You Are Unhappy Because You Aren't Taking Enough Risk

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2:50Welcome to Mern Talks Money, the podcast in which people who know the markets explain the markets. I'm John Stevik, Senior Reporter at Bloomberg News and the author of the Money Distilled Newsletter. I'm filling in for Mern this week as she's still on holiday. So this week I'm speaking with Alison Schrager, who's a Bloomberg Opinion columnist and Senior Fellow at the Manhattan Institute. Alison wrote a book called An Economist Walks Into a broadle and other unexpected places to understand risk. And now she's got a new book coming out, which is called Worth the Risk, The Seven Myths That Keep Us From Taking the Chances We Need to Take.

3:24I wanted to speak to Alison because I'm a fan of her columns. She kind of covers similar things to me in that she's writing about personal finance and investment, but obviously she's writing about it from the US perspective. And one of the things I find fascinating is there's actually a massive overlap despite the fact that we tend to think of the UK as having very different issues to the US. So this is one reason I wanted to get her on and so in today's show we talk about her new book. We talk about her view that it's actually a lack of risk taking that's leading to the anger that we see in societies and that's manifesting itself by frustration over inequality etc.

4:05And actually what we need to do is be taking more risks. We talk about which country's got the best pension system. And we also talk about the US housing market and the different views on whether a house is an asset you should be putting all your money into or whether the stock market is actually a better place for your money. Alison, welcome to Merlin Talks Money. Thanks so much for having me. I said I'm a longtime fan, so I'm excited to be here. Well, same here. I've been looking forward to interviewing you for a while. So thanks very much for making the time. Now, I only just found out that your new book is coming out.

4:41And so I haven't had a chance to read it. But I did read the introduction that you very kindly sent to me. And it really sounds fascinating. And it also sounds as if it may explain some of the dissatisfaction that's been widespread across, well, basically across the world since the 2008 crisis. Can you just talk us through your thesis? What's the book about? Well, it's all about our changing relationship with risk, which happens over time. But I sort of make I guess it was a counterintuitive argument is that people keep saying that the reason why we're so unhappy is that we face all these sort of massive risks we can't control.

5:16And I think it's actually the opposite, is that we've taken great pains to remove risk from our life. And that also sort of removes upside and the chance for possibility and sort of is a big part of our motivation. And I think that's honestly what's keeping us down is this sort of lack of possibility and the lack of upside and a lack of ability to take the risks that are meaningful or important to us. So basically, there's the risk of not taking enough risk. Yeah. I guess they say you make zero shots, you don't take. And, you know, there are obviously good reasons to remove risks from people's lives, like our social safety net is a great example of that.

5:52But the thing is, if you take away risk entirely, you also take, again, the possibility of upside, of earning more, of feeling like you tested yourself, which is also super important to well-being and also very important to moving the economy forward. I think we're seeing this a lot in Europe. People keep saying, well, we need to remove all these regulations or we need to integrate better. But the regulations are there for a reason. I mean, they're a feature, not a bug, in that particularly continental Europe is much less comfortable with risk. They've built a very large welfare state. They have a lot of restrictions on firing people.

6:25This is all to reduce risk. But the downside of that is that you're going to have less growth. I'm an efficient markets economist, so I tend to think that, you know, no risk, no reward. So the same is true not only in financial markets, but also economic growth in general. So if you deconstruct an economy where it's really hard to experience any downside risk, you also are going to end up with less growth and less upside risk. It's really interesting because you talk about how Europe is more risk averse and I think that's very reasonable. Why do we have this level of anger? Because you recently wrote a piece about asking, look, Americans are better off, but they're very angry, kind of like talking about people feeling frustrated.

7:08Where do you think that this is coming from? This sense that everyone feels somewhat hard done by? Well, again, I think part of it is they don't have that possibility of upside. They don't have that possibility of advancing like they used to, particularly when we're in a big economic transition, which introduces uncertainty into our lives and, you know, not being able to fully participate in that, but just sort of feeling like you deal with this stagnation. And I think the stagnation is largely a big part of the anger. I mean, it's also I think the anger in the if you look at almost every metric, you know, like neoliberalism worked.

