An economist’s guide to getting rich the right way

24:19We should all try to make more money. And that's a mistake. Why is it a mistake? Well, it's a mistake because like the marginal effect of that quid goes down, right? The more money you make, the smaller the effect of that unit of money on your happiness, right? It may be that when you're rich, you should be spending it on something totally different. Like the last quid might be better spent on, I don't know, a day in the park with your kids or, you know, a gift for your mother if you're fortunate enough to have a mother still alive and so on, right? Thinking on the margin is critical for knowing like when to quit.

25:00When should you stop making money? It's a weird thing to hear an economist say, maybe, right? But there is a point at which you should stop making money and spend your cash on other things. Last time we recorded, Tomei, and you were having some real dramas with your accountant so how's that been going mate they're sacked so drama sorted um they're a big corporate firm um they didn't really reply to my emails very quickly like took a week or two at times um and they charged me way too much i mean i've got pretty simple taxes and yeah they were charging me thousands they saved me some money but yeah um i had to move on slow and expensive pretty much yeah this is one of the reasons that we're really happy to be partnering with tax app it's a tech platform that makes self-assessment simple whether you're self-employed like me a freelancer or a director like Demo, big dog.

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26:17That code is MONEY, M-O-N-E-Y 1-0. So Mr. O 'Carolet, I hear you are a salesman. Elite salesman, yes. One of the best, they say? I've got a little bit of experience in the game, yeah, I could say. Done a few deals. A bill, a bill. What would your compliance team say about you? They will say that I am always nagging them and that essentially I just have beef with compliance. I love the team. Compliance slows down all my deals because every time I get to the finish line, they've got to check documents, KYC, GDPR, and it's just a nightmare. It slows the deal down by like two, three weeks. It's always on both sides as well, isn't it?

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27:30If you're a business that needs to prove security and compliance, visit Vanta.com forward slash making money to sign up for a completely free demo today. That's V-A-N-T-A dot com forward slash making money. There's a link in the description, though, so you can just click that. Well, we'll have to change the podcast to Made the Money. We're still making it at the minute. And I think one thing is this habit of saving for a long period of time is also kind of not counterintuitive, but hard. and it battles the desire to live for today. Do you have any kind of strategies or views as an economist of how people make that sacrifice for tomorrow?

28:08It is very hard. Like all these decisions that are good for future you involve like making sacrifices now, right? Foregoing indulgences, like putting money in a savings account, whatever. It hurts, right? It sucks to withhold all sorts of fun things you could do right now in the interest of the remote future. like we're applying sunscreen or practicing safe sex or like saving for the future or not overeating with all these things we do in the benefit or in the name of like some remote good. And there we're up against this like feature. I don't even want to call it a flaw. It's a feature of human nature, which is that we're like biased toward the present, right?

28:49We want our fun now, right? We discount the future. We want to indulge now. So there are a couple of strategies that economists have suggested that you can use to overcome this sort of bias. One thing you could do is to leverage social pressure. So you can gather with a group of friends. So you can say, hey, we're going to, you know, we all have these Fitbits or whatever. We're going to commit to taking a certain number of steps every day, or we're going to commit to saving a certain amount of money every week or every month, whatever. And that way you can get like short-term benefits, the approval of your friends, you know, in the interest of a longer term goal.

29:27Another thing you can do is to sort of couple the sacrifices with small indulgences. So this is called temptation bundling. And I feel like I feel like I've used that to good effect. So I eat too much crap. That's one of the things I try to change. Like I go to work, I forget my lunch at home. I eat something at the cafeteria. It's kind of pricey. It's not very good and it's definitely not good for me, right? Too much sodium. And so I try to encourage myself to bring more food from home, to bring my own lunches, even if they're boring, like the kids' leftovers from the night before or whatever.

30:02But then if I succeed, so if I bring decent, you know, homemade food Monday through Thursday, I allow myself to go out for lunch on Friday. And then I try to go to a decent restaurant instead of like the cafeteria around the corner. So I might allow myself a poke bowl or something, you know, still relatively healthy, but you know kind of a little you're going mental there right so the thing is like coupling the sacrifices that i have to make in order to uh you know to fulfill some promise to myself i can motivate myself by promising myself a short-term indulgence like like this sometimes you can combine the one thing with the other so katie milkman the behavioral scientist has written about this.

30:47She suggests like if you're into an audiobook, like if you really want to hear how the audiobook ends, like do it, listen to it at the same time as you're on the treadmill or something, or listen to it at the same time as you're folding laundry or washing dishes or something. So sometimes you can even couple like the boring thing, you can do the fun thing and the boring thing like at the same time, and then like promise yourself not to listen unless you're actively folding laundry or else you can do what I'm doing. Like you try to do the right thing like four times and then the fifth time you do something sort of a little more spendy.

