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Episode 28. Steven D. Levitt (Freakonomics co-author and University of Chicago Economics Professor) on His Career And Decision To Retire From Academic Economics
Podcast Interview Transcript
Steven D. Levitt (Freakonomics co-author and University of Chicago Economics Professor) joins the podcast to discuss his career, including being an early leader in applied microeconomics and how the Freakonomics media empire got started, along with his recent decision to retire from academic economics. (Listen to full podcast episode here at the New Books Network)
Jon: “This is the Capitalism and Freedom in the 21st Century podcast, where we talk about economics, markets, and public policy. I'm Jon Hartley, your host. Today, my guest is Steve Levitt, who is the William B. Ogden distinguished service professor of economics at the University of Chicago, as well as the co-author with Stephen Dubner of the best-selling book Freakonomics, all of its sequels, and co-founder of the Freakonomics Radio Network. Steve is known for being one of the early popularizers of applied microeconomics and causal identity with natural experiments during the 1990s and 2000s, which won him the John Bates Clark Medal in 2003. Steve recently told me that he has actually decided to retire from academia and is going emeritus at the young age of 57, which I'm going to ask him all about. Welcome, Steve. Thanks so much for joining us.”
Steve: “My pleasure, Jon. Good to be here.”
Jon: “Steve, I want to start with your background. You were born in Boston. You went to Harvard undergrad, spent two years consulting, and then you did your PhD in economics at MIT in the mid-1990s at a time when applied economics was just taking off. Tell us, how did you first get into economics?
Steve: “Okay, I'm going to answer that, but first I want to say one thing, because I don't know how well your listeners know you, but we met when you were an undergrad. I taught for 25 years and you were one of two or three of the best undergrads I have ever run into. And you know I tried to hire you but lost.. was it the Goldman Sachs is that is that who I lost out to?”
Jon: “That's right, that's right.”
Steve: “And we stayed in touch and I would say that you are what you've been doing in economics is remarkable, you've produced more good economic thinking prior to getting a PhD than anyone I've ever known so I just want to give you a hat tip. I've really enjoyed watching you break all the rules along the way. That's a hat tip to you.”
Jon: “I'm going to have to use that for a tenure committee in the future. I'm glad that we have that recorded.”
Steve: “Yeah, I don't think my opinion counts for much for tenure committees these days. But let me tell you how I did get into economics. It was not in a thoughtful and well-organized way. I was the worst kind of undergraduate student. I only tried to take easy courses. I just tried to get good grades. I didn't care at all about anything intellectual, but I did already believe in markets, even though I had no economic training. And I went to Harvard and my view was if a thousand people are taking a class, that must be a good class and an easy class. And so, I took all the thousand person classes that they offered at Harvard. And first and foremost, among those was Ec 10. And I took it only because a thousand people were taking it. And I remember not too long into the class, maybe five or six lectures in the class and we were doing comparative advantage. And as the teacher went through it, I thought, "What a joke. How can they be teaching this?" Everyone knows, everyone understands comparative advantage. It's the most obvious thing in the world. It's five-year-old know that. And as I walked out of class, my best friend, who was also in the class, with me, said, "My God, that was the most confusing lecture I've ever heard in my life." And I said, "What are you talking about?" He said, "It makes no sense to me. What is it you've been talking about?" And that was the first inkling I had that maybe I thought like an economist. And honestly, I only did economics because it came naturally to me. And I never liked it, per se. I never had this sense that economics was powerful. It's just the only thing I was good at. And so... I just backed into it and I never had any intention, so I majored in economics, but I never had any intention of going further. I wanted to go into business. I went into consulting and I found consulting very painful for me personally given my makeup. The people who were… I didn't like being bossed around by people I didn't necessarily respect too much. This was a firm, which even though it was a good firm, seemed to not know the difference between correlation and causality. And I found that kind of offensive that we were selling for hundreds of thousands of dollars advice that made zero sense to our clients. And so, after two years, completely uninformed, I applied to PhD programs. I couldn't think of what else to do. And I had no mathematical training. I had not taken anything more than high school calculus. The one math class I took at Harvard was-- called Math 1A. The high school math class that they only gave to students who had done incredibly poorly in high school math, which I was one of them. And it was a shock when I arrived at MIT, completely unprepared. And I was really-- I didn't deserve to succeed in our profession. I got really lucky. I worked hard, too. But I was in the right place at the right time. It was a time at MIT when people put a lot of value on the clever approaches to trying to untangle causal effects or plausibly causal effects, and it turned out that was roughly the only thing I was good at. And I managed to stumble into it and was lucky to build a career in that dimension.”
Jon: “Amazing. And it was Marty Feldstein who was teaching you Ec 10?”
Steve: “Yeah, he was in charge of Ec 10, but it was a guy named Neil. Oh boy, can I remember? I can't remember Neil's last name, who actually was teaching us the lessons day by day. But yeah, it's interesting, looking back on Ec 10, what a great course that was, because it was a mix of grad students really teaching you in a very sensible way, the introduction to economics, and then lectures by the most preeminent economists in the world, many of them from Harvard, where you got a taste of whatever they were thinking about. And it really is a wonderful design for course. And I remember sitting in that class, it was in Sanders Theater, this big ornate hall that they have on campus, thinking, "Wow, wouldn't it be awesome if one day I could be up on stage and I'd be the one giving the lecture?" I never did get invited, so I never did actually go back and teach a lecture in Ec 10.”
Jon: “That's amazing. Well, it really just speaks to, I think, how powerful that first-class economics can be. And even people that don't go on to earning a PhD in economics or the profession, just how impactful one class can be on so many people. Think about all over the years, how many people have taken Ec 10, whether it was with Martin Feldstein or with Greg Mankiw or now with Jason Furman and others who are teaching with him. It's amazing. You just think about all the scores of people who have come through Harvard and who have taken it. I'm curious in terms of your committee and your influences at MIT, I know, I believe like Josh Angrist was on your committee, obviously, another central figure in the credibility revolution. I know you also are very fond of Bob Solow, who recently passed and sort of influenced you or sort of informed your taste on macroeconomics. I'm curious, like, what was your experience at MIT like?”
Steve: “So Jim Poterba was the really big influence on me at MIT. Jim is just an incredible advisor, common sense, giving thoughtful, always investing in his students. I had a strange, I have to say I had a strange PhD experience. I had come from consulting, so I was really glad to be in the PhD program. Most people come and they're in the PhD program, and they think, "Oh, this is awful compared to undergrad," and they mope around. It was awful compared to undergrad, but compared to consulting, I felt like I'd died and gone to heaven. I loved being there, but I was completely unprepared. I didn't know what was going on. Everything was swirling around me, and my colleagues were just so phenomenal. I had... Honestly, I had been... used to being the smartest kid. I had always been the smartest kid or close to the smartest kid, but then I got to MIT and I realized my God these people are incredible. Not just what they know but how they think. So, I knew from day one I was the odd man out. I mean I'm not even exaggerating when I say that there was a group of people in the in-crowd. Austan Goolsbee, my good friend Austan Goolsbee was one of the in-crowds. And Austan told me that maybe a month into our first year at MIT, the in-crowd sat down and they made a list of the five people most likely to fail out. And I was on that list of five. And there's only one person of the in-crowd who thought I was actually might not be as bad as everyone else thought. And so, I was really in a strange place. And I couldn't really do the classwork a lot of times. So, I didn't worry about it. I just looked around and it's said to succeed in this profession, you have to write papers. And so instead of spending my time on classes, I really spent my time writing papers and started writing papers right away. And so, by the end of my second year, I probably had written four or five academic papers. I got a paper into the Journal of Political Economy in my second year of my grad program. And I was just doing something different. All I did really was go to seminars, try to learn as much as possible, do my own research and I didn't, I didn't teach at all. I didn't, I didn't, wasn't a research assistant for anyone. I just did my own thing.”
