Intro. [Recording date: September 29, 2025.]
Russ Roberts: Today is September 29th, 2025, and my guest is author, podcaster, journalist Stephen Dubner. He is the author, with economist Steven Levitt, of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, which is now coming out with a 20th-anniversary edition; and he is the host of the podcast Freakonomics Radio. Stephen, welcome to EconTalk.
Stephen Dubner: Thank you, Russ. Very happy to be here.
1:01
Russ Roberts: Twenty years. Twentieth-anniversary edition. That’s a very long time. This book changed your life. Talk about that experience and how it started. It started with a magazine article, and–
Stephen Dubner: Yeah. I mean, to jump to the end, it’s been a remarkable experience. I had worked at The New York Times for several years as an editor. Now, I was off on my own as a writer. This was going to be my third book; and my editor at the time, his name was Hugo Lindgren, asked me to write this profile–this guy, Steve Levitt, at Chicago. I knew Levitt’s name only because he had written, by that point, a famous paper with John Donahue, a legal scholar, about the relationship between the legalization of abortion in the United States and the crime rate, arguing that crime ultimately fell, in some large part, because of the legalization of abortion, which led to fewer unwanted children. So this is a big theory and idea that Freakonomics has become known for, because we included it in that book.
I actually turned down the assignment a couple of times because Levitt was not the–I called Levitt, I chatted with him a bit, and I told him, ‘I’m working on this book about the psychology of money.’ And, he says, ‘Oh, God, I know nothing about that. Nothing.’ He said, ‘I don’t know anything about money. I don’t know anything about behavioral economics,’ which was true at the time. Levitt–I think he probably knew Thaler, but they’d never done really much together.
But then, I was going to be in Chicago for something else, a totally different reason–to give a talk on a different book I’d written. And I thought, ‘Let me read some more of Levitt’s papers just to see what he’s all about.’ And I started to read them. I’m like, ‘Oh, my gosh. This guy is so interesting.’ What I was really struck by was that he approached his lane within econ–a kind of applied microeconomist–in a way and with a passion and with a sense of adventure and fun that I tried to approach my lane within nonfiction writing.
He did what he wanted to do. He didn’t follow the crowd. I thought he was a real creative thinker. And so, I went out, and I spent–he tells a story. I think he’s exaggerating a little bit. He said that I asked him for an hour or two for an interview, which–I don’t know–maybe I did in the beginning, but I ended up staying for several days. And that is true. And I remember calling my wife from the hotel after the first day I spent with Levitt, and I said, ‘I have no idea if anyone is going to care at all about this article that I’m writing on this guy, but I am just having such a good time. He’s got an interesting brain. I ask a question that I think I sort of know where he’s going to go with it, then he goes somewhere totally different.’
And also, for me, this was a big deal. I liked economics. I liked economists. I’d read a lot of economics by this point, but as an amateur, as a journalist. I’d also read a lot of psychology, and sociology, and anthropology. That doesn’t make me an anthropologist or a sociologist, and I certainly wasn’t anything like an economist. But Levitt, from day one, really became a teacher for me. The way that he explained a concept, the way you take that concept into a certain data set, the way you try to identify the incentives that might be at play, the way you then look to the data to either support or do not support or refute the reality of those incentives–it was like getting a master class.
After the article came out, there was a lot of interest from a variety of publishers for a book of some kind. People were calling Levitt, asking him to write a book, and he would tell them, ‘Have you ever read my academic papers? You do not want me writing a book.’ People were calling me to write a book because I’m the writer, and I said, ‘Well, I don’t want to write a book about a guy that I just wrote an article about, as interesting as he is, and I’ve got this other book I’m going on.’ Actually, Levitt called me and said–we weren’t buddies at all. We weren’t antagonistic at all, but I was a journalist; he was a subject. But then, he called and said, ‘These people are asking me to write a book. I don’t know what to do.’ I said, ‘Well, if you want to write a book, you need to get an agent to field the requests and figure out who is good, who is bad, what they want, what you want to do.’
He said, ‘Well, do you know an agent?’ I said, ‘Yeah, I have the best agent in the world: Suzanne Gluck with William Morris.’ He said, ‘Well, can you connect me?’ So, I connected them. They talked, they liked each other. And then Suzanne–I mean, the reason I like this story is it shows how many of the things that we think we know–how they got to be that way–didn’t get to be the way we think. If Suzanne Gluck hadn’t had that call, there would have been no Freakonomics, because she said, ‘Why don’t the two of you do this together?’ And I thought, ‘Well, that’s crazy,’ because he was a subject I was writing about as a journalist. But, there was no conflict of interest. It wasn’t like I wrote about him hoping to get a book. Levitt thought, ‘Well, I don’t really know if I like Dubner that much. He’s kind of a pain in the neck. He’s a journalist asking all these questions.’
But then, we started to just talk and hang out, and it was a blast.
And that began–we began to hatch out a plan for: If we were going to write a book, what would it be? Honestly, we approached it with a sense of marrying two strong nonfiction realms–journalism and academic research. So, we’re coming at this from a kind of shared background of: facts matter, fact-checking matters, and so on. But, we also wanted to tell interesting stories based primarily on the research that Levitt had done.
So, we wrote it. It was really fun to write it. We didn’t have great expectations, even though we knew that there was some expectation. And then, when it came out, it just did, like, stupidly well. All good things kept happening over and over again, and we just marveled at it. And so, twenty years later, it kind of went by in a blur. I think we both tried to take advantage of the advantage that we got and keep doing good work, and that’s where we are now.
