{"id":375857,"date":"2026-10-17T21:58:43","date_gmt":"2026-10-17T21:58:43","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ny\/375857\/"},"modified":"2026-10-17T21:58:43","modified_gmt":"2026-10-17T21:58:43","slug":"risk-and-safety-in-the-economy-and-life","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ny\/375857\/","title":{"rendered":"Risk and Safety, in the Economy and Life"},"content":{"rendered":"

Last month, to mark the publication of Allison Schrager\u2019s new book, Worth the Risk: The Seven Myths That Keep Us from Taking the Chances We Need to Take<\/a>, the Manhattan Institute hosted a discussion between the author and Cliff Asness, founder, managing principal, and chief investment officer at AQR Capital Management. The following is a lightly edited transcription of their conversation.<\/p>\n

CLIFF ASNESS: Let\u2019s dive right in. As we heard in the introduction, you\u2019re an economist who won\u2019t ski and who won\u2019t ride a bike in a city, and you\u2019ve written a book telling us all that we should take more risk. How did that happen?<\/p>\n

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ALLISON SCHRAGER: Well, I guess, during the pandemic, it struck me how much we kept hearing the word \u201csafety.\u201d And as you know, we\u2019re both financial economists, safety has a very special meaning in finance, and the value of safety changes over time. I was like, wow, we really value safety a lot more than we used to. And I have my own risk aversions\u2014I think we all do\u2014and it dawned on me that we\u2019d really had this big change in our relationship with risk, and that we\u2019d become much less tolerant of it. That coincided with zero interest rates, which got me thinking about doing another book\u2014after the last one, about how I think financial\u2014<\/p>\n

ASNESS: What was the title of the last one again?<\/p>\n

SCHRAGER: An Economist Walks into a Brothel.<\/p>\n

ASNESS: I just wanted to hear you say it.<\/p>\n

SCHRAGER: We can talk about brothels, too, if you want.<\/p>\n

ASNESS: I\u2019m good.<\/p>\n

SCHRAGER: So it just got me thinking about what safety is and how it\u2019s changed. And then when I dug into the book, I became more aware of just how much safer the world had become, yet also how much more we were valuing safety.<\/p>\n

ASNESS: You go through seven myths in the book. Let me jump right to the conclusion. If this audience were to take away one, what\u2019s the most important?<\/p>\n

SCHRAGER: I think one of the myths is that we\u2019re always being told we\u2019re bad at risk\u2014that we have these cognitive biases. And the fact is\u2014<\/p>\n

ASNESS: We\u2019d better have them, or I couldn\u2019t make a living. But go on.<\/p>\n

SCHRAGER: We\u2019ve thrived as a species for thousands of years, and we\u2019re actually very good risk-takers. It\u2019s just that when the world changes\u2014particularly shocks to wealth or technology\u2014our understanding of risk can get a little unmoored. The other thing that surprised me is, like the last book, I didn\u2019t go into a brothel again, but I like colorful people. A book\u2019s an excuse to meet interesting people, like the mob hitman or the bounty hunter. I was talking to Nik Wallenda, the tightrope walker . . .<\/p>\n

ASNESS: The tightrope walker without a net.<\/p>\n

SCHRAGER: And he walked across Niagara Falls without a net. Or, I think they made him use a net; he\u2019s Canadian, and he was really upset about it. And the Grand Canyon. We were talking about life on the wire, and how the Wallendas\u2014this famous tightrope-walking family\u2014all get together at their compound in Sarasota and play around on the highwire. Then he tells me he\u2019s terrified of investing in the stock market\u2014which is what we do all the time. And it occurred to me that, I think other people like to argue there are categories of people who are risk-averse or risk-takers, and I don\u2019t think that\u2019s true. Like me, I won\u2019t ride a Citi bike, but we all have a domain of risk we\u2019re comfortable with, and we understand how to manage that and feel good about it. It\u2019s just that people, that domain has gotten a lot smaller. I think if we learn some basic things, we can all feel comfortable investing in the stock market. I\u2019ll never be a high tightrope walker, but we can all expand the pool of what we take risk in.<\/p>\n

ASNESS: I\u2019ve had years where I\u2019d much prefer to be walking a tightrope over Niagara Falls to what I do. What is \u201crisk delusion?\u201d I like the term.<\/p>\n

SCHRAGER: Yeah. I think it\u2019s what haunts our society now. It\u2019s a very seductive idea that comes up in finance again and again. I think your crusade against private equity is a great example.<\/p>\n

ASNESS: I\u2019m not against private equity. I\u2019m simply against them saying their values don\u2019t move when the stock market moves. Let me be clear.<\/p>\n

SCHRAGER: Exactly\u2014that\u2019s the risk delusion.<\/p>\n

ASNESS: I invest in these things; I just assume they\u2019re as risky as equities.<\/p>\n

SCHRAGER: But that\u2019s part of the delusion\u2014that you can beat the market and get a higher return without taking on risk.<\/p>\n

