Would a Big Bucket of Cash Really Change

Your Life? Full Transcript

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This is a transcript of the Freakonomics Radio podcast “Would a Big Bucket of Cash Really

Change Your Life?“

[MUSIC: Louis Thorne, “La Sauterelle”]

Stephen J. DUBNER: The other day, we heard from a Freakonomics Radio listener named

Thomas Appleton. He’d been talking with a friend about giving money to charity, and he had

this idea:

Thomas APPLETON: I was wondering what would be the socioeconomic effects if the 50

wealthiest Americans each selected 50 needy American families and gave each one a one time

gift of $50,000 and repeated the process every year with new beneficiaries? And what if these

efforts were concentrated in, for instance, some of the poorest neighborhoods in Brooklyn?

DUBNER: That’s an interesting question. In economic terms, Thomas is asking about the effects

of a geographically concentrated, one-time unconditional cash transfer – and whether, for

instance, it will lead to real, intergenerational income mobility. (Although the way he put it is, I

admit, much more exciting.) Alright then, why don’t we try it? Let’s see, 50 families, $50,000

each – that’s $2.5 million a year. So who out there wants to fund our experiment? Hello?

Anybody? Nobody? I guess this is what happens when you give your podcast away for free:

nobody wants to pay for anything any more. All right, then, we’ll have to find another way to

answer Thomas’s question.

[THEME]

[MUSIC: Pearl Django, “Saskia” (from Modern Times)]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen

Dubner.

DUBNER: Okay, so here’s the question we’re trying to answer today: if you’re thinking about

helping poor families, how effective would it be to simply give them a big pile of cash? Would

that change the course of their trajectory over time? Giving away $50,000 may sound like a lot

of money, but if it means helping not only this one family but the next generation, and the next,

it’s probably a bargain, right? Now, there are a couple of problems with trying to answer this

question. The first is that none of you are willing to give me $2.5 million to fund the experiment.

But there’s also this: in order for it to be an experiment, we need to randomize who gets the

money – which also means having a control group, so we can measure the effect of the money.

And also, we need a lot of time. Even if we could give $50,000 to 50 families today, we want to

see the long-term effect of that money – how it affects their children and their grandchildren. So

wouldn’t it be great if, somewhere in history, something like this already happened – that there

was some magical dataset that a couple of scholars could analyze, and write a paper that answers

these questions … ?

Hoyt BLEAKLEY: The paper is “Shocking Behavior: Random Wealth in Antebellum Georgia

and Human Capital Across Generations.”

DUBNER: Well hello! That’s Hoyt Bleakley. He’s an economic historian at the University of

Chicago, currently a visiting scholar at Princeton. He did this research with Joseph Ferrie, an

economist at Northwestern.

DUBNER: So the shocking behavior that we’re talking about is the shock to the system, which is

this lottery, this land lottery that happened in Georgia in the early 19th century, yes?

BLEAKLEY: That’s right. So there’s sort of a little known fun fact from antebellum days which

is that the State of Georgia opened up almost three quarters of its territory to white settlers

through a system of lotteries, as in actually pulling names out of a barrel to randomly give out

land rights.

DUBNER: Now, this land we should say had been confiscated from the Indians, right?

BLEAKLEY: That’s correct. So that’s the less fun part of the fact, which is of course this

happened because of the displacement of the Cherokee and the Creek. And in fact this particular

episode we look at is what gave rise to what’s called the Trail of Tears where the Cherokee were

force marched to Oklahoma under some depraved circumstances.

DUBNER: Okay, so the government of Georgia had a lot of land, and they used to give land

away in a different way, right, a somewhat less random way?

BLEAKLEY: That’s quite a lot less random, something that looks a lot more similar to the way

it had been done for much of the east of the U.S., which is to say that they would issue grants, or

they would have people go out and claim land, and they would be entitled to a certain claim, but

they would also have to show evidence that they’d done something with it.

DUBNER: Got you, so I could say I’ll commit to farming this land and hiring certain people if

you give me the land, something like, some kind of contract like that.

BLEAKLEY: Yeah, that’s right, some evidence of having done something with it. That’s right.

DUBNER: Okay, and why did this lottery come about? What precipitated the need?

BLEAKLEY: Well, so take yourself back to that map that you may have seen in 11th grade in

high school history where the colonies, you know, the new states were claiming land all the way

out to the Mississippi. You might have seen this thing where there is a super elongated map of

New York, and Georgia, and Virginia, all claiming out to the Mississippi. So some enterprising

set of gentlemen decided that they were going to start selling that land that Georgia was

claiming, opening it up for settlement. And the way they did this was they basically bribed a

majority of the legislators in Georgia to make this happen. This generated such a scandal because

in part it wasn’t clear Georgia actually had title to this land, you know, was legally able to give

out the land. Eventually they gave it up. This land was in the state of Mississippi eventually. But

further it generated such a throw-the-rascals-out movement that when they came around to

allocating the part of the state that really was part of Georgia, politicians opted for what they

viewed as the most incorruptible, the most transparent mechanism possible. And they came upon

the lottery as such an idea. And so they went and surveyed the land into a bunch of parcels, set

out a grid. And after that time they started pulling names out of barrels. And essentially every

white male who had lived in Georgia for a few years was eligible to participate. And there was

so much money on the table from participating. Right? It cost you 12 cents to register.

DUBNER: And could you by more than one ticket, or everybody could have just one?

BLEAKLEY: No, this was, don’t think that his was go to the store and buy a ticket. It’s

simply…

DUBNER: It’s not Powerball.

BLEAKLEY: No, you’re basically eligible for one registration. And we estimate that

approximately 100 percent of the people registered.