31:20Now this can go wrong, right? The indulgence need not be like a trip to Thailand or something like a yoga excursion to Bali, right? Then you'd mess up. So a relatively small indulgence, and it can be very small. Like I will sometimes go to a vintage shop and buy like a funky tie, whatever. It's like in terms of climate effects the it's effectively zero it doesn't cost very much like a vintage tie might cost like five quid ten quid maybe uh right but nonetheless it makes me a little happy i have something fresh to wear around my neck whatever something colorful on zoom calls and whatever did you ever have trouble with discipline because you seem very like yes yeah so did you used to just be spending spending like very uh impulsive so like the standard joke in my world like again don't tell anyone is that people who go into decision making oftentimes do it because they know that they're kind of bad at it.

32:16And so paradoxically, like if you look at the people who study decision making, they tend to be worse than like the random guy on the street. And I guess I would like fall in that category. Yeah, I drink more than I should. I don't exercise as much as I should. I eat out too much. I should be saving more. And so I'm struggling with these things. And what I'm reporting are things that I've read about in the literature, things that seem supported by the evidence, and that I found worked in my life. The biggest thing that drives my happiness on a day-to-day basis that I've noticed recently that's changed is I signed up to these kind of like group cardio sessions that are really aggressive.

33:00You know, like they break you and like at points i'm thinking like why do i do this but then within an hour of leaving i'm in like the best mood and it translates throughout the whole day to the point where the days i don't go i'm like craving to go because i want to feel happy um and yeah i know like people say physical exercise but i find this kind of these really like pushy ones i don't know if it's the juxtaposition of you felt really bad then so anything isn't that is good but it's like this kind of that's the lever in my life now that I pull on to like, it's like a drug. That sounds great.

33:33It sounds a little bit like pouring gravel in your shoe or something because it feels so good you can remove it, right? But part of it might be, so I don't know about you, but like many people I hang out with are prone to overthinking things. And, you know, we can't disconnect, right? You're in the middle of some challenge or something and you just can't stop thinking about it. And it sounds like the kind of cardio that you describe is the sort of thing where you're going to be in so much pain that there's no chance you're going to be thinking about index funds when you're in the middle of that.

34:01Is that your experience? I definitely agree with that. Like for me, I coach a gym quite a lot, but when I play, I play basketball every Tuesday night in a league. And when I finish that, like I'm dripping with sweat, like, and I feel like so amazing, but I was ill a few weeks ago, me and my son. And so I couldn't take him to the park for a week and he was just going crazy in the house because he was ill and he just wanted to go outside. And then I couldn't exercise or play basketball that week and by the end of the week i was like i've just been sitting here on my computer all week feeling like death and i'm really depressed and down and then like on monday we were all better we me and him went to the park and we were both running around i'm like oh i really missed this so it's um it's when you're when i'm playing that basketball when i'm in the gym like my it takes my mind off all the stress job work kids everything it's just like quiet zone and you don't have to think about anything so yes very liberating i think it's fun to hear you talk about this because it's so much easier to see these effects in other people right if you have a kid and for some reason they can't go outside in the afternoon they're going stir crazy like you know exactly now why right but you notice yourself you can't quite sit still you can't quite focus they can't sleep as well you can't sleep right you can't take a nap you're too tired to work but you're too alert to sleep exactly you might not notice what the or you might not see what the causes mentally drained but not physically tired like all these things yeah right and i i mean i find so often i sit in front of my computer and i can't write you know i've got some sort of writer's block whatever and the screen goes black so i know now i've been sitting here for seven minutes like a screen a key right in those sorts of moments um the best thing for me anyway is like going for a walk yeah or going to the gym or something i'll keep thinking about the thing i'm thinking about but it's so much more creative than just like sitting frustrated in front of the computer yeah and it and it clicks then you find that you take your mind off it and i have these creative tasks where it's almost like how do i link the end of the script to the start and how the second narrative that i've got how do i continue that through and if i'm walking away and go and do something else it just like lands in my head it's like there you go there's the answer and it's like oh i've been like beating the screen to try and get this out and you walk away and like you said asking yourself the questions about happiness i think we tend to think about happiness as this kind of like big thing whereas what i found is happiness is like a day-to-day thing of just feeling good and i actually think that sometimes i'll come down from my office to my studio at home i've sat in front of a screen for 10 hours screen time is across two devices i've clocked 16 hours worth of screen time like and and it's like what do you want to watch on tv and i sit down i'm like why does my life feel so crap and then i just go for a walk for half an hour and I'm like, bang on, bang on the show.

36:41Do you know what I mean? Like, I'm ready for it now. And it's, you feel almost, you're not sitting there going, it's just that you need to go outside and touch grass. I started going to the pool, which is really nice. It's kind of a soft kind of exercise. It doesn't hurt your knees or elbows, you know, the way basketball. Good for recovery as well, yeah. And I think the most important thing is that you have to lock your phone away, right? When you enter, you lock your phone up. Oh, yeah, you don't have your phone. And then you go into the water and you don't even think about checking your email or, you know, Twitter or something because you can't.