ASNESS: People want to be sold that.<\/p>\n

SCHRAGER: Yeah. A lot of really smart, knowledgeable people invested with Bernie Madoff, and they\u2019re like, \u201cOh, he can beat the market and I\u2019ll never lose money.\u201d As we\u2019ve both been trained, the most basic idea underlying all of finance is that you can\u2019t get extra reward without taking on some risk. People like you find a way to take maybe less risk than everyone else.<\/p>\n

ASNESS: It\u2019s still risky.<\/p>\n

SCHRAGER: Yeah, it\u2019s still risky. There\u2019s no beating the market without taking on extra risk. But somehow people in finance convince themselves of this anyway\u2014they should know better. I think it\u2019s now become a society-wide epidemic.<\/p>\n

ASNESS: So it\u2019s leaked from finance into society\u2014or the same thing is just showing up more broadly?<\/p>\n

SCHRAGER: Exactly. It\u2019s like when young people complain: \u201cI did everything right. I went to the right schools, I had the right job, the right internship\u2014but I\u2019m not thriving the way I thought I would.\u201d Yes, because you took no risk. You expected upside and got so little. And that\u2019s one reason I\u2019m convinced socialism is catching on\u2014this is a generation a lot less comfortable taking risk. So when someone says, \u201cI can create a world with total equality, no downside risk, I\u2019ll protect you against everything\u2014\u201d<\/p>\n

ASNESS: Cradle to grave. Cradle to grave.<\/p>\n

SCHRAGER: But you\u2019re still going to prosper? It doesn\u2019t work like that.<\/p>\n

ASNESS: Yeah, that\u2019s the part they don\u2019t seem to understand.<\/p>\n

SCHRAGER: But it\u2019s the same risk delusion that people in finance fall for all the time\u2014even a lot of smart people, with private equity right now. I\u2019m also not against private equity, but\u2014<\/p>\n

ASNESS: You really seem to be. I have to tell you.<\/p>\n

SCHRAGER: No, I write about this all the time. I think it\u2019s gotten too big relative to what it should be.<\/p>\n

ASNESS: That\u2019s fair.<\/p>\n

SCHRAGER: And I\u2019m uncomfortable with any asset class that grows on the pretense that you can beat the market and take less risk.<\/p>\n

ASNESS: Go the other way, from risk\u2014you define \u201csafety\u201d in fairly interesting ways. Can you share?<\/p>\n

SCHRAGER: Yeah. I was thinking a lot about safety because we heard the word \u201csafe\u201d so much during the pandemic\u2014go outside when it\u2019s safe, we want to make sure everyone stays safe. I\u2019m a retirement economist by training, and the safe asset\u2014what Bob Merton would always say to me\u2014is the numeraire. It\u2019s the foundation of everything; it\u2019s how you define risk, because we don\u2019t have a unifying definition of risk. Some people think it\u2019s a bad thing that happens; some people think it\u2019s an upside. You have these two different definitions. But there\u2019s one thing that risk is: it\u2019s what safe isn\u2019t. It\u2019s the complement of safety. And what safety is, is really hard to understand, too, because it\u2019s really idiosyncratic. What struck me about the pandemic is that we were shoving down everyone\u2019s throat that there\u2019s one safety: it\u2019s not getting Covid. When, for other people, safety was that their children were getting educated, or for other people it\u2019s that their business doesn\u2019t get shut down. And so we all have our own version of safety. Even in finance, the safe asset is idiosyncratic to you, to what your financial goals are, to your investment horizon. We always assume it\u2019s just a T-bill, and I don\u2019t think people understand how important the risk-free asset is in finance\u2014it\u2019s in every asset-pricing formula, it really does define what risk is. And yet we always assume it\u2019s the same asset for everyone, when it\u2019s really not.<\/p>\n

ASNESS: Yeah, I would agree with that. Ninety-eight percent of the papers will use T-bills as the risk-free asset, when in some cases you could say 30-year TIPS should be the risk-free asset. You have some cool evidence, using Google, of how the world\u2019s perception of the words \u201crisk\u201d and \u201csafety\u201d has changed. Can you tell us about that?<\/p>\n

SCHRAGER: Yes. It wasn\u2019t my evidence. A group of researchers at Gerd Gigerenzer\u2019s institute in Germany looked at Google\u2014<\/p>\n

ASNESS: We\u2019re giving you credit, not the Germans.<\/p>\n

SCHRAGER: Well, they sent me the data, and a very nice collegiate associate at Manhattan Institute helped me graph it, so we\u2019re going to take credit. They looked at the usage of the words \u201crisk\u201d and \u201csafety\u201d over time, using books and newspapers. What you see is just that the association with the word \u201crisk\u201d was quite positive in the early twentieth century, nineteenth century, and then, starting around 1970, around the time of the Great Society, or maybe the derivation of Black-Scholes, whatever you choose\u2014all of a sudden \u201crisk\u201d took on a negative connotation, and you see this real takeoff in the positive connotation of \u201csafety.\u201d That word all of a sudden gets used way more than \u201crisk.\u201d<\/p>\n

