40. Harold Pollack on Why Managing Your Money Is as Easy as Taking Out the Garbage

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Now, on with the show.

Financial advisors charge their clients more than $1 trillion in fees each year.

That's trillion with a T.

But my guest today, Harold Pollack, says, everything you need to know to manage your own money fits on an index card.

Can it really be the case that a trillion-dollar industry is adding essentially no value?

Welcome to People I Mostly Admire with Steve Levitt.

Harold Pollock is the last person you would expect to be leading the charge against the wealth management industry.

A soft-spoken public policy professor, his research is about healthcare and crime, not finance.

He's just a regular guy who, through a series of unlikely events, has become the spokesman for taking back control of your own portfolio.

Deciding not to hire a money manager or to fire the one you already have might turn out to be the single most important financial decision you ever make.

Let's see whether Harold can convince you that it's a good idea.

So do you still have the lazy boy recliner that launched you on your path to being a personal finance guru?

I do.

It turned out to be a good investment.

It was extremely expensive, but it's still in our house doing its thing.

Okay, so what does that chair have to do with anything?

I basically never paid any attention to personal finance at all until I was age 40.

Wait, let me stop you, Harold, because you're a public policy PhD.

You're a professor at the University of Chicago.

How did you get to the age of 40 without understanding how to manage your own money?

Well, it's not that I never understood it.

It's that I never bothered to take the time to actually do it.

Those are two different things.

There's nothing super complicated about managing your money properly, but you actually have to give it due attention and priority.

No, it's interesting because my background is completely different.

My father...

enjoyed investing as sport or gambling.

So when I was eight, he he taught me about options.

So option trading.

Oh, wow.

And we would have the Wall Street Journal delivered to our house.

And then I took finance in college and more finance in graduate school.

So it's just interesting that we come from totally different perspectives.

And that's obviously, I think, going to be important when you describe what happens next, which is that you had essentially a family crisis that led you to buy a lazy boy chair.

Yeah, that lazy boy recliner played an important weird role in my life in focusing my attention on how I should actually manage my money.

I was a professor of public health at the University of Michigan, and I moved to the University of Chicago.

And a couple of months after we arrived, my mother-in-law died suddenly and tragically.

And my wife's brother, Vincent, who lives with this intellectual disability called fragile X syndrome, he had to move into our home.

And my wife torpedoed her own career aspirations in that moment pretty significantly.

We started assuming the obligations for taking care of him.

And he was 340 pounds when he moved in.

He didn't fit on our furniture.

We had to go out and buy a lazy boy chair that could accommodate 340-pound man.

And it was really expensive.

It was $750 or $900.

And I thought, in a very matter-of-fact way, I am going to hemorrhage all my money.

I was a tenured professor at the University of Chicago, but I was certainly not a super affluent person.

You know, I contributed to my 401k, but I really hadn't saved my money much at all.

And in fact, the University of Chicago had to help me with my down payment when I moved as part of the recruitment.

And there's a gentleman at Harris Bank who at the time I was very rude to.

And then I realized after the fact was one of the best and most generous financial professionals I've ever dealt with.

When we went to buy our house, I went to the bank and I basically described, you know, the Taj Mahal house that I wanted to get.

And I had just gotten tenure, so I was in that complete, don't you know who I am phase.

I don't know if you went through that, but I went through that.

And I start describing all these things.

And at some point, I stopped to take a breath.

And he says dr pollock you're not a good customer you're 40 years old you have no money of your own all the money that's going into buying this house is coming from the university of chicago i'm going to talk to you because the university of chicago asked me to talk to you but dude you've got to just ratchet down your aspirations for this house and i ended up buying a house that was significantly less expensive than this mortgage calculator said i could afford And that was a couple of months before I had a personal financial crisis.

And one of the things that saved me was that I didn't have this huge mortgage hanging over me.

How were you rude to him?

I was curt.

I basically was like, yeah, I can get a mortgage from somebody else if you don't want to give me one.

I think his attitude was, boy, that would really be a tragedy.

He really saved me because when you have a family financial crisis, there's a lot you can do to cut down on your spending, but you can't change your monthly mortgage payment.

You could try to refinance or whatever, but you're stuck with your major obligations.

And I probably bought a house that was $75,000 cheaper than I would have otherwise.

That probably mattered for us in that moment.

So the lazy boy chair is just a symbol of what was to come, medical bills, lost wages from your wife, and all sorts of things.

Yeah.

