We asked 188 economists. And the survey says...

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Speaker 3 Every fall, Professor Boulant Tamal starts assembling his teaching materials, the topics, the examples, even what he's going to say and when.

Speaker 4 I actually have a policy that in every class, which is one hour and 15 minutes, I crack at least two jokes.

Speaker 5 It's a very methodical system. Two joke minimum.

Speaker 4 One around 20th minute mark and one around 45th minute mark.

Speaker 5 Why do you have it scheduled in your class?

Speaker 4 Because I already have their attention high in the first 20 minutes anyway. So 20th minute is when it's fading away.
And 45th minute, definitely they need a boost. That's why.

Speaker 5 Sometimes the jokes are short, sometimes long, sometimes topical, sometimes irreverent.

Speaker 3 As to whether they are any good.

Speaker 5 Yeah, you guys can be the judge of that.

Speaker 4 Why did God create economists?

Speaker 5 Why?

Speaker 4 To make weather forecasters look respectable.

Speaker 3 Apparently that one kills with economists. Anyway, Bouland teaches economics at the University of Texas at San Antonio.

Speaker 3 And while he finds economics very entertaining, he knows his students do not always agree, hence all the jokes.

Speaker 5 And the reason we're talking to him is because of something funny that happened in one of his classes that he did not plan for.

Speaker 5 It was about a term he used that his students understood in a different way.

Speaker 3 This little anecdote references something sexual. So if you're listening with kids and want to skip this part of the story, skip ahead one minute and 45 seconds.

Speaker 5 Yeah, we're going to count you down before we start the story. Give you a second to skip.
Five, four, three, two, one, skip.

Speaker 3 Okay. Boulant says the incident happened a few years ago in one of his intro to econ classes.

Speaker 5 Picture one of those big auditoriums filled with hundreds of students. Boulant starts lecturing on the topic of the day, trade barriers.

Speaker 4 So there are a number of trade barriers, which are the policies that governments sometimes employ to restrict foreign trade into their country.

Speaker 3 Right. A government might restrict trade by putting in place tariffs or maybe quotas on stuff coming from abroad.

Speaker 5 Houlante explains to the entire class that there is another way for a government to impact trade through their currency.

Speaker 5 Sometimes a country will tie their currency to another country's, you know, peg their currency.

Speaker 4 Government saying that from this point on, my money will be worth this much.

Speaker 4 to this particular currency for the foreseeable future. So that's what pegging is.

Speaker 3 And And that is when the students started smirking.

Speaker 4 I immediately noticed their facial expressions change, and they kind of do what you're doing now, actually, sometimes, yes.

Speaker 5 Yeah, I have my hand in my mouth, and I am giggling. Now, I am not going to explain the other usage of the word pegging here.
It involves straps and sex.

Speaker 3 Google at your own risk.

Speaker 3 Anyway, Boulant is standing there in front of all of these giggling students, and unlike when he tells his carefully planned-out jokes, this time he has no clue why the thing he'd said was funny.

Speaker 4 And I tell my wife that night what happened, and then she told me what it is. From that point on, I'm more careful teaching that segment of the class.

Speaker 5 Hello, and welcome to Planet Money. I'm Amanda Aronchik.

Speaker 3 And I'm Alexi Horowitzgazzi. Welcome back to those who took a little pause.
Don't worry, you have not missed anything super important.

Speaker 5 Economics is filled with terms that, we'll just say it, don't always make sense to the average person.

Speaker 5 Terms that sometimes, yes, mean what you think they mean, but sometimes not at all, not even close.

Speaker 3 So we surveyed 188 economists and we asked them which are the most misunderstood terms in the field of economics.

Speaker 5 Today on the show, we are going to hear their answers. Stories about near recessions, a problem with insurance, and econ at your local movie theater.
Bring some popcorn.

Speaker 3 You mean like smuggle popcorn into a theater?

Speaker 5 Smuggle it in. It's going to be cheaper than if you bought it there.

Speaker 3 I guess so.

