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The Oh Sh*t Edition
00:42:33
Slate Money on post-election markets, Trump’s stimulus plan, and why polling data led us astray.
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- [00:00]
Kathy O'Neill
The following podcast contains explicit language.
- [00:09]
Felix Salmon
Hello, and welcome to the oh, shit. Edition of Slate Money, your guide to the business and finance news of the week, which you know what that news is. After a long and gruesome election campaign during which we did an unbelievably good job of never mentioning this guy's name.
- [00:35]
Kathy O'Neill
Maybe too good a job, because you.
- [00:37]
Felix Salmon
Didn'T want us to. And we, you know, it felt good to have a little Trump free zone.
- [00:41]
Kathy O'Neill
I don't regret it. I don't regret it.
- [00:43]
Jordan Weissman
No, it was a. I think we gave everyone a much desired break in their week.
- [00:46]
Felix Salmon
So. Yeah. So we are now, you know, unavoidably, I'm afraid, going to have to talk about the phrase which I still find quite hard to get out of my mouth. President Donald Trump.
- [01:00]
Jordan Weissman
Voldemort has arrived.
- [01:03]
Felix Salmon
Anyway, Yes, I am Felix Hamlin, Fusion. I have here Kathy o', Neill, the author of Weapons of Mass Destruction.
- [01:10]
Kathy O'Neill
Hi.
- [01:10]
Felix Salmon
And Slate moneybox columnist Jordan Weissman.
- [01:13]
Jordan Weissman
Hello, everyone.
- [01:14]
Felix Salmon
And we are going to talk about some policy stuff because, you know, I think the election is over, but we are, we are also going to talk about the polls and how they were so wrong. And we are going to talk, I think, about markets. Jordan.
- [01:33]
Jordan Weissman
Yeah.
- [01:33]
Felix Salmon
What happened? So, okay, so this is, this is where I start on this one, is that Justin Wolfers was probably the most famous person to do this. He did a whole bunch of regressions according to, like, how Trump was doing in the polls compared to the value of the Mexican peso and the stock market futures and all that kind of stuff. And he was like, if Trump wins, we're going to see the stock market crash by 10%. I know that Bridgewaters thought that was like, low. And we could see the stock market crash by like 15 or 20%. And as the results started coming in on Tuesday night, the stock market futures were plunging down like hundreds of points.
- [02:14]
Kathy O'Neill
I just want to break in before we actually talk about what actually happened. I just want to break in and say like, that, like, that narrative of like, oh, we better, like, like, we better elect Clinton or the markets are going to crash was so off, off, like off base.
- [02:29]
Felix Salmon
Like, I don't know if that was the narrative. The narrative was just like, if you elect Trump, then, yeah, like, the Trump was not a market friendly candidate. I don't think it was like, this is why you should elect Clinton.
- [02:40]
Kathy O'Neill
That's how I read it. And, but, and it just seemed to me like the people who were voting for Trump would be like, good, like, good. I want to see the markets crash, like.
- [02:48]
Jordan Weissman
Right, well, well, they didn't. Yeah, I was going to say.
- [02:50]
Kathy O'Neill
Yeah, okay.
- [02:51]
Jordan Weissman
So there was definitely this narrative going into the election, going into election day that, you know, Trump was bad for markets, Clinton was good for markets. When Trump's chances of winning went up, markets went down. When Trump's chances of winning went down, the markets went up. So it seemed pretty clear. And then like you said, Felix, on the actual election day when it, when it seemed like Trump might actually pull this out, you saw the Dow Jones, Dow Jones futures just fall through the floor. I mean, it felt like what happened sort of the night of Brexit. Right.
- [03:21]
Kathy O'Neill
And Asian markets were down.
- [03:22]
Jordan Weissman
Like everything was down at first.
- [03:23]
Felix Salmon
But then the Mexican peso crashed through 20 for the first time ever, hit.
- [03:27]
Jordan Weissman
An all time low. It looked really bad. And then all of a sudden they started recovering. And I feel good because on, on that night I actually, I did tweet for a timestamp that I felt like markets were way overreacting and, and then in the coming days they fully recovered. And then actually the s and P500, I haven't, I haven't checked just now, but was up, I believe at the end of yesterday. Markets have actually risen since Trump.
- [03:51]
Kathy O'Neill
So the indexes have risen.
- [03:52]
Jordan Weissman
Well, the stock markets have risen.
- [03:54]
Felix Salmon
So we need to, let's, so let's. Because it's, it's definitely worth unpacking this a little bit.
- [03:59]
Jordan Weissman
Yeah.
- [04:00]
Felix Salmon
There are different types of stock market and you know what we are seeing is the Dow then we have talked on this show before about how ridiculously anachronistic and stupid the Dow is and that no one should look at the Dow as an indicator of anything. But the Dow right now is actually an interesting indicator because it's not precisely because it's not the broader stock market. It is a bunch of older and kind of behind the curve companies. The Dow is doing really well. The Nasdaq, which is the more sort of tech heavy index, is doing really quite badly. Not super badly, but it's down. The S&P 500, which is the market as a whole, is up, but not nearly as much as the Dow. And the bond market, which is the one which really matters, is down.
- [04:50]
Jordan Weissman
Yeah.