DUBNER: Wow, okay. So if we forget the fact, or deny the fact that the land was confiscated

from Native Americans, then this is a pretty equitable way to distribute the land, yes, in that it’s

not giving advantage to people who either have a, you know, corrupt legislator in their family,

friendship, or whatnot, right?

BLEAKLEY: Yeah, I mean you could say that, at least ahead of time it’s an equitable way to do

it because everybody gets the possibility of winning. Of course some people win, some people

lose, which ends up being central to the way we, you know, perform our research.

DUBNER: Okay so tell me just a quick couple facts about this. What share of, you said that

there was virtually 100 percent participation because it was pretty much free to sign up to try to

win some land. What share of people then won? What were my chances of winning?

BLEAKLEY: Yeah, so it was little shy of 20 percent of the people won.

DUBNER: And then how much land are they winning, and I want to know what that land is

worth. And I also want to know how I can convert that land into value. In other words, can I sell

it right away or do I have to actually go and farm or build something on it?

BLEAKLEY: Sure, so in the particular one we analyzed, they were winning 160 acre parcels in

the northwest part of Georgia, so think Atlanta and to the northwest of that. We estimate that

they were winning numbers in the hundreds of dollars, maybe $500 to $800 dollars if you value

this in 1850 units which is when we observe them.

DUBNER: Let’s put that in constant dollars then. It’s worth roughly what today?

BLEAKLEY: Well, it’s worth a lot. It’s worth a lot in the sense…It’s a little bit hard to convert

that into a number today because prices are so different so let me give you two ways of thinking

about that. One is that’s pretty close to the median level of wealth. You know, think about a bell

curve of wealth. We’re basically taking some amount of money that’s approximately equal to

where half the people are above and below that, of the non-winners.

DUBNER: And you’re saying that’s total wealth, all their assets would be worth that much?

BLEAKLEY: Well we don’t observe you know if they own stocks or bonds, or something like

that, but essentially everybody either had their wealth either in land or slaves, and that’s what we

do observe.

DUBNER: Ok. So in other words, if I am essentially penniless, but I happen to be a white male

living in Georgia for a few years and therefore I’m entitled to enter this lottery, I can overnight

have the same amount of wealth that is the median wealth in Georgia?

BLEAKLEY: That’s right.

DUBNER: So for certain people then it will be a life-changing event, not for all but for some,

yes?

BLEAKLEY: It should be, yes, that’s right.

[MUSIC: Jonathan Geer, “Draggin The Bow”]

DUBNER: Okay, so it’s 1832, and the state of Georgia is giving away a bunch of land via a

lottery. Roughly 1 in 5 people who enter the lottery will win. Economically speaking, it’s a

pretty substantial windfall. And for a pair of 21st century researchers, it’s a pretty big windfall

too. This kind of organic randomization, it’s what economists call a natural experiment. It

doesn’t happen every day.

BLEAKLEY: I’m a big fan of the libraries that are run as open stacks where you can kind of

walk up to the books and you can look at them and pull them out, and you can smell them and

everything. You know you get up close and personal with them because a lot of stuff, good stuff,

happens by accident. And in this case, I’ve done a lot of work looking at the economic history of

the southern U.S., which has put me in that part of the library and I’ve seen references to the

lottery system of Georgia, which for a while I just thought, well what could this be, this is some

sideshow, I don’t know what that is. But I was walking past the Georgia section at the University

of Chicago library at some point and see this title that says “The Cherokee Land Lottery,” big,

thick book, walking past it. You know how this is, your brain, it takes a second for you brain to

tell you legs to stop moving. And so I finally, a couple stacks down I turned around and said I

got to go look at this book. I pulled this book out and there are a series of these books about the

lotteries that describe the participants’ names, actual winners, what they won, that sort of thing.

And at that point, you know, I was stunned. Can this really be that they randomized wealth? And

I got on the horn with Joseph Ferrie, who is my coauthor at Northwestern University. He’ spent a

lot of his career tracking people through these historical records. And I said you know, we got to

follow up on these people because this was potentially a life changing event for them.

DUBNER: And not necessarily life changing for you guys, but it’s kind of a diamond in the

rough, or maybe not even in the rough. But to find a pile of data like this, which as you put it is a

shock to the system. In other words, it’s the kind of experiment that an economist today would

love to run, but you can never get permission to, and here it’s been run, right?

BLEAKLEY: Yeah, so the reason why I got so excited about this is, of course, one of the big

questions within economics is about the inequality of outcomes, the distribution of wealth, the

distribution of income. And further that this seems to be something that to a large degree or to

some degree is transmitted across generations. And you know, there’s a lot of questions as to

why there’s this kind of persistence, why the distribution seems to have such a spread to it.

DUBNER: So I guess if I were to guess what you’re thinking then, I would guess that you’re

going to say well okay, so here’s the perfect tool to tease out the question of: do people whose

children and grandchildren do better than them do so because of money and because they use

money in a certain way, or are there other explanations for it? Is that what you were concerned

and excited about?

BLEAKLEY: That’s exactly right.

[MUSIC: Dan Sistos, “Caravan Jam” (from The Road to Euphoria)]

DUBNER: Coming up on Freakonomics Radio: what did Hoyt Bleakley learn? What did the

families who won the land lottery do with their windfall? Did their wealth grow and grow over

the generations?

BLEAKLEY: I was surprised. I think that I would not have expected this at all

DUBNER: And what do we know about contemporary lottery winners?

BLEAKLEY: If you want to be depressed you should read either the academic literature or the

journalistic accounts of lottery winners because they basically waste it, right, blow through the

money very quickly and often times end up worse than how they started, many of them.

