Planet Money - Two Indicators: unlikely economic relationships

Episode Date: September 9, 2022

On today's show - how your social circle is one of the strongest predictors of economic mobility and how pop music reflects the economy.Subscribe to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money, from NPR. Like most gyms, inner-city weightlifting in Boston offers one-on-one training sessions for people to shed pounds and get ripped. But behind the dumbbells and the treadmills is a deeper purpose. The gym is a non-profit founded with the mission of providing opportunities to people at risk of poverty and incarceration and helping them forge friendships with wealthier people who might be able to give them a helping hand. Inner City Weightlifting does this by recruiting people who are economically disadvantaged, often fresh out of prison, and it offers them a pathway to become trainers, then pairs these trainers with well-to-do clients.

And its founder, John Feynman, says that they're seeing amazing results with this model. Personal training does create this really unique setting that allows for those power dynamics to flip, for those really genuine relationships to form, because the value is going both ways. And I think that really transcends a lot. It's no secret that it pays to have friends in high places or gym clients in high places. But a new groundbreaking research project substantiates this in a profound way. It shows that relationships that cross class lines are crucial for low-income folks to climb the economic ladder. Hello and welcome to Planet Money. I'm Greg Rosalski.

And I'm Darian Woods. Today on the show, we have two new studies that look at unexpected economic relationships. They're brought to us by Planet Money's daily podcast, The Indicator. So first of all, what someone's social networks can reveal about their chances at achieving the American dream. And then what the pop charts might be able to tell us about the state of the economy. Hey, Greg, how are you doing? Good, how are you? The Harvard economist Raj Chetty is like the closest thing we have to LeBron James in the econ world.

I mean, he's kind of a superstar. He crunches these gigantic data sets and offers compelling evidence to fix some of America's most stubborn economic problems. And some years back, Raj Chetty and his team published this detailed interactive map of America. It was based on extensive work analyzing millions of IRS tax records, and it shows the likelihood of kids climbing out of poverty in every zip code in the country. And they called it the Opportunity Atlas. Ever since they built this map, Raj and his collaborators have been trying to figure out why it looks the way it does.

Why is it that kids in places like the diverse D.C. suburb of Silver Spring, Maryland, have a much better shot of rising out of poverty than kids in places like Little Rock, Arkansas? And so the big question is, why is the American dream more alive in some places than others? And along the way, lots of folks talked about the idea that social capital or who you're friends with, who you're interacting with might be an important factor. Social capital. That generally refers to the value of our relationships with our family, with our friends, our broader community. Sociologists and political scientists have long found that these relationships matter a lot for our well-being. But which types of relationships might give us a boost economically?

And how do you clearly and precisely measure that? Lots of people have thought hard about these issues well before us and have just been hampered by a lack of data. But now Raj and his team have found a solution. Facebook data. I mean, who knows more about your social network than the ultimate social network? In a pair of new studies published in the journal Nature, Raj and his team use Facebook data as a proxy to measure people's real-world relationships. Who would have thought 15 years ago that you'd be able to see 20 billion friendships and understand

how people are interacting with each other? Raj and his team came up with various ways to measure social capital using data from Facebook. And they find that there is one particular measure that has a huge power in explaining upward mobility. And they call it economic connectedness. And that's the rate that low-income folks are friends with high-income folks. Raj and his team find that it's the exact places that have more connections between low-income and high-income folks that have much greater rates of upward mobility. And they provide evidence that these cross-class relationships are the very reason why low-income folks are much more likely to climb the economic ladder. So now, you know, you might then ask, well, what about the quality of schools?

What about racial segregation? What about levels of inequality? There are many other variables for which you could do a similar analysis. And what we basically show is the economic connectedness variable continues to have very high explanatory power, even when you control for all of those things. Raj and Asim don't have direct evidence to explain exactly what it is about having more connections between high and low-income folks that causes greater rates of upward mobility. Maybe it's because high-income people serve as role models or help their low-income friends get jobs. Maybe it's because high-income people shape their friends' aspirations or self-presentation or norms or behavior. But what Raj was able to document is

that if you plop a kid from a disadvantaged background into a community with more economic connectedness, their income and adulthood will be on average 20% higher. It's huge. Social interaction across class lines is a key factor that predicts upward mobility out of poverty. But there's a problem. Raj and his team find that there are many communities across America that just aren't very connected across class lines. In a second study, Raj and his team looked at why. They find it boils down to two main things. First of all, exposure. Exposure just means how much lower-income folks are interacting with higher-income folks in an

area. Do they live in a mixed income neighborhood where they're able to bump into higher income folks at like the supermarket or their schools or churches or rec centers? But Raj says that cross-class encounters are not enough to form relationships. Even if these groups do encounter each other, there's a tendency for them to not necessarily become friends. Raj calls this friending bias. You know, the people who kind of stay in their own cliques. Raj says there are some settings where this friending bias is really high. One prime example is people's neighborhoods. Like, I don't know,

