ROBERT SMITH, HOST:
Hello, and welcome to the graduation for PLANET MONEY Summer School. I'm Robert Smith. We have set up a stage out here on the NPR quad. The campus is perfect, overflowing with summer flowers, nicely manicured green lawns. They really spiffed up the place for graduation. I am wearing the traditional robe of PLANET MONEY University. It's in currency green. Our economists-in-residence Betsey Stevenson and Justin Wolfers have traded in their beachwear for their academic regalia.
Now, how would you describe your outfits?
JUSTIN WOLFERS: Well, mine's crimson. It's flowing. You can't tell if I'm wearing anything underneath it. And, frankly, the view from up here is magnificent. Congratulations, graduates.
BETSEY STEVENSON: I broke my rule, which is only wear athletic clothes right now, to don my cap and gown from my alma matter, which, like Justin's, is crimson.
SMITH: You are both full-time professors at the University of Michigan and have done your share of graduations. So what is the best part?
WOLFERS: The best part's meeting the parents, who are so proud, and getting to say nice things about their kids while they're beaming and the kids are beaming. And it kind of feels like teaching really is worth it.
SMITH: In that case, do you have any message for the parents of PLANET MONEY listeners?
WOLFERS: I just can't believe the application your child showed in class. They have a real gift for economics, and I think it's going to take them far. And there's so much good that they can do with it. You must be so proud.
SMITH: We are all proud. And today on the show, it is your turn, as students, to take the stage. We've asked our listeners to be our graduation speakers today and provide inspiring speeches about opportunity costs and market formation and how to properly take care of the tragedy of the recycling bins. It is the shortest graduation ceremony ever - after this break.
Students, parents, families, professors and confused podcast listeners who have downloaded PLANET MONEY for the first time, I welcome you all to the graduation of Summer School class of 2020. If you did not yet get your diploma, there is still time. Pause this episode. Google PLANET MONEY diploma and get your very own certified completion document - not a diploma - diploma. All summer, we asked you to send in your stories as part of our weekly assignments, and hundreds of you front-row kids actually did it. We read them all. And we've asked a few of you to address the graduating class, telling us what you learned.
Way back at the beginning of Summer School, we talked about a fallacy that a lot of people make when they keep throwing good money after bad when they should probably just move on with their lives. Those past decisions are known as sunk costs. And that resonated with Deb Chan (ph), who is our first speaker.
DEB CHAN: After listening to your first Summer School episode on sunk costs, I thought of my very own sunk cost - friendship bread. If you don't know what friendship bread is, it's the kind of bread that you keep a starter alive for 10 days, and then at the end, you bake the bread. After baking the bread, you have leftover starter - one for yourself and a few more to share with friends.
Well, a couple months ago, a friend offered me a starter. I wasn't sure I really wanted it because I knew the responsibility involved, but I thought, why not? I'll try it again. Oh, my goodness. That was a mistake. The stress of keeping it alive, kneading it every day, adding the ingredients, trying to keep track of what day I was on and then baking the bread that I didn't even want to eat was just too much. On top of that, I had to find people to share the bread with, and then trying to push my extra starters on them. I felt like I had invested all this time and money in it, so quitting felt like a waste. And what kind of Midwestern girl gives up on friendship bread?
But when I finally decided to throw out my starter, I felt so free. So if anyone is holding on to something that is stressing them out, I suggest throwing out the friendship bread in your life and move on to better things.
SMITH: Congratulations, Deb Chan. Professors, I think after each speech, we should bestow some sort of academic honor on our speakers. Deb Chan is on the dean's list.
STEVENSON: Well, I really love this story because I nurtured a sourdough starter for about two months, and I made the world's worst bread.
WOLFERS: Actually the worst.
WOLFERS: It's not exaggerating.
STEVENSON: And I felt like I'd invested so much I just had to keep going. And then I woke up and said, wait; sunk costs, and I threw my starter away. And I am no longer in the bread-making business.