Then somewhere along the way, you started thinking a lot more about personal finance.

And then on an interview, you just...

as a lark said everything you need to know about personal finance could fit on an index card.

Yeah, people say like, where's the index card?

And I didn't have one, but I had planted a flag in the ground.

And so I I pulled out one of my daughter's index cards.

My daughter was a middle school student and I just scribbled on this card, maybe 90 seconds, two minutes.

I just scribbled a bunch of things and I took a picture with my iPhone and I posted it and I got 400,000 hits on it.

I bet you never thought you would be the kind of guy to go viral.

No.

Absolutely.

The idea that I would become known for anything financial is just hilarious.

It's basically save your money.

Don't buy individual stocks.

Maximize out your 401k the best you can.

And a lot of people resonated with it.

You know, they could print it out, put it on their refrigerator.

I genuinely am very proud of this card because I think we helped people.

Like any good academic, you figured, why miss an opportunity to turn an index card into a book-length project?

So you published a book called Index Card, Why Personal Finance Doesn't Have to Be Complicated.

And you co-authored that with Helene Olin.

And it was really a big hit.

Like you said, I think it's affected so many people's lives.

So let me just give folks an example of some of the rules that I very much agree with.

So rule number two, it says pay your credit card balance in full every month.

100%.

And credit cards are such a problem for all of us.

It's a little poker chip in your pocket.

A credit card is essentially a loan.

And if you're not paying it back in full, it's a 16% loan.

Paying that bill off in full every month is very difficult to do for a lot of people, but it's absolutely essential.

I think another one, literally you could not find an economist on the planet who would disagree with rule number three, which says max out your 401k and other tax-advantaged savings accounts.

Subject to the caveat that assuming you're going to save it all.

By the way, I should say, I wish in our book we had written more about Roth IRAs and strategies for people of lower income for whom the 401k has some challenges.

There's a lot about my book, which is awesome for people who are basically middle-class people or upper-middle-class people.

And for someone who's a cashier at Target, Target, some of the advice that I give needs to be tweaked a bit.

Yep.

And so the reason you want to invest in these kind of savings vehicles is because they're heavily subsidized by sometimes your employer and by the government in terms of avoiding taxes.

And so it doesn't make any sense to save in another form until you've maxed those out.

And I'd say also that they tend to have very low fees compared to other investment things you do.

And if you go with any of the big vendors like Vanguard or TIA Craft, they have very low fee, sensible things you can invest in, put in your 401k, forget about it.

It'll do its thing.

It's like taking out the garbage.

You've attended to something important and you can put it on automatic.

You don't have to be spending a lot of time on it.

But there's one rule in particular that I think you got wrong, or at least I would have argued very differently.

And that is rule number six.

You wrote, make your financial advisor commit to the fiduciary standard.

Okay.

Why isn't rule six, never, ever hire a financial advisor?

That's a good question.

The sentence I'm about to speak will make my family laugh.

I keynoted a financial conference in Vegas that included mostly financial advisors.

And everyone in my family was like, you're kidding.

The thought of you in Vegas keynoting a shindig about finance, that's so not you.

And I talked to my audience members about this rule, and they were financial advisors.

And I thought, gee, they're going to be insulted by what I wrote there.

If you want your financial advisor to find you the next Tesla, the next Apple, they're not going to do that.

If they had that kind of information, they wouldn't be talking to you and they don't.

What financial advisors are good for, though, is talking to you about your life and how to plan your financial life in a sensible way.

If you say, you know, I've got a couple of kids and they're in eighth grade and I've got a sister who's got some challenges and I've got some things going on in my life.

How do I manage my money so that I'm doing a good job meeting my obligations and thinking in the long term?

Have you thought about opening up a 529, but doing it this way?

Or a person who talks you off the ledge when the stock market starts declining and you want to do something rash and they say, just calm down, don't do anything right now.

Okay, so that's fine, Errol.

But the point of your book and a point I wholeheartedly agree with is that personal finance is simple.

And given the fees that financial advisors charge, virtually nobody should have them.

Your book says, look, if the stock market crashes, don't liquidate your portfolio.

Literally for the price of your book, $12,

and maybe a little bit of discipline.

Let me tell you a story.

So the year after your book came out, I started teaching a new undergraduate course with another professor who you know, John List, called Economics for Everyone.

And it was just trying to teach the ideas of economics.

And partly inspired by your book, I gave one lecture on personal finance.

