This Is How Prejudice Can Hinder the Economy

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, I think at this point, one of the themes that has been emerging from 2020 is the idea that we are seeing a number of trends that were already underway really accelerate.

Joe Weisenthal (0:30)

100%.

Tracy Alloway (0:33)

Yeah.

And one of those trends is something that, again, we saw even before this year, and I would say, we really saw it come into play after the financial crisis. It's the idea that the economics profession or the study of economics, the field of economics is missing something fundamental or perhaps could be applied in a different way to, I guess, achieve a better outcome for human wellbeing. Is that a good way of putting it?

Joe Weisenthal (1:07)

Go further. I mean, yes, but go further.

Tracy Alloway (1:12)

Well, I think in the aftermath of the financial crisis, there was a lot of criticism trained on economists that not only had they missed this massive imbalance that ended up nearly taking down the financial system, but also that economics had somehow lost its way in its actual purpose. If you think about economics as the sort of studies of resource allocation and the decisions that go into making them, the ultimate goal should probably be making people better off than they would be otherwise. And I think there was a sense that economists in their sort of white tower, in their academic bubble, had forgotten that aspect of it, or at least hadn't paid as much attention to it as they should have.

Joe Weisenthal (1:58)

I think that's right. I mean, I think if you look at now, especially with this crisis versus 10 years ago, there's a lot more focus on exactly what you say. What is the purpose of economics and what problems are people really trying to solve? And I think that before the great financial crisis and the aftermath of the great financial crisis, there was a lot of focus on the beauty of models and getting everything into equilibrium and optimal balance and all this stuff. And I don't know. But sort of forgetting, it's like, no, the point is human wellbeing and improving the sort of situation for humans. And I think, I don't know, I feel like probably always economists would recognize that that was the goal, but it got obscured. And I think that you see the difference now on the sort of more clear focus on that when people take, no, just give people money.

And I think that that's part of this idea, like a lot of the solutions that get bandied about now in post-COVID times or in the middle of COVID is like just give out more money.

And I think part of the reason that some of these ideas have become more, gained more currency is because of this increased clarity of what are the problems we're trying to solve.

Tracy Alloway (3:11)

Yeah, absolutely. And I think your mention of the models there is absolutely correct. There was this idea that an economic or an economy in balance was a goal in and of itself, but people kind of forgot the reason they were targeting that which was eventually to create better conditions for their citizens. So, all right, so today we're going to be talking about, I guess the more lofty ideals of the economic profession, but we're gonna be doing it with someone who was actually writing and thinking about this, again, even before 2020, way back in 2011

We're gonna be talking to Paul Donovan. He's the chief economist at UBS Global Wealth Management. And he wrote a book that came out in November called Profit and Prejudice, The Luddites of the Fourth Industrial Revolution. And I should just mention that this book was written in a personal capacity by Paul, but with the full support of his employer, UBS. It's a really interesting read, and it gets to some of the topics we just mentioned in the intro. So without further ado, why don't we bring on Paul?

Paul, it's great to have you.

Paul Donovan (4:27)

Thanks very much for having me on.

Tracy Alloway (4:30)

So I guess the clue is in the title here, right? But Profit and Prejudice, there's an intimation there that prejudice has some sort of impact on profits. Why don't you go ahead and tell us your thesis on what that actually is?

Paul Donovan (4:47)

Well, I'd love to take credit for the thesis, but I mean, this comes out of Gary Becker's work in the 50s and countless economists since then.