37:10And then you go sit in the sauna, maybe if there's a sauna afterwards, and it's a place where everyone's just sitting, right? Nobody has any electronics. And it really forces you to disconnect. It's wonderful. I find the most people point is underwater. When I get to the pool, just dive underwater. I swim underwater as long as possible. And it's just like, you're in your own world. No one can talk to you, no phone. It's very peaceful. It's like sensory deprivation. Yeah, tranquility under there. It's nice. David's like what is this guy talking about in my head I was just thinking I would love to be at your pool just go dickhead when I come up for that just under the water I just went past and you look like the Nirvana with my little goggles as well yeah just call you out wait to make both of you happy at the same time yeah yeah it would make me very happy I was thinking that would make me so happy just to ruin his little moment can we talk about then consumption smoothing because I think this is another thing So I did some research.

38:07One of the common things that people say when they come across my channel is, yeah, great, the information is great for 2030, but I'm 40 and I've not started saving. So I looked at studies that showed the fact that people can build significant retirement pots by saving later in life and optimizing for a smooth consumption over a lifetime. So that was my introduction to this. But could you explain what it is and kind of how it can work? Yeah, yes. Let me just preface this by saying that that's sort of like the situation I was in. So I was in graduate school forever. I spent 10 years getting that.

38:39I got two PhDs, right? So on the average, I did just fine. But I was like in my mid 30s when I was done with school. And then you're a philosopher, you don't make a ton of money, like especially early on and whatever. I didn't have an SDG in my mid 30s. I started saving my 40s. So that's not ideal, right? You're better off starting at 25 or whatever, right out of college. but that doesn't mean it's not doable and even like relatively small amounts you know relative to like what other people accumulate can give you a certain padding right it's it's like a crash what's it called like a crash uh gosh i'm blanking on the word now like the safety net no no i mean the pillow of that oh like foam like the impact foam airbags the airbag yeah yeah so Thank you.

39:27So let me rewind. Some random voice from now just. Gosh. So let me rewind. No, no, it's good. Keep going. So even like a relatively small amount of money provides a little bit of a cushion. It acts like an airbag if something happens, right? You get an expenditure, like you need some dental work or whatever. You can depend on that. So you need to not be intimidated by the number you think you should have it in your bank account like right now. but rather just like get started and do what you can. And over like the 10 year, 20 year timeframe, you can still accumulate like sizable chunks of money.

40:04So the first thing is like not to worry too much about that and just focus on the future. Consumption smoothing is this idea that like you want to keep your consumption like relatively stable over time. So some people have, or for many people, like our income varies. We have periods when we don't work. We might be unemployed. We're studying early on, maybe. If you drive an Uber or a cab or something, you might have good day and bad days. But nonetheless, you know, you want to have lunch every day, right? Even if you're a cabbie and you have a terrible day because the weather is lovely and nobody's going, I don't know, nobody's going places, you want to have lunch.

40:44And so this gives you, like normally, I'm saying, you know, try to save if you can, right? But this provides some basis for spending, even if you don't have the money, like in the short term. Here, Cabby, you didn't make any money today. You still need to eat. The same idea applies over the course of the lifespan. So many economists will say that students should be maybe taking out bigger loans. Like if you're in a field, in an economy where you expect to do quite well in adulthood, it's fine to take on debt when you're young, right? because that way you can smooth your consumption a little bit.

41:19For many people, middle age is relatively a time when you might struggle a little. If you have younger kids, kids are like outrageously expensive, whatever. And then in later adulthood, before you retire, you might be relatively well off because by then maybe you've paid off the apartment you live in or whatever. And if that's true and you're confident of your future, you have some reason to borrow. So generally, the idea is to try to stay out of debt, try to save if you can. But there is good reason to borrow money. There is good reason to go into debt, given certain conditions. Yeah, they showed how the path of savings, the optimal path, as they called it, and the way they framed optimal was about smoothing consumption, is not a linear 5%, 10%.

42:07It's actually early 20s, you save a high amount if you can, or because you've not got responsibility. as soon as you have kids it drops to near zero and then when they leave you rack it up to say 25 so you know this idea was actually that people in their 40s are probably they've done it right in a way and they might have lived their life in accordance with what is optimal from a consumption smoothing perspective i think the mistake i've made throughout my life is i consistently am like save everything now so one day you can just ball out your brain um and that means that you know I'm in my 30s, my savings rate is at 90%, you know, and that's probably not optimal.

42:44Mine was more ball out every day and then save later. We're trying to find a middle ground between the two of us right now. Yeah, I'm right here in the middle. The middle is where we need to be, the sweet spot. Yeah, no, but so you can save too much, right? I know people, I know of people who are like trying to save, you know, as much as they possibly can or whatever. And, you know, that might work for them, right? Maybe that's what they want. Some people do it for altruistic reasons because they want to have money to give away later on. And, you know, I'm not telling them they shouldn't. But for many people, it makes sense to go into debt at certain stages of your life, provided, of course, you save at other times.

43:22And it's on the right kind of spending. So it's an investment in education or whatever. It's not just buying Prada handbag. Right. So getting an education, right, for some people getting a car is an investment. it's a way for you to make more money to get a better job more fulfilling life and so on right and then going into debt makes sense so there was a story in your book that i love that i want you to tell it's going to help me transition to the next part of the conversation it was about a and w burger was it a and w burger or their burger that they introduced yeah america can you explain what happened there yeah so this is like a classic story in the marketing literature so mcdonald's has this product, the quarter pounder, right?