- [04:51]
Kathy O'Neill
What do you mean by really matters? To who?
- [04:53]
Jordan Weissman
I was gonna say, I think it. Well, it signals different things. Right. So here's, here's, here's my theory of the case. I think, I think it's pretty much the mainstream theory, which is that if you are actually paying attention to what Trump was saying, during this election, what little, what few policy pronouncements he offered and not just his general erratic behav, um, it was pretty clear he had a sweeping corporate friendly agenda. Um, he wants to massively deregulate banking by rolling back Dodd Frank. He wants to massively deregulate the fossil fuels industry by rolling back the clean power plant, amongst other things. And he wants to give massive corporate tax cuts which are directly valuable to shareholders.
- [05:35]
Felix Salmon
And he wants to repeal Obamacare, which was trying to bend the cost curve on health care. So like now as health care costs go up, that's going to be really good for the health care. All of these sectors did really well in the stock market.
- [05:47]
Jordan Weissman
And so if you're an investor, you stop and get over the initial shock of what happened and the initial sense of fugue, right? And then you realize, oh wait, I might actually these companies are going to make more money. They are going to pay bigger dividends. I'm going to probably be able to pay less on my capital gains right now. Stock values, especially in these particular industries are going to be kind of unleashed. Our stocks are looking really good and so there's reason for some people to be celebrating. And you know, you see specific, you were talking about how different indexes have performed differently. You also definitely see that on, in specific industries. So my friend.
- [06:28]
Kathy O'Neill
Private prisons.
- [06:29]
Jordan Weissman
Yeah, exactly. My friend Mike Konskol at the Roosevelt Institute went and did a few tabulations and yesterday he noticed that the biggest banks, like I think the eight biggest banks had added $53 billion in market cap alone.
- [06:40]
Felix Salmon
I was, I was just having dinner last. This, I mean this is going to sound horribly name droppy, but with a guy who is on the boards of both Morgan Stanley and Merck and he's like one went up 20% and the other one went up 25%. It's like what the hell just happened? He was this, you know, huge Clinton supporter.
- [06:56]
Kathy O'Neill
But so what, what, what was his explanation?
- [06:58]
Felix Salmon
Well, I mean, exactly that. But I want Jordan to answer your question, Kathy, about which, which is the bonds, because they, the bonds are the thing which really matters. Famously, Jim Carville, I think it was, says that like if he ever gets reincarnated, he wanted to come back as the bond market because it's whole thing in the world.
- [07:17]
Jordan Weissman
So. Right, okay. So the bond market yields are rising, which means bond prices are falling. And that signals people essentially people now are expecting inflation finally. And you're seeing it like tips, you know, inflation break evens kind of rise.
- [07:31]
Felix Salmon
There to translate into English, there are these things called treasury index protected securities, normally known as tips, which pay the rate of inflation, whatever that is, as their coupon, plus or minus a little bit. And what you can do is you can compare the yield on these TIPS to the yield on treasury bonds and get what's known as break even, which is basically the expected inflation rate. And that expected inflation rate has been going up. And there's been a bunch of talk in the market because the market reporters generally think of bonds as an asset class. They're like, this is a place where you put your money and you get a return. And if the price of bonds go down, everyone who's invested in bonds starts shedding tears and goes, oh, this is very bad. But I think the broader picture is that we have been massively undershooting our inflation targets for living memory, at least since the crisis, and that if there is genuine hope and expectation that inflation is going to start going back up to the kind of 2% that the Fed ostensibly wants, that is probably good for the country. No, Yeah.
- [08:48]
Jordan Weissman
I mean, you know, to be really simple about it, investors, a lot of people are expecting a big fiscal stimulus from Donald Trump. This is something, right, we've been talking about for years. Everyone's been wanting governments to spend money to revive their economies and, you know, inflate GDP growth. And now there. And there's been, you know, Trump has campaigned on this idea. He's going to do a giant infrastructure bill of some kind, which we will get to. And beyond that, the Republicans in the House are talking about these massive, massive tax cuts, which, at the very least, are going to lead to. It's going to put money in the pockets of generally rich people, but it's also going to lead to more government borrowing, which leads to, generally speaking, more inflation as well.
- [09:27]
Felix Salmon
So explain this to me.
- [09:28]
Kathy O'Neill
I want to just dumb it down even further because that got pretty dumb. I appreciate that.
- [09:33]
Jordan Weissman
Thanks.
- [09:35]
Kathy O'Neill
But, like, I think the very dumb version is, like, the market looks like it's expecting inflation. And the. And the expectations, we think, are coming from this idea that, that. That Trump will end up successfully putting money in the pockets of normal people by giving them jobs to do. I don't.
- [09:51]
Felix Salmon
No, no, no, no, no.
- [09:52]
Jordan Weissman
That's.
- [09:52]
Felix Salmon
That's not it at all.
- [09:53]
Kathy O'Neill
So what is it?
- [09:54]
Felix Salmon
If you expect inflation, that's the way that that generally manifests itself in the markets is that bonds go down and stocks go up because, you know, bonds.
- [10:03]
Kathy O'Neill
But why are we expecting inflation?
- [10:05]
Felix Salmon
Okay, well, we'll get to that.
