost him, even the cost of the cream cheese that he put with the bagels.

And in the end, it allowed me to write a silly paper because it was about bagels and donuts, but it shed light on decisions about prices and quantities that actually were really interesting because typical firms can never provide you with the kind of data that he provided me.

And aren't those the best data sets in your mind, the ones that seem silly at first glance, but actually are more telling about the human experience or about our decision-making processes?

It is true that most of my greatest hits have been silly because it's hard to draw deep human insights about really important questions.

It's often easier to do it around the fringes.

I would rather have the best of both worlds tell us deep insights about human nature and not be completely silly.

An example of another data set that to me was very exciting and really allowed us to do something others couldn't was a massive data set that Uber provided to us that I claim allowed us to, for the first time in the history of economics, credibly estimate a demand curve that somebody should care about.

Now, many of my colleagues will contest many of the features of what I just said, but it really for me was one of the purest, most enjoyable data projects I've ever worked on.

Just trying to estimate a demand curve, which seems so easy and so obvious, but in practice, it has been extremely elusive.

Okay, thank you, hedonist.

Hope that sheds some light on what Steve means when he says he likes to play with data.

If you have a question for us, you can reach us at at Pima at freeconomics.com.

That's P-I-M-A at freeconomics.com.

It's an acronym for our show.

Steve and I both read every email that's sent, and we look forward to reading yours.

Austin Goolsby got to live out an economist's dream.

steering the economic policy of the United States government in the middle of a financial crisis.

So in the second half of this conversation, I want to hear what that was like and also to get his take on some current public policy debates.

So one of the problems you were asked to think about was whether the federal government should bail out GM and Chrysler, who were both heading towards bankruptcy.

How did you approach that question?

It's funny to look back now by the 2012 campaign.

If you remember, Mitt Romney ran on the platform that Barack Obama should not get any credit for bailing out the auto industry because that was so obvious anyone would have done it.

And I was like, whoa, whoa, wait a minute.

I was there.

That's not true.

The two cases were actually pretty different, General Motors and Chrysler.

It was kind of grafting macro and micro together.

And the argument for the bailouts was a macro argument that all of the spillover jobs, parts, suppliers, dealerships, whatever, if the auto companies go down, then they're done.

So GM failed?

GM was too big.

And it's going to ripple through over and over and be disastrous.

Yes.

And if you looked at it nakedly from the cost to the U.S.

government, we had computed it was going to cost the government more if GM failed than it would cost to rescue GM.

Okay, so GM is an obvious case.

You bailed them up, but Chrysler is more complicated.

GM was kind of obvious.

So then Chrysler is much more complicated because now

the fear was we didn't know what is total demand going to be.

We're in the middle of the deepest downturn since 1929.

Overall purchases of cars are way, way down.

Is there enough demand to support all three of the big U.S.

automakers, Ford, GM, and Chrysler?

If Chrysler fails and Chrysler buyers would then go buy a GM or Ford car,

then the incremental impact of Chrysler's failure would not be near as big.

And if you try to save all three, in a way, you're trying to land planes coming both ways on the runways at O'Hare.

And there was a danger that you would endanger all three of the companies by trying to insist on saving them all.

You're saying, if I were going to buy a Chrysler car, but Chrysler didn't exist, I'd buy GM or Ford.

And your argument by extension was, look, if Chrysler just disappeared, it wouldn't reduce demand for U.S.

cars very much.

But now we would have two companies, two robust, healthy companies,

not three companies hanging on by a thread needing bailout.

That's one take.

My dad had worked for many years at this truck trailer manufacturing company.

And in the truck trailer business that had happened in a previous recession, one of the leading companies had a huge leverage buyout that went wrong.

And as it collapsed, even though the overall market was bad, everybody became strong enough to survive because one company had been sacrificed rather than everybody losing 15%.

Unlike many of the things you did in Washington, you put real thought and time into this, right?

You spent weeks doing this, right?

Thanks a lot.

Unlike your normal, non-thoughtful,

yes, we spent weeks thinking about that problem.