And there was one particular calculation that I made in the process of writing up that lecture that surprised me.

Now, imagine you are 25 years old and you've just inherited $100,000 and you decide you're going to invest it and you're going to invest it for 40 years that you can spend it when you are 65 years old.

And you consider two possible options.

So the first one is you just go and buy a mutual fund that mirrors the SP 500.

You lock in the average market return at low fees.

And that's essentially the advice in your book.

That's what you would tell someone in that position to do.

That's absolutely, yes.

And historically, including inflation, that kind of asset would give you a return of roughly 11.5% per year.

I was cheating and I got 10.28 as you were saying that, but go ahead.

Okay.

Now, the second option would be that instead of doing that yourself, you could hire me.

You could hire Steve Levitt to be your financial advisor.

And I would charge a fee of 1.5% of the portfolio value each year.

And I think that's a pretty standard kind of fee for someone who has an account with $100,000 in it.

So the first year, I charge you $1,500 in fees because $1,500 is 1.5% of 100,000.

Now, of course, there's no reason for me, Steve Levitt, to think I can beat the market.

So I just buy the exact same mutual fund that you would have bought yourself that mirrors SCP 500.

And so in the end, in both cases, with and without the advisor, you'll get the average market return on your portfolio.

But in one case, you're not paying any fees to the financial advisor.

And in the other case, you're paying fees.

How much will your financial advisor cost you over those 40 years in the scenario I just painted?

Just like intuitively.

It's 1.5% per year?

Yeah, just a standard fee.

So every year I take whatever's in my portfolio and in return for the investment advice and talking me off the cliff and telling me about 529Bs or whatever, just a 1.5%.

It's a fee.

In this case, I'm not actually doing anything, but I would pretend to do stuff.

I'd send a nice Christmas card every year.

I'd make you feel safe and warm and loved.

That's what you get for your 1.5%.

I'm going to tell the answer.

If I don't hire the advisor, then I would end up incredibly, because of the power of compounding, with $7.78 million, right?

So over 40 years, at 11.5% per year, you're going to turn your $100,000 into $7.78 million.

If you hire the advisor, you're going to get $4.53 million.

So the advisor is going to cost you $3.25 million.

And my intuition would have been maybe it's a tenth of that.

I think we just don't think well about compounding.

And in a world in which your advisor is not getting you big returns, it's just incredibly costly.

I totally agree with that.

By the way, the type of financial advice that we recommend is that you pay somebody an hourly fee.

Basically, I'm going to talk to Steve Levitt for two hours and I'm going to write him a check for $600.

Okay, so that is better than the typical.

Obviously, somebody's paying something something because

the worldwide wealth management industry generates over a trillion dollars in fees.

So somebody's getting paid a whole lot of money for, I would say, not doing enough to earn that trillion dollars in fees.

I completely agree with that.

By when you talk to financial advisors, they often agree with that too.

And when I was out in Vegas in this Tom Wolf-like experience, one of the things that the folks said to me was, I actually provide a lot of value to my clients.

They have all sorts of complicated family issues that I help them with.

I'm a trusted counselor.

If I said I'm going to charge you $300 an hour, they would basically tell me to F off.

If I say I'm going to charge you 1%

of your portfolio, they're willing to do that.

The fact that it is way more than $300 an hour somehow doesn't compute with a lot of people.

Your point is completely valid, but I would just say paying $600 to spend two hours with a smart person who could really go through your finances with you, that could could be a really great investment.

Not having that person manage your index fund, which doesn't need to be managed by anybody.

What's interesting is how persistent that business model is and how that inefficiency survives.

And it's not like you and I think that this is inefficiency.

I think any economist would agree with me that it's crazy that the market is structured like this and people pay such enormous fees.

Yeah, it is.

And some of it, I think, is regulatory failure.

The system is set up to allow the industry to have tremendous mismatches of incentives, to treat their customers in a way that really departs from the fundamental integrity we would like to see businesses operate in.

And I do think that some of the efforts under the Obama administration to strengthen fiduciary protections and so on are just really important because people don't want to think about their money.

It's scary.

They don't want to make a huge mistake.

That makes people very vulnerable.

to unethical business practices.

Yeah, I agree.

I do want to stop and say one thing because I could imagine people being really confused because you and I keep on saying, look, this is simple.

Really, finance isn't that hard.

Let's not even focus on anything other than investing in the stock market.

Let's just focus on that because that's what I'm really talking about.