- [10:07]
Jordan Weissman
I think that for now, I think just to answer that question, people are expecting Trump to spend like a motherfucker. That's like the Trump and the Republicans are going to have no heeds for deficits.
- [10:15]
Kathy O'Neill
Doesn't that mean the money goes somewhere?
- [10:16]
Jordan Weissman
It's going to go somewhere. Where? Well, we'll get to that.
- [10:20]
Felix Salmon
Okay, so what I mean, the reason.
- [10:22]
Kathy O'Neill
I ask is because we've been having quantitative easing for God knows how that money has gone somewhere, but it hasn't gone into the pocket of average people.
- [10:28]
Felix Salmon
No. Well, we're not. Yeah. This has nothing to do with average people. This is just a question of whether fiscal policy has greater ability to cause inflation than monetary policy does. And somehow the market seemed to believe that it does. I think if you look at Japan, you might think to yourself, well, what's the evidence for that? But generally, the idea is that if you are borrowing a bunch of money and you're spending a bunch of money and you're pouring a bunch of real money, not like fake monetary money, not like QE money, but actual real money into things like bridges and walls and pharmacies, then the prices of those things are going to go up. And when prices of things go up, that's inflation. And, you know, my theory is that.
- [11:13]
Kathy O'Neill
You can't actually have prices go up unless people are competing to buy those things. Yeah, I mean, I think that requires people having money.
- [11:20]
Jordan Weissman
There is some. Yeah, there is some expectation that this is to, again, keep it simple, that these spending plans are going to put money in the pockets of normal people. I think there's some questions about exactly what's going to really come of them. But yes, to answer your question, I think that is part of it.
- [11:38]
Felix Salmon
But, you know, normal people aren't. The people buying airports. Normal people aren't. You know, so if the prices of an airport go up, like that is actually going to show up in inflation somewhere, but it's not that. It's because the paychecks are larger. We'll see what happens to paychecks. They might go up. And in a way, and obviously, I think we all hope that they do. And higher wages and higher inflation is much better than stagnant wages and higher inflation.
- [12:04]
Jordan Weissman
Yes.
- [12:05]
Felix Salmon
But honestly, I feel like this kind of. I hesitate to call it optimism, but expectation that Trump is going to be able to create inflation where like no governments around the world have been able to create inflation for the past decade, is maybe a little bit unrealistic.
- [12:23]
Jordan Weissman
I mean, I think one of the interesting things here, though, is the Fed used to talk about needing to be. Or people used to talk about the need for the Fed to be sort of credibly irresponsible, believably irresponsible. They would have to believe that the Fed really would just kind of put the pedal down on monetary policy until they saw inflation. And I think people do believe Trump really will be irresponsible about things like deficit spending. There's no question in their minds that Trump will have no heed for balancing budgets, stuff like that.
- [12:52]
Felix Salmon
So let's move on. Coffee break and have a coffee break and then we'll talk about actual policy, actual these infrastructure investments. So let's talk a little bit, Jordan, about this fiscal stimulus in like policy wonk detail.
- [13:09]
Jordan Weissman
Yeah, sure.
- [13:10]
Felix Salmon
Because this is weirdly of all of the great promises that Donald Trump made in his campaign, from banning Muslims to building a wall, to making America great again. The, the first thing that people really expect is bizarrely exactly the same thing which was the first thing that Barack Obama did when he got into office, which is a massive fiscal stimulus bill.
- [13:29]
Jordan Weissman
Yeah, it's a. I don't know how many people have actually read Trump's plans. I really don't. I wrote a thing about this right before the election. A few other people covered it, but he actually, his advisors, Wilbur Ross, who you know, he's famous private equity guy, and Peter Navarro, he's an economist out in the California, Irvine, mostly known for trade issues these days, put out an explanation of what his infrastructure plan was going to be. And it was not New Deal style or even Barack Obama style, just straight government spending on roads and bridges and schoolhouses and whatever. Not. It was actually basically a series of tax incentives. It's really a little less than $200 billion in tax credits, which are meant to incentivize private infrastructure development or maybe public private partnerships. So think like.
- [14:23]
Kathy O'Neill
So you wrote a piece, for example, that said like, instead of raising taxes to build roads, we're going to incentivize private companies to build roads and then charge people to ride to drive on them.
- [14:34]
Jordan Weissman
Yeah, exactly. It's basically a, I mean, it's, it's a privatization. It's private roads, private bridges, private toll roads, things like that. And it's not what a lot of people probably have in mind right now. It's meant to again, get kind of states to work with a bunch of Wall street investors to fund their, maybe their new water plant. Who the hell.
- [14:54]
Felix Salmon
But wait, hang a sec. But like putting the mechanism to one side, what we are talking about is trillions of dollars in Spending on infrastructure, on airports, on roads, on sewage systems. And you can quibble with the mechanism, but it's a fiscal stimulus which is going to create an improved infrastructure for.
- [15:14]
Jordan Weissman
The U.S. no, I, I think so. So I've talked to some economists, I've talked to some liberal economists because typically they're the ones who are interested in things like fiscal multipliers and stuff like that. And they seem fairly confident that, yeah, this will have some sort of stimulative effect. I think there are open questions about it because when you're basically incentivizing private investors to come on and build this stuff by giving them tax breaks, I do wonder how much of that is just shifting investment around rather than creating new demand. And the thing that is supposed to act as fiscal stimulus is you're creating new demand in the economy. And I'm wondering how much of this is actually just going to end up convincing a guy who might have otherwise put his money into a one project to put it into another.