And then on the other side was the fact that there were a bunch of suppliers who supplied multiple firms.

Those suppliers said, if Chrysler fails, we're going to go out of business.

And if we go out of business, Ford and GM are going to be in big trouble because they get all their parts, their tires from us.

Ford, the direct competitor to GM and Chrysler, did not ask for a bailout.

They had raised their own funds in the private sector just before the crisis.

They testified that they wanted Chrysler and GM to be saved by the government, which is pretty weird in a standard economic model that the competitor would be like, ah, yes, we want the government to give money to our competitors so that they do not cease to exist.

So we were kind of back and forth.

And at one point, we had a meeting in Larry Summers, the NEC director's office, and he asked the team gathered how many people think if we bail Chrysler out, they will still exist in five years.

And it was 50-50 split.

So it was really touch and go of which it was going to be.

So that's the economics behind it.

I'd love to talk about the politics of what happened.

You've been thinking about this, but Larry Summers, who directed the National Economic Council, the other group of economic policy advisors, he had thought about the situation and come to a very different conclusion.

So you were thinking you should let Chrysler fail, but Larry did not agree.

So what happened next?

It was one of these where, as a process thing, having been friends with and known the president for a long time, my view was if something's over $10 billion

and the economists do not agree, the president at least needs to know that.

And

the NEC's job is to run the process.

And sometimes Larry's position could be all disagreements among the economists, we will resolve those amongst ourselves.

And then I will brief the president about here is what the economists have decided.

So in something like the auto bailout,

where the economists are really in disagreement, Larry was portraying it to the president.

like the economists have met and we all agree that you should do the bailouts.

And my view was this has a high risk of failure and making the other bailouts fail.

If you do this, I don't know if there will be enough demand to sustain them.

So the workthrough political solution was they would write a memo that recommended the rescue bailout for all of them, but they would include some pages.

where the people who thought it was a bad idea could present their case.

So we wrote that up.

I think we got two pages or something.

Evidently, they agreed to that, and then they ripped our two pages out and threw them away and sent in a memo that said, the economists all agree, this is what we should do.

I didn't know that at the time.

There's a person who manifests and monitors who goes in to the meeting with the president in the Oval Office.

And they will only let people in to how many chairs there are.

And as you might imagine, the time of the president is the most precious commodity there is.

They had a meeting, but I didn't know anything about the meeting.

I'm just working in my office.

And the person outside the door calls up and is like, why aren't you here?

And I'm like, I wasn't invited.

So I run, I come up to the door.

I go in and the Oval Office is packed.

But as soon as I walk in, it's obvious.

Oh, this is the autos team come to meet with the president.

And it was no accident you weren't invited.

You were not invited because you didn't agree.

I think it was not an accident.

Yes, I think that's correct.

And there were not really representatives from the side that was like, no, this is too risky.

They weren't in this meeting.

So it was, as I understand it, Obama himself who read the memo and said, well, this is very interesting.

Is this a consensus recommendation?

He asked them.

Mostly, really.

Who was against it?

Why aren't they here?

So I came over.

There was nowhere to sit, except the vice president wasn't at that meeting.

So Obama pats the vice president's chair.

He's like, sit right here.

So I'm between Larry on the couch and the president.

Larry's on my right, the president's on my left.

And Larry's just giving me the steak eye.

He's like, you wait till we're out of this room and you're a dead man.

The thing that Obama decided at that meeting was

we can't decide this here in passing at a meeting where everybody doesn't get to express their view.

We're going to have a bigger meeting where we hash out these issues later that day.

We go over and the president hears all the sides and he says, look, I understand there's a risk, but I feel that we have to do this and we're going to try to make the best of it.

My thing was the president is the guy that needs to decide this because it's $10 billion

and we don't agree.

And we were so happy happy to be proved wrong.

Alan Krueger, the late Alan Krueger, and I were on that side.

There was one way in which the United States was fortunate, which is demand for cars rebounded more than we forecast at the time.

