Mary Childs
Appearances
Planet Money
Planet Money complains. To learn.
I know I have things to complain about, but... Mary Childs. We should all be on the same time zone. Which would mean, like, nighttime is daytime for some people. That would mean that perhaps you and I wake up at what is called 10 p.m. and we go to work and the sun is out and it's shining. I'm just going to squash this one right away. You don't want to go to work at 10 p.m.
Planet Money
Planet Money complains. To learn.
and it's daylight outside. It's just called 10 p.m. What do you care what it's called? A.M., p.m.? That's just made up. You were a baby when you learned that. It doesn't matter. I don't know.
Planet Money
Planet Money complains. To learn.
Mary Childs. Oh, you know, I wish that we had peace on Earth.
Planet Money
Why does the government fund research at universities?
So heads of universities across the country are watching to see if a whole system of independent research, decades in the making, is going to be dismantled, grant by grant, cut by cut. And they're trying to figure out what to do.
Planet Money
Why does the government fund research at universities?
People who run universities, they talk all the time. They have big meetings all over the country. And the chancellor of Washington University says that this year they have a different vibe. What are those meetings like?
Planet Money
Why does the government fund research at universities?
So between meetings, Andrew Martin says there's a whole lot of texting going on.
Planet Money
Why does the government fund research at universities?
The project is to watch what happens to DNA over time. And he needs all kinds of materials.
Planet Money
Why does the government fund research at universities?
Last year's total pie was a little over $5 billion. So first up, what portion of the pie came from the federal government?
Planet Money
Why does the government fund research at universities?
And all that money could be in jeopardy. The grants, the percentage they get on top of those grants, it has all been thrown into question in recent months.
Planet Money
Why does the government fund research at universities?
There were basically three other major sources of revenue, and the first one was kind of surprising. Washington University's biggest source of revenue actually comes from what their physicians charge for seeing patients.
Planet Money
Why does the government fund research at universities?
So next up in the pie of revenue, all the payments the school collects, everything from parking to serving lattes in the cafe to the biggest part, tuition.
Planet Money
Why does the government fund research at universities?
OK, so we've got the income from hospitals, the income from payments, and there is one more big chunk of the pie. It's the one that people always imagine is going to solve all the problems at big universities. the endowment.
Planet Money
Why does the government fund research at universities?
biggest endowment in the country and the thing to understand about endowments is that lots of that money is earmarked for specific purposes that the donors choose like specific scholarships or named professor chairs and the other thing to understand about endowments is that the endowment itself is making money for the university every year that endowment money is invested
Planet Money
Why does the government fund research at universities?
Oh my goodness. If he gets the money, it's not like he gets some big check in the mail for $300,000. Yeah, yeah.
Planet Money
Why does the government fund research at universities?
So if they spend it down, they're going to reduce their yearly revenue.
Planet Money
Why does the government fund research at universities?
Andrew told us the endowment is there to generate more interest. They need it to grow, not dwindle.
Planet Money
Why does the government fund research at universities?
Yeah, $2 billion could make up for a couple years of research. And he says he could use some of that cash reserve. But then what?
Planet Money
Why does the government fund research at universities?
So in this precarious moment, Andrew is making some difficult and complicated decisions. Figuring out what staff he can lose. Deciding not to break ground on a new building. Changing how the endowment is invested. But he sees even those as short-term solutions.
Planet Money
Why does the government fund research at universities?
This episode was produced by Willa Rubin and edited by Marianne McKeown. It was fact-checked by Sierra Juarez and engineered by Harry Paul. Alex Goldmark is our executive producer. I'm Mary Childs.
Planet Money
Why does the government fund research at universities?
But since January, the federal government has been threatening to cancel massive amounts of university funding. And in some cases, they already have. Harvard is battling over billions of dollars. Columbia lost $400 million. And Johns Hopkins has laid off 2,000 people because of cuts.
Planet Money
Why does the government fund research at universities?
Okay. He studies how our DNA influences diseases like cancer. And he's been doing pretty great. But lately, university life has been...
Planet Money
Why does the government fund research at universities?
And I'm Mary Childs. American universities have long been the envy of the world. But this fight over federal funding, it could change that. So is this the beginning of the end of universities as we know them?
Planet Money
Why does the government fund research at universities?
This episode is part of our occasional series looking at how the Trump administration and others are challenging a set of economic ideas that date back to World War II. Ideas that placed the U.S. at the center of the economic universe. Things like it's good for the U.S. if dollars are the world's currency. Or in this episode, investing in university research will pay off.
Planet Money
Why does the government fund research at universities?
We're calling our series Pax Americana. Washington University is a 172-year-old elite private university in St. Louis, Missouri. The administration building looks like a literal castle with battlements on top and everything. And it is out of that building that the chancellor of Washington University works.
Planet Money
Why does the government fund research at universities?
Andrew Martin is guiding the ship on which our DNA researcher is just one of many sailors.
Planet Money
Why does the government fund research at universities?
Now, a university is two big things. One, a place where people go to learn, but also it's a research incubator. And the system we have where universities get tons of federal funding has been in place for the last eight decades.
Planet Money
Why does the government fund research at universities?
Mike is one of thousands of researchers all around the country who are suddenly at risk of losing their jobs because the Trump administration is cutting or threatening to cut funding for their research. In some cases, huge pieces of it.
Planet Money
Why does the government fund research at universities?
Vannevar was the first presidential science advisor. He ran the Office of Scientific Research and Development during the war.
Planet Money
Why does the government fund research at universities?
That endeavor is not so fondly remembered as the Manhattan Project. And though that project itself was controversial, it threw a spotlight on the power of research. So after the war ended, Vannevar was like, federal government, what else could we develop if we threw some money at the great minds at all these universities? Let's do it. Let's start funding research at universities.
Planet Money
Why does the government fund research at universities?
And people from both sides of the aisle were on board.
Planet Money
Why does the government fund research at universities?
Elizabeth says before the war, universities were almost entirely funded privately or by states. And there was some research at those universities, but most happened instead in private companies. Westinghouse, Bell Labs, they were paying scientists to invent things that they could sell, like early semiconductors, transistors, or the railway airbrake.
Planet Money
Why does the government fund research at universities?
The point was we should take risks on research, invest in it even before we know its outcome. And Vannevar believed the best place for that research was American universities. they'd be able to train the next generation.
Planet Money
Why does the government fund research at universities?
He wrote, if the colleges, universities, and research institutes are to meet the rapidly increasing demands of industry and government for new scientific knowledge, their basic research should be strengthened by use of public funds.
Planet Money
Why does the government fund research at universities?
There was some debate about how exactly to throw light into which dark corners. Like, would this new federal funding system be top down? Would government officials decide what research should be done and who should do it, as in the Manhattan Project?
Planet Money
Why does the government fund research at universities?
And it wasn't just about research for research's sake. This was also about fostering American influence around the world. The U.S. was taking on this new worldwide leadership role. The dollar became the world's reserve currency. The U.S. was helping European countries rebuild after the war.
Planet Money
Why does the government fund research at universities?
And now the federal government would start funding research at universities for the sake of learning and also to place the U.S. at the center of the intellectual and economic universe. So a new research economy was born.
Planet Money
Why does the government fund research at universities?
And over the decades, the federal government did a couple things that strengthened that symbiotic relationship even further. First, in the 1960s, the U.S. passed Medicare and Medicaid. Healthcare was suddenly this growing industry. And with that came millions more dollars in research funding, this time from another federal agency, the National Institutes of Health.
Planet Money
Why does the government fund research at universities?
And Elizabeth, who wrote the book about all this, she says all this federal money going into universities also grew other big industries. Silicon Valley. Biotech.
Planet Money
Why does the government fund research at universities?
Mike's got nine researchers in his lab, and right now he's gearing up to get this crucial grant from the National Institutes of Health, the NIH.
Planet Money
Why does the government fund research at universities?
They changed who could own the ideas that university researchers came up with. Before this, federally funded research was thought to be for the public good.
Planet Money
Why does the government fund research at universities?
Then Congress changed the law to say, actually, universities can patent their inventions and research. So now universities could profit from licensing the innovations created in their labs.
Planet Money
Why does the government fund research at universities?
So that big idea that Vannevar Bush had after World War II to fund independent research at American universities— grew into the system that we have now.
Planet Money
Why does the government fund research at universities?
Over the past few decades, there have been many criticisms of how big, rich and powerful some universities have become. Like, should we really classify some of these institutions as nonprofits? And how much does the public benefit from federally funded, slow, painstaking scientific research?
Planet Money
Why does the government fund research at universities?
At Washington University, the grants that have been rescinded are related to diversity, equity, and inclusion efforts, like a STEM-focused training grant for students from underrepresented backgrounds, research focused on minority populations, women, gender, vaccines.
Planet Money
How sports gambling blew up
There's no reason you should understand what Rufus just said there. But let me try to explain it because it tells you a bit about how this old school sports gambling world works. The line is just the odds or the point spread. The true price is what the odds would be if you somehow knew every possible relevant bit of information about some upcoming game.
Planet Money
How sports gambling blew up
Of course, no one ever knows everything, so there is in reality never a perfect true price, just some number that the smartest and best-informed bettors agree on. Say they agree that the Packers should be eight-point favorites over the Cowboys, but most of the gamblers are Cowboys fans— And the Cowboys fans think the Cowboys are only three-point underdogs.
Planet Money
How sports gambling blew up
Rufus was asking if he can entice the public to make more stupid bets if he set the line not at the true price of eight points, but at, say, five points. Because Cowboys fans will think the Cowboys are better than they actually are and bet even more.
Planet Money
How sports gambling blew up
Rufus Peabody, recently of Yale, is no one's idea of a hustler. He's too sweet-natured and even-tempered, and way too open to telling other people about the stuff he's learned. He finishes up at Yale and moves back to Vegas to work full-time at Las Vegas Sports Consultants. But now Rufus thinks he might have an edge, and people in and around Roxy's firm think that maybe he's right.
Planet Money
How sports gambling blew up
Short for proposition bets. Rufus wasn't betting the whole game, but pieces of the game. His pro football model spits out odds for all this weird stuff that Vegas bookies are now offering bets on. The odds that Steelers running back Gary Russell will score the game's first touchdown, for example. Rufus has vast troves of data to mine. He can do stuff with it that Roxy would never imagine.
Planet Money
How sports gambling blew up
He could do stuff that even the people who run the Pittsburgh Steelers would never imagine doing. I mean, even Gary Russell likely has no idea that you can calculate the odds that he will score the game's first touchdown. But Rufus can. His model puts those odds much higher than the bookie's odds. So in Rufus's mind, it's a great bet. He makes dozens of similar bets.
Planet Money
How sports gambling blew up
Bets where his model tells him that the bookies are giving him better odds than they should.
