Is San Francisco a Failed State? (And Other Questions You Shouldn’t Ask the Mayor)

Hey there, it’s Stephen Dubner. Every once in a while, we get out of our recording studio and take Freakonomics Radio on the road. We recently put on a live show in San Francisco, at the historic Sydney Goldstein Theater. If you were in the audience that night — thank you! We had a blast, hope you did too. If you were not there — this bonus episode is for you; it’s a recording of that show, edited down to podcast length. We’ve got another live show coming up in Los Angeles, on February 13^th. L.A. has been through so much with the wildfires — so much destruction, and death, and fear; all of us who love that place are eager for its recovery, and we are hoping to do our tiny part just by showing up. A portion of our ticket sales will go to relief efforts; I hope you’ll join us if you can. You can get tickets at freakonomics.com/liveshows, one word. That’s Thursday, February 13^th, in Los Angeles; one of our guests will be the inimitable Ari Emanuel. Okay, here now is what happened in San Francisco. As always, thanks for listening.

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Stephen DUBNER: There are — there are so many of you. This does not seem like a fair fight. There’s one of me and all of you. I’m sure it’ll work out okay, but — okay. The hecklers begin, okay. So, in case it’s not clear, this is not what we typically do. I assume most of you know Freakonomics Radio, you wouldn’t be here otherwise. The show that we make is the opposite of a live show. Okay? The show we make is really — I’m a writer and it’s a writer’s show. We come up with an idea. We do a bunch of research. We figure out what kind of people to interview. Then we prepare for the interviews. We do a lot of interviews. We start to put together a script, a draft script. We rewrite it. We start to mix the tape. Takes many, many, many, many hours to make one episode and, you know, that’s the way we like it. Tonight, we’ve got, like, an hour-and-a-half or two hours, that’s it. We have no pause button, we have no reconsideration. It’s just us here together. So if you’re up for that, I think we’re going to have a very good time together. That’s the intention at least. When I was a kid, I was very shy. I still am, truthfully. I had another problem in addition to shyness, which was that I really was curious. I wanted to find out stuff. In the old days, it took a lot of effort to find out stuff. You’d have to go to the library, or you would have to ask an adult. And when you’re shy, asking a stranger questions was not so easy. My solution to all of that was to become a journalist, where you’re — okay. I’ve never heard journalism applauded before, so thank you. So, you know, becoming a writer, becoming a journalist really solved both problems because all of a sudden you have permission to ask anybody any question, and you’re getting to find out stuff all the time. Now, in the old days, writing for newspapers and magazines, then I wrote books for a while, it was old-fashioned, fun, physical, analog labor. You’d go out with people, might be writing a piece about one person over many weeks or months, you’d follow them around, might be a whole scene, and you’d come back after those weeks or months with a whole bunch of cassette tapes that you would then transcribe yourself as a writer. That’s how you got to really know the material. You’d come back with all these notebooks full of stuff, and then you would sit down to sift it, and sort, and write — and I loved that. I loved every single piece of it. I still have all my notebooks. I still have all those cassette tapes. It was very, very labor-intensive, but it was wonderful labor. And my favorite part of it was always just the hanging out with the people. A lot of it, honestly, was really boring, but the parts that were exciting were so exciting when you really learned something. It makes me think of what the physicist Richard Feynman, who’s been a hero of mine for a long time, what Feynman called “the pleasure of finding things out.” And it was just so pleasurable that I never stopped. What we do now with the radio show may seem different because it’s audio and yadda yadda, but it’s really the same thing: coming up with ideas, putting yourself in position to have interesting conversations with people who are smart or weird, or maybe all of the above. You know, I think if we were to go back 20 or 30 years, to when digital everything was really starting to explode, I don’t know if any of us would have thought that we’d have so much communication, as we do, and so little conversation. I feel like, because everyone is able to publish, and be their own bullhorn, that in a way we’ve sort of forgotten how to talk to each other. By now I’ve probably interviewed — I don’t know — five thousand, ten thousand people in my life and I can’t think of a single one where afterward I didn’t feel like my brain grew a little bit or my heart grew a little bit. It’s an unbelievably valuable human trait that we overlook, this ability of ours to have language, and have a conversation where we can learn about each other, move each other, and so on. And so really tonight that’s what I want to do. I just want to have some good conversations. We’ve lined up some people I think are going to be excellent for you and me to hear about. So, we’ll get started. Does anyone have any complaints before we begin? I get your emails. I know who you are. All right, so, we’re going to have some good conversations. Our first one, I think you will enjoy quite a bit. Would you please welcome our first guest, she is the mayor of San Francisco, London Breed. How’s things?

London BREED: Well, freedom is fast approaching right now, so — it’s almost like I dropped thousands of pounds.

DUBNER: So you call it freedom. For those who don’t know, you’ve got just a few days left. You must have some wild [bleep] planned.

BREED: Oh, oh yes. Pull out those phones because you guys are going to see a different Mayor Breed.

DUBNER: Let me start with — I mean, I hate to say it, a lot of people think of San Francisco as kind of a failed state. Not quite Haiti or Libya, but the stuff they see, they see the worst of the worst. That’s what the media does. The media is really good at that. And then it becomes a political weapon as well. I mean, COVID was really hard. You personally seem to have done the shutdown, handled that really well, aggressively, early, and so on. But tell me how the city is recovering. 

BREED: Well, it has been a rough ride, but I’m really excited about where we are now as a city. The city has been more fun than it has been in a long time because — 

DUBNER: More fun, you said? 

BREED: More fun. We have closed down streets to have night markets, First Thursdays, events, entertainment zones because we need some joy. This city has been a place of “no, you can’t do fun things,” and we turned it into a city of yes. We have helped over twenty thousand people exit homelessness. We have had a significant decline in our crime rate, and one of the lowest homicide rates since the 1960’s. I mean, this is the work that we’re doing, but we also know there’s more to be done. It’s a major city. Cities have challenges but we are finally in a place where we built the capacity. We changed the laws. We made the hard decisions. And I just believe that the best is yet to come. The biggest thing that we do struggle with is the perception. So we need people to come to San Francisco or people who live here to tell their own story of San Francisco.

