Odd Lots - 43: Seinfeld Can Teach You Everything You Need About Economics

Episode Date: August 29, 2016

The hit show Seinfeld is often referred to as the show about nothing, but maybe it's actually a show all about economics. Alan Grant is an associate professor of economics at Baker University and a proprietor of The Economics of Seinfeld, a website that catalogues all the ways the legendary sitcom imparts valuable economic lessons. In the latest edition of the Odd Lots podcast, Grant talks about what you can learn from watching the show, and the specific lessons of various episodes, including The Chinese Restaurant (a lesson in opportunity cost), The Contest (a lesson in time preference) and the apartment (rationing mechanisms and rent control).See omnystudio.com/listener for privacy information.

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That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. Hello, and welcome to another edition of Oddlots. I'm Tracy Allaway, executive editor of Bloomberg Markets. And I'm Joe Wisenthal, managing editor of Bloomberg Markets. So, Joe, did you ever watch Seinfeld? Of course. I wasn't a mega fan like a lot of people I knew then, but of course, by now I've probably seen most of the episodes at least once. Right. Who hasn't? Right. So I think almost anytime you flick on the TV, there seem to be some sort of reruns running. It was a hugely, hugely popular show famously about nothing. But you do like economics, right? Wait, is today's podcast going to be about nothing? No. No, today's podcast is, I guess, going to be about the economics of nothing.

Is that better? Oh, that sounds really good. I'm excited about that. All right. Well, what I'm referring to is there's a website that's actually called Seinfeld Economics, and we are going to speak with one of the guys behind it. He is Alan Grant. He is an associate professor of economics at Baker University. And this site, Joe, if you hadn't had a chance to look yet, it's pretty great, I think. It kind of cuts all these clips from Seinfeld and then relates them to a certain economic concept. So, for instance, there are little clips that are tied into game theory, clips about common resources, demand substitutes, all that good economic stuff. I was browsing through the site earlier and I saw and I thought it was hilarious and brilliant and I'm very excited about talking with Alan. All right. Well, let's not wait any longer. Let's bring him in.

So, Alan, I suppose the first question is why Seinfeld and how did this, actually? actually get started, the economics of Seinfeld? This got started probably in 2006 or 2007. And at that time, pop culture really wasn't a big deal in economics. But in 2006, a guy named Dirk Mateer, who's now a professor at the University of Arizona, published a book called Economics in the Movies. And that really kind of got people thinking about what can we bring from the things that our students know into the classroom.

so that we can make economics more relevant to them. And so my co-workers at Eastern Illinois and I kicked around ideas and we were using clips in the classroom. And I kind of thought to myself, what's more popular, what's a more common touch point than the TV series Seinfeld? And so I did what my wife called research for the next couple of months, digging through all of the back episodes on DVD. Seinfeld was off the air by this time.

looking for or compiling a database of Seinfeld clips that would be useful for economics instructors. Did you literally watch every episode on your JAG? I did watch every single episode on my JAG. I'd start the morning with two or three episodes when I got into the office and I'd finish the day with a few more episodes. And I got lots and lots of mocking from my wife about this. So one of the things I love about the fact that you chose Seinfeld is it is the show, again, about nothing. It's just a sort of group of friends living in New York, not that much happens to them, and it just goes through their daily life, which means that you end up getting to relate

some really banal, ordinary events to economics. Can you maybe give us some examples? Absolutely. I'd be happy to. One of my favorite episodes, for what it's worth, is an episode about Jerry and Elaine who rekindled their romance. The episode is called The Deal. And Elaine is very into the romance, and Jerry is kind of like lots of guys who don't understand exactly what it is that women want or appreciate. And he decides that instead of giving her a gift

that she won't like, he decides to give her some cash instead. Cash? What do you think? He got me cash? Well, that's right, I figured you could go out and get yourself whatever you want. No good? Or you, my uncle?

Wait, come on, it's $182 there. I don't think that's anything to sneeze at. We have a thread in the literature, in the economics literature, about the deadweight loss of Christmas, about how people give gifts and spend far more money on gifts than the recipients would actually spend for themselves. And it turns out that the conclusion from that thread of the literature is cash is a really great gift, but the conclusion from Seinfeld is, oh, yeah, there are feelings involved, and people want to feel appreciated, and sometimes it really is the thought that counts.

I like that you've immediately honed in on this episode because this whole question of gift giving and the utility of gift giving, this is always, this always comes up among economists, doesn't it, in terms of this sort of classic example where economists say that people do something irrational and that there's a better way to do this common everyday thing. Agreed. We spend a lot of time, and over the past five or six years, we've spent a lot of time debating whether gifts, giving is a rational thing or whether it's just better to give the gift of cash and let the recipient pick what they really want for themselves. On the flip side, and I don't want to delve too much into this question because I want to talk about the Seinfeld episodes, but this is also an example of why people say that economists don't really understand human nature. And so an economist might look at a perfectly rational person and say, you should appreciate

the cash and get what you want. but maybe rather than that being an example of humans being irrational, it's economists thinking of humans as these perfect homo-economicus as opposed to what makes us human. Absolutely. And this is an important lesson for our students, I think, too, because we spend a lot of time on the blackboard and we develop these sort of models that assume everybody behaves rationally. And that works pretty well most of the time. but a significant amount of the time your students sort of raise their hands and go, yeah, but what if?