And in modern life, almost every activity requires real expertise to be able to do it.

For instance, to fix a car engine, you really need to know a lot about cars.

And the same with open heart surgery or writing computer code.

But with investing in the stock market, ironically, that's just not true.

And it's a market.

And the miracle of the market is that prices, in this case, the stock price, they incorporate all the relevant information automatically.

So consequently, I don't need to do a sophisticated analysis.

If I'm thinking of buying Amazon stock, I don't need to know what the present discounted value of future Amazon earnings are going to be because there's a bunch of wonkheads who are out there with a lot of money in the line who've who've already done that.

And so these sophisticated traders end up setting an equilibrium price that is basically appropriate.

And in fact, if I knew what present discounted value was as a term,

am I really going to be as good at understanding Amazon as somebody at Goldman Sachs who's the full-time Amazon analyst who's investing serious capital and is moving that stock price around?

Right.

But the beauty of it is that because there are informed traders and they're hashing it out between themselves to figure out what the right price is.

Uninformed traders like you and me, we get average returns without knowing anything.

We can just pick stocks at random and generate an average return.

Okay, so for people who have a deep fear of finance and feel like it's beyond them, this is actually the key insight.

Throwing darts at stocks is not hard because everything's taken care of for you.

And I think that's the part that often somehow gets lost in communicating to lay people why they don't need to have as much anxiety as they do towards financial investing.

Yeah, no, I think that is right.

Now, you're always going to know someone.

You're going to have some cousin who bought Apple in 1990.

And the best piece of investment equipment that you could possibly have would be a time machine.

And if you had one of those, you could definitely get some awesome returns.

But your point is absolutely correct.

And the time that you spend understanding Amazon's business model is just so much better spent on your your day job, on your family, on being a good person and citizen and worker.

There's a lot about the stock market that needs to be addressed.

There's a lot about American capitalism that doesn't work.

But this aspect is something that does work and that you want to be cognizant of and just methodically be a passive investor for the long term.

Now, I've been obviously too hard on financial advisors because I do think you're exactly right.

They can keep you from doing really silly things.

I do think that people would be better off buying your book than paying huge fees.

You know what they could do is they could buy a thousand copies of my book as the equivalent of the fee.

That would be a good strategy.

I also, I want to be respectful that people are in different life circumstances.

And I had this personal crisis that was very, very difficult for our family in all kinds of ways.

I had a lot of resources to deal with it.

And I did have that PhD to deal with it.

And one of the rules on my card is we have to support social insurance and have each other's backs when things go wrong.

And one of the wonderful things about saving your money and being able to be an effective saver is you can help the people in your life.

I would love to see financial literacy combined with genuinely more policies that help people of modest incomes.

Because a lot of those parents who don't know a ton about index funds or whatever, that's the person fixing your car and getting paid $12 an hour to do it.

I want to get more resources to that person because one reason that I was so bad with money until I was age 40 is my wife and I were just scraping around for money.

We were young parents living on a single reasonably modest salary as an assistant professor.

And we were just spending all of our time and attention thinking, am I going to make it to the end of the month?

And the idea of having a long conversation about index funds, that was just not something I was going to spend a lot of time on.

So I want to be respectful of that reality as well.

You're listening to People I Mostly Admire with Steve Levitt and his conversation with public policy professor Harold Pollack.

After this break, they'll return to talk about Harold's research on crime and policing.

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Hi, Steve.

Hey, Morgan.

How are you doing today?

I'm good.

How are you?

I'm great.

So a couple months ago in our episode with economist Dimbisamoyo, Samoyo, Steve, you told a story about sitting on a corporate board with a fellow economist and at one point he made a comment right as you were about to speak.

And it dawned on you that because you were both economists, you were kind of redundant on this board because you both approached problems in the same way.

Yeah, it wasn't just one time, it was literally every time.

We always thought exactly the same way.

Well, you asked our audience a question and I have a clip of it.

Is this also true in the discipline where you got your training?

Do people in your field more or less think alike, but very differently than people who don't have that training?

So I thought we should report back on what we heard because a bunch of listeners wrote in about how people in their field and people in their profession think.

Right, we got 15 emails from people responding to that question, and 14 of them agreed with my hypothesis that training within a discipline makes you think the same way.

The best example was we got three emails from computer programmers, and these three emails were so similar that I actually was confused.

I thought the same person had sent me the same email twice.

