Nick Fountain

We are here today to announce that the Justice Department has secured felony guilty pleas from the world's largest cryptocurrency exchange.

This is one of the largest penalties we have ever obtained from a corporate defendant in a criminal matter.

So I just met this guy, Aaron. He lost his house. He lost his business. Say you walk into his house.

So Leland will measure the foundation. And then, like a detective, he'll start sorting through the rubble, looking for signs of the life that used to be there. So he can put a price tag on it.

But with a fire this devastating, there's only so much you can find. So adjusters ask homeowners to come up with a list of every single thing that was in their house. Every chair, every fork, every family heirloom. If they have receipts, better. Extra helpful, photos.

But Leland says the insurance companies are not all that incentivized to get into the nitty gritty details. He says when he worked for the insurance companies, the system incentivized him to clear cases as soon as possible.

Yeah, like the company's adjuster might just calculate the cost of retiling a shower. But Leland says that if you mark down that the shower's tiles were installed diagonally rather than straight, you get a bigger check from the insurance company. There's a lot of money in the details. Yeah, these details are how you get to a higher estimate.

By the way, public adjusters are paid a percentage of your payout, usually 10% of your new settlement, though it can be much higher, up to like 30%. And that is the incentive for Leland to fight with insurance companies over every single line item.

Demolished to the ground. Their mosque, the mosque they both go to, burned down. Four buildings. Gone.

Now, public adjusters are not the most well-liked people around the industry. They can have a sketchy reputation, kind of like personal injury lawyers circling the scene of a disaster. Officials in California have been warning fire victims to watch out for shady public adjusters.

They note that sometimes a homeowner can be left with less money to rebuild than if they hadn't hired the public adjuster at all. Because of that big commission, they have to pay the adjuster. But for homeowners who are unhappy with an insurance company's estimate, sometimes public adjusters make sense. We did reach out to insurance industry trade groups.

In a statement, the president of the National Association of Mutual Insurance Companies rejected that idea that insurance companies prioritize speed over accuracy, saying, quote, California requires insurers to handle claims timely as well as diligently. Public adjusters have no greater motivation for accuracy than anyone else.

So, yeah, that's the insurance side, or two sides of the insurance side.

Yet the permitting process alone is going to be a lot. There's also traffic getting all the construction trucks in and out of all these neighborhoods. Plus, there are already shortages of labor. There are already supply chain issues for building materials.

One construction manager told us those could get even worse if President Trump follows through on his promises of raising tariffs and starting mass deportations. The construction industry is very dependent on workers without legal immigration status.

Residents are now being let back in to see for themselves where things stand. including Aaron and Jahad.

Jahad's business, or what's left of it, is a block away.

If you are looking for more reporting on the California fires, we have some in newsletter form. Greg Wazowski, who writes our amazing newsletter, talks to an economist about how she would fix the state's broken home insurance market and why research suggests that big fires actually increase home values. The latest edition of the Planet Money newsletter has that story.

And our NPR Plus subscribers, thank you if you are one, can listen in to Greg's interview on our next bonus episode.

We talked to so many people for this story, but we want to especially thank Jodi Mendelsohn, Jacob Affir, John Sisson, and Kate Christensen.

I'm Nick Fountain.

Jihad is in real estate, remember? He knows people in the business. And he says they are already trying to buy some of the burned-down property that no one is even trying to sell yet.

Right now, their neighborhood is sealed off by police and the National Guard. But there was this brief window the day after the fire started when people could sneak back in. And Aaron went to look.

No, I have not. Aaron knows that three of his properties burned down. His house, a rental property, his business. But there is one property he has, an office with a studio in the back, that he is not sure if it is standing or not. I haven't been able to see them.

I'm Nick Fountain.

Together, these fires are California's most expensive fires ever. They're going to set off billions and billions of dollars of economic activity. Insurance claims, games, scams, so much demand for labor and building materials. And it is going to be this way for years.

There's a Humvee parked sideways in the middle of every street. There's police tape and at least two members of the National Guard with machine guns.

The air is considered very dangerous right now.

No, Sarah.

Then a block later... Hello, sir. Another checkpoint. Thank you.

It was his childhood home.

Even the cars don't have color in them. We're right at the base of the mountains now where homes used to stand. Except you can hardly tell that there were homes here.