ASNESS: Yeah, because risk is symmetric.<\/p>\n

SCHRAGER: Yeah, and it is interesting how completely symmetric the risk and safety usage is just going like that.<\/p>\n

ASNESS: Let\u2019s talk about evidence. You make a strong assertion, with a lot of evidence in the book, that the world has gotten less risky. Can you give us a few examples?<\/p>\n

SCHRAGER: I mean, obviously we\u2019re not living in a world of cholera, and we live longer. I think everyone when they think about it kind of thinks that\u2019s trivially true. But even in the last 40, 30, even 20 years\u2014I don\u2019t think people realize this, because we idealize the recent past. Certainly we idealize the 1960s. But if you look at wage variability\u2014that\u2019s how much wages go up and down. So if you think of your income as a financial asset, volatility would be how risky it is, how predictable, how volatile it is. It\u2019s actually been trending down for everyone but the top 5 percent. This was actually kind of a shocking result. My Ph.D. dissertation, and the only thing I\u2019ve ever published in an academic journal, was all about how retirement looks different because wages had gotten more variable\u2014and everyone always believed that. This is like this huge myth that\u2019s been going around, that workers have less security. It was because we were relying on survey data that turned out to be really faulty. It was a technological breakthrough that we were able to use big data, and when economists were able to look at Social Security records, which is perfect because you actually have to understand wage risk, you have go through someone\u2019s entire lifespan, you can\u2019t just look at aggregate populations year to year, which is what people usually do, you have to look at individuals and what happened to them\u2014they found: oh my God, wages have never been more stable. And it\u2019s trending down. It turns out the reason is that people change jobs a lot less frequently\u2014because changing jobs is how you usually get a big wage boost.<\/p>\n

So what we see is less volatility, which is great\u2014everyone likes to know what their salary is going to be\u2014but also less upside, so wages are growing less fast. There\u2019s also evidence that people aren\u2019t moving as much, aren\u2019t forming businesses\u2014even now, with the post-pandemic bump, people are still forming businesses less frequently and changing jobs less often. And then there\u2019s all the evidence about teenagers not drinking, not driving at all, and all those sorts of things.<\/p>\n

ASNESS: You make an interesting link\u2014you mentioned the top 5 percent still have volatility in their wages\u2014 you make an interesting link to inequality. There are a lot of traditional explanations for inequality, but you tie it to risk. Can you take us through that?<\/p>\n

SCHRAGER: Yeah\u2014we\u2019ve effectively shut lower-income people out of risk-taking, which I think we consider a great, noble thing. And it is, because they were traditionally more vulnerable to downside risk\u2014if you only make $20,000 and you have a bad shock, that\u2019s catastrophic. But it depends on how you structure benefits, and certainly since the Great Society we\u2019ve been structuring benefits more like\u2014you know, the difference between insurance and a hedge.<\/p>\n

ASNESS: Take us through that.<\/p>\n

SCHRAGER: Insurance is like a stock option, or fire insurance\u2014if something bad happens, you get a payout. And so in the twentieth century we saw this growth of government benefits, and in the beginning it was very insurance-oriented\u2014unemployment insurance, disability insurance\u2014if something bad happened, you got a payout, and that was great. You could even argue, I\u2019m not a big government person, but you could argue that\u2019s the proper role of government: as we urbanized and industrialized, we faced more systemic risks.<\/p>\n

ASNESS: Pool risk and insure.<\/p>\n

SCHRAGER: And government is uniquely able to do that. So that was fine. And as everyone knows in finance, the picture you always learn in Finance 101 is that insurance maintains upside\u2014you\u2019re protected on the downside for a fee, but you still get the upside. A hedge is just taking risk off the table.<\/p>\n

ASNESS: It narrows the distribution.<\/p>\n

SCHRAGER: Exactly\u2014it\u2019s like investing more in the safe asset, whatever that is, and you lose upside. So what you see is policy, after the Great Society, becoming much more hedging-oriented. So you think, I once had an experience\u2014the closest thing I\u2019ve ever done to investigative journalism. Was it The Economist?<\/p>\n

ASNESS: Did you wear a disguise?<\/p>\n

SCHRAGER: I should have.<\/p>\n

ASNESS: It\u2019s not investigative journalism if you\u2019re not wearing a disguise.<\/p>\n

SCHRAGER: I dressed in sloppy clothes. And I went into a homeless shelter to teach financial literacy. I\u2019m a life-cycle finance economist, financial literacy is my thing, I study it. I was curious to learn, and I discovered it\u2019s incredibly difficult, financially, to be poor, in a way that I never really understood. My utility function is roughly monotonic with income\u2014I\u2019m happier the more money I make. And all these women\u2014very smart, though I don\u2019t think I was useful to them at all, because I had nothing to offer them, because being poor is so complicated financially and I knew nothing about it. But they\u2019re talking to each other and giving each other really fantastic financial advice. And you realize they don\u2019t have that monotonic function\u2014if they make more money, they lose money, and their financial lives are so complicated, because there\u2019s no incentive to take a risk. If they move for a better job, if they make more money, they lose benefits. So we\u2019ve just effectively removed the downside protection, but then how do they get ahead?<\/p>\n

