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

23:44Yep, we said free. Oh, and did we mention in the cafe? So what are you waiting for? Come see all that's in store. Visit the Wayfair store today at Edens Plaza and Wilmette. Wayfair, every style, every home. Hi, Steve. Hey, Morgan. How are you doing today? I'm good. How are you? I'm great. So a couple months ago in our episode with economist Dembe Samoyo, Steve, you told a story about sitting on a corporate board with a fellow economist. And at one point, he made a comment right as you were about to speak. And it dawned on you that because you were both economists, you were kind of redundant on this board because you both approached problems in the same way.

24:28Yeah, it wasn't just one time. It was literally every time. We always thought exactly the same way. Well, you asked our audience a question and I have a clip of it.

24:46is this also true in the discipline where you got your training do people in your field more or less think alike but very differently than people who don't have that training

25:02so i thought we should report back on what we heard because a bunch of listeners wrote in about how people in their field and people in their profession think. Right, we got 15 emails from people responding to that question. And 14 of them agreed with my hypothesis that training within a discipline makes you think the same way. The best example was we got three emails from computer programmers. And these three emails were so similar that I actually was confused. I thought the same person had sent me the same email twice. I actually had to go back and reread the previous one to realize that there was actually two different emails sent by two different people, but they literally said exactly the same thing, which was the most impressive evidence I could have for that hypothesis that people in the same field think exactly alike.

25:52But there was one email that was different. I think you're talking about the political scientists that wrote in. Is that correct? Yes, there was a political scientist who wrote and said, actually, in political science, we have the problem that we can't agree on anything. And what's so interesting about that is I've actually noticed independently that political scientists don't think alike. And I have a strong hypothesis about why that is. Almost every profession is organized around a methodology, right? So economists have a way of tackling problems and engineers have a way of tackling problems.

26:25But political science is actually organized around a topic, not a method. So political scientists think about politics. Some of them use data to think about it. Some of them are philosophers. The people who call themselves political scientists actually have nothing in common when it comes to training. And so it's not at all surprising that they would not share a similar worldview the way, say, economists do. That's super interesting. And it was the reason why when I was thinking about early in my career, should I be an economist or a political scientist? I said, no way am I going to get stuck in a political science department where no one can ever agree on anything.

27:00That's one of the reasons I became an economist. It is crazy to me to think of you as anything but an economist. So I think you ended up in the right profession. Anyway, thanks so much for writing, for loving all of your comments and questions. Please keep writing in. Our email address is pima at freakonomics.com. That's P-I-M-A at freakonomics.com. Thanks so much. Hey, and Morgan, you forgot to say that you and I both read every email that comes in. Oh, that's true. We do. We read every single email. So please keep writing in. Now let's get back to the interview.

27:42All right. As you made clear, being a personal finance guru is, of course, really more of a hobby for you, not your actual job, which is being a professor of public policy. And a number of years back, you co-founded with Jens Ludwig something called the University of Chicago Crime Lab. Yes. Can you tell people a little bit about the crime lab, what it is and what it does? Now, I should say Yen Flitvig and Rosanna Ender are the true energy behind that, but I did co-found it. The idea there is to rigorously study crime and to do randomized trials that try to examine interventions to see what's effective in the real world environment in Chicago and other places.

28:22And one of the things that I really admire about this work is it gives people a sense of realistic, evidence-based optimism that there are feasible things we can do that will actually work and will make a difference. So one of the things that we studied was an intervention called Becoming a Man that Youth Guidance did, which is a group-based cognitive behavioral therapy-influenced intervention for high school boys in Chicago. and Sarah Heller was the first author on a publication that we did at the Quarterly Journal of Economics where we showed 40 % decline in arrests among the kids who actually participated in the intervention.

28:55Yeah, I have to say I was in on some of the initial discussions when the crime that was being founded and I was a huge skeptic. I thought it would just be too hard, the coordination on the ground with these service providers and the amount of negotiation it would take with the Chicago police or with the Cook County Sheriff's Office. And I said, no, thanks. I want no piece of it. And I am so glad that I was absolutely wrong. And it's turned out to be an amazing visionary organization, which has been showing people what can really be done. And another randomized trial that I was also involved in that was with some of the same people showed that tutoring, math tutoring is quite effective in raising kids test scores.

29:40in the real world environment of Chicago to show that realistic interventions that are not super expensive, they're not super complicated, that don't require bringing kids into the psychiatry department of an Ivy League university for some sort of special intervention, those things can work. And a lot of the work that I'm doing now, we're doing randomized trials for folks leaving jails and prisons who have opioid use disorders, trying to connect them with evidence-based treatments and someone who can help them. navigate the predictable obstacles to getting into treatment and staying there. I'm equally proud of our studies that showed null findings or that showed findings that were less terrific than we had hoped.