Jon: “Were you like an NSF fellow or something like that?”
Steve: “I actually got an NSF fellow my second year. I wasn't informed enough to have applied the first year so I got it my second year so I really had nothing to worry about that covered all my teaching. So, I was just there and I had money because I had done consulting. So, I was just, just turning out research and loving every second of it. And then it was Jim Poterba who said in my third year, "Hey, why don't you apply to the Society of Fellows at Harvard?" Which was something I'd never heard of. And Bob Solow had been part of it. And so that's what got me introduced. Finally, the courage to go talk to Bob Solow, who I've been... following around campus for the preceding two and a half years. And so, I applied to that and incredibly got that fellowship in the middle of my third year. And so, then I didn't really have a committee. The only person I had ever talked to really was, much was Jim Poterba, and then another guy who was a political economist, Jim Snyder, who was over in Sloan. And so, my committee... I don't even think Josh was on my committee. I think my, I think Jon Gruber was actually the third one on my committee. I hardly talked to Josh at all. I was afraid of Josh. I was afraid of everybody pretty much. I hardly talked to anyone while I was there. Yeah, so I left there in three years, really just having used it as a time to write my own papers and to scratch along as best I could in classes without getting kicked out.
Jon: “So, you went on the market in your 3rd year? “
Steve: “Well, I didn't go on the market. Yeah, so I left MIT after three years, but I got this fellowship at The Harvard Society of Fellows, which lasted for three years. So, I didn't go and look for a job. So, I didn't look for a job until six years were done. And by then I had just published so many papers. I really had a great run in the beginning of my career.”
Jon: “It wasn't even in this very early stage and maybe when you're still a PhD student I don't know if this is your JPE paper but I remember you telling the story about how Rahm Emanuel called you up I think asking you about you know the details of some paper that you've written this was as a grad student and you're sort of speaking to like the power of research and how you don't have to be a professor or have won a whole ton of amazing prizes to do great research that's very policy-relevant. Was it Rahm Emanuel who was calling you up when you were a grad student, or...?”
Steve: “Yeah, so you have put two stories together, but I wrote a paper on the effective police on crime, and I found, unlike other people before me, that looked like more police reduced crime. Perhaps not surprising, but it was very surprising to the criminologists. And Alan Krueger, I think, was somehow involved. And I think, if I remember correctly, and I might be confusing my stories, I think Alan Krueger put together a binder of papers for Bill Clinton every week. And Alan said that Bill was an amazing thinker, and he would really look at these papers. And he said, in particular, because they're trying to get this crime bill passed that would add 100,000 police officers, Bill Clinton had gone over my paper, and he said you could see all the notes in the margin and had lots of questions and then Janet Reno apparently carried my paper around in a briefcase dozens of copies and gave it to anyone she could because she was trying to influence the senators and the representatives to vote on behalf of the Bill Clinton's crime bill and I say I got completely the wrong idea. I had this idea that like you said wow the power of research and anyone can do it and you do good research and people recognize and it effects policy, I mean, I was so confused. It took me years and years to understand that, number one, usually nobody cares at all about your research. No matter how much you love it, it never gets any attention. Number two, the quality of my research had nothing to do with it being passed around. It was being passed around Washington because it was the only paper that supported the position that they had already chosen. Right, the policy outcome they want chosen first and then they went for papers. And I'm sure they were disappointed that the only article they could find that it all supported them was by some grad student, but they took what they could. And what I read, the real lesson I learned over time is that I don't actually think that my research or even my writing, more popular writing, has ever really fundamentally changed the way any politician thought about anything and that it's just, I've come to a different conclusion which is that it is incredibly hard to influence any policy or anyone's beliefs by doing research. Now then, Rahm Emanuel called me up after this it all transpired, trying to get me to come and work for him. But unfortunately for Rahm, I by that time had a little bit of common sense and so I asked around, "Hey, what's it like to work for Rahm Emanuel?" And he said, well if you love being screamed at and working 24 hours a day, it's a really good job, and I didn't like to be screamed at and I didn't really want to work 24 hours a day. So, I politely declined Rahm Emanuel's offer.”
Jon: “That's what a great set of a few stories. I'm just curious so you know came back to credibility revolution here. You are a central figure in the credibility revolution. The rise of applied micro, good identification, plausibly exogenous identification. You did a lot of famous early work on applied micro of crime that we've talked a little bit about that earned you the John Bates Clark Medal. I'm curious like what has changed since those early days? In your mind, you have better data, better methods, more rigor and care when it comes to econometrics and plausibly exogenous variation. After you won the prize, did that have a serious sort of impact on your career and getting speaking invites and so forth? I'm curious, what's changed since those early days of the credibility revolution 20, 30 years later?”
Steve: “So let me just be clear. I think I'm really a footnote to the credibility revolution. It was the generation before me, Angrist and Krueger and Imbens and maybe people like Heckman who you include but I really felt-- Yeah, I really felt like a follow-on to it. Those guys had set out some methods for thinking about the world, and I was just interested in questions and trying to answer them, and I was using their tools, and I was really mostly asking different questions and economists ask a lot of times about settings where markets weren't applicable like crime. In education various places and so I never honestly never felt very much like a real economist. I certainly didn't feel like I was leading any kind of a charge. I was never a leader. I really just enjoyed the act of doing research and just did as much as I could. I worked hard. I was productive because I loved it, but I wasn't a visionary in any way, shape, or form. Now, I think what changed, so at that time computing was hard. I was still getting started when, if you wanted to work in the sciences, you had a... get this old magnetic tape and spin the thing. I mean in crazy what you had to do.”
Jon: “You're past the age of punch cards at that point.”
Steve: “Yeah No, I only I only as a child that I use punch cards but what really I'll tell you what always happens in academics is a new approach a new set of ideas come in and what you're calling the credibility revolution. The idea that you'd go out and get data and look for natural experimental variations. There's something that kind of mimics a randomized experiment, but one in which you as a researcher didn't actually do any experimentation, didn't actually control the randomization. And it was fresh and it was new. And so, if you were out there as a young scholar doing that and doing it in original ways, there was a huge market for that kind of a student. And so, a lot of the best people, maybe that's the reason, a lot of people, a lot of students were doing it. I'm not sure it ever really attracted the best students because it was not complex. It wasn't hard technically.”
Jon: “Right, and at that time, these great macroeconomists and great theory people dominated a lot of these departments still, and at that time, and I'm sure the mid-90s, applied micro or just applied econ people were sort of in the minority at that point. And now, 20, 30 years later, I think it's totally flipped, you know, that those people are on the strong majority. But I'm sure deciding to go embark on a career in applied micro was something of a brave thing at that time, in part because you're answering smaller questions rather than larger ones, which is fascinating in terms of just the history.”