So, in some sense, the market was big enough to keep everyone alive.

But to their credit, the big automakers did do a lot of major restructuring.

They had to cut costs.

They had to rationalize their product lines.

A bunch of dealerships closed.

They fired 25 to 30 percent of the senior management at these companies.

And that reform reinvigorated the auto industry.

And if you looked at the four years after that, autos were one of the single bright spots in the recovery.

I think the Washington intrigue is just really fascinating how the politicking by Larry Summers of trying to control the agenda in various ways.

That's interesting to hear as an outsider.

I also think this story is an amazing tribute to Obama because despite the fact that Obama was given limited information, he was intuitive and thoughtful enough to figure out the problem and to make sure he got the information he needed and then to call you and to have you there and to hear you tell your story.

And the third thing is that you sat there with an entire room glaring at you and and you told your story.

You said, This is why I think what everyone else in this room thinks is wrong with Larry somewhere staring at you, and he's an intimidating guy.

Yeah, that was one of those moments where I was like, This could be the end of my time in Washington, but I was okay.

That was my first meeting in the Oval Office.

He said, I understand that you have some objections.

And I said, It's not exactly objections, they're just risks.

And then he says, Larry, what do you think about that?

And Larry is upset.

He's like, That's wrong for 50 reasons.

And as he's talking, I look over my left shoulder, and on the wall is the original Emancipation Proclamation signed by Abraham Lincoln.

And I'm looking at it, and I'm like, this is unbelievable.

Like the first African-American president is sitting right here.

There's the Emancipation Proclamation.

I can't even believe it.

My attention draws back in, and Larry's like, and another thing that he said was wrong.

I was like, oh, geez.

The thing is, I got along with Larry in the Washington way.

He can be bruising, but I also observed many examples where if Larry Summers had not been the head of the NEC, policy would have gone tremendously worse.

Kind of saved the day.

It's just politics ain't beanbag, as they say.

And if you go there, you can't be afraid to take a punch because that's just how it is.

You obviously thrived in the Obama administration.

You were essentially at at the epicenter of the decisions that were determining the course of history.

What did it feel like to walk away from that?

I imagine there'd be a huge void.

You came back to academics.

Did you feel lost?

I had been instilled with this view of economists' role in government that kind of went back to my undergrad days working for Jim Tobin, who had been on the Council of Economic Advisors for JFK and had gotten into economics because of the Depression.

And his view was economics is most important and most useful in a crisis.

So fast forward, here was a crisis.

And my view was the country's founded on people willing to put down what they're doing, go serve the country, and then go back to what they were doing before when the crisis is over.

And so that was our plan.

The nagging existential angst that comes in academics, every day you you wake up and then you go to work and you're like, no one cares.

No one's listening.

And you never feel like that in Washington.

There's a whole bunch of things that are terrible about it, but you know why you're getting up.

Everything that's happening matters and everything has like a lot of zeros on the end of it.

Having that impact, the transition point is especially hard.

As I say, it's a bit like going to the moon and it's amazing and not that many people have ever been on the moon And like you stuffed the moon rocks in your pocket and like you brought them home and show your grandkids, look, I was on the moon, but that doesn't mean you want to live on the moon.

It was time to come back.

But, you know, I still wake up every week and be like, no one cares.

No one is.

What are we doing?

I just want to ask you some questions about economic policy.

What's your take on income inequality?

Bad.

Look, the things that are multi-decade trends, the fact that they're multi-decade trends tend to show that there's some fundamental forces at work.

I've been of the view that cutting taxes for high-income people in an environment where the forces in the economy are already leading to massive increases in income and wealth at the top doesn't make sense to me.

And I think the evidence shows that those tax cuts kind of were nonsense, the claims that they would generate growth, that they would pay for themselves.

So I think that some tax policy component is part of it.

You like the idea of a billion-dollar tax?

I don't know.

The issue with wealth taxes, when you come down to the details, are how will we evaluate, is everybody going to have to have everything appraised every year?

There are a bunch of details that you have to work out.