- [15:52]
Felix Salmon
Right. So, so, okay. But even then I think it's good. Like let's say that what we get in the Trump administration and going back to the previous discussion, we've kind of seen this in the markets already is capital moving away from Silicon Valley unicorns and into airports. I think that is a good thing.
- [16:14]
Kathy O'Neill
Well, okay, so the mechanism actually does matter. I'm gonna like go back to that because as Jordan said in his wonderful piece before the election, you know, if you're, if you're saying it's all privatized, then you really are incentivizing these private companies to look at which roads will give them the biggest profit in the end. And the answer might very well be roads that rich people use, not roads that poor people use. So theoretically we could see this becoming, you know, the, the roads in poor neighborhoods becoming shittier and shittier and the roads in neighborhoods getting fancier and fancier.
- [16:46]
Felix Salmon
Well, right. Which is perito better than what we have right now, which is the roads in all neighborhoods getting shittier and shittier.
- [16:55]
Jordan Weissman
Yeah, I mean, yes, I think that that is true to some extent.
- [16:58]
Kathy O'Neill
I think that's a short term view.
- [17:00]
Jordan Weissman
I mean, so here, here, here, I.
- [17:02]
Kathy O'Neill
Think we're all living, we're still living in cognitive dissonance. Like let's be fair to ourselves, let's be kind to ourselves. The infrastructure, when I hear infrastructure, I want, I think Flint, Michigan, lead pipes. That is not going to happen with Trump, not with this.
- [17:15]
Jordan Weissman
That's promising to, I don't think that's expensive.
- [17:17]
Kathy O'Neill
And it's for poor people.
- [17:18]
Felix Salmon
He was in Flint and he said that he would do it.
- [17:20]
Jordan Weissman
I don't, I don't imagine it'll happen, but.
- [17:22]
Kathy O'Neill
Oh well, the incentives just weren't there, I guess.
- [17:24]
Jordan Weissman
Yeah, I mean, you know, that's like.
- [17:26]
Kathy O'Neill
He sets up the system and it does what it does.
- [17:28]
Jordan Weissman
Yeah, I think that, yes, I think that's 100%. I want to say I agree you, Felix, that this is, it could be worse, right? This, this is, it's, this is definitely not a first best approach, but it could be worse. And I agree with you that the Flint problem is part of it.
- [17:43]
Felix Salmon
But wait, let me just be clear. It could be worse. As in, for instance, the infrastructure projects that we had during the second term of the Obama administration, like, which were basically zero. This is better than nothing. This is better than zero. This is better than what we are used to for the past few years.
- [18:00]
Jordan Weissman
I think probably. That said, there are also, I think, long term economic reasons to be kind of concerned about this structure. Basically what he's trying to incentivize these private investors to do is put down some of their own money upfront, right. And then go on to the private debt markets and borrow a lot. Right. And to fund these projects with, with the, with the help of these, these tax credits. And the bottom line is private investors are going to have to borrow for more than the government itself would have to borrow for. And therefore these, these infrastructure projects are going to be more expensive than if the government itself just directly funded them. And so you're going to end up with a bunch of expensive infrastructure. And you know, the economic bang for your buck you get from these projects, if you read the people analyze this, the imf, the World bank, whoever, a lot of it also depends on how much you pay for what you get. And so part of me is worried that long term we're basically paying for some white elephants.
- [18:51]
Felix Salmon
And I kind of, you know, theoretically, yes, actually, no. I mean, yes, it's true that the cost of capital is going to be higher if it's done by the private sector and the cost of capital is an important input into the total cost of a project, but there are lots of other important inputs. And the idea that say the Boston Big Dig, which was done with public funds was like, you know, cheap because it had a lower cost of capital is ridiculous.
- [19:17]
Jordan Weissman
Yeah, but that's like the worst of all possible examples. Like, I mean, come on, like Seattle.
- [19:21]
Felix Salmon
I mean, there's a whole bunch of examples of government construction projects going completely crazy. And while I'm not saying that the public sector is always less efficient than the private sector, I'm also saying that an across the board assumption that this thing is just going to be too expensive and that the difference is going to make its way into the pockets of bond investors. I think, yeah, probably, maybe. But I'm still coming back to this idea that it's better than the alternative.
- [19:48]
Kathy O'Neill
Can we take a couple steps back? And I think I'm going to end up agreeing with Felix. Although the question, two questions. First of all, what can get past Congress that actually, that Trump wants to do? And second of all, like, do we really want Trump to succeed? Right. Do or do we want to say everything that happens from the next four years, if it's a miserable failure, it's actually good for, it's good for the country? I don't know. I mean, I'm a little bit anarchistic this morning, so forgive me, but let's start with what can he actually get past the Republican led Congress?
- [20:17]
Jordan Weissman
It is not clear.
- [20:18]
Kathy O'Neill
I mean, tax cuts I think is pretty clear.
- [20:20]
Jordan Weissman
Yeah.
- [20:21]
Kathy O'Neill
Obamacare getting rid of Obamacare is pretty clear.