44:01It's a quarter of a pound of beef on a patty, and it's sold at a certain price. And then this competitor, the KW, came up and they're like, we're going to beat them at their own game. We're going to sell a burger at the same price, but it's going to be a third of a pound. And, you know, just so everyone's on the same page, a third of a pound of meat is more than a quarter of a pound of meat. But this campaign like totally flopped, right? It's a massive mistake, right? Nobody bought their burger. And they did a postmortem afterwards to figure out like, how could this idea flop so badly? And the story is, apparently, that people thought one third was less than one quarter because three is less than four.

44:47And these are like fractions you're supposed to learn in middle school, right? The burger people thought they knew what they were doing, but to people like intuitively who are not overthinking right it sounds like a worse deal than the one you get at at McDonald's and this is you know there's so many insights here right but one is that people make mistakes that us educated folks you know people in marketing and so on might not think is even possible right and when we try to sell things we have to compensate for for that and then more broadly speaking considering sort of financial literacy and so on, in this world, right, we're expected to make decisions that are pretty complicated, right?

45:34You mentioned mortgages, getting a credit card, there are, I don't know how many credit card offers out there, right? And you're supposed to be able to pick which one is best for you. And the fact is that majorities of people around us don't have the financial literacy to make these sorts of decisions. In the case of Berger, it doesn't matter. Maybe the quarter pounder is even better for them than the third pounder, whatever, right? But if it's about a mortgage or like some scam or a really shitty credit card offer or something, it can really hurt you and you can get into debt that you might never be able to get out of.

46:14So this is a major challenge from a public health perspective, really, and from a financial literacy perspective. but it's really important to remember if you're in this space. But it speaks to the fact that people's ignorance makes them make poor decisions and they're not even aware of it. So how do you address an ignorance that you're not aware of? Yeah, and let me just say, first of all, that this isn't people's fault, right? We don't train kids to think in these terms. And we really should, and maybe not primary school, right, before you get to the fractions. But once you've done the fractions, you could talk about this.

46:50Things like interest, inflation, right? This should be part of everyone's training. And you need to get in early enough that you catch like 100 % or near 100 % of the population. Because even people who drop out of school quite early are going to have to make these decisions, right? In the world we're living, they can't avoid that. And so there's a major sort of outreach activity required here. The good news, and I always like to focus on the good news, is that there are strategies, there are educational programs, curricula that have been battle tested in randomized control trials and that have been found to work and that have sort of surprising external benefits too.

47:35So it turns out that if you train children to make wise financial decisions, their parents get better at it because the kids will come home and they'll say, hey, do you know about inflation? You know, do you want to know what I learned in school? And then the parents will learn about inflation and the teachers will be better at it. And so, you know, you can think of this as targeting not just the individual student, but the entire community. And that could have huge effects on people's financial well-being. because the education feeds up and i guess they have to sit down and do the homework and they're like oh yeah it's like dad can you help me with this dad shows up and he's like whoa let me just get google out real quick yeah yeah but what about an individual that you know has been through the education system and doesn't have kids how do they address ignorances and is there any way that they can change their behavior or once they've identified you know okay i don't know about this how do i know that i need to i mean there are wonderful books out there and there are podcasts you know like someone you guys are doing that you know really help people along but if i don't know that i don't have this critical skill like how will i know to go you know you're not going to look out there how to measure what burger's bigger podcast unless you know just right you know i wouldn't listen to that right that sounds silly how to not tell you which burger is bigger but you know so many of us really should be listening to that yeah i don't No, I mean, it seems to me that banks could do more.

48:59So gamification is something you can use, right? If you want to administer sort of educational programs or whatever, you can oftentimes set it up like a game. So Duolingo is a good example, like the app that teaches you languages, where you get like little notifications and little badges and rewards, and you can connect it to your friends. And so, whoa, like your friends are doing real great here. I'd better spend a few moments like to keep up my streak. Like that sort of gamification, that sort of process can be quite effective. And I could see banks delivering this, right? Every bank has a homepage, right?

49:33If you have a bank account, you go to the homepage probably every so often. There could be like little games there, you know, play this game and get a discount on the next product or, you know, get an offer or something. That strikes me as like one way to do it. Because how do you reach people who don't see that they have a need? Like that's real hard. yeah i sit in my family all the time you know i'll go around and i'll sit down with them and they'll talk about the fact that you know their next goal is to sell their house that they've got now to get an even bigger house with even more debt but they wouldn't invest because that's super risky and i'm just like you know to me that that that's the complete opposite way of how i think about money i'm not saying i'm right but you know they have a view a world view of money that they think property is the best way to get rich right yeah they're not even investing in property they're talking about their own home.