[UNDERWRITING]

[MUSIC: 3 Leg Torso, “B&G’s” (from Astor In Paris)]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen

Dubner.

DUBNER: So a pair of economists, Hoyt Bleakley and Joseph Ferrie, found a fascinating data

set from a fascinating moment in history — a big land lottery in Georgia in 1832. They realized

they could use this data, along with U.S. Census data, to follow families over time, comparing

lottery winners to losers, to see how this shock of sudden wealth affected those families. Did the

kids in these families acquire more “human capital,” as economists call it? Did they get more

education, and did they parley that education into even more wealth a generation or two down

the road?

BLEAKLEY: So, we see a really huge change in the wealth of the individuals, but we don’t see

any difference in human capital. We don’t see that the children are going to school more. If you

father won the lottery or lost the lottery the school attendance rates are pretty much the same, the

literacy rates are pretty much the same. As we follow those sons into adulthood, their wealth

looks the same, you know, in a statistical sense. Whether their father won the lottery or lost the

lottery their occupation looks the same. The grandchildren aren’t going to school more, the

grandchildren aren’t more literate.

DUBNER: Wow. Alright, so two questions for you. One: were you surprised? I would have

certainly assumed that the families who won the lottery and had a lot of money would have used

it to do what we think most parents should do with their kids, which is get them more education,

get them more prepared for a good career and so on. Were you surprised?

BLEAKLEY: I was surprised. I would not have expected this at all. This was a period where

people were sending their children to school to a small degree. This is a period where it looked

like poverty, at least in the cross section seemed to be an impediment to doing that, you know,

school attendance rates of the very rich versus the very poor differed by 60 percent. And yet

when you used this, you know, random wealth drop to move the very poor into the middle, it did

not move them along that path, which you observed.

DUBNER: So my next question then would be where does this money go? You’re saying that

the next generation doesn’t maintain the wealth, what happens to this wealth then? Does it just

dissipate?

BLEAKLEY: Where did it go? Well, you know, this is a period where you didn’t necessarily

have access to good retirement assets apart from the stuff you owned right around you. You

could imagine that the families that won used this for themselves, right, sent their children off to

do something else.

DUBNER: To do something else meaning what they would have done what the parents not won

the money?

BLEAKLEY: Yeah, basically.

DUBNER: Now, could it be that what you found is true for this particular setting, the agrarian

Southern U.S. in the 19th century, and for whatever reason human capital just wasn’t so valued

and wasn’t sought after.

BLEAKLEY: The question is how generic or how much does it generalize to other contexts.

And I think you’ve hit on the key thing, which is how much was human capital valued and how

much was human capital constrained. On the former question, I guess I would say it looks like

human capital was valued in the sense that people did send their children to school, people who

were literate did make more money, people who had more money did make those investments in

their children with a greater, you know, propensity. It just maybe wasn’t that the constraint was

particularly important, at least to the men who won or lost the lottery, that’s a key point, which is

that there may have been a lot of money on the table, but they just didn’t care because they

didn’t care enough about their kids.

DUBNER: But you know, it gets to a few questions, a few issues that we’re talking about a lot

these days in society, generally, income inequality and income mobility, the whole idea of the

American Dream as one could do much better a generation down the road, that our economy

affords that opportunity. What you’ve identified in one setting is where a shock of wealth didn’t

snowball and turn into a “better” life for the generation and the next generation. So I’m curious if

you can extrapolate or generalize at all to you know, the broader U.S. or maybe to the present

day from what you’ve learned. I mean, if we look at a map of the U.S. today that shows where

income mobility is high and low, the deep South including Georgia is pretty much the

headquarters of low income mobility. So is it that you’ve found an example of that or is it that

you found something larger than that, which is that wealth alone is not what turns into greater

generational wealth?

BLEAKLEY: I would make two observations, one is that we actually observe pretty strong

persistence of outcomes across generations in our sample of lottery losers, right, so think of that

as the control what it would have been absent that. And the numbers that we get from that are

actually comparable to what we get for modern estimates of persistence of wealth, of persistence

of education, literacy, etc. And so I don’t think that this is a particularly exceptional thing in the

sense that there is mobility, but there’s also persistence. And we kind of fall within the range of

that. But it still comes back to the question of whether, you know, I think is as true today as it is

then, is are the disadvantages that might be present for children that are in poor households are

they present because there’s not enough resources, there’s not enough money at the poor

household, or is it because there’s not enough of something else? Right? Maybe the resources

have to come from outside the household, be it say a good public school. Maybe the resources

have to come from the parents, but the parents don’t know how to provide it in terms of

nurturing, in terms of reading and communicating ideas to their children, etc.

DUBNER: But if we wanted to blow your research up, your research concerns a small place in

time, and a small geographical place. If we wanted to totally and irresponsibly explode it and try

to create some grand generalizations, we would say, well look, plainly the viewpoint, which

holds that giving people, giving poor people money, just giving them money doesn’t work,

because they don’t use it to produce what we, the people who give them money want them to use

it for, which is to make their lives and their children’s lives appreciably better through getting

more education and so on, right? It’d be very easy for let’s say a politician who believes in that

position to read your paper and say, hey, I’ve got a University Of Chicago and a Northwestern

economist telling me this is hardcore proof of what I’ve been saying all along. Is it?

BLEAKLEY: Well, certainly for these…If the politician were contemplating, you know, giving

wealth to these people in the 1830s, certainly that policy would be, that analysis would be right

on. As you said, there are issues about generalizing it. But let’s do the wild extrapolation. I think

you’re right to say this is not evidence that what’s missing is money at the household level, right,

because we don’t know that it would be spent on these things that we want. That doesn’t mean

that there’s nothing to be done, it’s just it doesn’t mean that money is the solution, right, or at

least money that gets given to them, to those fathers, mothers.