Planet Money
How sports gambling blew up
Rufus figures out how much he's won. Then he physically retraces his steps to the many casinos that had taken his many bets, still driving an old Honda Civic. You had all these little tickets. You go cash them. Each one individually. So you must have had 100 tickets.
Planet Money
How sports gambling blew up
After that, lots of people in Vegas wanted to lend money to Rufus and take a cut of his bets. Rufus, for his part, was still sitting in his office in Las Vegas Sports Consultants. But pretty soon he was directing an army of people to lay bets in sports books across the city. Sportsbooks that got their odds from Las Vegas sports consultants.
Planet Money
How sports gambling blew up
Rufus was in effect betting against the lines created by Roxy's firm. Roxy himself had moved on at this point, but he watched what Rufus was doing, and he admired it.
Planet Money
How sports gambling blew up
To get his edge, Roxy had used weather reports. Rufus was using the spin rates on pitchers' curveballs.
Planet Money
How sports gambling blew up
Rufus had become the card counter at the blackjack table, only it was richer than that. He was generating new insight about why things happened in sports. A blackjack dealer knows where the card counter gets his edge. The sports bookie couldn't really tell where Rufus was getting his, which made Rufus and what he was doing even more unsettling.
Planet Money
How sports gambling blew up
And did the M at any point say, we're not taking your bets? The M Casino was one of Rufus's favorite sports books.
Planet Money
How sports gambling blew up
Then comes the Supreme Court decision of 2018. 23 states soon legalized sports gambling. Rufus now has the M Casino and a lot of others right in his pocket.
Planet Money
How sports gambling blew up
And Rufus, of course, stands to make a killing. The bigger the markets, the more he can bet.
Planet Money
How sports gambling blew up
But as it turns out, that's not how it's going to go down. This ecosystem is going to change in ways Rufus didn't predict. And he began to sense it in late 2020.
Planet Money
How sports gambling blew up
Rufus had a girlfriend in Massachusetts. Massachusetts hadn't yet legalized sports betting. So he needed to cross state lines to use the betting app on his phone. The drive took him like 45 minutes. But it was actually easier than running all over Vegas trying to get cash down. He and his process were built for this new type of casino. He could bet on golf basically all day long.
Planet Money
How sports gambling blew up
He'd lost $30,000, and DraftKings stopped taking his big bets. By the way, we've reached out to DraftKings, and so far they have declined to talk with us. Anyway, it was clear to Rufus back in 2020 that this was definitely no longer his old sports gambling world.
Planet Money
How sports gambling blew up
Rufus used data to predict what athletes were going to do. DraftKings was using data to predict what Rufus would do. When they looked at the data, they saw that after Rufus placed his bets, the odds nearly always moved in his favor. These were the bets of someone who knew things before the market knew them. And the new bookies were not like the old bookies.
Planet Money
How sports gambling blew up
They only wanted to take certain kind of bets. Bets that were more like the bet you make when you press the buttons on a slot machine. Bets that if you made them often enough, you were sure to lose. The sort of bets a fan would make. The sort of bets Rufus Peabody never made.
Planet Money
How sports gambling blew up
This is what drew me to the subject in the first place. It's like, what an incredible social experiment we're engaged in without anybody paying it much attention that sports gambling goes from being, I mean, not just illegal, it's a taboo. It's like Pete Rose can't be in the Hall of Fame because he gambled on sports. All the commissioners of the sports league say sports gambling is evil.
Planet Money
How sports gambling blew up
Being smarter than the market didn't used to get you kicked out of the market. But the market's changed.
Planet Money
How sports gambling blew up
Anybody who watches sports knows you can't turn on your TV without being bombarded by ads from, you know, DraftKings and FanDuel. Every ad is like some celebrity. It's like back when crypto was like Matt Daniels.
Planet Money
How sports gambling blew up
It's all over again. Some of the same people. And it's just so in your face.
Planet Money
How sports gambling blew up
No, you shouldn't just do it. No, you shouldn't just do it. And if you do it, you shouldn't do it the way they're trying to encourage you to do it. I mean, so if you listen to the bets, they're essentially trying to coach you into making the kind of bets that make them the most money, which is the kind of bets you're most likely to lose.
Planet Money
How sports gambling blew up
And it's long shot parlay bets is what they're selling you on. It isn't like you're going to bet the Chiefs against the Raiders. It's no, you're going to bet the Chiefs and Patrick Mahomes throwing for 300 yards and Travis Kelsey catching two touchdowns. And all of that has to come right or you don't win.
Planet Money
How sports gambling blew up
And what they're doing is sort of nudging you into a land where your mind is not very good at judging probabilities and getting you to do the probabilistically stupid thing. And effectively, Americans are making stupider and stupider sports bets. And we've yet to hit the limit, like how much worse Americans will get at sports betting.
Planet Money
How sports gambling blew up
Well, we're about to see, right? It's like what will come with this is lots of social problems. You know, there are already these kind of natural experiments that are going on because some states have not legalized it. So, you know, you have Alabama next to Mississippi and one's legalized sports gambling and one hasn't. You can kind of study the effects.
Planet Money
How sports gambling blew up
And and they're respectable, you know, papers that have shown that bankruptcies rise and savings rates plummet, you know, where sports gambling has been legalized. So there will be these social problems going on, bubbling along while this industry booms.
Planet Money
How sports gambling blew up
And at the same time, they'll be pushing the social problems because they'll be nudging Americans into doing dumber and dumber things with their money. So I guess you asked me, should you do this? Of course, if you can do it in moderation, I mean, I guess, you know.
Planet Money
How sports gambling blew up
Anytime a player gets near it, they're tossed from the game.
Planet Money
How sports gambling blew up
They go from being, you know, really loudly hostile to sports gambling to this is the future.
Planet Money
How sports gambling blew up
Okay. Hello and welcome to Planet Money. Can we do this now?
Planet Money
How sports gambling blew up
There will be two characters, one from the distant past in Vegas and one from the current modern world of sports gambling, each of whom figured out how to get an edge in the game.
Planet Money
How sports gambling blew up
He grew up in the 1950s in Canada in a nice upper-middle-class family. He's now Zooming with me from a home in rural Thailand with the AC blasting in the background and a straw fedora on his head. and the emotional feel of a man in a witness protection program, a placeless man.
Planet Money
How sports gambling blew up
Outcomes in sports were obviously far less regular and predictable than outcomes inside slot machines, or even at blackjack tables. But that didn't mean you couldn't learn stuff about sports that would allow you to make better predictions. Not perfect predictions, but better predictions than everyone else betting on games in the 1970s. Roxy had baseball in mind.
Planet Money
How sports gambling blew up
The guys who booked baseball, legally in Nevada and illegally everywhere else, offered gamblers the chance to bet on not just who would win the game, but how many runs both teams would score. Roxy had an insight that seems obvious now. The number of runs scored in any baseball game depended on factors like the weather at game time and the size of the fields. San Diego's was a good example.
Planet Money
How sports gambling blew up
The idea that the people who run sports teams don't know what they're doing has probably never been a new idea. Fans have always thought that they know better. What was new is that someone in the stands was actually figuring something out. The effects of the wind and the humidity and the barometric pressure on a ball that was flying through the air.
Planet Money
How sports gambling blew up
Roxy moves to Vegas full-time in 1975 to bet on sports. And just by taking into account the weather and the size of ballparks, he's able to make a killing while trying to avoid the people who know a thing or two about actual killing. Were the Nevada legal bookmakers effectively run by the mob? They would have had a hand until about, until about, well, late 70s probably, yeah.
Planet Money
How sports gambling blew up
The old sports gambling market inside the United States was shady, but it had its unwritten rules. And one was that they always took your bets. If you bet a lot, they eventually moved the lines. These betting lines were all set in Vegas. For a very long stretch, they were actually set in a single Vegas casino, the Stardust.
Planet Money
How sports gambling blew up
The bookie at the Stardust set the odds, and everyone else just followed his lead. There was a bank of payphones outside the Stardust that were said to be the most profitable in the country for the phone company because sports gamblers used them to relay the odds to the illegal bookies and bettors across the country. Communications back then was just a phone call.
Planet Money
How sports gambling blew up
In the late 1970s, the Nevada Gaming Control Board tossed the mob out of Vegas and out of sports gambling. And pretty soon, Roxy became old news. By the early 1980s, everyone knew that the weather and the size of ballparks had big effects on baseball scores. And Roxy never found another systematic edge. and his life became a bit of a mess. He'd been arrested for violating the Wire Act.
Planet Money
How sports gambling blew up
He'd taken crazy risks as an illegal bookmaker, and he'd run through two marriages. Is a gambling business hard on relationships?
Planet Money
How sports gambling blew up
It's interesting because when you think about why a person would drift into gambling in the first place, it would be because you think it might be an easy way to make money. Yes. It ends up being a harder way to make money.
Planet Money
How sports gambling blew up
People said that. Roxy now knew it. So in 1982, he quits gambling. He creates a company called Las Vegas Sports Consultants. This new company will effectively replace the Stardust Casino in setting the odds for all major sports contests. Roxy's just better at it, and pretty soon he's selling his odds to all the sports bookies, including the Stardust. This makes sense to everybody in Las Vegas.
Planet Money
How sports gambling blew up
Hiring Roxy to set the odds in sports is like hiring the first card counter to guard the blackjack tables.
Planet Money
How sports gambling blew up
Sports gambling isn't exactly a financial market, but it rhymes with financial markets. What happens on Wall Street somehow eventually also happens in sports gambling. And Wall Street's about to undergo dramatic change. First computers and then the Internet will allow the markets to become a lot more complicated and the bets a lot more complex.
Planet Money
How sports gambling blew up
The world's about to speed up and a new kind of person with a different kind of education is going to enter it. Old school traders with high school degrees are about to be replaced by PhDs from MIT with computer models, who as kids thought they'd grow up to be professors, not traders. On Wall Street in the late 1980s, smart old school guys served as a kind of bridge between the two cultures.
Planet Money
How sports gambling blew up
In sports gambling, Roxy was that bridge, but it took a while for anyone to cross it. We're here to see Rufus Peabody. We're in the right place. We're still in Vegas, but far from the strip. The real action is no longer on the strip. The real action is basically invisible. But here, on the 17th floor, with a sweeping view of the distant casinos, Rufus Peabody lives and works.
Planet Money
How sports gambling blew up
Rufus grew up outside of Washington, D.C., Always loved sports. Thought he might like to be a sports journalist. But even when he was a kid, his mind took him places that journalism usually doesn't.
Planet Money
How sports gambling blew up
In 2004, Rufus graduated from high school and went to Yale. He was still obsessed with figuring out why. He studied statistics and built models that predicted the performance of athletes and the outcomes of sporting events. Not because he wanted to gamble on them, just because it was cool to figure out stuff that even people who run sports teams don't know.
