Pod Insights Summation with Auren Hoffman Economist Glenn Hubbard - The Fed’s dilemma, AI productivity, and why experts lost trust About this episode Glenn Hubbard is Dean Emeritus and Russell L. Carson Professor of Finance and Economics at Columbia Business School. He served as Chairman of the Council of Economic Advisers under President George W. Bush from 2001 to 2003 and was Deputy Assistant Secretary for Tax Policy at the U. S. Treasury. He has served on the boards of BlackRock, ADP, MetLife, and the Federal Reserve Bank of New York. In this episode of World of DaaS, Glenn and Auren discuss: Why consumer sentiment contradicts economic ...
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:02 Auren Hoffman? Hello, fellow data nerds. Welcome to World of DAS. I'm your host, Orin Hoffman, CEO of Incubate and GP of Flex Capital. Discover more episodes, get weekly data as a service news, original content, articles on data and more at worldofdas.com. That's worldofdas, D-A-A-S, dot com. Hello, fellow data nerds. My guest today is Glenn Hubbard. Glenn is the Dean Emeritus and Professor of Finance and Economics at Columbia Business School. He also served as the Chairman of Council of Economic Advisers and was Deputy Assistant Secretary of the Treasury during the Bush administration. And he's authored over 100 papers and books on economic topics and also served on the boards of BlackRock, ADP, MetLife, and the
0:47 Auren Hoffman? Federal Reserve Bank of New York. Glenn, welcome to World of DAS.
0:51 Speaker 01 Thanks for having me.
0:52 Auren Hoffman? We want to talk first about data. How can government data be better?
0:56 Speaker 01 The answer to that, you have to ask yourself, what do you want to use it for? And I think there are two purposes, measurement and informing us about what's going on. So to me, that's about improving surveys. It's about better coordination with private data that has gotten a whole lot better and the use of Gen AI methods to make it even better. And to have better user governance. Unlike many networks in the private sector, most government agencies don't do enough to have user governance to make themselves better.
1:27 Auren Hoffman? What does user governance mean?
1:29 Speaker 01 It's having outsiders. So for example, the Congressional Budget Office has a panel of economic advisors that comes in and says, okay, here are things you could be doing better in terms of data and models. Not every agency does that.
1:44 Auren Hoffman? Now, the government collects a lot of data. Some of that data it releases to the public, some of it it doesn't. Maybe they release some of it, but not all of it. What data do you wish the government released that it's already collecting?
1:55 Speaker 01 Some of it it can't literally release, but you can learn a lot from things like tax return information that can be anonymized. There are ways to do it, and the more the government could do to make that easier would be better.
2:09 Auren Hoffman? Why doesn't, because today there's four professors that have access to kind of the raw IRS data?
2:16 Speaker 01 It's really unfortunate because each academic, of course, has his or her own interests. That's fine, but there may be general trends. So I think using those data better for the public would be in our interest. The others to take advantage of heterogeneity in data. So you mentioned, I used to be on the board of ADP. ADP pays a big chunk of the economy, all different sizes of businesses. ADP started providing data to the government several years ago, but the government could be looking at, well, let's see, how are small businesses doing relative to midsize businesses? That heterogeneity, I think, could be important. Likewise, focusing on data from organizations like National Federation of Independent Businesses, the small businesses, something really old fashioned.
3:01 Speaker 01 How about talking to people? How about having people running agencies, talking to groups of business people about how things are going and what you're trying to measure? Sometimes you learn from those high-frequency observations about the economy.
3:16 Auren Hoffman? They have surveys. Lots of government agencies like the Fed and other ones do like surveys, essentially from talking to people.
3:22 Speaker 01 Yes and no. I mean, the surveys are required. Let me fill out the forms. I'm seeing something different, which is having a group of, let's say, chief executive officers or CFOs on a group to talk to a senior decision maker about how things are going in the economy. I did that when I was in Washington. Incredibly valuable. By the time the data catch up, if you're at a turning point in the economy, you may be a little too late.
3:47 Auren Hoffman? And you may not know what questions to ask in the survey. If you're just asking, hey, are you increasing your durable goods? That may or may not be relevant to our time.
3:57 Speaker 01 Correct. It was Alan Greenspan who taught me this. One of the things that was a hallmark of his chairmanship of the Fed was constantly talking to people in the world. You know, Greenspan allowed the technology boom of the 1990s because he was talking to people and actually figured out that it was more productive than many academic economists thought.