As of now, around 15,000 homes, businesses, structures have been destroyed in the two big fires in Los Angeles and more damaged. There are estimates that between the two fires, the damage could be like $275 billion. Some say even higher. This is like 15 times more in damage than the most destructive fire in California's history before now.

I thought it was going to be sounds of hammers and stuff like that.

But no. The only people beyond the checkpoint are some reporters, police officers, some utility workers, and firefighters hosing stuff down. We're just looking for any hot spots that are inside the building. There was just a little smoke coming from this particular building. So two fire engines showed up. They're trying to prevent any new flare-ups.

You know what? I looked online. I believe this was a library, a two-story library.

Some don't even know if their homes or businesses were affected. Like Aaron. So we went looking for one of his properties. It's that small office with a studio apartment in the back. But it is hard to find because there aren't any street numbers. Because there aren't any buildings. It says we're here. This is the 2300 block.

What?

Yeah, I mean, some of the awnings are cinched black, but the white paint, the blue trim, seems clean. We try Aaron, but he does not answer.

It's the only building on the block that's still there. Right next door, we realize, is what's left of their father and son business.

Some people will want to rebuild. But how do you even rebuild at this scale when there's this much destruction? That is after the break.

Before anyone starts to rebuild, they need money to rebuild. And before that, they need to make sure it's safe to rebuild. Like, it's not even safe to walk around the burned-out areas, let alone try to restart your life. There's asbestos, burned plastic, lead, arsenic. It is toxic.

Okay, so that's the cleanup. But to rebuild, people need money. Which brings us to insurance. Insurance.

And obviously, some people affected by the fires didn't have insurance or didn't have enough insurance. But for those fortunate enough to have coverage, here's how getting paid out might work. When Aaron and many others lost their homes to the fires, they got money from their insurance company right away. To cover hotels, motels, rent, whatever, for a couple of months.

But that's just the small check, right?

Except how do you figure that out when there's nothing left standing? Well, there are people whose job that is. Insurance adjusters. And they tend to get around. What disasters have you worked?

This is Planet Money from NPR.

And it wasn't just people who represented coal mining areas. Even people from other areas, people he thought he had convinced, became worried about how their states looked.

Steve dropped it. He gave up on his green-adjusted GDP project.

Is it technically feasible to separate those two things out, government spending versus everything else?

And since all of those things are broken out, that means that if Trump's Commerce Secretary Howard Lutnick wants to, he can just take the top-line GDP number and subtract out the government spending portion of that.

And I'm Nick Fountain. So, GDP. What exactly is it? How is it calculated? Does it ever change?

You're done. So just make up a new number. Not make up. Make up a new indicator. And if you want to talk about that new indicator, talk about that. But don't mess with GDP is sort of your stance.

We asked BEA about this. They declined to comment. But that's what Steve expects to see in the coming months. To be clear, he hasn't spoken with anyone there about this. But he expects BEA will whip up a new line and put it at the top of their quarterly press release.

That's why Steve held the line for so many years. And that's why he, like us, will have his alarm set. Quarter one GDP estimates come out at 8.30 a.m. on April 30th.

This episode of Planet Money was produced by Emma Peasley 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 Nick Fountain.

Imagine you're in front of a room of third graders. Define GDP for me.

In this case, it'll be for the first quarter of 2025. This one big number that tells us how the economy is doing after 2020. Pretty intense couple of months. And the report is right now being put together by the statistics nerds over at the Bureau of Economic Analysis or the BEA.

Sure, but our job is to demystify. So we pressed Steve to give us a definition.

All the goods and services in the economy in one year.

Yeah, it's essentially arithmetic. Here's how you calculate it. You start by adding up everything regular old people buy, what are called final goods. Every car, every meal, every tamagotchi.

Then add to that most of what the government spends on things like schools and roads, but not on government transfers, things like Social Security. Those are excluded.

Good. You add up all those things, consumption, investment, government spending, net exports, and you get a country's GDP. Last year, that number for the U.S. was $29 trillion, which means if you account for inflation, the economy grew 2.8% from the year before.

And because of all these things, presidents are often judged on how GDP is doing on their watch. And so you could see why they would want their GDP numbers to look as good as they can.

Did you ever get political pressure from a president to change GDP? How it's calculated.

You're going to have to name names today. I'm sorry. It was Clinton. President Bill Clinton. The story goes Steve and others at the Bureau wanted to change how GDP accounted for inflation. They wanted to change how they calculated what's called real GDP or inflation adjusted GDP.