50:21Whereas I'm like, this is a liability because you're moving your debt figure up constantly. And what happens if you lose your job? And, you know, oh, no, jobs are secure. Being self-employed like you, Damien, that's risky. Maybe he bugged a little over a second. Yeah. So, you know, I see that in my own family and I can have that conversation with them. And I can even be who I am, which is, you know, one of the most followed financial influencers in the UK. And they don't think I know what I'm on about. You know, they think like, well, you're chatting crap, Damien. Just be clear, do they ask you for advice?

50:51No, I mean, you've got a double PhD in economics and your dad was nasty for advice. No, they definitely, my mom did. My mom always used to tell me, I used to tell, you know, nothing changed apart from a few hundred thousand followers. So I'd have these conversations with my mom about financial, you know, investing in index funds. You don't need to pay someone 5 % to do it for you, mom. I can show you in five minutes how to do exactly what they're doing. Buying a little broad global. No, Damien, these are qualified professionals right okay i got 200 000 followers tell me about them people need that social proof i still remember the point where a colleague asked me well given that you work on well-being like will your family come to you for advice about well-being and i was just literally speechless because it had never even occurred to me that somebody might come to me for advice about well-being it's never happened like it's never occurred to me to think

51:45it's weird though because like in like in different possessions my mom's a doctor and like i've literally until i was in the doctor i never went to hospital anytime i like split my lip or like split my chin she just sewed me up and like anytime we're ill we're like mom what do we do anyone to this day my aunt's cool my cousin's like oh can you ask your mom i've got this growth or can you ask me oh i'm not feeling well so like people look at doctors and like psychologists for like guidance so you you think that they think it's the the qualification it did the hard like the hard science again so with doctors i think the whole world is pretty much on board that western medicine you know um and someone who's been through that process probably is someone you should listen to whereas often the incentives of the financial advisors are they want your assets under management and they're not actually aligned with what the individual wants i will say in fairness there are lots of frauds out there right if you sample like if you google financial advisors or like health advisors or well-being advisors or something like the people that might come up might be total frauds and so in a sense you might be better off like not trusting the people you find on the internet not you damo right obviously they should trust you right but there are so many dishonest actors out there offering like pseudo profound bullshit and you know, supplements and all sorts of things that are like proven not to work, right?

53:05So that's something we're up against. And it's true in my discipline as well. I think the part of why economists have such a bad rap is that people judge the discipline of economics based on the people they see on TV, like in ads and on news shows and whatever. But who are the people you see on TV? Well, oftentimes they're like think tank people, people who work for organizations who are literally paid to push a certain view, right? They're not there to tell you what the best argument is. They're there to push a view. Or you have economists working at banks. So these are salespeople. They're trying to sell products, right?

53:38They're not representing the science of economics and this and that. Serious economists typically don't make waves. And trying to identify who the serious people are can be hard if you're not yourself an expert, right? So there's a paradox there. Figuring out what the good advice is is hard if you don't know. You reference a paper within some of your research, and I went and read the paper. It was amazing. It was one of the best explanations of why get-rich-quick schemes are all bullshit. And it's the whole, like, the 500 pound on the floor. What's it called? I can't remember. I've got it written down, actually.

54:14Deirdre McCloskey. The Theorem of Modest Greed. Yeah, yeah. So could you just explain what that is? And I think that will help people realize why if someone's promising you they've got a way to get rich, it's probably a load of crap. Yeah, so this is due to economist Deirdre McCloskey. who says that, you know, do we find 500 quid bills on the sidewalk? No, we don't, right? There aren't any 500 quid bills sitting around on the sidewalk. And the reason is that if there were, somebody would have picked them up, right? All the major opportunities to get rich quick, you know, aren't there anymore, because if they existed, somebody took advantage of them and took them away.

54:51And this is why, like, if you get emails like I do, you know, buy into the scheme, I can get you rich quick, you know, invest in retirement homes, Bitcoin, like blockchain, whatever it is. Right. They always make me laugh because if you found a way to get rich quick. Why would you tell everyone? Why are you emailing me about it? If you found 500 pound on the floor, you wouldn't go to a guy and go, give me 20 quid, I'll show you where there's 500 pound on the floor. Every day there's 500 quid there, I'll show you where it is. You should pick it up. Right. So this like, the logic is like so obvious once you think about it for like five seconds.

55:27And this is like effectively all get rich quick schemes. This is what they're like, right? There are no opportunities like that. Because if there were, people would take advantage of them. So yeah. Then we're saying in this exercise class there, some people are like, oh, drop shipping. It's like you can make loads of money. You just be the middleman, order for someone and then deliver it somewhere else. And it's like, if it was that easy, everyone would be doing it. But you just keep seeing the YouTube ads, people talking about it. Now, the challenge is that some people really do get rich off of these things, right?

