Podcast episode

The Future of Coffee: Climate Change & Rising Prices w/ Raihaan Esat, International Coffee Traders  – EP217

Quality coffee will be much more expensive in the future, partly due to climate change, according to International Coffee Traders’ Raihaan Esat. Show host Gene Tunny and co-host Tim Hughes are joined by Raihaan in this episode. They delve into the global coffee market, discussing how Raihaan sources coffee beans from various countries and the factors that affect coffee prices. They also explore the impact of climate change on the coffee market. Take advantage of this deep dive into the fascinating world of coffee.

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What’s covered in EP217

  • [00:01:51] The impacts of climate change on the coffee market.
  • [00:06:52] Sourcing coffee from farms.
  • [00:07:31] Commercialized coffee farming.
  • [00:12:51] Farming practices and coffee flavor.
  • [00:18:34] Cafe Feminino and empowerment.
  • [00:19:23] Coffee cooperative communities.
  • [00:26:05] Quality differences in coffee sourcing.
  • [00:27:58] Specialty coffee.
  • [00:31:28] Antioxidants and coffee benefits.
  • [00:35:15] Coffee and sustainability.
  • [00:42:03] Coffee production and pricing.
  • [00:42:23] Coffee supply chain logistics and financing.
  • [00:45:21] Shelf life of green coffee.
  • [00:47:13] Coffee demand and market trends worldwide. 
  • [00:49:45] Emerging coffee markets.
  • [00:51:33] Climate change and coffee production.
  • [00:56:03] The future of coffee.
  • [01:00:07] Exploring coffee variations.


  • The biggest problem for coffee roasters is controlling costs and accessing good quality green coffee: the right coffee at the right price.  [00:05:57
  • Supply and demand determine the price of coffee at the end of the day. [00:36:42
  • High-quality coffee is going to get more expensive as supply is affected by climate change [00:53:26
  • You should spend some time learning how to craft a nice cup of coffee just like you would learn how to make great pasta or a steak or a dessert. [00:58:59]

Links relevant to the conversation

Coffee Commune and International Coffee Traders:

Tim’s new coffee brand Lumo Coffee, “Seriously Healthy Organic Coffee”:

Cafe Feminino:

Aquiares estate in Costa Rica:

Arturo’s Adept Economics website article on coffee:

Transcript: The Future of Coffee: Climate Change & Rising Prices w/ Raihaan Esat, International Coffee Traders  – EP217

N.B. This is a lightly edited version of a transcript originally created using the AI application It was then checked over by a human, Tim Hughes from Adept Economics, to clear up any confusion left behind by an otter in a rush. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Raihaan Esat  0:03  

We see countries that never used to produce coffee starting to produce coffee, or traditionally weren’t coffee growing countries, because the climate now is starting to move in a range that is suitable for coffee production. So maybe they were too cold or too high in altitude to be sustainable for coffee production. But as the climate is generally warming up suddenly that, that geography of that area now is suitable for coffee production.

Gene Tunny  0:36  

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show.

Hello, and welcome to the show. This episode is all about the coffee market. My occasional co host Tim Hughes and I are joined by coffee guru, Raihaan Esat, from International Coffee Traders which is based at Phillip Di Bella’s Coffee Commune here in Brisbane. Over the last 15 years, Rai has gone from starting as a part-time Barista to winning Australia’s most prestigious coffee industry award. The Hall of Fame Award at this year’s Golden Bean Australasia competition. Stay tuned for a deep dive into the coffee market thanks to Rai. We explore how Rai sources coffee beans from farms in Brazil, Peru, Ethiopia and other countries. And we talk about demand and supply factors that affect coffee prices. Rai gives us some deep insights into the impacts of climate change on the coffee market. He explains why he thinks high quality coffee is going to become much more expensive in the future. Let me know if you have any feedback on this episode. Are there any aspects of the global coffee market you’d like us to explore more deeply in a future episode? Please let me know. My contact details are in the show notes. Righto, I hope you enjoy our conversation with Rai from International Coffee Traders.

Raihaan Esat from International Coffee Traders, welcome to the programme.

Raihaan Esat  2:25  

It’s fantastic to be here. I’m really excited.

Gene Tunny  2:28  

Excellent Rai, we’ve got Tim as well. Tim, good to be with you again on another Economics Explored podcast episode.

Tim Hughes  2:36  

Yeah, always a pleasure, Gene. Good to be here.

Gene Tunny  2:38  

Yes. So we’re at the Coffee Commune which is this amazing venue in Brisbane. It’s on Abbotsford Road at Bowen Hills. And actually Rai, would you be able to explain what is the Coffee Commune and you know, what’s your role here, please?