So it's around 1995. And Steve and his team bring this idea to the higher-ups at the Department of Commerce. And it eventually makes its way to Clinton. Basically, Clinton gets a note, like a written memo or whatever, explaining how they're planning on changing real GDP. Steve still remembers some of what the note said.

You could see how he would not want that to happen.

But regardless, for Steve, this was a concerning moment. He ran this independent statistical agency and he was trying to make GDP more accurate. But the president of the United States had expressed his displeasure about this change.

And Steve had stood up to the president of the United States. He'd held the line for statistical soundness because he believed that this methodological change would make GDP more accurate.

Yeah, he told us that representatives from the Motion Picture Association of America or big companies like car manufacturers were always coming to him because they wanted their industries to look bigger.

Maybe you get more attention in Congress. Steve says he was always open to ideas as long as those ideas were about making GDP more accurate. In fact, he has this one story of when Alan Greenspan, legendary economist, chair of the Federal Reserve for nearly 20 years, invited Steve to his office.

And that is because earlier this month, Commerce Secretary Howard Ludnick, who oversees the BEA, he went on Fox News and made what was maybe a big pronouncement.

It's around 1996 and Greenspan wanted to talk about an issue he was having with GDP. It boiled down to this. Greenspan thought GDP wasn't counting a whole big portion of the economy correctly.

Yeah, a $1,000 computer in 1990 and a $1,000 computer in 2000 are extremely different. The new computer is just way more computer, more bang for your buck. It's way faster. It has more storage. It can easily connect to the internet. Like... AOL dial-up. It can accept CD-ROM, not those inefficient floppy disks. But as far as GDP was concerned, they both cost the same. They both cost $1,000.

And so they were counted the same. So the economists at BEA tried to account for this. They made what are called hedonic adjustments.

Now, Steve also knew that Greenspan wanted this because he had an agenda. He wanted to keep interest rates low to stimulate the economy.

So Greenspan was coming to you saying, hey, it would be really useful to my project of expanding the money supply if you could go out and find a little bit of productivity for me in those numbers. No. In a sort of gangster tone. And you went and did it. No, no, no, no. But it did seem like he was putting the pressure on you. Well, yeah. Yeah, he was putting on the intellectual pressure.

Steve says Greenspan would pepper him and his top economists with questions, run circles around them.

Now that we know what we know about 2008, do you feel any regrets about making this change at his behest? You don't think?

Coming up after the break, what Steve thinks of the Trump administration's proposal to strip government spending out of GDP. And what he thinks the head of his former agency should do about it.

Economists think that changing the fundamental formula for GDP, that is much more dangerous. GDP is often how we compare policies and leaders across time and across countries. In fact, there are international standards for what goes into it. Countries debate at these painfully long international meetings what counts in GDP. They have to come to a consensus on it.

The last update to these global standards was in 2008, and they are working on a new update right now which could be finalized any day.

Steve Landefeld, the former head of the Bureau of Economic Analysis, says there is another category of people who have been trying to change what's counted in GDP. Outside groups. And you can see why. If governments are judged by their GDP growth, they'll focus on whatever makes their GDP look better. They'll work their butts off to do more of the things that increase GDP.

The unstated reason seems to be the Trump administration is firing a whole bunch of government workers, shrinking budgets, canceling contracts. And if, or I guess when, that shows up in GDP, it'll look bad.

And he thought their argument had merit, so he tried, really tried, to figure out how his agency could capture it all and how they calculated GDP. But because money wasn't changing hands, the math was fuzzy. It had to be based on estimates and theoretical numbers.

So Steve never ended up changing GDP to include unpaid household labor.

Steve was game. But instead of changing GDP, he tried something else. In the early 90s, he made a new separate measure that environmentalists and policymakers could look at if they wanted, but that didn't mess with the standard GDP. Steve and his team essentially created a green-adjusted GDP.

So my name is Aaron Fountain and I live in Maryland.

So since the 2024 presidential election, many commentators in media have talked about how many voters voted for Trump because of economic anxiety and inequality. But I'm curious, do people think that he can actually continue to address inequality and will it actually get better or will it get worse?

Um, I, you know, it's hard because like I said, I am a historian by training. It really takes years and sometimes decades to assess something.