I actually had to go back and reread the previous one to realize that there was actually two different emails sent by two different people, but they literally said exactly the same thing, which was the most impressive evidence I could have for that hypothesis that people in the same field think exactly alike.

But there was one email that was different.

I think you're talking about the political scientists that wrote in.

Is that correct?

Yes, there was a political scientist who wrote and said, actually, in political science, we have the problem that we can't agree on anything.

And what's so interesting about that is I've actually noticed independently that political scientists don't think alike.

And I have a strong hypothesis about why that is.

Almost every profession is organized around a methodology, right?

So economists have a way of tackling problems and engineers have a way of tackling problems.

But political science is actually organized around a topic, not a method.

So political scientists think about politics.

Some of them use data to think about it.

Some of them are philosophers.

The people who call themselves political scientists actually have nothing in in common when it comes to training.

And so it's not at all surprising that they would not share a similar worldview the way, say, economists do.

That's super interesting.

And it was a reason why when I was thinking about early in my career, should I be an economist or a political scientist?

I said, no way am I going to get stuck in the political science department where no one can ever agree on anything.

That's one of the reasons I became an economist.

It is crazy to me to think of you as anything but an economist.

So I think you ended up in the right profession.

Anyway, Anyway, thanks so much for writing.

We're loving all of your comments and questions.

Please keep writing in.

Our email address is pima at freakonomics.com.

That's p-im-m-a at freakonomics.com.

Thanks so much.

Hey, and Morgan, you forgot to say that you and I both read every email that comes in.

Oh, that's true.

We do.

We read every single email.

So please keep writing in.

Now let's get back to the interview.

All right, as you've made clear, being a personal finance guru is, of course, really more of a hobby for you, not your actual job, which is being a professor of public policy.

And a number of years back, you co-founded with Jens Ludwig something called the University of Chicago Crime Lab.

Yes.

Can you tell people a little bit about the Crime Lab, what it is, and what it does?

Now, I should say, Jens Ludwig, and Rosanna Ander are the true energy behind that, but I did co-found it.

The idea there is to rigorously study crime and to do randomized trials that try to examine interventions to see what's effective in the real-world environment in Chicago and other places.

And one of the things that I really admire about this work is it gives people a sense of realistic, evidence-based optimism that there are feasible things we can do that will actually work and will make a difference.

So one of the things that we studied was an intervention called Becoming a Man that Youth Guidance did, which is a group-based cognitive behavioral therapy-influenced intervention for high school boys in Chicago.

And Sarah Heller was the first author on a publication that we did at the Quarterly Journal of Economics, where we showed 40% decline in arrests among the kids who actually participated in the intervention.

Yeah, I have to say, I was in on some of the initial discussions when the crime lab was being founded, and I was a huge skeptic.

I thought it would just be too hard, the coordination on the ground with these service providers and the amount of negotiation it would take with the Chicago police or with the Cook County Sheriff's Office.

And I said, no, thanks.

I want no piece of it.

And I am so glad that I was absolutely wrong.

And it's turned out to be an amazing visionary organization, which has been showing people what can really be done.

And another randomized trial that I was also involved in that was with some of the same people showed that tutoring, math tutoring, is quite effective in raising kids' test scores in the real world environment of Chicago to show that realistic interventions that are not super expensive, that are not super complicated, that don't require bringing kids into the psychiatry department of an Ivy League University for some sort of special intervention, those things can work.

And a lot of the work that I'm doing now, we're doing randomized trials for folks leaving jails and prisons who have opioid use disorders, trying to connect them with evidence-based treatments and someone who can help them navigate the predictable obstacles to getting into treatment and staying there.

I'm equally proud of our studies that showed null findings or that showed findings that were less terrific than we had hoped.

David Meltzer is another professor at the University of Chicago.

David Meltzer and I are principal investigators on a study of something called the Supportive Release Center, which is for people that left Cook County jail who might be vulnerable to homelessness, things like that.

And we showed this program definitely had some benefits.

We also showed that there were some areas where the benefits weren't as large as we had hoped.

It's just as important to stop spending resources poorly as it is to figure out how to spend resources well.

There's a flip side of the same coin.

But I would say also some of the lessons that you learn are very granular.

There's a benefit to some of the older borderline homeless dudes if you say, when you're leaving the jail tonight, here's a place you can go and spend the night.

So you don't have to be as worried about being homeless tonight.

And there's much less of a benefit among the younger guys.

They look at those older borderline homeless guys and they're like, I am not that good.