- [20:23]
Jordan Weissman
Yes. So the, the, the infrastructure is still an open question. It, there's no sign, I have not seen a sign from Paul Ryan that he really wants even this private infrastructure bill like I have. You know, maybe it'll come up because this has been such a big thing for Trump. Maybe they'll give it to him because the cost is, you know, only 186 billion, I think to the American taxpayer is a one time shot, which in the grand scheme of Republican spending plans via tax cuts and things is actually pretty low. Maybe they'll just throw it to him as a bone, but, and to avoid, you know, an epic conflict. But I don't, I don't think anyone can say for sure. And I do think actually that's one reason why the market reaction is maybe a little bit premature in my opinion. They're trying to price all this stuff in that I just don't think you can. If we've learned nothing from this week, you know, predictions don't always, you know, don't always come true.
- [21:13]
Felix Salmon
And. Yeah, and one thing which no one knows is the degree to which Donald Trump is going to be able to control a Republican led Congress. Everything that we've seen since the election has pointed to the fact that he is the undisputed leader of the Republican Party right now, which is kind of terrifying. But his ability to basically tell Congress what to do rather than simply be this automaton who signs whatever bill's the Republican Congress sends to him is yet to be determined.
- [21:49]
Kathy O'Neill
Yeah, maybe they'll just spend four years fighting with each other.
- [21:52]
Jordan Weissman
I don't know.
- [21:53]
Felix Salmon
I doubt that.
- [21:55]
Jordan Weissman
I do think that this kind of segues into a broader point about what we can expect from the Trump administration and how I do think he will work with the Republican Congress. Again, this infra. And it also applies to this infrastructure bill which is basically about private spending. It's the privatization of roads and bridges and things like that. A lot of the Republican agenda, and I think Trump's agenda is going to be about the privatization of American life, maybe not Medicare. Paul Ryan's actually making gestures towards that about voucherization, maybe doing Medicare reform. I don't know if Trump will allow that because he said he would not touch Medicare during the campaign. Maybe he'll go back on that. But you know, I think there's going to be, this is going to be a heyday for again, private prisons, private for profit colleges, private roads. You're going to see cuts to health care for the poor. I think that are going to be again back to more the privatization of, of the health care system away from more even, you know, it's in particular.
- [22:52]
Kathy O'Neill
None of these things sound particularly good for the Trump voters in the Rust Belt.
- [22:55]
Jordan Weissman
Yeah, exactly. I mean it's, you're, you're going to see America inked, you know, you know, that's, that's kind of the inked, you know, America Inc. That's kind of the, the Republican vision for the country. Private market solutions, quote unquote, for everything. And I don't think Trump is philosophically opposed to much of that. So I think that they're gonna get along better than a lot of the people who are predicting fireworks between Trump and Paul Ryan are suggesting.
- [23:22]
Felix Salmon
Okay, I think that's enough policy. Wonkary. Kathy?
- [23:28]
Kathy O'Neill
Yes, sweetie?
- [23:29]
Felix Salmon
Let's put the, let's put this whole policy wonky aside and start getting into the data crunching because it's your thing.
- [23:35]
Kathy O'Neill
Yeah, I mean, and data is everywhere. So data's in the market and you know, we could go, we could even. Like I was thinking when we were talking about the baked in assumption of, of inflation and you know, you can, besides sort of inferring the expected inflation, you could also infer the expected probability that all this stuff will go through the infrastructure spending. And it seems to me like I have no fucking clue what's actually going to happen with Trump and nobody does.
- [24:03]
Felix Salmon
And this is, I think one of the very interesting things which we didn't mention in the segment about the markets, but is important is that just because the markets went up doesn't mean that the risk has gone down. So what you have with Trump, and I think everyone can admit this, is much higher downside, tail risk. There's a bunch of like crazy apocalyptic things which have become more likely now. And you can see that in the prices of like second order derivatives, but where you can't see that is in the actual indices themselves.
- [24:46]
Kathy O'Neill
That's right.
- [24:47]
Felix Salmon
And so, and it should be said.
- [24:48]
Kathy O'Neill
That derivatives traders love uncertainty. That's where they make their money.
- [24:52]
Felix Salmon
Exactly.
- [24:52]
Kathy O'Neill
So they're happy. They're happy because they're like, oh, Trump is crazy. So we have no idea what's going to happen, but we're going to make a lot of money or lose a lot of money.
- [25:00]
Felix Salmon
But if you're, if you're, think that way, if you're Nassim Talib right now or any number of other derivatives traders, what you're doing is you're buying a huge number of deep out of the money options, most of which are going to expire worthless, but some of which are going to make you millions.
- [25:15]
Kathy O'Neill
Yes. So let's talk about polling. Now. I just want to preface this by saying I hate polling. I hate it. I want us, here's what I want us to do. Before we talk about what went wrong with everybody's polls and everybody's predictions on who would win the presidential election. I want us to just guesstimate, reckon on the number of man hours that has been spent in the last year and a half on polls. Like just how much time has been spent for people thinking about polls and guessing who's gonna win. And it was always Hillary Clinton. What a fucking waste of time.
- [25:48]
Felix Salmon
And there was this thing called ada. So Kathy, why don't you tell us what ADA was because this is amazing.