7:45I mean, we are more prosperous and that is true across the income distribution, even if the income distribution widened. But the question is, is why do people feel like the economy is broken and that it's not working for them when it actually delivered what it said it would? And the goal has always been increasing prosperity. And I think if you look at different income groups, you have different answers. You know, particularly lower middle income people are really being hammered by inflation. So when they say I am worse off than I was, say, five, seven years ago, they're not wrong. So I argue in my book, this is a population's particularly been cut out of meaningful risk taking, you know, putting more and more like they need to be protected.

8:23And they do. There's certainly a case for a welfare state. But they also we've also like shut out upside for them, which, you know, is obviously, you know, keeps them poor. And then you have the upper middle class, which is doing well, but also is more locked in a genuine zero sum game with super rich people. And I think to them, they feel like the economy isn't working for them because they did say everything right, as we say. You know, they went to the right schools. They studied something that sounded fancy. They moved to the cities and it didn't work. You know, things have worked out for them by any sort of economic metric.

8:59But they still feel like they should be somewhere different or they see people who they went to school with who are getting ahead faster than they are. Part of that is that they're looking for these positional goods, lots in private schools, sort of desirable housing in big cities that is in finite supply. But also, I think they've also been sold something wrong, which is everyone who says I did everything right, I should have gotten something kind of is giving the game away of like, well, if you do everything right, you also didn't take any risks. You didn't take meaningful risks. You didn't check in and say, well, what's meaningful to me in terms of moving my life forward, both economically, socially, whatever.

9:34and if you just sort of follow the rule book, you're not going to sort of, I think, ultimately get that satisfaction. Yeah, that's really interesting because obviously people highlight inequality as a driver of this frustration, but where you mentioned income inequality in the US had expanded and that's income inequality here is actually going down. You know, they kind of, certainly on the wage side and the earnings side, there's been massive compression between the lowest percentile and the highest percentile. So it's really interesting. So what you're basically saying is nothing to do with that.

10:12It's mostly about the people particularly further down not being able to kind of take the risks and not being able to, or not necessarily not being able to, but not participating presumably in the stock market. Is that what you're talking about? Well, they're different things. I think in America, there is this sort of widening inequality and this sort of anyway, it's not true feeling that the economy is your sum. But people are getting richer in America. So as opposed to the UK and Europe, there is much more stagnation. And I always try to explain to people in America, if you think like a widening inequality, but a growing economy is bad, wait till you have the alternative, which is the compression, which is the stagnation.

10:51People are a lot more unhappy when that happens. But the thing is, in both cases, you do have this sort of more people being shut out of risk, you know, particularly, you know, in Europe, we have very high tax. tax rates, which take away upside. That's another reason why sort of wealth tends to be in Europe much more generational. What you do is you see this persistence of the wealthiest family being the same generation after generation. And that is largely because you have such high income taxes, such high consumption taxes, which makes it much harder to accumulate a fortune instead, get all that upside.

11:21And it sort of, again, becomes perversely more unequal because the families that have generational wealth are the ones that stay wealthy. Yeah, it's difficult. There's a campaigner over here, Gary Stevenson, who I don't know you may or may not have heard of. I once did a debate with him like six years ago. That's interesting. Tell us more. I completely forgot. It was like during COVID when everyone and their grandmother was doing a lot of online content and I had no idea who he was. And some British person had me do this debate with him. And I honestly barely remember. I remember looking at him in advance.

11:55I'm like, God, this is going to be difficult. but I actually found it quite pleasant. And I do think we found some areas of commonality, if I recall, and I found them quite nice. And going back to your book, so the subhead is the seven myths that keep us from taking the chances we need to take. Obviously, I'm not going to ask you to go through them all because people need to read the book, but is there one of these myths that stands out to you as being particularly counterintuitive? Well, one of them is that I hear a lot, which is you can't take risks until you're ready or in a secure place. And, you know, first of all, I mean, first of all, most people don't have that luxury.

12:32Second of all, like often, you know, the best risk takers are taking it sort of when they're down. And this idea that you have to like have the job, you have to be married, you have to have all these things in place before you take risks only ensures you'll never get those things because it sort of keeps you from getting ahead. And I think I also mentioned, they say in the field of motivation, like what gets us out of bed in the morning, this resolution of uncertainty is one of the biggest sources of motivation. So if you're just like, I have to play by the rules, I have to do everything right.

