00:25hi i'm andrew hilton i'm the director of
00:27the center for the study of financial
00:29innovation in the virtual world since
00:32the beginning of the pandemic we have
00:33about 400 uh videos on our website and
00:36on youtube many of them dealing with
00:39individual books that have come out of
00:41this very difficult period but i'm
00:44privileged this time that we have you
00:46know a very serious author and a very
00:49serious book um the author is cast on
00:52sunstein professor cass sundstein who is
00:55the robert warns the university
00:56professor at harvard the director of the
00:59program on behavioral economics and
01:00public law at uh public policy at
01:03harvard law uh and many of you will
01:06obviously know him from the book he
01:08co-authored with richard taylor on nurse
01:10which was produced nudged departments in
01:13governments all over the world
01:15but he has written subsequently of his
01:18experience as being the administrator
01:21and president obama of the white house's
01:24office of information and regulatory
01:26affairs known i gather as ohio
01:35on this extensively the harvard law
01:37website says that he's
01:39i quote the author of hundreds of
01:41articles and dozens of books
01:43one of them after he left the white
01:45house was on too much information
01:48uh and it included a chapter on sludge
01:51he's expanded that into a book on sludge
01:54sludge being what stops us from getting
01:57things done and what to do about it it
01:59is a very short but a very good read it
02:03is only 111 pages of text and i was
02:06about to do be sniffy about the fact
02:09that it's really just notes for a bigger
02:11book and then i realized that if it was
02:13actually a bigger book it would be
02:15uh that's really the point i guess that
02:18he is making there are very few ideas
02:20that can't be expressed in 111 pages uh
02:23first of all let me ask professor
02:25sunstein just to explain what he means
02:31why he felt compelled to write the book
02:34well thank you for that so uh sludge is
02:40or burden that prevents us from for
02:43example dealing with a company that owes
02:46us some money or some help or a
02:49government that owes us some health care
02:54or that it involves a hospital that
02:57maybe can help us get some medical
03:00assistance that we quite need so think
03:02of this as paperwork requirements
03:05reporting requirements um
03:08waiting time uh logistical requirements
03:11like you actually have to go somewhere
03:14log in requirements that are very
03:16confusing online forms that you have to
03:21something computer science to handle
03:25and sludge is one of life's curses it
03:28produces inequity it produces
03:31illness it produces poverty it produces
03:35a diminution in economic growth and
03:38that's just the tip of the evil iceberg
03:41for which sludge is responsible on the
03:44other hand there are certain things
03:46certain times when sludgy is good for
03:47you it stops us doing things that we
03:49might be impelled impetuously to do
03:52against our best interests
03:55yes so if there's a website that says
03:58are you sure you want to when you're
04:02file or a connection with someone who
04:05really is helping you a lot or to
04:09a policy it might involve insurance or
04:12it might involve something else a little
04:15bit of sludge before you get divorced so
04:17to speak can be a very good way of
04:23occasionally impulsive
04:25members of the human species
04:28net net how much does sludge cost us
04:31well uh we need to monetize time in
04:35order to figure that out in some
04:38countries we're speaking of hundreds of
04:40millions or even billions of hours spent
04:43on sludge and if you turn that into a
04:45monetary equivalent just multiply that
04:47number times maybe 20 pounds or 25 euros
04:51or 30 dollars and then you'll be in the
04:54ballpark and i was a literature major
04:58math major but there's nothing fancy
05:00that's needed to show that we're talking
05:03about typically many billions of and
05:06then you can fill in your currency and
05:09that's a lot of uh euros pounds dollars
05:13uh that we're speaking of and that that
05:14doesn't capture it all by the way
05:16because sludge is often an insult to
05:19dignity it causes frustration and
05:22it also prevents people from getting
05:24something that's really important
05:26and the the monetized hours just uh kind
05:31of uh give us a glimpse into that
05:34you start you're a lawyer by background
05:36one of the solutions that you are
05:38putting forward is a sludge audit
05:41i thought that sounded pretty good and
