Episode 727: You Asked For It, Again : Planet Money New show! You asked us questions about the economy and oddities in your world. We answer.

Episode 727: You Asked For It, Again

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RECORDED VOICE: Record your message after the tone.


CAMERON: Hi, PLANET MONEY. This is Cameron (ph) in San Diego. I've always heard that money can't buy happiness. But can it? Is there an income or wealth point where life satisfaction or depression changes?

RECORDED VOICE: End of message.


Jasmine Garsd, you and I are standing outside of an ATM in a bank in midtown Manhattan. And what are we doing?

JASMINE GARSD, BYLINE: We're looking for the trash, Noel.

KING: Why are we looking through the trash?

GARSD: We're digging through people's old ATM receipts.

KING: Because today on the show, we are testing out an economic theory which says my happiness depends not just on how much money I have but it is also contingent on how much money other people have. So at the moment, I have about $1,500 dollars in checking. So we're here going through the trash to see how much money other people have and how that makes us feel.

I'm doing this surreptitiously because there is a security guard watching us. I'm pulling out a handful - oh, oh - there was something wet. I'm pulling out a handful of receipts.


GARSD: Oh, God.

GARSD: I think it's a piece of pork.


KING: OK. This person - this person has $250 in checking.

GARSD: Does that make you happier?

KING: I don't - I think - no, that doesn't make me happier.

GARSD: No, that doesn't make me happy.

KING: I think what we're looking for here is envy.

GARSD: This person has one cent in their account.

KING: That does not make me feel happy at all.

GARSD: Doesn't (unintelligible) feel happy at all.

KING: (Gasping) Oh.

GARSD: Five thousand dollars, OK.

KING: Five-thousand-forty-five dollars.

GARSD: But I could - I mean, I feel like that's attainable. That's not...

KING: Do you?

GARSD: I don't feel like that makes me feel like...

KING: It makes me feel a little bad because it's checking. It's checking.

GARSD: Oh, oh - $20,000.

KING: Whoa. All right, 20,291 and 4 cents in checking to be exact. Does that make you unhappy?

GARSD: It makes me feel like I need to get my life in order (laughter).

KING: You do need to get...

GARSD: Hey, listen, lady (laughter)...

KING: Hello and welcome to PLANET MONEY. I'm Noel King.

GARSD: And I'm Jasmine Garsd.

KING: Because today on the show - wait, what? - and also, why? We asked you to send us questions about the economy that perplex and confuse and frustrate you. And today on the show, we will be answering some of those, including the question, Jasmine...

GARSD: Does more money make you happier?

KING: And if it does...

GARSD: How much?


KING: OK, Jazz (ph), we have five questions on the show today. And the first one is, can money buy happiness? The simple answer is, just like you and I probably don't quite agree on that, neither do a lot of economists. But some have tried to answer it. We spoke to two of them, and we told them, make your best case.

GARSD: The first economist we spoke to is David Blanchflower. He works at Dartmouth. He studied the intersection of money and happiness.

KING: So we asked him the first question, does money buy happiness? And he said yes, data shows it does. In fact, the wealthier you get, the happier you tend to be.

GARSD: And remember what we were doing at the top of the show, how we were dipping our entire arms into ATM trash cans. Well, we weren't just doing that because we love sifting through garbage.

KING: (Laughter).

GARSD: We were doing that because we were testing David Blanchflower's theory, which is that our happiness depends not just on how much we have but on how much others have.

DAVID BLANCHFLOWER: Relative things matter. So people get themselves a new BMW, which is fine if nobody else does. But if everybody else gets a new one, then people compare themselves to others and relative happiness actually doesn't change.

GARSD: So basically, we're a bunch of haters.


BLANCHFLOWER: Well, we certainly appear to compare ourselves to others a lot.

KING: But here we have an area of disagreement. Justin Wolfers is an economist at the University of Michigan. And he told us he is very skeptical about the role of relativity here.

JUSTIN WOLFERS: If what really mattered to people's well-being was their income relative to other people, I've got a great proposition for you. You should leave New York then go to Mexico. Go to a small, rural Mexican village where you will be easily the richest person in town. And if what matters is being rich relative to other people, that would make you enormously happier.

KING: Do you think, Jazz, you'd be happier in a small Mexican village?

GARSD: In fact, I would. I often fantasize...


GARSD: ...About moving to a small Mexican village. But I don't think it would be about being richer than everyone else.

KING: Yeah.

Now, here's a second big question that economists look at. Is there a point at which getting more money just doesn't make you any more happy? Like, is there a limit? Here's David Blanchflower again.