DUBNER So driving in — I mean, it’s a cliché, you talk to a taxi driver, Uber driver, you drive in from the airport, I realize I’m not really seeing the city — 

BREED You didn’t take a Waymo, where you didn’t have anybody to talk to?

DUBNER I have to say I’m a little bit scared of the Waymos so far. How do you feel about them? 

BREED Well, it’s interesting. They’ve become a tourist attraction in our city. But you just said, people do a lot of communication, but not conversation. So I don’t know if I’m going to take a Waymo. 

DUBNER Because you want someone to talk to?

BREED I want somebody to talk to. 

DUBNER All right, well, stick with me, okay. I will say, driving in from the airport, what I saw mostly were billboards for A.I. companies, which I don’t see in New York. And then I get to the Tenderloin and I feel like I’m in a Hieronymus Bosch painting. It is wild, and it’s heartbreaking. I know it’s been there forever and I know it predated you, but I just wonder how much the perception hurt you running? Okay, let me just ask the question I really want to ask. Why did you lose? You stood for re-election —

BREED: I’m going to say this with a lot of pride. There was over $20 million spent on my race to unseat me — 

DUBNER: Is this all Levi’s money? 

BREED: I don’t know where the money came from, but there was a lot of money. I think that things were not happening as quickly as people wanted to see them happen. And that is something I take full responsibility for because this government, and how bureaucracy works, it is not designed to make things move quickly. 

DUBNER: When you say “bureaucracy,” do you mean mostly the Board of Supervisors?

BREED: I think I do mean a lot of the Board of Supervisors. And now this new mayor is getting a good board. I’m just so mad about it. People say, “Oh my goodness, your response to the pandemic was amazing.” And yeah, it’s because we cut bureaucracy. We had emergency authority to make decisions without the bullcrap that gets in the way of trying to make things move. And then we go back to, you know, a post-pandemic world, after we come out of that, we needed to be able to act quickly, dealing with the rise in fentanyl overdose deaths, and the emptying of our shelter beds, and the need to build more housing. We had all these things we needed to do and could not move fast enough. And the good news is we worked very hard to build our capacity, to make the necessary changes, to use technology, and to really help combat these issues. And think about it. Our crime rates have consistently been dropping. I mean, even car break-ins are lower than ten thousand, and this is a major city, it hasn’t been that low since 2015. 

DUBNER: Let’s talk about the major city thing, because I come from New York, and —

BREED: And things happen. Things happen in all major cities. 

DUBNER: No, no. But that’s my problem, is I don’t think of you as a major city. I think of you as a very, very nice — Now you understand why I don’t do this live thing.

BREED: But don’t you think of San Francisco as a major city? Okay, Stephen, you better watch out what restaurant you eat in. Somebody might put something in your food.

DUBNER: Well that’s not a nice way to make friends with the out of towners. But no. But — where was I now? Major city. I’m going to skip that question. You lost some population during Covid. I did read you say something about how you had fewer people die here per capita than any other big city in America. But I was wondering, okay — but wait a minute. Wait —save your applause because you’ll boo me in a second. But I wondered if that’s just because everybody left, and they were dying elsewhere?

BREED: No! Listen, let me just say this. We shut down early. We made really hard decisions. It was not easy. And the people in San Francisco really came together to try and save lives. I was really proud of how people went grocery shopping for folks. Folks showed up to work in the hospitals, and people sacrificed to make that happen. And so I’m very proud of that. But a lot of people did leave, and they were talking a lot of crap when they were leaving San Francisco. But you know what? Many of those people are back, because this is $34 billion in venture capitalist investment. Of the top 20 A.I. — artificial intelligence — companies in the world, eight are right here in San Francisco, five million square feet of office lease signed in San Francisco, 70 percent of the new office space is by new companies in A.I. People are coming back to San Francisco because they know this is where they’re going to be successful despite what people try to say about this city. It is still where people want to be. 

DUBNER: Yeah. I’m really glad to hear that. I do love your city. By saying I didn’t think it was a major city, mean to imply that I didn’t love it. But I do love it.

BREED: But it has less than a million people, so I totally understand that. 

DUBNER: This makes me think, I live in New York, and we lived there during the 9/11 attack and it was scary. Very different event, obviously, than Covid. And I have a sister who lives in Buffalo, who called us up, and she was very worried about our family. She said, Steve, you know, you should really pick up and — my kids were very young — pick up and move to Buffalo. And I didn’t even think, it was so terrible what I said. I said, “Beth, you know, I’d rather die in New York than live in Buffalo.” And to be fair, Buffalo is a wonderful major city . So let me ask about you. You grew up hard in public housing, raised by your grandmother, all kinds of stuff around: there was crime, there was drugs, your own family suffered from all that. And the thing that I really want to know about you: we have this idea when there are people in the public eye, we just think they’re invincible. Everybody always has challenges, and it’s how they overcome them that really defines us. So with you, I can’t figure out how you got to where you got with the odds that you faced. I’m not asking you for advice necessarily, or if you have a superpower, but can you just describe what it took, not just to survive but to thrive with those barriers? 

BREED: There are so many different things that happened. Last time when we talked on the podcast, I talked about my brother who’s incarcerated and how we both went to the public school system. He didn’t even graduate from high school and I did. It’s hard to finger-point where the issue happened, but I feel really honored and grateful to God for just the strength to overcome so many of those obstacles, and to get my education, and to want to go back to the community and make a difference. 

DUBNER: Obviously you worked hard, obviously you were disciplined and all that, but how much do you think is just temperament? 

BREED: I don’t know if I would say that I have the best temperament because I have a temper. But I will say that I have remained true to who I am as a person. But the whole reason why I got involved in public service in the first place is because of violent crime in my community, where people were dying, where our homicide rates were significant in the ’90s, and it is just amazing to see us in a better place than we’ve ever been before, and I have always said it is always the will of the voters that I’m going to respect, and be grateful that I had the opportunity to serve. 

DUBNER: Do you feel that you were treated differently than the mayors who came before you who came from more traditional backgrounds? 

BREED: I think so, a little bit, yeah. I didn’t talk about it much, but when the mayor calls you, and to not return the mayor’s call, that was pretty offensive. Or to sit in a meeting with me and to look at my chief of staff and talk to him and not talk to me directly.