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Speaker 5 So we put together a survey and asked 188 experts these three questions. What term in economics is misunderstood? Why do you think people find that term confusing?

Speaker 5 And can you tell us like a little story about it?

Speaker 3 We got lots of responses.

Speaker 5 My word is public good.

Speaker 5 This is Dahlia Remler. She's a professor at City University of New York.

Speaker 7 It's confusing because those are two ordinary English words and together people think public good means something that's good for the public.

Speaker 5 In economics, a public good, yes, does refer to something that is good for the public, like a public park or streetlights, but there is a more technical definition.

Speaker 5 It means that one person enjoying the park doesn't take away from other people enjoying it too. The other criteria, it is extremely hard to prevent others from enjoying the park.

Speaker 5 It's there for everyone. This definition can help governments decide what public goods to pay for when private markets fail to fund them.

Speaker 3 Another misunderstood term we heard comes from Joseph Gladstone, a professor at Washington State University.

Speaker 9 The economic term that I find people see as a problem is capitalist. Most people find capitalists as selfish, greedy people.
And that's not exactly it.

Speaker 5 Joseph says a capitalist is essentially just someone who has capital.

Speaker 3 We also found a lot of responses about terms that have a double meaning, like this one from Damon Jones at the University of Chicago.

Speaker 10 The term that came to mind was welfare.

Speaker 10 Welfare can be defined as a measure of people's well-being, how well-off they are, but it can also refer to a government income support program for low-income families.

Speaker 3 Two pretty different things, which is confusing.

Speaker 5 The thing with a lot of these terms is that they are everyday words.

Speaker 5 You know them them well, probably been using them for years, but economists have given them some other, sometimes mystifying meaning. So annoying.

Speaker 3 For our next term, we went looking for economists out in the wilds of New York City.

Speaker 5 Allison Schrager, how are you?

Speaker 8 I'm well. What are you doing here at the movie theater? Well, you know, like a lot of economists, I don't have a very demanding schedule, so I figure Tuesday afternoon, great time to see a matinee.

Speaker 5 Allison is an economist at the Manhattan Institute.

Speaker 3 So we are here at the theater not for a matinee, but because it is the perfect place to talk about Allison's term, price discrimination, which is basically setting different prices for individual consumers based on what each of those consumers is willing to pay.

Speaker 5 But when people hear price discrimination, they often focus on the discrimination part. They think it is a bad thing.

Speaker 3 So Allison wanted to come to the movies today to make the case for price discrimination.

Speaker 5 Okay, let's go in the theater theater and see if we can talk to anybody about price discrimination and not get kicked out. Okay, here we are.
Going in.

Speaker 3 It's a Tuesday afternoon. There aren't a lot of people here.
But we catch a woman waiting for her friend before a movie.

Speaker 5 My first question is just, did you buy a ticket to a movie?

Speaker 2 Yes, I did.

Speaker 8 What are you going to go see?

Speaker 11 Sing Sing.

Speaker 8 Okay, what is that about?

Speaker 11 A group of prisoners at Sing Sen who are part of an acting company. And it's sort of the power of theater to change lives.

Speaker 5 Can I ask how much you paid for your ticket?

Speaker 11 It's half price on Tuesdays and I have the app and also I got the senior ticket so about $9.

Speaker 3 So Wilda Williams here got a senior discount and she's also a member so she got half off Tuesdays. Her ticket cost only $8.75.

Speaker 3 That's like Civil War era ticket pricing.

Speaker 5 Next, Ellison and I do a bit of a stakeout near the ticket machine.

Speaker 13 Okay so we're watching a gentleman at the ticket.

Speaker 13 Believes he's buying himself a ticket.

Speaker 3 We catch Luke Binder before he heads to his theater. He's also seeing Sing Sing.

Speaker 5 Can I ask you how much you spent on your ticket?

Speaker 13 I spent $19 on my ticket. Yeah.

