Jeff Guo
Appearances
It's Been a Minute
This podcast is a recession indicator.
It's like when a new artist comes onto the scene and you're like, oh, this person, they're kind of getting popular. The last time this happened to me was like Chapel Roan, where I was like, oh, my friends are talking about her. Is Chapel Roan a thing? And then there comes a moment where you realize, oh, wait, no, no, no. She really is a thing. She is selling out Lollapalooza. She is everywhere.
It's Been a Minute
This podcast is a recession indicator.
She's on Colbert. And I feel like with the recession, it's kind of like that, too, where you're looking around, you're looking at your own financial situation. You're looking at your friends' financial situation. You're like, oh, like things are not great. Things are not great. Oh yeah. No, no, no. It's a thing. It's a recession.
It's Been a Minute
This podcast is a recession indicator.
I think you see people buying more of like store brand stuff, like trading down from like Coke to whatever, cola. Yeah, store brands. I feel like that's going to be a big thing if and when or already as we're in this recession. Who knows?
It's Been a Minute
This podcast is a recession indicator.
I guess my advice would be stay open to possibilities. I think a lot of the recession scarring, as economists call it, that happened during the last recession happened because people, they couldn't find the right job or they were holding out for the right job and they were not getting the experience that they needed to get them ahead in their careers. And so their careers were set back by
It's Been a Minute
This podcast is a recession indicator.
It's going to change the culture, like for sure. Not having access to fast fashion, however you feel about that. Having access to all of these, you know, hobby goods, like cheap watercolors. If you want to learn how to do watercolors, you can get like a $10 watercolor set on Amazon, like that kind of stuff.
It's Been a Minute
This podcast is a recession indicator.
I think that if these tariffs stick around on China, we're going to very quickly realize how many things not only that we don't make here, but that we fundamentally cannot make here. Like the iPhone. I know people have said, oh, we're just going to make iPhones here. Right. Right. Right.
It's Been a Minute
This podcast is a recession indicator.
And so I think we're going to very quickly realize through the higher prices and also maybe just the lack of variety of goods and lack of goods like on our store shelves, we're going to realize how truly dependent we are on other countries as they are dependent on us. We are connected.
It's Been a Minute
This podcast is a recession indicator.
Yes. So one thing that happens in a recession is, you know, people are spending less, right? But that doesn't mean they're spending less on certain things. And sometimes what happens is you see people looking for little luxuries, right?
It's Been a Minute
This podcast is a recession indicator.
There's something you said, Brittany, I wanted to comment on that I thought was really interesting. So you were talking about this feeling of, well, we're just consumers in America and we don't make things anymore. Like that fundamentally, I think, is an anxiety that many people feel on the left and the right. It's like, is it OK that we don't make stuff here?
It's Been a Minute
This podcast is a recession indicator.
Is it OK that we buy most of our manufactured goods from other countries?
It's Been a Minute
This podcast is a recession indicator.
Guys, my algorithm is so deranged. I'm not going to know any of this.
It's Been a Minute
This podcast is a recession indicator.
Like they can't afford the big expensive thing, but they're going to buy a little thing just to keep their spirits up and to, you know, make the recession feel less bad.
It's Been a Minute
This podcast is a recession indicator.
Well, also, books can turn into TV, right? They are the fount of so many ideas. Yeah, yeah, exactly.
Planet Money
Planet Money buys a mystery diamond
Exactly. But now the story gets weirder because by the 1990s, De Beers had started to lose its diamond monopoly. A bunch of competing diamond mines had opened up. De Beers later had to settle an antitrust lawsuit. So they didn't control the supply of diamonds anymore. But diamond prices still stayed high for decades.
Planet Money
Planet Money buys a mystery diamond
I'm so glad you asked because I called up the expert. Can you just say your name for us and what you do?
Planet Money
Planet Money buys a mystery diamond
He travels the world visiting mines and factories, collecting data on supply and demand. Paul says right around the time that De Beers was losing control over the supply of diamonds... they found a big new way to juice demand.
Planet Money
Planet Money buys a mystery diamond
They took the same classic playbook, you know, a diamond is something you give to someone because you love them, all that stuff, and they deployed that playbook in a huge untapped market, a country with more consumers than anywhere else in the world.
Planet Money
Planet Money buys a mystery diamond
So in large part, thanks to these new Chinese customers buying into the story of diamonds and also buying a lot of diamonds, Paul says diamond prices actually hit a new peak in the 2010s.
Planet Money
Planet Money buys a mystery diamond
Yes, but here's where the diamond story gets even, even weirder. So these high quality lab-grown diamonds, they started hitting the market in a big way about a decade ago. And people did worry at the time, are these going to crash the price of diamonds?
Planet Money
Planet Money buys a mystery diamond
But because scientists like Ulrika can actually tell a lab-grown diamond from a natural diamond, instead what happened is the diamond market split into two different markets. So if you look at the market for natural diamonds over the past 10 years, the price has come down maybe 20%.
Planet Money
Planet Money buys a mystery diamond
Yeah, that is a big part of it. But then you look at the market for lab-grown diamonds, and that has been just on a wild ride. So at first, lab-grown diamonds were pretty expensive. Paul says if you went to the jewelry store, the lab-growns, they were only 10% cheaper than natural diamonds.
Planet Money
Planet Money buys a mystery diamond
Um, I paid $137. What? I mean, it's not a real diamond, right? There's no way. Or is there a way? Hello and welcome to the Planet Money Diamond. I'm Jeff Guo.
Planet Money
Planet Money buys a mystery diamond
So they were piggybacking off the sort of a diamond is forever and super expensive marketing stuff from De Beers.
Planet Money
Planet Money buys a mystery diamond
Like you remember the marketing for this, Sarah, right?
Planet Money
Planet Money buys a mystery diamond
Yeah, this is not a blood diamond. This came from a lab. Yeah. But the more and more people that started to buy lab-grown diamonds, the more companies invested in perfecting the technology to make them, to grow them bigger and cheaper. A lot of those breakthroughs were happening in China, since China was already the world leader in making diamonds for industrial purposes.
Planet Money
Planet Money buys a mystery diamond
So, Sarah, let me show you something that blew my mind. Remember Alibaba, the Chinese website where I bought the Planet Money diamond? Well, they don't just sell diamonds there. Take a look at this page.
Planet Money
Planet Money buys a mystery diamond
Oh, it's a different kind of ice, Sarah. Yeah. This is a chemical vapor deposition machine. This is basically one of those fancy microwaves Ulrich was talking about.
Planet Money
Planet Money buys a mystery diamond
I mean, a lot of people did think this was a steal. Paul says over the past couple years, companies in India and China have been buying tons of these kinds of machines, building big new factories. Paul's actually visited some of them.
Planet Money
Planet Money buys a mystery diamond
All these automated factories with their rows and rows of diamond-making machines led to a huge upswing in the supply of lab-grown diamonds.
Planet Money
Planet Money buys a mystery diamond
Since then, the wholesale price for lab-grown diamonds has absolutely crashed. In just three years, it's fallen like 90%. It's been this cataclysm for the diamond industry. Paul says some lab-grown companies are going bankrupt. Also, you know how diamonds are also used a lot for industrial purposes?
Planet Money
Planet Money buys a mystery diamond
Some companies are actually pivoting back to that, just making diamonds for like saw blades and drill bits.
Planet Money
Planet Money buys a mystery diamond
I know. Apparently, this is like an open secret in the industry. Literally, nobody that I talked to was surprised at all that I'd somehow managed to buy this diamond for $137. Apparently, it was not even that good of a deal.
Planet Money
Planet Money buys a mystery diamond
Yeah, exactly. That is the biggest mystery in the diamond market right now.
Planet Money
Planet Money buys a mystery diamond
Yeah, I know. That's what I'm saying. So this is the big puzzle right now. Because for natural diamonds, the typical markup, like in a retail shop, It's maybe 30%. But for lab-grown diamonds, the markup right now is like 600%.
Planet Money
Planet Money buys a mystery diamond
Right. But that isn't happening. And there are a couple of theories why. So theory number one is maybe there's collusion, right? Maybe there's some conspiracy among diamond stores to not lower their prices. But there are so many diamond stores, you know, in person. You can also buy them online. So it's kind of hard to imagine that they would all agree to this.
Planet Money
Planet Money buys a mystery diamond
Well, today on the show, we're going to answer all of those questions and dive into the economics of sparkly, sparkly things.
Planet Money
Planet Money buys a mystery diamond
Yeah, yeah, yeah. So theory number two. This is about something maybe going on with customers. Think about when you buy a diamond, right? For most people, it's maybe once or twice in your life. So the price of diamonds is... is not like the price of gas. You're not paying attention to it all the time.
Planet Money
Planet Money buys a mystery diamond
You don't know that it's actually $100. Yeah. So part of this is that the price of these lab-grown diamonds has been changing so quickly, the wholesale price. But eventually you would expect consumers to catch on and for the prices to come down.
Planet Money
Planet Money buys a mystery diamond
Well, unless you believe in the final theory, theory number three. And this goes back to why diamonds are so expensive in the first place. You know, the whole story that De Beers sold us decades ago, how diamonds are supposed to be this expensive symbol of love and affection. So there's a big difference between buying someone an engagement ring that costs $5,000 versus $99.
Planet Money
Planet Money buys a mystery diamond
Because the market for diamonds, let me tell you, it started to get very, very weird.
Planet Money
Planet Money buys a mystery diamond
Yeah. You know, I think it's just psychologically hard to let go of the idea that a diamond should be expensive. Like, on some level, it just doesn't seem right that you can just order a diamond like this for $137. I mean, just look at it. It's a diamond.
Planet Money
Planet Money buys a mystery diamond
Okay. So, Sarah, you know, I did try to embody that mindset. I did try to imagine this diamond as, you know, just a commodity in the cold, hard marketplace world.
Planet Money
Planet Money buys a mystery diamond
Well, okay, okay. Let me tell you one last story. So, when I was in New York, I took our little diamond out for a walk in the Diamond District.
Planet Money
Planet Money buys a mystery diamond
The street lamps are shaped like diamonds. It's pretty cool.
Planet Money
Planet Money buys a mystery diamond
the diamond district is this one block in midtown manhattan where like 90 of the diamonds that come to the u.s pass through it's like the ellis island of diamonds i was walking down the street and i saw so many shops selling diamonds but also buying diamonds you guys buy diamonds yeah diamonds yeah where can i i followed this guy wearing a sandwich board it said we buy diamonds we buy gold and he led me to this dark kind of
Planet Money
Planet Money buys a mystery diamond
Oh, here? Push, push? Okay. I walk in, and the door actually locks behind me. And they have me go into this small back room. The shades were down, and there were these three kind of big-looking guys just sitting around.
Planet Money
Planet Money buys a mystery diamond
The guy behind the desk said his name was George Mooks.
Planet Money
Planet Money buys a mystery diamond
All right, all right, all right. Hold on. I handed over the Planet Money diamond. Told him what kind of diamond it was, how many carats.
Planet Money
Planet Money buys a mystery diamond
No, he didn't even want it. Okay, so you wouldn't even buy this. Not for me, my friend. Not for you.
Planet Money
Planet Money buys a mystery diamond
But just then, one of the other guys who was watching our conversation gets up from the couch and comes over.
Planet Money
Planet Money buys a mystery diamond
Now, this second guy, he said his name was Solomon. No last name. Are you the owner of this?
Planet Money
Planet Money buys a mystery diamond
Okay. And you know what, Sarah? As I was standing there in that little room, seeing our diamond in the hands of some stranger, I realized something. I realized maybe I didn't want to sell this diamond.