WOLFERS: I just want to add Deb's story is, at one moment, heartbreaking and another freeing. We had another listener reach out to us to say she'd finally dumped that guy - that the years she'd invested weren't worth it, and she was ready to move on. And it was kind of like sourdough, I guess.
SMITH: More work than sourdough, clearly.
SMITH: From sunk costs to market formation. Our next speaker is from the U.K. And after our class on how markets can create a bottom-up solution to allocation problems, Eleanor Sherwin (ph) noticed something strange in her neighborhood.
ELEANOR SHERWIN: So I run several times a week, and I've actually been listening to Summer School on my runs. When the pandemic first escalated, I started avoiding my usual route. It's on this beautiful but crowded river path. And instead, I shifted over to this plain grass field in the park. It's really boring, but I judged that the cost of being bored was lower than the cost of coming into contact with other people. I noticed that the same calculation happened for most of the running market, and a lot of runners shifted to the field.
Then lockdown came in, and the public golf course closed down. Great, I can now run on the golf course. So at the peak of lockdown, we runners were enjoying these gorgeous landscape vistas with the added thrill of running on this public land that we're normally barred from.
Over the following weeks, a few golfers began to pop up again. This was still banned at the time, so they'd be very courteous and patient to me, but it was probably because they didn't want to be reported. Over time, it became clear to the golfers that there was going to be no police enforcement happening - i.e., the regulation in the market was weak - and so the illicit golfing grew. There was this uneasy truce happening. The runners could use the edge of the course, and we'd be tolerated.
Eventually, the lockdown eased and the golf course reopened. I had hoped that our truce would continue for a while, but the power had shifted back to the golfers. On my final run in the rough of the course, this golf ball whizzed past me so close that I knew that the golfer had aimed it right at me. The golfers have regained their market dominance, and they would enforce it. Now the benefit of this lovely landscape is outweighed by the risk of being hit by a golf ball. Meanwhile, the river path still has the contact risk outweighing its beauty as well.
So here I am, pushed into the marginal land, running around in boring circles on the field again. At least the lack of aesthetic variety means I can focus on my podcasts.
SMITH: Eleanor Sherwin, congratulations on your PLANET MONEY diploma.
WOLFERS: I first fell in love with PLANET MONEY on long runs. I'm right there with her.
SMITH: I had never thought before about running as a market and where you run, but, of course, right? It's any sort of resource that there's not quite enough of, or at least there's different demands for different parts of the resource. You can set up even an informal market system.
WOLFERS: Absolutely. What's the Latin for the very top of the class?
STEVENSON: Summa cum laude.
WOLFERS: Summa cum laude. By Jingo, this felt like listening to the late Gary Becker, who was the economist who taught us that economics is everywhere and that wherever there's scarcity, there's economic forces at play. And she found it.
STEVENSON: What I really liked, though, she also was alluding to the importance of government, which is what - who owns the property right, and how does the property right end up shaping the market forces.
WOLFERS: Could the running club bribe the golf club to keep all golfers off during the prime running hours of 5:30 to 7:30? It would be an efficient reallocation. If she's right, and I think she is, the runners value it more than the golfers, so therefore, the amount that the runners would be willing to pay exceeds how much it would cost to get the golfers to stay home.
SMITH: That is a great idea.
Our next speaker has a story prompted by our advertising episode. That was class No. 7. We profiled one of the pioneers of targeted advertising, and we asked, how have targeted ads affected your life? Paul Wolf (ph), please take the stage.
PAUL WOLF: So my wife, Sophie (ph), and I, we both work in digital media. And we were lying in bed one night kind of debriefing our day when we randomly started talking about this bed tent that I used to have when I was growing up. It kind of attached like a fitted sheet on a twin bed, and it used fiberglass rods inside to crisscross and form a tent structure.
Well, we just simply mentioned it in a conversation with my phone nearby, and the very next day, I had an ad from a big-box retailer for one of these bed tents. Now, apparently, they still make them. We even joked that whatever we talked about the next day was bound to show up in my Facebook feed, and so we declared our love of the hippopotamus. And, sure enough, a few hours later, ads for our local zoo with - I kid you not - a picture of a hippo. And so now we're into this whole other Facebook-might-be-listening sort of conversation, and - I don't know - maybe they are.