Darien, like when you're walking down the street in New York City, like are you saying hi to everybody? No, maybe I should, but no, I don't. Anyway, there are other settings where friendships really thrive. For example, churches, mosques, and synagogues. So it seems like something about the relationships people form in religious groups, as opposed to neighborhoods, which shows that the settings, the structure of the institutions in which we're meeting people might be the key factor that governs bias, not just preferences that people have. In other words, friending bias can be overcome. Raj says that what institutions can do really matters for forging cross-class friendships. So they had a look at high schools across the country and some are really clicky. And we're not just talking about jocks and nerds and freaks

and geeks. We're talking about how wealthy or not wealthy your parents are. For example, schools with multiple cafeterias often see richer kids go to one cafeteria and poorer kids go to another. Raj and his team say there are real things that schools and other institutions can do to encourage more diverse social circles. Yeah, like maybe you just have one cafeteria or like pizza Fridays where all kinds of different kids all come together. Raj says there's much the government could do to revitalize the American dream, like building affordable housing in high-income areas or helping low-income kids go to high-income schools and thinking deliberately about how to

foster friendships in various places. But what's also exciting about this new research project is it points to practical steps we can make in our own communities to make a difference. Steps like the one taken by Inner City Weightlifting in Boston. Raj and his colleagues actually shout out this non-profit gym at the end of one of their new papers. And this gym has been operating for over a decade. And the founder, John Feynman, says that it is showing a lot of signs of success. Like there's much lower rates of recidivism and higher rates of upward economic mobility for its trainers. But to me, honestly, the biggest successes we see in this organization, it's those day-to-day interactions. It's our trainers having conversations with someone who they might not otherwise cross paths

with and vice versa. That person now having a genuine friend who can advance them as just a human being, nevermind their fitness goals, but as a citizen in this society. John says one of their trainers bought a house with his earnings. One is now building houses for his former clients. Another used his gym connections to help him navigate electrician school. They've even had clients pay for their trainer's kids to go to summer camp with their own kids. Not bad for a gym.

That was Planet Money newsletter writer Greg Rosowski. And if you want to hear more economic insights like the one featured in that episode, check out the newsletter at npr.org slash planetmoneynewsletter. And up next, we're going to hear from me and my indicator colleague, Adrian Ma, about another recent study. This one's about recessions and whether, just maybe, we might be able to sum up the mood of the economy through Harry Styles. What can't that man do?

That's all coming up after this short break. Are we in a recession? That is a question we've heard a lot recently on The Indicator. And in the voice in my brain. Yes, because the data is really confusing. The jobs market has been running really hot, but output growth is falling a little. The world looks really scary. We've even heard the word stagflation, a stagnant economy with high inflation.

Is that what's happening? The last time we felt like this was like 1980. At the time, the Fed chair, Paul Volcker, was really unapologetic about needing to jack up the interest rates and cause short-term economic damage to fight inflation. But, you know, you can't deal with that problem by simply saying we're going to let inflation go ahead. And as a result, unemployment would reach nearly 8 percent, more than double what we have today. Really tough times. And so you would think people would be sitting around listening to sad ballads to go with the sad times. But that is actually not the case.

Ah, yeah. In that year, 1980, Queen was number one on the charts with Crazy Little Thing Called Love. It's a snappy, infectious ditty. It's happy music, which it turns out is not unusual for a recession. A new paper in the Journal of Cultural Economics shows when the economy is crumbling, we're actually a little more likely to want to listen to happy music. Marco Palameque is a doctoral candidate in economics at the University of Alcalá in Spain. He plays guitar, bass, he sings, and he studied drums professionally.

This is a box we use in flamenco music. Would you be able to play a couple of beats on that box? Let's try. That's so cool. And Marco has managed to combine his love for music and economics. As a musician, I always noticed that music helped people to be more happy when they are sad and all of that. And so Marco paired up with a co-author, Juan de Lucio, and they went out to see whether there was any link between the mood of popular music with the booms and the busts in the economy.

Marco and his co-author made a data set of all the songs in America's main singles charts, the Billboard Hot 100, every week from 1958 to 2019. Marco and his co-author used artificial intelligence software to classify whether the song was positive or negative based on its lyrics. And then they matched these songs against weekly unemployment claims. And I was thinking that when the situation is bad, people will search for music that expresses their feelings. But I found the opposite. So Diana Ross, Ain't No Mountain High Enough.