Steve: “Yeah. I think more in terms of status rather than numbers. So, at that time, it's different by school, but at MIT, the highest status people were probably the theorists because we had great, we had Jean Tirole and Drew Fudenberg and Oliver Hart. We had incredible theorists. And so, the best students wanted to be theorists, okay? And if you weren't quite good enough to be a theorist, then you probably wanted to be a macroeconomist 'cause we had great macroeconomists. And it trickled down and honestly, the people who were doing what I was doing, we were at the bottom of the totem pole status wise. Now, just to be clear, I started out thinking, well, I'll try to be a theorist 'cause that's what the high-status people are doing. And I pretty much failed, I failed at that. And then I said, well, the next best thing is doing macro and I completely failed at that too. It wasn't that I said, hey, I'm going to be an applied micro person. It was that I ran out options and that's what was left and it turned out that that's what I was good at. But what happened over time was because it was fresh and new, if you just did it competently, you could get a good job. But the cycle that happened through the academics is as something becomes routine right so it's really not hard. There's a formula for writing almost any academic paper and there's a very simple formula for writing a good natural experiment paper the kind of papers that I was writing as a grad student and once the profession understands the formula and that's formulaic then the problem is you can't get a job. I can't get a good job doing that anymore. Because when you're on the job market, when you're young academic, you have to convince the faculty who are hiring you, that you have, somehow the idea is that technique, knowing how to do hard things, technical skills is really valuable. Or that you have, you know the formula for writing some difficult kind of paper. But as soon as it's easy, as soon as anybody could write a natural experiment paper, then you couldn't get a job writing natural experiment papers. You could still get them published but so it's very quickly and that's why I say I was in the right place at the right time very quickly. A matter of three or four years after I came out of grad school people were being discouraged from writing those kinds of papers because you couldn't get good jobs doing it. So, there was this thought that you should do what a kind of some more structural work right so think more applied theory so a mix of empirical work and applied theory. And eventually, two things happened over time. So, three things happened. First, the technology changed. So, as you said, data and computing, that all changed radically and led it to be both easier to write these kinds of papers, but also opened up to do them much more interesting questions than maybe you could have in the first place. The second thing that happened was the true experimental revolution. So, my colleague John List and others actually incredibly late in the game brought experimental economics where you actually did randomizations into the mainstream. And that also I think really put a dampened people's enthusiasm for the kind of more idiosyncratic work that I was doing. And the third thing was that really, I think the outside options for applied economists got much better. So, people who were sensible, who were applied, suddenly business was really interested in their skills. And a lot of those people exited and what was left behind were the more technical theory-driven folks. And I think that's really warped our profession away from the simple - causal, idea-driven estimates of things towards a much more demanding view of what an academic paper should offer. And all those things, honestly, really worked against my importance and my interest in what was going on in academic economics. Now, let me answer, you had a couple questions. Let me answer another one, which is winning the Clark Medal was amazing for me because it opened so many doors and in particular it led to me writing the book Freakonomics. And it was stunning to everyone including me that that book took off and it was a best-seller sold a bunch of copies and the doors just opened to so many things and within academics what I realized is that my comparative advantage had become getting access to data. After writing Freakonomics, I could send a signed copy of the book to just about anybody, and they'd sit down with me, and they'd talk to me, and often they would give me data. And so really, I changed my research, and much of my later research, if you trace my history, goes from being about super clever identification, trying to answer questions by natural experiments to just putting my hands on interesting data that other people couldn't get and trying in often in straightforward ways to answer questions that I could do. And I always, actually one of the smartest things I ever did in economics was to understand that that was my comparative advantage and to really work at that. But the other thing I did discover after I wrote Freakonomics and I had these opportunities was how much fun the real world could be if you were allowed to do interesting things and if you had a certain amount of prestige and people would invite you to participate and in solving real problems and so for me that really is sadly I mean I loved academics when I was doing it actively but it really was part of the death knell for my interest in academics is that as much as I loved writing papers I loved doing other things more. And so, I started allocating my time differently.”
Jon: “That's fascinating. When you win the John Bates Clark Medal, I know there's like an AEA committee. Is it kind of like the Nobel Prize where they call you super early in the morning and they tell you that or is it just an email? And I'm curious, how did the Freakonomics book deal happen? Was it after you won the Clark Medal, or did you know you sort of wanted to go out and popularize the sort of applied micro approach to everything and sort of explain how valuable the sort of approach was, or did it sort of come together through unintended means?”
Steve: “So, on the Clark Medal, it definitely wasn't early in the morning because I think they met in US time instead of European time. And so I wasn't really privy to what was going on, but I just know that um I was sitting in my office I was visiting Stanford that year and I got a call from Avinash Dixit who would never call me in a million years hasn't called me before since and he was calling to tell me that I'd won the Clark Medal and then nothing else really happens a bunch of people write to an email but nothing falls but the only thing that did happen was that the New York Times Magazine wanted to write a piece of on me and Stephen Dubner ended up being the reporter who was put on it. And then he wrote a piece about me which created, he hates it when I say this, but created this persona about me that was so far from the truth but was delicious and exciting to people. Me as this Indiana Jones of economics who you just answered a question and I say I'll off into space a little bit. I type at my computer and I deliver the answer. So, it couldn't have been further from the truth. But people loved the profile of me because I was, he painted the things that were weird about me, but he really made me heroic in my weirdness. And so, then the publishers were interested in me doing a book, but I categorically said no. And eventually, Stephen Dubner's agent called me up and said, hey, why don't you write a book with Steven Dubner?" And I said, "Number one, I have no interest in writing a popular book. Number two, I'm sure Dubner doesn't want to write a book with me because we honestly didn't get along that well when he came out to interview me the first time." But we agreed to talk and we shared, and we had a real commonality, which is that neither of us really wanted to write this book. Neither of us thought anybody would read a book if we did write it. But we both were kind of, prostitutes in some sense. And so, for the right amount of money, we were willing to write this book. And interestingly, the right amount of money turned out to be similar for both of us. And so much to our surprise, we got offered, I don't know, three times that amount of money to write the book. And then the only thing that stood in the way of us writing the book is we had to figure out how to divide the profits, the payments. And Dubner, I don't remember the exact numbers, but Dubner came to me and he said, "Hey, I know it's uncomfortable to talk about this, but we need to decide to split." And he said, "I was thinking 60 /40." And I said, "I was actually thinking 2 /3, 1/3." And he said, "Oh, I'm just not willing to write this book for 1/3." And I said, "No, no, I was thinking 2/3 for you and 1 /3 for me." And he said, I was thinking 60 % for you and 40% for me. So, it's the easiest negotiation ever. We settled on 50/50, we both felt like we got a lot of surplus and we've had a great relationship ever since. So, we definitely did not enter this with some idea that we were on a mission to better the world. We were just, I mean, we really thought no one's gonna read this book. The only question we had was the immorality of taking all this money from the publisher for a book that no one was going to read. And it shocked everyone. I mean, from top to bottom, it shocked everyone that this book took off.”
Jon: “Well, it's amazing how, how successful it's been, you know, 20 years on and still going strong. Get back to your intellectual transformation at UChicago in the Department of Economics. I remember in another interview, that you did with Kevin Murphy a few years ago, you described that when you first joined the UChicago Economics Department from being a student at MIT and Harvard, that you hoped to change the UChicago Department and make it more into the MIT/Harvard mold at first (UChicago being the famous free market Chicago School stronghold famously being at odds with MIT and Harvard, the famous Keynesian Stronghold in Cambridge) you said that you since have become very much more part of the Chicago tradition, and I think you cited Gary Becker as being one who influenced you greatly in this regard. And I remember some stories you had about going to the Quadrangle Club with Austan Goolsbee and Gary Becker and how Gary would sort of always know the answer, the right answer to how to model things. I'm curious, like, how would you describe your own intellectual transformation since you first walked in the door at UChicago as an assistant professor up until now?”