Planet Money
Planet Money buys a mystery diamond
Fair enough. Fair enough. Anyway, I got our diamond back from Solomon. All right. Thank you so much. Appreciate it. And I got out of there. Thank you.
Planet Money
Planet Money buys a mystery diamond
Which is why we tried some experiments. So there are like tests you can do at home to see if something's a diamond or not. Do you want to try those?
Planet Money
Planet Money buys a mystery diamond
I mean, I kind of feel the same way. You know, that's what I was thinking in that room. Like me and this little diamond, we've been through things from the lasers and the liquid nitrogen to our romantic tour of the diamond district. No matter what anyone else says, this diamond is valuable to me. There is a new perk for Planet Money Plus supporters.
Planet Money
Planet Money buys a mystery diamond
You can now listen to some of our classic series from the Planet Money archive, like when we bought some gold to understand why it's been used as money for thousands of years. You can find all five episodes in one playlist, with more playlists coming. If you're already a Planet Money Plus supporter, check them out. Also, thank you. If you're not, sign up at plus.npr.org.
Planet Money
Planet Money buys a mystery diamond
You also get bonus episodes, sponsor-free listening, and you know you're supporting the work of Planet Money.
Planet Money
Planet Money buys a mystery diamond
Special thanks also to Martin Rappaport. I'm Jeff Guo.
Planet Money
Planet Money buys a mystery diamond
You can like get clues. No, not bite it. Don't bite the diamond.
Planet Money
Planet Money buys a mystery diamond
Right. Because diamonds, which are made of carbon, they are the hardest naturally occurring substance on Earth.
Planet Money
Planet Money buys a mystery diamond
Test number two, put a diamond in a glass of water. Diamonds are super dense, so they sink, but fake stones, a lot of them will float.
Planet Money
Planet Money buys a mystery diamond
Right, so diamonds are incredible conductors of heat, so they're supposed to feel weirdly cool against your skin. Does it feel hot or cold? No. You feel nothing?
Planet Money
Planet Money buys a mystery diamond
Mm-hmm, mm-hmm. I had mailed this thing to her as a kind of proposal to, you know, co-host this episode about this very strange economic mystery. And then more bubble wrap. This package had come from the Chinese e-commerce website Alibaba. Alibaba is the kind of place where you can buy like two dozen lawnmowers straight from the factory.
Planet Money
Planet Money buys a mystery diamond
No, no, no, no. So do you want to know the real answer, Sarah?
Planet Money
Planet Money buys a mystery diamond
Well, no, no, no. First, I got to tell you a story about how I figured it out.
Planet Money
Planet Money buys a mystery diamond
Okay, so before I ever mailed you the Planet Money Mystery Diamond, I actually took it on a couple adventures. We started out at the GIA, the Gemological Institute of America. They're like the diamond experts. So a couple weeks ago, okay, we're walking into the GIA. I went to one of their labs in Midtown Manhattan. Wow, this lobby is really pretty.
Planet Money
Planet Money buys a mystery diamond
For the diamond industry, the GIA is like the temple of truth. It's where people take their diamonds to get poked and prodded and given a grade by expert gemologists. I met their executive vice president, Tom Moses. Hi. Hi, Tom Moses. Hi. Who was going to take me behind the scenes, which they don't usually do because the GIA inspects millions and millions of diamonds a year.
Planet Money
Planet Money buys a mystery diamond
So let's just say we were in the presence of a lot of dollar signs. And I've noticed we have a security guard following us. Yes, we do. Is that just for me? Yeah, just for you. No, no, I'm kidding. I'm kidding. Tom kind of was not kidding. The whole time I was there, I had to have a security escort.
Planet Money
Planet Money buys a mystery diamond
Anyway, Tom introduced me to the scientist who was going to be taking a look at the Planet Money mystery diamond.
Planet Money
Planet Money buys a mystery diamond
Dr. Ulrika Dannens-Janensen has a PhD in physics, specifically in diamonds and how to identify them. So if anybody in the world could tell us what we had, whether it was a real diamond or a cubic zirconia or some newfangled futuristic kind of fake diamond, it was going to be Dr. Ulrika. Should we talk about this mystery diamond that I bought?
Planet Money
Planet Money buys a mystery diamond
All right. Um... I've been showing it off, so it might be a little smudged.
Planet Money
Planet Money buys a mystery diamond
On the table in front of us was a large microscope hooked up to a television.
Planet Money
Planet Money buys a mystery diamond
My life is covered in cat hair. So after getting the cat hair off and the fingerprints of basically all my friends and family, Ulrika got her first good look at the Planet Money Mystery Diamond.
Planet Money
Planet Money buys a mystery diamond
Olga said, yeah, if this is a diamond, it is a very nice diamond. And to figure out if it is a diamond, she was going to pull out all the stops for us, run all of these fancy scientific tests. So she takes me to where the GIA keeps all of its most advanced equipment. It kind of looks like a room where NASA might assemble satellites. Like the walls are white, the ceilings are white.
Planet Money
Planet Money buys a mystery diamond
There's this HVAC system that's filtering out every stray pinpoint of dust. And in one corner... There was this big beige cabinet. It was called a spectrophotometer. This machine was going to tell us what kinds of atoms the Planet Money mystery diamond was made of. A real diamond, of course, is made of pure carbon.
Planet Money
Planet Money buys a mystery diamond
Now, to get our diamond ready for the big test, apparently we had to make it really, really cold.
Planet Money
Planet Money buys a mystery diamond
Ulrika has this bubbling thermos of liquid nitrogen. She pours it over our mystery diamond, which is sitting in a little dish, and she loads it into the machine. Inside, a bunch of lasers turn on, and they're just like blasting our sample, like pew, pew, pew, pew, pew. Meanwhile, Ulrika is watching a monitor nearby.
Planet Money
Planet Money buys a mystery diamond
So the screen was showing this squiggly graph. It looked like a bunch of mountain peaks. And somewhere in those peaks was the answer. Ulrika points to one of them.
Planet Money
Planet Money buys a mystery diamond
She says that specific peak in that specific place, it tells us we have carbon atoms. Carbon atoms arranged in a very special way.
Planet Money
Planet Money buys a mystery diamond
Sarah, it is official. The Planet Money diamond is a real diamond. This is, this is a twist.
Planet Money
Planet Money buys a mystery diamond
OK, OK. So it is true that for the last 10, 15 years, people have been growing these beautiful diamonds in the lab. But I just want to be clear, natural diamonds and lab grown diamonds, they are both real diamonds. They are chemically the exact same thing.
Planet Money
Planet Money buys a mystery diamond
Right. So a natural diamond like this could sell for maybe $5,000. But if it's lab-grown, the price is more like $1,000. And Ulrika's machines, they could actually tell us exactly what we had. Because every diamond, it turns out, is unique. It doesn't matter if they look flawless to the naked eye. Ulrika says they all have these little defects, these little impurities, little imperfections.
Planet Money
Planet Money buys a mystery diamond
So these imperfections can tell you how a diamond came to be. And when Ulrika examined our diamond, she saw three really telling imperfections. Number one, she saw when she looked at it under the microscope.
Planet Money
Planet Money buys a mystery diamond
Oh, I see them. Oh, but they're so small. So these specks, most diamonds have them, are bits of stuff from the environment that get trapped inside the diamond when it's born, whether that's deep underground or in a lab. Now, the second imperfection she saw was when our diamond was in that fancy liquid nitrogen laser machine. Because no diamond is like 100, 100% carbon.
Planet Money
Planet Money buys a mystery diamond
A little while back, I bought something online that, frankly, seemed too good to be true. And after seeing this thing with my own eyes, I knew I had to share it with somebody. My Planet Money colleague, Sarah Gonzalez.
Planet Money
Planet Money buys a mystery diamond
Most natural diamonds, they have a little bit of nitrogen in them. But our diamond, it had something else. It had tiny traces of silicon in it. You can see it on the chart.
Planet Money
Planet Money buys a mystery diamond
And both of these clues, they were pointing in the same direction.
Planet Money
Planet Money buys a mystery diamond
According to the website that I bought it off of, that is a real diamond. It is a one carat, colorless, ideal cut diamond. It's basically an engagement ring quality diamond. That's what they told me.
Planet Money
Planet Money buys a mystery diamond
She is 100, 1000% sure. She said the shape of those little black specks and the fact that they were silicon were Those are really only things you see in lab-grown diamonds. Okay, but now, here is the coolest part.
Planet Money
Planet Money buys a mystery diamond
There is one more imperfection that Orca noticed, and the moment she saw it, she was like, oh, not only can I tell you this is a lab-grown diamond, I can tell you exactly how they grew it.
Planet Money
Planet Money buys a mystery diamond
Is it amazing? There are actually two different ways that people create large diamonds in the lab. So one, you try to mimic how a diamond is made in nature. So you get this giant press. Some of them are 20 feet tall. And you just like squish some carbon at really high temperatures. But there's also a newer method that's becoming really popular.
Planet Money
Planet Money buys a mystery diamond
It involves growing diamonds layer by layer in what Ulrika says is basically a fancy microwave oven. So when Ulrika put our diamond under this special blacklight and zoomed way in, she could actually see traces of that process.
Planet Money
Planet Money buys a mystery diamond
Under the blacklight, you could see a very faint line going through the middle of our diamond.
Planet Money
Planet Money buys a mystery diamond
So you're telling me that the top half and the bottom half of the diamond grew at different stages.
Planet Money
Planet Money buys a mystery diamond
We have a Kit Kat diamond. It's got, like, layers to it.
Planet Money
Planet Money buys a mystery diamond
I just want to be clear. I just want to be clear here, okay? The layers are invisible. You cannot see it with the naked eye. This is a high-quality diamond. That happens to be lab-grown.
Planet Money
Planet Money buys a mystery diamond
Yeah. So that, that is the final mystery we're going to try to figure out. After the break, we're talking about the bizarre economics of the diamond market. So before we talk about how we were able to get a diamond for $137, let's just take a step back to talk about where diamond prices in general even come from.
Planet Money
Planet Money buys a mystery diamond
Yeah, exactly. Like the diamond industry is built around this kind of circular idea that people want diamonds because they're valuable, which makes diamonds valuable because people want them because they're valuable. And the deeper you get into the economics of diamonds, the weirder it gets. So to understand how our planet money diamond fits into all of this, we should start with natural diamonds.
Planet Money
Planet Money buys a mystery diamond
Like, why are natural diamonds so expensive? The modern version of that story begins with... De Beers.
Planet Money
Planet Money buys a mystery diamond
Yeah. So for many, many decades, the De Beers company, they controlled almost all the world's diamond mines. So they were able to keep the supply of diamonds really low. But more importantly, like you said, in the 1930s and 40s, De Beers launched maybe the most genius marketing campaign in history.
Planet Money
Planet Money buys a mystery diamond
You better have that diamond ring if you want to get engaged.
Planet Money
Planet Money buys a mystery diamond
It's forever. Yeah. So that marketing campaign really, really juiced diamond demand.
Planet Money
Planet Money buys a mystery diamond
Now, the retail price for a diamond like this, it depends. If it's a natural diamond, we're talking $5,000. If it's a lab-grown diamond, we're still talking around $1,000. But that was not what Alibaba was charging.
Planet Money
The Indicators of this year and next
Well, our star is supposed to be that ideal interest rate for the economy in the long term.
Planet Money
The Indicators of this year and next
Yeah. It's like a reflection of just your natural metabolism. And nobody actually knows what our star is for the economy. It's not something you can measure. It's more of something you predict. It's based on what you think the future economy will look like, whether you think it'll run hot because of
Planet Money
The Indicators of this year and next
a lot of government spending or a lot of gains in productivity, or if you think it'll run cold because of, I don't know, aging populations or, you know, lack of opportunities for growth.