55:57But it's like the lottery, right? After the fact, you can tell somebody got insanely rich by trading in Bitcoin, right? Somebody else got insanely rich, I don't know, insider trading and whatever. And then after the fact, you say to yourself, hey, I can do that thing. But they took advantage of an opportunity that doesn't exist anymore. And we're sometimes fooled by sort of the narrative, right? Whoa, here's a dude on TV. He got rich. he's telling us how he got rich now i can do it too but you should assume that that opportunity is not there anymore because he took advantage of it right and the reason why he's on tv telling you is that the opportunity isn't there anymore right otherwise he'd be out there taking advantage or that that it's not that easy so you know i could sell a course on how to become a youtube and the answer is start a finance finance channel in a global pandemic and then do 100 hours a week of work every week for the next four years yeah like people will be like oh that doesn't seem very easy because it's not you know and be the lucky one that survives because the hundreds of people that all started i'm one of five that are still standing yeah you know and i don't know why that is and i can't bottle that but buy my course you know i'm glad you're doing this instead of that yeah but that's that's what people do they go i've got now got the secret to youtube and the secret is you know oh do this do that and actually no it's just you're a lucky moment in time and you've got survivorship bias on your hand because maybe you're a little bit more dynamic on camera than some of the other competitors.

57:16I mean, this is the challenge we're up against, right? The kind of wise, sensible investment advice that you get out of serious economics. It's kind of boring, right? Save when you can. Make sure you're up to speed on your financial literacy. You know, invest in index funds. Don't look, right? Don't touch the savings. It's kind of boring. Like these narratives are so much more fun. Whoa, here's a guy. He doesn't look like much, but he may, you know, he looks like he's homeless, but he made a million quid, you know, doing something or other. And there's some guy in a swimming pool going, oh yeah I try trade and I make a hundred grand a day if you want to be like me buy my course you're like dude stop it stop the lies you know not to trust that but it's compelling it's not just like schemers you know on the YouTube and the internets it's like business schools uh you know I don't want to diss my colleagues in business schools but so much of the education is like narratives right stories of successful business people and much of that is like useless and it can be worse than useless, it can be actively harmful because you hear stories, they're compelling, you think they're likely, right?

58:17They come to mind. So you think they're likely, this is how I'm going to get rich. And they're not, they're not representative at all. In fact, those people are there because they're not representative. Yeah, they're the survivor. You should study the people, the 100 people who failed along the way, the people who didn't build the car or the person who isn't Warren Buffett because they went Pepsi, not Coke, you know, or something like this. What you need to do is study everyone who was once in the same situation and then follow them over time but that means like 999 failures for every success story right speaking of failures can we move this on to um raising kids now i think i want to make sure that we touch on this because i think it's something that relates to our audience or will do one day i know there's plenty of people that don't have kids but i think it's a big question especially because we all probably look at our parents and go were they good parents so you you talk about how what economics can teach us about raising kids.

59:07Have you got any, you know, how do you think it applies when it's such an individual kind of art form, if that makes sense? Yeah, I think it applies precisely because it's sort of like an individualized art form. So one thing that economists do and do well is interpret data, right? So economists aren't the only ones who know data, but that's one of the things that we do. And so we're pretty good at sort of looking at the studies that are out there to figure out what we know. Like certain things are unambiguous, right? Putting a baby to sleep on its back, it reduces the chances of sudden infant death syndrome, which is horrible, right?

59:44So that's an unambiguously good thing to do. We know that from the data, right? But then economists can also say what we're ignorant of. There's a ton of things that parents will tell you to do or the people will tell you to do that we don't really have any good basis for. And that leads me to sort of the third thing that I think is important, which is that economics underscores the importance of values. So at the end of the day, what's good for you and your kid and your family will depend on your preferences to some extent. We have the same preferences when it comes to keeping our kids alive, obviously, but then we have slightly different conditions and we have slightly different preferences.

1:00:22So if it comes to questions like, you know, should we breastfeed or not? These are complex decisions that have sort of potentially long-term consequences. There is evidence to the effect that breastfed babies do better in the short term and in the long term. But then there are factors that might motivate not breastfeeding. That includes personal preference. and it includes like your employment conditions and things like that. So what economics can do, I think that's helpful, is that it can help you sort of integrate the data, the stuff that we have, like the evidence that's sort of incontrovertible that you need to act on and the evidence that sort of, you know, could go either way.

1:01:02And I think that's helpful because if you're a parent, especially if you're a woman, you'll be overwhelmed with people having opinions about your parenthood and your approach to parenting, right? It's insane how the moment somebody gets pregnant, right, their state and their activities becomes a matter of everyone's concern. Everyone's got an opinion. Complete strangers will tell you, like, how to live your life and how much to sleep and what to drink and what not to drink and whatever. And many people find this hard, right, because there's so much judging. And it comes not just from, like, outsiders, it comes from other moms and dads.

1:01:42And this can be hard, right? You're made to feel inadequate, basically, no matter what you do. But so what the evidence can say is that you need to provide a certain minimum of love and care and attention and stimulation and food and nutrition and water. You need to get the basics done. That stuff is not negotiable, right? If you want your child to develop properly. But then all the other stuff, like all the toys branded like Mr. Einstein and whatever, and sold with a promise of making your child brighter, utter and complete bullshit, right? There's nothing there that's going to, you know, benefit your kid any more than, I don't know, playing with pine cones or something like I did as a child.