ASNESS: I think of it as: there is an incentive, if you\u2019re able to think, which is very difficult, incredibly multiperiod, because you can raise your situation now but not actually benefit, because you lose your benefits and eventually get to a different state of the world. But that\u2019s a real leap to ask people to take. So how would you design it differently?<\/p>\n

SCHRAGER: Well, things like the Earned Income Tax Credit are great. I think you want to make benefits certainly less tied to income levels\u2014get rid of the income tests. Things like that, ideally in my perfect world.<\/p>\n

ASNESS: Am I getting benefits in your system? I\u2019m kidding\u2014go on.<\/p>\n

SCHRAGER: No\u2014I think you should get Social Security if you paid into it.<\/p>\n

ASNESS: That ain\u2019t happening.<\/p>\n

SCHRAGER: But ideally, in a perfect world, what we would do is not tie health insurance to employment. Yeah\u2014that\u2019s a big reason wages aren\u2019t growing as much. We\u2019re getting paid more in benefits, which I wouldn\u2019t even call insurance, because people don\u2019t think of health benefits as something they use only when needed. They expect all their regular, predictable care. It\u2019s not really insurance, so they want to be paid in benefits, so it\u2019s risk reduction, but they\u2019re also losing a lot of salary for it.<\/p>\n

ASNESS: Yeah. I think employer-supplied health care, and the tax subsidy to it, is one of the original sins of American health care. I think you\u2019re exactly right. I also think the point you raised, that people are risk-averse about changing jobs, is a contributor, because they get locked in and are afraid to lose their health care.<\/p>\n

SCHRAGER: You have a family, you want to start your own business, and you don\u2019t have health care anymore. It\u2019s game over.<\/p>\n

ASNESS: The whole model you talked about\u2014insurance versus hedging\u2014that\u2019s a hedging model. An insurance model would be catastrophic health risk, and I think that would be better for most of the world. Insure the true disaster.<\/p>\n

SCHRAGER: Yeah, not to plug someone else\u2019s book, but Amy Finkelstein, a couple of years ago\u2014one of the most talented benefits economists\u2014wrote out her vision for what health care should be: government-provided catastrophic care, and then you pay for your own health insurance without a tax deduction. It would be better.<\/p>\n

ASNESS: It\u2019s the closest thing to left-wing I\u2019ll say but I kind of agree with that.<\/p>\n

SCHRAGER: Well\u2014no, they want Medicare for All. Hers would be more like Medicaid for all in the sense of a floor\u2014it\u2019s not the same thing.<\/p>\n

ASNESS: That\u2019s very different.<\/p>\n

SCHRAGER: Yeah\u2014I think what some like Abdul El-Sayed are promising is really Cadillac health care for everyone, which is not insurance.<\/p>\n

ASNESS: Big broad question: by almost any measure, when economists or even pundits look at the actual data, things are actually pretty good.<\/p>\n

SCHRAGER: Hmm.<\/p>\n

ASNESS: I wrote a piece with Michael Strain of AEI called \u201cHave You Heard the Good News<\/a>?\u201d\u2014a little bit of a religious callout\u2014going through all this, and many other people have too. And yet\u2014I wasn\u2019t around in the Great Depression, I\u2019m getting old, but not that old\u2014people seem angrier about the economy than I can remember. They say it\u2019s broken, all the time. How do you square the circle?<\/p>\n

SCHRAGER: I\u2019ve been thinking a lot about this lately. Why do people think the economy is not working? Why do they think it\u2019s broken when it\u2019s delivered so well? I guess I\u2019m still a neoliberal, although no one wants to say that anymore.<\/p>\n

ASNESS: You don\u2019t want to be a neoliberal or a neocon. Yeah, you don\u2019t want to be \u201cneo\u201d anything. Pretty sure I\u2019m one of those two. Can you be both? I guess you can.<\/p>\n

SCHRAGER: But it worked amazingly well\u2014not only did it bring more than 1 billion people out of poverty in other countries, it brought people a much higher standard of living in our own country. Capitalism worked\u2014that was the deal. But I think we\u2019ve all been shaken by the mayoral race here, wondering why people feel like we have to do something so extreme if this economy isn\u2019t working for them.<\/p>\n

ASNESS: You don\u2019t subscribe to my theory that they\u2019re just morons in New York?<\/p>\n