DUBNER: How did you handle that in the moment? 

BREED: In the moment, I’m like, “Hi, I’m right here.” Nice smile and I’m the one who makes the decision. And then I move on from it. I didn’t come from money. I come from the ‘hood. I didn’t have built-in relationships with a lot of these people, but I did do what I could to try and reach out to people and develop those relationships and make sure that my door was always open. So even if someone opposed me — which, you know, I had a member on the Board of Supervisors who was just the worst person to work with. 

DUBNER: That person’s name was what again?

BREED: Well, here’s the interesting part is, somehow once that person decided they wanted to work with me, we developed a tight, really good working relationship. And so what I’ve always said is, “Look, I may not like you, I don’t have to like you, but I will work with you.” 

DUBNER: I’ve heard you say that. I really like that. I want to steal that because I think most of us, it’s hard to do, when you don’t like someone, but you need to work productively with them. So what do you do? Do you picture them naked? What do you do?

BREED: No, I just think when I wake up in the morning: I’m the mayor of San Francisco. Like, I’m the mother — — mayor of San Francisco. So come right in. Look, sometimes it shows on my face, but I’m a grown-up here, and I have to be better than somebody who’s petty because you don’t particularly care for someone. I mean, you know what’s in your head, but the business of the people is the most important. I can’t just support or work with the people who voted for me, I can’t just talk to the people that I want to talk to. And it’s what anybody in elected office should be if you are here for the right reasons, to get the business done for the people, and I’ve been able to accomplish a lot because I’ve always kept the door open. 

DUBNER: As we speak, you have a few days left in office, and I want to know what you’re planning next, if you have plans. And I also want to know, the Democrats got crushed this year, coast-to-coast. And there’s an election in about a month from now for D.N.C. chair. Is that something that you’ve poked around at by any chance?

BREED: So under the law, I can’t look at other opportunities until I actually leave office. And so, I will be having a lot of meetings once I leave office because I need a job.

DUBNER: Let’s just pretend that you’re elected D.N.C. chair in a month, whatever it is. What would you say — considering the shellacking that the party had — what’s a thing or two that you think the Dems need to do to put themselves in position to win some more elections? 

BREED: I think that the biggest thing we need to do is cultivate young new talent. I mean, my race is a perfect example. I am a perfectly capable, qualified Democrat who runs a major city, and when you have young Democrats — you guys like that, huh? When you have people in these various positions, whether it’s mayor, or Board of Supervisors, or other places, we have to invest the resources into helping to grow our talent pool to ensure that we have a pipeline.

DUBNER: Do you think the Republicans have done that well? Or do you think that because look, Trump is no one’s idea of an ideal candidate, and yet won by a lot. You could read that a few ways. A lot of people like Trump a lot, which is plainly the case and/or the Democrats were really unpopular. I’m just curious, and I know you’ve faced it yourself. Your far left hit you very, very hard. You had to deal with a lot of things as ultimately a centrist Dem. So, I’m just wondering if the big tent needs to be reconfigured for the Dems. 

BREED: I think that the tent needs to be open. Again, I come from nothing, so I’ve only mostly volunteered and helped people in their campaigns, so it’s significant that I’m mayor. So how do we capitalize on that in order to ensure that people like me don’t get lost by the party? It really does start with how do you get more people choosing to register as a Democrat rather than decline to state? 

DUBNER: How do you feel about open primaries?

BREED: I would be open to it, but I’m not 100 percent sure that that’s the right route to go.

DUBNER: Because why? What’s the advantage? I mean, there are a lot of good arguments for why a two-party system is not as bad as we always say it is, because when you look at the alternatives, there are many countries with, you know, five, ten parties and they’re in worse chaos, honestly.

BREED: I mean, it’s politics. You got to remember, politics is never going to be nice and wrapped into a neat little bow. It’s going to be something you have to fight for. The reason why I struggle with the open primary has a lot to do with, I want to see the Democrats united and I want us to do the work to get behind the candidate, whether we agree with that person or not, to really fight for that candidate. And also to listen to people as to why they might want something different. We may see something or hear something and we say, “Oh, they don’t know what they’re talking about.” But you know what? If you listen closely, and you hear what they’re saying, you have to think about, well, “How do we appeal to the people who we believe may not know what they’re talking about?” I just think you have to be a little bit more open-minded, and not just toss someone to the side just because their beliefs aren’t 100 percent of what you think our value system should be, because clearly we got a lot of work to do, and we have to understand all those different states differently than we have in the past.

DUBNER: That’s really, really nicely said. Congratulations on your career, everything. Thank you for coming out tonight.

We’ll be back with more from our live show in San Francisco, right after this.

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Okay, back now to our recent live show in San Francisco.

DUBNER: All right! I’m having a good time, are you? Are we okay? You may be wondering why we are here at this big theater in San Francisco on this rather awkward date. It’s January 3rd, I guess? Nobody does events this week, the week of New Year’s. But we’re here because this week in San Francisco is the annual meeting of the American Economics Association. The A.E.A. is, as you can imagine, a huge gathering of economists from all over the world. And it really is as exciting as that sounds. But then you ask, well, why would they hold it now, in the week of New Year’s, when everything is dead, everybody’s traveling, and so on? And the reason is because economists are really cheap. And when they’re booking these conferences every year in a different city, they want the cheapest week for the hotels and the conference center, and therefore they hold it immediately after New Year’s. And so, when we heard it was coming to San Francisco this year — major city — we decided we go to these A.E.A. conferences to scout stories and to see our economist friends and to look for new economist friends for the sake of Freakonomics Radio and so on. But then we also decided this year, because we would be in a major city, that we would put on this live show at the same time. So, we had the mayor, which is fantastic. But we have another couple of guests that we were able to wrangle because the A.E.A. was here. We’ve got two more economists to come. Let’s welcome the first one. Please give a warm hand to Mr. Koleman Strumpf. Koleman, come on out. Koleman, here are a few things I know about you: As a kid, you got into trouble bringing candy bought at retail to school and selling it at a very high markup, correct?

Koleman STRUMPF: Yep. My introduction to crime. 

DUBNER: Introduction to crime, or introduction to thinking like an economist.