BLANCHFLOWER: Well, it's certainly true that money can buy happiness. It's absolutely true. People with higher incomes are happier. But actually, as income rises, the extra amount of happiness that it buys falls. A famous quote that I've used is the supposed Arnold Schwarzenegger quote which says, my 30th million didn't make me as happy as my first million.

KING: My 30th million didn't make me as happy as my first million - it's a good quote.

GARSD: It's a really good quote.

KING: (Laughter) But is it True? Again, Justin Wolfers - very skeptical.

WOLFERS: That Schwarzenegger quote is all very interesting, but asking a social scientist about it is pointless. Social scientists don't know anything about what's going on among the ultra-ultra-ultra-rich because we don't have any data on them.

KING: Really? Why not?

WOLFERS: So it's purely conjecture. Well, if you can get Arnold Schwarzenegger and Warren Buffet and Bill Gates to fill out survey forms for me all day tomorrow, then we will have data.

GARSD: This is like a full-on beef...

KING: (Laughter).

GARSD: ...Between academics. (Laughter) It turns out not a lot of millionaires and billionaires answer survey questions about money and happiness - they are too busy diving into their pools of money. Our listener, Cameron, asked something else, too. Is there an amount at which we become happy? And the answer is no. We just - we don't have an answer for that. There's not a number.

KING: But Cameron, here's what we think you can take away. If you are making $50,000 a year, you are probably happier than somebody making $25,000 a year. And someone making $100,000 a year is probably happier than you.

GARSD: You're welcome.


KING: Jasmine, thank you so much. And Jazz, this is your last show with us for a while.

GARSD: Yeah, for a while. I'm going off to report for a show called "The World." It's co-production of PRI and the BBC.

KING: Well, we're going to miss you a lot.

KING: I'm going to miss you guys.


CRISTOS VERSAEZ: Hi. This is Cristos Versaez (ph). And my question for the PLANET MONEY team is, where did the idea that the Fed should target 2 percent inflation come from? Is there actual academic research to suggest that 2 percent is better than 3 percent or 1 percent? Thanks. Bye.


KING: OK. So the question is, where does the Fed's inflation target of 2 percent come from? And Jacob Goldstein is here with an answer.

JACOB GOLDSTEIN, BYLINE: Hell yes, I have an answer.

KING: (Laughter).

GOLDSTEIN: I was very excited that we got a few Fed questions.

KING: You were. You were.

GOLDSTEIN: I was delighted to take this one.

KING: OK. But before we get to the answer, just do some Fed 101, please.

GOLDSTEIN: OK, it's been a long time since we did Fed 101.

KING: Yeah.

GOLDSTEIN: I feel like we used to do it, like, every week.

KING: (Laughter).

GOLDSTEIN: So OK, the Fed is the Federal Reserve. It's the people who have the power to set interest rates in our country. This is a big power, right? And it basically works like this - when the Fed wants there to be more jobs in America, they lower the interest rate. A lower interest rate makes it cheaper for, say, businesses to borrow money, right? So businesses borrow more money. They hire more people.

KING: Good.

GOLDSTEIN: Good, right?

KING: I like it. Yeah.

GOLDSTEIN: Who doesn't want to hire more people? Yeah, so this is good. And this is what the Fed does - say, in a recession, they lower the interest rate. Businesses hire more people, great. But then you get to this point where almost everybody who wants a job has a job. So now people can start demanding raises, right, 'cause everybody's got a job. And people start getting raises. They have more money. They're buying more stuff.

Now prices start going up. Now you have inflation. And now the Fed gets worried that inflation is going to get too high, so they do the opposite of what they did before. Before they lowered interest rates. Now they raise interest rates. And this throws this whole process into reverse.

KING: Right. And the Fed's job is to balance these two things - to have an economy with lots of jobs and not too much inflation. So the question really is, how do you put a number on not-too-much inflation?

GOLDSTEIN: Yeah, like, how do you pick an inflation target that you're trying to hit? I called up Alan Blinder. He's an economist who was the vice chair of the Fed back in the mid-'90s. And he said this not-too-much inflation question is a really hard question. He said, in fact, when he was at the Fed, the people there whose job was to decide what inflation should be, they couldn't agree.

ALAN BLINDER: Some people thought we should be shooting for zero. Some people thought we should be shooting for 2 percent. Some people were content with the 3 percent, which is about where we were.

GOLDSTEIN: But he told me that after he left the Fed, over time - over decades, really - there was this convergence, this convergence on this 2 percent number.

KING: Why 2 percent?