13:02And then I can maybe start thinking about what's my dream? You know, how do I take risks in a meaningful way? You're just never going to get there. Yeah. And I suppose also if you can take more risks when you've got less to lose as well, which is, I think, something that people often forget. But you saw that moving on to retirement and pensions, you've described yourself as a retirement economist. Is that an official thing? No. It's not. I say it because, you know, if you're an economist, there's no other way to describe. I mean, there's like maybe 15 other retirement economists who identify that way.

13:38It's a made up field, to be fair. But I think it's accurate because in economics, you know, you could be a macroeconomist, microeconomist, financial economist. But if you're a retirement economist, you kind of are a lot of things. it's a macro question it's a micro question it's a finance question it's a behavioral question it's a labor question so you kind of have to take things from all different fields so I don't think like technically I'm a macro financial economist because that would be my training but I don't feel like that really is accurate I suppose it does boil down there and you've mentioned this yourself it is the hardest problem in finance certainly in personal finance is managing your money so that you have enough so that it doesn't run out before you die or that you don't have so much that you've wasted the early years of your life accumulating only you know find that you die before you've had the chance to enjoy it but in those terms what are the kind of biggest mistakes that you see people making when they're thinking about their retirement and how to go about it I think it's that they're thinking in terms of wealth than income and I don't blame people for that.

14:43I blame the retirement industry. It happened like maybe like 15 years before in America than the UK is that we moved from these like traditional pensions to individual accounts like a 401k. And this is sort of the traditional pensions where the defined benefit ones. Yes. Where you get a set income. And was that in the in the US? I take it that was provided by the employer as well. Yes. Yeah. Why did that die out in the US? It's really expensive. Yeah. Yeah. It's OK. So it's the same is why it died out here. Okay. Yeah, and it's not just like the income, the amount of contributions you have to put aside.

15:19It's a huge, like you're just talking about all the risk around outliving your assets, about managing asset risk. These are very expensive risks to manage and it just became untenable, particularly as people were living longer for employers to put this on, particularly as they were looking to grow and hire and make the economy more dynamic. So it's not bad that we moved to this new system because it means coverage increased a lot. You have like a lot more people with retirement accounts and retirement assets. But, you know, I call it like the original sin of retirement of that. You know, it was certainly in America.

15:51The 401k was meant to supplement the defined benefit plans. So we tend to sort of cast it as wealth. Like you're supposed to accumulate a certain amount of money before you retire. But that sort of sets people up for failure because like, what do you do with this pile of money on day one of retirement? Like you said, it's the hardest problem. Bill Sharp has said that a lot of Nobel Prize winning. financial economists. I mean, we minimize personal finance as being easy because everyone does it, but that doesn't mean it is. It's actually, I think, much harder than a lot of very sort of complex financial problems people are solving all the time.

16:24So how do you, this flipping that switch to thinking about this pile of money and turning it into income, first of all, it doesn't really make sense because income is valued differently than wealth. So you can't just flip this switch, at least not without exposing yourself to potentially big risks. And also just, I think, that mentally really sets people up to not know how to spend their money or to feel inhibited from spending their money because they've spent their whole lives building up this nest egg. Like even my parents are in their 70s, refuse to spend any of their retirement savings. And I'm like, you know, you worked hard.

16:56You know, they're both working still, but I'm like, you could maybe work less and spend some of this money. This is what you should do. This is what you've worked so hard for. And they look at me like I'm crazy. I think that's a really good, good point. And I don't think people talk enough about the psychological difficulties of actually spending your money like we do. certainly in our business and the personal finance journalism business, the thing we worry about mostly is making sure that people have enough or that they're saving. And the pensions industry over here is always saying you should be saving X amount of your salary every single month from the day you're born, basically.

17:35But this challenge of deaccumulation, how do you get over? So there's thinking about it as an income, but also how do you get over the hurdle of saying, okay, that's me. I'm going to step back gradually. Have you got any thoughts or any strategies for thinking about that side of the retirement puzzle? Yeah. Well, I mean, it works pretty well in Chile because it's conditioned from day one that this is income and you're going to annuitize this or you're going to take these phased withdrawals from the government. So, I mean, when people had to find benefit pensions, they weren't looking, you know, I think a lot of people don't realize like if you may get like whatever, 30, 40, even 60 percent of your salary every year until you die.