7:10
Russ Roberts: Well, I’m sure many of my listeners have read the book, but I’m going to make a confession, which is that I never read the book until the last few days.
Stephen Dubner: Okay. How was it? I’m curious to know–
Russ Roberts: I’m going to tell you–
Stephen Dubner: because you’ve read it now much more recently than I have.
Russ Roberts: And, I’ve read it more carefully than you[?], probably. If you’re like me, it’s sometimes hard to go back to books.
I knew the book, of course, from much of its research, and I have to confess–a second confession–I was jealous of how successful this book was, because I would have liked to have written a book like this that popularized economics.
And I didn’t like some of the findings of the book, which were constantly being told to me by young people at cocktail parties who would say–because I’m an economist–‘I just read this great book on economics.’ I’d say, ‘Oh, really? What is it?’ ‘Freakonomics.’ And I’d say, ‘Hmm.’ And then, they’d tell me something from the book, and I’d say, ‘Well, I don’t think that’s true’; and I still think some of it’s not true. We’ll talk about that during the conversation.
Stephen Dubner: I’d love to field those questions, because I–
Russ Roberts: Well, we’ll talk about it, but here’s the, to me, more interesting part, which is that–and I think every author of a nonfiction book can relate to this: Their enthusiasm was the enthusiasm of the convert. Most of these people had never read economics. They didn’t know much about it. They’d been given this book, and it opened their eyes, and so they were enthusiastic about it, which was reasonable.
But, you helped spawn–I don’t know if you were early or middle in this phenomenon–but you helped spawn a phenomenon I really don’t care much for, which is the, ‘I’m going to tell you a bunch of things about the world and about life, and it’s based on science. I’m going to quote all these research studies.’
And, when I read those books, there’s a little secret, which is: A lot of that science isn’t true. That study was refuted; that study wasn’t reliable; that study was–etc., etc. And, that genre, particularly in the area of psychology, is run amok in my view.
But, here’s the funny thing. So, I’ve always held that against your book. But, your book isn’t like that. Your book is so much better than that. I’m going to pay you and Steven a compliment that I think you’ll both appreciate, which is that reading this book reminded me a little bit of reading The Economics of Discrimination by Gary Becker.
Stephen Dubner: Hmm. Yeah.
Russ Roberts: We’ve talked about that book on this program before. The reason I love that book is that it’s not pat. It’s not: ‘Here’s how it is.’ It’s: ‘Well, this is really complicated. Here are some of the things I found, some of which might be true, some of them might not be true.’
There’s a huge amount of nuance in Freakonomics that I was unprepared for when I read it in book form, as opposed, say, to the research version that Steven Levitt published. And I remind listeners: I have an interview with Steve Levitt that goes into some of these issues and other things as well from a while back.
But my point is, is that, unlike the standard book that leans on social science research to shock you and to tell all these cool things you can repeat to people–like legalization of abortion reduces the amount of crime, or parenting is more complicated than you think and maybe it doesn’t matter–there’s an enormous amount of thinking out loud in the book of other possibilities, of why this result or this conclusion might be more complicated than it might appear at first. And in that sense, it’s a fantastic introduction to economic analytical thinking of an applied economist.
And, it’s really quite shocking to read it 20 years later, because it is not the way books like that read anymore. Nobody would write a book like this.
It’s also very often, quote, “politically incorrect.” You entertain ideas and hypotheses that people are uncomfortable hearing, and you say so, and you say, ‘Well, it’s the way it is. There’s an idea.’ In that sense, it’s very much like the Faculty Lounge at the University of Chicago, where nothing was off-limits. People were allowed to speculate about anything and any application of economics.
So in that sense, I think the book is really quite wonderful. I don’t know if that rings true with your own personal experience as the author, but it very much is pulling the curtain back on how good empirical work is done, how good thinking is done, and our appreciation for complexity. Even though I don’t agree with all of it. So, that’s okay.
Stephen Dubner: Yeah. So, first of all, I very much appreciate your saying that. I obviously agree. I think when anything becomes popular, there’s a legitimate movement almost always to challenge it, whether this is a political movement, a pop culture thing, whatever. That’s just, I think, the nature of humankind almost–especially if it’s coming from within your realm.
The reason the book is written the way it is, is, I believe, because of something I mentioned earlier, which is that Levitt and I were coming from two different traditions where we both really valued open thinking, research, facts, fact-checking, etc., etc.
One of the things about your field–about academic economics–that I really loved when I first started reading econ papers was that, unlike research papers in the other social sciences–psychology, certainly, sociology, anthropology, etc.–they’re all a little bit different. Every discipline has its idiom and its traditions. But, the econ papers, especially the ones written for the better journals, had often a template that I found really attractive, which is: Here is the thesis or argument that this paper is about to make. I’m going to describe the data, the methodology, the challenges, the findings, etc. But, before I tell you why I’m pretty sure that the evidence I’m offering in favor of my thesis is the most compelling set of evidence that would confirm this thesis, let me try to come up with some other possible explanations.
This is what economists do much more often than the other social scientists, in my experience at least. I’m not going to say that I’m 100% authoritative on that, because I’m not a historian of academia, but that’s the way I see things, having read a lot of papers in all these realms.