STRUMPF: Maybe they’re not so different, but okay. 

DUBNER: Maybe they’re not so different. I’ve been saying that a long time. Nobody believed me. I also know that as a child you appeared in a TV commercial for Tang, the astronaut beverage. Is that true? 

STRUMPF: I in fact did, with the rest of my family, and I will only say if you spend a whole day drinking Tang, if you even know what that is, you will not feel so good the next week.

DUBNER: All right. You’re now an economist at Wake Forest, and most of your research that I’m familiar with, at least, has been about what I would characterize as illicit and taboo activities. Would you name a few that you’ve looked into over the years? 

STRUMPF: Yeah. Sports betting. Not the stuff you do on your phone, but the guy on the corner. I’ve done some work on cannabis, which we might talk a little bit more about. 

DUBNER: File sharing. 

STRUMPF: File sharing, like stealing digital products.

DUBNER: You’re an empirical economist, you work with data. How do you get the data when you’re dealing with illicit goods? 

STRUMPF: It’s not as hard as you’d think. I’ll tell you about sports betting. I was very interested in sports betting, and I one time went to Las Vegas, which was about the only place you could do sports betting. And I tried to wrangle up with one of the bookmakers. I was like, can you give me some information about what you guys do? And he laughed at me. So maybe kind of as a way of getting revenge on the guy, I ended up making a friend in Brooklyn’s District Attorney’s office and now I have a bunch of records on illegal bookmakers. So, I still don’t know a lot about what the guys in Las Vegas do, but I can tell you about a lot of guys in New York. 

DUBNER: So, you blackmail people, essentially, yeah?

STRUMPF: I get a little revenge. 

DUBNER: The reason I wanted to have you on the show tonight is you appeared in an episode we made back in, I guess, the fall, not long before the election, talking about betting markets, prediction markets, which are sometimes the same as betting markets, some legal, but mostly kind of illegal. Also you helped us out with a later episode, we did a series on the economics of cannabis and you had a lot of data that nobody else had about legal and illegal weed shops. How can you tell an illegal from a legal weed shop — let’s say in California — other than maybe you go sample door-to-door? I don’t know how that works. 

STRUMPF: Those of you who in the audience who are interested in cannabis, might know a website — 

DUBNER: Should we turn the house lights on and have a show of hands or something?

STRUMPF: You might know an app called Weed Maps. Those of you who have never used it, it’s maybe like Yelp for pot. Fire it up on your phone, put on the G.P.S., tells you all the stores near you. So, I saw this app and I said, “Hmm, it’d be kind of cool if you could just get everything that’s on that site and stockpile it.” And if you spend a little time kicking around in the background, you can figure out a way of doing that. So, I always have a lot of computers running, and had a bunch of computers for several years just pulling stuff off this site. So, I have a list of all the stores. Now, how do I know who is legal and how do I know who’s illegal? So, the state of California publishes a list of the legal stores. So, I could start using that, but the information’s a little bit incomplete. So, I had to look at different online sources, including Google Maps, to see stores magically turning from a kid’s store into a weed store in Los Angeles. And you can kind of figure out through a lot of sweat which ones are legal and which ones are not. 

DUBNER: Now, when they’re listed on the site, whether it’s the Weed Maps site or the California data, there’s a license number, I assume, right? That’s what makes a legal shop legal. Do the illegal shops just make up a number? 

STRUMPF: Yeah, they either make up a number, go down the street, look at the legal store, take a picture of that and use that number. Or sometimes they just put up stuff that isn’t even a valid number.

DUBNER: Now, the thing that blows me away is in a place like California — let’s take L.A. versus San Francisco. In L.A., you told us, something like 70 percent of the weed shops are illegal. So, can you explain how the economics of that works? Why do they proliferate? Obviously, it’s cheaper because you’re unlicensed, but why are they allowed to proliferate? 

STRUMPF: Yeah, that’s a great question. There’s not a lot of will among policymakers to do it. The people who would be doing the enforcement, the police — think about how hard this job is. If I say arrest people who are doing some activity. Well, I just see, is somebody doing this activity. Now, you need to say not just is somebody selling cannabis, but is it somebody who’s licensed or unlicensed? They’re literally doing the exact same thing. Some people are doing it legally. Some people are not doing it. It’s not so easy for police to do this. 

DUBNER: But I would imagine that — let’s say you and I teamed up and we said, you know what? Alcohol is pretty cheap to make if you think about it — just ferment some stuff. And you put it in a bottle, and then you brand it, and then you can sell it for like $20, $30, $50, $80, $100. And we know there’s a lot of tax associated with that. So let’s say that you and I could either fake it or get the real stuff a little bit cheaper, and just open a liquor store without having to pay any of the taxes and regulation stuff. Why do we never see that? 

STRUMPF: In the wake of Prohibition, actually, you did see things like that for 15 years. Through the 1950’s, you would have lots of arrests of people having illicit stills and things of that sort. Today, in cannabis, the illegal people are pretty sophisticated. So, one of the things in this Weed Maps data I have is I have a list of all the products.

DUBNER: What are some of your favorites? 

STRUMPF: Yeah. Well, I like to observe. Honestly, I’m a little out of date on — 

DUBNER: Is that true? You’re not a big — I took you for a big —

STRUMPF: Yeah, I definitely have that, yeah. But at any rate, I am familiar with some of the big brands. 

DUBNER: The good news is: apparently Tang is not a gateway drug then.

STRUMPF: Yeah, right. Well, maybe it’s a gateway drug to being an economist. I don’t really know. But at any rate, if you’re wanting to sort of pretend you’re running a legitimate place, you’ll take a name brand and you’ll just switch a letter. And they literally get old containers or wrappers from legal stuff and they’ll put it around illegal stuff.

DUBNER: Also, one thing you told us was that in San Francisco there are many fewer illegal shops, which has to do with the way that they run their program. So, I don’t know if Mayor Breed had anything to do with setting up that program. We actually interviewed the guy who did that, but something like 20 percent of the shops here are illegal, versus L.A., about 70, right, that’s what your data says? 

STRUMPF: Yeah. These are from a few years back, but I would say the numbers probably still hold. 

DUBNER: But I would think that the illegal shops benefit further by having legality because that drives the price up with the licensing and it makes their stuff, which might be identical, much cheaper, yeah? 