Planet Money
How sports gambling blew up
He wanders around Yale looking for someone to teach him more.
Planet Money
How sports gambling blew up
His name is Cade Massey. He's a professor of organizational behavior.
Planet Money
How sports gambling blew up
Rufus just kept asking questions about the behavior of sports gamblers. He still wasn't placing bets himself. He was just working with his professor to build a model to predict college football scores. They pitched it to the Wall Street Journal, and the journal agreed to publish their college football picks of the week. It was just how they would bet were they to bet on college football.
Planet Money
How sports gambling blew up
Which is to say the sports gambling market would see their picks and move in response.
Planet Money
How sports gambling blew up
Because he wanted to bet it himself. Because he wanted to bet it. I mean, it was bound to eventually occur to Rufus that if he could predict the scores of college football games, then he should just bet on them himself. But it's funny how he got there in his head. Roxy Roxborough had started as a gambler, who then set out to find some kind of edge to bet.
Planet Money
How sports gambling blew up
Rufus Peabody started by finding these edges and kind of stumbled into gambling. And then found Roxy. During Rufus's junior year at Yale, he read an article in ESPN about Roxy's sports analytics company, Las Vegas Sports Consultants. Roxy's company wasn't used to getting resumes from Yale juniors.
Planet Money
How sports gambling blew up
But they gave him a summer internship anyway and showed him their world from their offices right next to the Las Vegas airport.
Planet Money
How sports gambling blew up
Roxy's crew would bet on everything. Rufus wasn't like that. He didn't even think of what he wanted to do as gambling. But he did want to understand this other world. this world where people bet on anything that moved.
Planet Money
Tariffs: What are they good for?
And that means that car prices are going to be artificially higher. Foreign cars will be subject to this, you know, import tax. But also U.S. carmakers use foreign parts, which also face the same import tax. And there will be less pressure on U.S. carmakers to keep their prices low because their foreign competitors have a big price disadvantage in the U.S. market.
Planet Money
Tariffs: What are they good for?
So, yeah, likely higher prices all around. And that means consumers will likely buy fewer cars.
Planet Money
Tariffs: What are they good for?
And the rollout of many of these tariffs has been a little chaotic. This year alone, we have seen Trump go back and forth on tariffs on different countries, and that uncertainty has a cost. It makes it hard for businesses to make decisions about which plant to build or where to hire, and waiting is expensive.
Planet Money
Tariffs: What are they good for?
And one study found that the washing machine tariffs actually did create jobs. 1,800 new jobs in the USA making washing machines at an average cost to U.S. consumers of more than $800,000 per job, even after accounting for the revenue raised from the tariffs.
Planet Money
Tariffs: What are they good for?
But there is this whole other side to the way Trump is using tariffs. Like earlier this year, Trump wanted to deport Colombian citizens who were in the U.S. to send them back to Colombia. The normal course is apparently to send people on commercial flights. But in January, the Trump administration sent two military planes.
Planet Money
Tariffs: What are they good for?
So tariffs, we have long heard from economists about how and why they are bad. Today, we investigate what they can actually do, what they can be good for.
Planet Money
Tariffs: What are they good for?
That was Sunday morning, and by that evening, Colombia and Trump had reached an understanding. Colombia would allow deportation flights without restriction. No tariffs. Though the White House said that the threat of tariffs would be, quote, held in reserve in case Colombia reneges.
Planet Money
Tariffs: What are they good for?
And the reason the U.S. can act like this, the thinking goes, is because we're rich. There are so many of us and we spend so much money. We don't rely on trade as much as our trade partners do.
Planet Money
Tariffs: What are they good for?
I mean, to put a sort of another like blunt frame on it, it's like using a richness as a country, as leverage, a bullying tactic.
Planet Money
Tariffs: What are they good for?
And because we have this power, thinking goes, if we're going to trade with someone, we should get something we want for it. The Trump administration did this with Mexico, too, threatening tariffs and then delaying them because Mexico did something he wanted, agreed to send troops to the border.
Planet Money
Tariffs: What are they good for?
Now the U.S. is operating with a slightly different idea. Instead of free trade as an incentive to be our friend and join our democracy club, the U.S. is threatening to close trade to incentivize, strongly incentivize people to do what it wants. Like, nice economy you got there.
Planet Money
Tariffs: What are they good for?
We have a new perk for Planet Money Plus supporters. You can now listen to some of our classic series from the Planet Money archive. Like when we wanted to understand the global financial crisis and bought a toxic asset we named Toxie. You can now find all eight Toxie episodes in one playlist. And there are more playlists to come this year.
Planet Money
Tariffs: What are they good for?
If you're already a Planet Money Plus supporter, you can check them out. If you're not, you can sign up at plus.npr.org. You also get bonus episodes, sponsor-free listening, and know that you're supporting our work.
Planet Money
Tariffs: What are they good for?
And I'm Mary Childs. This is NPR. Thanks for listening.
Planet Money
Tariffs: What are they good for?
And through the decades of that argument, there's been an economist who argued that the dominant voices in economics were wrong. That free trade actually sometimes held countries back and protectionism could help make them richer.
Planet Money
Tariffs: What are they good for?
Ha-Joon Chang wrote a book called Kicking Away the Ladder in 2002 about how rich countries used protectionist policies like tariffs back when they were developing and then told everyone else they couldn't do that. They had to do free trade.
Planet Money
Tariffs: What are they good for?
When Ha-Joon was a little kid growing up in South Korea, Hyundai was not yet an automobile company.
Planet Money
Tariffs: What are they good for?
So first, Hyundai had to figure out how to make a car. Hadjoun says it started by placing an order with Ford for something called a knockdown kit, which is just a big wooden box full of all the parts you could ever need to build one car. The box arrives, you open it up, and it's just full of car parts, large and small. A door, a bolt, two headlights.
Planet Money
Tariffs: What are they good for?
Yeah, the government was like, actually, we want our car industry to be real companies, global players. Assembling a Ford car is not our end goal here. Can you level up a little bit?
Planet Money
Tariffs: What are they good for?
The looming tariffs had sent chills down the spines of many economists around the world.
Planet Money
Tariffs: What are they good for?
A total import ban, like a tariff to infinity, the tariff of all tariffs. Because the South Korean government's really serious. They want this to happen.
Planet Money
Tariffs: What are they good for?
And this is a canonical example of what's called infant industry protection.
Planet Money
Tariffs: What are they good for?
Right. Like a country uses tariffs to support a sweet little baby industry to protect it from the harsh world so it can safely grow bigger and stronger.
Planet Money
Tariffs: What are they good for?
And that's what South Korea did. It eventually took off the tariffs and the import ban and the subsidies.
Planet Money
Tariffs: What are they good for?
And for centuries, they've been used to make a country's population buy its own stuff instead of another country's stuff.
Planet Money
Tariffs: What are they good for?
And the U.S. has a history of doing this, of trying to nurture little baby industries that policymakers have believed are the industries of the future, like solar energy and electric vehicles.
Planet Money
Tariffs: What are they good for?
Right, because for this to work, the government has to pick the right industry to nurture and then nurture it correctly.
Planet Money
Tariffs: What are they good for?
Like, what if your citizens need medicines or microchips or drone batteries, and the only people who make those things live thousands of miles away in a place with different, maybe opposing, national security goals? Even the most free trade of economists seem to agree that, yeah, maybe paying a little bit of a premium to support a slightly uneconomic domestic industry in these cases is a good idea.
Planet Money
Tariffs: What are they good for?
Today is a big day. For weeks, we have been hearing about April 2nd. The Trump administration had promised that today would be the day that they put new tariffs on goods coming in from, I don't know, maybe every country in the world.
Planet Money
Tariffs: What are they good for?
Over the last 10 years, more economists have come around to Ha-Joon's way of seeing tariffs and protectionist policies.
Planet Money
Tariffs: What are they good for?
So Ha-Joon Chang's lonely argument? It's less lonely. A lot of economists agree now. Infant industry, national security, sure, tariffs can maybe help. But the Trump administration has more ideas. We get into that after the break. OK, so tariffs could be useful for infant industry protection, for national security interests and to combat unfair trade practices.
Planet Money
Tariffs: What are they good for?
And the economics world has really woken up to this over the last decade or so. There's this series of blockbuster studies on something known as the China shock. The shock happened when China joined the World Trade Organization in 2001.
Planet Money
Tariffs: What are they good for?
That's Mark Summerlin. He's an economist, consultant, and longtime friend of Trump's treasury secretary.
Planet Money
Tariffs: What are they good for?
But surely, tariffs have been useful ever, or they wouldn't exist, right? Right? Hello and welcome to Planet Money. I'm Mary Childs.
Planet Money
Tariffs: What are they good for?
Now we have massive trade deficits with China and other countries where we're importing way more than we export. Trump world sees this as a huge economic problem and tariffs as a solution, one that will help correct the trade imbalances and bring back manufacturing jobs.
Planet Money
Tariffs: What are they good for?
So the administration's idea seems to be to choose a different tradeoff, to accept higher prices with the hope of eventually bringing back some of those good jobs.
Planet Money
Tariffs: What are they good for?
Judy has been making the case for correcting the U.S. trade imbalance for years. In his first term, Trump nominated her for the Federal Reserve Board of Governors. She did not get confirmed. A bunch of economists and Fed employees wrote letters saying her views were extreme and too partisan on monetary policy.
Planet Money
Tariffs: What are they good for?
To Judy, redirecting that spending is the best part of tariffs.
Planet Money
Tariffs: What are they good for?
We talk to an economist who has been making the lonely argument for protectionism for the past 30 years.
Planet Money
Tariffs: What are they good for?
And this is one more benefit the administration points to, to solving our problems using tariffs. They say it will help rebalance the government's budget. Right now, more money goes out of the government than comes in. If tariffs raise beautiful revenue, that's money in our pocket.
Planet Money
Tariffs: What are they good for?
Now, all that, that has been basically their argument for why they want to use tariffs. And the way Trump is applying these tariffs is pretty different from the prescription that many economists are now on board with.
Planet Money
Tariffs: What are they good for?
Last week, Trump announced 25 percent tariffs on all imported cars and certain car parts. Cars made in the U.S., even by foreign companies, no tariff. And the stated goal is to get Americans to buy cars made in the U.S. because they would be comparatively cheaper. And the U.S. gets those good manufacturing jobs.
Planet Money
The rise and fall of Long Term Capital Management
And this was something else that their perfectly rational models had failed to predict. That their peers and competitors had been jealous and were more than willing to help them fail.
Planet Money
The rise and fall of Long Term Capital Management
So they called up all their clients and all the people who had been beating their door down to give them money to invest.