1:02:27And that, I think, can be somewhat liberating, right? Okay, maybe you can't breastfeed. Well, fine, right? Your child isn't going to be at a disadvantage. They won't be stunted in their growth as a result of this, right? Maybe you can't, you have to work. You can't be home all the time. It's fine. It's fine. Kids do just fine spending their time with a grandparent or in, you know, kindergarten or something like that, right? There's a lot of evidence that suggests that kids will be fine. That chapter was really cool. I think what I took from it, most importantly, was like parents need to lighten up.

1:03:02Because like you said, I think you said there was a bit when you read, you and your partner read loads of different books on how to put your child to sleep. And then it says, if you don't do it this way, it's going to have these bad effects. And if you don't do it this way, and everyone's like so strong in their opinion. Like if you don't do this, there were negative consequences. Then you read one paper from an economist and it's like, they did a test to compare all the different experiments of putting your kid to sleep and they all pretty much worked. Like it didn't really make a difference.

1:03:28When you become a parent, you become instantly aware of this like background radiation of judgment. So we read all these books on like sleep training and whatever. And so many of the books will say like, you have to hold your child at all times, right? You can't put them down when they're crying. If they cry at night, you have to pick them up right away. And fine, right? Somebody genuinely thought that that was true. It turns out not to be true, right, if you look at the data. But people won't just say that. They will also say that if you don't follow my advice, your emotional response will be stunted.

1:04:02Your child's development will be limited. And this is horrifying stuff to hear if you're a new parent, especially if you're a first-time parent, right, the child comes home with you, they're as vulnerable as they will ever be, right? You have this responsibility that feels utterly overwhelming. And you have this background radiation of you're doing it wrong. You're going to hurt the kid. You're going to hurt yourself, right? It's terrifying. And so just looking at the data and seeing that there's no systematic evidence suggesting you have to do this, right? Your kid will be fine, right? If you're too frustrated, you're too tired, you can put the kid down, have a cup of coffee, you know, walk around the room.

1:04:42It's fine. It's like with everything, information overload. For me, I see like all on Instagram, they're like, oh, do this with your kid. Don't do this with your kid. Don't do that. And you saw lots of books. And it's just like so much information. You're like, who do I listen to? Like, I don't know if this is generational, but whenever I turn on like the Instagram machine or something, I get these like posts saying like, stop doing this. You do this. Like you leave your button undone. Like stop doing this. Or like stop tying your tie like this. It's like, where does this come from? Like, why do people become so judgmental?

1:05:12Like if people want to say, you know, here's how I like to dress. You might want to dress this way too. You know, fine. But the message seems to be like so often, stop doing the thing you're doing when what you're doing is mostly fine. Well, let's put it to test. We've got your daughter at the back of the room. You and your partner are social scientists. Do you think it's made you better parents? Absolutely. Yeah. Can you shout out from the back? Do you think you've got good parents? Yeah. That was like a gun to the head. That was like a gun to the head answer. I think a C plus. I give them a pass.

1:05:45I give them a pass. I think kids don't realise they've got good parents until they become parents themselves. A hundred percent. And then you're like, oh, crap, this is hard. I don't know how my parents raised three because I'm struggling with one. Especially me. Yeah, I was a troublemaker when I was a kid, so I don't know how they got through three of us. See, it gets easier in part because you realise you have to relax a little. So we have three. So Iris in the background here has twin little sisters. And when you have more kids, you just can't give each and every one the kind of stimulation that you used to, right?

1:06:14But they're fine. Turns out they're fine. If we can now, just quickly, sorry, the biggest issue, let's leave it till last. I've been through it. You talk about climate change within the book. And how do you think economics can interact with climate change and help fix that issue? Well, one of the things that economics can do is to underscore that there are solutions to this. So if you ask economists, like overwhelmingly, surprisingly 99 % or something will say that the solution is a carbon tax. Basically, we have to tax the hell out of the people, the companies that cause the problem. There has to be a cost to, you know, generating this kind of damage.

1:06:52And it's kind of interesting. Some of the jokes about economists are sort of based on the idea that economists can't agree. But in this case, like almost everybody agrees on this. And the idea is that just like with crime, we can't just hope for a future where people stop committing crimes, right? We have penalties, right? We also hope for a future where people stop committing crimes, but we have penalties. There are jails and fees and things. And the same thing is true here. If we're going to get the corporations to stop causing this trouble, this problem, we have to make them pay. And then the suggestion that sort of US economists have pushed most effectively, I think, is that we take all that money coming in from these taxes and give it to you and to you and to the listener right and to everybody else so everyone gets like their share of this and the benefit of this is that um everyone who doesn't everyone with a small carbon footprint is going to come out better than they were before like normally the fear is like if we start penalizing people we impose taxes and fees it's going to hurt poor people more than anybody else right and you know rich people will be fine but poor people will be heard.

1:07:59And so this is a way to sort of compensate for that. If you don't fly to Thailand every year for vacation, if you don't eat red meat, if your consumption is limited, you know, whatever, then you're going to make money off of this scheme. If by contrast, you own private jets and you have multiple homes and whatever, then you're going to pay a lot, right? But fine, there's a certain degree of fairness to this suggestion. And although we haven't tried carbon taxes sort of internationally or globally, yet they have been tested in specific places at specific times. And the effects are, you know, surprisingly solid.

