There is no sludgier place in America than Washington, D.C. But there are signs of a change. We’ll hear about this progress — and ask where Elon Musk and DOGE fit in. (Part two of a two-part series.) SOURCES:Benjamin Handel, professor of economics at UC Berkeley.Neale Mahoney, professor of economics at Stanford University.Jennifer Pahlka, founder of Code for America.Richard Thaler, professor of economics at The University of Chicago. RESOURCES:"How Big Is the Subscription Cancellation Problem?" by Giacomo Fraccaroli, Neale Mahoney, and Zahra Thabet (Briefing Book, 2024).Recoding America: Why Government Is Failing in the Digital Age and How We Can Do Better, by Jennifer Pahlka (2023).Nudge: The Final Edition, by Richard Thaler and Cass Sunstein (2021)."HealthCare.gov: Case Study of CMS Management of the Federal Marketplace," by Daniel Levinson (U.S. Department of Health and Human Services, 2016). EXTRAS:"Sludge, Part 1: The World Is Drowning in It," by Freakonomics Radio (2025).
Chapter 1: What is sludge and why is it a problem?
Last week, in the first episode of this two-part series, the Nobel Prize-winning economist Richard Thaler described one of the most common afflictions of our time.
If you make things harder, I call that sludge, kind of a fun word for stuff that's the opposite of fun.
We heard how insurance companies use sludge to ration health care, how subscription services use sludge to avoid cancellations, and how governments are full of sludge because, well, because sludge is an almost inevitable byproduct of bureaucracy. Today, in part two, we look at ways to fight sludge through better legislation,
through the use of artificial intelligence, and maybe by hiring a personal sludge coach. I'm not available. That's okay. We are available, starting now.
This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.
It is a natural temptation to think that your problems are worse than other people's problems. Also, to think that the problems of our generation are worse than previous generations. But as it was written way back in Ecclesiastes, there is nothing new under the sun. And so it is with sludge. For many years, it went by another name, a prettier name, red tape.
Do you know the story of how red tape got its name? Here, it's a cute story. I'll tell you. It apparently dates back to 16th century Spain and King Charles V, who had his most important legal documents bound in red ribbon, eye-catching and expensive ribbon befitting a king. versus the plain ribbon used for less important documents. This tradition spread through Europe and to America.
And as governments and legal institutions expanded, there was ever more need to go back into the archives to find these important foundational documents. This meant that lawyers and clerks had to constantly untie and retie those red ribbons, later called red tape. OK, that concludes our history for today. Back to the sludgy present.
In last week's episode, we met the Stanford economist Neil Mahoney, who spent time in both the Biden and Obama administrations. He is particularly interested in consumer finance, which often means protecting consumers from financial exploitation.
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Chapter 2: How do subscription services use sludge to their advantage?
At some point, we should talk about my work on subscriptions because it fits in to all of this. Okay, let's talk about that. The starting point for this project is I had a general impression that nobody can keep track of their subscriptions.
Meaning it's easy to sign up for something and forget about it. and keep paying for it. For example, a digital subscription to a newspaper.
So me and my team, we took a list of the 50 highest circulation newspapers in the U.S. and we signed up for subscriptions and we canceled them. And we did it in Massachusetts. where there are no special consumer protection laws on the books.
You're saying these are 50 newspapers spread out across the country, but you're doing the signing up and canceling in Massachusetts.
Exactly.
And why is it relevant where you're doing it from? Because the laws apply to where your IP address is.
Not where the firm is. Not where the firm is. So we did it from Massachusetts and then we did it from California, which is where we're based, and where there were consumer protection laws on the books which say it should be just as easy to cancel as it is to sign up. You should be able to cancel online. You should be able to cancel without unnecessary impediments.
And that's just because California has always been pretty consumer progressive in that way, correct? That's right. Okay. So you've got a team, some are in California, some are in Massachusetts, and you're doing the same thing from those two places. Is that right?
We're doing the same thing from those two places. In Massachusetts, 100% of newspapers you can sign up online. I don't think that's surprising. Less than half of them, only 45% of them, can you cancel online? The rest you have to call during business hours. You get passed from operator to operator. They ask you for reasons. Sometimes the call drops. They try to upsell you. They try and upsell you.