Speaker 5 So they are both going to see the exact same movie, Sing Sing about the power of theater to change lives. Wilda, she paid $8.75 and Luke, who's in his 20s, he paid $19.

Speaker 5 Now, Luke told us he didn't feel there was anything wrong with Wilda getting a discount. But he did pay more than double what Wilda paid.

Speaker 3 Allison tells us this is price discrimination in action.

Speaker 8 Because it just means that people pay what they value things. And that means that people who don't have a lot of money often can now participate in a market they wouldn't have.

Speaker 8 Like if you are a pensioner and you can't afford a full fare, but they, according to this membership program, give you half off on Tuesdays, that means you can still see movies.

Speaker 8 You just have to go on Tuesdays when less people are in the movie theater. And that's better for the movie theater and that's better for you.
And now more people get to partake in a good.

Speaker 5 Now this is the basic version of price discrimination. Discounts for seniors, discounts for students, these are pretty accepted.

Speaker 5 But there are some versions of price discrimination that people seem to hate, like algorithmic pricing.

Speaker 8 And that just means that they're using data and AI or maybe to figure out how much you want a good and are willing to pay for it and charge you accordingly.

Speaker 5 Allison says that in economics there's a concept called perfect price discrimination.

Speaker 5 That means that the price of, you know, like a plane ticket is set exactly at the max each customer is willing to pay.

Speaker 5 Now, in this scenario, a travel website might use online data like your location, how many flights you take a year, how many times you Googled flight to Aruba to figure out exactly what price to offer you.

Speaker 3 Some economists like perfect price discrimination because it brings more people to a market than if there was just one fixed price.

Speaker 5 But most people hate price discrimination. Alice and I were standing at the street entrance of the theater when she talked about the recent uproar over price discrimination.

Speaker 8 There was a big scandal recently because Wendy's was going to charge a different price depending on when you came. And everyone was very upset because everyone's paying different prices.

Speaker 8 But maybe you can't afford Wendy's during prime time. So now you can maybe get a Wendy's lunch at three in the afternoon if you just wait a couple hours.
Oh yeah, people hated it.

Speaker 8 People hated it, but they should love it because it's like, well, now you can get a cheaper hamburger.

Speaker 5 Some people should love it because if they can wait until three o'clock, they will get a cheaper cheaper burger. There will be some winners with price discrimination.

Speaker 3 So whether we are talking about making some cheeseburgers cheaper or making Tuesday afternoon matinees affordable for seniors, maybe what we've really learned here is about the power of price discrimination to change lives.

Speaker 5 Our next misunderstood term appears in the news all the time. Like here is Treasury Secretary Janet Yellen saying it at a recent event.

Speaker 14 It really has been amazing to be able to get inflation down as meaningfully as we have. And I think this is what most people would call a soft landing.

Speaker 3 The term for this segment is soft landing.

Speaker 5 Okay, so speaking of soft landing, you filled in our survey and you said, you know what people don't really understand is soft landing.

Speaker 15 No, they don't.

Speaker 5 Are you sure? Now, I hear soft landing. I'm like, I feel like I get it.
Do I not get it?

Speaker 15 Well, you know, the thing that people don't get is it just means you've avoided a full-blown recession.

Speaker 3 Okay, so this is Diane Swonk, chief economist at KPMG US, part of one of the biggest accounting firms in the world. And Diane says the economy might not be in a recession.

Speaker 3 This might actually be a soft landing, but that can still entail a lot of economic pain.

Speaker 15 You can have an increase in unemployment, which we've already had, actually. You can have certain sectors that go into recession, like we saw in the housing market.

Speaker 15 And so it sounds nice and cushy, but in reality, the reality is that it's a little bumpier and a little more turbulent than I think people think.

Speaker 15 You know, the idea that soft landings are like pillows and feathers and no pain anywhere, I think that gets lost in translation.

Speaker 5 Dane hears this confusion all the time from her clients, from her colleagues.

Speaker 5 When they're told that the economy is doing well, that we dodged a recession, they still can't help but wonder, like, my industry is struggling. We had to lay off a bunch of people.