To me, it feels a little bit more like some of the hard sciences. It’s why I often really enjoy speaking with physicists the same way that I enjoy speaking with economists, because some economists–just like some physicists–are really good at looking at a complex dynamic system, a lot of inputs and a bunch of outputs, and figuring out what the heck is causing what. And that can be a very difficult thing to do, especially in modern society.
15:00
Russ Roberts: Yeah. It’s really an exercise in–the technical term is multivariate analysis, and that’s usually a set of statistical techniques, but it’s also just a way of thinking. I remember when the financial crisis happened and people would put forward explanations–including myself–and someone would say, after a beautiful just-so story, ‘But, it also happened in England. I don’t think England had that.’ And, people would go, ‘Oh, crap. Now what?’
Stephen Dubner: That’s right.
Russ Roberts: But, that’s the kind of thoughtful question that economists ask–and thoughtful people. You don’t have to be an economist to ask that kind of question. But, we get schooled in exactly what you said–thesis, test, worry about alternatives.
And in the academic literature, the caveats about the unreliability or uncertainty of the analysis usually are prominently mentioned. But, when the public book gets written that summarizes it, or that gets written for the press, a lot of those caveats get left behind. And I appreciate that many of the caveats are in the book.
Stephen Dubner: Yeah. I think there are a couple of reasons for that. One is: I love journalism, but I think journalism is highly flawed. You know, I was at The New York Times for a bunch of years. There were a lot of great journalists there. There were a bunch of not-great journalists there as well. I had an incredibly instructive period there because my job was–I was an editor at the Sunday Magazine, which meant that I would assign articles to writers, some of whom weren’t Times employees, many of whom were freelancers. Sometimes an assignment that had been assigned elsewhere would come across my desk, and I would be the editor of that, and then I would work with that piece and that writer to get it publishable.
Some of the biggest names in journalism, I would get their raw manuscripts, and I’m like–not that this isn’t very good–although there was a lot of that–it was that this is not very well-reasoned.
I always thought that, to be a good journalist, you need to be at least pretty good at three major areas: research or reporting–you’ve got to find information, material, data, whatever it is.
Then there’s the thinking. That means being a good critical thinker. This dramatic event happened once. How anomalous is it? Well, let’s give it a sense of magnitude. Let’s give it a time series, etc., etc. So, there’s that ability to critically think.
And then, there’s the writing. Very few people, in my experience, are really good at all three of those, and the ones that are are pretty well known for success. But, I think that there’s a lot of journalism that is committed with good intention that is missing at least one of those three.
But, I had a lot of other advantages here. I had a colleague–a co-writer–who was really good at teaching me the nuances to make with these arguments. So for instance, I don’t know how long the section is in the book. It’s probably only, I don’t know, half a page, one page–you might remember–but we decided to–as we’re explaining, I think we’re explaining the degree to which the different things that parents do affect the outcome of their children. And at one point, we’re discussing a bunch of factors having to do with the number of books in the home, visits to cultural institutions, etc., etc., etc. We’re trying to describe how you can persuade yourself that these measurements are accurate, or at least useful. And so, Levitt kept saying, ‘Well, you know–.’ I’d say to him, ‘How do you do that?’ He’d say, ‘Well, we use a regression analysis.’ ‘Okay, what’s a regression analysis?’
And so, Levitt then–I remember having this conversation with him on the phone because he was in Chicago, I was in New York. We talked for hours and hours and hours of him describing exactly how an economist like him or you would use regression analysis to take a set of data–like this set of data that he had, which I think, in this case, was from the National Childhood Learning–NCLS?–
Russ Roberts: ELCS.
Stephen Dubner: ELCS. What does that stand for?
Russ Roberts: You tell me. It’s Education Learning Center for Statistics [ELCS], or something. It’s a big data set.
Stephen Dubner: Yeah, so that’s what I’m saying. Levitt and I would just–it was as if I was a relatively bright, maybe high school sophomore who liked the idea of economics but had never studied it formally. And Levitt, during the course of the book, we basically had an econ masterclass that was built around not just me learning the concepts, but built around using those concepts to explain, to write, to use good rhetoric, to flesh out the research that he had done, and do it in a way that would persuade the listener that what we’re describing is probably mostly accurate, while, as you said, trying to caveat it as much as we can. And also showing our homework as often as we can. [More to come, 20:23]
Levitt wrote a paper called something like–it was something about the overall crime drop in the United States that happened in the 1980s and 1990s, and his paper was called something like “Four Factors that Influenced the Crime Drop and Seven that Did Not,” or something like that.
Russ Roberts: There’s a bunch of those.
Stephen Dubner: In the book, we then go through the four and the seven, or whatever the number was; and we explain why it is that, while one might like to believe that, for instance, capital punishment is a huge deterrent against future criminals, the way that capital punishment has historically been carried out in this country, it doesn’t act as a deterrent at all, and the data for that were pretty clear. So, yeah, show the homework, communicate clearly, be extremely transparent and honest with the reader. Those were really the hallmarks of how we were trying to write this book.
21:14
Russ Roberts: Now, you’ve been podcasting for roughly 15 years. I’ve been podcasting for 20. You have a better voice than I do. I have a face for radio, but you have a–I won’t speak about your face. You have a voice for radio. You have a very nice voice. How many episodes have you done, and how has that changed you? What have you learned from the opportunity? You went from–some kind of high school sophomore–you’ve now got at least a Masters in Economics, so how has that experience affected you?