- [25:55]
Kathy O'Neill
ADA was the name of Clinton's secretary algorithm before.
- [26:00]
Jordan Weissman
Do we think ADA was a weapon, a wmd?
- [26:04]
Kathy O'Neill
So I don't think ADA by itself was a WMD weapon of mass destruction, which requires it to be secret, destructive and important. Because I actually don't think it was not important and destructive enough. I think polling as a whole is interesting and I think the destructiveness of polling as a whole is that again, we're wasting so much time talking about it that we talk about who the, like the college educated white Iowan woman between 44 and 55 is thinking of voting for. But we don't talk to that person. Ask Them what they think. You know what I mean? We're not actually talking about issues. We're talking about who they might vote for. And it's a bullshit conversation and it's a waste of time and it destroys actual conversations.
- [26:46]
Jordan Weissman
I'm sorry, I took us off a little bit off of ada, but go ahead.
- [26:49]
Kathy O'Neill
Yeah, yeah. So ada, ADA is like a. Is like one of those kinds of things that just wasn't discussed in the general public because it was secret and it was owned by the Clinton campaign. And it basically, it was much more complicated than just a poll. It was, it was based on lots of data and polling data in particular, but it was, it was used to decide what, you know, where Clinton should go have a fundraiser, where Clinton should go talk to the crowds and which states were at risk, which swing states.
- [27:15]
Jordan Weissman
Were at risk, where she should advertise.
- [27:17]
Kathy O'Neill
Where she should advertise television versus what, you know, on the, on the Internet.
- [27:20]
Jordan Weissman
I mean, it was her strategy. It was just like it was her whole, her whole map and it's based on this algorithm.
- [27:24]
Kathy O'Neill
Enormous amount of faith into it.
- [27:25]
Jordan Weissman
Yeah. And I mean, and there's no.
- [27:27]
Felix Salmon
To be fair. Yeah. There's no particular reason to believe that it was wrong. That like some omniscient ad buyer and strategist armed with the same amount of money could have created a better outcome, you know, doing something else. I think that ultimately the people voted, and this is the way that democracies work, is that you are given the choice between two choices and then you pick the one you want to vote for. And then whichever one of those two choices, you know, has the most people, I mean, put the popular votes aside, basically wins.
- [28:11]
Jordan Weissman
Where we go with this, Felix?
- [28:13]
Felix Salmon
Where I'm going with this is that there's been a huge amount of talk about the Democratic tactics and how Clinton can and should have done something different or how the Democratic Party can and should have done something different. And what I'm saying is. Well, you know, ultimately I think this was a very obviously clear cut choice in the election between two very, very different visions for America about what it should be and what it could be. And I feel that that's all that you can really hope and expect a politician to be able to do is lay out their stall very clearly to everyone that matters. And they both did that. And then it was up to the people.
- [28:54]
Kathy O'Neill
I agree with you if you're. What you're saying is that bad polling didn't lose Hillary Clinton this election. She lost this election for lots of.
- [29:03]
Felix Salmon
Reasons because the American People didn't want to vote for her. That's why.
- [29:06]
Kathy O'Neill
That's right. That's right. And because some people wanted to vote for Trump. And, you know, but I agree that polling was not the reason that she lost. It was a huge distraction, and they were wrong, and they should have known better. I'm going to argue, because they're going to say that it was like this unknown, unknown about, you know, basically what was going on was there's actual bias in the polls. And there was bias in the polls that because Trump, part of his campaign was, don't trust pollsters, don't trust the media, don't talk to those people. So people either lied to them or said they were undecided or just refused to talk to them.
- [29:42]
Jordan Weissman
I don't. I don't know if we know the extent to which that's true, but I.
- [29:45]
Kathy O'Neill
Will say I think it is true. And I think the evidence that we have that it was true is that the Brexit polls were off by a lot, and these polls were off by about the same amount.
- [29:55]
Jordan Weissman
I think we're okay. So first off, we should talk about which polls were really, truly wrong. I think, you know, the average by the end for. Well, first off, let's say Hillary Clinton won the popular vote, and she's gonna win it by, I think, you know, more than Gore did, for instance, once the Dunn County.
- [30:09]
Felix Salmon
Well, Hillary Clinton is going to win the popular vote by a greater margin than any of the other presidential candidates who won the electoral vote and lost the election. So more than Kennedy, more than Nixon, more than Gore, she's got the biggest margin. You know, it just so happens that all of those voters are in California, and California was never in doubt.
- [30:31]
Jordan Weissman
Exactly. But. So she's going. The polls were right in the sense that they were predicting that she was going to win the popular vote. They predicted the national polls are right, at least, and they predicted a bigger margin than what's probably gonna. What it's gonna end up being. But they were directionally correct. And again, all this, you know, people like to give Nate Silver credit. For instance, people were saying, there is uncertainty here. A normal polling error could swing this to. Could give the majority to Trump. And people were also looking and saying, we have. We have a lot of uncertainty right now about what's going on in swing states. And I think what we're learning is that polling on the state level is what was so truly bad. That's what we missed. People did not see what was coming. In Wisconsin, for instance, there was just no polling that adjusted Trump's margin. And so it seems like maybe on a big national level polling wasn't, you know, totally, you know, totally useless. I mean, it gave us a sense of where things were heading that wasn't absolutely wrong. But again, when you get to these smaller samples and frankly these, you don't have as many good, you know, a plus grade pollsters going into these individual states. That's where we run into problems. And that's also what fed issues in things like ada.