18:19That's worth millions of dollars. But people don't think, oh, this asset is worth millions of dollars. They're thinking, I get 60 percent of my salary every year. So you have to condition people to think that way from day one. And Chile does that pretty well. You know, in some ways, I look at the UK as a disappointment because you used to require people to annuitize part of your retirement and savings, but it was so unpopular they had to get rid of it. Now, that might be because interest rates were so low then, annuities were super expensive, or it could have just been poor marketing. I think it was a sense that there was poor value.

18:54And I think it would be fair to say the annuities market was not as competitive as it should have been. Why do you think that is? Well, honestly, I think at the time, I mean, because this all changed in 2006. at first I think it was 2006 and then it became steadily easier to not annuitise as well because at first it was you were allowed to not annuitise as long as you had a certain amount of money and then that was basically completely done away with I think it was about 10 years ago under George Osborne and you're right during the Osborne era it was because interest rates were extremely low and so annuities looked like poor value but I think before that it was basically just because the financial industry was much less competitive.

19:42Fees were much higher. And also, it was still quite hard to comparison shop. I think that would be different now. And maybe you're right. Maybe if we did still have compulsory annuitization, the annuities market would be much better and better run. So that's an interesting one. Because you used to have that website that could comparison shop. It was around like 2010-ish. I love that website because I'm just a nerd for annuity prices. But I guess it just didn't take off. Maybe because you couldn't click through and buy an annuity or to go back, maybe it wasn't accurate. Do you know what the other reason was?

20:16A lot of people were tied to a provider or they thought they were tied to a provider. It was basically just the usual sort of like financial industry comms thing where partly because consumers were unsophisticated, if you like, they would just say, they'd get a letter from their pension provider saying this is the annuity we can offer you and they would just tick the box and say oh fine and it would turn out that they'd got something that was basically maybe could even be as much as a percentage point less than they would have got elsewhere and then obviously there was a bit of a campaign certainly from writers like us saying look make sure you shop around because if you're in ill health or even if you're in good health you don't have to buy your annuity from your provider.

21:00A lot of it was basically a lack of knowledge and a lack of sophistication. And you're right, I think that could be overcome, especially now. I think consumers are a lot more savvy about financial products in general and kind of shopping around. So actually, yeah, maybe it would be different now. Yeah, and is it with the higher rates and also just more people retire? I mean, even like 10, 15 years ago, you know, defined contribution plans were still relatively new here, let alone the UK. So people didn't have the same significant assets. I just saw a Torsten Slock daily whatever newsletter. It was always wonderful showing that one of the big drivers for private credit is that the annuity market is growing so fast, which was exciting news for me.

21:48So it could be as well. Now that we have boomers, 401ks really took off, say, late 80s, early 90s in America, a little later in the UK. So you have the first generation retiring significant assets in this who are also facing a higher rate environment. So maybe that's also spurring demand. That's interesting. So they are now annuitizing by choice, basically, or increasingly. It's hard to annuitize here. Yeah, it's when it's compulsory. There's that sense that you're getting ripped off in some way. And I think a lot of people also did. You know, there's always the example of someone who annuitized and then they died the next day and, you know, their whole pension pot is gone or is certainly perceived as that.

22:31So I think that was the other reason that annuities kind of got a bad name over here to an extent. I mean, you can still do drawdown, which is the same sort of thing. But you're right. I get your point about how that doesn't push people to think about it as an income so much as a pot that they are taking stuff out of. Yeah. In Chile, you can do a phased drawdown, but you see that you get more money from annuitizing. And the lump sum options are just so much less. And there's great consumer education around annuities as well. So people start sort of looking into annuities even in their 50s and sort of comparison shopping, maybe locking in early for good prices.

23:13And it's just people, I mean, there's a lot of problems and pushback, certainly with the Chilean pension system. But the decumulation, I think they have the best solution compared to anyone. That's really interesting. OK, so we should be looking to Chile for our pension solution. That sounds good.

23:34Merryn Somerset Webb: This is the Bloomberg Tech Minute brought to you by Chachi PT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence.

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26:01The only thing I was going to ask you about was, and this kind of goes back to what we were talking about before, something people get frustrated about and that we constantly talk about in the UK is the lack of risk appetite on the part of private investors or the perceived lack and how nobody owns individual equities. And by comparison, the U.S. kind of like lots of people in stocks, you know, you can average investor own stocks. Is that evidence a more risk taking mentality, do you think? Or is that just because U.S. kind of savers understand the market better? Well, I don't know if you're buying individual stocks, if you understand the market better.