Steve: “So, I cannot imagine I was arrogant enough to believe that I was going to change Chicago. So that's not my recollection. What I really, what I remember…of course, you can't really believe what people say they remember…What I remember was that I was going to Chicago for two or three years because I wanted to get to know the enemy. I didn't actually, I didn't want to change them. I just wanted to see how they thought so I could respond better to them and what attracted me to Chicago, to be honest, is the only time I had been on campus to give a seminar. It was a free for all and it was crazy and chaotic. Really unlike any seminar I've given before or since, but I was really stunned. I'll tell you, just, I won't tell you the details of what happened, but at the end, Sam Peltzman, who was not a young man, he must have been probably in his 60s or 70s, probably 60s, but then, as they were walking, as everyone was walking out of the seminar, he put his arm around one of the other older faculty at Chicago, and in his 60s, he put his arm around one of the older faculty could hear with the earshot of me, he says, "We haven't taken someone apart like that since George Stigler was here." And that was the kind of chaos that reigned at Chicago in those days, and I was attracted to it, and I really wanted to go, and people asked me different questions than I had ever heard before, and I liked that. So, I showed up at Chicago, let me say before I went there, everyone thought I was crazy to go to Chicago. So, one of my mentors at Harvard was Andrei Shleifer, who himself was from Chicago. And when I told Andrei that I was going to the Department of Economics in Chicago, he said something like, "If you do that, I will never talk to you again." I said, "Why not?" He said, "Because it shows that you are so fucking stupid that you're not worth talking to you. Only a moron would go to the University of Chicago Department of Economics." But I went and my goal was to be there a couple years and I would learn price theory. I really wanted to learn price theory and what was interesting is two things. First, I just absolutely got converted to the power of Chicago thinking. It really, as I heard people like Gary Becker and Kevin Murphy and everyone talking, it just made sense to me. It was a different version of the world. There's a more serious economic application. I wasn't an economist at MIT. I was a data scientist who was messing around with data. I loved it. It was fun. I'm not good at Chicago price theory. I never really learned it. There's nobody. If you talk to people like Kevin Murphy or if Gary Becker were alive and he said, "Hey, is Levitt any good at price theory?" They said, "No, no he's not, but he appreciates it." And that's the important thing. And he asked the right questions and he lets us, and we help him with it. So, no one will confuse me for being good at it, but I liked it. And if you look at my research, once I got to Chicago, I began writing completely different kinds of papers. And it was very influential and I never left. I thought about leaving from time to time, but it really became an incredible intellectual home where I always felt challenged. I always had this optimism that someday I was really going to get good at price theory, but it's hard. It turns out that price theory is actually hard to learn, and some people seem to get it naturally, and I wasn't one of those people.”
Jon: “It's amazing, you know, just the department, and I think a lot of people may not realize this, just how difficult it has been to get tenure or how difficult it was to get tenure at Chicago at that time. My sense is that they would only tenure people who they felt would be future Nobel Prize winners, and that sort of influence they're hiring. So, I think it really speaks to what they saw in you. And it’s just amazing to think, too, you know, like I remember stories about, I think it was Milton Friedman and George Stigler trying to hire Shleifer when they did hire him to Chicago. They sort of famously had this photo of them, on some sidewalk saying why don't you come join us on the sidewalk. And it's amazing just how much the department has changed since then, and I feel like with the passing of many great Chicago economists, Friedman, Becker, Lucas, Stigler, there are far fewer Chicago school-associated economists now at UChicago than there were a decade ago. But there are some like yourself, John List, Ken Murphy, Casey Mulligan, Robert Topel, and others who I think still care about the Chicago tradition in different ways. In your mind, is there a future for Chicago at a price different from Chicago at a price different in the Chicago school? My sense of how Chicago price theory is different from just standard micro, first-year grad micro, is that there's less care about utility functions and we just go straight to demand and supply curves and really are careful in thinking about them. And you're still at Chicago, the first-year grad micro-sequence is still called Chicago price theory, and it's still taught differently. I'm curious, like, what do you think about the future of the Chicago tradition, the Chicago School? Do you think it's sort of in decline or do you see it having a long-lived future? I know there are other people that I haven't listed that care deeply about it, some who are at Chicago and many who are not. There's a big diaspora as well now.”
Steve: “Mm-hmm. So let me divide into two. So, I don't know, you know a lot more about macro than I do, but my sense is that, so we'll go back to the '70s, there's a real gap between how Chicago thought about macro and how Chicago thought about micro compared to the rest of the world. And interestingly, the Chicago view essentially won in macro and our students placed well and influenced. And I think everywhere now around.”
Jon: “Still places very well in macro.”
Steve: “Yeah, yeah, sort of everywhere. Every macro department feels a lot like heavily influenced by Chicago. And I think for better or worse that has been a success story for the Chicago way of thinking. I think just really the opposite for Chicago micro; we have not had very many students who've gone out and been influential, maybe Ed Glaeser being a clear counter-example to that. And I think in the marketplace for ideas, I gotta say that the Chicago price theory really has lost. And it hasn't caught people's imagination. And I remember I was on a call with Milton Friedman as long after he left. He left Chicago in 1978, but this must have been 20-something years later where he was upset that Chicago price theory was not doing well, that it wasn't being appreciated. And I remember Casey Mulligan saying, "Hey, Milton, I thought you believed in markets. Let's just face it, price theory is losing in the market for ideas." And Milton Friedman got so upset about that. He believed in markets until it applied to Chicago price theory where he thought that it was the right way, so markets shouldn't have any bearing on it. But I think that's just the truth. That the people who you think of as being the logical heirs to Chicago price theory, the two that come to mind really are Ed Glaeser and Jesse Shapiro, they're not at Chicago. And with Kevin [Murphy] retiring, there isn't, when Kevin Murphy retiring, there just isn't anybody around now really, other than Casey Mulligan, who could really keep the torch going. And the movement in terms of textbooks and what people are taught is just so away from what I think of Chicago price theory, which is not as mathematical, it's more about how you take the simple tools the very old tools you know tools that go back to people like Marshall and how you use them. It's really the skill that I see in Chicago price theory (one that I don't have) is how do you look at a problem and understand it to the lens of the right tool. And it's not complicated. It's usually very simple. Once you can see it, it's usually not much more than intermediate micro is what gets applied. And it's more artistic. And I really feel like our field has moved towards technicality. Harder proofs. More mathematical. And I don't see any going back. I think it is essentially lost to posterity at this point.”
Jon: “Yeah, and it's a, I think a bit of a shame in the sense that it really emphasized economic intuition and really that sort of taking, that being front and center above all else. But I mean, at the same rate, you see all these great feats of these mathematical economists, you know, I think, you know, Paul Milgrom and auction theory and, they've informed FCC auctions. So, I do understand the sort of counter argument around mathematics and rigor. And at Sanford, it's sort of the home of economic theory. I see that a lot. And I get where they come from on that. But it is a bit of a shame that Chicago price theory has been diminished in the way that it has. But I know Casey Mulligan's Chicago Price Theory book is coming out in the second edition soon. So, we would never write things off completely, but I agreed it certainly seems like it's in a bit of a diminished state. I want to turn now to just like the applied micro legacy at Chicago. You are great friends with John List, and I think we're both agreed that List is in line for Nobel Prize in Economics. You and John at Chicago really brought applied micro to a department which even now continues to be one of the more structural departments like Yale, Northwestern, and Sanford rather than one of the more, I'd say, applied micro departments like MIT, Harvard, and Berkeley, paying with a very broad brush here. But you, you and John have been very unafraid when it comes to going into the real world, trying to run field experiments, whether it's where you went to Uber, and Johnson's working with Lyft and Walmart, you're trying to get people to make life decisions based on a coin flip. You guys started doing this all at a time when it was probably frowned upon in academia in the 2000s. I'm curious, what in your mind has been the greatest contributions and legacy of team applied micro at Chicago thus far?”
Steve: “So, I think John List is amazing. He's amazing in two regards. First, he came out of nowhere, right? He came from one the lowest-ranked institutions around, the University of Central Florida, and he had a boldness of thinking about the power of experiments. It's embarrassing to talk about it now, but somehow in my mind in my training I just had the idea that you weren't allowed to generate your own data, that somehow as an economist, you were supposed to take data that were out there and analyze them. And then John came along and just started creating his own data sets, and they were in silly things about baseball card buying, something baseball cards or pins, decorative pins and I remember when I first ran into John's work, thinking, "Well, you're not allowed to do that." And then I thought, "Wait, wait, of course you are. Why did I think you weren't allowed to do that? Well, who put that idea in my head that we couldn't be data creators?" And it was, it was a blindness. It was an interesting blindness to a real truth. And so, John, bringing John to Chicago, I really worked hard, had to fight a lot of resistance to bring him. It was one of the best things I ever could have done for Chicago because he has just been a force of nature his entire life. And our years, maybe we had seven, 10 years where we collaborated on a bunch of papers, it's so much fun, so exciting. It was interesting for me because I really, just like I thought I'd be a Chicago price theorist, I thought I would be good at doing field experiments, and interest, it turned out I wasn't. I was never very good at coming up with these great ideas about how to use randomization to answer questions. John was good at that, and I wasn't. So honestly, I think I give 90% of the credit to John there because John has just been the most forceful. John has been unbelievable in the way that he has transformed the way people think about the world. And along the way, John did a real service to the profession by making people think harder about lab experiments, because there's real reliance on lab experiments, which I think don't turn out to be all that useful in our context, and bringing the idea that you can do these randomized experiments. Now, John was the first one to do these field experiments, but I think he did them in ways that opened people's eyes to the power. Yeah, so there was a moment there, you know, where Michael Greenstone, who went away and came back, Mark Duggan, Roland Fryer, there was just a group of us around that were some of my closest friends and all awesome economists. And it was so much fun. Those were really, if I look back on my career, those are the years I remember as being the golden years where I just loved going into work every day and you never knew what you'd be working on the next day because ideas were flying so fast.”