30:23David Meltzer is another professor at the University of Chicago. David Meltzer and I are principal investigators on a study of something called the Supportive Release Center, which is for people that left Cook County Jail who might be vulnerable to homelessness, things like that. And we showed this program definitely had some benefits. We also showed that there were some areas where the benefits weren't as large as we had hoped. It's just as important to stop spending resources poorly as it is to figure out how to spend resources well. The flip side of the same coin. But I would say also some of the lessons that you learn are very granular.

30:53There's a benefit to some of the older borderline homeless dudes if you say, when you're leaving the jail tonight, here's a place you can go and spend the night so you don't have to be as worried about being homeless tonight. And there's much less of a benefit among the younger guys. They look at those older borderline homeless guys and they're like, I am not that. That is a very stigmatizing frame for them. If you say, you know, there's this place you can go, you can take a shower, you can use the phone, you can call your girlfriend. Some people stay the night if they want to do that. And that's a much more attractive approach.

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33:29A quick note about the next segment. Harold Pollack and I talk about Chicago gun violence, including police shootings of civilians and police who were shot in the line of duty. Our conversation was recorded before the most recent tragedy. Last week, two Chicago police officers were shot during a routine traffic stop. One of those officers has died. And this is just the latest example of how we need to find a solution to this complex issue. and you'll hear Harold and I talk about some ideas. Okay, back to the show. A policy I've been pondering, it might not work at all, but it seems to me that the typical police officer goes through their career, they virtually never shoot their guns, they're out of practice.

34:13What if we just took guns away from 90 % of the police officers and responders didn't have guns and when there were particular settings that you wanted police who had guns, you would send in a set of very well-trained gun-toting police who every day had 10 different situations in which they were potentially having to use their guns and they knew what to do in those situations. What do you think of that proposal? You're describing the London Police Department in some ways. Yeah. I mean, you know, there is gun crime in England and they do have armed units that respond in the way that you describe.

34:50What do you think about that for the US? I think there's something to that. I must say, a lot of the times when you want an unarmed responder, you should ask the question, do we need a police officer to be the responder? Or should we have a police officer there, but have someone else there doing the main part of the response? I do think given the proliferation of guns in the United States, that I have a lot of sympathy with police officers who say, yeah, I'm armed because a lot of the people that I go to arrest are going to be armed. I'm a liberal Democrat and political activist, and you can pretty much guess all my political views on a lot of stuff.

35:24I have a lot of sympathy for the reality that police confront, that there's just a lot of guns out there. And I can certainly understand why police are saying we need to have access to weapons. Now, how they use those weapons is a whole other question. The London response is great for the level of firearm ownership that you have and possession that you have in London. And I think it would be hard to do in the south side of Chicago. I just wonder, though, so the numbers are that the police shoot and kill 20 civilians for every civilian who kills a police officer. And I actually don't personally think that the reason that civilians aren't killing police is because police have guns.

36:04I think civilians are not killing police because they know if they kill police, they will be caught and they will spend their life in prison. So I don't know the answer, but I actually suspect that if you did go down this path, I wouldn't expect many more police officers to be shot. In fact, it might go the opposite way, that police officers are being shot because people are afraid of being shot. And if you knew the police weren't gonna shoot you, obviously there's gonna be some crazies who are gonna shoot police and try to kill police. But I'm also not suggesting that you send unarmed police into combat situations.

36:37I'm saying you send unarmed police to go survey what a call looks like. I do think your point is well taken in a couple of different perspectives. Here's an example. Do you know how many Americans, I believe this is true for 2019, do you know how many police officers in the United States were murdered with a bladed weapon in the United States? No, I don't. Zero. Yeah, that makes sense. But if you go to police training in a lot of police departments in the United States, they will show people videos of like a martial artist getting close to a police officer and overpowering and killing that police officer.

37:11And there's definitely been cases where that happens. They're incredibly rare. And so like in the stuff that I deal with, people with serious mental illness interacting with police, the police often have a sense of danger from their own training that exceeds the actual level of danger that they face. And what's actually required to safely diffuse that situation is just staying away from that person, giving that person time to calm down and for the police officer to be vigilant, but to not think that there's a high probability that you got Bruce Lee over there who's going to somehow overpower you and kill you.