Planet Money
The Indicators of this year and next
Well, because something really interesting is happening to our star right now. You know, before the pandemic, a lot of people thought that our star was around like one to two percent. But after the chaos of the past year, the past couple of years, really, people right now, they're really not sure what the future holds. They're arguing, is our star maybe like three percent?
Planet Money
The Indicators of this year and next
Yes, yes. Our star is basically everything. And right now we are at this kind of weird inflection point, I feel like, for the whole world. So in 2025, I think the big story is going to be What is our star?
Planet Money
The Indicators of this year and next
I have got a nice cold beverage. Hint, hint. And I'll be talking about our consumer feelings.
Planet Money
The Indicators of this year and next
That's okay. The way I would think about it, the way I would challenge our listeners to think about it is when in 40, 50 years, I don't know, when you're telling your grandchildren, man, 2024 was about blank. Are they going to say 2024 was about? Bitcoin? They might. Bitcoin?
Planet Money
The Indicators of this year and next
Actually, guys, before we get started, I'm actually a little parched, so just give me one second. I'm serious. Actually, I just need to get something real quick. Hold on.
Planet Money
The Indicators of this year and next
I'm back. I'm back. I'm back. My apologies to Kenny's children. They're wonderful. So you can pay the daycare fee when we're late. Okay. So now with my ice cold beverage in hand, I can tell you about my indicator of the year, which is the beverage curve, which to be fair has nothing actually to do with beverages at all.
Planet Money
The Indicators of this year and next
It's not even spelled the same, but anyway, someone want to start the clock.
Planet Money
The Indicators of this year and next
Ah, OK. So the beverage curve, which is named after the economist William Beverage, is the name that economists have for the relationship between the rate of unemployment and the rate of job openings. So, for instance, usually when job openings go down, it's harder to find jobs and unemployment goes up.
Planet Money
The Indicators of this year and next
But, but, this past year, as the Fed was pumping the brakes on the economy, something weird was happening. Companies were posting fewer and fewer job openings, but unemployment wasn't really going up that much. In other words, the beverage curve seemed kind of broken.
Planet Money
The Indicators of this year and next
And that is a good thing, because it means that the Fed has been able to tame inflation without inflicting a lot of painful unemployment on everybody. It's almost as if a lot of those disappearing job openings were just like, You know? Just like, you know, the froth on top of a carbonated beverage. Get it? Get it? Okay, anyway.
Planet Money
The Indicators of this year and next
To me, that is the big story of 2024, the broken beverage curve that helped us get to this off-landing. This off-landing.
Planet Money
The Indicators of this year and next
Whoa. Not that big, Jeff. Jeez. You know, it's not that good to have indoor fires because of the CO2. It makes people drowsy. And it also inhibits cognition.
Planet Money
The Indicators of this year and next
And Adrian, you trust the wisdom of the crowds is what you're saying.
Planet Money
The Indicators of this year and next
I think, you know, we can all agree that 2024 was a big year, right? A pivotal year, the year the path of history took a turn. The US had an important presidential election. The Fed more or less declared victory on inflation. Taylor Swift wrapped up her world tour. So there's no doubt, right, that we live in a different world now.
Planet Money
The Indicators of this year and next
And the big question going into 2025 is just how much has that world changed? And that is why my indicator for 2025 is the indicator of all indicators, our star.
Planet Money
The Indicators of this year and next
And so just to give like a brief explanation, you know how like the Fed sets interest rates, right? Interest rates are like a thermostat for the economy, basically. If the economy is running too hot, the Fed will raise interest rates to try to cool it down. And if the economy is running too cold, then the Fed will lower interest rates to try to stimulate it.
Planet Money
What happened to U.S. farmers during the last trade war
This is Planet Money from NPR. Every time I've called up LaVon and Craig Griffune, they've been busy with grandparent chores. Well, we have two babies today.
Planet Money
What happened to U.S. farmers during the last trade war
He and his team jump in to try to figure out what to do. They are going to need money. They need to move fast. It would be kind of maybe helpful to not have to go to Congress for this.
Planet Money
What happened to U.S. farmers during the last trade war
Now, using the CCC to try to save hundreds of thousands of farmers being hit with trade damage was a bit unusual. The fund had mostly been used to help farmers after a hurricane or they gave out loans or They paid for trade missions from the fund.
Planet Money
What happened to U.S. farmers during the last trade war
Rob and his team have to figure out how to best distribute the money. And it's a pretty chaotic moment. There are trade disputes going on with several different countries. But there are some findable outables, like roughly how many farmers are going to be impacted.
Planet Money
What happened to U.S. farmers during the last trade war
Right. Like, what if the USDA gives out a bunch of taxpayer money, the trade war ends, and the farmers didn't actually need all that money after all?
Planet Money
What happened to U.S. farmers during the last trade war
They have to be thoughtful about it. They don't want to send out too much taxpayer money if the trade war suddenly gets resolved. And they don't want to mess up the agricultural markets by accidentally incentivizing farmers to grow, say, soybeans instead of cotton just to collect a check. In total, they paid out $23 billion to farmers.
Planet Money
What happened to U.S. farmers during the last trade war
But the U.S. did not come out of this trade war with a win. So. So.
Planet Money
What happened to U.S. farmers during the last trade war
But then, of course, in April, President Trump announced a whole truckload of tariffs and some countries retaliated. For a little over a month, any of Levon and Craig's soybeans headed for China were subject to a retaliatory tariff of 135 percent. Wheat, corn, pork, dairy, cotton, those were also hit.
Planet Money
What happened to U.S. farmers during the last trade war
Another complaint, that the money wasn't distributed fairly. There were complaints that red states got more money. And that some companies, like a giant meatpacking company, for example, got money that was supposed to go to farmers.
Planet Money
What happened to U.S. farmers during the last trade war
Rob was a pretty good sport about all of the criticism. You know, there are lessons we can all learn from. Do better next time. And overall, he thought the program was a success.
Planet Money
What happened to U.S. farmers during the last trade war
We asked Levon and Craig, doting grandparents and owners of an 1,100-plus acre farm, what they thought about the program.
Planet Money
What happened to U.S. farmers during the last trade war
So basically the government bailout helped you break even.
Planet Money
What happened to U.S. farmers during the last trade war
During the trade war, China started buying more and more soybeans from Brazil and Argentina and Uruguay. And when the 2018-2019 trade war ended, that buying kept going. China now buys the bulk of their soybeans from South America.
Planet Money
What happened to U.S. farmers during the last trade war
Right now, President Trump and trade representatives from China have somewhat de-escalated the situation. Those 135% retaliatory tariffs on soybeans are paused for now. But U.S. soybeans do still face a retaliatory tariff of about 10 to 20%. And this is really just a 90-day truce, not an actual trade deal.
Planet Money
What happened to U.S. farmers during the last trade war
So, depending on the details, it is still not clear if farmers or any group will want or need a bailout in the future. Today's episode was produced by Sylvie Douglas and was edited by Jess Jang. It was engineered by Robert Rodriguez and fact-checked by Sierra Juarez. Alex Goldmark is our executive producer.
Planet Money
What happened to U.S. farmers during the last trade war
Oh my gosh. Are you guys Iowa's best grandparents?
Planet Money
What happened to U.S. farmers during the last trade war
This is NPR. Thanks for listening.
Planet Money
What happened to U.S. farmers during the last trade war
Craig tracks the fluctuating prices of their crops using a service called Harvest Profit. It sends him alerts with the up-to-date changes in the price of each crop direct from the commodity markets in Chicago.
Planet Money
What happened to U.S. farmers during the last trade war
But on this day in early May when we spoke with him, Craig was willing for us to face the markets. He showed us the day's prices.
Planet Money
What happened to U.S. farmers during the last trade war
How is that? Is that good? Is that bad? Uh...
Planet Money
What happened to U.S. farmers during the last trade war
How long can you store grain comfortably without it being, like if the price is just down, down, down, how long can it stay for?
Planet Money
What happened to U.S. farmers during the last trade war
You don't want a cack in that box. They don't taste quite as good as they used to. So, will prices rise before LeVon and Craig's grains go bad? Earlier this week, they did get some good news. The U.S. and China agreed to a 90-day pause in the trade war. But American farmers are still facing a kind of existential uncertainty. And they remember what happened last time.
Planet Money
What happened to U.S. farmers during the last trade war
Hello and welcome to Planet Money. I'm Amanda Aranchik.
Planet Money
What happened to U.S. farmers during the last trade war
Today on the show, we go way, way back to 2018, to the last time U.S. farmers were collateral damage in a trade war. We go back to see how the government stepped in to keep American farms from going bankrupt, what this might tell us about this moment, and what might happen next. Before we get to the 2018 trade war, we need to spend a little bit of time in the 1980s.
Planet Money
What happened to U.S. farmers during the last trade war
At that time, American farms were in crisis. One of the reasons? They were too good at farming, too efficient.
Planet Money
What happened to U.S. farmers during the last trade war
At that time, farmers were growing more agricultural commodities like soybeans and corn and wheat than Americans were buying and also more than the rest of the world was buying. And farmers were maybe thinking, wouldn't it be great if we could get someone to buy all of these extra soybeans?
Planet Money
What happened to U.S. farmers during the last trade war
So over the 1980s and 90s, trade expanded by a lot. China, they were great at making textiles and knitwear. So I'm guessing with a fair amount of certainty that they were sending us leg warmers and some neon green sweatshirts. Thank you so much, China.
Planet Money
What happened to U.S. farmers during the last trade war
The post-Cold War era is this booming time for globalization. There is more international trade. There's more investment. There are more ties between the U.S. and Chinese economies.
Planet Money
What happened to U.S. farmers during the last trade war
But as with all trade relations, there are issues, squabbles, disputes. And the U.S. increasingly claims that some countries, especially China, are not playing fair. That they have been stealing intellectual property. that there have been hacks that have put U.S. national security at risk, and that their government is subsidizing industries unfairly.
Planet Money
What happened to U.S. farmers during the last trade war
China is like, oh, you're going to tariff us? Well, then we are going to retaliate. We are going to hit you where it hurts. Those farm goods you send us, we are basically going to tariff them to the max, like on your sorghum, which is this ancient grain. You usually use it to feed animals. And China did this because they knew they could source affordable sorghum from other countries.
Planet Money
What happened to U.S. farmers during the last trade war
One of these was a cargo ship named the RB Eden. It was heading from Corpus Christi to Shanghai. And while en route it gets wind of some news, it's a ship so I assume all news comes via wind, China has imposed what was kind of a retaliatory tariff on sorghum At 179%. Yowza. That is a lot.
Planet Money
What happened to U.S. farmers during the last trade war
So the ship is like, OK, we can't unload in China. And we're already more than halfway to Shanghai. So we're going to do a Yui. We're going to head around the bottom of Africa and, I don't know, towards Spain.
Planet Money
What happened to U.S. farmers during the last trade war
Yeah, you don't want to just like float around for weeks or months on end.
Planet Money
What happened to U.S. farmers during the last trade war
They taste expensive. But livestock farming is not what brings home the bacon, if you will.
Planet Money
What happened to U.S. farmers during the last trade war
All of these delicious items from American farms. No one in China will want to buy those products with the added tariffs tacked on top of them.
Planet Money
What happened to U.S. farmers during the last trade war
This is Aaron Lehman, farmer and president of the Iowa Farmers Union. He was like, surely we're not starting a trade war, are we?
Planet Money
What happened to U.S. farmers during the last trade war
And then when did it become apparent that it wasn't what you thought it was going to be?
Planet Money
What happened to U.S. farmers during the last trade war
Aaron put off upgrading his tractor. He also put off making improvements to his planter and combine. His household income went down.