05:43then i thought to myself well that's the
05:45kind of thing that a lawyer would
05:47immediately suggest a sludge audit is
05:50going to be yet another layer of
05:52compliance a whole bunch of boxes that
05:55people are going to have to tick i
05:57assume people have made that criticism
05:59what is your response to it
06:01completely and it's a very fair concern
06:04that the reduction of sludge might
06:06entail sludge and that
06:09is not a good feature of the reduction
06:12of sludge the question for anything
06:14really that's a reform is whether the
06:17benefits justify the cost
06:19and if you have a sludge audit that's an
06:21exercise that makes people crazy
06:24and then doesn't produce anything you
06:26don't shouldn't do it but both private
06:28companies and governments have been
06:31conducting sludge audits in the last 18
06:35and typically the experience is very
06:38positive not in the sense that the
06:40sludge audit is like going to a party
06:43but in the sense that what's uncovered
06:44from the sludge audit is something that
06:49that the number of hours that employees
06:51might have to spend on forms is far in
06:54excess of what a company anticipated
06:56that the number of hours that poor
06:58people or elderly people have to devote
07:01to navigating some process to get
07:03something to which they have a right is
07:06crazy and then the consequence of the
07:08sludge audit is to reduce the sludge so
07:11we've seen some of this is
07:14you know extremely private and some of
07:16it isn't so private is that there have
07:18been uh major efforts all over the world
07:22to cut sludge some produced by the
07:24pandemic where we know that uh
07:27telemedicine is uh on the march and that
07:31often makes it possible for people who
07:33are anxious or depressed or really sick
07:36to get medical help that would have been
07:38hard for them to get if they had to
07:40actually go someplace and wait an hour
07:42or two or three to get that help
07:46one of the things looking at your cv i
07:49mean you're you're a progressive uh you
07:51plant for third book marshall um you are
07:55obviously a democrat you're um
07:58you know you you you've made it i mean
08:01you've made it very clear where your
08:04um do you you feel that sludge
08:07disproportionately impacts the poor uh
08:11particularly the the dis already
08:13disenfranchised would that be correct
08:16uh yes that is correct but um
08:20you know you raise an empirical question
08:22and one's political views shouldn't
08:24ideally affect one's views about
08:29so there are some empirical questions to
08:33pleases progressives and some to which
08:35the answer displeases progressives but
08:37if it's true we should be pleased just
08:39to know it's a fact so i found that the
08:43concern about sludge is something which
08:46is widespread nearly universal and
08:49people's politics are kind of a footnote
08:52the fact is that if you're concerned
08:54about economic growth and adverse
08:57effects on entrepreneurial activity bad
08:59effects on small businesses bad effects
09:02on big businesses you should be really
09:04concerned about sludge because it often
09:08hiring growing expanding
09:11uh constructing getting licenses
09:14and often the right is more concerned
09:16about that than the left but i hope the
09:18left is concerned about that too well i
09:20mean from from the sort of center right
09:22i've certainly always been outraged by
09:24occupational licenses and uh you give
09:27some examples of just how difficult it
09:29is to become i think a beautician a
09:31hairdresser you know all sorts of things
09:33that are ought to be
09:35the first step up in the ladder from
09:37people who are working at mcdonald's to
09:39becoming you know a multi-gazillionaire
09:41they have to start somewhere it becomes
09:43very very hard i mean as
09:45you know that's that seems to me obvious
09:48a big problem occupational licensing in
09:52and it's uh it occupies a few pages of
09:55my little book the problem of
09:57occupational licensing you're completely
10:00right that the sludge that occupational
10:03licensing imposes on people who just
10:05want to be in the market and
10:08doing a service or selling a product is
10:11often wildly excessive and this is true
10:14all over the world to your point about
10:16equity if you are let's say really poor
10:19or really elderly or really sick or have
10:23little educational opportunity it may be
10:26that sludge comes down particularly hard
10:28on you because navigating the system
10:31that's defined to help you requires the
10:34sort of things that you need the help