37:47The other thing though is who else is present and what happens before and after those crisis calls. I'm all for responding to the incident better in the way that you're describing. But if you think about the issue that you and I were just talking about, that is what we do in the three minutes of interaction after a 911 call is made. and what's happening the two weeks or two years before or after that 911 call happens after that 911 call is resolved who's coming back and saying hey how's it going there was a crisis that led to a confrontation with police what's happening now do you have a place to live what's happening with your substance use your mental health issues or the family issue that sparked this that's not a police issue.

38:32That's a social work issue. That's a medical issue. That's a mental health issue. That's a housing issue. And we put so much pressure on police and we want you to manage that 911 call perfectly. That's not always going to happen because police officers are actual humans. And there's all these other failures and other systems that are often happening before and after that 911 call that we don't talk about with the same intensity that are actually things that are much more readily fixed. Yeah, I think there is such a tendency when you're thinking about crime to look for criminal justice solutions.

39:12But what you're saying is there's actually social work solutions. There's support services that work in the background that could be something you do for crime. Yes, absolutely. And there's way more attention to that now. Every big city police department is trying to fill that hole in one way or another. So if you look at crisis intervention teams, crisis intervention training, there's a tremendous effort to recruit some segment of the police department to get some mental health training, some crisis intervention training, and to have those people be the first line of defense when someone's in a mental health crisis.

39:48And in fact, a postdoc of mine, Connor Murray, is presenting a paper on some of the qualitative interviews that we've done with people who run homeless shelters and mental health facilities about when they call 911, who they want to come and that sort of thing. And they often say, I want a CIT officer, an officer who's been through in Chicago roughly a 40 hour curriculum around mental health, behavioral health and strategies to respond effectively when people are in crisis. Two things people like about that. One is they have the right training. And the second is the person chose to have that training.

40:21And that's a person who's self-selected to say, hey, I'm interested in being an effective responder to these mental health calls. A lot of the officers who sign up for these CIT type of units, they often have someone that they're connected to with a mental health issue. Sometimes they're veterans. A disproportionate number of folks tend to be women. and women officers are often very good at diffusing situations. And a lot of people who are in a behavioral crisis for one reason or another, they sometimes respond differently to women. Sometimes if you have a policewoman who can say, Steve, could you just lower your voice?

40:57You're frightening that child over there. Could you just help me and quiet down a little bit? Sometimes that gives people a dignified path to calming down. That is important. My wife and I, we take care of her brother where our conversation started, my brother-in-law, Vincent, is 260 pounds. And people with Fragile X syndrome very often can be physically aggressive. About a third of the caregivers for young men with Fragile X report that they are injured by their sons. And if you go on any kind of Facebook group about Fragile X, one of the things people talk about is, would I ever call police?

41:31And the most common answer that I hear and the one that my wife actually embraces, I'm not going to call 911 because I'm just really scared that some 26-year-old officer is going to walk into our home. And what do they know about this? And they're going to be dealing with this 260-pound man who has a developmental disability that they've never heard of and who's really agitated. And I'm afraid of what will happen.

42:03So crime is one thing you study, and the U.S. healthcare system is the second thing you study. So now I'm going to make you president for the day, and you have solved our crime problems by the end of the morning. So now you have the afternoon to fix our healthcare system. What do you have in mind there? Wow. I think we have several problems. The first thing I would do is I would really focus a ton on Medicaid. It's the part of our public insurance system that helps poor people and people with disabilities. It's a colossus, a more than$500 billion program. It's a very valuable program. It's also a program that has some real challenges.

42:38One is that it pays too little. So like the University of Chicago Hospital and our peers were pretty unenthusiastic about taking care of Medicaid patients because Medicaid pays providers much less than private insurance companies or Medicare does. I think Medicaid is our basic weapon to deal with public health problems. And we just went through COVID where we have a$4 trillion health system that didn't have enough$1 masks, where we have these local public health departments that are so underfunded that they have old fax machines and they offer phone service on their helpline that would embarrass your local pizza joint.

43:15They're just systematically underfunded. I think probably we need to pay the medical system less for a lot of the services that we provide in the richest part of our health system, and we need to pay more in the poorest parts of our health system. What are some examples of the richest and the poorest? Biogen, for example, has a recent Alzheimer's drug that was just approved by the FDA within the past week or so. Average annual tab is predicted to be$56 ,000 per patient. Three of the FDA's scientific advisors quit over the approval. It's really not been reliably shown to benefit patients. And the cost-effective price for that medication was judged by an independent group called ICER.

43:57The more reasonable price wouldn't be$56 ,000, it'd be more like$8 ,300. And we spend so much more than any other country per capita on healthcare. And we just don't get the kinds of outcomes that we need to. and we don't focus the resources on the public health problems and on the poverty problems that lead so many Americans to have very serious health problems. And in some ways it gets to that point on the index card. We have to support social insurance to support every American and to have each other's backs to protect ourselves against these things that would just crush any one of us if we had to face alone.