[MUSIC: Louis Thorne, “Mon Verrerie”]

DUBNER: It’s funny, Hoyt, because we actually had a listener write to us recently and say, you

know, I really like your show, but god it’s depressing. It’s like you take all this good news out

there, and all these good ideas, and good plans, and nice intentions and show how, you know,

people game the system, or they don’t work. Now, I disputed this a little bit. I actually think that

we’re extremely optimistic and kind of hunting always for ideas that do work well. But I’ll be

honest with you, you’ve depressed the crap out of me, Hoyt. Because you’ve taken a very basic

idea and belief, which is that poverty is addressable by a very simple intervention, which is

giving money to poor people, and you’re saying based on this evidence that’s just not a solid

argument, at least when made that narrowly, right?

BLEAKLEY: No, that’s right. There may be something that you can give to them, but money is

not that something, at least in this episode.

DUBNER: Alright, let me ask you this, not that this is going to be any less depressing, but it

might be a little more entertaining. Have you looked at all on literature on modern lotteries and

what happens to people who win them, and whether they do a better job of encouraging human

capital acquisition among their offspring?

BLEAKLEY: Oh, no if you want to be depressed you should read either the academic literature

or the journalistic accounts of lottery winners because they basically waste it, right, blow through

the money very quickly and often times end up worse than how they started, many of them. Now

it bears mentioning that what distinguishes that group from this one is that it’s a very select

group of people who go play the lottery every day at the convenience store, right? We

economists like to refer to the lottery as a tax on people who don’t understand math, because,

you know, in statistical terms it’s a negative expected value, right? You pay more in than you

expect to get back out. And that’s different from what we saw in the Georgia lotteries to allocate

land because these people, they understood expected value, because they paid 12 cents to

basically get 100 dollars of expected value. So that is a pretty clear decision. But I think it helps

understand, to some extent, our results in the sense that when you select a particular group of the

population and you either give them money or you cajole them to get more schooling by bribing

them with a cash transfer or cellphone minutes or what have you, you have to ask whether there

is some other set of characteristics that they have that makes it hard for them then to take

advantage of those opportunities. And maybe there’s an intervention that helps them better

manage those other characteristics, right, that makes it such that that’s less of a disadvantage for

them. Whereas giving them something, you say well, this was great for me, it will be great for

you, that’s perhaps not the right approach.

[MUSIC: Pearl Django, “Rhythm Oil” (from Mystery Pacific)]

DUBNER: So … did we depress you too? I hope not but I suspect that we may have. Okay, how

about this then: why don’t you send us some non-depressing ideas for future episodes. Our e-

mail is radio@freakonomics.com. And maybe we can turn your ideas into “Freakonomics Radio:

Good News Edition.” It might be the shortest podcast we’ve ever made. Or maybe – who knows

– maybe you will overwhelm us with uplifting ideas for future episodes. In which case we’ll be

the ones who won the lottery. And we promise not to blow it.

This is a transcript of the Freakonomics Radio podcast “Pontiff-icating on the Free-Market

System.”

[MUSIC: The San Andreas Fault, “Bags Unlimited” (from Encantada)]

Stephen J. DUBNER: Hey podcast listeners. We know you’re a pretty smart group of people.

But how smart? Are you smarter than a fifth grader? Of course you are. But are you smarter than

… an economics Ph.D. who’s won all kinds of gaudy economics awards? I think you are! Let me

explain. A few months ago, we asked you for the first time to go to Freakonomics.com and make

a donation to support Freakonomics Radio. And Steve Levitt — he’s my Freakonomics co-

author, the guy with the economics Ph.D. — here’s what he thought would happen:

Steven D. LEVITT: The chance that someone’s going to get done with their run, go back and

take a shower, and then log onto a computer and give you money? I think that is really close to

zero.

DUBNER: So, you think we’ll raise close to zero dollars?

LEVITT: I do, actually.

DUBNER: Well, Levitt was wrong. We raised more than zero dollars — quite a bit more, I’m

happy to say. In fact, Levitt and the people here at WNYC, our public-radio station, they were

kind of shocked by how supportive you were. So to those of you who did give — thanks! And if

you haven’t donated yet — let’s shock them some more. Just go to Freakonomics.com, hit the

donate button, and there’s still time to claim your donation on this year’s tax return. And now

you have a good New Year’s resolution too: keep proving smart people wrong. Now for today’s

program.

[THEMATIC SOUND EFFECT]

[GREGORIAN CHANT]

DUBNER: Every once in a while, the Pope issues some kind of statement reflecting the views of

the Catholic Church. Usually, it’s just the hardcore faithful who pay much attention. This time

was different…

Brian WILLIAMS: Pope Francis is getting a lot of attention tonight for the mission statement he

issued for the Catholic Church he would like to see in the future.

Lawrence KUDLOW: I just was so surprised because that language…I understand… the pope’s

job is not to proselytize about free market capitalism. Ok, I get that.

John ALLEN: The strongest language of this document called has to do with critiquing what he

calls a kind of crude and naive faith in the free market. And insisting that the Church has to be a

change agent on things like income inequality, spreading unemployment, the environment, war

and peace.

DUBNER: You may be wondering what the Pope is expecting to happen when he talks about the

miseries of the free-market system. Yeah, we were wondering that too.