10:35first to be able to navigate where it
10:38might be job skills or educational
10:41training or it might be being healthy so
10:44that you can navigate a system or it may
10:46be being young and if you're
10:48old you can't kind of be young by
10:50snapping your fingers but it might be
10:52that the system is something that
10:54elderly people have particular trouble
10:56with so your point about equity uh
11:00absolutely it's a problem in terms of
11:03equality as well as a problem in terms
11:06of social welfare in general
11:08let me just put one thing to you that
11:10sludge isn't so much the problem it's
11:12the people who write the sludge the
11:13people who write the sludge are either
11:15covering their ass or their lawyers or
11:18um isn't the problem
11:20the isn't the problem that the fact that
11:22the us simply has too many lawyers
11:28pieces of legislation and then the the
11:31explanations of how to how to handle
11:33handle that that's undoubtedly part of
11:36it i say about my brothers and sisters
11:38in the legal profession but before covet
11:41i traveled a lot internationally and um
11:48surprise that whether we're talking
11:52denmark or germany or the united states
11:55or the united arab emirates or ireland
12:00the concern about sludge is universal
12:03and that this isn't a problem
12:06unique to countries that let's say have
12:08a lot of lawyers and a lot of
12:10influential lawyers it's a universal
12:12problem though it varies in magnitude
12:16often the source of sludge is indeed
12:19lawyers often it's people who are
12:22doing the best they can to make sure
12:25that the people who get a benefit
12:27or employment or license
12:30or an opportunity really deserve it and
12:33they impose sludge not out of malice or
12:36out of uh cluelessness but out of
12:40what's often called program integrity so
12:43you don't want to give a credit card to
12:46maybe isn't allowed to get it for one or
12:48another reason maybe it's a
12:50someone who's too young maybe someone
12:52who has a terrible credit rating and
12:55their their sludge that's designed to
12:57filter out people who don't deserve
12:59things the problem i think you're
13:01completely right is often lawyers are
13:03very attentive to the risks associated
13:06with reducing sludge and not so
13:09attentive to the risks associated with
13:11having sludge and often program
13:16not quite clueless but careless
13:18about asking whether the magnitude of
13:21sludge that they're imposing is too much
13:24given their own goals
13:26and it seems maybe a little technical
13:30some companies have prospered
13:32fantastically because they've reduced
13:34sludge from their customers and some
13:36companies have prospered fantastically
13:39because they've made it a sludge-free
13:41world for their employees some hospitals
13:44have done terrifically in terms of
13:46performance because they've cut sludge
13:48and some governments are doing much
13:50better now than they were doing six
13:53at least along this dimension they've
13:55cut sludge but certainly in the private
13:59very often written cynically to produce
14:02a particular outcome i mean the the
14:04pages and pages and pages of disclaimers
14:06that go along with financial services
14:08products or with tech products are there
14:11for a purpose they're that not so much
14:13to inform the buyer but to protect the
14:16seller would that be correct and you
14:18know what can you do about that is that
14:21is that actually sludge or is that
14:22something rather different that's sort
14:25no it is sludge completely you know
14:27you're making a great point
14:31the problem often is that people
14:34practice defensive sludge production
14:36let's call it like defensive medicine
14:38where they do 16 procedures on you
14:42not because you need that but because
14:44they don't want you to sue them and
14:46something similar happens with sludge
14:48production where a company might be
14:50fearful of a lawsuit or a complaint and
14:53they want to be able to say look you
14:56um that's a problem now it might be a
14:59problem because of legal mandates that
15:02uh outrunning their own justification
15:06where a 17-page form should be
15:08maybe a half a page form or where three
15:12hours of sludge labor
15:15should be 10 minutes of select labor and
15:18if it comes from the government then we
15:20know what to do which is to change the
15:22regulation to reduce it and in the
15:24united states the country with which my
15:28reveals i'm likely to be most familiar
15:31has done a great deal in the last year
15:34actually to reduce sludge in various
15:36domains partly because of koved partly