But the basic idea that high-income people should pay a higher share of their income and taxes, I have no problem with.

I do think some Democrats can convince themselves that that's all that matters, and that's clearly not.

And I do think there's still a significant role for reducing inequality by upping the educational attainment of broader Americans.

I think that community college is a big part.

If you started with just those two things, I don't think that would erase 40 years of inequality, but I do think it would be helpful.

What do you think of universal basic income as a policy?

I haven't been that big of a fan of universal basic income.

UBI is a policy designed for a world where everyone has lost their job and the robots have replaced us all.

So in a world where no one has a job, and four people own all the robots and make all the money of the world, you know what the policy has to to be.

We have to raise taxes on those four people and use the money to keep everyone else alive.

But that's not the world we're in.

The unemployment rate's 4.2%.

The job market's extremely tight.

So that leads me to my first question about how UBI will work.

If what the UBI does is lead a bunch of people who have a job to say, I'm going to quit my job.

because I only had this job because I needed to pay the bills, but now I can pay the bills without it.

Would people still be willing to pay the money for the UBI if they're like, wait a minute, I was going to pay a person whose job was lost to a robot and he couldn't find something else.

I wasn't paying for you to quit.

Second, I think there's potentially a fear among the really needy that right now they receive benefits that are more generous than what the UBI would be, but there's strict means testing.

So if you are disabled, you get more than what you would get under the UBI.

The question of should the redistribution money go primarily to the truly needy or should it be divided up into smaller packets and handed out to everyone, you could see how people that are advocating for the truly needy are going to be nervous about a situation like that.

And then the third is, if your view is kind of the libertarian fantasy of this, that a UBI would replace the safety net, ask yourself, why does the safety net exist?

And the safety net exists because once countries become rich enough, people are fundamentally deeply uncomfortable with the thought that you could walk in and be like, I'm sick, I'm dying, but I don't have money.

And therefore, you would be told, no, you have to die because you don't have money.

My kids are starving because I don't have money.

We invent things like food stamps, like emergency rooms where they must take you because we're rich enough that we don't want society to be that way.

The thing about the UBI is if you replace the safety net, you're going to reinvent the safety net because somebody's going to come into the emergency room and be like, I'm dying, but I don't have insurance and I don't have any money.

And then they're going to say, but that's what your UBI was for.

And he's going to be like, well, I blew my UBI, like I shouldn't have, and now I don't have anything.

And the same thing that got us the safety net now is going to reinvent the safety net.

So I don't think the UBI would solve that.

But I applaud the like, let's think through other ways to do redistribution and separate the most threatening parts of the future from what people's fears are.

But if we applied a tax of $10,000 on every person that we then turned around to give $10,000 to every person, we would all agree that doesn't do anything.

So then you got to ask yourself, how is the UBI not that?

And usually what you have in mind is, we'll get high-income people to pay more.

But now once you're in that world where you're going to tax rich people and ask, what should we do with the money, is the best investment of half of that money to give it to people who are above average income?

Because the UBI does that with the money.

And I kind of don't think it makes sense.

How about a carbon tax?

Carbon tax, in theory, seems interesting.

A, raises revenue.

B, you tax something that's harming the planet.

The issues with all climate change stuff is back to these practical considerations.

There's 200-something countries.

Are all the countries going to agree to it?

Are they monitoring the carbon?

sufficiently that they're going to pay the tax?

And if not, you could be like Vermont.

Vermont has very strict emissions regulations on Vermont companies.

We can all agree that doesn't reduce overall emissions.

It just moves the emissions out of Vermont.

So if just the U.S.

put in a carbon tax, I don't think that would work.

A unilateral U.S.

carbon tax.

You are not a big fan of that.

Well, it depends how big it is.

But if it were sufficiently big that you're trying to reduce global greenhouse gas emissions, I think you just got to think through this issue of how you're going to get compliance with other countries rather than just move the activity out of the U.S.

There are proposals to do that, but they are like these carbon content tariffs and stuff like that.