1:08:37There's a good chance, like this might fail. I don't want to be overconfident about this, right? But here's the suggestion that economists overwhelmingly can get behind that the evidence says has a good chance of working. And what I like the most about this suggestion is that it's a sort of thing that should be able to garner widespread support. So if you're part of the green movement, you want to fix climate change while hitting the corporations where it hurts. You know, the bottom line seems like a good idea, right? This is how we're going to fix the problem. If you're like a left-wing liberal, you know, this is going to benefit the poor.

1:09:09Fine. If you're a conservative, you might appreciate the fact that this preserves the role of markets, right? This does not intervene on or interfere with markets in any way other than internalizing this cost. So we'll still have markets, we'll still have individual decision making, we'll still have corporations and so on. And if you're a Christian, well, you might think that we're here to take care of creation, right? And this is a way to take care of creation. So what I think is most appealing about this proposal is that even if you and I disagree about fundamental values, we might be able to get behind this particular proposal.

1:09:46And it's something we could implement tomorrow, right? We know what the solution looks like. And so if I may end on like a positive note, I think it's important that we talk about the challenges that we're facing. I'm not here to sell like rose-colored glasses, whatever. But it's also important that we talk about the fixes. And we know what so many of these fixes look like, right? We could do this tomorrow. We don't need to overthink it. We could get going. And we're going to have to couple it with other things. It might not fix the entire problem. Some people might end up getting squeezed. We might have to take care of them.

1:10:18But we can do this. yeah sustainability then becomes a competitive advantage within the marketplace so the businesses that are green don't pay the tax just i mean i know we've got to finish but i just one stat that i found so shell as an energy company from direct and indirect emissions puts out 57 million tons of co2 a year that doesn't include the use of their products so that's just what they that what it costs them to get their products out the ground the average uk home um is 12.7 so shell a year is 4.5 million average UK homes. So this is why we have to put it on the businesses. Because, you know, an individual recycling their cardboard, it's going to take them 4.5 million lifetimes to do one-shells a year.

1:11:00Yeah, no, that's not going to fix it. I mean, that's good, right? We should all do what we can. It shows where there's this big change that can happen there by forcing them to stop that action, right? And then they'll start innovating and producing less carbon emissions so they get taxed less as well. Yeah, and this is really important because, you know, people will sometimes say, well, what about businesses, right? Aren't they going to get hurt by this? What about like savings in oil stocks and whatever? Aren't they going to depreciate? And it's true that some businesses are going to hurt, right?

1:11:27They're really bad ones. But there's an entire industry. There are entire industries out there that don't have a voice right now because they don't exist yet. There's like future generations of people, people who don't exist yet. Like all the companies that would flourish under a carbon tax, right? All the sustainable companies, all the green energy companies, right? They don't exist now because they're not profitable. But there are so many business people out there just chomping at the bit. It becomes an opportunity. Taxation drives, you know, behavior. That's right. So if you tax it aggressively over here, you get a whole opportunity in terms of bottom line over there, right?

1:12:05And even some of like the legacy corporations. So I met the CEO of a major U.S. airline, and they're like one of the most, they're one of the companies you might associate with, you know, climate change the most, right? But what he was saying was that they're buying airplanes now that need to fly, that will fly for another 30, 40, maybe 50 years. So when they're investing now in airplanes, they're investing into a carbon-free future. They know that the transition is coming, right? So they may need to make decisions now that take that into account. They've already priced in the change. They know it's coming.

1:12:39What they want is consistency. They want politicians to say, listen, from here on out, there's going to be a carbon tax. It's going to be at this level. And then it's going to rise, you know, at this rate over the course of like so many years so that they can plan. Even the airlines are already on board with this, right? We just need to, you know, get on it. Is there anything economics can't fix or so? Yes. it's not going to fix your relationship right it's not going to get stains out of your clothing but jokes aside right what it's not going to provide is like the values right the vision of a better world the kind of world we want to live in that we're proud of living in that we want to live leave for our kids like what's a good life you know to what extent we should pay attention to like dignity and justice and fairness and stuff like that those are not questions that we should leave to the economist.

1:13:34But having got that sorted out, right, economics can help us fix most things because most problems have an economic aspect. You often need to combine it with like political science maybe and sociology and psychology and what have you. But every major challenge has an economic aspect. And that's why economics is so useful, no matter what problem you're concerned with. It can't fix Damien's hairline. There he is. That's a wrap. Thanks for that, mate. Appreciate you.

1:14:10Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results. So your money is at risk with investing and other fees may apply. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you. I'm Damo. I'm T. This was an episode of Making Money from Our Company Most. It was filmed and edited by the team at Flow Spire, Jack and Ben. It was produced by Ruth Edwards and brought together by Will Stallerman.

1:14:41What about Ruth and Toothless a Dog? Yeah, shout out them too.