Have you considered this? And the Seinfeld episode that I just spoke about the deal really brings in one of those what ifs. What if the thought really does count? What if it really matters? And so it helps us take these blackboard ideas and say they work a lot of the time, but not always. So is it that TV shows like Seinfelds are good at illustrating the concepts or that they're good at illustrating the limitations of the concepts? Because a lot of the examples that you do have up on the site are about economics not working perfectly as envisioned. I think there is a lot to be said about that, that economics does not always work perfectly.

It's very good at explaining the behavior of groups, but less useful. in explaining the behavior of individuals. But that's an extra layer of complexity that we try, at least in the classroom for freshmen, sophomores. We try to filter out those complexities. And I think there's a lot to be found in Seinfeld that really does illustrate sort of classical economic theory that people do most of the time behave in a self-interested fashion. Seinfeld is wonderful for that, by the way, because your four characters, George, Jerry, Elaine,

and Kramer, they are very self-interested individuals. Yeah, I'm looking at another one on your website, the episode of The Big Salad, which I actually don't remember having seen before, but I like the concept. And it talks about the sort of fallacy or of pure altruism, I guess. Tell us about this episode, because I think the description on your website really gets at kind of how flawed human and in particular the Seinfeld characters are. Yes. So in the big salad, Elaine is hungry,

and she asks George to go out and get her a big salad from monks, the cafeteria downstairs. And so George at this time is dating somebody, and his girlfriend pops down and picks up the salad, but takes credit for getting the salad when really it was George that sort of foot the bill for that. and George gets really crazy about this. Hey, so I were late. Oh, it's no problem.

Here's your big salad. Thank you, Julie. Oh, you're very welcome. Did you see what just happened to? Well, that all depends. You happen to notice that Julie handed the big salad to Elaine? Yeah, so? Well, she didn't buy the big salad.

I bought the big salad. Is that fact? Yes, it is. She just took credit. for my salad. That's not right. No, it isn't. I mean, I'm the one that bought it.

Yes, you did. Don't you think she should have said something? She could have? Oh, I know. So he's happy to get the salad for Elaine, but he wants some of the credit for it as well. He gets some satisfaction out of knowing that not only did I give the gift, but I'm being appreciated for it. So, in a perfectly rational context, you should be able to give a gift. You should feel good about giving the gift.

but to be truthful about it, a lot of the times, and we see this at the university all the time, people want their name attached to their gift. They get some satisfaction from getting credit for those things. Right. Ego-driven people. You see it in the workplace all the time, I think, that things that seem like they should be arbitrary end up mattering quite a bit to people. They do.

I mentioned that we have this at the university. This is a trend in university giving across the country, is that we have, donors that want their names attached to new buildings and donors that want their names attached to new facilities. And it's gotten down to the level that if you visit the right campuses, you can find donors who have donated urinals and toilets with a little plaque above every time you go to the potty. That's amazing. I would do that. I think that would be great. What are some episodes or a particular episode that teaches about game theory? My favorite episode about game theory is an episode called The Pez Dispenser.

And I don't know if you remember the Pez Dispenser episode or not. But in that episode, George is dating a concert pianist. And he's worried because George is horribly neurotic and insecure. And Noel, the concert pianist, is very confident, poised, self-assured. And George is just certain that he's going to get dumped. And Kramer convinces him to do something that's very strategic. He convinces George to stage a preemptive breakup, that he's going to break up with Noel. And if she accepts that, then the relationship was probably going to go down the tubes anyway.

But it also has the possibility of evoking a response where Noel could say, oh my gosh, you want to break up with me? I better step up my game and take better care of you. And so in game theory, we have something called a dominant strategy. It's always a best response to whatever your opponent might be doing. I've got nothing to lose. We either break up, which she would do anyway, but at least I go out with some dignity, or I completely turn the tables. This is absolutely brilliant.

And Kramer convinces George that this preemptive breakup is a dominant strategy, that no matter where the relationship is headed, whether it's going fine, are going poorly. George needs to break up with Noel. He can't make himself any worse off. He can make himself better off. You're breaking up with me? Shocked? I really am. Never expected this, did you? Well, live and learn. So I don't want to give the impression that you're only about Seinfeld episodes and economics because Joe and I have also heard that you're into other TV shows as illustrations of economic

concepts. Tell us which ones you think lend themselves well to this arena. So I use lots of movie clips from old movies. I use lots of television shows. There are some outstanding resources available for economists that want to bring this into the classroom. I use a few clips from the wire, which is about the drug market in Baltimore. Always good to be exploring at a market that is largely unregulated because it's an illicit market. Sorry, I seem to remember in one of the first seasons, a main character actually takes an economics course, right? A drug dealer? That's right.