SCHRAGER: I\u2019m trying to be generous. Sometimes I\u2019m pretty sure you\u2019re right, but\u2014so, they claim the economy is broken, it\u2019s not working for them, but on paper it actually is\u2014they\u2019re still making more money than most people. . . . I think there\u2019s also a misalignment between what people expect their twenties to be, economically. When I was in graduate school in my twenties, I had a $20,000 stipend, and yet I had very low expectations for what my living standard would be.<\/p>\n

ASNESS: You had a bigger stipend than I did. I\u2019m going to chalk that up to you being younger than me, and stipends going up. I get competitive.<\/p>\n

SCHRAGER: Is it inflation-adjusted?<\/p>\n

ASNESS: I don\u2019t know. I\u2019m not going to guess your age on stage. Let\u2019s be serious.<\/p>\n

SCHRAGER: Also, Hyde Park has a lower cost of living.<\/p>\n

ASNESS: I was at Hyde Park.<\/p>\n

SCHRAGER: That\u2019s what I said, I was at Columbia.<\/p>\n

ASNESS: That\u2019s true, that\u2019s probably it.<\/p>\n

SCHRAGER: But I think part of the problem, other than, as I said, a misalignment of expectations, unrealistic ideas of what your twenties are going to be financially, is also that\u2014I\u2019m really worried about this generation because we\u2019ve set them up to feel like, and this explains the enthusiasm for socialism, like they shouldn\u2019t have to take risks. First of all, they weren\u2019t raised to be good risk-takers. I think helicopter parenting ups the ante with each generation. I\u2019m borderline Gen X\/millennial, and people our age are obsessed with talking about how we had these feral childhoods\u2014we drank from the hose, we were all hardcore\u2014but we really weren\u2019t. We were probably much more risk-averse than boomers, who were definitely more risk-averse than the Greatest Generation. So you get an increasing ratcheting up: each more risk-averse generation raises their kids to be even more risk-averse. I delved in to talking to neurologists and developmental psychologists about this\u2014if you aren\u2019t taking these risks as a kid. You know there\u2019s this woman who just got arrested for letting her five-year-old collect feathers on his own, but this used to be very normal. What they call the \u201cage of release,\u201d when you\u2019re allowed to be outside by yourself, used to be five, even a couple of decades ago.<\/p>\n

ASNESS: Playing in front of your house.<\/p>\n

SCHRAGER: Yeah. A psychology professor at Georgetown told me she asks her students when they were first able to be out on their own, and they say 14. The age of release has gone from five to 13 or 14.<\/p>\n

ASNESS: You give the example of Japan in the book, where little kids wander around at five, alone, going to the store: that might be because Japan is a very safe place.<\/p>\n

SCHRAGER: That could be, because they\u2019re not known for being risk-takers in Japan.<\/p>\n

ASNESS: Yeah. There are all these contradictions. Let\u2019s talk about young people some more. You point out they drink less, work less, start fewer businesses\u2014and yet, and this is maybe more male than female, just going by my own family, they bet on sports constantly. Square that circle.<\/p>\n

SCHRAGER: I think that\u2019s part of it. If you don\u2019t take productive risks when you\u2019re young\u2014the stupid things you do as a teenager are actually a very important part of brain development, neurons form in your brain, where you\u2019re betting on the Super Bowl, going into a little debt, is kind of dumb. If they didn\u2019t have that experience, didn\u2019t take healthy risks when they were young, then in their twenties they\u2019re not good at gauging which risks are good or bad. I\u2019m not someone who even goes to a casino, but some gambling can be okay in moderation if you look at it as entertainment. But they\u2019re looking at it as an investment strategy\u2014they don\u2019t see the difference between that and an index fund, and that\u2019s a failure.<\/p>\n

ASNESS: One on average goes up.<\/p>\n

SCHRAGER: Yeah, but they\u2019re not able to make that assessment.<\/p>\n

ASNESS: What I\u2019ve said is that I\u2019m fairly convinced that many of them cannot distinguish their FanDuel app from their RobinHood app. They\u2019re just two different ways to gamble. One of them is a little better than the other but they probably don\u2019t do too well at that, either.<\/p>\n

SCHRAGER: And also, I mean, what we see, especially young men\u2014not only maybe a lot of them not moving out of their parents\u2019 homes, or taking the risk of getting into relationships, asking women out in person.<\/p>\n

ASNESS: To be fair, that\u2019s terrifying.<\/p>\n

SCHRAGER: Especially now.<\/p>\n

ASNESS: I did it once, I married her, it\u2019s worked out.<\/p>\n

SCHRAGER: So I think to some degree, the really big sports-gambling habit that takes over people\u2019s lives might be their risk-taking outlet, because young men are wired to take risks. Evolutionarily, they are meant to be doing this.<\/p>\n

ASNESS: So we have all these societal things and trends cramming safety, and this is the safety-valve outlet. Well, it hasn\u2019t made the young men a lot of money, but it\u2019s made someone a lot of money. Your Google Ngram evidence is very long-term, not recent\u2014do you see a tie-in between your thoughts on risk and young people, and Jonathan Haidt\u2019s work on technology? Is that an exacerbating force? Clearly not the main thing, since you show the trend goes back much longer, but is it part of it?<\/p>\n