Raihaan Esat  2:54  

Sure thing, from a high standpoint, I guess the Coffee Commune is like a village. It’s a village of many businesses all working together collaboratively, to help advance each other to accelerate each other’s potential. The Coffee Commune provides a lot of services around that. But it basically provides just the resources and access that, and educational opportunities that allows these businesses to really thrive. So it’s all based around coffee, coffee production, hospitality, and education.

Gene Tunny  3:26  

Gotcha. So when I come in here, I mean, our first introduction to Coffee Commune, well, I was, I gave a talk here last year I think, I was on a panel. And that was in the area, there’s a cafe restaurant or you know, an area where you have functions. And but you’ve also got, you actually do roasting here, don’t you? There’s a roasting part of the operation. You’ve got these big German, are they German machines?

Raihaan Esat  3:47 

They’re Italian.

Gene Tunny 3:51

They’re Italian okay. Yeah, for some reason I thought they were German.

Raihaan Esat  3:57  

There’s a lot of German bits and pieces in them, but they’re mostly Italian.

Gene Tunny  4:04  

Gotcha. And you’ve also got these silos full of raw coffee beans, green coffee beans.

Raihaan Esat  4:09  

Yeah, see, it would take me two hours to tell you everything that the Coffee Commune does. But in a nutshell, it’s solving the three biggest problems that are facing people in the coffee industry at the moment. And that’s access to resources, knowledge and education, and standing out from a crowd. So you know, within the scope of that, the Coffee Commune provides services and support to help people accelerate their business. If I can give you a very quick example, if you want to start a coffee brand, you generally need education, support and resources. Instead of buying your own and setting up your own facility to do that. You can come in and use the resources here. It’s like We Work for coffee.

Gene Tunny  4:50  

Yeah, and this is what Tim’s done. I mean, Tim, we can chat about your brand later, but you’ve set up Lumo Coffee using the resources here at the Coffee Commune which is pretty amazing. So we can talk about that.

Tim Hughes  5:00  

Uh, yeah, that’s right. I mean without these guys, Lumo Coffee wouldn’t be a thing. So, yeah, I’m uh I guess one of the graduates of this village.

Raihaan Esat  5:12  

Tim is one of the startups. Yeah, we have 75 Coffee Roasters all producing coffee here at the Commune. About 20 of them are startups, including Tim as one of them. And within that scope, I have two functions. Mine, first of all, is to import green coffee from farms directly and bring it into Australia and sell to coffee roasters. The second part is to introduce people to the commune, and grow the family.

Gene Tunny  5:38  

Gotcha. So is that what you’re the business you’re part of? International Coffee Traders, can you tell us a bit about that please Rai?

Raihaan Esat  5:45  

Yeah, so if I go deeper into International Coffee Traders, it’s, it’s a resource and for the for the coffee industry, for the coffee roasters in particular. The biggest problem for coffee roasters is controlling costs, accessing good quality green coffee, the right coffee at the right price. You have to start with a raw product, then roast it and then turn it into coffee drinks. That’s what coffee roasters do. So the raw product is what I specialise in. Sourcing that from farms, overseas countries like Brazil, Colombia, Costa Rica, Ethiopia, all the classic coffee growing regions. I source coffee from there, depending on what my clients want.

Gene Tunny  6:28  

Okay, so what does this sourcing look like? Are you hopping on a plane? Or have you got agents over there who help you out? How do you? How do you identify the right farms? Or how does it all work? That’s what’s that’s what’s fascinating me, are there, are the wholesalers? I mean I imagine there are wholesalers like how do you how does it all work? How does it get from the farm to Abbotsford Road in Brisbane, Australia? And, you know, farms in Peru or Brazil or wherever?

Raihaan Esat  6:55  

Yeah the coffee world is huge. And it’s so diverse. Country to country is very different. Each country has their own models of how you can buy from them. For example, in Ethiopia, up until very recently, you had to buy from something called the ECX, the Ethiopian Commodities Exchange, you couldn’t actually go to a coffee farmer directly and say, I want to buy your coffee. The coffee farmer had to sell their coffee to the ECX and the ECX then on sells to people like me. That’s Ethiopia is an example. Compare that with Brazil, which is highly commercialised, very, very well established and has huge, huge farms that are the size of small countries sometimes. You, there’s there’s one farm that Phil visited a few years ago, they have an airport landing strip on their farm. They have a dairy on their farm, you know, they’re massive. And you can go directly to the farm and say, Mr. Coffee farmer, I want to buy your coffee, and they will sell it to you directly. And then there’s infinite shades of grey in between. So in terms of contacting traditionally, yes, you had to go over there and visit the farms to make contact. But this is now 2023 borderline 2024. Everyone is on WhatsApp. Everyone’s on email. Everyone’s on Instagram. So it’s easy to connect with a coffee farmer literally on Facebook now and say, Hey, looks like you’re doing interesting stuff, can we, can we connect? Send me some samples? Let’s talk give me a guided tour of your farm on online basically.