Jon: “That's great. And I know you golf a lot with John and at one, I mean, John himself is a great golfer and you know played on I think is you played at the collegiate level. I know you guys are playing so much golf at one point that I think you are almost getting ready for the senior’s tour. I guess like this is maybe an unknown thing. But it seems like there's just tons of Chicago faculty members that are like super into golf. I know like Fama and Thaler and many, many others are. But like so much so that like, I think you guys are playing every week at one point or maybe still are. I'm curious how much was golf, I guess, part of that, I guess culture of, of going out and taking a break from being in the office, but also talking about ideas while you're on the course, obviously as well.”
Steve: “I mean, John and I played a lot of golf and eventually I would play with Fama many times a week. Eugene Fama and I would play and Richard Thaler would be there sometimes. It's unusual where you'd play a threesome and you'd be the only one who doesn't have a Nobel Prize who's playing in your group. You know, it was just, John and I were, we were best friends and John was an amazing guy, and I was a wannabe of an amazing golfer. I was trying hard to become one and we had a lot of fun with that. But I would say our time on the golf course, if you've been around John, you know that there's everything. He's talking about work all day long. It's always about your next paper and your next study and how are things going. But when I played with Fama and Thaler, that was just purely three old guys getting together to play golf. That was that was a very different style of thing, much more like you might think of but in general, I would say the golfing culture was not really important to anything. It was just how my friendship with John evolved into something we did but it could have been anything.”
Jon: “Well, that's fascinating and as a lover of golf is why I can totally understand and how much fun it is to get out there and sort of enjoy nature and a great way to get to know other people very deeply. So, I think the big sort of news that I'd heard from you recently is that you're going emeritus next year. You're retiring from academia at the age of maybe 56 or 57. I'm curious why leave so young? I know, I guess many say Ramsey, you know, Fischer Black, many of them, I guess, died very young. Many others left at the top of their game. I'm curious, what has changed your, and we've talked about this a little bit, but I'm curious, how have your views about academia changed and what has inspired you, I guess, to retire from academia at this... current stage?”
Steve: “So, I think two different forces at work here. The first one is that maybe between five and 10 years ago, I worked on three or four projects that I was just incredibly excited about that I felt were some of the best researches that I'd ever done, research I did on making decisions where I had people out in the real-world toss coins and influence what they did. I did this study of Hurricane Katrina, which again, no one cared about it, but let me leave that. If you had it, they have that too. I did a study of Hurricane Katrina where we looked at what the actual effect was on people's life outcomes in a quasi-random way who happened or happened not to be affected by Hurricane Katrina. John Donohoe and I wrote a paper that was a 20-year follow-up to our earlier paper on abortion and crime. And it was unlike really any other economics paper I've ever heard of because we made a prediction in our first paper that was published in 2001 about what would happen over the next 20 years. And then we went back to the data 20 years later and we said, "Did our prediction hold?" And it was an interesting paper to write because we just simply replicated everything, we had done 20 years earlier. We really were completely handcuffed by... the choices we had made 20 years earlier. And it turned out that exactly what we expected to happen, maybe even to a greater degree than we had predicted, had come true in terms of abortion, seemingly still having an extremely important effect on crime. So those were examples of papers I worked on. Last time I worked on it, I was so excited about was estimating a demand curve for Uber because it makes economists furious when I say it, but in some sense, I think it was the first interesting demand curve that economists have ever been able to estimate because to estimate demand curve you have to have price variation along a huge range and we were the first people to have that. So, these were four papers that I was really excited about and collectively they had zero impact. They didn't publish well by and large, nobody cared about them and I remember looking at one point at the citations and seeing that collectively they had six citations. I thought, my god, what am I doing? I just spent the last two years of my life and nobody cares about it. And I really think it's true that the way I approached economic problems, without a fashion, without a vogue, and for better or worse, probably the profession is better for having a different set of standards than I was used to meeting up with. And that was really discouraging to me. And you combine that with the idea, with the fact that along with Stephen Dubner, we've got this media franchise where Dubner's podcast Freakonomics Radio gets a couple million downloads a month. And if I want to get a message out, I can get millions of people through a different medium. It just didn't make sense to me to keep on puttering around, doing all this work, spending years to write papers that no one cared about when I had other ways of getting my ideas out. And really my interests were elsewhere. I didn't get any thrill. It'd be one thing. If I got a thrill from publishing, if I loved the act of publishing, and it made me feel great to see my name in some journal, then it would be different. But I never cared about that. I just liked answering the problems and I realized there were better ways, there were better venues for me to answer your problem. And so really the question is, why am I retiring now? The question I should ask myself is why didn't I retire a long time ago? It made no sense. I've just been, I've thought, I've known for years, it's the wrong place for me to be. And it just took me a long time to figure out how to extricate myself from academics. And I'm so glad I'm doing it. It's good for everyone. It doesn't make any sense to, it feels to me awful to be in a place where I'm not excited and where I'm not contributing materially. So, for me, it feels like a breath of fresh air to be saying, "Hey, I'm not going to be an academic anymore. I'm going to be doing what I really love to do."
Jon: “Well, it's an interesting question. I asked this myself a lot, too, about are we running out of good ideas in academia, at least in academic economics and finance. I'm a little more on the finance side, but I think 50 years ago, things like the Black-Scholes papers were written, Black, Scholes and Merton papers, and the that was like an option pricing formula that everyone in Wall Street around the world eventually used for quite a period of time to price options, like, what a massive impact that was or think about the CAPM or think about Paul Milgrom and the FCC using their auction theory formulas to auction off spectrum I just think about all these ideas that had so much impact. I wonder now, just like with so many researchers, to what degree they're still low-hanging fruit. I think it just gets harder and harder, I think, at some level, to be able to innovate. And so, the bar just keeps on being higher. But at the same rate, I wonder, too, if the marginal impact of an academic is perhaps declining sort of in the same respect that Bob Gordon and people like that argue that we're running out of ideas and that we've already invented all the great inventions, whether it's commercial air travel, AC, automobile, computer, you name it, that even things like the iPhone or maybe some ChatGPT, chatbot sorts of things are really minor innovations when you think about the long run.”
Steve: “Though I'm older than you, people have always said that. People are always saying we've run out of good ideas. I don't buy that at all. At least when I talk to smart people outside of economics, their view is that AI is not minor. AI is enormous. And I think within economics, the profession, if you can anthropomorphize the profession, has made choices not to focus its attention on things like Black-Scholes. It's really, right now, I think the profession is very inward-looking. It's rewarding people who do things that are seen as hard. It's really blurring the lines between theory and empirics was structural in a way that it is an experiment that I personally don't think has worked out very well. And so, I think that it's not that, I mean, the great ideas you're talking about like Black-Scholes are few and far between anyway. But the rewards are not there for people who have practical insights are not rewarded greatly in the profession. The rewards come to people who make innovations, theoretical innovations, right? Who come up with new techniques, who do hard stuff that other people can't do. So, I think in that sense, economics is going to become, my prediction is that economics is going to become less and less relevant, more and more inwardly focused. And honestly, I wouldn't be that surprised if economics ends up going the way of anthropology or sociology, which works prominent and thought to be very promising and important disciplines, but have fallen dramatically in their stature because they ended up being more arcane and more focused inwardly. So, I have a really bad feeling about the future of economics, and I don't see an easy way to change it.”