4:18 Auren Hoffman? What are the interesting or do you think unusual data sets that better illustrate the economy today?
4:25 Speaker 01 Looking under the hood of CapEx is important. Right now, for example, CapEx is very dominated by AI investments, data centers, but understanding heterogeneity in capital expenditures across firms, across industries, those data are available. Looking at them is something that agencies don't typically do. They try to report aggregate investment, which is, I suppose, interesting, but it's the disaggregation that really tells you a story about where the action is in the economy.
4:55 Auren Hoffman? Are there private data sources that government should be trying to get access to better? I know the Fed has, over the last 20, 30 years, massively increased the number of private data sources. You mentioned ADP, and there's all these other data sources, credit card data and other types of data. And maybe just the Fed's getting it, not the other government agencies. Are there other private data sources that they should be accessing?
5:17 Speaker 01 The Fed has been more on the cutting edge of this. You mentioned two pieces of information about consumers. ADP data for employment and credit card data on spending. There's a lot of partnerships that you could imagine, let's say, with the Business Roundtable or the Conference Board to try to design better information gathering. It's back to what I talked about, about user governance. How about getting some business people involved to tell you where the action is? And then maybe you retail your surveys and data gathering to that.
5:49 Auren Hoffman? Currently, we have an interesting situation where unemployment's fairly low. Wages have grown. Inflation is definitely a lot lower than it was a few years ago. But consumer sentiment is still fairly negative. What's happening with that disconnect?
6:04 Speaker 01 Yes, the labor market's weakening. There's two things under that hood. One is maybe a slowdown in aggregate demand, but there's also the unknown element of structural changes from AI and other things. I mention that because it makes it hard for the Fed to react. For consumers, I think the reason there's a disconnect is because people have different experiences. So you're describing the economy on average. So going back to the point I made about heterogeneity, none of us Is the average, we're somewhere in the distribution. Maybe you're doing really well, maybe you're not. Consumers who have been really hit in the past several decades by mainly technological change,
6:46 Speaker 01 but also globalization feel worse about the economy, whatever the current data are suggesting. So I think it's important to look under the hood. It also gives you a sense of, lack of a better term, the political economy of how people feel, not just the economics, political pressure comes from this disaggregation of feelings. So I think the sentiment is not inaccurate. The one that may be slightly inaccurate is partisan differences. I mean, it shouldn't be the case that whether I'm a Republican or a Democrat, given my income and my job, I shouldn't feel different about the economy, but yet people seem to.
7:23 Auren Hoffman? In the Biden administration, Democrats felt better about the economy. And the Trump administration, Republicans feel better, which seems a little weird.
7:30 Speaker 01 It does seem weird. I get it if that were correlated with your income or what kind of job you have. But holding those things constant, people still have that feeling. I don't get it.
7:40 Auren Hoffman? It reminds me of like the old Reagan quote, it's a recession when your neighbor loses their job and it's a depression when you lose your job.
7:48 Speaker 01 Correct. Reagan captured the idea that very well. That is a lot what's happened to me.
7:54 Auren Hoffman? The Fed was criticized of being too slow to raise rates when inflation picked up. Now they're being criticized maybe being too aggressive when they started hiking. What do you think they got right and wrong over the last few years?
8:05 Speaker 01 Let me start out with what they got wrong because it was very big. They continued an inflationary policy as COVID was unwinding, even pouring gasoline on the fire of the housing market. Rates were way too low for too long. Inflation went up a lot. Not all of that is at the Fed's doorstep. Some of it is supply related, supply chain related. But at least half of it, I think most economists believes is at the Fed's doorstep. That's a very big mistake. But the Fed recently has gotten it better in terms of accommodation. I worry though, that the Fed is not going to be able to have as many short term rate cuts, federal funds rate cuts as market participants think. Inflation's too high. Yes, you mentioned it came down, it has, but still well above
8:51 Speaker 01 the Fed's target, partly because of tariffs from the administration, but partly just underlying demand pressures.
8:58 Auren Hoffman? So they don't have as much tools essentially.
9:01 Speaker 01 No, I think the Fed is on the real horns of a dilemma. It is clear the labor market's weakening. We'll start to get some more data as of this Thursday on that point, but it's also clear that inflation's too high. All of this is to say it's going to really increase the political pressure on whoever the next Fed chair is. I suppose President Trump will tell us that soon. That gentleman or lady has a big challenge.
