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

Released January 22, 2025

In this compelling episode of Freakonomics Radio, host Stephen Dubner delves into the intricate dynamics of San Francisco's governance, economic challenges, and the broader implications of technology on society. The live recording at the historic Sidney Goldstein Theater features insightful conversations with San Francisco Mayor London Breed and esteemed economists Coleman Strumpf and Eric Brynjolfsson. This summary captures the essence of their discussions, highlighting key points, notable quotes, and profound insights.

1. Assessing San Francisco’s Status with Mayor London Breed

Media Perception vs. Reality

Mayor London Breed confronts the pervasive narrative portraying San Francisco as a "failed state." She emphasizes that while media often showcases the city's most challenging aspects, the reality is far more nuanced.

[08:38] Mayor Breed: "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."

City’s Recovery and Initiatives

Breed highlights the city's proactive measures post-COVID, including closing down streets for night markets and creating entertainment zones to rejuvenate community spirit. She proudly states the success in reducing homelessness by over 20,000 and achieving one of the lowest homicide rates since the 1960s.

[08:46] Mayor Breed: "This city has been more fun than it has been in a long time... We have helped over 20,000 people exit homelessness... one of the lowest homicide rates since the 1960s."

Challenges and Perception Management

Despite tangible progress, Breed acknowledges ongoing challenges and the struggle against negative perceptions. She urges both residents and visitors to share their positive experiences to counterbalance the media’s focus on adversity.

[09:40] Mayor Breed: "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."

Economic Resilience Amidst Population Changes

Addressing concerns about population decline, Breed asserts that venture capital investment remains robust, with significant funding flowing into AI companies within the city. This influx underscores San Francisco's enduring appeal as a hub for innovation and success.

[14:19] Mayor Breed: "70% of the new office space is by new companies. And AI people are coming back to San Francisco because they know this is where they're going to be successful."

Leadership and Political Challenges

In reflecting on her tenure, Breed discusses the financial and bureaucratic hurdles she faced, including substantial campaign spending aimed at unseating her. She takes responsibility for slower-than-desired policy implementations post-pandemic but remains optimistic about future advancements.

[10:39] Mayor Breed: "Things were not happening as quickly as people wanted to see them happen. And that is something I take full responsibility for."

2. Exploring Illicit Markets with Economist Coleman Strumpf

Investigating Illegal Activities

Economist Coleman Strumpf provides a deep dive into the economics of illicit markets, particularly focusing on sports betting and the cannabis industry. His research uncovers the prevalence and operational strategies of illegal weed shops in major cities like Los Angeles and San Francisco.

[28:06] Strumpf: "I've done some work on cannabis... How can you tell an illegal from a legal weed shop, let's say, in California?"

Data Collection on Illicit Operations

Strumpf explains his methodology for differentiating between legal and illegal cannabis stores, utilizing platforms like Weedmaps and public records to identify discrepancies in licensing and operational legitimacy.

[29:22] Strumpf: "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."

Economic Implications of Legalization

Discussing why illegal shops persist despite legalization, Strumpf attributes it to insufficient political will for stringent enforcement and the complexity of differentiating legal from illegal operations amidst growing demand and social acceptance.

[31:22] Strumpf: "The illegal people are pretty sophisticated. So... demand is probably much higher."

Historical Context of Illicit Markets

Strumpf draws parallels between current illicit operations and historical examples like Prohibition-era alcohol smuggling, highlighting the enduring nature of black markets despite regulatory efforts.

[32:40] Strumpf: "The wake of Prohibition? Actually, you did see things like that for 15 years through the 1950s."

Impact of Social Norms and Demand

Strumpf emphasizes that evolving social norms and increasing demand for cannabis contribute to the resilience of illegal markets, even as legal avenues expand.

[34:14] Strumpf: "There's the social norm... demand is probably much higher."

3. Rethinking Economic Measures with Eric Brynjolfsson

Introducing Human-Centered AI

Eric Brynjolfsson, Senior Fellow at the Stanford Institute for Human-Centered AI, discusses the paradigm shift from viewing AI as mere imitations of human intelligence to leveraging it as a complement that enhances human capabilities.

[44:07] Brynjolfsson: "We want to look for ways that machines can complement humans, not simply imitate or replace them."

Critique of Traditional GDP and Introducing GDPB

Brynjolfsson critiques Gross Domestic Product (GDP) as an incomplete measure of economic welfare, advocating for GDPB (Gross Domestic Product Benefit) which accounts for consumer surplus—the value consumers derive beyond what they pay for goods and services.

[50:11] Brynjolfsson: "GDP measures basically everything that's bought and sold in the economy... a lot of household productions aren't there."

Methodology of GDPB

He outlines the methodology of GDPB, which involves surveying consumers about their willingness to forego certain goods and services, thereby quantifying the consumer surplus. This approach aims to provide a more accurate representation of economic well-being.

[53:21] Brynjolfsson: "If I were to do a survey... the area under that curve, we call that consumer surplus."

Implications for Policy and Regulation

Brynjolfsson connects GDPB to regulatory frameworks, particularly antitrust legislation, suggesting that a more nuanced understanding of consumer value could influence how mergers and acquisitions are assessed.

[55:13] Brynjolfsson: "The GDPB gives us a set of measures... 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."

Human-Centered AI and Economic Innovation

Discussing the global influence of Silicon Valley, Brynjolfsson underscores the cultural and economic significance of the Bay Area's innovation ecosystem. He advocates for policies that enhance economic efficiency, such as congestion pricing and targeted taxation, to address systemic issues like housing affordability.

[60:30] Brynjolfsson: "I'm a huge fan of congestion pricing... why not tax pollution. Why not tax congestion."

Balancing Innovation with Social Responsibility

Brynjolfsson emphasizes the importance of balancing technological advancements with social accountability, ensuring that innovation translates into tangible benefits for society at large.

[59:02] Brynjolfsson: "There's just a whole wave of innovations... It's been a tremendous engine of creativity and wealth creation."

4. Concluding Insights

This episode of Freakonomics Radio offers a multifaceted exploration of San Francisco's current state, the persistence of illicit markets, and the necessity for evolving economic measures. Mayor London Breed provides a grounded perspective on the city's recovery and resilience, countering negative media portrayals with concrete achievements and ongoing challenges. Economists Coleman Strumpf and Eric Brynjolfsson broaden the discussion to include the complexities of illicit economies and the imperative to refine economic metrics to better capture societal well-being. Together, these conversations illuminate the hidden layers of urban governance, economic innovation, and the evolving impact of technology on human life.

Notable Quotes:

• Mayor London Breed at [08:46]: "This city has been more fun than it has been in a long time... We have helped over 20,000 people exit homelessness... one of the lowest homicide rates since the 1960s."

• Coleman Strumpf at [31:11]: "They either make up a number, go down the street, look at the legal store, take a picture of that and use that number."

• Eric Brynjolfsson at [50:11]: "GDP measures basically everything that's bought and sold in the economy... a lot of household productions aren't there."

• Eric Brynjolfsson at [53:21]: "If I were to do a survey... the area under that curve, we call that consumer surplus."

• Eric Brynjolfsson at [60:30]: "I'm a huge fan of congestion pricing... why not tax pollution. Why not tax congestion."

This episode provides listeners with a deep understanding of the socio-economic fabric of San Francisco, the enduring nature of black markets, and the critical need for more comprehensive economic indicators. Through expert interviews and candid discussions, Freakonomics Radio unpacks the hidden sides of complex urban and economic issues, offering valuable insights for policymakers, economists, and engaged citizens alike.