That is a very stigmatizing frame for them.

If you say, you know, there's this place you can go, you can take a shower, you can use the phone, you can call your girlfriend.

Some people stay the night if they want to do that.

And that's a much more attractive approach.

The most effective intervention in the world is one that people actually want to do.

A quick note about the next segment.

Harold Pollock and I talk about Chicago gun violence, including police shootings of civilians and police who are shot in the line of duty.

A conversation was recorded before the most recent tragedy.

Last week, two Chicago police officers were shot during a routine traffic stop.

One of those officers has died.

And this is just the latest example of how we need to find a solution to this complex issue.

And you'll hear Harold and I talk about some ideas.

Okay, back to the show.

A policy I've been pondering, it might not work at all, but it seems to me that the typical police officer goes through their career, they virtually never shoot their guns, they're out of practice.

What if we just took guns away from 90% of the police officers and responders didn't have guns?

And when there were particular settings that you wanted police who had guns, you would send in a set of very well-trained gun-toting police who every day had 10 different situations in which they were potentially having to use their guns and they knew what to do in those situations.

What do you think of that proposal?

You're describing the London Police Department in some ways.

Yeah.

I mean, you know, there is gun crime in England and they do have armed units that respond in the way that you describe.

What do you think about that for the U.S.?

I think there's something to that.

I must say, a lot of the times when you want an unarmed responder, you should ask the question, do we need a police officer to be the responder?

Or should we have a police officer there, but have someone else there doing the main part of the response?

I do think, given the proliferation of guns in the United States, that I have a lot of sympathy with police officers who say, yeah, I'm armed because a lot of the people that I go to arrest are going to be armed.

I'm a liberal Democrat and political activist, and you can pretty much guess all my political views on a lot of stuff.

I have a lot of sympathy for the reality that police confront, that there's just a lot of guns out there.

And I can certainly understand why police are saying we need to have access to weapons.

Now, how they they use those weapons is a whole other question.

The London response is great for the level of firearm ownership that you have and possession that you have in London.

I think it would be hard to do in the south side of Chicago.

I just wonder, though, so the numbers are that the police shoot and kill 20 civilians for every civilian who kills a police officer.

And I actually don't personally think that the reason that civilians aren't killing police is because police have guns.

I think civilians are not killing police because they know if they kill police, they will be caught and they will spend their life in prison.

So look, I don't know the answer, but I actually suspect that if you did go down this path, I wouldn't expect many more police officers to be shot.

In fact, I might go the opposite way, that police officers are being shot because people are afraid of being shot.

And if you knew the police weren't going to shoot you, Obviously, there'll be some crazies who are going to shoot police and try to kill police.

But I'm also not suggesting that you send unarmed police into combat situations.

I'm saying you send unarmed police to go survey what a call looks like.

I do think your point is well taken in a couple of different perspectives.

Here's an example.

Do you know how many Americans, I believe this is true for 2019.

Do you know how many police officers in the United States were murdered with a bladed weapon in the United States?

No, I don't.

Zero.

Yeah, that makes sense.

But if you go to police training in a lot of police departments in the United States, they will show people videos of like a martial artist getting close to a police officer and overpowering and killing that police officer.

And there's definitely been cases where that happens.

They're incredibly rare.

And so like in the stuff that I deal with, people with serious mental illness interacting with police, the police often have a sense of danger from their own training that exceeds the actual level of danger that they face.

And what's actually required to safely diffuse that situation is just staying away from that person, giving that person time to calm down, and for the police officer to be vigilant, but to not think that there's a high probability that you got Bruce Lee over there who's going to somehow overpower you and kill you.

The other thing, though, is who else is present and what happens before and after those crisis calls.

I'm all for responding to the incident better in the way that you're describing.

But if you think about the issue that you and I were just talking about, that is what we do in the three minutes of interaction after a 911 call is made?

And what's happening the two weeks or two years before or after that 911 call happens?

After that 911 call is resolved?

Who's coming back and saying, hey, how's it going?

There was a crisis that led to a confrontation with police.

What's happening now?

Do you have a place to live?

What's happening with your substance use or your mental health issues or the family issue that sparked this?

That's not a police issue.

That's a social work issue.

That's a medical issue.

That's a mental health issue.

That's a housing issue.

And we put so much pressure on police.

And we want you to manage that 911 call perfectly.

That's not always going to happen because police officers are actual humans.