GOLDSTEIN: That's what I asked Blinder.

Why 2 percent?

BLINDER: That's a really good question - so - because it's not so obvious that two is the right number.

KING: OK. It's still not obvious that two is the right number?

GOLDSTEIN: (Laughter) It isn't though, right? No, he said, like, in fact, you know, to the listener's question, it's not like some precise academic answer where they did all kinds of experiments and whatever. It's like a pretty good number. And here's the reason Blinder gave. He said, you want inflation to be low - obviously, high inflation creates all kinds of problems - but you really do not want inflation to go below zero.

You do not want deflation, right? That means you have falling prices and falling wages, and that is bad for people who have debts. It tends to lead to more bankruptcies. It's just bad for the economy as a whole. So that's what the Fed is thinking - you know, we don't want deflation. And Blinder says the Fed knows that whatever inflation rate it targets, they're not going to hit it, like, right exactly on the nose.

BLINDER: Whatever long-run targets a central bank sets, what you're going to see in history, if everything goes right, is random fluctuations above and below as the economy gets buffeted by various (unintelligible).

GOLDSTEIN: Sure. It's going to be a little higher, a little lower.

BLINDER: So if you're quite worried about going below zero to deflation, that argues to give yourself a buffer.

KING: Give yourself a buffer. Two is a nice round number, I guess.

GOLDSTEIN: Yeah, like, it gives you a little wiggle room. Like, if we miss a little low, we're still not going to be at deflation. So to be clear, Blinder says, it took the Fed a long time to agree on this internally. And then after that, they had to decide, OK, now we are ready to talk publicly about this, to tell the world. And so finally, on January 25, 2012, Ben Bernanke, who was the chairman of the Fed at the time, he had this press conference where he dropped the bomb.


BEN BERNANKE: The committee judges set inflation at the rate of 2 percent is most consistent over the longer run with our statutory mandate.


KING: Bang.

GOLDSTEIN: Boom - 2 percent. So here we are four years later. The last thing I'll say - it is a good thing that the Fed gave themself that wiggle room because back at the beginning of 2012 when they announced this target, inflation was right there around 2 percent. A few months later, it fell below 2 percent. And since then, for four years, month after month after month, inflation has been below 2 percent every month.

KING: So it's a good thing we have the buffer.


KING: Jacob Goldstein, thank you so much.

GOLDSTEIN: Thanks, man. It was fun.

KING: Yeah.


CHANDLER BUSKER: This is Chandler Buskirk (ph), and I just wanted to ask if you guys would consider doing a story on wars that have been started due to the abundance or lack of access to different commodities such as salt or whale oil or today, you know, crude oil. Thank you. Take care. Bye.



KING: Hey, Stacey.

SMITH: How's it going?

KING: Pretty well, pretty well. What do you got?

SMITH: So my question had to do with wars that had been fought over commodities. So I looked into this, and it is such a rabbit hole. Just - almost every commodity you can think of has involved some kind of a war. So, OK, let me just give you a list - salt, sugar, water, bananas, saffron, bread, gold, cobalt, natural gas, silver, tin, tungsten, tantalum, wheat, tea, opium, cocaine, rice, saltpeter.

KING: What is saltpeter, and how does it differ from salt?

SMITH: Saltpeter is, like, gunpowder basically.

KING: Oh, yes.

SMITH: So, you know.

KING: Wars fought with and for.

SMITH: Exactly. Yeah, you need stuff in order to fight the wars. And so people have wars over stuff that you can use to fight wars, of course. Bauxite, plutonium - there was a guano war. There was a war fought over guano.

KING: Like bat droppings?

SMITH: Like, bird droppings - it was in the 1800s, and it was these islands off of Peru that had all these centuries of bird droppings. And they discovered that they were very helpful in growing things, and there was a war. There have been wars over lumber. There have been wars over beaver pelts. But I - after looking through all of this, I think I've identified what must be, like, the single deadliest item in the world. And I have it for you.

KING: What - you have it. You have it in person for me?

SMITH: Yeah, yeah, yeah. It's all yours.

KING: It's in a bag. Can I say it's in a Dunkin' Donuts bag?

SMITH: It happens to be in a Dunkin' Donuts bag, yes.

KING: Is it alive?

SMITH: But don't be fooled. This is deadly.

KING: OK, hang on. It's...

SMITH: It is a cinnamon roll.

KING: You - yeah, you accidentally gave me your cinnamon roll and called it a deadly commodity. Is there, like, gold in here somewhere?

SMITH: No, there is - there's no accident. This is a blood-soaked cinnamon roll.