9:27 Auren Hoffman? We're in a situation where credit card debt is quite high. Student loan debt is extremely high. How do you think those things play in? We don't have these big fat COVID checks that were coming in to spur and help the consumer. So how's that going to kind of affect consumer demand going forward?
9:44 Speaker 01 It's a very big and important question, and it gets back to this point about heterogeneity. So people say, oh, consumption's doing fine. Well, kind of, sort of. Again, if you're looking at average data, that's right. But consumption is being carried by households in the top 10% of the income distribution. If you look at consumer spending data, measures of financial distress you referred to for people in the bottom 90, let alone the bottom 30, financial distress indicators are there. I do think we have to be very, very careful. That's correlated with the consumer sentiment and a real point of weakness for the economy.
10:20 Auren Hoffman? I've seen some stats that average travel has been, maybe the spending on travel is up, but people aren't going to Vegas as much. Caesars Entertainment has had real revenue drops. The average consumers may be taking one less vacation or one less plane trip.
10:38 Speaker 01 And if you aggregate that across all those folks, that's a very big change in the economy. At the other end, you know, the Wall Street Journal just today had a story at the very high end of the consumption distribution. People are paying more for private jets, private clubs, easy access. It's really two different economies in terms of consumption.
10:57 Auren Hoffman? The price of the four seasons, the price of business class on Emirates is going up super fast, but the average Southwest flight or something like that is getting hit.
11:09 Speaker 01 Exactly.
11:10 Auren Hoffman? Are there any structural reforms to the Fed? Do you think that could be good to help the Fed make better decisions going forward?
11:18 Speaker 01 Yes. I think the first thing is more informal, but would still qualify structural by Fed's standards is just widening the listening aperture. You know, the Fed is way too homogeneous an organization. Too many people look and sound like me.
11:34 Auren Hoffman? Professional economists.
11:35 Speaker 01 Professional economists from the same set of schools with the same set of thesis advisors and not a whole lot of experience in the world. There are, of course, some business people and some bankers who come in, but I think widening that listening aperture is important. There's an old story that during the financial crisis, the Queen of England showed up at the London School of Economics and she famously asked this question, why did nobody see it coming? And the answer, I think, to the Queen's question was these guys, LSE faculty members, could have been in Columbia too, I'm not pointing fingers, hadn't gotten out, weren't talking to people. So I think that's step one. Step two is more oversight from the Congress on the Fed's mission creep. The Fed has thankfully stopped
12:19 Speaker 01 walking back some of the non-financial, non-monetary policy things it was doing. And Congress needs to be vigilant. The Fed should be independent in monetary policy, but that doesn't mean it should be independent to choose whatever it does. And the final is communication. You need to have the Fed in the new chair as an opportunity to change this, speak with a voice. In a business organization, you wouldn't have the CEO go out and say one thing and then a business unit head for A, B, and C go out and say something else. It does not happen. It's fine to have disagreement in the room, but once there's a decision, there needs to be a decision.
12:55 Auren Hoffman? It's a tale of two things where you've got the Federal Reserve Board and the makeup of that, which is mostly economics, but then the regional feds, a lot of the regional business leaders and seems like a much more diverse group of inputs at the regional level.
13:11 Speaker 01 And that's a good thing. And that's what Congress intended, actually. I mean, the Congress could have set up a Federal Reserve system that just had a board in Washington. The Congress actually intended a lot that you have things regionally. You learn a lot. Going back to heterogeneity, any different regions do well or poorly at different points in the cycle. You have people with different experiences, having business people who may be more related to agriculture versus some more related to technology or to manufacturing. That's all good. Even though I'm an economist, I don't think you want the whole system being run by academic economists. There was a phrase, I can't remember whether it was William McChesney Martin or somebody had said, "It's better to have economists on tap, not on top."
13:53 Auren Hoffman? If you had to design like a smarter tariff policy to get to the same ends as the current president, how would one design a smarter tariff policy?
14:04 Speaker 01 This is the famous Irish question, "How do I get there and can't get there from here?" The first answer is just no, stop. Now, the question is this, if tariffs were the answer, we were playing the game show Jeopardy, and I asked you to guess the quest. I think the question was supposed to be, "How do I address people and places that were left behind by technological change and globalization?" If that's what we're trying to do, that gets to your question. And that we can do. We could have much better theoretical and applied research that pushes the frontier out, gets innovation happening faster. We can have better and smarter place-based aid to places that are left behind, much more
14:46 Speaker 01 of an emphasis on training and preparation and community colleges. So it's not like we're helpless here. But what tariffs do is raise prices, which by the way, consumers hate. It makes domestic industry sloppy, which does none of us any good. And it creates boatloads of business people getting on the shuttle to go from New York to Washington to lobby. And that is not a good idea either. I understand why people reach for the bottle of tariffs. Bad idea.