And there's all these other failures and other systems that are often happening before and after that 911 call that we don't talk about with the same intensity.

that are actually things that are much more readily fixed.

Yeah, I think there is such a tendency when you're thinking about crime to look for criminal justice solutions.

But what you're saying is there's actually social work solutions, there's support services that work in the background that could be something you do for crime.

Yes, absolutely.

And there's way more attention to that now.

Every big city police department is trying.

to fill that hole in one way or another.

So if you look at crisis intervention teams, crisis intervention training, there's a tremendous effort to recruit some segment of the police department to get some mental health training, some crisis intervention training, and to have those people be the first line of defense when someone's in a mental health crisis.

And in fact, a postdoc of mine, Connor Murray, is presenting a paper on some of the qualitative interviews that we've done with people who run homeless shelters and mental health facilities about when they call 911, who they want to come, and that sort of thing.

And they often say, I want a CIT officer, an officer who's been through in Chicago roughly a 40-hour curriculum around mental health, behavioral health, and strategies to respond effectively when people are in crisis.

There's two things people like about that.

One is they have the right training.

And the second is the person chose to have that training, and that's a person who's self-selected to say, hey, I'm interested in being an effective responder to these mental health calls.

A lot of the officers who sign up for these CIT type of units, they often have someone that they're connected to with a mental health issue.

Sometimes they're veterans.

A disproportionate number of folks tend to be women.

And women officers are often very good at diffusing situations.

And a lot of people who are in a behavioral crisis for one reason or another, they sometimes respond differently to women.

Sometimes if you have a policewoman who can say, Steve, could you just lower your voice?

You're frightening that child over there.

Could you just help me and quiet down a little bit?

Sometimes that gives people a dignified path to calming down that is important.

My wife and I, we take care of her brother, where our conversation started.

My brother-in-law, Vincent, is 260 pounds.

And people with fragile X syndrome very often can be physically aggressive.

About a third of the caregivers for young men with fragile X report that they are injured by their sons.

And if you go on any kind of Facebook group about fragile X, one of the things people talk about is, would I ever call the police?

And the most common answer that I hear and the one that my wife actually embraces is I'm not going to call 911 because I'm just really scared that some 26-year-old officer is going to walk into our home and what do they know about this?

And they're going to be dealing with this 260-pound man who has a developmental disability that they've never heard of and who's really agitated.

And I'm afraid of what will happen.

So crime is one thing you study, and the U.S.

healthcare system is a second thing you study.

So now I'm going to make you president for the day, and you'll have solved our crime problems by the end of the morning.

So now you have the afternoon to fix our healthcare system.

What do you have in mind there?

Wow.

I think we have several problems.

The first thing I would do is I would really focus a ton on Medicaid.

It's the part of our public insurance system that helps poor people and people with disabilities.

It's a colossus, a more than $500 billion program.

It's a very valuable program.

It's also a program that has some real challenges.

One is that it pays too little.

So like the University of Chicago Hospital and our peers were pretty unenthusiastic about taking care of Medicaid patients because Medicaid pays providers much less than private insurance companies or Medicare does.

I think Medicaid is our basic weapon to deal with public health problems.

And we just went through COVID where we have a $4 trillion

health system that didn't have enough $1 masks, where we have these local public health health departments that are so underfunded that they have old fax machines and they offer phone service on their helpline that would embarrass your local pizza joint.

They're just systematically underfunded.

I think probably we need to pay the medical system less for a lot of the services that we provide in the richest part of our health system, and we need to pay more in the poorest parts of our health system.

What are some examples of the richest and the poorest?

Biogen, for example, has a recent Alzheimer's drug that was just approved by the FDA within the past week or so.

Average annual tab is predicted to be $56,000 per patient.

Three of the FDA's scientific advisors quit over the approval.

It has really not been reliably shown to benefit patients.

And the cost-effective price for that medication was judged by an independent group called ICER.

A more reasonable price wouldn't be $56,000.

It would be more like $8,300,000.

And we spend so much more than any other country per capita on health care.

And we just don't get the kinds of outcomes that we need to.

And we don't focus the resources on the public health problems and on the poverty problems that lead so many Americans to have very serious health problems.

And in some ways, it gets to that point on the index card.

We have to support social insurance to support every American and to have each other's backs to protect ourselves against these things that would just crush any one of us if we had to face alone.

It's been very challenging.

It's really very difficult.

I would not, in any way, minimize, particularly my wife, what she has sacrificed to care for her brother.