44:33It's been very challenging, really very difficult. I would not in any way minimize, particularly my wife, which she has sacrificed to care for her brother. But these programs really stepped up for us. Many other Americans face equally profound problems and don't get that kind of support. And I'm hopeful that COVID will be a mirror on some of those dramatic failures of our social insurance system. Do you think there's a financial day of reckoning coming on healthcare can't grow disproportionately forever. Healthcare has gone from 7 % of GDP in 1970 to almost 20 % of GDP today. Do you think it's going to be a smooth landing or a crash landing?

45:16Oh, that's a good question. Healthcare spending will continue to grow as a percentage of our economy, and it is inflicting tremendous problems on the society. One of the things that it's doing is it's crowding out all sorts of other money that we need for other public goals. As a public health person, I mentioned this new Alzheimer's drug that was approved for $56 ,000 a year. According to the New York Times, there's a prediction that by 2025, this company, their revenue from this drug is going to be$7.5 billion a year. The CDC, its total budget for emergency preparedness and response is$842 million.

45:55So this one unproven drug, we're going to spend about nine times as much on that drug as we spend on emergency preparedness for the next COVID. Our healthcare system is filled with things like that. I don't think there's a magic solution to it, but in one way or another, government is going to eventually be much more aggressive in setting prices of medical procedures, products, drugs, services. And it's going to be a challenge because the entire supply side of the medical economy is going to oppose that. A monopsonist is when a consumer has a tremendous amount of power over the suppliers. If there's one dominant buyer, that buyer has a lot of leverage over the suppliers.

46:37And the real political conflict in healthcare in the long run is how much monopsony power are we really willing to give the public sector to squeeze hospitals, doctors, drug makers, durable medical equipment suppliers on prices. The government has such market power through Medicare, Medicaid, the VA, public employee benefits. If the government could set prices, it would have such leverage over hospitals and pharmaceutical companies that it could really reduce healthcare expenditures, but it could do so in a way that could have some very problematic impacts on a lot of these actors. So like one of the things the pharmaceutical companies say is, hey, you want us to come up with the next great cancer drug.

47:22If you squeeze us on price, when we come up with one, that reduces our incentives to develop the next one. And hospitals say, you want us to provide excellent care. Our profit margin, that matters for that. And there's a legitimate question, how do we incentivize innovation for, say, the next breakthrough cancer drug or the next COVID vaccine? Suppose that Pfizer makes$50 billion in COVID. A lot of people are going to be really uncomfortable with that. My own attitude about that is, that's awesome. They actually delivered. Now, if somebody makes$50 billion on an Alzheimer's drug that doesn't really work, that's a problem.

48:04And we have to figure out how to strike that balance in a more effective way.

48:18What advice, not financial in nature, would you give to young people who are trying to make their way in the world? Good question. Be kind to people, including people who are not useful to you in the moment. work hard at your day job and look at people that you admire and try to figure out what is it about them that I admire that I can emulate and keep swinging. I almost didn't get tenure when I was a third year assistant professor. I think people thought I had potential, but I was not one of those people that just had a smooth sailing. And two things saved me and saved my career. One was that my wife Veronica really had my back and let me spend a summer working frantically, getting papers out and things like that.

49:00But the second is I just kept swinging and I fought through disappointments and mistakes and just kept going. And that's all you can do. You want to always find people who are smarter, more successful, more virtuous, more admirable than you are. Glom onto those people, learn from them, emulate them where you can and forgive yourself for the ways that you're going to sometimes fall short and just keep plugging away.

49:34I really liked the advice that Harold gave at the end. And usually I would tell some story from my own life that fits with it. But today I'm still obsessing about how crazy it is that people pay so much to let other people manage their money. When the nature of markets means that it takes zero skill to get an average return and incredible skill to get an above average return. Which means if you don't have an absolutely incredible financial advisor, you are not going to consistently beat the market. It's none of my business what you do with your money, but you shouldn't be paying high fees. It really is as simple as Harold argues in his book, The Index Card.

50:14And just about any economist you ask will agree. You can hear more from Harold in the Freakonomics Radio episode number 298, entitled Everything You Always Wanted to Know About Money But Were Afraid to Ask. Thanks for listening. People I Mostly Admire is part of the Freakonomics Radio Network and is produced by Freakonomics Radio. Morgan Levy is our producer and Jasmine Klinger is our engineer. All of the music you heard on this show was composed by Luis Guerra. Thanks for listening.

50:51Why do you think I started a podcast? I'm doing a lot of glomming on my podcast.

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