Stephen Dubner: I mean, it’s been the experience of a lifetime. I thought of myself as a writer and as a journalist from the time I was old enough to walk. Literally, we had a family newspaper. I was the youngest of eight kids, so it was very hard to get a piece in the family newspaper. My dad was a newspaper man. My mom was actually a better writer than my dad, but she was a full-time mom with eight kids, and she was kind of a farm woman, pioneer hero. My mother was absolutely amazing, a total role model for me.
My dad died when I was a kid, so my mom was the strength of that family. Writing was just a big part of what I did and how I thought of myself. And then started a high school newspaper, wrote for the college newspaper, etc.
Then I got waylaid a little bit. I did music. I’d also always done music, and my first career really was playing in music. I got in a band. We were bad at first. We got better, we kept going, we got a record deal. Moved to New York, and then I decided that I did not want that life after all. We were on the rock star path, and I decided that was not a healthy pursuit for me.
Then I got back into writing, went to grad school for writing. What Freakonomics Radio has been for me is simply a way to, as a writer, have my own project every week where there’s an idea, there’s research, there’s finding the right voices to discuss the research; then there’s interviewing, often, several people. This is all done with the help of a lot of producers that we have on the show. Not a lot, but a small team of great producers that we have on the show.
We interview usually three, four, five people per episode. Then we have a lot of tape; then we take that tape and treat it the way that an economist would treat a big data set. You have to figure out what’s most valuable, what’s most representative, what’s most interesting, etc. Then you put together a script and write narration around it. It’s basically like writing a big magazine piece, or maybe a book chapter, every week.
And it’s exhausting. I wouldn’t recommend it to anyone. You have to be totally bonkers–and bonkers for it–to do it; but I am bonkers for it. I love the learning. I love the community. I love speaking with people who’ve dedicated years of their lives to research and thinking about these, often arcane, but interesting areas.
And then, I love our community of listeners. Every time we do any kind of call-out for information–for instance, we put out a call-out recently. We’re working on an episode about what’s called the doctor shortage–the physician shortage in the United States. Which is a really complicated topic, much more than you’d think. We just put out a call-out. We’d already interviewed a few people. We just wanted a little bit more tape. We wanted to hear from physicians themselves, whatever their experiences were–on the front end, on the back end, medical school, whatever. And we just got, in the last couple of days, this flood of emails–probably, I don’t know, 100, 200 emails–from the most interesting, passionate, well-intentioned people who are so thoughtful about things that go well beyond their daily life of practice.
That is a community that we have built over the years by being credible, by being curious, by being not a jerk. I think just not being a jerk will get you far in journalism, because I think a lot of people you interview, their view of journalism is that someone here is out to get me, out to prove me wrong.
I ask a lot of questions of people, like, ‘I don’t understand how you come to this conclusion. Can you share with me your evidence?’ And, if they give me the evidence and the evidence seems to me to not be very substantial, I’ll say, ‘That evidence doesn’t seem very substantial. How do you know that your finding is right versus what could be another explanation?’ I feel that people who are smart and honest are really good at answering those questions. And, if they’re not, then they’re usually either not that smart or not that honest; or, they’re selling something. A lot of people are selling things. I’m not much of–I don’t go for that, so I try to avoid that.
Russ Roberts: Yeah. You get those emails–you want to just read them out loud. Have that be the episode. It’s a lot. It’s two hundred. So, it’s kind of awkward, and it’s not that interesting to the average person. But–
Stephen Dubner: Well, even worse, though, we asked–I shouldn’t say worse. Better. We asked for voice memos, so it’s emails with voice, so it’s a lot of material to sort through.
Russ Roberts: Yeah. Well, that’s why you have a staff.
26:37
Russ Roberts: Anything important that you’ve changed your mind about over the last 20 years?
Stephen Dubner: Oh. Yeah. I think a lot of things. They’re probably not binary changes. It’s not like I used to believe in Santa Claus, and now I didn’t. Unfortunately, there aren’t that many binary switches. I wish there were. It would make life simpler.
I’ve come to really, really, really think hard about what the best form of–not just government, but the best form of an economy is. I think we’ve all done a lot of thinking on that in the last 10, 12, 15 years. I think we’re at a real–I know the phrase ‘inflection point’ is overused, and I think it means almost nothing to anybody anymore. But, it feels like we’re at a point where enough people are now questioning what the right kind of an economic/political system is, for a lot of people to feel that we’re on really shaky ground.
The first, I would say, five to eight years of my fellowship with Steve Levitt and the other economists around the University of Chicago, it was very easy to subscribe to a certain form of late-period Milton Friedman, Free to Choose ideology, about which I still think there’s a great, great, great deal of value. I would also argue that I think Milton Friedman is quite widely misquoted, misunderstood by his opponents.
But, I think the levels of inequality–it’s not just the levels of inequality. It’s the way in which wealth is being created in the U.S. economy in particular, that is so heightened and so siloed off from the way that the rest of the people who participate in the economy is going. I think that’s a topic that needs a lot of examination, a lot of sunlight.
We’ve done quite a few episodes over the years, and we’ll continue to do, on one avenue of that idea, which is the role of private equity. And when you look at private equity firms–which are made up of people, often very nice people; and I know many of these people, I’m friends with them–and they’re taking in money from investors–who are also very often nice people, well-intentioned people, many of them institutional investors who represent universities, hospitals, and pension funds, all of whom are well-intentioned, all of whom believe in all the good things that a good society has–I do feel that when that amount of money gets rolled up and starts to be applied to all sorts of businesses that, in the past, were smaller scale.