15:39because of a mounting interest which
15:42cuts across political lines in cutting
15:45sludge because it hurts people so for
15:47government we kind of know what to do
15:49for private companies just the very term
15:52sludge i'm seeing in real time
15:57business concern with the risk that
16:00they're doing too much
16:01and that the defensive let's say work
16:04that lawyers ask or require the
16:06companies to do is actually hurting the
16:09might be hurting customers it might be
16:13and in either case there's a keen
16:16interest in responding i'm hopeful that
16:18we're going to see much more of this in
16:20the next five years technology is making
16:23it a lot easier to go online of course
16:26and technology is also making it easier
16:28to do simpler things not only
16:32easier but more attractive though
16:34sometimes the lawyers or others don't
16:36take advantage let's say of the
16:38opportunities that technology affords
16:40right but you say you say you know you
16:42should be able to translate 16 pages of
16:45sludge into half a page i mean is that
16:48realistic when you know that there is so
16:51much money at stake particularly in
16:53either the financial services sector or
16:55the tech tech sector when you buy
16:57something i mean you know
16:59that's that's a a worthy goal but is it
17:02realistic to to cram that in you'd have
17:05to have a very very small type this
17:07be a great question and i think we have
17:09to go case by case that i'll give one
17:13example there's a financial aid form in
17:15the united states which was until
17:18recently really really really long
17:21now it's really really really short or
17:23it's about to be really really short
17:25it's now a lot shorter than it was and
17:28that's because the information it asked
17:32in terms of what was necessary to know
17:34in order to know whether people get
17:45are thinking hard about sludge reduction
17:49and it often turns out to be quite
17:51feasible that there's duplication i
17:54recently asked i'll confess bought a car
17:56and the number of forms i had to sign it
18:02and a lot of them asked me the same
18:04question where do i live
18:06and there's no reason to keep asking
18:08maybe it was a test to see if actually i
18:11was telling the truth about why
18:13but that's not the worst they read they
18:16read about behavioral economics
18:18i thought that i'd lie about where i
18:20live but it was it was completely
18:22manageable to reduce the number of
18:25questions that i was asked uh to buy a
18:30this is uh something which a little uh
18:34thought and focus on the part of people
18:37in the financial sector as elsewhere can
18:40produce really big dividends by
18:44eliminating a time tax on people who
18:47interact with the relevant company by
18:49increasing morale and often increasing
18:54on the other hand the the complaint that
18:56i hear all the time in the financial
18:58services sector is compliance compliance
19:01has just grown the compliance sector in
19:03banks and fund managers in any kind of
19:06financial institution has grown
19:08exponentially over the last couple of
19:10decades and that compliance function
19:12really consists of people within the
19:14organization ticking more boxes and
19:17people that you're interacting with in
19:19the broader society being forced to take
19:21more boxes compliance is considered to
19:24be particularly amongst progressives uh
19:26and i'll give you elizabeth warren and
19:28other people like that uh very very
19:31important indeed how do you how do you
19:36compliance we need a sludge audit so
19:41is important and being 100 compliance
19:46too costly compared to the benefits
19:49but it's a good goal and
19:56as they say houston we have a problem
19:59but there are ways of producing
20:01compliance that are really costly
20:05and that are insufficiently attentive to
20:08their unintended side effects and there
20:10are ways of producing
20:12compliance that don't have those defects
20:16so if you ask people to file a report
20:21rather than every year you will increase
20:25for certain kinds of compliance
20:28reporting requirements
20:30every day would be obviously crazy
20:37would be better whether it should be
20:39every year or twice a year or quarterly
20:43would depend on the context the only
20:46thing that's crucial and general to say
20:50is that every time you increase
20:52compliance activity there are real human
20:55beings who will face a time tax
20:58now it might be we don't cry for them we
21:01don't weep for them depending on who
21:04they are and what else they would be