But these programs really stepped up for us.

Many other Americans face equally profound problems and don't get that kind of support.

And I'm hopeful that COVID will be a mirror on some of those dramatic failures of our social insurance system.

Do you think there's a financial day of reckoning coming on healthcare?

It can't grow disproportionately forever.

Healthcare has has gone from 7% of GDP in 1970 to almost 20% of GDP today.

Do you think it's going to be a smooth landing or a crash landing?

Oh, that's a good question.

Healthcare spending will continue to grow as a percentage of our economy, and it is inflicting tremendous problems on the society.

One of the things that it's doing is it's crowding out all sorts of other money that we need for other public goals.

And as a public health person, now I mentioned this new Alzheimer's drug that was approved for $56,000 a year.

According to the New York Times, there's a prediction that by 2025, this company, their revenue from this drug is going to be $7.5 billion a year.

The CDC, its total budget for emergency preparedness and response is $842 million.

So this one unproven drug, we're going to spend about nine times as much on that drug as we spend on emergency preparedness for the next COVID.

Our healthcare system is filled with things like that.

I don't think there's a magic solution to it, but in one way or another, government is going to eventually be much more aggressive in setting prices of medical procedures, products, drugs, services.

And it's going to be a challenge because the entire supply side of the medical economy is going to oppose that.

A monopsonist is when a consumer has a tremendous amount of power over the suppliers.

If there's one dominant buyer, that buyer has a lot of leverage over the suppliers.

And the real political conflict in healthcare in the long run is how much monopsony power are we really willing to give the public sector to squeeze hospitals, doctors, drug makers, durable medical equipment suppliers on prices.

The government has such market power through Medicare, Medicaid, the VA.

public employee benefits.

If the government could set prices, it would have such leverage over hospitals and pharmaceutical companies that it could really reduce healthcare expenditures, but it could do so in a way that could have some very problematic impacts on a lot of these actors.

So like one of the things the pharmaceutical companies say is, hey, you want us to come up with the next great cancer drug.

If you squeeze us on price when we come up with one, that reduces our incentives to develop the next one.

And hospitals say, you want us to provide excellent care, our profit margin, that that matters for that.

And there's a legitimate question, how do we incentivize innovation for, say, the next breakthrough cancer drug or the next COVID vaccine?

Suppose that Pfizer makes $50 billion in COVID.

A lot of people are going to be really uncomfortable with that.

My own attitude about that is that's awesome.

They actually delivered.

Now, if somebody makes $50 billion on an Alzheimer's drug that doesn't really work, that's a problem.

And we have to figure out how to strike that balance in a more effective way.

What advice, not financial in nature, would you give to young people who are trying to make their way in the world?

Good question.

Be kind to people, including people who are not useful to you in the moment.

Work hard at your day job and look at people that you admire and try to figure out what is it about them that I admire that I can emulate and keep swinging.

I almost didn't get tenure when I was a third-year assistant professor.

I think people thought I had potential, but I was not one of those people that just had a smooth sailing.

And two things saved me and saved my career.

One was that my wife Veronica really had my back and let me spend a summer working frantically getting papers out and things like that.

But the second is I just kept swinging and I fought through disappointments and mistakes and just kept going.

And that's all you can do.

You want to always find people who are smarter, more successful, more virtuous, more admirable than you are.

Glom onto those people, learn from them, emulate them where you can, and forgive yourself for the ways that you're going to sometimes fall short and just keep plugging away.

I really like the advice that Harold gave at the end, and usually I would tell some story from my own life that fits with it.

But today, I'm still obsessing about how crazy it is that people pay so much to let other people manage their money when the nature of markets means that it takes zero skill to get an average return and incredible skill to get an above average return.

Which means, if you don't have an absolutely incredible financial advisor, you are not going to consistently beat the market.

It's none of my business what you do with your money, but you shouldn't be paying high fees.

It really is as simple as Harold argues in his book, The Index Card.

And just about any economist you ask will agree.

You can hear more from Harold in the Freakonomics Radio episode number 298, entitled Everything You Always Wanted to Know About Money, but Were Afraid to Ask.

As always, we love to hear from you.

The email address is pima at freakonomics.com.

That's p-im-a at freakonomics.com.

And in particular, I suspect there are a lot of listeners from the financial services industry who won't be happy about this episode.

So write me and explain why your fees are reasonable.

I take all listener emails seriously, especially the ones where people don't agree with me.

Thanks for listening.

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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