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the

hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: Matthew Aguiluz, “Early Morning Tea”]

DUBNER: Today we’re talking about Pope Francis’s recent broadside against the global

economy. Our story begins with the economist Jeffrey Sachs, who remembers the very day he

found out that economics, the way it’s taught and learned in academia, represents only a sliver of

a shard of a smidgen of how economics actually happens in the real world. The year was 1985;

the place, Bolivia:

Jeffrey SACHS: I remember from the first moment, literally of getting off the airplane actually

taking a deep breath and finding no oxygen there because you’re about 13,000 feet above sea

level, that my mouth was absolutely agape and amazed, and I’ve never ceased that feeling. What

I had learned in the classroom was such a small part of what one needs to understand to be able

to apply tools of economics effectively that I’ve regarded the next 28 years as really being an

extraordinarily intensive learning curve. And I continue to feel that way. The world’s very

complicated. What we can learn from theory and from models and from econometrics is very

useful. But if it’s done divorced from practice I think it is almost inevitably, profoundly

misleading.

[MUSIC: The Diplomats Of Solid Sound, “Shadow Of Your Soul” (from Let’s Cool One)]

DUBNER: Jeff Sachs has spent his career trying to keep that marriage alive – the economic

theory and modeling that happens in universities, and the practice of economics, out in the

world. These days, he’s known as a globetrotting, poverty-fighting, economic superhero, an

adviser to the United Nations and director of the Earth Institute at Columbia University.

SACHS: I began as an academic economist joining the faculty at Harvard University in 1980.

DUBNER: He was awarded tenure at just 28. When he went to Bolivia, he was asked to help

tame that country’s hyperinflation. Really, it was hyper-hyper-hyperinflation: in one year, prices

had risen by about 20,000 percent.

SACHS: And I worked in Latin America very extensively for several years after the work in

Bolivia…

DUBNER: In 1989, he was contacted by an official in the Polish government, looking for some

economic advice.

SACHS: And I told them that I would be interested but frankly as long as my hero, the Solidarity

leader Lech Walesa, was under house arrest, I wasn’t really able to do it.

DUBNER: And you know what happens next, right?

SACHS: And he called me back a few weeks later and said well we’re making a deal with

Solidarity, things are moving, would you come? And I became Poland’s economic advisor, and

communism fell, and I was there and played some role in helping to design the transition from a

completely collapsed and defunct, centrally planned economy back to a market economy.

DUBNER: Sachs’s work in Poland became a calling card for much of the former Soviet Union,

including the mother ship, Russia…

SACHS: …working with Gorbachev and Yeltsin, and many leaders around the region on this

transition back from the failed communist era.

DUBNER: With that on his resume, Sachs was called upon to work on economic reform in India

and China…

SACHS: And then in 1995 another quite decisive turn for me was an invitation to Zambia and to

see what this experience and these lessons might mean for Africa.

[MUSIC: Color Radio, “Future Product” (from Architects)]

DUBNER: By now, the focus of his work had shifted a bit…

SACHS: I became quite engaged in the fight against AIDS and malaria and the challenge of

fighting extreme poverty.

DUBNER: The World Health Organization asked him to help scale up the fight against disease

in poor countries…

SACHS: And from that I was asked by Kofi Annan to advise him on the newly born Millennium

Development Goals.

DUBNER: And ever since, Jeff Sachs has been at the very center of the fight against global

poverty:

SACHS: And Ban Ki-moon very kindly asked me to continue in that capacity when he became

Secretary General. And so, I am, for a dozen years now, the lead adviser to the secretary general

on the fight against extreme poverty.

DUBNER: Okay, so you’re a special adviser to the U.N. on issues of poverty, and development,

and you’ve advised many heads of state on the same and on their economies, what about popes?

Have you ever sat down with popes and talked to them about these issues?

SACHS: Well, I have indeed.

DUBNER: First there was Pope John Paul II, the Polish pope. He was particularly interested in

the economic reforms that Sachs had worked on in Poland.

SACHS: And I was very, very lucky that he wanted to make an encyclical about teachings of the

economy, what’s the role of a market economy? And so this was an extraordinary experience. He

gathered a group of diverse economists of different faiths, different countries. He greeted every

one of us in our native languages. It was the most extraordinary day.

DUBNER: After offering advice for that encyclical, Sachs met the pope again, eight years later,

as part of the Jubilee Year.

SACHS: And I was part of the Jubilee Campaign to drop the debt for poor countries. And that

was a little bit different visit because that one was with Bono and Bob Geldof, and the pope, and

Quincy Jones, and then a few others, so it was a pretty interesting day in the Castel Gandolfo.

DUBNER: But if you are a person of Jeff Sachs’s intellect, and track record, and temperament,

you aren’t necessarily limited to one Pope per lifetime.

SACHS: Then recently I saw and met this new, absolutely wonderful, wondrous Pope Francis at

the Vatican last month and have been quite involved with the Pontifical Academy of Social

Sciences in recent months discussing the challenges of poverty, because this is at the core of

Pope Francis’s interests.

DUBNER: And so, when Pope Francis recently published a document calling the global

economy a “dictatorship” in which “the powerful feed upon the powerless” – well, we

we thought that Jeff Sachs would be a pretty good person to ask about it:

SACHS: First let me say I am a believer in a market economy and I would imagine Pope Francis,

too, is a believer in a market economy, but what the Church has taught is the idea that first an

economy needs a moral framework.

DUBNER: So we’re here today primarily to talk about this new document that Pope Francis has

published — technically it’s called apostolic exhortation, it’s called “Evangelii Gaudium,” or the

“Joy of the Gospel.” I guess my first question before we get into the particulars, particularly the

economic particulars, is: Were you involved in any way? You describe these earlier meetings

with Pope John Paul II to talk about economics as they would make their way into that

encyclical. Were you involved in any way in the crafting of this particular message?

SACHS: No, not in this document. But I am an avid reader of it.

DUBNER: OK, so even if you weren’t an avid reader you would have heard about it by now.

