(SOUNDBITE OF TV SHOW, "SOUTH PARK")
MATT STONE: (As Kyle) I applied for this yesterday to prove a point. It is an American Express platinum card. It has no spending limit.
UNIDENTIFIED ACTORS: (As crowd) Oh.
STONE: (As Kyle) Do not be afraid. This is only plastic. It's just something made up by people - truly meaningless until we put our faith in it. Faith is what makes an economy exist. Without faith, it is only plastic cards and paper money.
(SOUNDBITE OF SONG, "NOWADAYZ")
JAYLIB: (Singing) Come on.
ROBERT SMITH, HOST:
Hello, and welcome to PLANET MONEY. I'm Robert Smith. And that was a clip from the TV show "South Park" you heard at the top.
ADAM DAVIDSON, HOST:
And I'm Adam Davidson. We have a special kind of podcast today. We guarantee this podcast has no depressing news.
SMITH: Not a shred.
A. DAVIDSON: In fact, no news of any kind whatsoever.
SMITH: That's the best way to do it.
A. DAVIDSON: What we've decided is to have some fun with this podcast. We're going to travel to outer space. We're going to try on a wedding dress. And most importantly, we're going to eat some very delicious bacon.
SMITH: At the very end, just like any good dessert. It's a collection of our most entertaining economic explainers never before - never before collected into podcast form.
A. DAVIDSON: Right. These all were heard on the radio on Morning Edition or All Things Considered.
SMITH: But first, a very non-newsy indicator from Jacob Goldstein.
JACOB GOLDSTEIN, BYLINE: The PLANET MONEY indicator for today, and really any day you want it, is 3.4. The U.S. economy grew at an average rate of 3.4 percent between 1929 and 2010. Do the math, which we did - Jess Jiang helped me out with it - average annual growth, 3.4 percent.
A. DAVIDSON: And I have to say, this is one of the most remarkable numbers in economics because 3.4 percent doesn't sound that great. In fact, we really, right now, would love economic growth of 5 percent, 7 percent to get out of the hole we're in...
SMITH: That's what presidential candidates are promising...
GOLDSTEIN: Seven percent, you're talking crazy talk.
A. DAVIDSON: Yeah, yeah. And if you heard about some investment that paid back 3.4 percent, most people would not even be interested. That's not enough money. But long-run growth of 3.4 percent on average for 80 years, that is transformative. It is why America today is so vastly richer than the America of 1929.
GOLDSTEIN: And, you know, by the same token, when people talk about this idea of a new normal, to use one phrase that people kick around a lot now, and say maybe instead of 3.4 percent, it'll be 2 percent, that doesn't - that sounds like nothing, right? What's the difference? It's little, or a little bit littler.
But over that kind of decades-long period, it's a huge difference when you think about jobs, when you think about pension liabilities, when you think about Social Security. That kind of difference can be transformative in a bad way. Going from 3.4 percent down to, say, 2 percent, that would be a big deal over the decades-long time frame.
A. DAVIDSON: Right. It means our kids and their kids will be considerably poorer than they would have been otherwise if economic growth returns to that 3.4 percent. So let's all hope for some good reversion to the mean. Some good returning to the long-term...
GOLDSTEIN: Reversion to the mean, I love it.
SMITH: Thank you so much, Jacob.
A. DAVIDSON: Thanks, man.
SMITH: And now onto the buffet. Today, we're going to play you four stories that all tell us something about the way the world works. They've all appeared on radio as explainers for Morning Edition or All Things Considered, but we've never gathered them together for your podcast enjoyment.
A. DAVIDSON: Until now. First up, a little game that helps explain something strange about the housing market in the country right now, the enormous backlog of homes sitting on the market waiting for a buyer. Basic economics would tell you that the prices should just come down until the houses get sold, but that doesn't seem to be happening a lot of the time.
And David Kestenbaum says the reason why has something to do with a coin toss.
DAVID KESTENBAUM, BYLINE: The man with the coin is Eric Johnson, a professor at Columbia's Business School.