Planet Money
What happened to U.S. farmers during the last trade war
Now, remember, a lot of farmers had worked for years to develop trade relations with buyers in other countries. But this 2018 trade war was putting all of that in jeopardy.
Planet Money
What happened to U.S. farmers during the last trade war
Now, the first Trump administration was watching all of this happen. And it looked like China was being strategic with going after farms, hitting the states where a lot of Trump voters live.
Planet Money
What happened to U.S. farmers during the last trade war
FDR was famous for his fireside chats, where he would ask fellow Americans to pull up a chair and listen to him on the radio.
Planet Money
What happened to U.S. farmers during the last trade war
FDR saw the cracked, blistered earth, the grasshoppers, the starving animals. It was clear that American farms were in the middle of an environmental and economic disaster.
Planet Money
What happened to U.S. farmers during the last trade war
Over the years, they've hosted many interested parties at their picturesque farm, which is conveniently located near an airport.
Planet Money
What happened to U.S. farmers during the last trade war
So FDR set up this government-run fund to, quote, stabilize, support, and protect farm income and prices. The Commodity Credit Corporation, the CCC. And the funds would be distributed largely at the discretion of the Secretary of Agriculture.
Planet Money
What happened to U.S. farmers during the last trade war
So remember in April 2018 when that cargo ship had to do a Yui while it was on its way to China? That was when it became clear that the 2018 trade war was going to be a disaster for U.S. farmers.
Planet Money
Do trade deficits matter?
Hello and welcome to Planet Money. Hello and welcome to Planet Money.
Planet Money
Do trade deficits matter?
I thought, well, you know, here's a question I have. I'm bad. Other people have it. But I had no idea that you guys would write right back. So that was a huge surprise.
Planet Money
Do trade deficits matter?
So my question is, why are they important? What do they mean for us? You know, when I balance a checking account, being out of balance has a bad consequence. Is that true for trade deficits? And are other countries really ripping us off?
Planet Money
What "Made in China" actually means
I'd actually read that ruling before. So I was like, oh, the sticky note one. Okay. Okay. Yeah. Sticky notes.
Planet Money
What "Made in China" actually means
A sticky note kind of started its life as paper, it ends its life as paper, and it's not particularly heavily processed paper. And so the underlying material is really what's important here, and that's paper, and the paper is the jumbo roll.
Planet Money
What "Made in China" actually means
Yeah, that's the goofy bit about the sticky notes ruling is I think it is a perfectly rational point of view to say the Sticky note-ness of a sticky note is the sticky bit. So putting glue on it should be what's substantially transformative.
Planet Money
What "Made in China" actually means
Our hockey pants, clothing or equipment. Are certain cough drops, are they candy?
Planet Money
What "Made in China" actually means
So the sticky note ruling is a bit unusual, but if you dig into their logic, I think they were persuaded by the fact that, what do you use a sticky note for? To write on, like paper, because it's made of paper. So it's the paper that is important here.
Planet Money
What "Made in China" actually means
The stickiness is a bell and whistle to the sticky note, not the essence of the sticky note, not the character of the sticky note, even as you're scratching your head and going, but it's sticky, sticky note.
Planet Money
What "Made in China" actually means
Some of these questions really get I mean, you can it kind of feels like you're staring into the void and it's staring back and whispering at you. Is it?
Planet Money
What "Made in China" actually means
It really depends. Everything from stunned disbelief where the reaction was, it can't possibly work like that. That can't possibly be right. To, OK, let's figure it out.
Planet Money
What "Made in China" actually means
Oh, man. The past 48 hours have been completely bonkers. I am the human equivalent of a computer with 90 browser tabs open. So if I seem a bit dazed... I am dazed. That's why.
Planet Money
What "Made in China" actually means
So U.S. law is very unique in its approach to country of origin.
Planet Money
What "Made in China" actually means
That there's not a nice bright line, one size fits all origin test.
Planet Money
What "Made in China" actually means
Made in USA means this is pretty much fully USA down to the soles of its little American shoes. And it doesn't have almost any foreign material in it.
Planet Money
What "Made in China" actually means
I see it a lot with sort of cosmetic adjacent goods like shampoos. Oh, interesting. My assumption is they are actually making the shampoo in the United States, but they're probably importing, you know, fragrance from abroad and other things.
Planet Money
What "Made in China" actually means
You can have products, including fairly sophisticated products, where most of the components and the assembly is all happening in China, but the product is not deemed Chinese under U.S. laws.
Planet Money
What "Made in China" actually means
This is something that a lot of importers are confused about. U.S. Customs doesn't have some kind of giant list of all the products in the world with a big chart of their origins and their tariff classifications.
Planet Money
What "Made in China" actually means
You do. And then customs can come back and say, hey, so I noticed this particular product was shipped out of Thailand, but you claimed it as Japanese. prove it.
Planet Money
What "Made in China" actually means
So suddenly, companies were coming in and saying, well... I do do some manufacturing in China, but a lot of my parts are coming from outside of China, or I'm really only sending this thing to China for packaging or testing. Do I still have to pay duties on this as a product of China? Even though, I mean, I'm exporting it from China, but am I really making it in China?
Planet Money
What "Made in China" actually means
If I move some or all of my manufacturing operations from China to Malaysia or China to Vietnam, how much do I have to move before the goods will no longer be considered Chinese by U.S. customs and I don't have to pay duties on Chinese products?
Planet Money
What "Made in China" actually means
If you ask poets if they're having fun writing poetry, I think you would get very mixed reactions. I'm not sure we do it for fun in the typical sense of fun.
Planet Money
What "Made in China" actually means
A substantial transformation is processing from which the article emerges with a new name, use, or character.
Planet Money
What "Made in China" actually means
Wow, that's super easy to say. But as you try to apply it to everything in the universe, from lawn chairs to fruit salad to a bottle of aspirin, you get into some philosophical questions about the thinginess of things. Where is the fruit saladness of a fruit salad imparted to the fruit salad? Oh, okay.
Planet Money
What "Made in China" actually means
Yeah. He's so nice about answering my emails, and I try to repay that kindness by not emailing him unless I am like, I am so genuinely stumped.
Planet Money
What "Made in China" actually means
I think he's kind of like a universal Yoda for the customs bar.
Planet Money
How 23andMe's bankruptcy led to a run on the gene bank
Then there was this thing that in the 1800s or so that there had been some... DNA from Great Britain. That was a total shock and surprise. Well, there were several wars in Afghanistan in the 1800s. Yes, and that was sort of a confirmation of, yes, of course these things happen.
Planet Money
How 23andMe's bankruptcy led to a run on the gene bank
Yeah, you messed up. For a moment, Bovi just kind of hovered over the button.
Planet Money
How 23andMe's bankruptcy led to a run on the gene bank
Oh, no, not at all. Should we do it? Let's do it, Vov. Okay. Hold my hand.
Planet Money
How 23andMe's bankruptcy led to a run on the gene bank
And so I bought a kit and I convinced some of my friends to do so as well.
Planet Money
Title Pirates
I mean, I've asked myself the question a million times. Could I have done anything to see that this did not happen? And could you have? Without overstepping my role and stepping on toes of the professionals involved, I don't really think so.
Planet Money
Title Pirates
I think we were. We were already over $800,000 or something like that into the house.
Planet Money
Title Pirates
We just had put the windows in, all the mechanicals, meaning electric, plumbing, was all done, and the house was insulated. Oh, wow.
Planet Money
Title Pirates
We thought initially that we would be paid out $350,000 and that we would have to use that money to try to figure out how to maybe buy the property from the owner. But it was a complicated situation.
Planet Money
Title Pirates
Yeah. Yes. Theoretically, yes, we did. Because we did have, we had to go through closing statements again.
Planet Money
Title Pirates
Obviously, I'm a crazy loon now every time, you know, We did buy a property while this was going on. And, you know, but the builder knew the person, but it was a family estate. So I was asking a million questions. I wanted to make sure everyone that was involved had to sign. So, you know, everyone was sort of taking deep breaths with me because I think I was irritating everyone.
Planet Money
Title Pirates
And by the tone of his voice, I knew something happened with the house. And my first fear was I thought the house burned down.
Planet Money
Title Pirates
The lawyer comes, I give him the money, and he will close. And he will call me and say, it's closed, it's yours.
Planet Money
Title Pirates
Our lawyer told us that the person that sold the property to us was not the owner. This was a fraudulent sale. The real owner never sold this property and was unaware that the property was sold You know, right away you think, well, how can this happen?
Planet Money
Title Pirates
Yeah, it is. I've never met any of the sellers of the properties we have bought.
Planet Money
Title Pirates
I was very nervous. I was scared. I had a very sick feeling in my stomach. I just kept saying, so what happens now?
Planet Money
Title Pirates
A realtor came to us and said, there is a piece of land for sale. It's been in the same family for many years. Did you go see the property? So I drove by, but it was just an overgrown lot at the time. An overgrown lot.
Planet Money
Title Pirates
There was just so many questions that just couldn't even be answered at that point.
Planet Money
Title Pirates
It's more out of curiosity than anything. But obviously, if you found out, you know, the person was, I don't know, a gangster or something. I don't know if I'd want to buy a property from them. So silly things like that. And when I Googled, I found the name on the documents. The correct address was there. He seemed like a normal man and everything seemed fine. And That was it.
Planet Money
Title Pirates
Our lawyer was extremely good at keeping my husband and I calm and said, you know, we're going to find a solution. Don't worry. And at the end of the day, you have title insurance.
Planet Money
Title Pirates
And while the land clearly belonged to the man who owned the property, who did not sell the property, who did the house belong to?
Planet Money
The rise and fall of Long Term Capital Management
Myron and Bob's model provided them with like this X-ray vision. They could spot all these discrepancies in the market where what the price should be didn't quite match what the price actually was. And the idea was those were opportunities to make money.
Planet Money
The rise and fall of Long Term Capital Management
The Wall Street banks that long-term capital traded with knew their trades. The funds who'd been copying them basically knew their trades. And all of these banks and competitors were now taking the opportunity to bet against long-term capital in order to topple them.
Planet Money
The rise and fall of Long Term Capital Management
Now, there was still a way to get through this. It's in the long term part. Long term capital just had to have enough money and enough capital so that they could ride this out until prices recovered.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, your big opportunity, right? Just like you wanted to invest your money with long term capital management.
Planet Money
The rise and fall of Long Term Capital Management
Long-term capital needed a lot of money because they borrowed so much to invest in their smart, perfect trades, which were now all upside down.
Planet Money
The rise and fall of Long Term Capital Management
Some days they lost hundreds of millions of dollars. It was dizzying and it was spreading.
Planet Money
The rise and fall of Long Term Capital Management
After the break, we find out just how far the reverberations of long-term capital's collapse would go.
Planet Money
The rise and fall of Long Term Capital Management
The entire financial market was destabilized, which is why, Roger Lowenstein says, on September 22nd, the Federal Reserve stepped in.
Planet Money
The rise and fall of Long Term Capital Management
Now, the banks were not required to help here.
Planet Money
The rise and fall of Long Term Capital Management
Victor Higani says that at first, each individual bank was kind of behaving like children. They were like, this isn't my problem.
Planet Money
The rise and fall of Long Term Capital Management
And part of their investing strategy was sometimes not investing. When the opportunities aren't good, you just shouldn't do very much.
Planet Money
The rise and fall of Long Term Capital Management
Just a few years before, long-term capital had been the toast of Wall Street. They were geniuses, throwing around over $100 billion, only a little bit of it theirs. And now, it was no more.
Planet Money
The rise and fall of Long Term Capital Management
But Victor wants to make something clear about what happened here. He and his fellow partners of the now-defunct long-term capital management lost money. Nobody swooped in to make them whole again. And certainly the government did not send taxpayer money to fill in their losses.