That seems like a no-brainer.

Why wouldn't the U.S.

jump at the idea of putting a tax on any products that are being imported into the U.S.

that have a carbon footprint?

Overall, tariffs are terrible.

You could make the theoretical case that would make sense.

If you're going to have a carbon tax and if other places won't impose a carbon tax, then you put a carbon tax on them.

But A, it wouldn't apply to anything that's domestic.

Most of the Chinese economy is about China and it wouldn't apply to that.

And then B, it does open the door to a bunch of other considerations too.

If you're trying to address climate, Carbon content seems like an obvious tariff.

But then there will be people who say, let's have a human rights tariff.

Religious countries, they'll be like, let's have a heathen tariff.

The people who made this do not worship the true God, so they should pay more.

I guess that's a slippery slope argument, which I usually hate, but I do think you got to think through what comes next when you impose that.

So I'm surprised to hear you say that because I thought that all economists thought a carbon tax was a great idea.

I think in general, a carbon tax is a good idea.

It's just hard.

It's got to be tricky in the implementation.

You can't have a Vermont-only carbon tax.

That's just for show.

I always like to ask my guests to offer some advice to listeners.

And you are obviously an incredible communicator.

Are there any tricks or strategies that you use in that regard?

Not intentionally.

I was decided from an early age that I wanted to be an economist and I

did economics, and I got a PhD with no break.

I went from PhD straight to the University of Chicago.

That's been my life is being an economist.

I actually think that seeing alternative perspectives as much as possible as I've gotten older is, I realize, is critically important.

And there's an old book called The Difference.

It's about the narrow research question of what makes the best teams for judgment.

And what it shows is that teams of people with different views destroy teams even of experts, precisely because when experts go to make a decision, if they make a mistake, they're all prone to making the same mistake.

And that there's somebody who comes at it from a totally different point of view can be in the moment super annoying.

But it's like, oh, no, why are they harping on that again?

But actually, it helps helps you prevent the biggest mistakes.

And it's not true for factual things.

A panel of expert plumbers is going to do a lot better at how do we fix the dripping pipe than a collection of non-plumbers.

But anything that has to do with judgment, you're better off trying to branch out your network beyond just people who look.

think or work just like you.

Maybe that's a lesson that I learned more from politics and from being in DC, because within academics, there's so much emphasis on specialization.

And it's not just that we talk to economists.

It's like within economists, we tend to talk to the people in our own field and the people who do things the same way.

But I have come to believe that's critically important and that I made a terrible error just charging through life just to be an economist.

But you didn't really charge your life because you were an economist, but somehow you had it in you to be a debater and do improv comedy.

That's the trifecta of Renaissance, man.

I have to say, I was surprised by Austin's answers to the policy questions.

I might have guessed he would have given the opposite response to almost everyone.

I was especially surprised by his pessimism around implementing a carbon tax.

When I talked to Richard Thaler a few episodes ago, we concluded that the absence of a carbon tax was a sign of how unpersuasive economists are, because essentially, all economists think that a carbon tax is a good thing.

But Austin casts things in a whole new light.

Implementing a carbon tax, well, it's hard.

And of course, there's no point in implementing a carbon tax poorly, so maybe that's why there's no carbon tax.

Still, I have to believe the implementation issues aren't that hard.

I guess I know what my homework assignment is.

Figure out a sensible, implementable, enforceable carbon tax.

And if I can persuade persuade Austin, then that only leaves about 8 billion people who remain unconvinced.

Thanks for listening and we'll be back next week.

People I Mostly Admire is part of the Freakonomics Radio Network, which also includes Freakonomics Radio, No Stupid Questions, and Freakonomics MD.

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We can be reached at Pima at freakonomics.com.

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Thanks Thanks for listening.

And I entered DC's funniest celebrity contest and I won.

And in my thing, yes, I made fun of Republicans, but I brutally made fun of Ram Emmanuel, the chief of staff.

And I remember somebody saying, you better win, otherwise, Rahm is going to fire you on Monday.

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