- [31:37]
Felix Salmon
But you do have A plus pulses in say Florida and they were just as wrong as Wisconsin.
- [31:43]
Kathy O'Neill
It wasn't the pollsters fault, guys. It was because people didn't trust pollsters that didn't want to talk to them.
- [31:47]
Felix Salmon
So that's so Kathy, can I, can I ask you a question? Because there's this idea, I can't remember who came up with it, that the Republicans are really big on truthiness, that wonderful word which was invented by Stephen Colbert. And then the Democrats, at least since 2012 and Nate Silver have reacted by embracing factiness. And they really love fact checks and they really love data and they really love polls and they wind up wanting to quantify everything and decide whether it is right or wrong. And that that factiness winds up missing something unbelievably important.
- [32:27]
Kathy O'Neill
Thank you for saying that. Yes. And here's the thing, and I'd say this to everyone who ever wants to hire me as a data scientist, which I say to them, what you want to predict is unpredictable with data science, because what they always want to predict is something that has never happened before and Trump has never happened before. We do not have data on Trump, so we cannot predict it with any degree of likeliness. Now if we had polls that said Trump is ahead by 15 points, then the data would be so strong that we would have known the truth, Right? Yeah, we didn't have that. It was close and it always has been close and we should have just fessed up and said, let's just wait and see.
- [33:04]
Felix Salmon
And the other thing, as you say, precisely because he's unprecedented, what you can't do, and this is a little bit like the, the models which said that house prices would never go down nationwide before the crisis, which everyone used to price their mortgage backed securities that you can never price in or put an accurate probability on something which has never happened before.
- [33:28]
Kathy O'Neill
Exactly.
- [33:29]
Felix Salmon
And so, you know, a nationwide houseful, everyone kind of maybe thought that perhaps there was some kind of probability you could put on that, but no one knew what it was because you can't look back through history and say, how frequent is this? Because the numerator is zero. The number of times that the United States has ever elected Donald Trump before this week was zero. And so you can't put a probability on that.
- [33:51]
Kathy O'Neill
And the closest thing we have to precedent is actually Brexit. And we know that it was badly off, so we should have suspected that. But like, to be fair, like, what did the Brexit people like? The polls before Brexit had no precedent for this. So I mean, I feel like now there's two data points. So, like the future European elections will have some, you know, two data points to go with.
- [34:12]
Jordan Weissman
So I want to push back on the idea again that even the Brexit polls were that off. If you were watching them in again in the lead up to that vote, they were close, they were wrong in the end. They had, I think on the eve of the vote they had stay winning, but it wasn't a big gap. And so what I think it was.
- [34:28]
Kathy O'Neill
Enough for it to be wrong.
- [34:29]
Jordan Weissman
Yeah, well, so here's what I think my defensive polling and these kinds of predictions will be this. You're right. They can't give us these fine gradations. They can't give us the illusion of certainty is sort of an evil that we need to push back on. But I do think they can give you the broad sense of is this a likely event or is it an unlikely event? You know, you can kind of binary like, is this a, is Trump's win a totally unlikely event or is it a toss up? And the polls should have been just telling us it's a toss up. We don't know.
- [34:58]
Felix Salmon
So can you explain to me in that case, Jordan, why you had people like the Huffington Post saying there was a 99%?
- [35:04]
Jordan Weissman
Exactly. So that's the thing. I think Nate Silver's poll performed in the end. Cuz he was telling us in the end, Even with the 70% number, he was still trying to tell people this is there is a chance this will happen. Do not write it off. Be prepared. He was saying that then you guys had like Sam Wang at Princeton who were like, there is a 0% chance of a Trump win. And that's a question of the model and how bad your model is. I'm saying there is possibility of a model that at least says there is uncertainty here and identifies uncertainty. Right.
- [35:31]
Felix Salmon
And I think what we have learned is that the uncertainty is bigger than almost anyone.
- [35:35]
Kathy O'Neill
And it kind of makes me happy because I'm like, maybe next election we can talk about issues rather than stupid poll numbers.
- [35:42]
Felix Salmon
Jumps would be a fine thing. Okay, I'm going to lead off the numbers round with my number, which is three. And this is something which I got from a well connected journalist. This is not a public number, but this is the raw, unskewed exit poll number for both Florida and Pennsylvania. If you looked at the exit polls in Florida and you looked at the exit polls in Pennsylvania and you just, just asked everyone in the exit polls, are you voting Trump? Are you voting Clinton? Those exit polls showed a three point lead for Clinton in both Florida and Pennsylvania. Now when we publish all of the information that we're now seeing in the exit polls about this percentage of college educated whites voted for Trump and blah, blah, blah, that's all sort of an unskewed version where they take the raw data and then they adjust it for the fact that they know that this many people actually wound up voting for Trump. But if you don't do that adjustment, then it's not just the polls in the run up to the election, it's also the exit polls. It's people coming out of the polls and saying that they voted for Clinton when they voted for Trump, or looking at the pollster and saying, I might have voted for Trump, but there's no way I'm going to tell you that.