Planet Money
The rise and fall of Long Term Capital Management
And people were interested even at that point, but not if they were going to be the only ones doing it.
Planet Money
The rise and fall of Long Term Capital Management
And this chapter, this is the steamroller part. Their model had not predicted the panic over Russia's default. It didn't understand how people act when they're scared. And now, by the summer of 1998, people were too scared to save them.
Planet Money
The rise and fall of Long Term Capital Management
And Victor and his friends made so much money.
Planet Money
The rise and fall of Long Term Capital Management
By late September, long-term capital management was effectively over. Because sometimes, emotions triumph over math.
Planet Money
The rise and fall of Long Term Capital Management
There is this saying attributed to industrialist J. Paul Getty. If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem. And by the fall of 1998, long-term capital management had loved leverage so much that the fund had borrowed from the banks over $100 billion. They weren't just the bank's problem. They were everyone's problem.
Planet Money
The rise and fall of Long Term Capital Management
The Fed president said, please come in for a visit. He gathered the banks in a conference room and said, let's figure this out. Long-term capital was not invited.
Planet Money
The rise and fall of Long Term Capital Management
I envision this Fed meeting as a group of somewhat guilty children, like their siblings, their cousins or something. And a parent has locked them in a room and said, OK, maybe you didn't make the mess, but you have a mess. How are you going to clean it up?
Planet Money
The rise and fall of Long Term Capital Management
A couple of the banks were still like, thank you for this opportunity, but no, and left the room.
Planet Money
The rise and fall of Long Term Capital Management
In the end, the 14 banks bought all the stuff that long-term capital had at an enormous discount. Eventually, those prices would recover and the banks made money.
Planet Money
The rise and fall of Long Term Capital Management
For the partners at long-term capital, including Victor, this was personally and financially painful.
Planet Money
The rise and fall of Long Term Capital Management
Victor's professional reputation was invested in the fund. His career was in the fund. And he'd had money in the fund.
Planet Money
The rise and fall of Long Term Capital Management
But that Fed-orchestrated funeral, it worked. It stopped the panic. And Roger says there are two main reasons why it worked.
Planet Money
The rise and fall of Long Term Capital Management
The rescue effort was a rescue of the financial system, not of long-term capital management.
Planet Money
The rise and fall of Long Term Capital Management
Victor says this was a private recapitalization. The 14 private banks got to buy a bunch of assets at buyer sale prices from a private company. Victor says while the Fed did babysit, it was just hosting a hedge fund yard sale.
Planet Money
The rise and fall of Long Term Capital Management
By intervening, the Fed set a precedent because just 10 years later, in 2008, the financial system would again be on the brink of collapse. Except this time, the problem was much bigger.
Planet Money
The rise and fall of Long Term Capital Management
Poker during the day, poker at night, different types of poker. They would turn their desk chairs away from their computer screens of price charts and yield curves to face each other and ante up. They got to play games of risk and probability with actual living legends Bob Merton and Myron Scholes.
Planet Money
The rise and fall of Long Term Capital Management
Victor and Roger agree on this point. Yes, the Fed or the government has some interest in a stable financial system. But because in 1998 the Fed intervened and orchestrated long-term capital's funeral, we didn't see what would have happened had it been allowed to fail chaotically. We didn't really feel the consequences of all that risk taking and all that leverage.
Planet Money
The rise and fall of Long Term Capital Management
So we didn't really learn that maybe that was too much risk.
Planet Money
The rise and fall of Long Term Capital Management
And Roger says it is folly to think that anyone would ever solve that age-old dream of a perfect mathematical solution to risk. Being able to predict the future. Because you can't. That's the only thing that history does promise us.
Planet Money
The rise and fall of Long Term Capital Management
This episode of Planet Money was produced by Sam Yellow Horse Kessler and edited by Jess Jang. It was fact-checked by Sierra Juarez and engineered by Robert Rodriguez. Alex Goldmark is our executive producer. I'm Mary Childs.
Planet Money
The rise and fall of Long Term Capital Management
They applied their lofty, perfect academic models of cold rationality to the busy, chaotic, real financial markets to great, great profit.
Planet Money
The rise and fall of Long Term Capital Management
And then it all came crashing down. Hello and welcome to Planet Money. I'm Mary Childs.
Planet Money
The rise and fall of Long Term Capital Management
Perfect, safe, clever bets that turn into a perfect disaster that threatened the entire financial system. And how we have learned perfectly nothing from it.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, what is cheap if it's just by itself?
Planet Money
The rise and fall of Long Term Capital Management
Because they weren't just buying a stock because they thought it was going to go up. They were betting on a discrepancy. They saw that one bond or stock cost too little relative to another very similar bond or stock. They were balancing the price of one thing off of another, like some kind of asset price parkour.
Planet Money
The rise and fall of Long Term Capital Management
Like, for example, they bet on Russian debt denominated in rubles because everyone else was more scared of it than they needed to be. And they bet against Russian debt denominated in dollars because it was overpriced. That is called a relative value trade.
Planet Money
The rise and fall of Long Term Capital Management
Hold on to the trade for the long term. That's how they managed the capital. You get it?
Planet Money
The rise and fall of Long Term Capital Management
So step one, find an opportunity, like Russian debt in dollars is overpriced relative to Russian ruble debt. Step two, explain why that opportunity exists. Come up with a good explanation and understand what directions the prices should go.
Planet Money
The rise and fall of Long Term Capital Management
Borrowing money to double up on the trade or triple up. So if you have $1, you could invest $2 or $3 or $20. And if your bet is correct, you get, you know, 20 times the profit you were gonna with your just $1. Leverage amplifies whatever you're doing. You can win that much more, but you can also lose that much more. Most hedge funds do this, but long-term capital did it to the extreme.
Planet Money
The rise and fall of Long Term Capital Management
So step four, put on the trade. Take the opportunity. They'd call their bank or broker and say, hello, I have $20, 19 of it borrowed, and I'd like to use it to bet on this bond or option or whatever, please. And so that is a game that Victor and the group at Long-Term Capital Management were playing. And it was working.
Planet Money
The rise and fall of Long Term Capital Management
This is Roger Lowenstein. He wrote the book on Long-Term Capital Management. And he says in the beginning, this fund was verging on mystical.
Planet Money
The rise and fall of Long Term Capital Management
And in its first few years, their bets were right. Nickels upon nickels upon nickels. Long-term capital started in February 1994 with $1.3 billion of investor money. By late 1997, that was over $7 billion. But with all that success came a few problems.
Planet Money
The rise and fall of Long Term Capital Management
In the mid-1990s, a group of people thought they'd finally achieved this dream that had existed since the dawn of financial markets. They'd figured out how to take risk. They built a model that could help them generate great investment returns consistently over time. Perhaps unsurprisingly, they were math nerds.
Planet Money
The rise and fall of Long Term Capital Management
They'd wrung so much profit out of the markets. In 95, they generated 43% in returns. And the next year, 41%. And another thing about too much success? Everyone else notices. Everyone else started copying them. Trading desks at other hedge funds, at banks. Long-term capital now had more competition. More people buying up the same stuff, scooping up those nickels.
Planet Money
The rise and fall of Long Term Capital Management
It was math over emotions. Risk-taking had always been an art, but now they could turn risk-taking into a science.
Planet Money
The rise and fall of Long Term Capital Management
That phenomenon was starting to show up in the returns for their clients. Instead of 40-something percent returns, in 1997, they generated just 17 percent, which didn't even beat the S&P 500.
Planet Money
The rise and fall of Long Term Capital Management
first, financial markets were getting interesting. There was a financial crisis roiling Asia, sparked in Thailand, now hitting Indonesia and South Korea. Long-term capital's models haven't really predicted that, but so far, not that big a deal. The trouble was pretty contained.
Planet Money
The rise and fall of Long Term Capital Management
Okay, little stuff. All fine. Not that big a deal for long-term capital management.
Planet Money
The rise and fall of Long Term Capital Management
Which, OK, maybe some buying opportunities in there, you know?
Planet Money
The rise and fall of Long Term Capital Management
In August of 1998, things really got started. Russia acted in a way that was unexpected. It defaulted on its ruble debt and devalued its currency.
Planet Money
The rise and fall of Long Term Capital Management
Victor had gone from working at an investment bank to getting hired into this elite, illustrious group. A group that included Myron Scholes and Bob Merton, the guys who'd figured out how to mathematically derive prices for stock options, bets on a stock's future price. For this work, Myron Scholes and Bob Merton would go on to win a Nobel Prize in economics.
Planet Money
The rise and fall of Long Term Capital Management
Not a lot. Losses they could handle. That wasn't the problem.
Planet Money
The rise and fall of Long Term Capital Management
And this is when and why things went so sideways for long term capital. Risk managers, people whose jobs were to make sure their firm wasn't doing anything crazy, they were suddenly acting in a way that no model had predicted. They were like, whoa, this Russia default really surprised us. That's scary. Can we ratchet down how much money we have out there?
Planet Money
The rise and fall of Long Term Capital Management
Can we sell the riskier stuff until we feel better?
Planet Money
The rise and fall of Long Term Capital Management
The group was still able to function to sell things to other people into a very falling market. Stock markets in Europe dropped more than 5% in a day. For the month of August, the Dow Jones Industrial Average dropped 15%.
Planet Money
The rise and fall of Long Term Capital Management
And then one day we look at our screens. Their screens start showing something weird. Some of the things they owned, their positions that shouldn't be affected at all by Thailand or Russia, they're also having huge swings.
Planet Money
The rise and fall of Long Term Capital Management
And then their offsetting bet in the other direction? Shouldn't that bet be working out?
Planet Money
The rise and fall of Long Term Capital Management
Because in all their beautiful, perfect mathematical models of risk-taking and risk-not-taking, Roger could see that long-term capital had failed to account for something. A big thing.
Planet Money
The rise and fall of Long Term Capital Management
Yeah, the sell-off may have started with Russia, but then the human factor. People got spooked across the board. And then when long-term capital started to stumble, Wall Street saw an opening.
Planet Money
The case for Fed Independence in the Nixon Tapes
You feel as far as our money supply, we've got that about as far as we can turn it right now, have we? I mean, as far as my influence on him, that's what I'm really asking. Well, you know, he said that they voted to increase it. I know. And he said, what was his words? He said, and I'm on the line on that. I'm on the line. That it increased, and that's what he said. I put that in my little note.
Planet Money
The case for Fed Independence in the Nixon Tapes
All right. Well, you watch it and then remind me if I have to talk to him again, and I'll do it. Well, I'm sure next time I'll just bring him in. What? I'm sure we'll have to keep after him, huh? Yeah.