SCHRAGER: It\u2019s definitely poured a lot of fuel on the fire. I argue there are two forces that change your perception of risk or safety: wealth and technology, and shocks to both make you feel very differently about what \u201csafe\u201d means. So it\u2019s certainly one of the reasons we\u2019re convinced the economy is awful and that neoliberalism failed\u2014we see it on our phones constantly, we see that story all the time. Or we get hyped on terrible events, so we think the world is this incredibly dangerous place. So it\u2019s certainly adding to that, but I don\u2019t think . . . He\u2019s more monocausal than I am. So I think it\u2019s definitely exacerbated this trend, but I don\u2019t give it all the weight.<\/p>\n

ASNESS: Okay, that\u2019s fair. Let\u2019s talk about investing\u2014near and dear to my heart. First of all, you open the investing section with a Tina Turner story. Tell us the Tina Turner story.<\/p>\n

SCHRAGER: She explains everything. It is this idea we were talking about earlier, about what is a safe asset. What I always took away from the Tina Turner story, the movie, and the legend, is that when she left Ike Turner, she was already pretty successful. I think she was pushing 40 at that point, but she divorces him, she had four children to take care of, and in the divorce proceedings, she said, \u201cI don\u2019t want the money, I don\u2019t want the royalties\u2014I just want my name.\u201d That struck me as her safe asset.<\/p>\n

ASNESS: Legally he had some rights they had to negotiate over.<\/p>\n

SCHRAGER: Her real name is Anna Mae Bullock, so that was the stage name, but she felt like the name was her safe asset. Not the fact that she had four children to support, and all this money. She was pushing middle age, and, like who\u2019s going to become a pop star now? Like you would think that would be a declining asset, but she was like no, I don\u2019t need the money, I just need my name. And then she had this career in her forties that was bigger than ever. So for me, that struck me how we don\u2019t really understand what the safe asset is for everyone. It\u2019s very idiosyncratic. It changes over time. It could be a T-bill, it could be a 30-year TIP, for some people it might even be an S&P index fund. It really is very unique to you, and if you don\u2019t check in and know what \u201csafe\u201d means to you, you take the wrong risks\u2014and you often feel a lot less secure taking risks and find out later that you weren\u2019t protected when you thought you were.<\/p>\n

ASNESS: One line you had that I absolutely loved\u2014not that I didn\u2019t love all of it\u2014you call college \u201cthe most overpriced risk asset.\u201d Now are you Peter Thiel level? You\u2019re going to pay people not to go to college? Is it that people think it guarantees things it doesn\u2019t? Is it the deterioration of what they\u2019re teaching? Tell us about that.<\/p>\n

SCHRAGER: It\u2019s all connected. I\u2019m not Peter Thiel-level\u2014if you look at the data, if you go to college, odds are you\u2019ll earn more money. You\u2019re going to have more security. Unless you\u2019re Peter Thiel\u2019s child, most people want their kids to go to college. But the problem, where it all went wrong, is that we started assuming that because it does on average pay off, back when not that many people went to college, you could effectively go to college, study anything and get this huge wage premium. So we started treating it like a risk-free asset. That encouraged a lot of the subsidies, and people would take out any amount of debt thinking it\u2019s a safe asset. It\u2019s like if you think private equity always pays off, you can justify going into debt to lever up on it. So when you think something is a safe asset, there\u2019s no amount you can\u2019t borrow. And that also made colleges worse and less accountable, because they didn\u2019t have to be price-sensitive, and they had seemingly unlimited resources to teach weird things.<\/p>\n

ASNESS: And you have the Mark Perry chart<\/a> where the price of college and various other government-touched assets, versus things the private world does are just different directions.<\/p>\n

SCHRAGER: Totally. And it\u2019s not to say it\u2019s still not a good investment\u2014I think it\u2019s still a good investment\u2014but it\u2019s not risk-free, and it should be priced accordingly.<\/p>\n

ASNESS: And what you said before\u2014the notion that if you jump through the right hoops, you\u2019ll automatically achieve things\u2014that\u2019s just not the way the world works.<\/p>\n

SCHRAGER: No.<\/p>\n

ASNESS: But a fair number of people think it is the way the world works.<\/p>\n

SCHRAGER: Well, they\u2019ve been told that. That\u2019s the risk delusion again, that I think everyone wants to believe, but I think the younger generation has been fed more.<\/p>\n

ASNESS: Now, when it came to investing, you had some specific proposals\u2014it\u2019s a mouthful, so I\u2019m going to read it: what are \u201cprincipal-protected, index-linked government savings accounts,\u201d and why are they good?<\/p>\n

SCHRAGER: Did I come up with that?<\/p>\n

ASNESS: You did.<\/p>\n

SCHRAGER: Principally-indexed\u2014<\/p>\n

ASNESS: \u201cPrincipal-protected, index-linked government savings accounts.\u201d<\/p>\n