SMITH: Paul Wolf, congratulations on your fake economics degree. And, Professors, I am of two minds about this. We actually looked into this whole issue a few years ago, and there's no proof that your phone is listening to you and sending your conversations to advertisers. And it is certainly possible that if your phone is hacked, they can listen in. But routinely, your phone does not do this. Google, Facebook - they've all denied it. And yet - and yet - I swear this happens to me every single week. So I just wanted to ask you two as level-headed economists, they're not listening to us, are they?
WOLFERS: I wanted to say this sounds like wild conspiracy theorizing, just like you, and then I remembered that every time the tech companies are accused of storing data that they shouldn't otherwise be storing, it later turns out that they actually were. But, really, I think Paul needs a course in statistics.
SMITH: We should offer one next summer.
WOLFERS: Because what I want to do - you to do is think about how many people could have a story like this. And it's obviously the case that out of 300 million Americans, I bet a few of them were probably talking about bed tents last night - maybe a few dozen. And it's not that unlikely - you got 300 million people out there - that the one who happens to get the bed tent ad is going to be the guy who was talking about it yesterday.
Remember that old probability thing, if there's 30 people in a room, what are the odds two of them have the same birthday? It's pretty high. And it's because there are so many different combinations and ways this could work out.
So what he didn't tell us is how many animals he saw on his screen the next day. Was it just the hippopotamus, or do you see two dogs, a giraffe, a cat and one hippopotamus and he was just primed because he'd been talking about hippopotami to notice that and to see reason where there's chaos?
SMITH: All right, it's time for us to take an ad break. I do not know what ad is coming next. If it is for a bed tent or a hippopotamus, then I will take back everything I said.
You know, maybe real universities should offer ad breaks during their commencement ceremonies. Just throwing that out there.
Welcome back. We have two speakers left - our valedictorian, but first our salutatorian. Is that how you say it? Anyway, first up, Jake McDermott (ph) from Oakland, Calif. He has a meditation on elastic and inelastic demand. As you might remember from class No. 3, something has inelastic demand if a change in price for that product has a small effect on the demand for that product. Take it away, Jake.
JAKE MCDERMOTT: Hi, PLANET MONEY. I wrote in to talk about my favorite inelastic good, which is electricity. There are no substitutes for electricity, so if you want to run your A/C or your dishwasher or turn on a light, you will be using electricity. People that buy electricity, especially residential customers, don't really have a grasp on the price of electricity and how much it costs to run a device.
If I told you that the price of electricity was going to increase from 22 cents per kilowatt-hour to 25 cents per kilowatt-hour, you probably wouldn't intuitively know what that means. You might think, OK, so the price goes up, so I'll consume less. And while that's not a bad way to think about it, we typically don't give consumers that information at every moment in time when they're deciding things like, you know, should I use my toaster to heat up a bagel or should I just eat it cold? All that they see is a higher electric bill at the end of the month.
I think that as technology becomes more ubiquitous throughout the home, we're likely to see the ways in which we buy electricity change, and we might even see the demand for electricity become less inelastic as time goes on. Thanks so much for including me in the podcast. Take care.
SMITH: Jake McDermott, congratulations. We picked Jake for this honor because he noticed that just because something is an inelastic good does not mean it always has to stay that way.
WOLFERS: And the technology piece is actually an important thing he said because there's all these innovations going on right now. One of the things that causes those innovations is the high price of electricity - means that if someone could invent something clever, like the LED light bulb, there'll be a huge demand for it. And as a result, it leads to a lot more research and development trying to find alternatives to electricity use. So all of that is actually what's going into making electricity demand more elastic when you're looking at a period of decades rather than days.
SMITH: When there's an inelastic good, is there always a pressure to turn it into an elastic good? Does someone always want to find some sort of substitute for it because that is a way to make a ton of money?
STEVENSON: A market force, you might say.
SMITH: Oh, I might say that.
STEVENSON: A market force that will push for an innovation because there's obviously a lot of profits to be had there.