Jon: “Yeah, it's interesting for sure. And I definitely see that structural shift that's going on. A lot of people, I think, are getting back into estimating very, very complicated models rather than simple reduced form ones. And we'll see how that pans out. I mean, maybe things, it'll be like a pendulum and things could come back as well. I totally agree with you on the AI optimism point. I sort of disagree with Bob Gordon on that it seems to be enormous promise and a lot of very interesting questions that I think are propping up, whether it's effects on the labor market or effects on really any part of our daily lives.”
Steve: “As I think about what I did as an economist, trying to look for interesting angles to ask questions. Honestly, I think AI, if I were young, I think what I would be trying to do would be to figure out how to get AI to answer those questions for me. I think that the nature of the economist and what the economist does is going to be transformed greatly in exactly the way that the nature of so many jobs are changing. And I think almost everyone who does a job has this illusion that AI is never gonna touch their job. It's just gonna touch everyone else's job. But I really think that the best hope is-- I look forward to economics. The best hope is that AI actually ends up being so much better than people at doing the idea generation and the finding of interesting patterns and data that that could be the key to a real renaissance in empirical economics. But we'll see how it plays out.”
Jon: “Absolutely. I mean, we went from the day before Chat GPT 3.5 public, taking a long period of time to write a book or wherever have you the abstract or introduction to an academic paper to a world where you can write a book in a matter of minutes or an introduction in a matter of seconds with the help of a chatbot. So, I totally agree with you that the productivity and sort of possibilities for economists completely changes. And I'm sure you must remember what it was like writing empirical papers in the early, mid 90s, how much that's changed just with innovations like Stata and so forth. This is sort of just the next part of that evolution. And I'm sure it just will continue to get changed, more interesting and especially as we can sort of upload data into some of these chatbots. So, I'm curious just in talking about the department, I feel like this is such a huge shift in your career or such a huge announcement that you're retiring from academia. I think about like across the years and you've interacted with a lot of colleagues at the, should call the Department of Economics and adjacent departments at Chicago. I'm curious, there have been so many characters that have come through the Department over the years and so many great stories. It's such a famed department and certainly thinking to the days of Friedman, Becker, Lucas, Stigler's had so much influence. I'm curious, like in all your travels, who have been some of the most memorable or colorful people that you've come across? I know Gary Becker was a very big mentor to you, and perhaps one of the people that contributed to you staying at Chicago and not going back to Harvard and MIT. You know, stories I remember, Jim Heckman famously saying, you don't do real economics. Obviously, he's more part of—”
Steve: “That's one of the nicest things he ever said about me. That was a compliment coming from Jim relative to what he usually says.”
Jon: “Well, all these Jim Heckman stories I hear, there's, I remember the times when, you and John Lott were both at Chicago, coming up with some very different ideas about the economics of crime. And I've heard some of those stories as well. I'm curious, like across all your years at Chicago, what have been some of the more memorable moments for you? You know, whether they're very important sort of career-changing, moments or big sort of epiphany-type moments or just the sort of people that you've enjoyed or enjoyed as much as others.”
Steve: “Yeah. So, on the positive side, Gary Becker was an amazing human being, a brilliant economist. The time that I got to spend with him and Kevin Murphy, there's no thinker on the planet like Kevin Murphy. Kevin is just a phenomenon. It almost I don't even know how to describe Kevin's insight and his, I'll tell you one story about Kevin. So, I was working on a paper with Paul Heaton and Roland Fryer and we were trying, so Kevin wasn't doing very much. Kevin never does very much. Kevin's just in the background doing his thing and you go tap him on the shoulder when you have a problem. So, we had a problem. We couldn't figure out how to do one particular thing. And so, we went and we sat with Kevin. We explained the problem to him, and Kevin said, "I don't know what to do. "I don't know how to answer that problem. "I don't know how to solve that." And I looked and said, "What?" "What, Kevin, what are you talking about? "I've never heard you say that before. "How about you just go to the board "and let's just see what happens?" So, Kevin went to the board and from scratch, it turns out, ended up deriving principal components analysis from the very basics, from the very basic principles. It was interesting because Paul Heaton, who was a graduate student at the time, now at Penn, he went back and he looked at it and he said, "Well, it's so strange." He actually went back in the textbooks and they don't teach that in the textbooks. What Kevin just derived was the initial way that the first people who came up with principal components, how they derived it, but he couldn't possibly have ever read that. He literally just invented it from scratch at the board. And that was what it was like being around Kevin. No matter what question you asked him, he could figure it out. And if he didn't know it, a lot of times he just knew it somehow, but then he could just figure it out. And if you're like me and you enjoy being around genius, it was just so amazing to spend time with Kevin. Now, on the negative side, my god, this is it. Some of the bad personalities that have gone, that have inhabited Chicago really stand out. And I've got to be careful because John Lott's already sued me in federal court for things I said. Well, let me not talk about John Lott because he isn’t in the department, but Heckman is just such a character. Amazing economist, an amazing thinker. I once went to him with another problem I couldn't solve. And I must have given like three sentences of description When he stopped me and he went and he grabbed some old book off his shelf. It was exactly what I needed it I don't even know how he could understand from the three sentences I said exactly the structure mathematical structure I needed to solve this problem, but he was in it is an absolute genius, but a nightmare personality he eventually decided that he and I were at war for the future of again although I never saw it that way. And he did crazy things. I just tell you one crazy thing he did. At one point he started a new seminar series. So, an academic department has the labor economic series, the macroeconomics seminar, etc. He started a new seminar, and I'm not even joking. I'm literally telling you the truth. It was called the “Get Out the Sleaze” seminar. And the only thing you needed to be invited to speak was to be critical of me. So, it was an entire semester of some academics, a lot, some of them weren't even academic. You didn't have to be an academic. You just had to not like me and have publicly said you don't like me. And he invited, he invited guest after guest whose only agenda was to destroy me to come on campus to present their work. And then I think five, finally the department chair at the end of the semester, it was really awkward for the grad students because the grad students were being asked to organize this and were frightened of what Heckman's response would be if they didn't follow through. But I think they felt awkward being around me when they were doing this. And then we have these important exams that people take at Chicago. And Heckman would routinely put a question on the exam, which was my work, and asking the students to say what was terrible about my work and that's what you needed to get to progress on, and get your PhD. So, it was a really, it was a really, I mean, I didn't, it didn't bother me that much because I didn't take it that seriously, but the extent, the extremes that he would go to try to make life difficult, not just for me, but for others, really, it's stunning. And you could never, in a business world, you just couldn't get away with that. But in academics, there's enough freedom that people can just do really anti-social things. And so, still get away with it. We all hoped that when he won the Nobel Prize, he would relax, but it was just the opposite. He said, "Oh, God, it's so bad." He would become-- kind of friendly with me, too, on and off. He'd say, "It's so awful. Now that I have the Nobel Prize, everybody thinks I'm washed up. I have to work three times harder to prove to them that I'm just as good as ever." He really had an unusual person. He has a really unusual personality.”