Planet Money
The rise and fall of Long Term Capital Management
Now, to Roger, whether the Fed just babysat or the government used its actual money ultimately ended up being kind of a matter of semantics.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, the big banks, Lehman Brothers and Bear Stearns and Merrill Lynch and Deutsche Bank and all the rest of them had been gleefully using leverage to bet on mortgage debt. Mortgage debt that was way riskier than their models predicted. And in this case, the government really did bail out some banks and financial institutions.
Planet Money
The rise and fall of Long Term Capital Management
Because if the government is going to come in and fix everyone's mistakes, is there really any difference between risk taking and risk not taking?
Planet Money
The rise and fall of Long Term Capital Management
I'm Jeff Glo. This is NPR. Thanks for listening.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, it was like they could take their risks in the game. But when it came to the markets, Victor and his friends only wanted to take the smart, profitable risks.
Planet Money
The rise and fall of Long Term Capital Management
And I'm Jeff Guo. Today on the show, it's maybe the most famous story in all of finance. The legendary rise and fall of long-term capital management. A story of perfection gone spectacularly wrong when risk-taking should have been risk-not-taking.
Planet Money
The rise and fall of Long Term Capital Management
Victor Higani and his poker-playing coworkers at the fund, Long-Term Capital Management, had cracked the code of how to invest using their perfect mathematical models. The way they went about it was like this. First, they would find something cheap. That wasn't very difficult. If you were looking, it was pretty easy to see it.
Planet Money
The rise and fall of Long Term Capital Management
So that's step one. Find something underpriced and find something similar that's overpriced. Then they have to figure out why those discrepancies might exist.
Planet Money
The rise and fall of Long Term Capital Management
Nice. Now, often a reason for these price discrepancies was that people were being irrational. They were pricing these things wrong. And long-term capital's mathematical models could show just how wrong these other people were. So long-term capital could take the other side of the bet. They'd take the rational, empirically correct position and then wait.
Planet Money
The rise and fall of Long Term Capital Management
These opportunities, these price discrepancies, they were generally not that big. Because, you know, everyone else is also out here in these financial markets looking for underpriced things. So the big discounts aren't going to happen. Whatever you find is going to be little. Hence, step three.
Planet Money
The rise and fall of Long Term Capital Management
Victor was part of this new crew of traders on Wall Street, where before people had made investment decisions based on, like, what they thought about a company's prospects, or maybe just based on a hunch, these guys used data. Lots of data. And computers.
Planet Money
The rise and fall of Long Term Capital Management
Because, come on, if you have a great trade opportunity and you believe in it, you should bet big. You shouldn't be limited by your fund's little bank account. You should bet as big as humanly possible.
Planet Money
The rise and fall of Long Term Capital Management
Steamroller because what if something goes wrong? You've borrowed so much more than you have, all your leverage could flatten you. So the idea is to grab all the nickels, avoid the steamroller.
Planet Money
The rise and fall of Long Term Capital Management
Clients loved them so much so that they had too many people calling them up, hitting up their pagers, begging them to take their money to invest. They were turning clients away.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, the opportunities for the future were looking a lot less profitable. And Roger says at some point, you know, a prudent money manager would say, OK, it's all played out just like I thought it would. Now I should adjust what I'm doing. Re-evaluate. It's just that it's difficult to know when to adjust.
Planet Money
The rise and fall of Long Term Capital Management
And right about then, by 1998, things had started happening around the world that would fundamentally change long-term capital's future.
Planet Money
The rise and fall of Long Term Capital Management
Citi was shutting down the group that had been doing the same basic strategy that long-term capital management was, meaning they had owned very similar things to long-term capital and were now having a going-out-of-business sale. So prices were going down.
Planet Money
The rise and fall of Long Term Capital Management
So the partners of long-term capital management, they're at their desks. Nobody's playing poker. They are watching their nickels evaporate. Some of the prices are dropping. All of them are moving faster than they normally do.
Planet Money
The rise and fall of Long Term Capital Management
And then the dynamic of the market sell-off changed.
Planet Money
The rise and fall of Long Term Capital Management
Long-term capital's bets were wrong, but they were getting too wrong.
Planet Money
The rise and fall of Long Term Capital Management
Roger Lowenstein says basically everything long-term capital owned was going against them. It was no longer just a market sell-off sparked by panic over world events. Now, it was a market sell-off swirling around long-term capital.
Planet Money
A Nobel prize for explaining why there's global inequality
And that's when they start getting excited. Because this was the data that could help them prove that institutions matter for economic growth.
Planet Money
A Nobel prize for explaining why there's global inequality
The economists hole up in Duran's office at MIT and go about crunching the numbers. They know they're onto something, even though other economists found the whole thing a little out there.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah. The economists found this incredibly clear relationship. Places where colonizers were more likely to die hundreds of years ago now have worse economies and vice versa.
Planet Money
A Nobel prize for explaining why there's global inequality
The economists wrote up their results and they started going around presenting this research. The first time was at a conference in 2000 at Stanford. And, you know, economists typically are a pretty skeptical bunch. But... It was electric.
Planet Money
A Nobel prize for explaining why there's global inequality
But there were still skeptics. Some of them were like, aren't you just pointing out a geographic pattern here? Like the places that had more diseases, where the Europeans put in the bad institutions, those tended to be tropical areas. And maybe tropical areas were just doomed to have worse economies.
Planet Money
A Nobel prize for explaining why there's global inequality
But after colonization, the fortunes of those regions flipped. The U.S. and Canada are now way richer than any country found further south.
Planet Money
A Nobel prize for explaining why there's global inequality
After the break, James and Daron go even bigger. They start to sketch out a grand theory about institutions, about what makes a good institution good and a bad institution bad.
Planet Money
A Nobel prize for explaining why there's global inequality
By the mid-2000s, Duran, James, and Simon had taken the economics profession by storm. Their blockbuster papers on European colonization suggested that institutions could change the course of a country's economy. Now, they wanted to go beyond the colonial world to weave together a grand theory of how institutions in general affect economic development everywhere.
Planet Money
A Nobel prize for explaining why there's global inequality
Back in the day, like 30 years ago, if you asked economists how did some countries end up so rich and other countries end up so poor, you know, in the grand scheme of things, a lot of them might have told you a story about technology or education or natural resources or even climate patterns.
Planet Money
A Nobel prize for explaining why there's global inequality
In 2012, James and Duran outlined their theory in a book called Why Nations Fail. In it, they break down institutions into two categories.
Planet Money
A Nobel prize for explaining why there's global inequality
So an inclusive institution could be something like the patent system. The patent system gives anyone an opportunity to be rewarded for their ingenuity. That encourages people to create new ideas and technologies that end up enriching society.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah, those are some examples of inclusive economic institutions. But James and Duran say when it comes to economic growth, inclusive political institutions are also super important.
Planet Money
A Nobel prize for explaining why there's global inequality
But over the last few decades, China has rocketed ahead of India. The average Chinese citizen is now five times richer than the average Indian citizen. But India is a democracy. It's supposed to have good institutions, right? China is an authoritarian communist state.
Planet Money
A Nobel prize for explaining why there's global inequality
And as for China, they argue that China also, at least partly, fits into their theory. James says China didn't really begin its explosive growth until it adopted some inclusive economic institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
If you read the Nobel announcement at the very end, It has this weird sentence where they say, while their contributions, Osmoglu, Johnson, and Robinson, have not provided a definitive answer to why some countries remain trapped in poverty, their work represents a major leap forward.
Planet Money
A Nobel prize for explaining why there's global inequality
It seems like they're kind of saying, well, these are really interesting ideas, but we're not sure if they are definitive.
Planet Money
A Nobel prize for explaining why there's global inequality
What is definitive is that James, Duran and Simon have put a huge new spotlight on the power of institutions and brought statistical rigor to studying one of the biggest questions in economics. And that in itself is a historic contribution to the field.
Planet Money
A Nobel prize for explaining why there's global inequality
This episode was produced by Willa Rubin with help from James Sneed. It was edited by Martina Castro and fact-checked by Sierra Juarez. Engineering by Gilly Moon. Alex Goldmark is our executive producer. I'm Jeff Guo.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah. James Robinson is an economist at the University of Chicago. This year, he shared the Nobel Prize with his colleagues, Simon Johnson and Daron Acemoglu of MIT.
Planet Money
A Nobel prize for explaining why there's global inequality
What's the first thing you said to Duran after you found out? I sent him a smiley face, actually, I think.
Planet Money
A Nobel prize for explaining why there's global inequality
One of our very first questions.
Planet Money
A Nobel prize for explaining why there's global inequality
It has been a whirlwind couple of months for James and Duran and Simon, giving lectures, signing autographs, sending emojis to people, all culminating in this week when they put on their white ties and tailcoats and attended the official Nobel Prize award ceremony in Sweden. Now, please step forward and accept the prize from His Majesty the King.
Planet Money
A Nobel prize for explaining why there's global inequality
And I'm Jeff Guo. This mysterious X-factor has been one of the hottest topics in economics over the last couple decades. Institutions. They're at the center of a powerful and almost radically obvious idea that the economic fate of nations is determined by how societies organize themselves.
Planet Money
A Nobel prize for explaining why there's global inequality
Now, when you're a young economist, you spend a lot of time visiting different universities, presenting your research at seminars to your fellow economists. And at one of these seminars at the London School of Economics, James encounters this young guy sitting in the front row.
Planet Money
A Nobel prize for explaining why there's global inequality
Oh, no. No, he didn't say that, did he?
Planet Money
A Nobel prize for explaining why there's global inequality
Okay, okay. You know, I know, we all know, I think, where this is going. According to the law of the rom-com Meet Cute, James and Duran are about to become best friends.
Planet Money
A Nobel prize for explaining why there's global inequality
They're like the systems, rules, and structures that shape society. So an example would be like the court system or public schools. The Federal Reserve is an institution. So is our entire system of representative democracy. But there are also horrible institutions like slavery or dictatorship.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah. At the time, the idea of institutions and their influence on wealth or poverty hadn't made it into the mainstream models that economists were working with.
Planet Money
A Nobel prize for explaining why there's global inequality
But questions about institutions? Those questions are much harder to quantify. How could you ever prove that, you know, the difference between Haiti's and Sweden's economies comes down to secure property rights or the quality of their governments? The questions seemed almost too big for economics.
Planet Money
A Nobel prize for explaining why there's global inequality
But those models were silent on the deeper questions. Why did some countries end up with more infrastructure or education or technological innovation? Which brings us back to James and Duran, that first day they met, sitting at dinner. This is the part of the movie where their eyes meet and the intellectual sparks fly.
Planet Money
A Nobel prize for explaining why there's global inequality
Yes, YOLO. That is what happens. Fast forward a few years. They are collaborating on all sorts of papers and books. And pretty soon this dynamic duo becomes a trio.
Planet Money
A Nobel prize for explaining why there's global inequality
And that was going to be pretty tough. You can't just compare a rich country to a poor country and say, well, the rich one's rich because it has like a better court system. There are a gazillion other possible explanations. It could even be the other way around. A country gets rich first and then it gets the better court system.
Planet Money
A Nobel prize for explaining why there's global inequality
And just to be clear, colonization was really ugly pretty much everywhere. We're talking things like genocide, slavery, just brutal practices of exploitation and domination. Colonizers sought to enrich themselves wherever they went.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah, when the economists looked at this history, they saw two extremes in how Europeans colonized the world. At one extreme, Europeans themselves settled in large numbers. In these settler colonies, like in the U.S.