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Chapter 3: What is click to cancel and how does it benefit consumers?
There's this phenomenon where you think your concert ticket is going to be 70 bucks, you go to checkout, and there's a $35 service fee, shipping fee, etc. The FTC recently issued another rule that forbids this type of fee. Those are going away. The North Star in the space is all in upfront pricing. There shouldn't be any mandatory charges on the back end or in the fine print.
The FTC finalize a rule that will make this the law of the land for every player.
Presidential administrations, of course, change. And there's no guarantee that a regulatory agenda like this one will continue as planned. But for now, both click to cancel and all in upfront pricing are set to become the norm. Mahoney says there is broad support for this kind of thing.
The policies were championed by progressives that wanted to take a strong stand against what they saw as bad behavior by businesses. But these policies also had this grounding in decades of behavioral economic research, in research of market competition.
These policies were about getting markets to work, getting rid of the sludge so that consumers could actively choose the good or service that was best for them. We'll see what the Trump administration does, but there's really broad support for these policies. I talked to economists who I would think, based on their politics, would criticize this agenda, and they don't.
Criticize it as government going too far, government getting in the business of business?
Exactly. They tend to be skeptical of regulation, but here's a place where they understand that we need regulation to make sure that firms are competing the way we want them to compete.
For anyone who is anti-sludge, these junk fee rules are real victories. But if we're being honest, they are relatively tiny victories considering how much sludge there is in the world. Consider the U.S. health care system. We got into this a bit last week with Ben Handel, a health care economist at UC Berkeley.
He told us that a lot of health care sludge is intentional, a way for insurance companies to ration care in order to profit maximize. He also described how sludgy it can be to simply figure out what is covered in the health care contract you're signing up for. And then once you're signed up, there's more sludge in trying to find a health care provider who actually has some availability to see you.
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Chapter 4: How can AI help reduce health care sludge?
We've now tried to design processes in which you cannot criticize the judgment of anybody in them because literally no judgment was used.
I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. A little while back, we asked you, our listeners, to send in your personal sludge stories. Here's one from Paul Gabriel.
Hey there. I'm a longtime federal employee, and applying for jobs is notoriously sludgy. I was applying for a position that required at least two semesters of physics, college-level physics, to qualify. I had it. One of them was called Physics 101, and the other was called Statics. It was an engineering course studying static loads on structures.
I was deemed ineligible for this position because I did not have two years of physics. I emailed back and forth the HR person for a long time, and they were pretty unmoved. I sent them the description of the course. I sent them a letter from the professor saying that this is indeed a physics course. Nothing, nothing, nothing.
Finally, I got an email from the head of HR saying, we cannot count a statistics course as a physics course. This decision is final. You are ineligible. At that point, I just picked up the phone, gave her a call, said, listen, it's not statistics, statics. And what do you know, 20 minutes later, I was offered an interview and deemed eligible.
You can usually make it work if you're willing to stand up and fight for yourself, but there's a lot of sludge to wade through.
It's probably not surprising that many of the personal sludge stories we received had to do with government sludge. And when you think about government sludge at this moment in time, you may well think of Elon Musk, the world's wealthiest man and one of its most unusual. He has been deputized by Donald Trump to drain the DC swamp. To take a chainsaw to bureaucracy, pick your metaphor.
There are plenty to go around. Musk runs a new entity called Doge, the Department of Government Efficiency, which took over and renamed an existing entity called the USDS or US Digital Service. So we thought it'd be good to speak with one of the people who founded the USDS a little over 10 years ago under President Obama.
I'm Jennifer Palka. I wrote a book called Recoding America, Why Government is Failing in the Digital Age and How We Can Do Better.
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Chapter 5: What are the challenges of integrating consumer data in health care?
Palka no longer works in government, but she is usually adjacent.
I work with governments, state, federal, and local, to increase their capacity to achieve their policy goals. I founded a nonprofit that helps state and local governments do all that stuff.
That nonprofit is called Code for America. Polka does some other things as well.
I served on the Defense Innovation Board trying to help the Defense Department be better. I do stuff like that. I write a lot. I write a sub stack called Eating Policy.