- [37:05]
Kathy O'Neill
Or just walking away.
- [37:06]
Felix Salmon
Yeah, exactly.
- [37:06]
Jordan Weissman
Walking away, I think is probably a huge part of that.
- [37:09]
Felix Salmon
So, you know, I think that just tells us a lot. People have this idea that exit polls are more accurate than the polls in the run up to the election. There's no reason to believe that's true.
- [37:20]
Jordan Weissman
No, none at all. At best they can give us a sense of the demographic breakdown on things, but even that I have trouble trusting a lot of it. Mine's just not even remotely econ related. But whatever. We've been wonky enough this episode. My number's 82, which is Leonard Cohen.
- [37:38]
Kathy O'Neill
That's my number. Oh, we're going to both talk about Leonard Cohen?
- [37:41]
Jordan Weissman
Yeah. No, I mean, you know, if you were a.
- [37:44]
Kathy O'Neill
It's the first time that's ever happened. I think that we chose the same number.
- [37:47]
Jordan Weissman
Yeah, I mean, you know, I was, as my wife and I were mourning this election last night, we. And also Leonard Cohen. We were sitting around listening to his version of Hallelujah and one of his.
- [37:57]
Felix Salmon
Many versions of Hallelujah.
- [37:58]
Jordan Weissman
Yeah, he has many versions. The original one he recorded, which actually the production on it is kind, I think is a little bit cheesy at points, but it's still Such a great song. And how many guys actually wrote a real American Standard since the 1960s? He's one of the few famous Blue.
- [38:11]
Kathy O'Neill
Raincoat always makes me cry.
- [38:13]
Jordan Weissman
Oh, my God. That's the only problem with his, his music right now is it's so morose at points. Not all of it, but a lot of it is so, so morose that it's hard to listen to it when Trump has just won. It is.
- [38:25]
Kathy O'Neill
It's like adding insult to injury.
- [38:26]
Jordan Weissman
Yeah. I mean, there's. One of his best songs is off of, like, is literally about a guy standing in a room about to slit his own wrist. So, I mean, like, it's.
- [38:35]
Kathy O'Neill
But if anybody is wondering if, like, they can take any more and watch McCabe and Mrs. Miller this weekend, it's a classic anti western film soundtrack by Leonard Cohen. It's beautiful.
- [38:45]
Felix Salmon
Okay, so Kathy, since you don't have a number. Yes, you can.
- [38:51]
Kathy O'Neill
I can talk about something else, which is.
- [38:52]
Felix Salmon
You can talk about something else, which is even more important, which is something.
- [38:54]
Kathy O'Neill
That the three of us independently wrote about this week, which was what to do in this era of the Trump presidency. And the answer is protect people and protect information. So I've been giving money to the Guardian myself, like to journalism and to Legal Defense Fund and the aclu. And I know both of you have been doing similar things. Yeah, I. And I'm sure their listeners are doing that kind of thing. So please send us emails, tell us what you're doing, and we'll share your strategies.
- [39:26]
Felix Salmon
My, my idea that I wrote about and did was to take the unexpected rise in the stock market after Trump's win and take all of the profit that you made thanks to that unexpected rise in the stock market and give that to. Well, in my case, I split it between the ACLU and Planned Parenthood.
- [39:50]
Jordan Weissman
Yeah, I personally, I doubled my monthly donation to the Food bank for New York City, partially because I just have always really cared about that cause, but also because I fully expect Food Stamp, the food stamp budget to be cut significantly in the coming years. And so I think making sure people can eat is actually going to be.
- [40:07]
Kathy O'Neill
Is that a national organization?
- [40:08]
Jordan Weissman
Well, I mean, you can give. There are food banks all around, around the country. I just happen to do. I think doing it in your own backyard is kind of a good way to build your own community, and that's important. I really do believe that. Obviously, charity is not a replacement for the social safety net, but when the social safety net is under attack, it is absolutely essential. And so channeling your sorrows and your rage into charity right now is a way to maybe make the, you know, give yourself a sense of control, you know, in this world and just do a little bit of good. It's so important. So please tell us what you're doing right now to try and make the world a little bit of a better place and we'll, we're going to sum it up and put it up on the show page in some way or another. You guys came through for Doctors Without Borders last time when we talked about something like that. We'd love to see a similar response.
- [40:52]
Felix Salmon
And also if you have any money left over from that, we still have a handful of tickets left for the craft beer special on December 15th because.
- [41:04]
Jordan Weissman
We all need a drink.
- [41:04]
Felix Salmon
Union hall in Brooklyn. So come and drink beer with us again. The URL is in the show notes, but it's going to be a boozy evening with us. Yeah. So on which note, I think we can wrap up this Trumpish edition of Slate Money. Apologies for breaking the no Trump rule, but I feel we had no choice. Thank you for listening. Send us your emails. It is, as ever, slatemoneylate.com Many thanks to Zach Dynestein, who produced this week, as well as executive producers Steve Lichti and Andy Bowers. The entire Panoply roster can be found@itunes.com panoply and we will talk to you next week on Slate Money.
- [41:53]
Leonard Cohen
And if no leaves were on the tree and no water in the sea and the break of day had nothing to reveal that's how broken I would be what my life would seem to me if I didn't have your love to make it real.