Planet Money
The case for Fed Independence in the Nixon Tapes
Oh, one other thing. I told John to have put on on the White House Theater Monday night the Brian song. I don't know whether you saw it. You probably didn't. But it's an ABC hour and a half movie on Brian Piccolo and Gail Sayre. It's the best thing in race relations that's been done in my memory. And it's a beautiful movie.
Planet Money
The case for Fed Independence in the Nixon Tapes
So be sure to have you, your kids, anybody that are around, go Monday night to the theater to see it. Will you do that? I'll do that. It's a really wonderful movie. Okay. Bye.
Planet Money
The case for Fed Independence in the Nixon Tapes
This will be the last conservative administration in this city, in Washington.
Planet Money
How DeepSeek changed the market's mind
Just a note, in this episode, we will at some point talk about specific AI and tech companies, including Meta, Google, Microsoft, and Anthropic, all of which are current financial supporters of NPR. Here's the show. This is Planet Money from NPR. Imagine us at Planet Money, rolling out of bed late on Monday morning, still in our cozy pajamas.
Planet Money
How DeepSeek changed the market's mind
And then the AI adopters. Those are all the companies that stand to benefit from using AI. And really, what this week was about was like a shift away from the enablers and arguably a bit towards the adopters.
Planet Money
How DeepSeek changed the market's mind
And I think there is one other huge assumption that was challenged this week. Up until Monday, the market seemed to be confident that American AI companies had a moat around this technology, that the barriers to entry were just so enormous that no one else was going to win this arms race.
Planet Money
How DeepSeek changed the market's mind
After the break, we sit down with someone actively trying to build DeepSeek from scratch to see how much of all of this is real. And did the world really change on Monday?
Planet Money
How DeepSeek changed the market's mind
I can see that it is a very cute logo, but it is a kind of AI company where Leandro Fonvera works, and he describes the basic business model this way.
Planet Money
How DeepSeek changed the market's mind
But there's an enterprise edition that costs money, and that's how they make money. But the point is, hugging face, cute logo, AI. like an AI sharing platform. They do not build gigantic proprietary AI models to compete with open AI or anthropic or Google or whatever.
Planet Money
How DeepSeek changed the market's mind
And what's been useful lately is DeepSeek or, you know, playing around with DeepSeek's new chatbot that partially freaked the markets out about the future of AI.
Planet Money
How DeepSeek changed the market's mind
So let's take these one by one. Is DeepSeq actually as good as the fancy American AIs? Well, Landros says we have ways to test this. There are these like standardized tests, benchmarks for AI models. They used to be like pretty simple math problems or whatever, but as the models have been trained more and more and have gotten better and better,
Planet Money
How DeepSeek changed the market's mind
So is DeepSeq passing PhD-level coding, PhD-level math?
Planet Money
How DeepSeek changed the market's mind
here i will just interject to note we do have on staff one person who has a math degree and it's kenny true not an olympiad but i was excited quickly downloaded some math olympiad questions pulled them up on my screen for leandro this is such a big day for you i feel like oh yeah this never gets to happen the first all right hold on show that for each n we can find an n digit number with all its digits odd which is divisible by five to the nth power
Planet Money
How DeepSeek changed the market's mind
Yeah. Deep seek can do that? Sometimes. I mean, I can only sometimes do that. So yeah. All right. Fair enough.
Planet Money
How DeepSeek changed the market's mind
Okay. So that's what we're talking about here, huh?
Planet Money
How DeepSeek changed the market's mind
Yeah, no apparent gaps between how DeepSeq's model performs and how the other models perform.
Planet Money
How DeepSeek changed the market's mind
Okay. So this is the classic, are they teaching to the test?
Planet Money
How DeepSeek changed the market's mind
Or as Jim Cramer so artfully put it. This week has been a tectonic shift in assumptions about how the world is going to look. So let us first discuss how those assumptions became assumed. We shall visit a simpler ancient time.
Planet Money
How DeepSeek changed the market's mind
So, OK, appears to be good. That answers everybody's first question about DeepSeek, whether it was playing at the same level as other big AI models. But the second question is, do we really think that this thing is more efficient in some way?
Planet Money
How DeepSeek changed the market's mind
When you sit down to like replicate DeepSeek, I don't even know, like, what do you, do you sit down and you open up a computer and you're like, all right, crack your fingers, open up a Microsoft Word document. You're like DeepSeek V2, let's go.
Planet Money
How DeepSeek changed the market's mind
Are the claims that have been made about DeepSeq, the cheapness, the fact that it can run on less powerful processors, do all of these things seem to be checking out?
Planet Money
How DeepSeek changed the market's mind
Yeah, in the ballpark, which is notable because there had kind of been some murmurs of skepticism around the specific numbers DeepSeq was putting out.
Planet Money
How DeepSeek changed the market's mind
I've heard people talk about this moment as a shift towards AI models as a commodity. And that is a completely different vision than what markets seem to be betting on before this week. Like seemingly overnight, we went from an imagined future where a handful of gigantic American companies controlled the most powerful AI models.
Planet Money
How DeepSeek changed the market's mind
to a future where it seems very powerful AI models can be built and used by maybe anyone, anywhere, someday?
Planet Money
How DeepSeek changed the market's mind
Yeah, investors are, of course, still betting on a version of the AI revolution, which, of course, will be excitedly televised. If you want to nerd out more on what an AI future might look like, you can subscribe to our newsletter. Newsletter author Greg Rosalski is working on a piece about why the AI community is suddenly obsessed with a 160-year-old paradox, Jevons Paradox.
Planet Money
How DeepSeek changed the market's mind
He's got the history of that idea and the latest AI ideas. Subscribe at npr.org slash planetmoneynewsletter.
Planet Money
How DeepSeek changed the market's mind
Special thanks this week to Chaim Israel from Bank of America. I'm Kenny Malone.
Planet Money
How DeepSeek changed the market's mind
Now, that AI model was developed by an American company called OpenAI. And their AI model, ChatGPT, had taken a ton of time to develop. OpenAI had spent billions of dollars creating it, and as the model developed, it became clear that running better and better versions of GPT would be so expensive because it required the best semiconductors in the world, lots of them.
Planet Money
How DeepSeek changed the market's mind
And newer companies got more competitive, too. Anthropic, perplexity, also with gigantic AI models requiring unearthly amounts of compute, as they say, and money, as they also say.
Planet Money
How DeepSeek changed the market's mind
If there was a way to win the AI arms race, it seemed pretty clear you needed the scale of a gargantuan company to do so.
Planet Money
How DeepSeek changed the market's mind
Was Monday a bummer of a day for you? In the grand scheme of days, how does that shape up?
Planet Money
How DeepSeek changed the market's mind
And he says on Monday, there were bad signs even before the stock market opened in the United States.
Planet Money
How DeepSeek changed the market's mind
Well, so yeah, deep seek was happening. Here's the backstory. This Chinese company, a subsidiary of a hedge fund actually, had been developing an AI model just, you know, for fun, for its own hedge fundy uses, I guess. And this was not a secret. Lots of people in the AI tech world knew about this, Angelo included, because the hedge fund had been sort of open sourcing what it was doing.
Planet Money
How DeepSeek changed the market's mind
After all, the parent company was not an AI company. It was a hedge fund.
Planet Money
How DeepSeek changed the market's mind
Yeah. Number one, the DeepSeek AI had been training, getting better and better. And it seems that the newest version, released just 11 days ago, had got real good. It hit certain benchmarks that showed it was possibly, allegedly, undervalued. As good or nearly as good as the gigantic, fancy, expensive AI models being built by the American AI companies.
Planet Money
How DeepSeek changed the market's mind
And then big thing number three, according to Angelo Zeno, news of all of this starts to spread. And over the weekend, last weekend, lots of people download a DeepSeek app, presumably to see what this buzzy new AI model is really like.
Planet Money
How DeepSeek changed the market's mind
I've been thinking about, like, should Monday have a name? Like, Black Friday had a name, you know? And I've been trying to make this one work. Yeah. Monday-eye apocalypse. It's not bad. It's not bad. You know... And so we shall now dissect and make meaning of the Monday-i apocalypse, starting with Angelo's specialty, the tech sector.
Planet Money
How DeepSeek changed the market's mind
So for a lot of the people who were interested in investing in the brave new AI future, NVIDIA seemed like a good place to do it, especially because it has actually been quite hard to invest directly in the AI companies. Like some of the biggest companies developing the models, OpenAI, Anthropic, they do not have shares you can just go and buy. They're not publicly listed, not yet at least.
Planet Money
How DeepSeek changed the market's mind
Basically, because the only way the AI revolution can happen is with the fancy AI chips from NVIDIA. And in fact, NVIDIA was seemingly so important that in 2022, the United States banned NVIDIA's most powerful chips from being sent to China to preserve America's AI advantage for national security reasons.
Planet Money
How DeepSeek changed the market's mind
Which... The markets seemed to think perhaps meant NVIDIA was not quite as important to the AI revolution as they thought. And on Monday, NVIDIA's stock price fell so much, nearly 20%.
Planet Money
How DeepSeek changed the market's mind
Now, historically, had you been bullish on NVIDIA? Had you been telling these European investors like, hey, go long NVIDIA?
Planet Money
How DeepSeek changed the market's mind
If you were a week ago telling people bullish on Nvidia and then on Monday it plummets, how does that, like, what's that like when you're in your chair?
Planet Money
How DeepSeek changed the market's mind
It is, however, a conversation that many investors needed to have with themselves on Monday because... DeepSeek's prevalence suddenly did seem to undermine the core assumption that in order to build god-tier AI, you needed god-tier AI chips. But DeepSeek had apparently pulled it off with cheaper chips and fewer of them.
Planet Money
How DeepSeek changed the market's mind
As for Angelo, what did he tell his angry European investors and other investors during the Monday Eye apocalypse?
Planet Money
How DeepSeek changed the market's mind
Okay, so you didn't change that through the cliff.
Planet Money
How DeepSeek changed the market's mind
Because, he says, the AI revolution will still need lots and lots of processing power. Just, you know, whose chips and how many and what kind? Well, the markets seem a bit less sure about all of that than they were one week ago.
Planet Money
How DeepSeek changed the market's mind
Yeah, because on Monday, AI-related stocks started plummeting and TV-related people started grasping for big metaphors. It was an earthquake today in the world of artificial intelligence. The seismic AI event, a new-ish AI model from a company called DeepSeek.
Planet Money
How DeepSeek changed the market's mind
I'm going to share my screen and I'm just going to explain in one second.
Planet Money
How DeepSeek changed the market's mind
I just want you to read a headline that you wrote from like about two weeks ago.
Planet Money
How DeepSeek changed the market's mind
Well, Jennifer, it seems you know what I'm going to do next, which is two weeks later, I'm just going to pull up a graph of their stock price.