And it’s made a lot of news for a variety of reasons. There wasn’t that much in the document

about economics per se, but what there was was quite trenchant, statements about the economy,

calling unfettered capitalism “a new tyranny.” So my first question for you is this, knowing a lot

about economics, knowing a lot about poverty, knowing quite a bit about popes, too, and the way

they try to send a message like this, first of all who actually wrote this exhortation? Did Pope

Francis, do you think, write the whole thing or most of it himself? Or does he have some

economists on staff who he brings in for different parts, particularly the economic sections?

SACHS: Well, I would imagine this is his voice, because this seems very authentically his

message to the world. And much of what the pope talks about in the analysis, the preferential

option for the poor is a famed and justifiably so Church doctrine. The universal destination of

goods is another phrase that he uses, and those who have read through Church teachings as I

have over the years know these phrases and these concepts. But, of course, what Pope Francis is

bringing is something extraordinarily vivid and fresh, and his message really is that he’s infusing

the exhortation with the very spirit of going forth and being out in the community. That’s partly

the Jesuit background and it’s partly his holding Jesus’ own teachings as the most central part of

the Church’s message.

DUBNER: Let me read from you one brief passage from the exhortation about the economy.

Pope Francis writes, “Today everything comes under the laws of competition and the survival of

the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find

themselves excluded and marginalized without work, without possibilities, without any means of

escape.” So Jeff, I’m curious, is the description here from Pope Francis accurate, that the laws of

competition result in masses of people who are excluded and marginalized? Is that what causes

the majority of poverty that you’ve seen around the world?

SACHS: Well, I resonate with this for a number of reasons. In the end, while there can be

property rights and market forces, they are not sacrosanct to use an appropriate word in this

context.. They must serve a bigger purpose. And one of those purposes is that there should be the

ability of every human being to meet basic needs, and to have basic human dignity. And I think

that this is what the Church calls the preferential option for the poor. What Jesus said is he who

feeds the least among thee, feeds me. That the Church’s attention is to the most marginalized, the

most destitute, those outside. Now I’ve taught for a number of years, on the, let’s say the more

analytical side of this that there is the reality of poverty traps. And that is you can have a

functioning market economy, but for some reason pockets of that market economy in the word

can be so impoverished, so destitute, so devoid of the most basic things needed, whether it’s food

supply, freshwater, ability to fight malaria, ability to pave a road from the hinter land, that the

economy is actually trapped. And you can even see what should be done, but our capital markets

don’t work well enough, and our ability to see that there’s a way out of this doesn’t just allow for

this kind of bootstrap rising out of poverty. And so when I wrote the book, The End of Poverty,

in 2005, I use the metaphor of the ladder of development, and I said that it is often crucial to help

the poorest of the poor get onto the ladder. After you’re on the ladder of development, then you

can walk up the rungs, and market forces are very powerful, and they can carry people, help

them climb the rungs, but if you’re not even on the ladder, and there are a lot of reasons why that

might be that I emphasized over the years, many disagree with me, but I’ll keep fighting for what

I see with my own eyes and what I’ve been able to gather, that helping those that are excluded

get into a process where markets work for them and not against them is extremely important.

DUBNER: So I would argue that the view that you just expressed there is a somewhat nuanced

one. Maybe even an extremely nuanced one. And I think to most people who hear it, certainly

most people who listen to a program like this would say well yes, absolutely, that resonates, and

it makes sense, and it’s doable and all those things. I guess my question to you is this, compared

to what the pope has written about capitalism and how it can or can’t work, it was much heavier

on the can’t work part and here’s why it doesn’t work, and yes we need to reintroduce a moral

framework to capitalism. But I guess what I don’t read in it is a pragmatic means of approaching

or building said framework. So can you help us kind of sort that through? In other words what is

the pope actually calling for in terms of practical steps, in terms of less or more regulation, in

terms of more open or more regulated markets? Can you give us any kind of insight into what

that vision might be?

SACHS: I think I can. First, he makes very clear in this document, he’s not a policy maker,

policy analyst, politician. This is a spiritual text. It is not a policy framework. And I think this is

very important. What he’s really talking about here is what is just in a few lines after the ones

you quoted a phrase that I think is very powerful and very correct, the globalization of

indifference. He’s talking about the fact that we have lost even a moral sensibility of the

suffering that is around us of those who are battling extreme poverty, or hunger, or disease, or all

of them. And that what he is calling on the Church to do in going forth and entering the

community and spreading the gospel as he sees it is to break that moral indifference. Now, I was

at the Vatican just a few days ago for a very practical discussion about programmatic things,

because the church also has a huge network of clinics, hospitals, schools. It’s very much engaged

all over the world, including throughout Africa, of course, where I come into contact a lot with

Church institutions providing life-saving social services. So there are a lot of pragmatic things to

say. I discussed how information technology can be mobilized to improve healthcare delivery, to

improve education, very specific kinds of things and there was hug interest in that, not only high

abstraction. But I think what the pope is really talking about here is breaking that indifference.

And I have to say I see this very much, this indifference. It really does weigh on me very

heavily. And I’ll give you an example, Stephen, recently the Global Fund to Fight AIDS, TB,

and malaria came up for its financial replenishment, a three-year replenishment. I was one of the

architects of that global fund 12 years ago. And at the time, George Bush said look we won’t let

money stand in the way, you show that this works and the money will be there. Well, this fund

has saved millions of lives. It’s delivered. And yet when it came to the replenishment just now, it

couldn’t raise the funds for the minimum package. It was saying that it needed at a minimum to

fight these three diseases $5 billion a year. Mind you, hundreds of millions of people and their

lives are at stake. Five billion dollars we know in macroeconomics is nothing in this world, and

yet they could not raise $5 billion a year. They raised $4 billion a year. And that may not sound

so consequential, but when you’re in a village and the rapid diagnostic tests aren’t there, there’s

a medical stock out, the antiretrovirals aren’t there, this is life and death. And since I’m living in

a neighborhood where if not down the block, then a few blocks away, or a couple miles away are

billionaire hedge fund owners taking home personally paychecks of a billions dollars for the

year, the fact that we can’t come up with $5 billion for this institution from all worldwide

sources is the globalization of indifference. And the pope says the culture of prosperity deadens

us. This is what he’s really talking about.