SCHRAGER: Oh yeah, yeah. So this would be\u2014<\/p>\n

ASNESS: I stumped her!<\/p>\n

SCHRAGER: I forgot about that. I was thinking about it because it\u2019s similar to the Trump accounts, which I actually\u2014<\/p>\n

ASNESS: That\u2019s on my list to ask you about\u2014the Trump accounts.<\/p>\n

SCHRAGER: Initially, when I wrote the book, this was before the Trump accounts came out, and we were talking about giving individuals baby bonds. I was like that wasn\u2019t a bad idea, but the Cory Booker way of doing it, and the Democrats way of doing it\u2014it was originally a Democratic idea\u2014was that they all had to be in safe assets. I thought that was so not the point\u2014they should be in riskier assets, which I think it\u2019s great that the Trump accounts are. But people argue, and this is a legitimate argument\u2014there\u2019s a big debate in retirement economics about whether lower-income people should be in risky assets, because if you lose the money, it\u2019s a much bigger deal. If you have a more volatile salary, more volatile life events, and all these things. So when people propose giving accounts to lower-income people\u2019s children, and ask whether they should be in safe assets, my answer is no\u2014but if we\u2019re worried about downside risk, we could give everyone S&P 500 puts along with these accounts; therefore they also have some insurance. Again\u2014insurance, not hedging. That\u2019s how I want policy to work.<\/p>\n

ASNESS: So it\u2019s mostly risky, while trying to take out some of the downside.<\/p>\n

SCHRAGER: Exactly.<\/p>\n

ASNESS: All right\u2014shifting gears. How much of what you\u2019re talking about, when it comes to recommendations, overlaps with the so-called abundance agenda? Feel free to rip Ezra Klein a new one.<\/p>\n

SCHRAGER: You know I think where they go wrong, to me, I mean\u2014<\/p>\n

ASNESS: Well, let\u2019s back up and explain.<\/p>\n

SCHRAGER: Let me explain what I think the abundance agenda is, which might be wrong, but it\u2019s my understanding of it. And maybe this isn\u2019t generous, we have to get out of the way so government can do more, and we\u2019ll get abundance from government.<\/p>\n

ASNESS: So they\u2019re half right about getting out of the way.<\/p>\n

SCHRAGER: But I think they misunderstand risk\u2014as if we can just get out of the way and government can give us all these things risk-free. I think the real abundance agenda has to embrace the idea that there\u2019s no more without loss. I honestly haven\u2019t read the book that carefully, it kind of gave me a headache\u2014but from what I read, it\u2019s sort of \u201cwe can have it all, without any loss, if we just let the government do more.\u201d<\/p>\n

ASNESS: Yeah\u2014I read it as: Democrats do lots of stupid things, we should do slightly fewer. Which is good.<\/p>\n

SCHRAGER: Yeah, that is good\u2014a step in the right direction.<\/p>\n

ASNESS: You had other fairly specific recommendations\u2014some about taxes, some about Social Security. Tell us what we should do about these problems.<\/p>\n

SCHRAGER: Well, again, I think we have to be thoughtful. I\u2019m frustrated, having studied retirement as long as I have, with where the Social Security conversation is going\u2014which is, \u201cwe\u2019ll never have to cut benefits, all we have to do is get rid of the cap on earnings.\u201d I\u2019m always thinking: why is the largest marginal tax increase in peacetime history not a big deal? I think we have to think more carefully about targeted benefit cuts, some progressive tax increases\u2014but again, it\u2019s really this principle of thinking about insurance rather than hedging. Social Security to me serves an important function\u2014when I think about how I want to structure retirement income, you want different tiers of risk, and Social Security does serve an important function in giving people a risk-free foundation to take risks on top of.<\/p>\n

ASNESS: A lower bound.<\/p>\n

SCHRAGER: Yeah, a lower bound\u2014though it\u2019s a very generous program for that. If you look at what Social Security pays out relative to other countries, it\u2019s quite high for an income floor.<\/p>\n

ASNESS: That\u2019s not the popular perception.<\/p>\n

SCHRAGER: No, everyone thinks they\u2019re getting less than everyone else, but they\u2019re actually getting a lot more. And it\u2019s very expensive to do that. This is, if you read my Bloomberg column, I titled it\u2014they changed it because it was too provocative\u2014about how \u201chell\u2019s frozen over\u201d because the Germans are now putting equities in their pension plans, which I never thought I\u2019d see, because they\u2019re super risk-averse about retirement. But they\u2019re realizing that with an aging population, you just can\u2019t afford to fund retirement with low-risk assets. So the idea that our foundation from Social Security can be so large and risk-free is nice, but it has a tremendous cost that I don\u2019t think people want to acknowledge.<\/p>\n

ASNESS: Interesting. Were you right to turn down that staff job at The Economist?<\/p>\n