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15:57 Auren Hoffman? On your second one, basically what you're saying is that if an industry is protected in the US, they might still have a lot of sales in the US, but they're going to be globally not competitive. They really need to like get globally competitive to have a more enduring industry.
16:13 Speaker 01 Yes, and also the other way around, too. My productivity at home depends on competition. And so if I rule out all the global players from being able to compete with me, I'll be sloppier. We just don't need that in the economy. There are real concerns that probably President Trump has and many politicians have, and they're legitimate, but they're fixable by other things than tariffs. I expect that one of the things that will bring the tariff era to more of a close is the public's hatred of higher prices. So you already saw this on coffee and bananas recently, and I think you're going to start to see more public complaint about tariff-induced price increases.
16:54 Auren Hoffman? There's a part of the tariff argument is kind of the age-old thing that affects all of us, even when we're two years old, which is fairness. I don't think it's fair if you get a cookie, but I don't get a cookie. And there's this idea that, hey, this other country is not letting us send goods to them, so therefore we should do the same. How does one break away from this fairness trap?
17:18 Speaker 01 It's a great question. I think you're right that that is why people feel that way. And I would pull out, let's say, China from this discussion. Years ago, when I was trying to help Mitt Romney, when he ran for president, I asked him to think about countries in two buckets, countries that are more or less willing to play by the same set of market rules. And different countries are better at different things. And then countries that aren't. And the countries that aren't should not have the same preferential treatment as the countries that are. It's fine to say China is not playing by the rules, and we shouldn't have the same give and take with China that we have with others. But the European Union, Canada, Japan, Australia, what are we doing? These are our friends, and they have the same market system.
18:02 Speaker 01 So I think I would turn the fairness question back on its head and say, domestically, what are we doing to help people who are disadvantaged by global competition? You know, we have things in the law like trade adjustment assistance that might have helped two people and a chicken over decades, and we're useless. But it doesn't mean we shouldn't go back to reinventing something better.
18:24 Auren Hoffman? You've seen quite a few bubbles in your career. There are a debate around whether we are or we're not in AI bubble. Where do you think of that on that?
18:33 Speaker 01 Well, I think it depends on what you mean by a bubble and how costly you think things are. So use the analogy of the telecom hardware boom in the late 1990s. A lot of the initial investors and investments didn't pay off to the people who did it. That said, there were real option values and all those things that paid off enormously for all of us in society and for their ultimate owners. So if you would ask me, was there a bubble at the time? Well, yes and no. Yes, the early investors probably lost a lot of money. We know they did, and probably going this time, too. But that doesn't mean that it's not incredibly socially useful. So you have to separate the private part. Do the initial investors all have money good?
19:18 Speaker 01 Likely not. But as a society, are we going to benefit? Almost surely.
19:24 Auren Hoffman? We had the railroad bubble, where we put down all these tracks. And most of those companies end up going bust. We had the same thing you said with the telecom bubble, where we put all this fiber. Most of those companies went bust, but the tracks and the fiber, we still use the fiber today. We still use some of those tracks, but down in the 1800s today. The difference is with GPUs, those don't last as long.
19:47 Speaker 01 They do, but you still have the developments, even though depreciation rates and you can speak with what you're talking about, you still have the development of technology and the ongoing frontier, whether it's from incumbent companies or newer companies. I think that's here to stay, so I'm less worried about it. But I do think a lot of people are going to lose a lot of money. And thinking about, again, political economy lens, oftentimes you see bad policy when people have lost a lot of money, come in and try to overregulate, and that would be a word.
20:18 Auren Hoffman? Because even if you think of the dot com bubble, a lot of people lost money, but it was money that they could lose. It wasn't like as debt fuel that didn't really affect the broader economy as much as, let's say, the housing bubble did in the later 2000s.
20:32 Speaker 01 Bubbles that have big negative effects tend to be levered bubbles. Most of the talk called bubble was equity. In the case of the present time, there is some debt, actually a fairly large amount of it in data centers and things like that. But a lot of it is recourse to the balance sheet of very cash rich companies, the Metas and Alphabet of the world. So it's not the housing bubble. But maybe those shareholders are going to lose some money, but I don't think that's a public policy problem.