Planet Money
A Nobel prize for explaining why there's global inequality
and Canada, they established institutions for themselves, institutions that tended to be more democratic, more egalitarian, that encouraged more investment and were more friendly to entrepreneurs and innovation. These places, of course, ended up being the richer ones centuries later.
Planet Money
A Nobel prize for explaining why there's global inequality
Now, in order for the economists to use this moment to prove anything about institutions, they had to find a random reason why some places got settler colonies with their growth-friendly institutions and other places didn't.
Planet Money
A Nobel prize for explaining why there's global inequality
Because if the Europeans only put settler colonies in, like, the most lush, most fertile places, well, maybe those places were always destined to end up rich and prosperous, which would prove nothing about institutions.
Planet Money
A Nobel prize for explaining why there's global inequality
Yeah. Unlike the locals, the Europeans had little immunity to local diseases like malaria or yellow fever. When Europeans tried to settle in places with those diseases, a lot of them died. So they ended up putting their settler colonies elsewhere. For example, the Pilgrims who founded the Massachusetts colony, they originally considered moving to Guyana in South America.
Planet Money
PM x Radiolab: Can the economy grow forever?
This led to the Industrial Revolution. We... Avoided the problem. We avoided the shortage. And it's not an isolated example. This is a pattern that comes up. We did this with whales when we stopped using whale oil for lamps and started using kerosene. We did this with rubber. We started making synthetic rubber instead of getting all our rubber from trees. It's happened forever.
Planet Money
PM x Radiolab: Can the economy grow forever?
over and over again, where we have stood at the edge of the cliff, where it looked like, oh, crap, if we keep doing what we're doing, we are going to run out of some precious resource. And then, somehow, at the last minute, catastrophe is averted. I mean, this has happened so often, I feel like we should give it a name.
Planet Money
PM x Radiolab: Can the economy grow forever?
Not that I could find, so I'm going to take the opportunity to give this a name.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think we should call this the Malthusian Swerve. Swerve. Malthusian.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, so he was this famous English philosopher type. He lived, you know, he grew up in the 1700s, pretty much around the time that coal was taken over England.
Planet Money
PM x Radiolab: Can the economy grow forever?
So he was seeing a lot of this happen. And he's famous for predicting that humanity's growth would hit a limit, that, you know, populations would grow faster than we could possibly.
Planet Money
PM x Radiolab: Can the economy grow forever?
provide food for them right and so the future of humanity was to be limited and trapped by our own lack of resources and that everybody would just be miserable and sad and poor and hungry forever he does not sound like he would have been fun at parties yeah yeah he's a real bummer but maybe what he's more famous for is that none of that happened the reason that Malthus's prophecy didn't come true yeah
Planet Money
PM x Radiolab: Can the economy grow forever?
is due to what I would say is the most important Malthusian swerve of all time.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, yeah, yeah. Yeah. So I don't know if you want to hear the guano story.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, let's do it together. So this is like the 1800s, a little bit after Malthus's time. In the 1800s, Europeans are starting to realize you can really supercharge food production if you use better fertilizer.
Planet Money
PM x Radiolab: Can the economy grow forever?
Right. And specifically, there's this one fertilizer that indigenous people in South America were using that was amazing.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Okay, so basically you would have all these seabirds and they would poop on these rocky islands and coastlines along South America. And the poop would just accumulate. So the Europeans, so like in the 1800s, the Europeans are importing hundreds and thousands of tons. They're literally fighting wars over control of these guano islands. Like Spain is getting into wars with Peru and Chile.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Like, just who gets to seize the poop islands? Right. But the problem is, we were using guano way faster than the birds could, you know, make the guano. Yeah, yeah, yeah, yeah, yeah. And then... In the 1900s, in the early 1900s, some German chemists figured out a way to basically make synthetic guano. They invented an industrial process to literally pull nitrate.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, that's like the key ingredient in guano.
Planet Money
PM x Radiolab: Can the economy grow forever?
To pull it out of the air and make synthetic fertilizer. Right.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, it's a miraculous story. And it is like maybe one of the best examples of this thing that I'm going to call the Malthusian swerve. Swerve.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. And if you look at human history, this is a pattern that happens over and over again.
Planet Money
PM x Radiolab: Can the economy grow forever?
But, you know, to help us unpack it, I think we should talk about a swerve that we are in the middle of right now.
Planet Money
PM x Radiolab: Can the economy grow forever?
So we have been talking about a couple historical examples of this thing I'm calling the Malthusian swerve, where it looks like society is about to run out of some resource, but at the last minute, some new resource or idea or innovation comes along and saves the day. And when I was looking into this, I was like, okay, is there a more recent example?
Planet Money
PM x Radiolab: Can the economy grow forever?
Is there an example of a Malthusian swerve that happened just in the last couple years? And you know what? There is one.
Planet Money
PM x Radiolab: Can the economy grow forever?
We are, yes. Remember, do you remember like in the 80s and 90s, all of the talk about peak oil?
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, exactly. Yeah. You have people, you have geologists, distinguished geologists saying, warning us that, you know, we're going to run out of oil, that we're going to reach peak oil very soon, and that oil is going to diminish.
Planet Money
PM x Radiolab: Can the economy grow forever?
The same thing, yeah. Yeah, well, back in the 1990s, they were saying it's going to happen in the 2000s. They were saying, oh, crap, like, we're going to start running out in the year, like, 2000-something. Yeah, yeah. And if you look at oil production, like, yeah, it does, especially in the U.S., yeah, it does kind of start to slow down in the 2000s.
Planet Money
PM x Radiolab: Can the economy grow forever?
A lot of people were wondering about what are we going to do, how are we going to adapt, how are we going to move away from oil? And if you look at the chart, you'll see the oil production, it kind of starts to dip in the 2000s and then starts to rise again more and more and more. There's a swerve. And that was caused by the fracking revolution.
Planet Money
PM x Radiolab: Can the economy grow forever?
That is one way to think about it. The way I think about it is, like, it's a mini-swerve, you know? Like, oh, crap, we're running into the cliff. We can't find any alternatives. But we did find a way to get a little bit more oil out of the ground in the meantime.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's true. The problem with fossil fuels, it's not that we're going to run out of them. We have too much of them. It's too easy to go and find oil on the ground. It's too easy. We have a problem. That's not it's not a scarcity problem. It's an anti scarcity problem. Right. And then we burn them. And then there's these horrible side effects for the environment.
Planet Money
PM x Radiolab: Can the economy grow forever?
And then the world's getting hotter and wildfires are popping up.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. That is the key thing here, I think. Like, you look at how these Malthusian swerves, if we're going to call it that, how they happened.
Planet Money
PM x Radiolab: Can the economy grow forever?
How did they happen, right? And it was people who were motivated by the terror of... we're going to crash into this giant problem in so many years, and we need to figure out how we're going to do it.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, yeah, right? And you look at how an economy works, and I'm not saying this is the ideal way to operate, but an economy works through incentives.
Planet Money
PM x Radiolab: Can the economy grow forever?
we might try to innovate right like now there's an incentive to invent something newer cheaper better than what we had before like i would bring up the example of like lithium right now there is so much money and if you can invent a battery that doesn't need lithium you will like i don't know win the nobel prize right like you will like there is a lot of
Planet Money
PM x Radiolab: Can the economy grow forever?
energy and motivation to solve that problem. And if we were all just going to be like, well, we don't need that much lithium because we're just going to conserve it and recycle it and we're not going to grow, then what's the point of trying to make anything more efficient or better or There's no incentive.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, right. How do we get people to actually do the thing that is in the long-term interests of everybody? Is the solution to have some intergalactic Queen Elizabeth come down and say, no, no, no, no, guys. You're using way too much oil. You got to stop. You got to stop. You got to put a pause on it, right? Is it that?
Planet Money
PM x Radiolab: Can the economy grow forever?
Or is it sort of we're all left to our own devices and some combination of the free market and also government leaders worrying about this thing hash out some kind of, you know, compromise? That's kind of what we're stuck in right now.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think that growth is... Maybe we should talk about what growth even is. Like, there are always going to be parts of the economy that we point at, and we're going to say, that's bad growth. We don't want that. But growth is not just... us burning a lot of fossil fuels and polluting the planet, right? Growth can be good.
Planet Money
PM x Radiolab: Can the economy grow forever?
Like, growth could be starting a new business, mentoring kids, inventing a new kind of medicine that saves lives. That is also growth. And so, for me, I guess, it's hard for me to say that growth is bad. And maybe it's because I've just been too economics-pilled. But when people say the word growth to me, I think of a country like China. You know, China's economy...
Planet Money
PM x Radiolab: Can the economy grow forever?
grew so fast that it lifted 800 million people out of poverty. Incredible. Right? It's like hard to say that.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. And that's amazing. And so I think it's about... Figuring out specific things that we can do to be smarter about it, to make it less harmful. But I don't know.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think Sandy and I were totally in agreement about what we want for the world, for the future. It's just about how we get there. And so can I give you my silly galaxy brain way of thinking about all of this? Yeah, please, please. So you're talking about like, why can't we, this is, you know, the earth is our home. So why can't we all, you know, get together and take care of it? Yeah.
Planet Money
PM x Radiolab: Can the economy grow forever?
And cooperate and all of that, right? And if you're just a household of, like, a couple people, you have a relationship. If you're just a village, you, like, know everybody. You, you know, you can help each other out.
Planet Money
PM x Radiolab: Can the economy grow forever?
Give each other things, all of that. But when you get bigger and bigger, when you get to the scale of countries and, like, the world, right, it's very hard to get people to cooperate, right? It's very, very hard. Everybody has different opinions. No one's going to agree. Everybody's going to have different motives.
Planet Money
PM x Radiolab: Can the economy grow forever?
And what an economy is, is a way of turning all of that, of organizing us at a global scale into something bigger.
Planet Money
PM x Radiolab: Can the economy grow forever?
productive and obviously you know the economy is not perfect uh there are all kinds of problems we didn't even have the time to talk about today but when it comes to dealing with issues of scarcity like running out of some resource markets are a tool that you know historically have kind of worked even if it's been super messy and dramatic and swervy and may have created way bigger problems down the road i
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Okay. So I am Jeff Guo. I'm one of the hosts of the Planet Money podcast at NPR.
Planet Money
PM x Radiolab: Can the economy grow forever?
Thank you. And I guess, what do I do? I talk about economics all day. I guess that's what I do.
Planet Money
PM x Radiolab: Can the economy grow forever?
Cure this existential dread that you have now.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay. Well, I mean, I guess where I would start is, and, you know, I would hate to contradict a Nobel Prize winning astrophysicist. It sounds like, you know, starting out on dangerous territory there.
Planet Money
PM x Radiolab: Can the economy grow forever?
She's going to. She's going to. It sounds like she's going to win.
Planet Money
PM x Radiolab: Can the economy grow forever?
But you did ask me to kind of look into what things are we going to run out of.
Planet Money
PM x Radiolab: Can the economy grow forever?
after the break can we cure Latif's existential dread or did we just make it worse Okay, Latif, so I looked into your question about growth and stuff that we might run out of, and I found a couple things that, you know, people are worried about. Okay, great. And I just did some very rough back-of-the-envelope math. Like, this is so totally not precise.
Planet Money
PM x Radiolab: Can the economy grow forever?
And in trying to answer their big question, we ended up in some pretty heady and unexpected places. Hello and welcome to Planet Money. I'm Jeff Guo. And today we're doing something a little bit different. We've teamed up with Radiolab and we're going to try to answer one of the biggest questions that often goes unsaid in economics. Here's Latif Nasser from Radiolab to get us started.
Planet Money
PM x Radiolab: Can the economy grow forever?
Great. I love it. Okay, so I don't know. What should we start with? Copper? Copper.
Planet Money
PM x Radiolab: Can the economy grow forever?