ERIC JOHNSON: Here's a coin, real American currency.
KESTENBAUM: Johnson is not an economist. He's trained in psychology. And he says one reason the housing market gets stuck on the way down has to do with this weird way our brains think about losing compared to winning. He demonstrates with the coin.
JOHNSON: I'm going to flip it in the air. If it comes up heads, you win $6. It comes up tails, you lose a dollar. Do you want to play that gamble?
KESTENBAUM: If it comes up heads, I win $6?
KESTENBAUM: If it comes up tails, I lose $1?
KESTENBAUM: Yeah, sure.
JOHNSON: OK, good.
KESTENBAUM: He keeps pushing. Heads, I win $6. Tails, I lose $2 - sure. Lose $3 - OK.
JOHNSON: What happens if we say now, heads, you win $6, tails, you lose $4?
KESTENBAUM: I'm less enthusiastic about that.
JOHNSON: And what most people do is at that point, or at the point before it, they switch.
KESTENBAUM: Switch and say, no, I won't take that bet. And yet, as one economist told me, if you don't take that bet, you shouldn't be doing any investing at all. Mathematically, that is an awesome investment. Half the time, it's heads. Half the time, it's tails. But the amount you win is more than the amount you can lose.
Yet somehow, it doesn't feel that way. And that's if you play once.
JOHNSON: Just imagine you were going to play that a thousand times. You'll end up with a pretty nice chunk of cash.
KESTENBAUM: You'd win, on average, $1,000. Still, a lot of people won't take that bet. I went out on the street to test it out on random people. Here are Lisa Marie Elliott (ph) and Frank Blake (ph). Heads, you get $15. Tails, you lose $10. Would you take that?
LISA MARIE ELLIOT: No (laughter). No, I wouldn't. I don't want to give up $10. There's a chance I might have to.
KESTENBAUM: What about you?
FRANK BLAKE: I'm on the same page. Fifteen dollars makes no difference in my life as far as gaining it, but losing the 10 in my pocket does.
KESTENBAUM: And what does risk-averse Frank Blake do for a living?
BLAKE: I'm a stuntman.
KESTENBAUM: A stuntman - yes, car crashes, jumping through windows, that stuff. Eric Johnson says what this coin toss experiment demonstrates is that in our brains, we feel losses and gains differently. Losing feels worse than winning feels good.
So now as promised, back to housing. This is one reason the housing market is taking so long to sort itself out. In a down market, people don't want to sell because when they actually sell, it feels like losing.
CHRIS MAYER: Psychology matters a lot in understanding economic behavior.
KESTENBAUM: This is Chris Mayer, Professor of real estate at Columbia Business School. He found real evidence for this fear of losses when he studied the Boston condo bubble in the 1980s. He would compare two basically identical condos. The owners had both paid off their mortgages, but one had bought at the peak of the market.
And that person, he found, would stubbornly ask for a higher price and keep it on the market longer than the other person, who had no dreamy memory of the boom days when it was worth a lot more.
MAYER: The overall magnitude of this effect is very big. Most people believe that this is an important factor in how housing markets operate.
KESTENBAUM: There are certainly other reasons the housing market is taking so long to sort out. Some people are stuck financially with their mortgages. But this psychological quirk is also slowing the healing process. Again, Eric Johnson.
JOHNSON: It's sort of like having a band aid where you know you'd be better off if you just pulled it off all at once, but instead, what you do is you tend to pull it off very slowly, if at all.
KESTENBAUM: It's unclear why our brains are wired this way, why we overemphasize losses. Johnson says it could go back millions of years to when losing a bet was way more serious - when we were avoiding animals that wanted to eat us. Today, we're selling houses, but part of our brains may still be thinking about the leopards in the trees.
(SOUNDBITE OF MUSIC)
A. DAVIDSON: That was PLANET MONEY's very own David Kestenbaum. You know, I have got to say, I love that PLANET MONEY starts a podcast all about fun with no news with a story about leopards eating us and the collapse of the housing market in the U.S.