20:59 Auren Hoffman? We keep hearing like, maybe there'll be this AI productivity boom, hasn't shown up in the data yet. And where do you think that's going to evolve over time?
21:08 Speaker 01 Bob Solow, the late Nobel Prize winner in economics, said 1987 or something, that you see computers everywhere except the productivity statistic. And by the way, he said it just before we did have a productivity boom. The problem is it takes time. It's not that science takes time or underlying economics, it's the business use cases. So if you look at electrification, or mainframe computing, or the internet, the slow rate of penetration had to do with the changes that were needed in business organizations to make them happen. Now, AI, I think, could be faster, because you don't have to have the big organizational changes. In that sense, it's a different kind of general purpose
21:53 Speaker 01 technology. But I think it's still going to take a little bit of time.
21:58 Auren Hoffman? I don't even know how the stats work. So let's say I've got a bunch of customer service agents in the Philippines and I replace them with AI. Does that even show up in the stats?
22:08 Speaker 01 Yes, and there's the rub. If AI were purely substitutional, which we all hope it's not, but if it were purely substitutional, then that's a quick way to increase productivity. If you're measuring productivity as output per person hour.
22:22 Auren Hoffman? Does it measure people outside the US?
22:25 Speaker 01 Well, for corporate statistics, yes, it will. But that said, the problem is we all want an AI that's more complementary. And there you get to the same problem we have right now of measuring quality. Let's say that I'm a physician providing healthcare services, or I'm the loan officer at your bank, or whatever the skill is. I'm now better able at doing my job. We don't do a great job at measuring changes in quality. So I'm giving you a better service and a better product. So that's like an increase in productivity. We measure it very poorly. And so I think that's going to dog us a little bit in AI, just as it has in other big changes in quality improvements.
23:05 Auren Hoffman? You wrote a book about disruption called Wall Street and the Bridge. How do you think policy should intervene to smooth AI's disruptions? Or do you think it should?
23:16 Speaker 01 Well, the purpose of the book, and I'll answer your question, the wall and the bridge, was to say that imagine I could hold up a coin, and the head side of the coin is growth. We're all for that. Left, right, Democrat, Republican, I don't know very many people, maybe some wackos, but most people like growth. But the flip side of that coin is disruption. So there is no economic model of growth that's not disruptive. So let's start with that. The political system only has two kinds of responses. People don't like disruption. And so it says, well, I'll build a wall. You don't like it? I'll pretend it's 1955 again. I'll lock out foreigners, you know, whatever your favorite wall is. The bridge is the alternative. Now that gets to the point about AI.
23:59 Speaker 01 I don't think we should be interfering and putting sand in the gears markets for AI. But at the same time, I hate to be the economist, no and yes is the short answer to your question. At the same time, we have to help people prepare. Think about how bad policy was. This was why I had written the book. In the past, say 30 or 40 years, we had these slow moving forces of steady technological change and globalization. We did not prepare people for that world. AI may be a five to 10 year arc as opposed to 30 or 40, and we're still not preparing people for that world. That we need to do, but throwing sand in the gears of AI, I think is a very bad idea.
24:42 Auren Hoffman? When I meet older economists, they study the humanities and they have these other interests. When I meet younger economists, they seem to be super technical, really good at machine learning, really good at math. Doesn't seem like as much on the humanities. Is there a sense that we're moving too much to the technical side of economics in the profession?
25:04 Speaker 01 I think it's more a matter of what are you complimenting it with? So I was actually an engineer before, so I'm guilty on the tech side. But I feel like most of the gains I've made as an economist professionally have been because I read a lot and try to understand political economy. Remember Adam Smith, the vaunted founder of the discipline wasn't an economist. The way we would talk about it today, he was a moral philosopher. I think if you go back and read Smith and the kinds of political economy concerns that he and other classical thinkers had on their minds. That's what we need today. The same arguments from the 18th and 19th centuries, we're having them all again today. It's not so much that economists should study humanities, although it's a great thing.
25:46 Speaker 01 But if you don't understand political economy, you're going to go nowhere in economics.
25:51 Auren Hoffman? Does anyone really understand political economy?
25:54 Speaker 01 You have to try though. Go back to the Queen's question. You gotta get out there. You gotta try to understand. Otherwise you sound like an expert who's out of touch. You should do this as opposed to thinking, well, why isn't there a $50 bill on the floor? There's something wrong.