21:05doing but if they are people who would
21:09very productive activities let's say
21:13themselves and for society then it's
21:16worth asking whether the compliance
21:18requirements that they're facing are
21:21worth the candle it might be
21:2370 would be better or 50 would be better
21:27it might be that there aren't enough it
21:29might be that 120 would be better but
21:32sometimes compliance uh requirements are
21:37not sufficiently attuned to the
21:39incremental benefit of the magnitude of
21:42what's being asked for
21:44but the dynamic that drives something
21:46like the consumer protection the
21:48consumers financial services protection
21:50bureau or whatever it's called in the
21:52u.s is that there's never been a
21:54regulator who has or a supervisor who
21:57has felt that his career has been
21:58enhanced by having a scandal blow up on
22:01his watch and there's never been a
22:03journalist who will give a regulator a
22:05break when something like that happens
22:07so the the the imperative to cover your
22:10ass with more and more and more
22:12protection is is almost irresistible
22:17i don't think so so president biden
22:20recently issued a very important
22:23executive order on customer service
22:28closely associated with what we're
22:32and the idea is whether we're speaking
22:36truck drivers or students or doctors or
22:41or people who are seeking to travel in
22:44circumstances of covid
22:47customer service actually requires
22:50reductions in administrative burdens so
22:52president biden said and his executive
22:56order actually uses i believe more than
22:58once the term time tax
23:00and the goal is to cut time tax
23:03and what president biden is saying and
23:06this is something that has received
23:10which isn't something that happens every
23:18cover one's rear end
23:34a great attunement in the context of
23:37this executive order to the fact that
23:41the people with whom government at least
23:44are mortal and that means they don't
23:48and the sludge has to be cut
23:50and this executive order which is worth
23:53looking up just as a proof of concept
23:55has not just a general injunction it has
24:00uh dozens of concrete ideas many of
24:05uh underway and all of which are
24:09whether we're talking about farmers or
24:14people trying to navigate the health
24:18is the financial services
24:22resistant to this or difficult
24:25for this to to be applied to or or do
24:27you feel that there is plenty of scope
24:29in the financial services fantastic
24:31scope fantastic scope in the financial
24:33services sector so there's a great
24:36opportunity there to do sludge audits
24:39and to think where are people being
24:42forced to spend let's say
24:4512 hours rather than two hours on sludge
24:50whether we're talking about you know
24:52ordinary people dealing with the
24:53financial services sector little
24:55companies trying to start out or big
24:58companies trying to grow which are often
25:01really essential to what's happening in
25:04all of our countries these days uh to
25:06think very hard about sludge reduction
25:12and one thing that some government
25:16is they've just asked the public where
25:19is there too much in the way of sludge
25:20or administrative burden
25:22and just asking can generate you know
25:26ideas that may maybe the regulators
25:28haven't thought about
25:29i can certainly see this in all sorts of
25:31sectors but in the financial services
25:33sector and you come up against things
25:36like know your customer kyc anti-money
25:38laundering aml and you know
25:41people file aml reports millions of them
25:45and you know half a dozen actually
25:47actually apply to uh to some drug dealer
25:50or some terrorist financing activity the
25:53vast majority of them are wasted but
25:56the fact is that the political focus is
25:59entirely on that very small number of
26:02incidents i mean the danger that a
26:04regulator gets that wrong it's curtains
26:07for the regulator if he does get it
26:09wrong so the incentive is so great to
26:12impile more and more and more sludge on
26:14top of sludge isn't it and i just worry
26:17that you can't really break it
26:20you can it happens so um
26:24under president obama for whom i was
26:30serious efforts to reduce paperwork and
26:34reporting requirements
26:36uh many millions of hours in paperwork
26:40and reporting requirements were taken
26:44from companies large and small and from
26:47individuals the trump administration
26:50did some of that also especially in the
26:53time of covid and the biden
26:55administration has done exactly the same
26:58and i'm hopeful with the customer