STRUMPF: And on top of that, there’s the social norm. I live in North Carolina, where it’s not so different from what I remember growing up. In New York, in San Francisco, all of California, the norm about how acceptable is cannabis as a thing to be using? Much more accepted today than it used to be. It’s going to spill over to the illicit side as well. So, I would argue demand is probably much higher. 

DUBNER: We could talk a long time about cannabis. It’s a very interesting economy. Also, the elections this year were interesting. It got voted down in Florida, and I think North and South Dakota, but it’s interesting that we’re talking about what people used to call vices, right? Sports betting, but it’s now mostly legal in the U.S. Cannabis, mostly legal in the U.S. What about betting on elections? You know a lot about that. Do you think that will become fully legal in the U.S. in the next five, ten years? 

STRUMPF: I usually, when I try to make a forecast, I look at these markets to answer the question, rather than try to answer it on my own. Things look pretty promising. But everything is going to be governed by what a judge will maybe say about these things. There was a lot of enthusiasm about these markets this time. They did a pretty good job at forecasting the election.

DUBNER: You argue they do on average better than polling, yes? 

STRUMPF: Yeah, definitely. There’s a fundamental difference between polls and these markets. The way a poll works, which is probably what most people in the audience are familiar with, is you talk to a bunch of people, they’re representative of all voters, and you see what they’re thinking. These markets are supposed to work in a totally different way. You step outside your own experience and say, “Look, my goal presumably is to make some money at forecasting the election.” Well, that has nothing to do with what I think in terms of who I like. I’m trying to guess what other people like.

DUBNER: Where’s the information coming from? 

STRUMPF: Everywhere and anywhere. 

DUBNER: Right, so why would it, on average, be more accurate than polling? Look, we’ve learned this election and past elections that many pollsters are just not very good. Let’s be honest, right? It’s not a particularly scientific science, if you want to call it that. But still, why would they — who are setting out to do one thing in a very binary way, I ask a bunch of people, this candidate or that candidate — why would they not be better than a group of people who are looking to profit from feeling they know a piece of information? 

STRUMPF: This election was probably the best-case example I could give of that. So, when people are polled about certain candidates, they tend not to always say who they support. So traditionally, Donald Trump underperforms in polls.

DUBNER: David Dinkins, I don’t know if you remember this in New York City, the first Black mayor of New York City, he overpolled by a lot. A lot of people wanted to be seen saying that, “Yes, I will vote for the first African-American mayor.”

STRUMPF: Right. So let me tell you about the person who was the most successful bettor in 2024, who was a French citizen. He had a very similar view. He said, “I don’t think these polls are working very well, but I’m going to run my own poll.” And so he asked a slightly different question, which was not, “Who do you support? Who do you think your neighbors support?” There’s a little bit of work that suggests that people are a little bit more realistic about thinking about that question than what they themselves think. Anyway, he was so confident in what he found from this poll that he put down $80 million on Donald Trump to win. And yeah, he made $80 million.

DUBNER: Does this suggest that pollsters next time around will basically emulate that methodology of asking a question that’s not so binary? It’s not, so what are you going to do? 

STRUMPF: I’m pretty skeptical of pollsters getting into the 21st century. The writing’s been on the wall. Forget about what I’ve just been saying. Being a pollster is infinitely more difficult today than it was 40 years ago.

DUBNER: Absence of landlines. 

STRUMPF: Yeah, and I know who’s calling and my phone doesn’t equate to where I physically am. It’s just very hard to do polls. The kind of advancements that they’ve made are relatively marginal, in my opinion. 

DUBNER: The thing that most surprised me about your work, talking to you, was how the betting markets on elections have been around for a long time, and have been accurate for a long time, and have been robust for a long time. Do you know anything about San Francisco history?

STRUMPF: San Francisco definitely had their own markets, many of which were relatively big money, millions of dollars in today’s dollars. They would take place in like cigar stores and things like that. We’re talking 1900, a long time ago. Some people had money, but a lot of people didn’t have money. But there were fewer things to bet on back then, so people were really into betting on elections. And so, they would do these non-monetary bets, if you didn’t have the cash. They called them freak bets.

DUBNER: Freak? F-R-E-A-K?

STRUMPF: As in a certain book that I’m familiar with, yes. 

DUBNER: I like the sound of that, yeah. 

STRUMPF: At any rate, they did all sorts of crazy things. It was, “I won’t shave for the next 20 years.” “I’ll walk halfway across the country.” 

DUBNER: And these are documented somewhere?

STRUMPF: Yeah. These are all at least newspaper stories. And my favorite San Francisco story that I saw was in 1916, which was a very tightly contested election.

DUBNER: 1916? 

STRUMPF: 1916. So, this is Woodrow Wilson getting re-elected. And two people were betting, and the loser had to get dressed as a woman. These are two men. 

DUBNER: In public? In private?

STRUMPF: In public. Within a mile of here.

DUBNER: And go out and parade around? 

STRUMPF: And they would parade around. And so, this one guy did. Apparently, it was not legal to dress as a woman at that point in time. This guy got arrested, and then his friends came and bailed him out apparently. 

DUBNER: So, for losing the bet, he had to dress as a woman and because it was illegal to dress as a woman, he was arrested? 

STRUMPF: He was arrested.

DUBNER: Wow. Wow. Crime really does not pay. That’s brutal. When was cross-dressing illegal until?

STRUMPF: In San Francisco, I think forty years ago, I think?

DUBNER: Really? And that’s San Francisco. Yeah, major city. All right. Well, Koleman, thank you. It’s always great to talk to you.

STRUMPF Great. Thanks. 

This is Stephen Dubner and you’re listening to a Freakonomics Radio show we recorded live in San Francisco on January 3^rd. We’ll be right back with our final guest.

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DUBNER: We have one more guest tonight. He is an economist at a nearby school called Stanford, I believe it’s pronounced. Would you please welcome Erik Brynjolfsson. Okay. I’m very fond of this man. Very, very interesting and bright fellow. So, Erik, it says that you are a senior fellow at the Stanford Institute for Human-Centered A.I., is that correct so far?

BRYNJOLFSSON: So far, so good.