Planet Money
How DeepSeek changed the market's mind
Yes. Okay. So in case you have not heard this, the AI revolution is going to require a lot of energy. And this goes back to the market assumption we just discussed about how training AI models and running them requires really high-tech processors, which use loads of electricity, and
Planet Money
How DeepSeek changed the market's mind
And then AI uses loads of those fancy processors using loads of electricity and they put them all together and I guess in giant big buildings.
Planet Money
How DeepSeek changed the market's mind
Should we imagine it like having the electrical meter outside and it's just spinning so fast you can't see the hand?
Planet Money
How DeepSeek changed the market's mind
And for reasons, Jennifer says some of the tech companies have become fixated on nuclear as a great option for the huge AI power needs.
Planet Money
How DeepSeek changed the market's mind
Apparently that is how nuclear power works. Consistent energy 24-7.
Planet Money
How DeepSeek changed the market's mind
Oh, 100%. But anyway, the point is that we have a similar story here to what we had with NVIDIA and other chip makers. People wanted a way to invest in the AI future, and so they were pouring money into nuclear stocks, including, of course, our nation's biggest nuclear provider, Constellation Energy.
Planet Money
How DeepSeek changed the market's mind
And then on Monday, because of DeepSeek, the markets were forced to perhaps rethink that assumption. You had this high quality AI apparently needing less energy. The market starts selling Constellation off of the cliff. And at one point on Monday, the stock was down 20%.
Planet Money
How DeepSeek changed the market's mind
Yeah. So that cliff you described, the stock price of Constellation dropping off, that is a market collectively saying, oh, crap, maybe the future doesn't require as much electricity as I was betting on.
Planet Money
How DeepSeek changed the market's mind
And to be clear, nuclear power has been getting lots of headlines, but the markets had also been pouring into really like any company that makes and sells any kind of electricity.
Planet Money
How DeepSeek changed the market's mind
And I'm Kenny Malone. Today on the show, call it an artificial intelligence earthquake, call it an AI apocalypse, but Monday was not just a market freakout. I mean, it was that. Markets lost hundreds of billions of dollars, but it was also a teachable moment.
Planet Money
How DeepSeek changed the market's mind
The Monday Eye Apocalypse. was not about whether or not there will be an AI revolution. If anything, the introduction of deep seek means more AI, lowering the barrier to AI, making it cheaper to use for, I don't know, whatever your AI mind can dream up.
Planet Money
If AI is so good, why are there still so many jobs for translators?
Hi, this is Mary Childs. There's the saying about artificial intelligence that right now AI is the worst it will ever be. It screws up a lot now, but it is only going to get better. So how to even answer questions like will AI replace jobs or change jobs? We talked about this on the show last year and especially in the Planet Money newsletter, which our beloved Greg Wazowski writes.
Planet Money
If AI is so good, why are there still so many jobs for translators?
Subscribe if you haven't already. It's very good. So today we are sharing something that Greg uncovered for the newsletter this summer. He figured out a clever way to investigate AI progress for jobs. Look at something AI is already good at. Translation. Greg interviewed an AI innovator who also is the head of the language learning app Duolingo.
Planet Money
If AI is so good, why are there still so many jobs for translators?
We regularly publish Greg's newsletter chats as bonus episodes for our Planet Money Plus subscribers. So if that is you, you already got a chance to hear this. Bonus content is just one perk of signing up for Planet Money Plus. You also get every episode of Planet Money without sponsor messages. And you get exclusive Planet Money merch at the NPR shop.
Planet Money
If AI is so good, why are there still so many jobs for translators?
So while you listen today, consider supporting us by signing up. Just go to plus.npr.org. Okay, here's Greg.
Planet Money
If AI is so good, why are there still so many jobs for translators?
If you liked this, you can hear more of Greg's newsletter interviews and other bonus episodes like the Planet Money Movie Club by signing up for Planet Money Plus. In these times of uncertain advertising revenue, subscriptions are the steadiest, best way to support our work and help keep us going. Again, just go to plus.npr.org for details. We are very grateful. I'm Mary Childs. This is NPR.
Planet Money
The Rest of the Story, 2024
That is correct. I went shopping out of necessity and Sweden won.
Planet Money
The Rest of the Story, 2024
No, I wish, Alexi. I don't understand why no one has called me. I remain open to employment in Sweden. But here is my update. My episode was about benefits that parents can get in different countries, but I did not talk at all about the benefits for parents of multiples, which is the term of art among those of us who have had more than one baby at one time.
Planet Money
The Rest of the Story, 2024
Like, you know, twins or triplets or, God forbid, quadruplets. Multiples. Yes, multiples. I actually learned that the offering in Sweden is even better than I realized because they give additional leave for each additional baby.
Planet Money
The Rest of the Story, 2024
When it comes to multiples, it's kind of buy one, buy another. So I don't know that it's like a deal. But in Sweden, they really do offer 180 days more per marginal child. On top of their existing offer of 480 days for a baby. Not bad. I know. So only a few countries in the world do this.
Planet Money
The Rest of the Story, 2024
The Scandinavian countries, as again, you might expect, but also Poland, Laos, Azerbaijan, Lithuania, Andorra. But again, this is unusual because in most countries, it doesn't matter how many babies you grew. It is just one birth event.
Planet Money
The Rest of the Story, 2024
That's exactly right, Alexi, and I'm so glad that you see this. Rome famously needs more days to be built. Obviously, there are more babies to care for and to bond with. But here's why more leave may be medically indicated. Because it's typically a more complicated pregnancy for whoever is growing the babies. And it is also riskier for the infants themselves because twins, triplets, etc.
Planet Money
The Rest of the Story, 2024
are more likely than singletons to need time in the neonatal intensive care unit. They are more likely to have health complications, etc.
Planet Money
The Rest of the Story, 2024
And guess what, Alexi? You are going to be hearing more about this because the incidence of multiple babies at a time is rising. We're getting more multiples? The multiples are multiplying. Because, yes, more people are using fertility assistance treatments, doing IVF, etc., and that increases your chances. But that's not the only reason. And no one is talking about this, but they should.
Planet Money
The Rest of the Story, 2024
Another factor that increases your chances of multiples? Advanced maternal age. Okay? So as more people are having kids later in life than they used to, you can expect to see more twins and more people asking for longer parental leave.
Planet Money
Can we just change how we measure GDP?
Steve says some very high ranking members of Congress who represented coal mining areas thought Steve's green adjusted GDP would make their regions look worse than regular GDP. And through the grapevine, he found out that Congress was proposing to slash their budget if they kept publishing their green GDP.
Planet Money
Can we just change how we measure GDP?
But, like, can they do that? Can they change how we measure the economy just like that? Hello and welcome to Planet Money. I'm Mary Childs.
Planet Money
Can we just change how we measure GDP?
Now, Steve left his job as director of the BEA a decade ago. But we were curious about what he thought about what's been happening recently with senior administration officials, with the commerce secretary wanting to totally strip government spending out of GDP.
Planet Money
Can we just change how we measure GDP?
He points to a press release from the BEA about 2024 GDP. Table two shows how much each part of the formula contributed to GDP. So how much consumption and investment and net exports and government spending each contributed.
Planet Money
Can we just change how we measure GDP?
Yeah. If you want to be more serious about it, he says there are several different measures of GDP that BEA already publishes. Different slices of GDP that tell different stories. Like there's one that's GDP just not including net exports. There are a bunch of these.
Planet Money
Can we just change how we measure GDP?
Steve says if he looks at that press release next month and they've announced that GDP now does not include government spending, well, that is a different story.
Planet Money
Can we just change how we measure GDP?
We're going to talk to the person who was the keeper of the stat for nearly 20 years. Turns out people from politicians to economists to special interest groups have been trying to bend GDP for decades to make whatever grand project they're working on look better. Today on the show, what's different this time and what is the same as it ever was? Okay, GDP. What is it?
Planet Money
Can we just change how we measure GDP?
Before we go, we wanted to let you know about a new perk for Planet Money Plus supporters. We have made it easy for you to listen to some of our classic series from the Planet Money archive. Like when we wanted to understand the global financial crisis and bought a toxic asset we named Toxie. You can now find all eight Toxie episodes in one playlist with more playlists to come this year.
Planet Money
Can we just change how we measure GDP?
If you're already a Planet Money Plus supporter, check them out. If you are not, you can sign up at plus.npr.org. You also get bonus episodes, sponsor-free listening, and know that you're supporting the work of Planet Money.
Planet Money
Can we just change how we measure GDP?
And I'm Mary Childs. This is NPR. Thanks for listening.
Planet Money
Can we just change how we measure GDP?
To help us understand, we brought in someone who spent 20 years in charge at the Bureau of Economic Analysis, that federal agency that calculates GDP, Steve Landefeld.
Planet Money
Can we just change how we measure GDP?
Okay, so parents, take note. If you want your kids to follow in your footsteps, keep your job a mystery.
Planet Money
Can we just change how we measure GDP?
The concept was developed in the 1930s, and there's a formula to calculate it that's basically remained the same for decades.
Planet Money
Can we just change how we measure GDP?
And you add to that everything businesses invest in. Every factory, every new machine, every important office foosball table. Right.
Planet Money
Can we just change how we measure GDP?
And then, finally, combine all that with what's called net exports. Everything we export minus everything we import. The economist in crowd, people like Steve, would say the whole formula this way.
Planet Money
Can we just change how we measure GDP?
Which is not bad. And GDP is important. Not only does it tell us how healthy the economy is if we're headed towards a recession or not, but also GDP influences how the government allocates money. It influences whether businesses build a new factory or hire more workers. A lot of decisions are made based on how our GDP is doing.
Planet Money
Can we just change how we measure GDP?
Now, Steve, Steve wanted GDP to be as accurate as possible. He was obsessed with that mission. For 20 years, he was essentially the defender of GDP's integrity.
Planet Money
Can we just change how we measure GDP?
Correcting GDP for inflation is really important. Because if you have 2% growth but also 2% inflation, you don't really have growth. And Steve wanted to use a new measure of inflation that better reflected how prices were factored in. So GDP would be more accurate.
Planet Money
Can we just change how we measure GDP?
And its publication is kind of always a big deal. It is closely watched because people can see how hot the economy is running or how cold, like if we're tipping into a recession. But this release, this is going to be even closerly watched.
Planet Money
Can we just change how we measure GDP?
In other words, the note said, we are going to make your predecessor look better and you look worse. For the sake of sound statistics.
Planet Money
Can we just change how we measure GDP?
After our interview, Steve checked and apparently it said, this is nuts.
Planet Money
Can we just change how we measure GDP?
But Steve was the keeper of the stat. He thought this change was really important, like important enough that he was thinking he might quit over it. So he and his team went to his boss's boss, the then commerce secretary, and told him, listen, there are a bunch of reasons why we've got to do this.