KING: (Laughter).

SMITH: Knowing, like, so much death is, like, wrapped up in this cinnamon roll. So first of all, there is the sugar. Sugar - the endless wars fought over sugar in the Caribbean - super bloody, a lot of enslavement. Thousands and thousands of people died.

KING: Oh, wow.

SMITH: The cinnamon itself - the spice trade was just incredibly violent. It was mostly ruled by the Dutch. And there were multiple wars fought over cinnamon. And nutmeg - which there is a tiny bit in this cinnamon roll - there were multiple nutmeg wars. I mean, can you imagine going to war...

KING: Nutmeg wars.

SMITH: ...Over nutmeg?


SMITH: I wouldn't even raise my voice over nutmeg.

KING: (Laughter).

SMITH: Right? But there were wars over nutmeg. Also wheat - big - a lot of wheat wars, right? Rome and Egypt and...

KING: Oh, man, yeah.

SMITH: ...French Revolution, partly, over some wheat issues. Also I figure, you know, oil was involved in the harvesting of some of these products and the delivery of the cinnamon roll. So there's oil wrapped up in there. This is just an incredibly deadly item. I will never look at cinnamon rolls the same way again.

KING: Stacey Vanek Smith went down the rabbit hole, re-emerged carrying a cinnamon roll. Thank you so much.

SMITH: You're so welcome. Enjoy your cinnamon roll.

KING: I am going to eat it.


KING: All right, Robert, get on in here. Do you have a question?

ROBERT SMITH, BYLINE: I do. It is on a subject near and dear to my heart, international postal rates.

JESSICA KIESEL: Hi my name is Jessica Kiesel (ph). I live in Seattle. My sister lives in Sri Lanka. And I - how could it be that I could send a letter to my sister in Sri Lanka and to Vancouver, Canada, and - which is just a few hours away - for the same rate?

KING: Is that really true?

SMITH: That is really true. Let me show you something right here.

KING: Yeah.

SMITH: This right here is an international forever stamp. It costs $1.15. It's in the shape of a moon.


SMITH: And you put that on a letter, and it will go anywhere in the world.

KING: I had no idea this was a real thing.

SMITH: Yeah. And, of course, that's amazing because there are some places that are much harder to get to. Here, this is a bit of trivia. Where do you think the most expensive place - in terms of the cost, end to end - where do you think the most expensive place to send a letter is?

KING: So I'm going to guess it's a country with, like, bad infrastructure and maybe the U.S. has some problems with it, so Sudan.

SMITH: Keep going.

KING: Central African Republic?

SMITH: Yeah, I see where you're going with that. But you're thinking in the wrong direction here because I talked to a postal expert, and he said, listen, most of the cost of delivery is paying salaries, paying the mailmen and mailwomen to deliver it at the end. And so he speculated that the country that is the most expensive to send to is Norway.

KING: Because the mailmen and women are, like, paid really well there.

SMITH: It's a very expensive country.

KING: Man.

SMITH: And so if you send a letter to a place like China or India, it is much, much, much cheaper because the labor costs there are so low. So to answer Jessica's question though, like, why are we charged the same amount to go to these vastly different countries? And really that's just for the ease of the consumer because if you're sending a letter, they don't want you to have to stand in line at the post office and be like, well, what does it cost to get to Afghanistan or to Norway or to Zimbabwe? They're like, let's just charge an amount that we know covers all the international mail - $1.15.

KING: $1.15.

SMITH: Now, Jessica did have a follow-up question. This is where it gets even more complicated.

KIESEL: If there is this one rate, then who pays for what? Like, how - who pays for the boat that goes across the ocean or the airplane that flies to Sri Lanka to get my postage there and vice versa?

SMITH: Right? I mean, if I send a letter to Sri Lanka for a buck-15, how much money does the U.S. keep, and how much does Sri Lanka keep? So I went over this with Jim Campbell. He's a postal consultant. And he said there's actually an organization called the - I was going to say international, but it's even better than that - it's the Universal Postal Union.

KING: Cannot be a real thing.

SMITH: It is a real thing. They're actually meeting right now in Istanbul. And what they do there is they argue about the details of who pays for what. You know, in other words, what sort of little share of stamp revenue goes to Sri Lanka if Sri Lanka is doing the final delivery of the letter?

KING: So I'm imagining this, like, big room and there's all these mail ladies and mailmen. And they're in their shorts, and they park their little wheelie bags, and then they kind of yell at each other - oh, wait, 40 cents. No, 52 cents - 7 cents. Is that what it's like?