DUBNER: And you’re also director of the Stanford Digital Economy Lab. So I just want to know what both of those are. I want to know what human-centered A.I. is, honestly.

BRYNJOLFSSON: Well, that’s a good question. Fei-Fei Li started it along with John Etchemendy, and they recruited me out to Stanford.

DUBNER: You were at M.I.T.?

BRYNJOLFSSON: Yeah, I was at a major city in Massachusetts.

DUBNER: You’re picking bones with me because that is the other city that thinks it’s a major city

BRYNJOLFSSON: Well, I’m sorry it keeps — It’s too bad we keep beating New York in all the sports, but that’s just the way it goes.

DUBNER: You know, here’s the thing about New York and sports: When you’re a major city, the sports don’t really matter that much.

BRYNJOLFSSON: Good. Yeah. You can cope. So, the idea is that, you know, A.I. is doing these amazing things, but we want to do it in service of humans, and make sure that we keep humans at the center of all of that. A lot of technologists are very focused on the technology, but I’m an economist, as you mentioned — and there are political scientists, sociologists, artists — and we’re all working to use A.I. to help lots of the other parts of the world and of academia.

DUBNER: When you talk about human-centered, I mean, one thing that comes to my mind is labor, right? You and I have had this conversation on the show for probably eight or ten years now, about to what degree does automation and A.I. mean job replacement? And if so, how big a problem is that? But you’re talking about more than just machines doing human jobs. You’re talking about having A.I. or having technologies that let humans be human in their most essential way or what?

BRYNJOLFSSON: Totally. Too many people think of machines as just sort of trying to imitate humans. There’s this iconic test of artificial intelligence called the Turing Test that many people are familiar with, which is how much can you make a machine mimic a human to the point where you can’t tell which is which? And that was, I think, a visionary idea when Alan Turing proposed it in 1950. But in a way it’s a very constraining idea, because machines can help us do new things we never could have done before. And that’s a much higher ceiling. And so, we want to look for ways that machines can complement humans, not simply imitate or replace them. And so, I wrote a paper recently called “The Turing Trap,” trying to steer people away from this idea of just imitating humans.

DUBNER: If we were having this conversation a year ago about A.I. generally, the first five questions would be, “So, are the machines going to wipe out humanity?” Now, it’s not that nobody’s thinking about that and concerned about it anymore, but it’s no longer the conversation. Why is that?

BRYNJOLFSSON: I think it’s still part of the conversation. I don’t know, maybe in the press there’s things that go up and down in cycles to some extent. A.I. is becoming much more powerful. There continues to be rapid progress. And the good news is we can have tremendously higher productivity, and wealth, and have medical solutions, addressing poverty, the environment. But it also raises a number of risks. Misinformation or people using it in a way that creates weird interpersonal dynamics. A.I. boyfriends and girlfriends, maybe millions of those that people have as their primary relationship. Pathogens, and even catastrophic risks.

DUBNER: Wait, say more about pathogens and A.I.

BRYNJOLFSSON: Well, the great thing is A.I. can help us discover new drugs as well as medicines, new materials. There was just a study from a grad student at M.I.T. describing how researchers using A.I. were able to discover 44 percent more materials than a randomly assigned group that didn’t have access to the technology. So, big difference. But some of those new materials could — lots of them could do good things. You could also create dangerous ones. You can flip the bit on a drug that’s meant to make you healthier, and it could make you much less healthy to the point of killing you.

DUBNER: So, you know a lot more about this than most of us do. You’ve come at it from a variety of angles. We’ll talk about the economic angle in a little bit, but would you call yourself generally a techno-optimist?

BRYNJOLFSSON: I’d say I’m a mindful optimist. What I mean by that is that there’s sort of a blind optimist, and I run into a lot of those in Silicon Valley who are just like, “Hey, don’t worry, just chill. It always works out in the past. It’s going to be great. Just sit back and we’re going to have a great time.” And there’s a lot of pessimists who, basically say the opposite. And they both make the same mistake, I think, which is they take the agency away from us. It’s like this technology is going to do stuff to us and whatever it is, is what it is. I think that we have a lot of choices. And one of the reasons I came to Stanford, the Center for Human-Centered A.I., is that I think we can help steer the technology in ways. And if we do it right, we could have the best decade we’ve ever seen, but it’s not inevitable.

DUBNER: Okay. But we’ll call you a mindful optimist, is what you say. Do you know much about what they call nominative determinism? You ever heard that phrase? It’s the idea that your name, your very name has some effect.

BRYNJOLFSSON: That sounds like a good Freakonomics chapter.

DUBNER: Okay. We wrote a chapter about names that almost everybody remembers wrong. Like, we wrote that there is no such thing.

BRYNJOLFSSON: Mr. Baker is a baker.

DUBNER: Yeah, exactly. My name is Stephen Baker, and I open a bakery or my name is Dennis and I become a dentist and so on. But there are people who believe that. But with you, I got to thinking. I looked up the etymology of your name, Erik Brynjolfsson. The internet tells me the last name is an Icelandic patronymic, yeah? Son of Brynjolf, with Brynjolf broken into Bryn, which means armor, and Jolf meaning wolf. So, “son of the armored wolf.” And then Erik usually translates to “eternal ruler” or “ever powerful.” So, you are the “ever powerful son of the armored wolf.” Do you think that’s why you’re an optimist?

BRYNJOLFSSON: That would make sense. That’s what people, when I go to Iceland, that’s how people know me. It’s true.

DUBNER: I’ve heard you talk in the past about, as I understand it, essentially a new way of measuring our economy. You call it G.D.P.-B., so I want you to tell us about that. I want you to tell us what the B stands for, but I want you to start at the beginning, because many people, even people who have nothing to do with economics, think G.D.P. is a highly imperfect measure of what we want it to measure. And if I recall correctly — I don’t know much about this, but I’m sure you do — but the inventor, Simon Kuznets, when he created G.D.P., warned that it should not be used for essentially what we’re using it for. 

BRYNJOLFSSON: That’s exactly right. Simon Kuznets, with his team in the 1930s, basically developed what we now use as our national account’s G.D.P. Productivity is all based on this system of accounts. Paul Samuelson called it one of the greatest inventions of the 20th century. I agree, but it’s also been massively abused and misused. Nowadays, you know, if you see a headline, “the economy grew by 3.2 percent,” they mean G.D.P. increased by 3.2 percent. 