So we’re seeing private equity rolling up. We’ve done episodes on pet care, pet healthcare. You see the roll-ups in pawn shops, car washes, all sorts of human health services–dentists, and doctor’s offices–and so on, and so on. The evidence from people like–I want to say Josh Lerner, who I want to say is MIT [Massachusetts Institute of Technology], but maybe Harvard, maybe MIT–
Russ Roberts: I think he’s MIT.
Stephen Dubner: Yeah. So, the evidence from Josh is kind of mixed on the outcomes for both customers of these firms, employees of these firms. For shareholders, it tends to be good. But, a lot of the more-reported and anecdotal evidence is much worse for customers and employees.
I would say, as a consumer myself, my experience is that when you’re dealing with a firm that you’ve dealt with for a long time, and all of a sudden they start sending 20 emails instead of one, and none of the 20 makes sense, and they’ve all got a legal disclaimer that long at the end that has nothing to do with everything, and you can’t actually figure out what they’re asking you to do; and they’re asking you to do something that they used to do–they’re asking you now to do your own paperwork and applications and security. Take care of your own security hygiene, and so on. This is what it looks like when firms that used to be run pretty well but were more mom-and-pop, are now being ramped up and run by a more distant corporate being.
So, I think we’ve all had that experience. And that is just a shard of the mountain of, I think, the direction that the economy has been heading in, because scale really matters to investors.
So, I think there are a lot of potential downsides of that. I think there are also potential upsides, too. My private-equity investor friends will tell me that they often come into these sectors or firms that no one else wants, and then they turn them ’round and make them better for consumers and employees. And, I know that is true in some cases. But I’ve really–that’s been a big awakening for me.
31:17
Russ Roberts: So, it’s an interesting example of what some people decry as the failure of economics to match the reality of modern life. It’s usually talked about with the tech sector. The tech sector, they’ll say: economics doesn’t apply–the standard intuition about costs, or fill in the blank.
But, what’s interesting about private equity, and your example about industries being rolled up, I still–we change slowly, culturally. Cultural change is very slow. And one of the challenges I think we have in the West, generally, these days, is the speed of change and the difficulty we have in thinking about it in different ways, because we’re stuck in older paradigms.
And, so much of what I think we have in mind when we think about economies or businesses is: they’re businesses; they make stuff, or they sell stuff. And, it’s more complicated than that. And, it’s interesting that we haven’t really developed a paradigm, or easy way for everyday people to think about this.
The role of finance, generally, in modern life is decried by many, many people. It’s a cheap target. It’s an easy target. And, my natural contrarian reaction is to say: It’s kind of common, this role of finance you’re talking about, so it must have some benefits. And, I find it hard to believe that they all accrue to the handful of people that you’re demonizing. And, I don’t mean to suggest that that’s what you just did, because you put those caveats.
But, I think it’s just interesting how most of us don’t have a vocabulary and way of thinking about it clearly, the way we do, say, when a factory expands. Yeah; it’s got to buy more of this, and it hires more workers. It might have to build a second location. Private equity finance, so-called FinTech–most people just–it goes right over their heads.
And, it’s an interesting thing that it’s so hard to create a cultural way of thinking about that’s thoughtful. It’s really easy to think about a cultural way to think about that’s not thoughtful. And, there’s a lot of that in that conversation.
But, it’s an interesting time. And, America–people decry the loss of manufacturing; we don’t make stuff anymore. I think that’s a very complicated issue and question. But, the role of finance, I think, is just too hard for most of us. And, I think it would be useful to clarify it a little bit. And, it hasn’t happened much.
Stephen Dubner: I agree. I agree. This is a topic that I found myself exploring over and over and over again on Freakonomics Radio, for the very reasons that you said. I think it’s wildly naive for anyone to be a kind of economic anarchist these days while enjoying things like air conditioning and mobile transportation and mobile technology. I think most people understand how hypocritical that is–to say, ‘No, no, no, I don’t like finance, capitalism, etc.’ while most of the tools that I’m using to try to assail it were created by entrepreneurs, inventors, funders, etc., etc. So, let me declare that as a foundation.
It’s why I find–this is going to sound like an oxymoron, perhaps–but I seek out what I would consider representative edge cases. So, what I mean by that is: after I’d done a few pieces about what private equity investment will typically do in a sector like pet healthcare–we did, I think, a two-part series on that where we talked to all different sorts of people from the industry, on all sides of it, and users, and so on. And, by having good, deep conversations with people in their area of expertise, you learn a lot of interesting stuff.
So, for instance, I learned that one of the big reasons that pet veterinary shops, let’s say–whether it’s a surgery shop or a general pet care shop–why they’re so, let’s say, susceptible to a private equity takeover is because they were usually founded by one or two or maybe three vets–whatever–20, 30, 40 years ago. They built a practice; it’s a successful practice. They put their entire lives into it, and now they sure would like to retire and get the benefit. They’d like to sell the business, and the business is worth a lot. They’ve got a reputation, they’ve got clientele, they’ve got institutional knowledge, and so on. So, who do they sell to? Well, what typically would happen in most businesses in the past is the next generation of owner would come from the firm.