Yes, this is a wonderful clip. Stringer Bell, Drug Kingpin in Training, is going back to college to get a business degree so that he can run his drug empire like a business instead of like a, right, sort of streethood. And they have a wonderful clip in there about the elasticity of demand, about consumers' price sensitivity. to changes in price, and the things that make consumers more or less price sensitive. No, no, you're not going to bring that corner bullshit up in here.

You hear me? You know what we got here? We got an elastic product. You know what that mean? That means when people can go elsewhere and get their print in and copy and done, they're going to do it. You acting like we got an inelastic product

and we don't. Now, I want this to run like a true fucking business. Not no front, not no bullshit. It's a terrific clip. It's one that I continue to show semester after semester, and students continue to respond well to it. Are there any other particular, I mean, that show is filled with lessons, I imagine about the economics and how economics applies to unregulated criminal industries.

But are there any other particular episodes of that show that really strike you as, stating something profound about economics? So one of the thing that is really profound about that episode is the idea, and this is a first day lesson for most students of economics, the idea of opportunity cost is that when you have a group of individuals or when you have an individual who has little outside opportunity, they will gravitate toward their best opportunity. And so, as it turns out, I have this choice of dealing drugs, and the only thing that I really lose when I choose to join the drug gang is the opportunity to work at McDonald's because of a lack of education, a lack of job training.

In fact, season four of the wire is devoted to sort of the deplorable condition of Baltimore inner city schools that helps explain, I think, in large part, why exactly these individuals choose to join the drug gang and deal drugs. So, Alan, you've obviously been doing this for a long time, and over the past decade or so, we have seen the rise of economics being entwined with pop culture, and we've seen the freakonomics phenomenon and lots of imitators based off of that. How useful have you found it in practice to show economics through the prism of pop culture and specifically television and movies? I think it's been very useful. Economics has been a blackboard science at the undergraduate level with lots of graphs, and it turns out that lots of students aren't very good at graphs. There are lots of really restrictive models, and they're abstract, and the typical student really doesn't glom on to the subtle points as well as we would like them to.

And so if you want to keep your students sort of passionate about the subject, you have to make it useful to them. And starting with Dirk Mateer's book on economics in the movies in 2006, we've had a group of really passionate economists devote themselves to taking blackboard economics and making it useful to students. If I can give an anecdotal example of that, I talked earlier about the clip from the wire. And you had actually mentioned the clip where Stringer Bell goes back to college to learn how to run a business. So I had a lower tail student. She was not a very good student. She ended up dropping the class about halfway through and moving to Morocco.

She was a little bit flaky and wanted to travel the world instead of going to college. But when she came back, she asked if she could get into my overly full class, and she said, you know what? It really made an impression on me when you showed the clip from the wire in class about the elasticity of demand. And here's a student that is a D student, and she remembers not only the clip, but she remembers the concept the clip was supposed to illustrate. And so I think the idea of pop culture is that if you choose your resources really carefully, you can make an impact on students who might otherwise just sit in the back row and be lost. That is cool. That actually works and resonates.

I was going to ask, to some extent, can you find an economics lesson in? in any television show, period, any episode of any television show just because all drama is essentially about human decision making and all human decision making can be boiled down to economics? I think that you probably can find economic content and almost in a show that you want to watch. But I think the economic content that comes out and reaches to your undergraduates and just sort of slaps them in the face and says, oh, this is a very complex.

clear illustration of what we've been doing, that's a little bit harder to search for. So Seinfeld was on for how many seasons, nine seasons. And out of nine seasons and several hundred episodes, I think we have about 100 short, to the point, concise clips that fairly clearly illustrate general economic principles. So, you know, about one out of every two episodes of Seinfeld, other shows maybe not so much. All right. Well, I personally can't wait for the economics of Game of Thrones. That'll be a good one.

That'll be fantastic. It's a great show and a great series of books. Alan Grant, thank you so much for joining us today. It's been my pleasure. Thank you for the chance to talk today. Tracy, I really loved that episode. I want to go back and watch a bunch of Old Seinfelds now. Through the prism of economics, will you be

taking like economics notes while you do it? No, I probably won't, but I really, I do think that Seinfeld probably is one of the perfect shows to teach these lessons. As he pointed out, you could probably find economics lessons in almost any item of pop culture, but because of the varied situations that the four friends find themselves in and because of their selfish personalities and the negative ramifications that that often create, it does seem like kind of the perfect show to teach, as he put it, chalkboard economics. Right, but it's not just the characters.

It's the fact that there isn't this sort of dramatic overarching plot, right? It's just these four people in New York and they're doing day-to-day, everyday things. And through that, we get to learn about some pretty important economics concepts. I really, really like that. Right. Going to pick up a salad, getting people gifts, going to whatever it is, a series of events and decisions that are all, yeah, all can be tied to economics. A lot of fun.

People should visit the website yada, yada, yada, yada, econ.com and follow Ellen Grant on Twitter at Baker Econ. All right. Thanks, everyone for listening. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joseph Wisenthal. You can follow me on Twitter at the stalwart.

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