26:43you know I was a disciple of Bob Merton of you know Black Shoals and he used to always say that people should be forbidden from buying individual stocks he's like he's like buying a spark club from a car if it's not part of a larger risk portfolio risk strategy it's useless so I don't know I don't know I mean one it's sort of another counterintuitive thing about my book is arguing we're not taking enough risk when we also see young people in America certainly taking like enormous risks, like strange risks, like getting really into sports, gambling, day trading, all these sorts of things. And, you know, sort of these more sort of zero sum risks that have a very low probability of paying off, although I think that's a symptom of lack of productive risk taking in their life.

27:26Yeah, yeah. The financial nihilism thing. Yeah, exactly. So, I mean, what you do see in Europe, less the UK, but certainly like in Germany, it's just sort of a discomfort with any sort of downside risk. I once tried to set up a defined contribution plan in Germany and just they insisted that to be 90 percent in German buns because they're just like, well, if it's in the stock market, it could go down. And it's like, well, yeah, I mean, that's why you get more most of the time. 90 percent. They're nuts. I mean, wild. Yeah. You know, and honestly, if you look at these DB plans in Germany, they're still mostly in buns.

28:03They like their buns. Well, you know, there's nothing wrong with being risk averse, particularly if it's a cultural choice. The problem is that I think where people go wrong with it is that they think they're going to get something for nothing. They think they can take low risk and still get more. And it's an amazing thing to me, this cognitive dissonance, because like honestly, like really successful, knowledgeable people in finance also make this mistake. It's like why people went with Bernie Madoff. They're like, yes, he can get 7 % or more every single year and will never underperform. It's like, no, that is a sign that you're being defrauded.

28:46If someone says they can beat the market and that you will never lose money, that's a sign you're being defrauded. There is no excess return without taking risk. So I think we've all like to believe that's not true. Or again, if we play it safe, we're going to get more. So the fact is that you can live a low risk life, but you need a lot more money to do it. And I think this is what Europe is certainly having to come to terms with is we want this very sort of low risk economy where everything's protected and we don't invest in equity or at least individuals don't. Yet we also want to be able to pay for all this stuff.

29:21And I I think the math just doesn't work. Again, I think it's fascinating the way that we are kind of culturalists who sort of reflect each other, but just with a slightly shifted kind of perspective. Because the other piece I thought was really interesting you wrote recently was your piece about housing in the US and this idea of houses no longer being this kind of pot of gold or the main financial aim. Can you talk a bit about why you think that's changed and what's happened there? Well, you know, housing, you know, still, you know, it's not a guarantee because nothing is, certainly in America.

29:58And I think I compared the U.S. stock market to Nantucket Island, which is this small, fancy island where like Eric Schmidt owns a compound. And, you know, it's limited housing stock. And so it is probably one of the hottest, most ridiculous housing markets in America. and that a$500 ,000 house now costs$4 million over 30 years. But what's stunning is it's like you still would have done much better if you just invested in the stock market. And I think that's less about the fact that housing doesn't pay off like it used to. It still pays off probably more than it used to. It's just the stock market's crazy.

30:32I mean, it's just been crazy how much the stock market has gone up. Like that you could have invested, was it, I've said$500 ,000 in 1995. you'd have 8.2 million and that's not including investing dividends. That's crazy. I'm not saying it's wrong. I'm just saying it's stunning. And do you think, because what I do find is, do you think that's actually had an effect on people's behavior? Because I think, again, going back to the UK, obviously houses have been something that have been a kind of obsession, often seen as the main asset to own. but prices in the UK have now been stagnant for about 10 years if you look at it in real terms.

31:15And I think there's now starting to be a slight sense that well maybe this isn't a sure thing and maybe it isn't this kind of, you know, the one financial focus of our lives but it's a very slow process. And I wouldn't necessarily say that people are then thinking well I should be sticking my money in stocks instead but is this something you're kind of seeing from younger people in the US. We are. Part of it is the nihilism of houses are just so expensive and mortgage rates are higher than people are used to. I can't afford it anyway. To some degree, I've always thought homeownership is overrated.