26:10 Auren Hoffman? There's just a lack of trust in experts today. Trust in experts have been decreasing over time. Do you think it's because the experts themselves have been less trustworthy? They don't deserve our trust anymore across the fields? Or why do you think this decline in trust in experts has moved down so much?
26:30 Speaker 01 I think it's two things. One, it's mistakes that experts have made. Go back to the global financial crisis and the Queen's question. There were plenty of smart people who just did not see that coming, despite the fact that it wasn't a lightning bolt at all. But there's also the feeling that experts are in a political economy since dangerously out of touch with the public. I'll give you an example from the economics profession. Let's say you're in one world, call it A, and I'm going to introduce a big public policy change that takes us to a better world, call it B. What do we call the gap in between, which is where all of us live in the real world? We call it transition costs. Now, I don't know about you, but I wouldn't want to be referred to as a transition cost.
27:13 Speaker 01 If the fact is that I have to lose my job or my town has to go away, economists can call it a transition cost. I call it bad, and I'm going to exercise that voice politically. So economists own vocabulary. It's not that it's inaccurate, but it has a coldness to it, a lack of feeling to it. Remember Smith, who I mentioned? Everybody knows about The Wealth of Nations, but Smith also wrote The Theory of Moral Sentience, which in modern English would be like a tribute to empathy. And he thought that was his best book. He wanted to get people all in the same boat before speeding up the boat.
27:46 Auren Hoffman? Even trust on medical community went down drastically during COVID and the foreign policy establishment maybe has gone down with Iraq. And so it's just kind of across the board.
27:58 Speaker 01 It's a problem because Bill Buckley once famously quipped that he'd rather trust the first thousand names in the Boston phone book than the Harvard faculty. And everybody laughs. But honestly, if you had something wrong with your health or if you were trying to fix something in the economy, actually, an expert probably is better than you are at making that decision. Now, does he or she always get it right? No, and we want to help that. But I think it's really crazy to say, let's just replace experts with citizen mis-
28:30 Auren Hoffman? It is hard, though, because if you're a health expert, yeah, I would want that person, if someone's really good at brain surgery, I want them doing brain surgery on me and not just the average person from the Boston phone book. But the brain surgeon, just because they're really good at brain surgery, might not know that much about policy. And sometimes they're trying to translate in the COVIDs if they're like, oh, we got to close the schools. They might know a lot about epidemiology, but not that much about kids' psychology and stuff.
28:58 Speaker 01 Totally right, which is why I think what was missing during the pandemic were broader public policy discussions. These expert decisions were very siloed. If you want to break the spread of the pandemic, pull people apart as fast as you can. As you say, epidemiologically, that may make perfect sense, although still a little challenge there. But it socially makes no sense whatsoever. And commercially, I suppose I could never get hit by a car if I just didn't leave my room. But that doesn't sound like a very good idea either. So we always make trade offs. And I think that's what was missing during COVID. Unfortunately, it's left us with a scar that now people don't want to believe anything an expert says, whether it's economics, or healthcare, or foreign policy, whatever it is.
29:44 Auren Hoffman? Starting, let's say, the late 80s, it seemed like many of the smartest people started going into finance and not into other areas where real innovation, people with great math backgrounds, with physics backgrounds, with other types of things, ended up in hedge funds and other. And now it does seem like there's a shift to maybe AI, because they can get paid just as much in the AI world. Do you see something like that where part of the reason maybe we weren't getting as much innovation is just all these smart people were just doing financial innovations?
30:19 Speaker 01 It's certainly true that the smartest people, the less smart people, we're all going to respond to economic incentives. If I told you, you could earn 10 times more doing something else, you might well consider that. I don't want to necessarily interfere there. But the question is more, are we making innovation and research? Interesting enough, I worry, for example, in undergraduate education, we're not showing how sexy and important science and engineering really are.
30:48 Auren Hoffman? Elon Musk shows it a lot more than the average university or something. He's doing more to get people into doing rockets or those types of things.
30:57 Speaker 01 Right. When I was a kid, the space program was a big deal and I used to make these Estes model rocket kits and launch them. And because it was fun and it was interesting and that drew me into science and I worry we're not doing enough like that for young people. It's not to say finance isn't fun. I do a lot of finance in my own career, but we can't have a whole world of people just doing work on Wall Street.
31:20 Auren Hoffman? Going back to the student debt world, how bad do you feel that it is and how complicit do you think the colleges are?