27:01service executive order that we're in
27:04the midst of seeing unprecedented
27:06efforts to cut sludge so i was
27:10overseeing regulation under president
27:13and regulators have multiple incentives
27:17one of which is to make sure that they
27:21undermine their own goals
27:25impairing economic growth
27:27and if you require someone to fill out a
27:31when annual reporting would do exactly
27:37then there's an incentive to shift and
27:39in fact the office which i
27:41headed instructed all of our government
27:44to give serious consideration to shift
27:47from quarterly to annual reporting and
27:50many agencies have moved toward
27:52pre-population of forms towards simpler
27:55forms towards shorter forms so the
27:58incentives that regulators face
28:00are multiple and many regulators well
28:09bracketing the rise of ali
28:11and they have as complex
28:15set of utility functions let's say as
28:16other human beings and it's just not the
28:19case that their only goal is to prevent
28:22people from getting mad at them
28:24well i was looking i must say i was
28:27going to make a cynical point about you
28:29know your own department oh ira uh so i
28:33looked up the website there thinking
28:35that there will be thousands of people
28:37working for it and i'd be able to make a
28:40i saw that you have 45 staff that really
28:44really impressed me because we have an
28:46officer for the financial ombudsman and
28:48i used to say i would ask people how
28:50many people do you think actually work
28:51in the ombudsman's office oh a couple
28:53hundred something like that the answer
28:55is seven thousand um and you kind of
28:58know there's an awful lot of sludge
28:59redundancy and just time wasting there
29:02but there clearly isn't in ohio and oh
29:04ira uh so i was i was very impressed by
29:07that what kind of final question what
29:09kind of response have you had from
29:11governments outside the us you're you're
29:14you're you know you're you're a
29:15political figure people know you all
29:16over the world they must have come to
29:18you i i talked to somebody from the
29:21who's uh in the uk government in in
29:24downing street he said oh yes yes we've
29:26been thinking about sludge yes there's
29:28an initiative on sludge what kind of
29:30feedback are you getting from around the
29:39enthusiasm than i could possibly have
29:43and i think the reason is some
29:45combination of the worldwide interest in
29:49uh economic growth in responding to
29:53inequity and in finding a new better
29:58in the midst of toward the end of the
30:01so in very diverse nations i found
30:07interest in sludge audits in australia
30:09they've gone great guns in reducing
30:12sludge and actually conducting sledge
30:14audits and this is quite public i have
30:17worked over the last year and more with
30:20the united nations where there's a
30:22widespread perception that there's
30:24excessive sludge internally and that the
30:27sludge is preventing achievement of the
30:29sustainable development goals so in the
30:31united nations in particular there's
30:34keen interest in sludge reduction
30:38i've went to before the pandemic and
30:42multiple nations with whom i've had
30:44continuing informal discussions since
30:47have seen sludge as not the prior the
30:51national priority but as
30:56and this as i say is something that is
30:59interesting i've been
31:02noticing to countries that are
31:04developing or struggling economically in
31:07part because it's a um
31:10it's it's it's in the nature of low
31:12hanging fruit in the dominican republic
31:14current government is uh greatly
31:16interested in the problem of sludge
31:19okay one last question what's your next
31:22you you seem to produce a book every
31:24couple of years uh on a almost
31:26completely unrelated topic where is your
31:28head at the present time uh thank you
31:31for asking that uh a project is brewing
31:34on the topic of adaptation
31:36meaning how people adapt to
31:39being inside all the time having a
31:45the midst of a divorce
31:47struggling with illness
31:50the extraordinary power of adaptation
31:53the fact that it is a blessing the fact
31:56that we can't anticipate our ability to
31:58adapt human beings don't see how they're
32:01going to be often fine under
32:03circumstances that seem
32:07intolerably unbearable
32:11curse of adaptation that sometimes we
32:13can get used to something that's really
32:17well we look forward i look forward to
32:19reading the book when it comes out can i
32:21thank professor cass sunstein and can i
32:23thank all of you for watching many
32:26thanks to you great pleasure