It was in 2014 that Polka co-founded the U.S. Digital Service. It was imagined as a kind of anti-sludge strike force going from agency to agency to help them update their digital infrastructure. And how did Jennifer Polka become this kind of a fixer? I asked her. Specifically, I asked what sort of superpower this requires.
My superpower is translating between different languages, but not actual languages.
Intra-English translation, you're saying?
Yes, intra-English translation. The theme of my life is sitting at the boundary between things and being able to tell people on each side of the boundary what the other is talking about and helping them see it from the other person's perspective or community's perspective.
So in the case of a government function, who would be the two parties that you're translating for?
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Chapter 6: How did Elon Musk become involved in government efficiency?
In 2020, early in the COVID pandemic, Jennifer Palka was brought in by the state of California to help with a similar problem, a state-run website that was overwhelmed by applications for unemployment benefits.
You had 10x, 15x spikes in the volume of applications for unemployment insurance. Every state developed a pretty big backlog, which is a real crisis because if you are four months into having no job and your unemployment check isn't there, you are running out of money to eat. It looks like just a problem of a computer system, but unemployment insurance dates back to the 1935 Social Security Act.
What happens is that we add requirements and process and procedure and law and regulation every year to that program. It comes from the federal government. It comes from the state. It comes from the executive branch, the judicial branch, and the legislative branch. It's all additive and it's never subtractive.
One commissioner of labor in New Jersey, Commissioner Osirio Angelo, when he was called up in front of the legislature to explain why they had a backlog, he brought the 7,119 pages of regulation that he's supposed to comply with, put them on the table and said it's a little hard.
How do you address that without starting over?
It's very hard because the incentives for legislators in particular is to add. We think we want elected leaders who are going to write bills. We think that's their job. I think their job is actually different. I think their job is to create the conditions under which government agencies can succeed.
Changing incentives is very difficult and involves the public having a different view of what they want out of their electeds. But we now have large language models that can help us sort through those 7,119 pages. Five years ago, if you said to a legislative assistant, your success is going to be doing something with that pile here, they literally couldn't.
It's too complex to actually understand and then to rationalize and simplify.
So if you set an LLM to work on those 7,000 plus pages of just New Jersey unemployment compensation regulations, I'm guessing it could do perfectly well at giving you a three-page version. But I'm also guessing it would point out what are inherent contradictions that are unresolvable. Yes?
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Chapter 7: What role does the U.S. Digital Service play in reducing government sludge?
You need not just political will, but you need to counter the interests of the status quo. There will always be someone who says, wait, if you simplify it, this person might be out of a job or this vendor might be out of a job. Or we think that one of the things you're proposing to take out is a safeguard that's important for this constituency or this consideration.
And I'm not saying that those interests, particularly for safeguards, are wrong. We do need safeguards. The problem is that oftentimes we have so many safeguards that government just can't move forward.
Give me some specifics of safeguards. Let's stick with the realm of unemployment insurance. I'm guessing that most of the safeguards are to prevent fraud of different sorts. Is that correct?
There are safeguards meant to prevent fraud. When I started working on it in 2020, none of those safeguards prevented fraud at all. In fact, they were enabling fraud. There's a lot of safeguards around things like technology development, where you have to do things in a very prescriptive way. You are supposed to have your plan set up.
entirely in huge detail up front before you ever start coding anything. There are requirements for security. Security is a good thing. We need security. But the way we prescribe security is over-detailed and keeps security professionals from using any judgment. It's a whole set of compliance regimes around
These interlocking issues like technology, like labor, like how you communicate with the public that all come together to create gridlock.
You just mentioned judgment. I once heard someone really smart. She used to run universities and she would talk about how she hires people generally. She said, I don't want to hire people who are good at following rules. I want to hire people who have good judgment.
And that really stuck with me because I've come to see that a lot of the trouble in the world, or at least a lot of the sludge is caused by people who are pretty sure that they're doing the right thing by following the rules. And it's very simple to follow rules. It's kind of paint by numbers. Do you agree or disagree with that?
I think that in many government processes, they have gone so far towards just following rules. And for reasons that we should talk about, right? There's real incentives for that that the public helps create. But we've now tried to design processes in which you cannot criticize the judgment of anybody in them because literally no judgment was used.
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