Speaker 5 If this is a soft landing, why doesn't it feel soft?

Speaker 5 So if you could come up with a different term and replace soft landing, what would you replace it with?

Speaker 15 Oh, I don't know that I have a replacement for it. You know, I guess, you know, soft landing is a little bit too benign.

Speaker 5 So I've got a couple suggestions. Maybe mini-bust.

Speaker 15 Mini-bust, yeah.

Speaker 3 Mini-bust.

Speaker 5 Okay, let's try one more. Quasi-recession?

Speaker 15 Oh, no. You know, they call them in Europe, they're calling them technical recessions.

Speaker 3 Oh, it's not.

Speaker 5 Technical recession.

Speaker 15 You know, because the economy has actually slipped into negative territory, even though it's not a full-blown recession in the labor market, which is kind of an interesting way to think about it as well.

Speaker 15 But when you hear technical recession, people go, well, what is that?

Speaker 3 Right. It makes it sound like technically we are in a recession, which is not the case.
So it makes even less sense.

Speaker 5 So for this one, we are taking suggestions. Write to us and suggest a better term than soft landing for this economic moment that we're in.
Can't be too hard, can't be too soft.

Speaker 3 Like a soft-boiled landing.

Speaker 5 A soft-boiled landing would be great.

Speaker 10 A little gooey.

Speaker 3 After the break, we reveal the single term that came up more than any other in our survey of 188 economists, which involves a battle between good, evil, and insurance.

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Speaker 5 So, we sent out this survey to 188 economists, and when we we got the responses, there was one term that came up more than any other, moral hazard.

Speaker 5 So we called up Vivian Ho, who teaches at Rice University.

Speaker 2 Well, I actually asked my students about what terms that they found were most confusing. And I asked three of my favorite students that I had, and two of them came back and said moral hazard.

Speaker 3 Moral hazard is a concept that's very much a part of Vivian's work because she is a health economist.

Speaker 5 So tell me the correct, what is the correct definition for moral hazard?

Speaker 2 So moral hazard occurs whenever there's an individual who takes an action for which they don't bear the full economic consequences of that decision.

Speaker 5 So Vivian says it might be easier to understand moral hazard through an example. It's the fall now, so that means changing leaves, pumpkin spice, and the flu.
Yay!

Speaker 5 So let's say there's a new flu going around and that there is a vaccine available for free.

Speaker 2 If you have health insurance and they say there's a new vaccine out, you say,

Speaker 2 I have health insurance. So if I get sick, you know, I really should go get this, this vaccine, but I don't have time, so I'm just not going to do it.
That would be an example of moral hazard.

Speaker 3 Right. People think, I don't need to bother getting a new vaccine.
There's a chance I won't even get the flu. And if I do, I can always go get treated for free, basically.

Speaker 5 So the problem here is that people take on additional risk by not getting the vaccine because, hey, they're not the ones paying for it if they get sick.

Speaker 5 And if the flu explodes, more people will need treatment and healthcare costs go up.

Speaker 3 Another version of moral hazard is that people with health insurance might go to the doctor more than they need to since they are not the ones paying for it.

Speaker 3 Moral hazard can have this distorting effect.

Speaker 2 That's why in health insurance, we have co-pays and deductibles. It's meant to address this moral hazard.

Speaker 2 So you want to give coverage, protection against great financial loss to patients, but maybe you have them have some skin in the game. And so that will reduce the amount of moral hazard that occurs.

Speaker 3 Vivian says that moral hazard shows up in all sorts of places, not just in healthcare.

Speaker 3 With banks that are too big to fail, if a bank is just going to be bailed out when it runs into a problem, maybe the bank doesn't worry too much about giving out those risky loans.

Speaker 5 Or say a CEO has a large severance package lined up, so they don't worry too much about making bold but risky business decisions. Or take the case of paid sick days.

Speaker 2 The moral hazard is if you know that it's all being paid for, you might call in sick on some days when you're really not.