So, who are the vets who are now, let’s say, between–and becoming a vet, it’s a very complicated, long, and expensive process. As it should be. Medicine is complicated. And so, you’re dealing with veterinarians who may be between, let’s say, early 30s and late 40s. Well, guess what? They don’t have the money to buy the practice because the world has gotten more expensive to live in. Veterinary school has gotten much more expensive, and a lot of them are still working off their vet school debt.
So, what do you do? Who is the next buyer? Well, the next buyer in that case–the best eligible buyer–is going to be, let’s say, a private equity investor who comes in and says, ‘I like what you do. I like the people you’ve got lined up to take over next. I’m going to give you this price to take over, and now we’re going to modernize things.’
So, in theory, you can see why that happens the way it does, and how it could go well, or how it could go poorly. Many of the wonderful and terrible things that have happened in the world are the result of one or two people who make decisions, and those people either make good decisions or bad decisions, or they’re either good people or bad people.
I don’t mean to make the quadrant that direct. But, Hitler was ultimately a pretty bad guy who was really good at doing bad stuff, but it took a lot to accomplish that. That wasn’t going to happen on its own. Similarly, people who build great things–it takes an unbelievable amount of will, investment, and so on. I would never discount how difficult and expensive it is and how unlikely it is to build any great success, whether it’s within capitalism, academia, and so on. So, I always take that as a given.
When I talk about seeking out a representative edge case, I think of someone like a guy named Pete Stavros at KKR [Kohlberg, Kravis, Roberts, & Co.]. So, after we’d done a couple of episodes on the upsides and mostly downsides of private equity-funded consolidation in the pet healthcare industry, we did a follow-up of sorts where I talked to Pete Stavros, who is a senior partner, senior executive, whatever, at KKR–one of the big private equity firms, one of the biggest, one of the first–who has made it his mission to, within the realm of KKR operations, come up with a plan that would reward the employees of the firms that KKR buys.
So, KKR will buy a firm from the private owners. They will try to improve the operations of that firm. They might try to cut costs. They might try to increase revenues. But, in the meantime, they would give the existing–and maybe even future–employees of that firm a piece of the pie. Which is to say that when KKR would ultimately sell that operation–because private equity firms don’t hang on to these firms for too long; that’s not their model–then those employees would cash out.
So, they become, in essence, an employee-owned firm–to a small degree. The vast majority of it is owned by the corporate, the big investors. But, that, to me, is a way of thinking about this kind of issue, this kind of problem–if you want to call it that–of hyper-intensive, hyper-leveraged, hyper-successful capitalism, understanding that you need to also integrate the human scale–the human scale in this case being: How are you going to treat the people who do the work?
This is, Russ, where I felt like economics as a discipline really needed to level up in the last 30 years, and I think did, and partly through the work of the behavioralists. Now, I know that a lot of economists–a lot of old-school economists, a lot of macroeconomists, certainly–might discount a lot of the work of the behavioralists. And, if we talk about the behavioralists as a camp, generally, we could start with Danny Kahneman and Amos Tversky, who, of course, were not economists but were psychologists. And then Richard Thaler, and others who were psychologists, who began to create this blend that we now think of generally as Behavioral Economics. When I started reading economics papers, I was often a little surprised at how little the humans that economists describe in their models represented any of the humans that I knew.
And, this is now a very familiar argument–that Homo economicus was a kind of, you know, cardboard figure. Now, a very useful figure.
But, I do think that it’s easy, when you’re in the realm of macroeconomics or high-level finance–because the issues you’re dealing with are complicated, difficult, the numbers are big, the data sets are big, you’ve got a lot of leverage–I do think it’s easy to kind of forget about who is on the other end of things. And who is on the other end of things are individual people–employees, consumers, citizens, etc.
I mean, this goes back to why I love Adam Smith. You know, I don’t read Adam Smith to know, you know, what’s the best way to optimize the supply chain for that pin factory in Kirkcaldy, Scotland. I read Adam Smith because–the same way, I think, that I love your book on Adam Smith, too–because he’s thinking about: When you’re facing a change of this magnitude–in that case a period of the Industrial Revolution, where the way we made things was changing drastically and, therefore, import-export was changing drastically–when we make these massive societal changes, how does that affect people? How does that affect the person that goes to work in that pin factory? Now that that person–let’s say it’s the husband in a family–has that job, what does that do to the rest of his family? Is it more income? Is he going to have more kids, fewer kids? Are they going to get more education, less education?
Those are amazingly interesting questions to me. Economists happen to be pretty good at addressing–and often answering–those questions. And, we are in a time now where there are more questions like that than at any time in my life. And so, I think there’s no scarcity of further questions for economists to ask.
42:40
Russ Roberts: I just want to say one thing about the private equity example you gave. And, for listeners who aren’t familiar with this, you say, I think–I forget the phrase–you ‘modernize’ was the phrase you used when an investor comes in. So, there’s a small operation; it’s been run a certain way for a generation, maybe. Maybe two, because when the current owners came on the job, they were inheriting it from their parents, or–
Stephen Dubner: Or in Japan, it could have been 20 generations in Japan. Yeah.
Russ Roberts: Yeah. And, what happens, in my experience, and what you’re describing is, is that–I’ll just pick an example. A doctor’s office has a bunch of really caring and devoted people working in it. And, they sell their practice, and the new owners come in, and they say, ‘You took 45 minutes with that patient. And, you were just–I’m not sure it’s worth it. We’re going to ask you to do 30 minutes from now on.’ Or 15, or maybe 12.