DUBNER: And why is that an imprecise or not useful metric? 

BRYNJOLFSSON: Well, G.D.P. measures basically everything that’s bought and sold in the economy. What that means, with few exceptions: If something doesn’t have a price, it’s not counted in G.D.P. So we’re missing a lot of important stuff: clean air. A classic problem is, if I cook a meal for myself, that’s not part of G.D.P. But if I hire somebody to cook it or somebody pays me to cook it, then it is part of G.D.P. So you have a lot of little weirdnesses like that. A lot of household production is not there. And one of the biggest ones — I’m the director of the Stanford Digital Economy Lab — is all these digital goods that are often free: Wikipedia, search, Facebook, texting, email. If they have zero price, other than the electricity and a few other things, they’re basically not counted in G.D.P. Yet people get a lot of value from them. Right now, the average American spends a little over eight hours per day looking at a screen of some sort — TV, computer, whatever. That means they’re spending slightly more than half their waking hours interacting with bits, not with all the other things. And that means a big part of our lived experience is these things that are not being well-measured by traditional G.D.P.

DUBNER: So it’s interesting because where you’re heading here plainly is that we are richer than we appear, because how we’re counting wealth is imprecise and incomplete. On the other hand, if we’re even richer than the numbers say, why are so many people so miserable?

BRYNJOLFSSON: Well, you’re absolutely right. We have a lot more wealth than we had before. But we also did before as well. I mean, there’s television and penicillin. Things were also not counted very well. But wealth is not the same as happiness, as we know. And so, it doesn’t automatically translate one for one. But it does mean we have an imperfect measure of the value that our economy is creating for us.

DUBNER: There is this famous-in-economics idea of basically diminishing return on wealth and happiness. It was argued by Danny Kahneman and someone else, I can’t remember who wrote that original paper.

BRYNJOLFSSON: Easterlin. It’s called the Easterlin Paradox that — what you just said — that as people got richer, they didn’t seem to get happier. More recent research found that actually it just sort of is diminishing returns like you’re saying, it’s not that it actually stops.

DUBNER: Yeah, and I guess this is what gets us to G.D.P.-B. So tell us what the B stands for, who are you working with or for, and what is the intention of invoking this new measure?

BRYNJOLFSSON: So, the B stands for the benefit. As I said earlier, G.D.P. is basically a measure of production. What it costs to produce things. The G.D.P.-B. is trying to capture the consumer surplus. It’s the value between what the most you would have paid, what you actually have to pay. So, with Wikipedia, if you would have been willing to pay $15 a month and you pay $0, you’re getting $15 of consumer surplus.

DUBNER: And you’re trying to measure that. 

BRYNJOLFSSON: Yes, we are.

DUBNER: How do you do that? 

BRYNJOLFSSON: So, if I were to do a survey and say, “Okay, I’ll give you $500 to stop using the internet or stop using email, something more realistically, for 30 days.” Some of you would raise your hands and some of you wouldn’t. If I said, okay, what if I gave you $50? What if I gave you $5? You get fewer and fewer people being willing to give it up. And that gives you a downward-sloping demand curve. A lot of people think it’s worth at least $500. Not so many think it’s only worth $5, and the area under that curve, we call that consumer surplus. And if you do that for lots of different goods, you start getting a sense of how much value all these different goods are creating.

DUBNER: And is this a government project?

BRYNJOLFSSON: No, it’s something I came up with on my own, where we decided that we should measure consumer surplus and not just cost. And so we started doing some small-scale surveys and we got some money from different groups — the National Science Foundation, the Sloan Foundation. So I guess part of it is a government project. And we’d love to get more support to do it at a larger scale. We’re doing about 250 goods right now, including digital goods, non-digital goods. We ultimately want to get a representative basket of several thousand goods that we can track periodically alongside traditional G.D.P. and see how they compare.

DUBNER: The thing that’s so interesting to me — I mean, the whole thing is fascinating. I’m curious to know what the ramifications would be if your measure were to become widely embraced. But one consequence that I could imagine is that the way that our government currently looks at regulation and antitrust especially, which is going to change with the new administration, for sure. But when you’re talking about basically the hidden or uncounted benefits of many, many, many firms that are the targets of regulators now, it could be that those benefits that are not being counted should be a reason for antitrust legislation to be considered very differently. Would you say that’s the case?

BRYNJOLFSSON: Yeah. I mean, I think already there is a standard among many antitrust experts. It came out of Chicago actually that we should look at consumer welfare as the ultimate metric.

DUBNER: But that was a few decades ago. I feel like we’ve moved past that now.

BRYNJOLFSSON: Well, that’s the concept. But in terms of measuring — so, Lina Khan has a different measure — and there’s an ongoing debate. But I like the consumer welfare standard, which is this concentration, this merger, this spin-off, whatever, is it making consumers better off or worse off? And that’s hard to measure. But our tool, G.D.P.-B., gives us a set of measures for that. And you’re right, in many cases, there’s a tremendous amount of value from Google search or from email. One of my students was over in the European Commission, and they were upset about all the money that the big companies based here in San Francisco and around the United States were making on European consumers and saying this is a very unbalanced thing where there’s a lot of money going in this direction. And he pointed out, “Well, actually, if you measure the value that people are getting, there’s far more value that French citizens are getting from these services than what they’re paying.” So, the net gain is in the other direction.

DUBNER: That’s really interesting. I mean, I’m guessing that the way that European regulators think about American tech firms, that argument, as true as it might be, is probably not going to change the regulatory position, correct?

BRYNJOLFSSON: Not as much as them having their own tech firms. And so when they have companies like Mistral — I met with the finance minister in France — and he was coming around to the view that, “Well, actually, maybe tech companies can create some value now that we have one of our own.”

DUBNER: So there isn’t —

BRYNJOLFSSON: He didn’t quite say it that way, in fairness.