31:28 Speaker 01 I do think it's a problem if you don't graduate. People look at, let's go to college. That's the goal. I don't even think that's a particularly good goal for a lot of people, but it's not going to college that changes your life. It's graduating from college. So if I go to a college, I don't graduate and I don't really achieve meaningful skills in college. That's not a very good investment at all. So in that sense, debt is a problem.
31:56 Auren Hoffman? More than 50% of the benefit of colleges in the last month. If you leave before you get the degree, you don't get most of the benefit.
32:04 Speaker 01 Which is why, if you look at the level of community colleges, most of the investments that have been made to improve things in recent years have been incompletion. What does it take to get a young man or a young woman, or for that matter, a middle-aged man or woman through community college? We need to think harder about that. That's where debt is a problem. If you're telling me that you borrowed money to go to a fantastic program for which you're going to graduate with real skills, that's fine. One thing colleges should do is more what every business school, as part of my world's being in a business school as well as an econ department. In a business school, we tell you everything. We tell you where our graduates went, how much they made by field and the whole distribution.
32:47 Speaker 01 So you can see what the highest salary is, the median, the bottom 25%. What's wrong with disclosing that so that individuals can make an informed choice? And yes, colleges are a bit complicit, particularly colleges that are at the very top by not disclosing that kind of information and by perhaps not offering enough career guidance.
33:11 Auren Hoffman? This ROI is kind of important with bachelor degrees. Most of them are ROI positive. There are some from some schools that are ROI negative. It seems like most master's degrees are now ROI negative. If you consider the loss in earnings and what that person would have made two years later, even most MBA schools are very ROI negative.
33:33 Speaker 01 When I go on a college campus and undergraduates ask me about business school, if you're asking me an economic question as opposed to you just want to go to business school?
33:41 Auren Hoffman? It's fun and you might meet your spouse there and there's a lot of other good reasons.
33:45 Speaker 01 If you're not going to go to one of the very best business schools, don't bother because the opportunity cost of your time for a couple of years trumps what little gain you would get.
33:57 Auren Hoffman? You may have significantly progressed in your career during those two years. There's a lot of other things that go on there.
34:03 Speaker 01 Totally, and I think that's true of a lot of the good.
34:05 Auren Hoffman? So many times I know so many people go to a good business school. Let's say they went to Dartmouth's Business School or something, good business, Yale's Business School, and they come back and then they maybe go back to the same company that they were at before. The person who is at the same level of now is their boss that they left at.
34:21 Speaker 01 You really have to be careful. I mean, college, graduate school, whatever the rank order is, is not for everybody. It's an informed choice. More is not always better.
34:32 Auren Hoffman? And certainly master's programs, it seems like almost all of them. And it does seem like they're less important today than they were. If you're in the eighties to get ahead, a lot of people were going to get a master's. A lot of jobs almost require a master's. Today, it does seem like it's going the other way. Do you think we'll get to that point with undergrad too, where that same ROI negative is going to start to move to many of the undergraduate?
34:56 Speaker 01 I think that's entirely possible. I think many employers are talking about skills that they need as opposed to credentials that you have. And I think that's very positive for the economy. When you asked about colleges being complicit, one thing's colleges could do is have a little more skin in the game on debt, income base repayments and so on.
35:16 Auren Hoffman? Be the first loss or something like that.
35:18 Speaker 01 Yeah, so that basically as a dean or a president of a college, I might say, well, let's be careful. If we have too many majors in a subject that has a very low salary, are people going to be able to repay the debt? That's frankly a good conversation.
35:33 Auren Hoffman? How do taxes influence entrepreneurial behavior?
35:37 Speaker 01 There's lots of evidence on that entrepreneurs like everybody else are influenced by taxes. But I think if you look at the fiscal system writ large, the best things that we could do for innovation or entrepreneurship are continued focused on R and D, the research and experimentation tax credit, which just got reaffirmed. Tax laws carry forwards are very important for entrepreneurs, but also things that are outside the tax system, which is huge support for basic research, because that tends to produce things that can then be commercialized in the innovative applied research process. Companies aren't generally going to fund basic research for obvious externality reasons. The US used to be a real leader there.
36:22 Speaker 01 We're less so now, and I think it's a very dumb idea.
36:26 Auren Hoffman? Going back to the expert thing, you could also make an argument, we used to be better at basic research. Now we're just throwing money away and it seems like the average age of somebody doing basic research has gone up 15 years.