Planet Money
Can we just change how we measure GDP?
And Steve was always protecting GDP. He says people from various industries would try to meet with him to get him to change how their industries were calculated.
Planet Money
Can we just change how we measure GDP?
The technical reason was that there had actually long been a problem with GDP. And that is it's hard to capture changes in quality when something gets better, but it doesn't always show up in the price.
Planet Money
Can we just change how we measure GDP?
Next month, a crucially important measure of the economy comes out. It's the measure, really. Gross domestic product. It's the total tally of all the goods and services bought and sold in the economy.
Planet Money
Can we just change how we measure GDP?
Greenspan was fine with the hedonic adjustments BEA was doing for goods. But he had a problem with how they were doing hedonic adjustments for services. He was worried they weren't accurately capturing all the improvements in the quality of the service sector. People were doing way more in a day. In industries like healthcare, in education, and basically everything to do with the internet.
Planet Money
Can we just change how we measure GDP?
And because GDP wasn't correctly capturing that, BEA was undercounting productivity growth. And they should look into that.
Planet Money
Can we just change how we measure GDP?
Greenspan, as chair of the Federal Reserve, had been lowering interest rates through a lot of the 1990s, which meant that there was a lot of money sloshing around in the economy. And Greenspan seemed to think if he could convince Steve to do this hedonic adjustment for services, then inflation would seem smaller and real GDP would look stronger. And that would justify keeping interest rates low.
Planet Money
Can we just change how we measure GDP?
In other words, Letnick is saying he's going to strip government spending out of GDP. And the stated reason for this proposed change? He doesn't think that a lot of government spending is great for the economy. He doesn't want it incentivized and he doesn't want it included in GDP.
Planet Money
Can we just change how we measure GDP?
And yeah, they knew that Greenspan kind of had an agenda, so they made sure to do their own research. And he wasn't wrong. So they made the changes. Now, looking back, Greenspan's easy money era is often cited as one, just one, of the reasons for the risky lending that led to the 2008 global financial crisis.
Planet Money
Can we just change how we measure GDP?
For Steve, it's not even a question. Empirically, it was the right thing to do. He says the BEA was trying to keep GDP up to date. And Greenspan, despite his other motives, did help with that.
Planet Money
Can we just change how we measure GDP?
So far, we've talked about how economists calculate GDP and how sometimes they make changes to that methodology. Incremental changes to capture an evolving economy.
Planet Money
Can we just change how we measure GDP?
But people have always known that the formula doesn't capture everything that's important. For instance, it doesn't capture any illegal activities. And in some countries, that is a big part of their economy. It also doesn't capture inequality or well-being or happiness.
Planet Money
Can we just change how we measure GDP?
One group that Steve remembers pressuring him argued that all the unpaid household labor, the cooking and the cleaning and the child rearing that often women were doing, was not getting counted in GDP. But they argued it should be. It was a huge portion of the economy and women were not getting their due.
Planet Money
Can we just change how we measure GDP?
Also, there was actually nothing for GDP to capture. GDP generally captures transactions that have happened, stuff that generates receipts. Just because it could or should be priced doesn't mean it makes it into GDP.
Planet Money
Can we just change how we measure GDP?
Another group that lobbied BEA was environmentalists. They argued that if environmental degradation were included in GDP, governments would not sit idly by as, you know, coal plants polluted. But since burning coal raised GDP, they didn't have much of an incentive to stop it.
Planet Money
The Big Government Money Pipe Freeze
Steve is an assistant math professor at USC. He is supposed to be getting a grant from the National Science Foundation. That grant is for his research into complexity theory.
Planet Money
The Big Government Money Pipe Freeze
But will that money actually come through now? Steve is not sure. There's a lot of uncertainty. Theoretically, the money would start coming March 1st.
Planet Money
The Big Government Money Pipe Freeze
Now, of course, it's not like there's some line item saying Steve's grant. This is just showing when the money is flowing or not flowing out of NSF. Is the line going up or down or just laying there flat at zero? But yeah, Steve says if this is the best we got, more than nothing is better than nothing.
Planet Money
The Big Government Money Pipe Freeze
Our third and final use case is what we might call, is there a reason to be worried about a gigantic mistake that might affect one of the most important financial instruments in the American and also global economy case?
Planet Money
The Big Government Money Pipe Freeze
There has been reporting that this team has a kind of access that would allow them to change computer code in the federal payment systems. Treasury initially denied this claim, but then they were like, oh, yes, whoops, that was true just for one person, but not anymore. But nonetheless, if someone makes the wrong changes to the giant money pipe,
Planet Money
The Big Government Money Pipe Freeze
It might could cause seismic problems, notably to the famously reliable drip of interest paid on U.S. government debt, treasuries.
Planet Money
The Big Government Money Pipe Freeze
His name is Guy Lebas. He lives in Philadelphia. The Eagles had just won the Super Bowl. Go Birds. Guy volunteered that he did not climb any lampposts to celebrate.
Planet Money
The Big Government Money Pipe Freeze
Okay. So you're doing that risk-reward analysis and you're like, it's not for me.
Planet Money
The Big Government Money Pipe Freeze
How do you know when you've gotten an interest payment into your portfolio? Like, Have you ever had to think about it arriving?
Planet Money
The Big Government Money Pipe Freeze
And I'm Mary Childs. Today on the show, we go where to look. To that one place with the tiniest bit of information, of facts, in this chaotic stretch of federal action and freezes and unfreezes. We get a strikingly clear look inside the big money pipe through which most federal spending runs. And at some of the people and the programs on the other end of that pipe.
Planet Money
The Big Government Money Pipe Freeze
And the line item on interest paid on Treasury securities is my personal favorite thing to look at on the money pipe tracker. So we pull it up together.
Planet Money
The Big Government Money Pipe Freeze
What this graph looks like is just these massive, steadfast, steady spikes.
Planet Money
The Big Government Money Pipe Freeze
Well, except for the one time in 1979 when we were accidentally a little late. One study found that just that tiny bit of uncertainty wound up costing the U.S. government like $12 billion. Just for that tiny risk premium.
Planet Money
The Big Government Money Pipe Freeze
Yeah, not ideal. Not what we want, Frankie. But if you are worried about that, you can pull up the old money pipe monitor widget tracker thing and look for that reassuring spike, spike, spike.
Planet Money
The Big Government Money Pipe Freeze
So meaning you don't think that they will miss a payment?
Planet Money
The Big Government Money Pipe Freeze
So third and final use case, watching Treasury interest payments, if that's what helps you sleep at night. It does for me.
Planet Money
The Big Government Money Pipe Freeze
Now, do you have a mechanism for if a line item disappears?
Planet Money
The Big Government Money Pipe Freeze
But with some government websites flickering on and off and with some public information getting pulled down... We asked her, is it possible to draw too much attention to our precious daily Treasury statement?
Planet Money
The Big Government Money Pipe Freeze
If you want to hear more about this story, you can keep an eye out for an upcoming Planet Money Plus episode. That's in our feed of bonus content for subscribers. And if there's anything in the headlines you are wondering about you want to stick us on, let us know. You can email us at planetmoney at npr.org. Special thanks to Christian Hoffman and Felix Liditzky.
Planet Money
The Big Government Money Pipe Freeze
We will link to the Hamilton Project's website in the show notes. I'm Mary Childs.
Planet Money
The Big Government Money Pipe Freeze
When everybody was running around trying to figure out what was happening with federal government money, apparently folks at the Brookings Institution, well, they were kind of running around too. Did they stop certain things?
Planet Money
The Big Government Money Pipe Freeze
And, you know, pretty tough to do policy research when you have no idea what is happening with federal spending.
Planet Money
The Big Government Money Pipe Freeze
The Daily Treasury Statement, the DTS if you want to sound really cool, is just one of a gazillion documents put out by the federal government.
Planet Money
The Big Government Money Pipe Freeze
the federal government basically runs through that money pipe. Almost 90% of all federal payments flow through it. Payments to Medicaid and Veterans Affairs and Customs and Border Protection.
Planet Money
The Big Government Money Pipe Freeze
But what the daily treasury statement does is show how much money flows through the giant government money pipe every single business day. And Lauren thought the daily treasury statement might be the key to everything, to understanding this present moment of spending freezes and unfreezes and confusion.
Planet Money
The Big Government Money Pipe Freeze
Can we look at the thing together and you, like, tell me about it? Sure. Let me show you what the actual website is. To be clear, the daily treasury statement is not a secret document. You don't need treasury clearance. You don't need to be a researcher requesting special access.
Planet Money
The Big Government Money Pipe Freeze
Love it. Beautiful. And this is a homepage for you, basically. This is like a commonly visited site.
Planet Money
The Big Government Money Pipe Freeze
So we opened it up together, and there's a very fancy, official-looking Treasury insignia at the top.
Planet Money
The Big Government Money Pipe Freeze
Rocket ship emoji. $249 million to the Department of Agriculture. I don't know, cow, pig, corn, corn, corn.
Planet Money
The Big Government Money Pipe Freeze
Now, it is not an accident that this document exists, this beautiful, awkwardly hyperlinked daily treasury PDF. The United States government is, of course, a prodigious generator of paperwork. And decades ago, lawmakers realized they'd need to decide how to drag all of that paper into the modern digital era.
Planet Money
The Big Government Money Pipe Freeze
Rachel says the Treasury publishes its bank statement because the U.S. has kind of staked this ground of being super transparent. That goes back to some bipartisan laws starting in 2006. The Internet was still young.
Planet Money
The Big Government Money Pipe Freeze
Congress allocates trillions of dollars to go to specific parts of the government. And when those parts of the government need a chunk of their allowance, they request it. And Treasury sends it through the old money pipe. And then a few weeks ago, the pipe, what's the way to put this, got frozen, I guess, partially frozen.
Planet Money
The Big Government Money Pipe Freeze
One of the bills Congress would pass, the Digital Accountability and Transparency Act, that's right, data, required that all federal spending data be displayed publicly online in one place.
Planet Money
The Big Government Money Pipe Freeze
Rachel says if the public doesn't know the facts, it can't make informed decisions. Transparency is crucial to a working democracy. And this is something we can take for granted here, that of course our government publishes this data. They basically always have. But Rachel says this level of transparency was a choice.
Planet Money
The Big Government Money Pipe Freeze
Right. Like not everyone knows that to find the daily Treasury statement, you need to go to fiscaldata.treasury.gov and then click on one of like eight hyperlinks to dataset details and then click a little download cloud icon to get the actual PDF. But you know who did know? Our girl Lauren Bauer at the Brookings Institution.