31:48Again, it is a very sort of concentrated, highly leveraged bet in a single asset, especially if you're young. I don't understand the fetishization people have here of owning a home when they're 25. I mean, I certainly didn't. You know, you want to be mobile, you want to be free, your life's going to probably go through changes. You know, I don't understand why it's a dream young. But on the other hand, there is obviously something lost. I mean, I feel like I was going back and forth with my editor about this when we wrote the story of, well, you know, before there was something innately human about this desire to own land, to own a piece of your country.

32:26And it's just more and more of our lives are becoming intangible. And if your wealth is in the stock market. I mean, to me, that represents the best, you know, companies in your country or in the world. And that's wonderful. But it is something intangible about it. You can't like renovate your stock like you can a kitchen. You don't like look at your country and be like, I own a piece of this. It makes sense. It's a more better financial bet. I didn't own a I didn't own my I wasn't a homeowner until I was in my 40s. So I mean, you know, because I just never never understood why I would want that.

32:59And I saw financial markets as a better bet. And to be honest, they were. But now that I am a homeowner, I got to say, I do feel much more connected. I much feel much more at home. And there is something good about it. But I think people, when they were sort of misled, saw, oh, I can have that connection. I can have that sort of physical ownership. And I'm going to make all that money. And, you know, you don't get that. I don't have any illusion. God knows what the future of New York is, that I'm going to make money off this home. But I do like, one, I've locked in my housing costs and I do like feeling that sense of community and ownership of my community.

33:34Well, I suppose you do have to live somewhere. So that's true. Is that gap as well between, I mean, I actually agree with you in a lot of ways. I was never particularly attracted to home ownership when I was younger. But it is that thing, once you, particularly if you end up settling down and having a family, the tenure security as much as anything else is one of the kind of helpful things and that you don't want to constantly move around. But then that maybe actually talks to an element of risk aversion between here in the US, this idea that there is somewhere that you settle for a very prolonged period of time, possibly a forever house whenever you're in your 30s or whatever.

34:16So maybe it's just that. Maybe it's just the kind of relative lack of labor mobility. It's part of it. I mean, Americans used to be very different in that they moved a lot. We really don't as much now. I think that's part of our changing risk relationship because it's not like ownership has increased over the young, but people are still less likely to move. So in that way, we're definitely becoming, say, more parochial or in some ways more European. which in some ways is odd because it's not like people are tied to anything or sort of even evidence shows people are reluctant to move even if they can move somewhere where housing costs are cheaper it's like I think people are sort of more wanting to stay with what they know I suppose it's the hassle factor as well you don't want to it's the faff of moving that is interesting because yeah I do wonder if maybe all of this is a contrarian signal and maybe how residential housing will become attractive again but you never know.

35:14Seeing as you're here and you are an economist, the big topic of the day is AI and the impact on jobs. And your most recent piece was a piece about kids in the fourth grade, which I believe is like 10-year-olds. Is that right? And they're talking about how AI is going to take all the jobs. And so they're worried about it. I thought that sounds terrible. It is. I just met a fourth grade teacher. And, you know, when you're in fourth grade, you always have these like lofty ideas of what you're going to do. And she was like, she hears from her students all the time that they're really worried there won't be jobs.

35:51And, you know, I understand why they said that because they hear that all the time. We say this all the time. And it didn't occur to me until then that like you're a child and you're figuring out what you're going to do. And, you know, this is going to weigh on you. I mean, they hear this, too. I mean, what do you think of the AI jobs issue? Because I can't quite work out whether or not I think this is just a lot of hysteria and it's going to be like the internet where they just basically created new jobs and kind of upturned a few industries. Or if it is going to be more like the industrial revolution where, okay, it was fine in the end, but there was about a century of misery for the group of people who were in that transition.

36:33So I'm curious to see, what's your take? Well, we just don't know. I mean, I tend to be, as I mentioned, I did my undergrad in Scotland where a big part of your economics training is reading a lot of the history of the Industrial Revolution, which really for me was foundational as an economist of how I think about growth, how I think about transitions, how I think about technology. So I tend to be more of that school of, you know, humans are good at finding jobs for themselves. I don't I mean, again, no one knows for certain. I don't believe personally that we're going to have this sort of jobless future, although I am open to the idea that as we did in industrial revolution, it might be a rocky transition.