[MUSIC: Seks Bomba, “Cal Tjader” (from Thanks and Goodnight)]

DUBNER: Coming up on Freakonomics Radio … The president of CREDO – that’s the

Catholic Research Economic Discussion Organization – isn’t quite so sour on the global

economy:

Joseph KABOSKI: …More people have escaped extreme poverty in the past 25 years in part

through the growth of China and India than in any period of human history…

DUBNER: And Jeff Sachs talks about what it’s like to be a moralist in economist’s clothing:

DUBNER: Do your economist peers, especially from the old days, consider you something of a

heretic in taking morality so seriously?

SACHS: I think so.

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen

Dubner.

[MUSIC: Spencer Garn, “Living In Harmony”]

DUBNER: Pope Francis recently published an apostolic exhortation called “Evangelii

Gaudium,” describing the role of the Catholic Church in the modern world. He was particularly

critical of income inequality, calling unfettered capitalism “a new tyranny.” Not everyone agreed

with the Pope. Rush Limbaugh, for instance …

RUSH LIMBAUGH: I gotta be very careful. I have been numerous times to the Vatican. It

wouldn’t exist without tons of money. But regardless, what this is, somebody has either written

this for him or gotten to him. This is just pure Marxism coming out of the mouth of the pope.

There’s no such…unfettered capitalism? That doesn’t exist anywhere. Unfettered capitalism is

a liberal socialist phrase to describe the United States.

KABOSKI: Sure, I mean, the first thing is Pope Francis is wholeheartedly not a Marxist.

DUBNER: That’s Joe Kaboski. He’s an economics professor at Notre Dame.

KABOSKI: Yeah. I’m a cradle Catholic. I’ve been Catholic my whole life. I’m a daily

communicant, so I mean, Catholicism is central to my life.

DUBNER: Kaboski does research on development and growth around the world.

KABOSKI: And I’m also the president of CREDO, which is Catholic Research Economist

Discussion Organization, which is a professional society. I want to emphasize again that also for

the Rush Limbaugh crowd is that you don’t want to read this as an economic document. And in

fact there’s many places in the document where the pope has said, I’ve gone into a great level of

detail because I want you to think about how these things concern the practical implications for

the Church’s mission. That’s what he’s about, thinking about the practical implications for the

Church’s mission. And the economy is not completely separate from that. But that’s not what

he’s talking about.

DUBNER: All right, so we all agree that the Pope isn’t writing an economic prescription – but

what is he saying about the economy?

KABOSKI: You know I think, so…the pope has a point on a number of fronts. And you know,

markets aren’t perfect, and ethics are important. I think that’s one of the things he’s trying to say.

And as just an example of that, I have an immigrant friend who went to buy a car and had, you

know, he doesn’t speak English, has no information, and the person ended up charging her twice

what the car was worth. There’s an ethical thing, that’s ethically wrong for someone to take

advantage of your misinformation. So ethics are important in markets. You know, finance

obviously is not perfect. Globalization itself isn’t perfect. You know, I do work in Kenya.

There’s a town called Malindi. If you go to Malindi, there’s a lot of people from the West, from

Italy who are working for NGOs, missionaries, doing all sorts of work to help the people of

Malindi, and there’s another segment of people from the exact same countries that are coming

for basically child sex trade. Child sex is a market. You know, that’s an impact of globalization

that’s not entirely positive. So I think the pope has some important things, the idea that growth

doesn’t cure everything. But on the other hand, we’ve never seen an example of any country that

has escaped extreme poverty because of foreign aid or NGOs. And more people have escaped

extreme poverty in the past 25 years in part through the growth of China and India than in any

period of human history. And all of these miracle countries, miracle in the economic sense,

China, South Korea, Taiwan, Hong Kong, Singapore, you know, Chile down in Latin America,

they’ve all grown through high levels of trade, market economies. And that’s important. The

importance of a market economy you can see no better than South Korea and North Korea. I

mean, North Korea people are starving to death and dire poverty. And South Korea is basically a

high income country at this point, and it’s because of 40 years of intense growth versus opposed

to 40 years of stagnation or even going down.

[MUSIC: Ed Hartman, “Two Guitars”]

DUBNER: As much as Joe Kaboski and Jeff Sachs insist that the Pope’s “Evangelii Gaudium” is

not an economic treatise – well, here we are, talking about the economics of it. And so are a lot

of other people. What will all those conversations produce? Many millions of people, if not

billions, have become disillusioned with capitalism in recent years; will the Pope’s words tilt that

disillusion into something more productive? Here’s Jeff Sachs again:

SACHS: The dynamics of society are indeed extraordinarily rich and complex. And we know

that material forces, the forces of the market if you will, of technology drive a lot of change. We

know that politics, which means how power is organized and used has huge effects. And we also

know that beliefs and ideas and moral principles can also have very powerful effects, but which

ones work and in which ways is a very difficult thing to know and to guess. And, of course, it

was Stalin who famously sniffed at the pope well how many divisions does he have? And the

pope’s institution outlasted Stalin’s institution. And it turns out that ideas can matter a lot. And I

do think that there is some hope, and I regard it as more than a passing need for a kind of new

awareness. And I say this not only because of the problems of wealth and poverty by the way,

but because I believe that at least as large, an existential crisis is unfolding with the physical

environment. We also have a globalization of indifference over climate change. We have lots of

deniers, we have lots of skeptics. But I believe that the science is as strong as can be to tell us

that we’re, as a species, we’re moving in a reckless and largely uncharted and very dangerous

direction for our planet. And one needs to break through there as well. And while this

exhortation does not discuss the environment at length, it does talk about protecting God’s

creation and our moral mandate and practical need to do it. So I think the stakes are quite high.