Planet Money
The Big Government Money Pipe Freeze
Like the Treasury's website has an API, which is the computer way of saying a way to turn those daily Treasury statements into something bigger.
Planet Money
The Big Government Money Pipe Freeze
There is a gigantic money pipe. This unfathomably large hose through which hundreds of millions of dollars flow every single day.
Planet Money
The Big Government Money Pipe Freeze
You'd theoretically be able to see if parts of the government stopped requesting their allowances from the old money pipe.
Planet Money
The Big Government Money Pipe Freeze
And then the idea was if they could stitch all of that together, they could get a big picture of how much money goes through that giant money pipe. how much goes to the Department of Agriculture or the Library of Congress on any given day over a week, over three years. And they would be able to see if that money is still flowing.
Planet Money
The Big Government Money Pipe Freeze
So they build a basic program to turn all these daily treasury statements into an interactive graph. And in theory, because it's pulling new information once a day, it would allow them some clarity on federal spending in something approximating real time. Of course, that is all assuming that it works at all.
Planet Money
The Big Government Money Pipe Freeze
And so that was still an open question at the time.
Planet Money
The Big Government Money Pipe Freeze
But for Lauren, in that moment, she had seen proof of concept. Watching the daily Treasury statement every day was a way to get real answers about what was happening. And the widget they'd made? It worked. Lauren and her team published the widget and opened it up to the public.
Planet Money
The Big Government Money Pipe Freeze
Then the courts blocked that freeze. But then, reportedly, some parts of the government were still not getting their money. Nobody seemed to know what was happening. And there have been enormous consequences amid all this confusion. Hundreds and hundreds of people lost their jobs. Clinics and daycares across the country don't know if they will have money to operate.
Planet Money
The Big Government Money Pipe Freeze
We wanted to look at this money pipe monitor tool out in the real world to get a sense of the ways it might be useful and to whom.
Planet Money
The Big Government Money Pipe Freeze
And for this, if you know, you know, use case, we return to Lauren Bauer from Brookings, actually, who helped create the spending tracker tool in the first place. Oh, it's broken again. It's gotten too much traffic.
Planet Money
The Big Government Money Pipe Freeze
Lauren gets the money pipe monitor up and running again, and we can see months and months worth of SNAP data, all these little spikes of payments from Treasury to SNAP. The thing that this looks like to me is like a heartbeat monitor.
Planet Money
The Big Government Money Pipe Freeze
There are some very tall mountains that are very skinny. They're very tall mountains. And it really is like looking at a kind of financial EKG for SNAP. You get this view of the economic heartbeat of a federal program. And what that heartbeat looks like is generally three big spikes of money every month.
Planet Money
The Big Government Money Pipe Freeze
Now, in the early case we talked about with USAID, that was a dramatic example. Suddenly a total flatline in funding. Anyone could have noticed that change.
Planet Money
The Big Government Money Pipe Freeze
Okay, so that is use case one. Use case number two, we're going to call the am I going to get my money or not case.
Planet Money
The Big Government Money Pipe Freeze
Can you, and like maybe an equation, a real beautiful equation on this whiteboard?
Planet Money
Is the reign of the dollar over?
Another problem with the dollar being the reserve currency, it means every other country is using it for their own purposes. So the U.S. has less control over the dollar's value.
Planet Money
Is the reign of the dollar over?
Part of that drift is America's adversaries, they don't really love this role for the dollar. So they've been looking for alternatives.
Planet Money
Is the reign of the dollar over?
But we still had some major contenders to go through, like the euro. The euro launched in 1999. Today, it unites 20 countries with one common currency.
Planet Money
Is the reign of the dollar over?
And if you only look at the ones that are considered safe, suddenly the market is really small, too small.
Planet Money
Is the reign of the dollar over?
So they opened new relationships with other countries. Like in 2010, China, for the first time, traded directly with Russia without converting anything into dollars. Then China started trading directly with Japan. No dollars.
Planet Money
Is the reign of the dollar over?
The price of gold has been on an absolute tear lately.
Planet Money
Is the reign of the dollar over?
And if the dollar is less dominant, that exorbitant privilege, it would slowly dissipate, including that bit about our government being able to borrow cheaply and subsidize our lifestyles.
Planet Money
Is the reign of the dollar over?
To support Planet Money and NPR, you can donate directly at donate.npr.org or you can become a Planet Money Plus member and get bonus episodes and sponsor-free listening. For that, go to plus.npr.org or you can click the links in the show notes.
Planet Money
Is the reign of the dollar over?
And I'm Greg Rosalski. This is NPR. Thanks for listening.
Planet Money
Is the reign of the dollar over?
So he's looking at his red screens. Treasury prices are dropping because all of a sudden they're seen as riskier.
Planet Money
Is the reign of the dollar over?
Dollars are the common financial language. Central banks everywhere hold dollars as a way to safely store their wealth. Countries and businesses and people use it to trade. The dollar is the world's money.
Planet Money
Is the reign of the dollar over?
But the people who originally built this world, they're long gone. And the Trump administration, with actions and statements, has been challenging some of these ideas about what's best for our country and its place in the world.
Planet Money
Is the reign of the dollar over?
Today in the show, a story about a potentially interesting question. Is the US dollar's reign ending? If so, what will replace it? And what does that mean for the yous and mees around the world?
Planet Money
Is the reign of the dollar over?
And they store other countries money because they have a lot of their own and their own currencies are not always that stable. Having other currencies gives them a buffer.
Planet Money
Is the reign of the dollar over?
And there's one currency that central banks store more than any other currency. The U.S. dollar. To understand why, we called Ishwar Prasad, a professor at Cornell University.
Planet Money
Is the reign of the dollar over?
Ishwar's experiment works because when people trade across borders, they usually use the dollar. Around 90% of all foreign exchange transactions, they involve dollars.
Planet Money
Is the reign of the dollar over?
And those central banks choose American currency because, Ishwar told us, it has four crucial features. Four things you really need in a reserve currency.
Planet Money
Is the reign of the dollar over?
So there needs to be a lot of it and a lot of it changing hands all the time.
Planet Money
Is the reign of the dollar over?
So Mike is looking at his screens and they are all red. Basically, every market in the United States, all lines are going down.
Planet Money
Is the reign of the dollar over?
So you don't want a reserve currency from a country that's got like wild inflation or deflation or these economies about to like fall apart. You want that currency to be stable, to hold value.
Planet Money
Is the reign of the dollar over?
Because if inflation runs amok, your dollar tomorrow can buy less than it can today.
Planet Money
Is the reign of the dollar over?
The last thing you want to hold is a currency dropping in value.
Planet Money
Is the reign of the dollar over?
But it wasn't always that way. Before the dollar was the reserve currency, there was the British pound sterling.
Planet Money
Is the reign of the dollar over?
But the pound's dominance started to wane after World War I. And then during World War II, there was an actual moment that the dollar became the money of the world. It was a conscious decision. A bunch of people in a room making a choice. A room in a big hotel in a little place called Brenton Woods, New Hampshire. All right.
Planet Money
Is the reign of the dollar over?
And the world agreed to it because the U.S. had become the center of the capitalist world. Biggest military, biggest economy, and it was growing. And people trusted American institutions.
Planet Money
Is the reign of the dollar over?
So the dollar has been at the center of this economic solar system absolutely on purpose because the U.S. built it that way.
Planet Money
Is the reign of the dollar over?
Is it a privilege or a burden? And if it's not the dollar in the world's pocket, what is it? That's after the break. There's a phrase everyone uses to describe the luxury of your money being the money used around the world. The phrase is exorbitant privilege. It actually comes from a French finance minister who coined it back in the 1960s.
Planet Money
Is the reign of the dollar over?
And when you're thinking about reserve currencies and the exorbitant privilege, there's kind of one person you got to call. Barry Eichengreen at UC Berkeley.
Planet Money
Is the reign of the dollar over?
That book came out in 2011, so I'll keep predicting it until I'm right. As Barry sees it, the United States has benefited from the reserve currency status of the dollar in four main ways. Number one, U.S.
Planet Money
Is the reign of the dollar over?
Insurance value. When things hit the fan in the global economy, investors flock to buy U.S. treasuries. It's called the flight to safety. And the dollar gets stronger instead of collapsing.
Planet Money
Is the reign of the dollar over?
When you buy U.S. treasuries, you're handing over a wad of cash to the government today for the promise of getting that wad of cash back plus interest in like 5 or 10 or 30 years. You're helping finance the U.S. government buying its debt.
Planet Money
Is the reign of the dollar over?
Foreigners want to buy U.S. debt. That means the U.S. gets to borrow for cheaper than we would otherwise. It's kind of like the U.S. has this special low-interest credit card that other countries don't have. And we can spend on things like infrastructure and Medicare and the military even when we don't have that money sitting in the bank.
Planet Money
Is the reign of the dollar over?
So to Barry, those are the four big things that make the dollar's reserve currency status a privilege, an exorbitant privilege. But there have been some economists, including in Trump's orbit, who have argued that the reserve currency status of the dollar, it's more like a burden.
Planet Money
The fight for a legendary shipwreck's treasure
There is part of the hall, the wood hall, there's a hundred teacups sitting on the surface.
Planet Money
The fight for a legendary shipwreck's treasure
Well, we saw cannons, we saw the anchor. We start taking the pictures and put them together like in a little bit of a mosaic. You can see an outline of the ship.
Planet Money
The fight for a legendary shipwreck's treasure
Yeah, well, they weren't really spilling out.
Planet Money
The fight for a legendary shipwreck's treasure
Then the president and everything, they came on board and we chatted with him briefly about finding it.
Planet Money
The fight for a legendary shipwreck's treasure
Of Columbia, yes. Was he so excited? He was very happy it was found. There's no doubt about that.
Planet Money
The fight for a legendary shipwreck's treasure
I bet if you go along that coast of Columbia every four miles, there's a ship.
Planet Money
The fight for a legendary shipwreck's treasure
Maybe it turns out to be 20 billion. Maybe it's 5 billion. I don't know. But It seems to me that they're lining up to fight over who gets it. So who will make out in the end here? I'm not sure.
Planet Money
The fight for a legendary shipwreck's treasure
Do you have a seat? All I want is a teacup.
Planet Money
The fight for a legendary shipwreck's treasure
Yeah, we see something in the sonar that is a possible yes.
Planet Money
The fight for a legendary shipwreck's treasure
You know, we're down in this, you know, pretty old ship in this room that's a big, probably smaller than your closet. And he's at his desk here and we're just looking at it. And I'm behind him looking down at the pictures.
Planet Money
There Will Be Flood
I'm voting yes for the levy tax. Because I'd hate to see any amount of flood water in my home.
Planet Money
There Will Be Flood
...are now lowering huge sandbags to start repairing one of the levee breaks that caused all of the flooding.