SMITH: I'm having fun, sounds great to me.
A. DAVIDSON: It's been great (laughter).
SMITH: Well, since we're talking about psychology and prices here, I have another puzzle that we tackled recently. During the last few years, people have obviously been spending less on most of the items in their budget. But there is a notable exception - wedding dresses. Brides magazine says that the cost of the average wedding dress has gone up 20 percent since 2009.
A. DAVIDSON: And, Robert, the reason you and I know this is because we've been borrowing Alex Blumberg's Brides magazine that he gets every month.
SMITH: We follow the prices very closely of wedding dresses, but there's a real reason.
A. DAVIDSON: The real reason is that our wonderful producer, Caitlin Kenney, just got married. And you may know that when a co-worker gets married, you hear an awful lot about the various planning.
SMITH: A lot about the planning - and flowers.
A. DAVIDSON: In fact, I've got to say, Caitlin's wedding truly - no joke - would make an amazing story one day. But we'll get to that later once all the lawsuits are settled.
A. DAVIDSON: (Laughter) Seriously. But we'll get to that soon. But right now what we have is Caitlin's great story in which she investigated why do wedding dresses cost so much?
CAITLIN KENNEY, BYLINE: Before wedding gowns reach stores across the country, they come here to New York International Bridal Week.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED WOMAN: Style 2053 is definitely one of our top-booking dresses.
KENNEY: What dresses you'll see in stores this fall, those decisions were made here in April. To figure out why those dresses cost what they do, you first need to understand what goes into making them.
ANNE BARGE: It's not just a white dress. It's the fabric. And it's the workmanship. And it's the lining. And it's the fit.
KENNEY: Anne Barge has been designing wedding dresses for over 20 years. She points to a dress on one of her many racks and says, here, let me break it down for you.
BARGE: Here you're looking at a dress that has 25 yards of pure silk satin.
KENNEY: How much does that even cost?
BARGE: Over a hundred dollars a yard for just the satin, not the tool. And then on top of it is a very expensive embroidery, which is done in India because they do the most beautiful handwork of anywhere in the world.
KENNEY: All that adds up to real money, but it doesn't reach the total price tag of $8,000. That extra cost, it's the word wedding. So much emotion is tied to that word that it's hard to put a number on it. But it's there.
Take this dress I saw at the booth of British designer David Fielden. It was long and understated with a high neck, and it looked like something you could wear to any formal event. Yurizan Morales works for the designer, and I asked him what this dress costs.
YURIZAN MORALES: In dollars, it would be around $2,700.
KENNEY: If it wasn't a dress for a wedding, if you were just selling it as a regular dress, do you think it would sell for the same price?
MORALES: No, it wouldn't (laughter).
KENNEY: Designer Anne Barge gets this. When she talks about her dresses, she's selling emotion.
BARGE: It's the dress of your life. And if there's ever one picture your ancestors have of you, it's the one in your wedding dress.
KENNEY: That's a lot of pressure to put on a bride-to-be. Veronica Guerrieri was married last summer in her home country of Italy, and she says she felt it.
VERONICA GUERRIERI: They were trying hard to convince me that it was the best day of my life, that I shouldn't have thought about economics.
KENNEY: Not thinking about economics is hard for Guerrieri because, well, she's an economist at the University of Chicago. She says we're part of the reason prices are so high. They're high because that's what we're willing to pay.
GUERRIERI: I think on average, there is a lot of status and signaling going on in wedding days.
KENNEY: Signaling - a bride's dress can signal how wealthy she is, what her status in society is. But it can also signal how seriously she's taking this marriage, sort of like saying, I'm only going to do this once so I'm doing it big.
And this urge to spend a lot to send a message, it applies to brides with all kinds of budgets.
MARY ANN MARCHESE: We're for the (unintelligible) that works hard.
KENNEY: Mary Ann Marchese owns Angels Bridal on Staten Island. The dresses in her store sell for between $700 and $2,000.