DUBNER: I would argue that Silicon Valley and northern California generally have created an innovation economy that is now global and just massively large and massively influential in many ways. In a way, I feel like the global economy kind of is, at root, the Silicon Valley economy. I know we still do a lot of other stuff in this country, and it’s not the majority of the economy by any stretch, but it’s such a fundamental part and moreso, it has such sway in our daily lives, in our political lives and so on. And when I hear you talk about G.D.P., I think if anything, we are underweighting the leverage of this economy here. So, I’m curious to know if you think I’m medium wrong, totally wrong, only a little bit wrong, or maybe a little bit right?

BRYNJOLFSSON: I agree. I mean, look, I moved out here four years ago from Boston, another pretty innovative place, but I really underestimated how amazing the culture is out here. I am constantly meeting people doing startup things. They have these grand visions and dreams and I think they’re mostly pretty sincere about wanting to change the world for the better. I moved here in summer of 2020, I remember, it was Covid. We had this garden party. And I sort of half-jokingly, nervously said, “Hey, are you guys all going to be moving to like Austin or Miami or something? Did I kind of miss the party?” And they laughed and said, “Oh don’t worry.” Because it kind of seems like, you know, San Francisco and the Bay Area’s going downhill. They said, don’t worry, there’ll be something. We didn’t know about ChatGPT at that point. Maybe a few of the people in the room might have been working on it, for all I know. But then, of course, there’s this explosion, and if anything, I think the tech innovation scene is even more concentrated in the Bay Area now than it was when I came in 2020. And there’s just a whole wave of innovations. People talk about it, but — and I’m an economist, I don’t really fully appreciate it until I’m here — there’s a cultural element to it, an attitude. It partly attracts people from around the world who have this mindset of wanting to change the world. People help each other to do it. And like you said, it’s been a tremendous engine of creativity and wealth creation.

DUBNER: And what about the — I mean, I said it derisively and half-jokingly — but what about the failed-state feel that San Francisco has projected to the world at least? How do you reconcile the, you know, the epicenter of the global tech machine and economy with the fact that this is a city that has repelled people?

BRYNJOLFSSON: Yeah, it’s a tragedy. Part of it, to be fair, I think it’s overrated. Like London Breed was saying, I heard her, apparently it has the lowest murder rate in 60 years. And, I come up to San Francisco a fair number of times. I don’t think it’s like what is described by Elon Musk or others on Twitter. Well, there’s a — good timing. But part of it is real. I just walked over from Union Square and there were definitely some homeless people on the street. In the green room I gave London Breed a little bit of a hard time about “Why do we allow this?” I think in some ways — I’m not a sociologist, but maybe all of the wealth and success allows a lot of sort of slack, and allows them to get away with a lot of mismanagement. I’m not singling out her or anybody in particular, but I do think a lot of the government is not managed as well as it could be. They can get away with it because there’s just so much innovation and wealth being created that you can have a lot of slack. I’m hoping that will get tightened up a bit because it doesn’t reflect well on California or on San Francisco. And with all the money being poured in to try to support San Francisco and the Bay Area, we should have the cleanest streets, the best police force, the safest neighborhoods, and we don’t.

DUBNER: So, if you were mayor for a month.

BRYNJOLFSSON: I think I’d be a terrible mayor.

DUBNER: Economists do think differently about problem-solving, right?  

BRYNJOLFSSON: Well, a lot of them are probably just common sense, but a few of them, you know, where economists maybe differ. I’m a huge fan of congestion pricing. Almost everyone who I know who is not an economist doesn’t think that’s a good idea. Well, I guess some of these guys may be economists. One of the first rules of taxation is you tend to get less of what you tax. So, if you’re taxing work and investment, you’re going to get less of that. Why not tax pollution? Why not tax congestion? I also sometimes advise Singapore, and they’ve put in place all these rules that economists — 

DUBNER: You just slipped that in. “You sometimes advise Singapore?” On Thursdays or what? 

BRYNJOLFSSON: I’ve been there and met with senior officials, just like I meet with senior officials in lots of different places. I’m not like an official advisor or anything.

DUBNER: Do you have a badge of some kind?

BRYNJOLFSSON: A badge?

DUBNER: You have a cape?

BRYNJOLFSSON: No. No, I am just a professor. But what I like about Singapore is they listen to professors. And they don’t listen to professors in the U.S. Congress, and that’s one of the reasons that they’re successful over there. I’m biased. You know, one of the reasons so many people are leaving California is because it’s so expensive here, and it doesn’t need to be. And the reason it’s so expensive is because a lot of people would love to live here, but the housing prices are insanely high because it’s supply and demand. It’s elementary. It’s Economics 101. These are things that are actually really easy to fix, and we could do a lot better.

DUBNER: I see why they call you the ever-powerful son of the armored wolf. That was fantastic. Erik Brynjolfsson, thank you so much.

I would like to thank Erik Brynjolfsson, Koleman Strumpf, and Mayor London Breed for joining us onstage in San Francisco — and I’d especially like to thank the 1,500 folks who bought a ticket and came to hang out with us. If you want to see Freakonomics Radio live, we have an upcoming show on February 13th in Los Angeles, with Ari Emanuel and other special guests. Tickets are at freakonomics.com/liveshows. And if you liked hearing what Erik Brynjolfsson had to say about the impact of A.I., be sure to catch the next episode of Freakonomics Radio, where we will hear about a new technology designed to thwart A.I. That’s right here in your podcast feed at our new time, Friday morning. Until then, take care of yourself — and, if you can, someone else, too.

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Freakonomics Radio is produced by Stitcher and Renbud Radio. This episode was produced by Abigail Lowenthal, Ellen Frankman, Morgan Levey, and Zack Lapinski, with research help from Dalvin Aboagye. Special thanks to Jessie McDaniel with Fresh AV, all the folks at Another Planet Entertainment, the crew at the Sydney Goldstein Theater, and our partners SiriusXM and KQED Live. The Freakonomics Radio Network staff also includes Alina Kulman, Augusta Chapman, Eleanor Osborne, Elsa Hernandez, Gabriel Roth, Greg Rippin, Jasmin Klinger, Jeremy Johnston, Jon Schnaars, Neal Carruth, Sarah Lilley, and Theo Jacobs. Our theme song is “Mr. Fortune,” by the Hitchhikers; our composer is Luis Guerra. Once again, thanks for listening.