SMITH: I know. I pictured that, too. But when I talked to Jim, the postal consultant, he said, no, we wear suits.


KING: All right, Robert that was a pretty good one.

SMITH: Top that. Top it.

KING: Top that. Well, my question is about insurance.

SMITH: Oh, insurance is at the top of the PLANET MONEY pyramid of the nerdy things that we care about.

KING: It is. Here we go. You know why I like this question? Because we got it from more than one person so it is a thing.

SMITH: It's in the zeitgeist.

KING: Yeah. Here is Dave Outen (ph).

DAVE OUTEN: So I recently moved from Columbus, Ohio, to Alameda, Calif., and transferred my auto insurance from Ohio to California. And I was floored when my 2011 Hyundai Elantra went from $390 for every six months to over $900 every six months.

KING: Wait. Your insurance more than doubled?

OUTEN: Yes. Yes, for the exact same coverage.

SMITH: So exact same guy, exact same driving record. Same car?

KING: Same car.

SMITH: Why does his insurance double?

KING: All right, here's what I liked about Dave. He had theories about this.

SMITH: (Laughter).

KING: So the first one - he said, look, maybe labor costs are higher in California.

SMITH: Oh, yeah. Yeah.

KING: Maybe the State Farm agents get paid more, like the mail carriers in Norway, right? I checked. That is not it. Second reasonable idea - he said since he moved to California, he's seen all of these really sick cars on the road, Teslas - he keeps seeing Teslas. And he's like, maybe if the cars...

SMITH: Yeah, yeah.

KING: ...Are $100,000 cars, they need more insurance, premium goes up. So I asked an actuary about that theory. And he said, it's not a bad theory actually. He said that will bump up your premium but only about 5 percent, and Dave's doubled. So it's something else, right? His name - the actuary's name is Bob Hunter (ph). And he said, listen, there's hundreds of variables that go into determining how much you pay for your insurance. But in the state of California, which is where Dave moved, there is a big one.

BOB HUNTER: If you look at - one of the key drivers of rates is traffic density. And California has some of the most dense traffic - LA, San Francisco - in the nation.

SMITH: Wait a minute. Like, I know that's true. There's a lot more cars on the road. But aren't they all going slower? Isn't that a less chance of an accident?

KING: (Laughter) You might think. And yet, more cars on the road means more things to hit.

HUNTER: If you're out in the middle of nowhere, a little bit of distraction - you can have a lot of distractions and still be going down the straight road in Nevada - I mean, in Nebraska or someplace. But if you have a little bit of distraction and you're in Manhattan, (laughter) you've got an accident.

SMITH: Totally makes sense.

KING: Density, man, density. There's your answer. But Bob, the actuary, told me he still didn't really think Dave's premium should have doubled.

SMITH: Seems like a lot.

KING: That seems extreme, right? And in fact, Dave, after he heard $900, he was so taken aback that he haggled with the agent a little bit and he got about 150 bucks knocked off.

SMITH: So that actually suggests another theory that I'm going to posit here, which is, you know, in California, people sometimes just charge more and hope that the rich people of California will pay for it. So that agent was clearly like, I don't know, maybe he'll pay $900.

KING: You don't mess with a guy from Columbus, Ohio (laughter).

SMITH: Exactly.


KING: We love to hear what you guys think of the show. Email us at planetmoney@npr.org. Also, while we're at it, what's the best money story you've told a friend recently? Send it to us. We might make it into a podcast. You can find us on Facebook or Twitter @planetmoney.

SMITH: And also I should say to our international listeners, because we're now interested in the concept of international postage rates, why don't you send us a postcard? Send it to Robert Smith, NPR. We're at 11 West 42nd Street, 19th Floor, New York, N.Y., 10036.

KING: They're going to come flooding in.

SMITH: I want a pile of postcards from all around the world, especially from Norway, the finest.

KING: (Laughter).

SMITH: Finest.

KING: The finest.

SMITH: The finest and most expensive, rare postal system. Also we did a show this week with NPR Politics about the first presidential debate. And coming this Tuesday, October 4, is the vice presidential debate. The next morning, the NPR Politics podcast will have the whole scoop on the things. (Whispering) So you don't have to actually watch it.

They'll tell you what happens and what it all means. That is the NPR Politics podcast. You can subscribe or listen on the NPR One app.

KING: Our show today was produced by Sally Helm. Special thanks also to producer Nick Fountain and to Elizabeth Kulas and Rhaina Cohen.

SMITH: I'm Robert Smith.

KING: And I'm Noel King. Thanks for listening.

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