DUBNER: Jeff, let me ask you about the environment, because it’s an interesting point. He does

write, “The thirst for power and possessions knows no limits in this system, which tends to

devour everything which stands in the way of increased profits. Whatever is fragile, like the

environment, is defenseless before the interests of a deified market, which become the only

rule.” So he is talking about economic concepts here, externalities and market failures, and I’d be

curious to know how you see these kind of problems, again wearing the hat of both an economist

and a humanitarian and almost a philosopher of poverty by this point. I’d love you to talk to me

about the optimal balance, not just on the environmental point, but on the whole economic point.

I think that’s what’s really challenging for people is how to get their head around this.

SACHS: Well let me mention just an example, it may sound like a digression, but I think it’s

relevant. I worked in Poland and in Russia after the communist system collapsed. One of the

things that was extremely powerful in Poland was the fact that the Catholic Church was there

almost as a guardian of the society and of some decency, and standards, and while the Church

was not engaged in the reforms in any way in particular, and on specifics, probably was not too

enthusiastic about some of the market liberalization and so forth, the fact of the matter is it gave

a context to the government and to the society that really held in check massive corruption, that

helped the Polish people to hold together through a very difficult period, and help Poland come

out as a great success story, rapid economic growth, rapid improvements of living standards, and

a fully functioning democracy. In Russia I felt very strongly that, the Russian Orthodox Church

had of course been suborned by the Communist Party, all civil society had been crushed, there

were not organized institutions that could discipline the government and say, “Come on, hold

back on that mega corruption.” And I watched the difference close up. It was very subtle, very

complicated, but I believe that the moral framework that Poland found itself in, not explicitly,

but as part of its history, as part of its culture, as part of the role of the Church and its

institutions, played a very important role in helping Poland through the crisis. And the fact that

the Communist Party in Russia and the Soviet Union and its brutality had they’d basically

slaughtered civil society and brought the Church under state control with all that that entailed,

meant that you didn’t have that kind of moral framework that could help to stop what eventually

became an orgy of corruption. So this is a very perhaps a general, I hope not an esoteric point,

but that’s why I’m a believer in these things, that all of this matters and that reminding ourselves,

and especially hearing it from a pope, that there needs to be a moral framework, that our

indifference, our brazenness, our hard-heartedness, is no favor to ourselves or to the functioning

of our societies, can be extremely powerful in opening eyes and making people rethink.

DUBNER: It’s so interesting, you know, if you look at the history of economics itself you see

that there used to be a lot of moral sentiment, literally from Adam Smith, in thinking about what

economics was, or how economics works. These days, however, economics and economists are

not known for trafficking in moral statements or moral judgments as you put it. Often the moral

view is considered kind of naive or passé. I’m curious, do your economist peers, especially from

the old days, consider you something of a heretic in taking morality so seriously?

SACHS: I think so. And I do feel that this is a very, very real issue. I find it absolutely necessary

for the orientation that I take as what this whole field is about and how I view my own attempts

to practice it as inevitably requiring that moral framework anyway. But I think that once you

have that perspective and I must throw in an Aristotelian idea that happiness means also that our

institutions comport with our deep human nature, including our human nature as social animals.

To my mind it brings it back full turn that we need the morality not only to know what we’re

doing but for our institutions to have a chance at delivering things that humanity wants. And as

the pope talks about in this exhortation sometimes these days even the ideas of moral sentiments

are viewed with derision or scorn. That is true and incredibly dangerous. He says here that,

“Ethics has come to be viewed with a certain scornful derision. It seems as counterproductive,

too human…” and so forth. And this I think one could say, I’ll say it both analytically and

normatively and prescriptively, if we view ethics in that way as silly, a nuisance, a hindrance,

we’re going to get everything wrong.

[MUSIC: Laura Ault, “The Greatest Thing” (from The Greatest Thing)]

DUBNER: It’s easy to be skeptical, even cynical, when you hear the leader of the Catholic

Church describe the global economy as exclusive and exploitive and too rich for its own good –

because those are the very criticisms that could have been levied against the Church itself for

quite a few centuries. Even today, the Vatican is hardly a shining example of financial rectitude.

So if you wanted to, you could dismiss the Pope’s message here as a pot-calling-the-kettle-black

situation, or just a statement of moral platitudes. You could also accuse him of throwing out the

baby with the bathwater – highlighting the obvious failures of a free-market system while failing

to highlight the perhaps even more obvious victories. But those are easy outs. It’s harder – and, I

would argue, much more admirable – to go for the balancing act, to figure out how to keep the

baby and clean up the bathwater. It strikes me that that’s what Jeff Sachs is going for. He doesn’t

sound like most of the economists we talk to on this program – really, he doesn’t sound much

like anybody. What struck me most is his ability to be the ultimate non-extremist. Most

conversations these days, especially in the political sphere, tend to take one side and ride it hard,

wiping out all nuance, refusing to acknowledge any strength in an opponent’s argument. But Jeff

Sachs argues for the power of the market and the power of morality. A voice like his probably

shouldn’t be so rare – but it is. In the new year, here’s hoping for more.