36:38 Speaker 01 If you want to spend more money on basic research, and I at least think we should, it doesn't mean you take the current system of the National Science Foundation, National Institutes of Health and so on, and don't make any changes. We need to do better. To use venture capital type analogies, we need to do better at experimentation. Small grants, if you will, to see how good you are and then more on milestones of success, rather than just going to a 64 year old Nobel laureate and throwing new money at them.
37:11 Auren Hoffman? Especially when the institution they're in might take 40, 50 cents of the dollar or something for administrative overhead.
37:18 Speaker 01 We could be doing a lot more to think about and encourage new researchers rather than just rewarding the success of famous scientists.
37:29 Auren Hoffman? If the government's goal would be to increase fertility and let's say try to increase the TFR in the US, do you think there's some sort of economic incentive or some sort of tax policy that could work?
37:42 Speaker 01 I think that's a super hard question. My economist friend Melissa Carney has done some of the best work on this and her answer is it's complicated. We don't really know of economic incentives that work all the time. I mean, it is true that if you had longer parental leave or more generous support for childbearing, but a lot of this is also cultural and social.
38:08 Auren Hoffman? The parental leave, every time I've seen a stat, it seems like almost does the opposite. I don't know why it would do the opposite, but as countries increased parental leave, their TFRs go down.
38:18 Speaker 01 I think this is one that's just very, very hard. I would commend Melissa's work to you. She knows more than any economist I know.
38:25 Auren Hoffman? I think the country of Hungary recently said something like, if you go from two to three kids, the income for the woman is tax-free for the rest of her life. I don't know if that's cost-effective, but it seems like a massive incentive. Almost everyone I know that would have two kids would definitely have three if they could be like tax-free for the rest of their life.
38:44 Speaker 01 Would be interesting. I don't know if somebody's going to study that. I have two kids. I don't know if I would have had a third.
38:50 Auren Hoffman? Almost certainly, you would have really thought about it for sure.
38:53 Speaker 01 I definitely would have thought about it.
38:55 Auren Hoffman? That would have been really a game to you now. I don't know if the government could afford that because all of a sudden, maybe those people tend to be the higher income people or something. Couple of personal questions before we go. What is a conspiracy theory that you believe? You don't seem like a big conspiracy theory person.
39:12 Speaker 01 I'm not really, it's, I don't know if this is a conspiracy theory, but we talked about it a little in your questions earlier. I do think that experts are way overconfident in two ways. One, in the narrowness of their expertise as being fitting the problem. And second, they're completely out of touch from concerns that shape that. That's a kind of conspiracy theory and I think it's true. When people don't trust experts for those reasons, I think they're a hundred percent correct. I think when people distrust experts because they just don't think they know anything, that I don't agree with. But if you're saying, does the expert forget that his or her expertise is nestled within something, it's a bad thing.
39:52 Auren Hoffman? And often their expertise is much more narrow because they're smart persons. So people start asking them other stuff and they're often not any better than average on the other stuff.
40:01 Speaker 01 No, when I worked in the White House, I used to be really upset if the president made a policy decision that was not consistent with what I just told him. And he would explain to me patiently, I had to make a big decision. It's a social decision. It's a political decision. I did value input from you and others, but I had to put it all together. It might be that he didn't get the economics exactly right, but arguably that wasn't the problem he was trying to solve. He was trying to solve a political problem. So I think experts need to be a little more humble.
40:33 Auren Hoffman? All right. This is great. Last question we ask all of our guests, what conventional wisdom or advice do you think is generally bad advice?
40:39 Speaker 01 I'm reminded of the Mark Twain quote that it ain't what you don't know that's going to hurt you. It's what you know for sure, but ain't so. Some of the things that you know for sure, but ain't so, one of them we talked about that college is best for everybody. Don't believe it. That there's mean reversion in political economy, like we're going to go back to the way it was in the 1990s. I don't think that is true. When people say America being so active in the world, a strong global position hurt us at home, I don't think that's true either. So those are just examples of conventional wisdom that we know for sure, it ain't so.
41:16 Auren Hoffman? This has been great. Thank you, Glenn Hubbard. I'm a big fan of yours for joining us at World of DAS. This has been a lot of fun.
41:22 Speaker 01 My pleasure. Thanks for having me.
41:27 Auren Hoffman? Thanks for listening. If you haven't already done so, please subscribe to World of DAS wherever you consume your podcasts, YouTube, Apple, Spotify and more. And please help us get discovered by leaving a review and check out worldofdas.com. That's worldofdas, D-A-A-S, dot com. And of course, connect with me on Twitter, at Auren, that's A-U-R-E-N. Would absolutely love to hear from you.
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