37:14And some of that transition during the Industrial Revolution was because people were reluctant to embrace the change. You know, for like decades, factories hired women and children because these men who had been sort of displaced from being maybe a small scale artisan or a farm laborer just didn't want to work in a factory. And not like factories then were pleasant places, but it's not like their other jobs are that great either. but they just it was this a concept that you had to go somewhere all day and like be told what to do by someone you wasn't even related to and not be able to leave when you want it was just like awful you know i mean we do it we all do it now but at the time it felt this is why work from home is so attractive to people it's a more natural way to be um it's just like that's crazy i'm not gonna do that it's artisanal crafting that we've gone back to yes yeah so the transition was longer or more painful than it could have been.

38:09And I'm not minimizing it. I'd be really unhappy if AI sort of wiped out economist jobs. I wouldn't be like, well, OK, I guess now I'll be a home health care worker. Like, I'd be really upset, too. I don't want to minimize how hard that is. But it also if people are unwilling to adapt, it certainly does prolong the change. But I do think we're going to end up somewhere better. And people are saying AI is different because it does things humans couldn't do. I mean, like a power loom, people thought the same thing of that. To them, it was incomprehensible. A machine could do this thing that humans have been doing for thousands of years.

38:45So, you know, I personally just find my own work with AI, like it's a helpful tool, but I don't see it doing what I can do. I think part of the confusion is the AI CEOs themselves aren't helping matters. Why ever would that be? Well, I see where they're coming from, which is they're engineers. And so they observe a job and they see the output from that job. And they're like, a machine could do that job. Therefore, that job won't exist. But really, like anyone who's actually, say, had a job and isn't a little like on the spectrum engineer guy understands there's all these parts of your job that are more than the sort of narrow output that can be observed.

39:28Like even if I write a column, like I guess AI could write a column. But what makes a column interesting is the idea behind it. And the idea has to be novel. It has to be interesting. AI can only look at sort of existing data and sort of project something. It doesn't have that novelty. or if I write a column and I talk about like something personal in my life, like it's not meaningful coming from that. There's also all the promotion. It's about connecting with people. It's about building community around that. And so it's like you could observe a column and say AI could have written that, but they really couldn't have.

40:05Or it probably could have done maybe 30 % of my job, but not the whole job. And that's true of most jobs. If you think about how you actually spend your time or what makes you good at what you do, it isn't just the narrow output. but it's a million other things. There's a European economist, there's a book coming out called Messy Jobs, which is like jobs are bundles of tasks and not all of them can be observed. Yeah, and there's a lot of friction within jobs that needs to be overcome. And I think the, as you say, the engineer model kind of tends to assume away the friction. There's not necessarily bad friction, it's just, you know, getting from A to B, walking to this place to get that and all the rest of that sort of stuff.

40:46Well, that makes a lot of sense. Yeah. Or like HR. That's one big job that exists to create fiction in the workplace. But you need HR. I mean, I don't like watching those videos either, but it's my time and it's a friction in my life. But you know what? Enforcing workplace norms and codes of behavior are really important. It's a friction, but it's also a good friction. Yes. Yes, I'm sure. Let me think about that one. I'll answer that off the record. Well, look, thanks very much, Alison. Really appreciate your time. There was a couple of final questions I wanted to put to you. One was, if you had a magic wand and you could put in place one retirement policy or put a thought into people's brains about this sort of thing, what would it be?

41:39From day one, people would be seeing their retirement and income and it would be very hard to see their wealth. their asset balance. So basically go down the chili route. Yeah. That sounds good. And finally, what are you reading just now? And would you recommend it? I'm trying to get through a biography of Charles de Gaulle. I was just in France and I was well regarded as a story and insisted I read this book and it would change my life. I haven't gotten through much of it yet, but it's my summer aspiration. Are you feeling any creeping changes yet? No. No. But I've only gotten through 20 pages.

42:16Okay, that's fair enough. Well, look, thanks a lot, Alison. Really appreciate your time. It was lovely to meet you, lovely to speak to you, and I'm sure we'll have you on again in the future. I'd love that. Thanks for having me. Thank you.

42:31Thanks for listening to this week's Merden Talks Money. If you like our show, rate, review, and subscribe wherever you listen to podcasts. and keep sending questions or comments to meronwiney at bloomberg.net. You can also follow me on Twitter at john underscore stepek, or you can follow Meron at meron sw. And this episode was hosted by me, John Stepek. It was produced by Summer Sadi and Moses Andam, sound design by Blake Maples, and a very special thanks to Alison Schrager.

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