SMITH: All right. This is it. Our valedictorian this summer is from Eugene, Ore. Her name is Emily Litke (ph). When we talked in our third class about the tragedy of the commons, we thought about really big problems like drought and global warming. But Emily saw that economic concept in something very small but very annoying.
EMILY LITKE: I've thought of an example of a resource that's being overused, and that would be my recycling bins and trash dumpster at my apartment complex. And the main thing that I come across is, like, the cardboard in the recycling - people don't break that down. And then, you know, we have all that space, and then it's all piled up outside the containers. And then by the time, you know, the end of the week comes, I either have to, like, keep piling on and be that person who is not putting it in the bins or I have to wait another day with my recycling. But issues - like, the problem keeps getting worse. If we just all would contribute just a little bit and break stuff down, then, I mean, I feel like we all would be in a much better place.
SMITH: Valedictorian Emily Litke, thank you so much, and congratulations. As well as providing an easily recyclable diploma, perhaps Summer School can offer at least a hint of a solution.
WOLFERS: The problem with the tragedy of commons is if everyone owns something, they act as if no one owns it. And so what you've got to do is give someone the responsibility and, therefore, the payoffs from keeping the recycling area neat and sanitary.
SMITH: So what? Should we just pay people to do it?
WOLFERS: We could do it that way. I mean, so mess is a really common tragedy of the commons. Can - I'll give you another example. I grew up as one of six kids. And so when one of us left our toys out, Mum would say, could you clean up the toys, and I'd say, it wasn't me, even if it was me.
STEVENSON: Oh, my God. Can I tell you he still does that? It's actually a real problem in our household. I'll be like, look at these towels on the floor, and Justin will say, it wasn't me. Like, you're the other grown-up here.
WOLFERS: Betsey grew up as one of two, and so her parents kind of knew who it was most of the time. So my household had a tragedy of the commons. Now, if one kid got $5 pocket money every week if all the toys were always put away no matter what, that might give someone an incentive to clean up. That might not be the kid who made the mess, but the kid who owns or has the responsibility for it now has an incentive.
SMITH: Well, we at PLANET MONEY have the incentive to allow everyone to finish the episode and get to their graduation parties. Before they go, Professors, anything you would like to say, any final words of advice to our newly minted graduates?
WOLFERS: You've now got the most powerful tools known to social science. And the issue for you is trying to figure out how, when and where to apply them. And the thing is you're going to find some big decisions where just thinking about it the right way is going to get you to a much better outcome.
SMITH: If my graduation speaker had been that short, I would've thanked you forever.
STEVENSON: It's all about incentives.
SMITH: Thank you both so much. This has been a great trip.
STEVENSON: It's been a blast. We've had a great time.
WOLFERS: It's a joy.
SMITH: And I wanted to thank all of you, the listeners, for coming today and for showing up for the last eight lessons on economics. I know it was voluntary. No one made you go to Summer School. We appreciate it. Tell a friend to listen to the series, and then also show them how to google PLANET MONEY diploma so they can join the ever-growing class of 2020.
And for you teachers and professors who have been auditing this course, we have an amazing resource that we're unveiling today. It's a collection of lesson plans based on 20 short, fun PLANET MONEY stories. We put it together with our partner Listenwise, and you can find it at our Summer School page, which is npr.org/pmsummerschool.
We'll be back next summer, hopefully with a little PLANET MONEY Graduate School. Who wants to have just one diploma on their wall?
Our entire series was produced by the great Lauren Hodges - thank you very much - with Darian Woods, James Sneed, Liza Yeager, Nick Fountain and Alexi Horowitz-Ghazi. Sound design from Isaac Rodrigues (ph). It was edited by Alex Goldmark.
For more sweet, sweet economics from Justin Wolfers and Betsey Stevenson, they have a new audio course called Think Like An Economist. It's available in all the podcast places.
OK, everyone, get ready to throw your mortarboards up in the air in three, two, one.
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SMITH: I'm Robert Smith. This is NPR. Thanks for listening.
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