So if you look at copper consumption over the past century since the Industrial Revolution, our demand for copper has grown about. 3% every year. Okay. Like, you know, in recent years, we've consumed about 26, 27 million tons a year of copper.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. So if you just, you know, extrapolate that out, if you just assume copper is going to keep growing at 3% every single year, right? Fair. Fair assumption. I looked up how much copper people think we have. According to geologists, what we know is out there and could theoretically get to. And that number right now is 5 to 6 billion tons. Okay.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's not nothing, but we're using it pretty quickly. And if you just assume that this number is going to keep growing at 3% a year... Yeah, yeah, sure. It would take about maybe another 70 years. And then no more copper. That's it? 70 years? 70 years. Oh, okay, so that sounds terrible. It's true. It's true. That's assuming, of course, that... You know, we do keep consuming copper that quickly.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's true. It's true. It's true. Yeah. Do you want to do another one?
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, but there's a but, there is a but coming up. There's a but.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, so another one I looked into is sand.
Planet Money
PM x Radiolab: Can the economy grow forever?
Which seems like there should be a ton of that. Seems like there should be so much of it. Yeah. And you know the reason why we need sand, right? Why do we need sand? For concrete. Ah. So it's actually so important that we don't know how much we're using.
Planet Money
PM x Radiolab: Can the economy grow forever?
Like, we're using so much. We just, we actually don't know. But, like, ballpark estimates, we're using maybe 50 billion tons of sand and gravel every year.
Planet Money
PM x Radiolab: Can the economy grow forever?
I can't even visualize that. I don't know. It's a lot. Right. And I couldn't even find how much sand and gravel there is in the world. Like, nobody actually knows.
Planet Money
PM x Radiolab: Can the economy grow forever?
This is one of those numbers where it's like, oh. But we're doing, like, back-of-the-envelope math here, right? Right, right. So I was like, well... If we don't know how much sand and gravel there is in the world, surely we know how much rock there is in the world, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
Totally. So I looked it up, and according to geologists, the Earth's crust, all of the Earth's crust contains... maybe like 23 quintillion tons of rock and stuff. Okay.
Planet Money
PM x Radiolab: Can the economy grow forever?
It would. But assuming that we're able to do that, right? Okay, great. Assuming that we're going to use sand and gravel at a rate that grows by 3% every year, year after year after year. Yeah. It would take about, do you want to guess how long it would take to deplete the entire Earth's crust?
Planet Money
PM x Radiolab: Can the economy grow forever?
That's how I felt. That's how I felt when I started on this journey. Right.
Planet Money
PM x Radiolab: Can the economy grow forever?
I got a couple more. Okay, great. Love it. I'm going to pull up my spreadsheet. I'm going to talk about lithium.
Planet Money
PM x Radiolab: Can the economy grow forever?
Anyway, okay, keep going. Okay, hang on. Let me see. Let me pull up my notes go on this. I can't wait when we have to fact check all of this. Okay, lithium. So we are using about... 190, 200,000 tons of lithium every year.
Planet Money
PM x Radiolab: Can the economy grow forever?
A few weeks ago, we got this kind of mind-bending question. It was from our friends at Radiolab, which is a show about science and philosophy and, you know, just the sheer joy of curiosity. In this case, they were curious about growth, in particular, economic growth. How could it possibly go on forever? And can too much growth destroy us?
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, batteries. Batteries is a big one for lithium. Very important. Lithium consumption, of course, has been exploding. So over the past decade, lithium has been growing. Do you want to guess how much it's been growing?
Planet Money
PM x Radiolab: Can the economy grow forever?
On average, around 20%. Okay, wow, okay, wow. So we need a lot, and we need a lot more lithium, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
So geologists think that of all the lithium that we know is out there, there's probably like 105 million tons of it, like out there.
Planet Money
PM x Radiolab: Can the economy grow forever?
Right. And so, you know, if you do this whole, you know, the same math, and you just—if you assume—if you just assume, just, you know, for the sake of argument, it's only going to grow at 3% a year, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
We'd probably run out of lithium around— March.
Planet Money
PM x Radiolab: Can the economy grow forever?
I'll do one more. I'll do one more, which is, and this is a big one, oil. Hmm.
Planet Money
PM x Radiolab: Can the economy grow forever?
Doesn't seem like it's really happening yet. Oh, God. But. But.
Planet Money
PM x Radiolab: Can the economy grow forever?
So if you look at oil, right. How much do we consume every year? About 37 billion barrels of oil. All right. As a world. How much is left? Probably 1.6 trillion barrels. Really? Yeah. So it's not. That's a lot. It's a lot, but it's maybe less. It's less than I thought. So another way to say 1.6 trillion is 1,600 billion. Right, right. So 37 billion a year.
Planet Money
PM x Radiolab: Can the economy grow forever?
We have about 1,600 billion barrels left out there.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Not great. So, you know, if you do the math again, exponential growth, very scary.
Planet Money
PM x Radiolab: Can the economy grow forever?
Maybe decades. Yeah. So I started to get... You know, a little nervous. And so I thought, well, like, what happened in the past? You know, like when we were overexploiting some resource and it looked like it was going to run out. And when I looked into it, there's this funny thing that happens. And so just for example, let me tell you a story. Please. It's about medieval England.
Planet Money
PM x Radiolab: Can the economy grow forever?
So it's the 1400s. Okay. It's like medieval England. It's the 1400s. And this amazing new technology has just arrived on the shores of ye olde England. And it is this new way of making iron. Okay. Okay. It's called the blast furnace.
Planet Money
PM x Radiolab: Can the economy grow forever?
So just like very briefly, like before the blast furnace, you kind of had these backyard ovens basically where you kind of baked the iron ore to make the iron and they were like super inefficient and really slow and not great.
Planet Money
PM x Radiolab: Can the economy grow forever?
But this blast furnace, the scientific innovation was that if you blew air onto the fire, you could get it really hot and then you could get it so hot. Ah. that you could just melt the iron, and it was amazing. Got it. And this, like, revolutionized ironmaking. So these blast furnaces, they're these huge 20-foot-tall stone towers. You would have these giant bellows at the bottom blowing in air.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. And medieval England... Iron was so precious, so important. You needed it for plows and spades, horseshoes, pots, kettles, nails, hammers. Yeah, whatever. And so now you had this technology that you could make. These blast furnaces, they could make a ton of iron a day. A ton, a literal ton. A literal ton, which is like just unprecedented. Yeah.
Planet Money
PM x Radiolab: Can the economy grow forever?
The problem with all of this is what was the fuel that went into this blast furnace? At the time, it was charcoal.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. Just picture the English countryside, right? You've got these blast furnaces sending up these huge plumes of smoke. And then everyone is just chopping down trees as fast as they can to feed these giant blast furnaces.
Planet Money
PM x Radiolab: Can the economy grow forever?
And it makes people really concerned. Yeah. Like really concerned. They're like, oh, my God, where are the trees going? But it got so bad that by the late 1500s, you have parliament banning new iron mills from starting up in different places. They're like, we cannot do this. We just cannot deal with this.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Yeah. You even have Queen Elizabeth I. Not the second. The first. Okay. All right. You have Queen Elizabeth I. She is issuing royal edicts saying, no more charcoal making in my royal forests.
Planet Money
PM x Radiolab: Can the economy grow forever?
We just can't. We can't do this anymore. But then something happened.
Planet Money
PM x Radiolab: Can the economy grow forever?
So in 1709, this English guy named Abraham Darby, he figured out how to use a different kind of fuel. So not charcoal. So maybe you want to guess what he figured out. Oil, probably, right? Coal. He figured out coal, yes. He figured out you can use this sort of modified coal to run these blast furnaces. And this changed everything. I'm not exaggerating. The iron industry took off.
Planet Money
How much for that egg
Bacon's always number one. I should be keeping kosher, but I don't. But bacon is, it's just always the top. We also had them choose their least desired food. So I'll put the eggs at the least on this.
Planet Money
How much for that egg
Depending how badly the place makes the eggs, scrambled eggs can be really disgusting.
Planet Money
Tariffs, grocery prices and other listener questions
So my listener question has to do with one of President Trump's big campaign promises. It's about oil.
Planet Money
Tariffs, grocery prices and other listener questions
It really is. So listener Michael Mesa basically wanted to know, can the president make a dent in energy prices and also in inflation by encouraging oil production?
Planet Money
Tariffs, grocery prices and other listener questions
Exactly. So I called up Samantha Gross, and she actually used to work in the oil industry. She was an engineer. She helped oil refineries manage their leftover gunk.
Planet Money
Tariffs, grocery prices and other listener questions
Yuck. Now, these days, Samantha is an expert in energy policy at the Brookings Institution. And she says when it comes to increasing the supply of oil, the president basically has two main moves. Number one, he can open up more federal land for drilling, you know, hand out more drilling permits, that sort of stuff.
Planet Money
Tariffs, grocery prices and other listener questions
Yeah, and those fights matter when it comes to protecting those places from pollution and potential oil spills. But in terms of just raw crude production, Samantha says it's not that significant. Only about a quarter of U.S. oil comes from federal land or waters.
Planet Money
Tariffs, grocery prices and other listener questions
Most of the oil that the U.S. produces has always come from private land or land owned by individual states like Texas. The president doesn't control that.
Planet Money
Tariffs, grocery prices and other listener questions
Samantha says in the long term, maybe. But we're talking like the really long term because oil and gas companies, they make their drilling plans years and years in advance.
Planet Money
Tariffs, grocery prices and other listener questions
And the other thing is that even if President Trump wants companies to drill more on federal land, it's not clear that the companies themselves would even really want to. Because the rest of the world, it's already producing a lot of oil right now.
Planet Money
Tariffs, grocery prices and other listener questions
But if you are an oil company, those lower prices, they're probably discouraging you from investing more in oil projects.
Planet Money
Tariffs, grocery prices and other listener questions
Exactly. Samantha says that's the reason OPEC countries like Saudi Arabia, Iraq, Iran, they've been holding back their oil production because they don't like the price right now.
Planet Money
Tariffs, grocery prices and other listener questions
Oh, yeah. This is actually pretty cool. The U.S. has this thing called the Strategic Petroleum Reserve. It's literally a bunch of caves where we stockpile a ginormous amount of oil for emergencies.
Planet Money
Tariffs, grocery prices and other listener questions
They just pump the oil into these caves.
Planet Money
Tariffs, grocery prices and other listener questions
Wow. Where are these? In the Gulf Coast, like Louisiana, Texas. And get this, these salt caves, they can hold enough oil to supply the entire world for like a week.
Planet Money
Tariffs, grocery prices and other listener questions
It is a lot of oil. We use a lot of oil. It is the largest oil stockpile in the world. OK. And so remember when Russia invaded Ukraine and oil prices spiked? One thing that President Biden did was to open up the reserves and start selling some of what's in there.
Planet Money
Tariffs, grocery prices and other listener questions
Unleash the oil. And most economists think that made a difference, at least enough to, you know, stabilize oil prices in the short term. Now, Biden didn't do it alone, of course. Other countries, they also opened up their own reserves.
Planet Money
Tariffs, grocery prices and other listener questions
No, no. The caves are ginormous, but they're not that ginormous.
Planet Money
Tariffs, grocery prices and other listener questions
Right. And by the way, energy prices, they aren't even that big of a part of inflation. Like even if you look back at the 1970s energy crisis, like if you actually decompose the different factors.
Planet Money
Tariffs, grocery prices and other listener questions
OK, we'll save that for another time, Amanda.
Planet Money
How Tupperware took over our homes, with Decoder Ring
Yeah. I think what's so interesting about the story that you tell about Tupperware is that how it was so revolutionary in so many ways, like not just the product, but also the sales strategy. And also it is a story about class and gender and told through this thing that we all buy and don't give any second thought to.