MARCHESE: I had a customer that the price was beautiful, the gown was beautiful. And she says, well, you know what? That's too cheap, she says. I'm looking to spend more money. I said, let me change the label. Let me change the price. I added two or three in front of it. Will you be happy?
KENNEY: Will you be happy? There it is again, emotion. Buying a wedding dress isn't like buying any other piece of clothing. There's so much wrapped up in the purchase, so many feelings, that our normal urge to save money can just go out the window.
(SOUNDBITE OF MUSIC)
SMITH: That was Caitlin Kenney, our fearless producer and occasional host and correspondent here at PLANET MONEY. So, Adam, what did you wear to your wedding?
A. DAVIDSON: Well, Jen and I got married at city hall, and I thought I was just going to wear, like, a T-shirt and jeans, but a couple of days before she's like, you know, maybe you can wear a suit.
A. DAVIDSON: So I had to run out and buy a suit, which turned out to be very hard to do with two days notice.
SMITH: Yeah. I also wore a suit. I could not tell you what happened to suit prices since then. Embarrassingly enough, I have no idea. OK, let's go from the wedding chapel to the stars. We promised you - we promised you a trip to space, but here's what makes this a PLANET MONEY story. It's about how much it costs to get to space.
A. DAVIDSON: Now, one of the lessons from the space shuttle is that putting things into orbit is really expensive. When using a space shuttle, getting just one pound of coffee up to the space station costs around $10,000.
SMITH: Which is about the price of two lattes these days, right?
A. DAVIDSON: I don't go to Starbucks.
SMITH: Oh, OK (laughter).
A. DAVIDSON: Now, NASA is planning to use a private company that takes supplies to the International Space Station. And that company, called SpaceX, claims it can do the job on the cheap.
SMITH: We are going to return now to our own David Kestenbaum. He used to cover science for NPR, and he, in fact, went to a number of launches of the space shuttle and such. But he decided to look into the claims that private companies can get to space better and cheaper.
KESTENBAUM: Elon Musk started SpaceX because, as he will tell you, he wants humans to one day live on other planets, and he was upset when he saw how much it costs to get things into space. So in 2002, he took the fortunes he'd made from Internet startups and started a rocket company.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED WOMAN: Five, four, three, two, one. We have lift off.
KESTENBAUM: SpaceX's latest rocket in development is called the Falcon Heavy. It's giant, and Musk says it will be able to get a lot of stuff to orbit pretty cheaply.
ELON MUSK: With the Falcon Heavy, we're at about $1,000 a pound.
KESTENBAUM: So $1,000 a pound, historically, people would say, wow, you know, that's pretty cheap. But, I mean, how much do you weigh?
MUSK: Me personally?
MUSK: I probably could stand to lose a few pounds but I'm around 225.
KESTENBAUM: So that's $225,000 to send you to orbit without - it's, like, naked without any food, right?
MUSK: So clearly, it's still too much. I mean, we really need to get to well under $100 a pound.
KESTENBAUM: SpaceX is in early days. It's had seven launches. The first three did not make it to orbit but the last four did. Elon Musk makes a point of posting prices online. And right now he's at around $2,000 or $3,000 a pound. His competitors do not post prices, though, so it's hard to compare. Micah Walter-Range, an analyst at the Space Foundation, says the industry is pretty secretive.
MICAH WALTER-RANGE: The price of a launch is not really known apart from the company that is providing the launch and whoever the customer is.
KESTENBAUM: People won't talk about how much they spent for a launch or how much it costs for a launch?
WALTER-RANGE: In many cases, they will not.
KESTENBAUM: Jeff Foust, an analyst with Futron Corporation, has done some calculations with the available data and he says it's pretty clear to him, yes, SpaceX is cheaper.
JEFF FOUST: Perhaps a factor of two less expensive than many other competing vehicles on the market. Very few people question that SpaceX is selling launches for considerably lower prices than anyone else out there at this point.