And so, there’s a certain hyper-efficiency because the investors care about one thing. They’re not bad people, like you said. They do care about making money, and they care about, quote, “efficiency,” because they’re usually related. Not always, right? Short-term efficiency gains can come at a terrible cost down the road with customer satisfaction, employee satisfaction as you’re talking about.
But, here’s what I think happened–and I think I don’t keep up with this industry or the phenomenon very well–but there’s a lot of money to be made from that improvement. And, a lot of it doesn’t just go to the investors. It goes to the owners who sell. And, many of them leave, but many of them, as part of the deal, have to stay on because they’re–as you said, their institutional knowledge or their general experience or their brand–they’re it. It’s not anything–it’s not technology. It’s the people. And, I think often they underestimate the cost. It’s a bargain with the devil. They’re going to get a huge amount of money, which is very hard to turn down, but their lifestyles are going to be very different. And, that change induces pain, dissonance, sometimes regret. And so, it’s a little bit complicated, obviously.
And then, the other part of it is, if all we did was stay in the beautiful, aesthetically pleasing, comfortable world of artisans and craftspeople, we’re going to be pretty poor. And, sometimes that might be okay. And certainly, individuals can choose to keep that practice.
There are certain areas where that’s hard to do, but often you have a choice. And, human beings often choose the more lucrative path.
So, that’s all I would say about that. I think it’s a very interesting phenomenon. And, I would just add, when I said most people don’t have the language or the framework to think about it, shows like yours–which are very rare–I do a little of it in my own way as an interviewer, but when you’re doing a feature-length piece on, say, the healthcare for pets, you are teaching economics, obviously, of a fundamental kind to the general public. And, there aren’t that many places that can have the ability or the time to go that deeply and to do education. Which is part of what you’re doing.
Stephen Dubner: Yeah. I appreciate your saying that. I do see it that way.
When I quit playing music–which I thought was going to be my life and career forever–and so it was a little bit of a shock when, all of a sudden, it wasn’t. I’d done it for about five years.
So, I was in my mid-20s by the time I quit–and there were three things that I thought I would want to be. Well, kind of four. One was a writer, which I’d always been. So, that was kind of always my main goal. But, the others were a financial advisor–I really liked the idea of helping people figure out how to manage money for themselves and their families because this has been an interest of mine for a long time. I grew up with very little money in an area with very little high-end employment: like, no high-end employment where I grew up as a kid in the country. The best jobs–the richest guys in town were one doctor and one plumber.
And then, the next jobs that everybody encouraged you to go after were construction–highway construction–because it was a state job, good wage. And the best job was to be the flag person on the highway road crew because you didn’t actually have to do any digging. That was the employment model, okay?
So, I had a big adjustment, let’s say, to figure out how to make your way in the world and how to build a career, and so on. By the time I quit playing music, I’d been through college. What I was thinking about were financial advisor, like I mentioned; psychologist–which, again, I would have loved. I love psychology. I love reading psychology. But then I realized I’m much too–I don’t want to help people solve their problems all day. I’m too selfish. I wanted to solve my own problems, and so on.
And then, the other thing I really wanted to be was some kind of teacher.
And, when I went to grad school then, I went to–I got an MFA [Master of Fine Arts] in fiction writing at Columbia University. I would have done nonfiction, but their nonfiction program at the time was very small. Now it’s much, much, much bigger. And, I also got to teach at Columbia, a course–a wonderful course. It was essentially freshman comp. It was called Logic and Rhetoric, and it had been designed by a great Shakespeare scholar. And, I loved teaching it.
And, I realized I wasn’t going to be a very good teacher either, because I was a little bit too selfish about my own writing. I would much rather do my own writing than worry about other students’ writing, and so on.
But, I’ve always had the desire, at least, to be a good guy, to be a good person, to contribute, and so on. And so, even though it may sound crazy in 2025, whenever we are, to think of journalism as a kind of–I’m not trying to hold myself up as any kind of standard-bearer here, but I do believe that the role of the journalist is not just to comfort the afflicted and afflict the comfortable–which is one mantra from The New York Times–and I get it. It’s also to explain the way the world works. It’s not for me to tell you how I think it should work, but it’s really just to describe it. Because it can be complicated.
And so, really all I do is try to seek out people who know a lot, interview them; but then, in the presentation of the show, in the writing of the script, yes, then I’m kind of stepping into the slightly professorial role, or maybe the TA [Teaching Assistant] or the grad student who is teaching the class because the professor is not around.
49:52
Russ Roberts: And, what you’re really doing–and it’s not a small thing at all–it’s a bit ironic, given what you’re telling me about your past and the path you could have or would have taken. Like most of us, you’re a storyteller. And, the art of a good episode–and I do it my own primitive way because I don’t generally edit the way you do. I’m not patching together stuff to tell a story. I’ve prepared a set of questions that I hope will reveal a story. It’s a different model. But what you’re doing is, you’re storytelling, and you’re helping the reader–in your case, the listener–understand something. And, it’s very hard to understand it without a story. And, I think good journalism–and bad journalism–is storytelling.
Stephen Dubner: I think the difference between good journalism and bad journalism is very simple. One is storytelling without data. And, the problem with that is it can take the anomaly and make it seem normal–which news does all–that is literally the definition of news. So, those of us who consume news and complain, like, ‘Oh my gosh, it’s so sensationalistic. If it bleeds, it leads.’ Blah, blah, blah. This has been the complaint since the beginning of news. Dog bites man. Who cares? Man bites dog. Page A1.