Planet Money
How Tupperware took over our homes, with Decoder Ring
After the break, how Tupperware the company started to crack and how its descendants lived on.
Planet Money
How Tupperware took over our homes, with Decoder Ring
Willa, you are the host of the Decoder Ring podcast from Slate. And you guys are like professional rabbit hole finders, right? Yeah. You guys are so good at just finding these things in the world that we think we all understand. But you're like, no, no, no, no. We're taking you on this whole improbable journey saga that's delightful, but often kind of weird.
Planet Money
How Tupperware took over our homes, with Decoder Ring
It's the story of the product's success and the company's demise. That's all coming up after the break.
Planet Money
How Tupperware took over our homes, with Decoder Ring
You know, Willa, listening to this episode, one thing that really jumps out at me is how much the Tupperware story sounds familiar. Like it seemed to prefigure all of these things that we see in the economy today, right?
Planet Money
How Tupperware took over our homes, with Decoder Ring
For even more about Tupperware and storage containers, this was just part of the full Decoder Ring episode. The full episode is linked in our show notes.
Planet Money
How Tupperware took over our homes, with Decoder Ring
The Planet Money edition of this episode was produced by Willa Rubin and edited by our executive producer, Alex Goldmark. I'm Jeff Guo.
Planet Money
How Tupperware took over our homes, with Decoder Ring
I actually am so surprised that they could just chuck like a Tupperware full of grape juice across the room because I can't do that. That was an insane. They have some secret technology that we like is lost to time now that we don't have.
Planet Money
How Tupperware took over our homes, with Decoder Ring
And we always end up learning something new.
Planet Money
How Tupperware took over our homes, with Decoder Ring
Hello and welcome to Planet Money. I'm Jeff Guo. And today I am joined by Willa Paskin. Hey, Willa.
Planet Money
How Tupperware took over our homes, with Decoder Ring
Yeah, my favorite is when you guys decode something that I never thought needed decoding. Like, Lawn ornaments. Oh, yeah. Or jalapenos.
Planet Money
How Tupperware took over our homes, with Decoder Ring
But there's one episode lately that all of us here at Planet Money cannot stop thinking about. And it is your episode about Tupperware.
Planet Money
How Tupperware took over our homes, with Decoder Ring
Yes, encrusted in mold, in my case.
Planet Money
The potato-shaped loophole in free trade
A few weeks ago, we walked into this structure.
Planet Money
The potato-shaped loophole in free trade
Brian is not quite as excited as we are. He's been clambering up hills of potatoes like this one his entire life.
Planet Money
The potato-shaped loophole in free trade
By 2014, a full 20 years after NAFTA went into effect, Mexico finally agrees to get rid of the potato DMZ. All of Mexico was now open to American potatoes. At least that is what the U.S. potato farmers thought.
Planet Money
The potato-shaped loophole in free trade
A few months into Judge Jose's new job, a case came across his desk involving a group he'd never heard of before.
Planet Money
The potato-shaped loophole in free trade
So while U.S. farmers had been lobbying to get their potatoes into Mexico, Conpapa had been lobbying to keep them out. Behind the scenes, Conpapa had been urging the Mexican government to really take these potato pests seriously. And in 2014, when they lost that battle, they threw a final Hail Mary.
Planet Money
The potato-shaped loophole in free trade
It was a weird argument. It was kind of out there. But Jose says he saw the desperation of all these farmers and business owners who were pleading with him.
Planet Money
The potato-shaped loophole in free trade
And okay, look at it this way. This was classic interest group politics, right? Free trade has this way of creating winners and losers. The winners tend to be consumers who get access to cheaper goods. Think of all the stuff that we import from China. The losers tend to be the local industries who get Crowded out. Out-competed. Think of, like, U.S. manufacturing.
Planet Money
The potato-shaped loophole in free trade
In this case, Conpapa's legal maneuvers bought them another seven years. Eventually, in 2021, their case reaches the Mexican Supreme Court, which unanimously overturns Jose's decision. It says that the Mexican government does indeed have the power to negotiate and set these pest regulations. Soon after that, the Americans and the Mexicans are back at the negotiating table.
Planet Money
The potato-shaped loophole in free trade
And so much time had passed that NAFTA at this point had actually ended, gotten replaced in 2020 by a new trade deal, the USMCA, the United States Mexico Canada Agreement.
Planet Money
The potato-shaped loophole in free trade
It was like three stories tall, the size of an airplane hangar, and it was filled with potatoes. From end to end, piled 18 feet high, 15 million potatoes.
Planet Money
The potato-shaped loophole in free trade
When the Mexican Supreme Court made its decision, Doug was senior advisor to the secretary of agriculture, and he came up with a diplomatic strategy for this potato negotiation. A big part of it, essentially, was that whenever Mexico and the U.S. would talk about anything, like anything at all, they also had to talk about potatoes.
Planet Money
The potato-shaped loophole in free trade
And in 2022, it actually happens. Mexico agrees fully. once and for all, that American potatoes are welcome. It's a process that took 26 years, decades of negotiations. But starting in May that year, the first American potato shipments arrive all across Mexico.
Planet Money
The potato-shaped loophole in free trade
But sometimes, sometimes, it is possible for everyone to maybe come out a winner. Like when the U.S. let in all those Mexican avocados, avocado farmers in California were livid. But then a funny thing happened. Americans became obsessed with avocados. Avocado consumption tripled. So American farmers have continued to sell their avocados alongside the Mexican farmers.
Planet Money
The potato-shaped loophole in free trade
At the end of our tour, Brian took us to his shipping facility, where his potatoes are packed up for their journeys across the country. And now, some of those potatoes, at long last, are bound for Mexico. So should we say goodbye to these potatoes?
Planet Money
The potato-shaped loophole in free trade
It was like a mini potato avalanche. I felt like I was surfing down an avalanche.
Planet Money
The potato-shaped loophole in free trade
Today's show was produced by Willa Rubin and edited by Meg Kramer. It was fact-checked by Sierra Juarez, who also contributed research. Engineering by Sina Lafredo. Alex Goldmark is our executive producer. A special thanks to Cam Quarles and David Lopez. I'm Jeff Guo.
Planet Money
The potato-shaped loophole in free trade
But for 26 years, there was a place that Brian's potatoes did not go. A place that, in fact, the entire American potato industry has been desperate to access.
Planet Money
The potato-shaped loophole in free trade
And I'm Jeff Guo. Ever since free trade opened up between the U.S. and Mexico in the 1990s, trillions of dollars of goods have been going back and forth between the two countries. From cars to strawberries to MRI machines to Fruit of the Loom underwear. But one major exception has been fresh American potatoes.
Planet Money
The potato-shaped loophole in free trade
Brian grew up on his family's farm. A decade ago, he took it over. His whole world revolves around this place.
Planet Money
The potato-shaped loophole in free trade
And he's like, here's the situation. American farmers would love to sell their fresh potatoes outside the U.S., but potatoes are heavy. They're dense. They're like 80 percent water. So you really want to find customers that are close by.
Planet Money
The potato-shaped loophole in free trade
Like, sure, Mexico had its own potato industry, but they didn't grow that many potatoes. And they certainly didn't grow the kind of potatoes that American farmers are famous for, the classic Idaho russet. Like, you know, picture that perfect brown oblong baked potato. It's sliced open, a pat of butter is melting into that soft, fluffy interior. The best! Yes!
Planet Money
The potato-shaped loophole in free trade
Those are the potatoes that Brian thinks could go big in Mexico.
Planet Money
The potato-shaped loophole in free trade
NAFTA. NAFTA, of course, was this massive trade deal in the 1990s between the U.S., Mexico and Canada. It was kind of the beginning of the worldwide frenzy over globalization. NAFTA opened the floodgates to goods moving across the U.S. border. It changed everything about the way Americans consume and buy and live.
Planet Money
The potato-shaped loophole in free trade
Okay, but free trade? It's never quite as simple as flipping a switch and now that two countries are trading. In the case of plants and agricultural products, there's the problem of invasive species. You know, like pests and diseases. Stuff you really don't want crossing borders.
Planet Money
The potato-shaped loophole in free trade
All these potatoes belong to Brian Wada. He's a third-generation potato farmer in Pingree, Idaho. And we were inside one of his giant climate-controlled potato warehouses.
Planet Money
The potato-shaped loophole in free trade
And quite possibly the person who knows the most about these complicated standards is Matt Lance. Everyone calls him the potato guy.
Planet Money
The potato-shaped loophole in free trade
Right. So right after NAFTA, as fresh U.S. potatoes are going to Mexico, this problem starts to emerge. Mexico is complaining that... that U.S. potatoes have too many pests. They're especially worried about something called the Columbia root knot nematode. It's a little worm.
Planet Money
The potato-shaped loophole in free trade
Matt says, yeah, these were legitimate concerns. This nematode, it's not harmful to humans, but if it spread to the potato crops in Mexico, it could devastate Mexican farms. Mexico did not want to take that chance. So just two years after NAFTA went into effect, the Mexican government basically put a halt to U.S.
Planet Money
The potato-shaped loophole in free trade
potato shipments, said any American potatoes, they are limited to this special 16-mile region along the border.
Planet Money
The potato-shaped loophole in free trade
One of the other big food fights involved avocados. Because while all this was happening, Mexican farmers were trying to get more of their avocados into the U.S. And they were running into kind of the same problem. The United States said that the Mexican avocados had too many diseases.
Planet Money
The potato-shaped loophole in free trade
I feel like we're climbing Mount Everest. And when we get to the top, we take a step out onto this vast plateau. It's like bigger than a hockey rink, except the whole floor is made of potatoes.
Planet Money
The potato-shaped loophole in free trade
It's not just about the nematodes or the nematodes.
Planet Money
The potato-shaped loophole in free trade
The Mexican inspectors, they claim they're finding all kinds of other viruses and funguses and insects. They're turning back hundreds of American potato shipments. And for this very reason, they say that this DMZ, it is staying in place. Fresh American potatoes cannot go any further than that border zone. For U.S. potato farmers, it's almost like NAFTA had never even happened.
Planet Money
The potato-shaped loophole in free trade
It does sound like maybe it's not really about the pests in the first place.
Planet Money
The potato-shaped loophole in free trade
Matt says as free trade was taking off in the 1990s, more and more countries were using these kinds of pest concerns as a pretext to protect their own farmers from competition. These pest regulations, which were supposed to be about science and plant health, were turning into a sneaky form of economic protectionism.
Planet Money
The potato-shaped loophole in free trade
Yeah, because history is full of these horror stories. Think of the Irish potato blight that was caused by a pest that came over from the Americas. There's also the fungus that killed off like all of America's chestnut trees 100 years ago. That came over from Asia. Right now, Florida oranges are being devastated by a species of bacteria that showed up on our shores 20 years ago.
Planet Money
The potato-shaped loophole in free trade
Which is why there have been hundreds of formal diplomatic complaints over the past couple decades. Countries accusing each other of playing games with pest regulations. Like Argentina was mad that the U.S. wouldn't take its Argentine lemons. The U.S. was mad that Japan was being picky about American apples.
Planet Money
The potato-shaped loophole in free trade
And maybe the best example of the absurdity of the situation has to do with that Columbia root knot nematode, that little worm that Mexico kept making a big deal about in the U.S. potato shipments.
Planet Money
The potato-shaped loophole in free trade
Now, when the U.S. and Mexico were negotiating NAFTA, they kind of anticipated that pest concerns could become a point of contention. So as part of NAFTA, they designated an organization to help resolve these kinds of disputes. In 2011... The two countries agreed it was time to call them in.