KESTENBAUM: The question then is how? How has SpaceX been able to do this? There haven't been any big technological breakthroughs. Musk says his company is just lean and smart. They make the engines themselves, for instance, which saves money. He says his competitors, industry giants Lockheed Martin and Boeing, are wasteful and inefficient. So are they?
MICHAEL GASS: Elon Musk makes lots of claims and, you know, lots of promises. We're waiting to see what's being delivered yet.
KESTENBAUM: This is the competition - Michael Gass, president and CEO of United Launch Alliance, a joint venture of Lockheed Martin and Boeing. Gass says price isn't the only thing to look at. There's also reliability. You don't want your multimillion-dollar satellite blowing up on the launch pad. He says Lockheed and Boeing rockets have been launched over 1,000 times.
GASS: We've been launching for 50 years. What's more to be said?
KESTENBAUM: So what is your reliability?
GASS: When the customer wants that, we'll go dig it up because, you know, figures don't lie. And liars figure you can cut reliability any which you want it.
KESTENBAUM: Give me an impressive sales number.
GASS: It's 98 or 99 percentile. Anybody who knows the space business knows that.
KESTENBAUM: I asked why United Launch Alliance didn't post its prices on the website. He says there is no one price. He says his customers know that. It depends on where you're going.
GASS: The price to get to the space station, that's only 200 miles to 300 miles above Earth. We go to places 22,000 and sometimes out of Earth's gravitational pull. So there's no one to answer.
KESTENBAUM: Elon Musk at SpaceX argues that one reason prices have not come down is that there wasn't real competition in the launch business. When Lockheed and Boeing merged, they had a kind of monopoly.
(SOUNDBITE OF ARCHIVED RECORDING)
MUSK: If you read the press release announcing the merger, it reads like something out of an Orwell novel. They actually announced that the reason that they were merging was to save the U.S. government money. Now, I did at the time ask for examples in history of a monopoly that was formed that subsequently resulted in prices going down and I did not receive an answer.
KESTENBAUM: Michael Gass at United Launch Alliance responds that the companies merged for a simple reason - there wasn't enough business to sustain both of them. If Elon Musk and SpaceX think they have a better way to do things, he says, good luck to them.
GASS: If the answer is yes, they should be in business and we should go out of business. And we'll be anxious to participate in that competition.
KESTENBAUM: As for how cheap spaceflight could get, Gass agrees with Elon Musk that a hundred dollars a pound to orbit could be possible someday.
(SOUNDBITE OF MUSIC)
SMITH: That was PLANET MONEY's David Kestenbaum.
A. DAVIDSON: Now when you say the words a buffet of PLANET MONEY stories, I'm instantly picturing that big bowl of bacon.
SMITH: Yes, that is the dessert here at PLANET MONEY. It's the designated official PLANET MONEY dessert - bacon, or more specifically, pork bellies. Our final story today is from a few months ago. And we heard you can no longer buy pork belly futures on the Chicago Mercantile Exchange. But it got me thinking anyway. Wait. Wait. Wait a minute. Why was there a market for pork belly futures in the first place? I mean, that's the joke we always go to when we talk about commodities, right? How are the orange juice futures and the pork belly futures? Well, in fact, I realize that most of what I know about commodities came from a certain movie.
(SOUNDBITE OF FILM, "TRADING PLACES")
DON AMECHE: (As Mortimer Duke) Oh, William, my boy, right on time. Come in. Come in.
A. DAVIDSON: Now that's "Trading Places," the movie starring Eddie Murphy from 1983. And you want to know what? My dad, Jack Davidson, an actor, was in it.
SMITH: Really? What'd he play?
A. DAVIDSON: All right. He played a very small but really crucial role. Let's listen.
(SOUNDBITE OF FILM, "TRADING PLACES")
JACK DAVIDSON: (As Trader #3) You know something? I can feel it. Let's get in on it.
SMITH: IMDB, the Internet Movie Database, says your father played Trader #3. I'm sure he was nominated for that role.