SCHRAGER: Oh yeah. Oh god.<\/p>\n

ASNESS: Tell us the story.<\/p>\n

SCHRAGER: So\u2014this must have been around 2010, and I was having a good time. It was great to be at The Economist during the financial crisis, because people would come in for lunch and I got to ask whatever question I wanted\u2014Jamie Dimon, John Mack, it was great.<\/p>\n

ASNESS: And the world\u2019s pain was your gain.<\/p>\n

SCHRAGER: Yeah, it was fantastic.<\/p>\n

ASNESS: I didn\u2019t enjoy it as much.<\/p>\n

SCHRAGER: I had this nice, cushy job at the OECD, was doing some consulting, it was great. But a lot of people want to write for The Economist\u2014it\u2019s like the best job in journalism. John Micklethwait said to me, \u201cWhat do you want from us?\u201d\u2014because I was kind of a stringer, but a very regular stringer\u2014and I was like, \u201cI don\u2019t want to work for you full-time.\u201d And of course he was insulted, because he was offering me one of the best jobs in\u2014wasn\u2019t offering but suggesting we might have one of the best jobs in journalism for me, and I immediately said no\u2014why would I go all-in with media at this stage, especially without a byline, giving up any sort of notoriety? And then he wrote me off, as any boss would, any reasonable person would.<\/p>\n

In the end, it felt at first like I\u2019d given up the keys to the kingdom. But I think this is a big issue, and part of what\u2019s torturing young people\u2014you want to keep optionality in some way, but you give up a lot, particularly with certain jobs, and there\u2019s this tension of how much autonomy you want to maintain.<\/p>\n

ASNESS: Yeah. I talk to my own kids about this\u2014the price of failure when you\u2019re young is just not that bad. And they\u2019re raised in an environment where failure feels terrible. Well, Silicon Valley has the opposite attitude, but that\u2019s about it in this country.<\/p>\n

SCHRAGER: I think this is one of the problems this generation has\u2014partially because they feel like everything is being recorded, and partially\u2014<\/p>\n

ASNESS: Well, they\u2019re right.<\/p>\n

SCHRAGER: Though if everything\u2019s recorded, is anything really recorded? But they\u2019re also taught, especially upper-middle-class kids, that there\u2019s a very narrow path to success, and if you deviate from it at all, you fall off the path\u2014if you don\u2019t get into the right school, the right internship, you\u2019re never going to be successful, you\u2019re going to be working the mail room at some sad consulting firm. There\u2019s nothing wrong with working in consulting.<\/p>\n

ASNESS: I like that that\u2019s the ultimate failure\u2014and at a consulting firm specifically.<\/p>\n

SCHRAGER: So I think that\u2019s one of the reasons they\u2019re so terrified of failure\u2014and, in all fairness, they\u2019ve been conditioned by almost everyone around them that this is true.<\/p>\n

ASNESS: Last thing, and then I\u2019m going to turn it over for questions. This tension\u2014that economic statistics say things are good, and people say they are miserable\u2014and the rise of populism on both sides. I\u2019ll say: horseshoe theory has to be upgraded to horseshoe fact. I\u2019ve never heard a populist say things were okay. It\u2019s not sex that sells; it\u2019s bad news that sells. Every populist tells people they\u2019re getting screwed over by something. Do you think that\u2019s part of it? Do you think it\u2019s a compelling message?<\/p>\n

SCHRAGER: It\u2019s a compelling message because what they\u2019re promising is more things for you, and that you\u2019re going to get ahead. Like I said, that\u2019s the start of every financial scam, same thing. That\u2019s what they\u2019re promising, so I imagine it\u2019s very compelling. And also you have this rising generation of people who\u2019ve been promised they could get ahead without taking risk. When someone promises them that, it\u2019s even more seductive than normal.<\/p>\n

ASNESS: And then when someone comes along to explain who\u2019s ruining nirvana for them, it\u2019s attractive.<\/p>\n

SCHRAGER: Someone who took a risk.<\/p>\n

ASNESS: Someone who took a risk.<\/p>\n

Cliff Asness<\/a> is a founder, managing principal, and chief investment officer at AQR Capital Management. Allison Schrager<\/a> is a senior fellow at the Manhattan Institute, a contributing editor of\u202fCity Journal, and a Bloomberg Opinion columnist.<\/p>\n","protected":false},"excerpt":{"rendered":"Last month, to mark the publication of Allison Schrager\u2019s new book, Worth the Risk: The Seven Myths That…\n","protected":false},"author":2,"featured_media":375858,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35],"tags":[75,84,83,9,24,63],"class_list":["post-375857","post","type-post","status-publish","format-standard","has-post-thumbnail","category-manhattan","tag-manhattan","tag-manhattan-headlines","tag-manhattan-news","tag-new-york","tag-new-york-city","tag-nyc"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/375857","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=375857"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/375857\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/375858"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=375857"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=375857"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=375857"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}