This was number one in the singles charts in the 1970 recession. You also had Step By Step by New Kids On The Block. This was a single during the 1990 recession. Janet Jackson, All For You in 2001. And all of these singles are upbeat, positive songs. And to be clear, Marco and his co-authors only found a really small effect. But the relationship held up. It was statistically significant.

And this is similar to broader findings that during recessions, people might buy or do more inexpensive things that give them a little bit of joy. A recent paper found evidence of more spending on lipstick during the 2008 recession. So, you know, this is a cheap way to heighten your look when money is tight. And this is known in economics as the lipstick effect. And in this case, music nowadays with Spotify is almost free.

So it's a great good to consume when you have no money. So given Marco's finding, we have developed a one-off quiz show for Marco and Indicator listeners at home. You can play along. We're naming it Hits of the Dips. We're going to play clips of singles that were number one on the charts at some point during a recession. And you have to guess which recession the single was from. How are you feeling, Marco? It's going to be hard.

Okay. I want to get physical. Let's get into physical. Let me hear your body talk. Maybe the oil recession? 74. You know, this one's a little bit later. This is in 1982.

This is Olivia Newton-John physical. So this is the second of two recessions in the early 80s. So Paul Volcker had already sparked one downturn in 1980, but inflation wasn't going down enough. So the Fed had raised interest rates even higher to fight inflation, even though many people were losing their jobs. You know, interest rates were around 20% at the time. Unemployment was high,

but they were listening to Olivia Newton-John physical, which, I don't know, it's quite a happy song. All right, next song and next recession. What you got to do with Monica Can't get enough of your love, baby song and next recession. I don't know, maybe 60s. A little bit later. Yeah, 73, 74.

Correct, 74. Yeah, so 73 to 75 in the US, there was a big recession. Okay, the oil crisis. The oil crisis, correct, yeah. So, 73 to 75 in the US, there was a big recession. Okay, the oil crisis? The oil crisis, correct, yeah. Unemployment was rising. It would get up to 9% by 1975. And yeah, we've got Barry White crooning about love with his song, Can't Get Enough of Your Love, Babe. Well, we can always talk about love, I mean.

Yeah, yeah, totally. Okay, let's see what you think about this one. This is Bey Beyonce, right? Yes, correct. Yes. I'm going to say The Great Recession, maybe? Correct! Yeah, you got it. Beyonce's Single Ladies seems to have been the soundtrack of the global financial crisis. Wow. Who will say? Yeah, you know, this at the time was the worst recession since the Great Depression. Unemployment was shooting up fast. Homes getting foreclosed everywhere. And yeah, we had this very cheery song.

Yeah, it's curious, right? It's a bit weird, isn't it? Okay, so that's the past. But I want to see a diagnosis, because a lot of people at the moment are thinking, are we in a recession in the US? And different indicators have been saying different things. And our official organization that calls recessions, the NBER, has not yet said that there is a recession. By other measures, you could say that there is two quarters of GDP contractions. But

then again, the labor market's doing really well. So I want to play a song, which was the hit of the summer. This song stayed in the number one of the Billboard Hot 100. And so I'm wondering what you think about this, like whether this kind of is the kind of song we'd hear, you know, more often in a recession or more often in a boom. I'll play it for you. There you go. Harry Styles' As It Was. What are your thoughts?

Yeah, it's a pretty melancholic song, right? Yeah. So according to this study, you are not in a recession. Great. I mean, not in a recession is good. Like, sad songs, potentially good news. But I don't know, there's parts of the song that are giving me pause, right? Like, the lyrics are pretty sad. Good for the economy, potentially.

But the keyboard melody is pretty bouncy. Like it's kind of these mixed messages in the song. Like I mean, it's a little bit like our economy today, like good jobs market, for example, but you know a falling stock market. Yeah, it's kind of funny. It seemed to match pretty well with the situation yeah there you go harry stars as it was kind of symbolic of the mixed signals we're getting in the economy at the moment marco palameke so great to have you on the show thanks for joining the indicator thank you so much it has been a pleasure that's all folks for hits of the dips thank you and good night we made a musical playlist of recessions past, which you can check out in the show notes at npr.org slash money.

These original indicator episodes were produced by Corey Bridges with engineering from Robert Rodriguez. They were fact-checked by Jamila Huxtable and Catherine Yang. Viet Le is our senior producer. Kate McCannon edits the show. I'm Darian Woods. This is NPR. Thanks for listening.

your producer. Kate Buchanan edits the show. I'm Darian Woods. This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.