A. DAVIDSON: That's true. He got an extree (ph).
SMITH: Now, in the movie, Eddie Murphy is ushered into this conference room ready for his new job as a commodities trader. And if you remember the plot, he had been a homeless guy. And these two rich brothers were making a bet, blah, blah, blah. Anyway, at the table in front of him is coffee, eggs, bacon and toast. And Eddie Murphy turns down the breakfast without realizing the food's not there to eat. It's there for his new boss to teach him a lesson.
(SOUNDBITE OF FILM, "TRADING PLACES")
RALPH BELLAMY: (As Randolph Duke) Now, what are commodities? Commodities are agricultural products like coffee that you had for breakfast, wheat which was used to make bread, pork bellies which was used to make bacon, which you might find in a bacon and lettuce and tomato sandwich.
SMITH: And at this point in the movie, Eddie Murphy just turns and steps into the camera. And it turns out that this whole thing - the bacon lettuce and tomato sandwich - is actually fundamental to the way the Chicago Mercantile Exchange works. And Zoe Chace, our very own Zoe Chace, was fascinated by this. And she brought us this story.
ZOE CHACE, BYLINE: I dialed up the meat pit at the Chicago Board of Trade. Brian Muno answered the phone.
BRIAN MUNO: Hello.
CHACE: Hey, Brian. It's Zoe.
MUNO: Zoe, how are you?
CHACE: Despite his schmaltzy ringtone, Muno is unsentimental about the end of pork belly futures trading even though he started on the floor in the summer of 1975 and his father had been a pork belly trader for ten years already. That was the pork belly trading heyday.
MUNO: I mean, there was more demand, you know, like in the late summer months when tomatoes would come in season, you know, people with BLTs.
CHACE: Muno says that in much the same way that eggs and toast are improved by bacon, so were the fortunes of the Chicago Mercantile Exchange.
MUNO: In the early '60s, we were primarily like a butter-and-egg exchange.
CHACE: In the mid-'60s, the Chicago Mercantile Exchange was looking for something more exciting to bet on than omelets, a product you could buy cheap, store and then sell for a higher price.
MUNO: They came up with bacon because they could store it. And it basically allowed the exchange to stay in business.
CHACE: Pork bellies were once the most-popular product on the trading floor in Chicago. Traders would buy up shares of frozen pork belly slabs in Chicago warehouses. They'd then sell the bellies when the demand for bacon was hot.
MUNO: They're not going to drop them off in your front yard. They're going to be in a warehouse - in a frozen warehouse. But a lot of people figured, you know, if it costs them a dollar a pound to keep bellies in storage for a month, that if they could sell those March bellies a dollar and a half higher than they have to pay for them in February that they could make 50 cents a pound by doing so.
CHACE: If anything, bacon is even more popular now than it was then. So why would trading on bacon end?
MUNO: Now the industry standard is more of a fresh belly. You know, once the hog is butchered, they take that belly and they're going to slice it right then.
CHACE: The meat industry changed. It became more efficient. Bacon producers wouldn't sell bellies that have been sitting in a warehouse for months. And financial products grew more complex. S&P futures, currency futures, interest rate futures edged out pork bellies in the '80s. You also may have noticed that the demand for bacon is constant. It no longer changes with the season.
MUNO: Bacon on anything, to me, is good. Bacon cheeseburger, bacon pizza. That's just me.
CHACE: It's not just you.
(SOUNDBITE OF MUSIC)
SMITH: PLANET MONEY's Zoe Chace.
(SOUNDBITE OF MUSIC)
SMITH: We'd love to hear your suggestions for bacon-related stories and other explainers that you think that we should tackle in 4 to 5 minutes, and then we'll bring them all to you on the podcast. Drop us an email - email@example.com.
A. DAVIDSON: Or you can reach us through our blog. My dad's still acting. Any casting agents out there? Npr.org/money. I'm Adam Davidson.
SMITH: And I'm Robert Smith. Thanks for listening.
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