Jon: “I feel like he's one of those rare economists who gets more productive after winning the Nobel Prize. Like him and Tom Sargent, I feel like, are still in the most productive years of their lives. And I feel like they should maybe bring back the, there was this award that the AEA used to give out many years ago, and they actually, they brought it out at the same time as the Clark Medal. It used to be called the Franz Walker Medal, and even after a very famous conference long ago. But the idea was that this would be like Nobel of Nobel or like best of Nobel kind of economists, and it was only given out every five years and I think like Alvin Hansen a bunch of very famous people want it but, I wonder if you know you introduced a some sort of a best of Nobel or even sort of higher prize whether you could possibly incentivize more Jim Heckman Tom Sargent like productivity but I mean they're already doing it so my hats off to them but amazing just to, I guess, Jim Heckman's also much more on the structural side of things. And I think there was really no-- you think about the history of Chicago and where most of the early applied micro revolution kind of happened or credibility revolution sort of happened. It was largely Princeton and then MIT and Harvard for the most part. And it really wasn't-- I think until you showed up that there were-- really any people doing simple diff and diff or plausibly exogenous type work in that, in general, people were still pretty structural at that point. Like, I'm sure when you first walked in the door as a young scholar, there were, I'm sure, many naysayers at that point, not just Jim Heckman. Was it a bit difficult?”
Steve: “I'll tell you another story. So, Ed Prescott got, who was mostly not a Chicago, but he did visit Chicago, at least once a night twice. Remember Prescott, who is a macro economist, extremely sophisticated, Lucas-style macro.”
Jon: “Even more so, all about theory. Theory, first enough, if the data doesn't match the theory, then the data is wrong. You know, not the theory.”
Steve: “So Prescott, he was kind of, I was afraid of Prescott. I'm afraid a lot of people, I was afraid of Prescott. But one day, I happened to find myself sitting with him. And Prescott said, you know, I really like you. I really like you as an economist. I said, what? Why? He said, 'cause you have enough sense to not mess with theory, right? You know you're no good at anything theoretical. So, you just stick to point estimates, right? And I need point estimates, right? People who do what I do, we need point estimates to calibrate them out. You know, what I hate is I hate people like you who think you're good at theory and then you get everything confused. But you don't have that problem. You know you're bad at theory. It's pretty, it's right. I mean, it was a really, it was an insightful statement. Now, most of the Minnesota macro people hated me, despised me. And he was, he was one of the rare people who didn't, didn't mind. But you know, it's funny. Everybody, everyone in Chicago was always kind to me and Lars Hansen and I for a long time did a whole bunch of the providing of social goods within the department. I worked really closely with Lars on so many things, and intellectually we couldn't be further apart. I couldn't understand anything in Lars's papers, and Lars wouldn't have liked what I was doing. But there was a void, and there's nobody who was really doing much in the department, and so Lars and I would get together and try to make it a better place. No, I have to say it was an incredibly welcoming department and people were really it was okay to do your thing and I think the idea was as long as you were the best at what you were doing or perceived as being good at what you're doing, it was okay. And there was a sense of this marketplace of ideas and Nancy Stokey would say to me like I don't understand what you're working on but people seem to like it, and that's important." And that was, I think, a lot of what happened in Chicago that allowed that, and I think the other thing that really worked at Chicago, as I look back, is that when it came to new hires, we looked at what they were doing, and everybody, even if it was far from their field, tried to understand it, and we tried to come to our own decisions. And sometimes that was disastrous, and sometimes it worked well but it meant that we weren't just following the crowd and we weren't Harvard or MIT or Stanford. Those were always places I think that were more attractive to mainstream economists. So, we had to make bets on weird people and odd people that that wouldn't necessarily be attractive to those places. And we and John list to be a great example, right? John List with it the University of Maryland econ department when we found them and those were the kind of higher hires and the thinking that made Chicago different. Now, honestly, I'd say Chicago is almost exactly like the other departments. You'd be hard-pressed, I think. If you blinded everything and you took Stanford, Chicago, Princeton, MIT, Harvard, it would be hard to find a real individuality that's so different at Chicago than anywhere else.”
Jon: “Well some people would say that Chicago a true hard Chicago type people or Chicago Minnesota people might say Chicago's kind of gone soft. Yeah, since maybe you know the 90s are the days that you started there in the sense that at that time, I think they were failing out half the students and I think that's changed a lot now as far as I understand it. I guess the upside of that I mean obviously I mean it's getting thrown away you Economic PhD program. You know it's a pretty terrible thing. But I've heard stories from people who said, well, it allowed more people to get accepted and people who otherwise it wouldn't have been able to go if it was kind of thing where they took much fewer students, but, you know, didn't fill anybody out. They gave those people an opportunity and allowed the department to sort of take risks on students who were maybe not getting in elsewhere, but we're able to get in there and we're able to really show their muster in those first couple of years of their Econ PhD program. And I'm sure there's many stories. I mean, how in your mind has the culture sort of shifted? Obviously, there's the seminar format, which famously, I think people tend to tear things to shreds. Some seminars, the money seminar, I think was started by Friedman, very famous. Have you sort of noticed that that change? Or had a hand in some of that?”
Steve: “I don't know if I've had a hand in it. I haven't really done very much to change it, but it has changed. And for better and for worse, but I really, I do think it wasn't really a good equilibrium, where Chicago was, to try to be an elite department made up of a kind of iconoclast. It's just a hard thing to replicate and maintain. And I'll be totally honest, the environment in Chicago was toxic. It was back in the day. It was mean-spirited. There was, by virtue of everybody being an iconoclast, there was a lot of bad personalities. And especially for the grad students, I really don't, I'm totally with you, that a virtue of letting in a lot of people and then flunking them out is that some people who wouldn't have had a chance, got a chance, but the toxicity of the environment. And I compare it to when I went to MIT and MIT, they brought you in as a PhD student and they made you think, they made you believe you were the future of the discipline and they treated you like you mattered and you practiced, you acted like you mattered, you acted like you were going to be a future economist. Really, we [Chicago] beat the stuffing out of our grad students so badly that most of them left the program, shells of their former self. So honestly, I think what might be ideal would be if we had a kinder, gentler Chicago that still had a little bit more of the iconoclast flavor, but I'm just not sure. I'm not sure that we could have accomplished both, but... but I definitely think that we've moved in the direction of saving people's mental health, their sanity from the chaos that was reigning when I got there, which is why Andrei Shleifer said don't go there, because it was crazy. It was completely out of control, and maybe that was good for scholarship, but it was destructive as well.”
Jon: “Yeah, I recall there was some phrase about using pressure to make diamonds out of coal or something like that. I totally agree how destructive and terrible that can sort of be on just from a human in compassion for a standpoint. I remember taking your economics of crime class at Chicago, which was great in the sense that it wasn't really just a class about economics of crime, but it was really just an intro to applied micro and everything you needed to know and certainly had influence on me and sort of my appreciation for possibly exogenous identification and even though I'm sort of more of a finance macro person. I remember in that class, you took the whole class to this gun range at Deb's gun range in, I think it was Gary, Indiana, and I'm curious, like, what was the goal in your mind with that trip? And like, I know, I think every other year, I think you'd bring a prostitute into class or something like that. And it's amazing to me in the sense that I don't know if the idea was to expose, like, which is primarily a progressive student body to something that most would never do. I mean, to this day, I think that's one of the few times if I've ever shot a gun. I'm curious, like, what was your thinking about that class and the other classes that you taught at Chicago? I mean, clearly, I think different from the rest of the pack in terms of the experiences that students would take from that class. And I think many people also gain to know you sort of got plugged into your network. I got an internship with the Dallas Cowboys out of that game to know you through that class. And I'm sure many, many other people, students who come to work with you over the years, got to know you through that class. What in your mind when it came to teaching at Chicago, how did you want to do things differently and was, I guess, intentional that you wanted to sort of partly recruit out of that class to your various endeavors, whether it's been your work with Uber or your work at TGG or your academic work or other projects that you've had academic or otherwise in the real world? I'm curious, what was your approach to teaching?”