So, I get that. The problem is, storytelling needs to have–and I learned this from over the years. I mean, Gary Becker, you mentioned earlier. The discrimination work he did was amazing. But a lot of the work Gary Becker did, when I was reading it earlier–just really learning economics–within the story, you need to include time. Time is really important. If a level of something changes from x to 10x, I need to know if that was in a year or a hundred years. That’s very, very meaningful. I need to know the magnitude of the change. I need to know how representative or how anomalous it is. I need to know what were the incentives that may have changed to produce a different kind of behavior. Was this behavior changed because of vibes in the society? Was it a change because of a new tax law? Was it changed because a bunch of people from one place moved to another place and they brought with them different cultural norms, and so on?
So, yes, storytelling is great; but it’s got to have some rigor, and–and this is what we tried to do with Freakonomics–you’ve got to show your homework. If I want to tell you a story, and I want you to believe it’s true, I need to give you evidence. Simple as that.
Russ Roberts: Well, yeah, showing the homework is just not what’s done in academic circles generally. I don’t know if I’ve told this story before, but I was sitting in a seminar once at a world-class university I will not name, and the speaker was presenting a very powerful–a result. I may have told this once before–which means I probably told it twice–but anyway, the speaker gets up, and he shares this really interesting, dramatic result. And, I’m a little skeptical of it, probably because it violates my common sense or whatever it is–it doesn’t matter. And, I asked an innocent question–and I’ve been in a lot of seminars in my life–and I’ve never heard this question asked, which is fascinating to me. I don’t think I’ve ever heard it. And, I said, ‘How many regressions did you have to run before you got that result?’ It’s a rude question.
Stephen Dubner: It is, but I like it.
Russ Roberts: It’s unacceptable. It’s not–as I claim–it’s not a normal question. It’s abnormal. And, he couldn’t process it. And, this is a very accomplished academic. Again, I don’t even remember who it was. But, anyway, he couldn’t process. He said, ‘What do you mean?’ I said, ‘You didn’t get this result the first time you ran a regression, or the first time you did an empirical analysis with these data.’ I said, ‘Roughly, did you do 10, 50, 250?’
And, it’s a rude question, and he didn’t like it. In a way, it was disrespectful because, in economics, the number of regressions you do is personal. It’s something best kept between the author and the research assistant. It’s not–and if I had to make one change in economics, one of the things that people do is they say, ‘Well, you have to share your data.’ That’s obviously a very good idea. It’s become much more part of the norms of the profession. But, having to publish all the results, even in an unpublished appendix or somewhere on a website–that failed, or that you did not find convincing–maybe legitimately so, that’s fine. But, to have to publish all those, or at least count them, would be interesting. It would have an interesting effect on the profession.
Stephen Dubner: Maybe this means I’m ruder than you, but I actually like that question a lot, and I don’t even find it inappropriate.
Russ Roberts: It’s not. It’s a great question.
Stephen Dubner: Yeah, I think it’s a very good question.
I ask more layperson versions of that to a lot of people, like, ‘What is your best evidence?’ I usually start by asking, ‘When you first started thinking about this problem or question, or whatever it is, what did you want to know?’ Okay, that’s where I like to start.
Then I say, ‘Well, where do you go for the data for that?’ Because presumably, if it’s a good question, there have been other people who thought of it, maybe, but couldn’t find the data. So, where’s the data from, and how good are the data, and so on–how reliable are they? And then, I like to ask them, ‘What were you expecting to find when you first started to work with the data? What surprised you? What’s your degree of confidence in your ultimate finding?’ And then, I learn–Richard Feynman is really someone I admire a great deal. He asked wonderful questions, often extremely annoying to the people that were being asked the questions. And he had some other things that made him–I find him remarkable; other people found him annoying for other reasons, including the fact that he didn’t want to accept anybody else’s logic for how they got to a finding. He wanted to do it himself.
It reminds me a little bit of–if you’re a golfer, Ben Hogan and others like to talk about how you got to dig your swing out of the dirt. You need to find your swing. You can listen to people, and there might be some universal truths, but every body is a little bit different, every mind is a little bit different, and so on.
And Feynman was like that. When he wanted to accept something as truth, he had to work it out for himself. So, he would often challenge people. But, Feynman would ask a lot of questions that I really like. One of my favorites is, ‘In a given system,’–whether, if we’re talking about physics, it’s one kind of system, but if we’re talking about economics, it’s another–‘In a given system, tell me something that is particularly scarce and something that is particularly abundant.’ And then you get into why.
And so, that’s where it’s easy to make fun of economics as just a social science, and I do feel it’s different from the other social sciences–especially when you see all the garbage and fraud that’s been associated with especially a lot of psychology over the past bunch of years. And, that’s very painful for the good guys in that realm–the good people in that realm, I should say. And, for me, too, because I’ve known a lot of these people, and we’ve done some episodes on the academic fraud, and it’s very, very, very troubling because I’ve really revered and looked up to a lot of academics over the years, and some of them turned out to be much less than honorable.
But, I do feel that the scientific method, even as practiced in the social sciences, is a phenomenally good method. You have to really try hard with the practice. You have to be very, very specific. You have to be very intentional. You have to be very persistent. And then, you have to find people that are trustworthy and ask them hard questions. And, if you don’t think they’re trustworthy, forget it. [More to come, 58:10]