Speaker 8 What?

Speaker 5 Most people call in sick on days when they're not. I would never.
Would you?

Speaker 3 I'm not going to answer that question.

Speaker 3 Now, the problem with the term moral hazard is, again, those are two words we understand, but the meaning doesn't totally line up.

Speaker 2 I asked asked my students, well, if you weren't quite sure what it meant, what did you think it meant?

Speaker 2 Before I started lecturing on the topic, and then one of my students responded, I thought moral hazard was everything they told you not to do in church, like sex and drugs and gambling.

Speaker 5 I mean, it's kind of what it sounds like.

Speaker 3 Exactly.

Speaker 5 Vivian's three favorite students weren't entirely wrong. We looked into it a little bit, and the origins of the term do have something to do with morality.

Speaker 5 Vivian suggested we reach out to Mark Pauley, emeritus professor of health economics at Wharton, to find out a bit more.

Speaker 3 He's kind of like the Duke of Moral Hazard.

Speaker 12 So the term actually was originated in the insurance literature. They defined it as any deviation from correct human behavior that causes problems for insurers.

Speaker 3 Mark encountered the term when he was writing his PhD thesis back in the mid-1960s. He says moral hazard is a very old term.
It appears in old insurance literature from the 18th and 19th century.

Speaker 3 It was a huge issue for insurers back then.

Speaker 5 Let us share some of this insurance literature. It's kind of amazing, and it's definitely super judgy.
Like, take this 1867 guide to fire insurance.

Speaker 5 There were a lot of fires back then, so insurers were like, who can we trust? Alexi, would you do the honors?

Speaker 3 My pleasure. Hold on.

Speaker 3 What is the general character borne by this applicant? Are his habits good? Is he an old resident or a stranger and an itinerant? Have threats been uttered against him? Is he peaceable or quarrelsome?

Speaker 3 Popular or disliked?

Speaker 5 Basically, insurance companies were asking, is this person a morally upright citizen? Or is he going to be negligent and accidentally set his business on fire?

Speaker 3 But when Mark was writing his thesis, he thought, this is the wrong question to ask.

Speaker 3 Because once people were insured, he didn't think they ended up using more more insurance because they were good or bad people.

Speaker 12 And I said, well, that just looks like movement down a demand curve. That's what we teach in Econ 1, that when price is low, people will use a lot of something.

Speaker 12 And when price rises, they'll use less and less of it. And that seems to be what happens with

Speaker 12 health insurance.

Speaker 5 Mark argued this wasn't about whether a person is peaceable or quarrelsome. It's not a moral hazard.
He just thought this is what people might do when they have health insurance.

Speaker 12 That didn't seem to me to be a matter of morality. That just seemed to me to be a matter of basic economics.

Speaker 5 And largely, Mark convinced the field. These days when economists talk about moral hazard, they are talking about what incentivizes certain behavior.
They are not judging people's morality.

Speaker 3 Now, we figured if he was the guy who changed the meaning, took the moral judgment out of the term moral hazard, he must have a replacement in mind.

Speaker 5 Do you have another term that you've been sitting on that you think could replace the term moral hazard?

Speaker 12 Well, yes, but I would say insurance incentive responsiveness. And then, you know, people would fall asleep when I got to the third syllable.

Speaker 3 So the moral of the moral hazard story is that the term itself is probably here to stay.

Speaker 5 So there you have it. A whole bunch of economic terms along with some hopefully clarifying definitions.

Speaker 5 Special thanks to everyone who filled in our survey. We obviously could not have made this episode without you.

Speaker 3 Today's episode was produced by Sam Yellowhorse Kessler with help from Sean Saldana. It was edited by Jess Jang, engineered by Valentino Rodriguez-Sanchez, and fact-checked by Sierra Juarez.

Speaker 3 Alex Goldmark is our executive producer. I'm Alexi Hora-Witskazi.

Speaker 5 I'm Amanda Ronchik. This is NPR.
Thanks for listening.

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