Steve: “So, there aren't really an incentive to teach well. No one really cares how you teach. But what I quickly learned is that it's a lot more fun to teach a good course than to teach a bad course. And part of what makes a class good is if you actually have fun. And so, I put a real premium on trying to make integrate learning with fun and in storytelling and doing things that would be enjoyable for the kids. And so, the gun range, I think, was a great example because almost nobody who was in the class would have ever shot a gun. They thought guns were the worst things ever. They thought anyone who liked guns must be a complete lunatic. And so, it was not only fun, it just gave a chance for us all to have dinner together and... sit in some greasy spoon restaurant and gray. But I've heard a number of students say that how is one of the most transformative things they did in Chicago? Because it made them see someone else's perspective. It made them see why people like guns and feel the power of guns. And so when I would bring a call girl friend of mine into class and she would lecture people tell me it was the best lecture they'd seen in their four years at the UofC and so I wouldn't say I tried that hard you know around the edges I just tried to be the tiniest bit creative and to give students experiences and not just lecture to them. I think we do a horrendous job in higher education especially at research institutes of giving students a chance kind of experiences that will transform them into being big thinkers or good citizens, whatever we want them to be. So that I, in my own little way, I tried to create something that would be memorable because what I found is that when I'd been there at UofC for five years and the first class I'd talk came back for the five-year union, I talked with a bunch of students, they couldn't remember anything from my course. They could remember nothing I remember one student came up to me and said when I asked what they remembered they couldn't remember how to do Lagrangian they couldn't everything but the ones that I do remember one time you forgot to pick up your daughter from daycare and your wife was so mad at you. That was what they remembered about my class and when I heard that I realized well I'm teaching the wrong kind of class I got to teach a class that has more stories and less Lagrangian if I want to have impact on people's lives.”
Jon: “That's fascinating. You're pretty bearish on academia. We've sort of established that. Maybe some hope with AI and some other things. I'm curious just on higher education as a whole, would you describe yourself as being bearish and not very optimistic or that it's sort of in need of a deep technological transformation?”
Steve: “Well, that's a hard question and I couldn't pretend to really know the answers. I think, I don't think we're doing a very good job right now in creating thinkers. The whole system is really rigged towards memorization and towards tactical or strategic manipulation of the students to get good grades and not really about asking big questions about learning. So, I think what we're doing is deeply flawed. Do I have a really great alternative to it? No, not really. I think I'd like to see alternatives to the typical four-year college. So, I think that I would like to see something more like a college GED, which right now, what is college really? For many people, college is, it's about the consumption value. It's about going and having fun and meeting people and it's not about so much what you learn it's about the signaling value like I'd rather I'd rather free that up so the people who can't afford to spend $60,000 a year to go to a place like the UofC. Let them show that they know everything that a student who goes there knows despite by taking a test that proves it now. There are a lot of difficulties around that but I would like to see that but I think hard these are hard issues. And one thing we know is that education is extremely resistant to change. If you look at the Dow Jones components from, I don't know, 1929 or 1915, you only recognize the names of the companies back then. They don't exist. They're not important. But if you look at the top 20 universities in the country in 1920, it's pretty much the same set of schools you have now. So, I don't know. Those are great questions. I think that if we were starting from scratch, we would never create a system like we have. But at the same time, look, do people come from other countries to attend schools in the US? Absolutely. Very few people in the US go outside of the country to attend other places. We're doing something right in higher ed. I just think that the possibilities are much, much greater.”
Jon: “It makes sense. Absolutely. It'll be interesting to see how this higher education is transformed by AI, if at all. I guess it's so resistant to change, but I guess it's been a bit adaptive in the sense that computers are pretty well-integrated as well and so forth. I'm curious, just last question here, really about Freakonomics, your future in your retirement from academia and what you hope to do. Freakonomics is such a central part of popularizing, the applied micro approach to questions in the 2000s. Since then, you've got a whole Freakonomics radio empire that continues on 20 years later going strong. You've got this wonderful podcast. People who I mostly admire, one-on-one interviews that you're doing, what are the things that you're getting most excited about today and enjoying doing most now?”
Steve: “I spent 30 years just trying to come up with ideas, trying to do, really it's all ideas. It's trying to generate ideas and test them. And it was through the exclusion of everything else. I realized very narrow, very focused internally. And one thing I really enjoy now is with my podcast is that I'm not a creator of ideas. I'm more a curator of ideas. I find awesome people and I get to really, what they do and learn about them. And it's been fun for me to go from being a producer of knowledge to a consumer of knowledge. It's really just been enjoyable. So, for me it's just been great consumption value associated with that. And I think it's a good balance. I think it's, I don't know what the future holds for me, but it's definitely been useful for me to spend some time learning what other people are doing rather than focusing on it just trying to create things myself. The other thing I'm working on is I have a center in Chicago, it's called the Risk Center, and it's very practical, which is trying to go out and help solve social problems, taking a view of a mix of academics, a startup mentality, and a kind of NGO mentality. I take the best of those three different kinds of entities together to tackle problems and we've got a great group of people and I wouldn't say we've been that successful yet. We've had a few wins, mostly we've had losses, but it's fun, it's practical. It's about how do you actually get things implemented and for me it's a nice antidote to the academic process where for me the fun part of academics was always the idea, get a sense of whether it works or not. And then 95% of your time is dotting the I's and crossing the T's and trying to convince referees that what you've got, what I like about the real world is that that ratio is really tilted away. So that implementation is hard, don't get me wrong. But all of that time perfecting and disproving any other possible competing hypothesis, that was never fun for me. So, it's fun to go out, try and patch together and say the best halfway solution you can do and then see if you can get it to work. So that's really what I spend most of my time doing now.”
Jon: “Well, it's fascinating. I know you had a project in the pandemic that was being championed by the risk center that was all about helping people negotiate their rent. There's a huge problem in the pandemic that people were having issues, renegotiating their leases and rent and negotiating to sort of get more and more favorable terms. And I remember you sort of worked with some lawyers to sort of just put out some broad public good sort of documents that people could use. And my guess is that that's one of your risk success stories.”
Steve: “No failure.”
Jon: “Failure!?”.
Steve: “So, we put together a template that was really designed to help commercial real estate to lessen the cost of renegotiating in commercial real estate by having a template you could use that didn't require sophistication, that just required a landlord and a tenant agreeing to really a one-dimensional term about two dimensions. How much will you cut the rent in the short run and how much of that will have to be paid back in the future? But nobody cared. I mean, that is the problem. We put it out there and we couldn't get, I'm not sure anybody actually negotiated a contract using that template. So yeah, that's hard, it's like academic. It's hard to get people's attention and hard to make things happen. But I will say it was fun. It was fun sitting down with the lawyers. It was fun sitting down with the commercial real estate people, learning about the problem, kind of come up with a solution. And had it worked, it might've been amazing. It might've really done a lot of good for a lot of people. But then, but that's okay. We learned something from it, and it didn't take more than three, four days of our time to really do it. So, although it wasn't a success, it certainly wasn't a worst failure either.”
Jon: “Well, it's amazing. And I hope there's some more golf in that your academic retirement as well in that future. Steve, it's been a real honor to have you on, both as a student of yours, having taken your class at Chicago, and keeping in touch with you over the years. It's been a real honor to really just talk about your career in full and what you're still doing now. I think you've been obviously a transformative part of the University of Chicago Department of Economics. So, I really appreciate you coming on. It's been a real honor to be able to interview you here.”
Steve: “Well, thanks, and I'm the past and hopefully you're the future. So, I'll be watching with interest to see where your career goes.”
Jon: “Thanks so much, Steve. Today my guest was Steve Levitt who's the William B. Ogden Distinguished Service Professor of Economics at the University of Chicago as well as the co-author of the best-selling Freakonomics all of its sequels and co-founder of the Freakonomics radio network. This is the Capitalism and Freedom of the 21st century podcast where we talk about economics markets and public policy, I'm Jon Hartley your host. Thanks so much for joining us.”
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A podcast series of the Hoover Institution’s Economic Policy Working Group hosted by Jon Hartley. The podcast interviews economists, policy makers and practitioners to learn about their thinking featuring discussions on the wide range of economic topics.