Gene Tunny  8:32  

Yep and what criteria do you use to choose the suppliers? The farmers?

Raihaan Esat  8:38  

Yeah, so I’m really led by my clients. So for example, if a client of mine comes to me and says, I want a coffee with an organic certification, or Rainforest Alliance certification, which protects native rainforest as well, and it must taste sweet, fruity and vibrant. Those are my criteria to then go hunting. Traditionally, the client may have been using Colombian coffee. And roasters tend to play it safe, they tend to like, I was buying Colombian coffee so I was, I want to stick with Colombian coffee. But my job is to kind of challenge that a little bit and go, Hey, there’s also great options in Ecuador, or in Peru or in Guatemala, which may taste very similar for better value or better, better on the seasonal scale of freshness. They might be in season compared to the coffee that you’re using is out of season. So there’s a lot of, it’s a global perspective we have to take to try to find the right coffee at the right price.

Tim Hughes  9:43  

Yeah, it’s interesting because with so I remember seeing somewhere that coffee was the second most traded commodity in the world. Is that right?

Raihaan Esat  9:51  

Yeah, that gets floated around quite a lot. A lot of people sort of throw that stat out and say I’d say it’s the second most traded commodity in the world after oil. So coffee is traded on an exchange on a commodities exchange. And you can literally buy and sell futures on coffee, if you wanted to, you could jump on one of these trading platforms and buy and sell coffee. The difference between say coffee and foreign currency or any of the other others is that someone actually has to take delivery of coffee. It’s a physical product, it’s an agricultural product. So while it’s traded, there’s a lot of paper being pushed around. And then eventually, that coffee has to land up in someone’s warehouse. But it is very, very, very heavily traded. Especially because it seems sometimes as a bit of a safe haven when currencies are moving around a bit or interest rates are moving around a little bit. You know, how speculators work? Sometimes they’ll move investments from gold to foreign currency, depending on what seems to be the safer option at the time. Coffee is one of them.

Gene Tunny  10:56  

Yeah, so you’ll have speculators who they won’t ever actually want to take delivery of the coffee. Right. But they’re jumping into the market to try and pick up some plays.

Raihaan Esat  11:05  

Some plays on the movements.

Gene Tunny  11:09  

Yeah, yeah, gotcha. And what’s happening? I’m interested in the different countries, are there different flavour profiles for different countries? Or does it depend on the farm I mean I imagine it depends on climatic conditions on the soils, etc.

Raihaan Esat  11:24  

So I’m gonna make the wine analogy here, coffee is a bit like wine, where you have these broad characterizations based on country, you know, roughly New Zealand wine tastes a certain way, and French wine tastes a certain way. Similarly, with coffee, there are broad categorizations. But then within each category, within each country, there’s infinite amount of variables and agricultural practices that can then modify the flavour. So a practical example of Brazilian coffee generally, at a commodity level, tastes quite nutty. It’s, it’s mild, it’s mellow. It’s quite nutty. It’s coffee that tastes like coffee. And then you go to Ethiopia and the standard coffee that comes out of Ethiopia generally is quite vibrant, and lively, and sometimes has some fruit notes to it. So those are the broad categorizations. And every country has its own rough, sort of flavour profile. And that is somewhat dependent on the terrain, the variety, the commercial varieties that are grown there, and then the general farming practices. So I think the geography and the farming practices and the genetics are fairly self explanatory. But the farming practices can have such a huge impact on the flavour of the coffee as well. For example, in countries like Rwanda and Burundi, these sort of central African countries, up until very late recently, it was completely illegal to process your coffee using the what’s called a dry process. All the coffee had to be washed. And there’s a lot of stuff online, you can look up if you want to go deeper into that, what washed coffee is and what dry coffee is, but it was mandated by the government, that your coffee if you produced it had to be washed. Whereas you go to a country like Yemen, which is in the middle of the desert, but produces coffee, they have no water, so they cannot do washed coffee, they have to do all of their coffee as dry coffee. And that’s that’s a post harvest practice that has a massive influence on the flavour of the coffee. That’s that comes out at the end.

Gene Tunny  13:44  

Gotcha, but one other thing. What’s the difference? There are Arabica beans, and there are Robusta beans. Is that right? There’s a difference?

Raihaan Esat  13:54  

Yeah, I guess. They they both taste like coffee to some degree. But they’re like two different species. It’s like comparing an apple and a pear. They are slightly different species. And there’s a number of these sort of genetic families or species that exist within coffee. Arabica is very well known because of the marketing machine always says, drink Arabica. 100% Arabica, it is better than Robusta. Robusta generally is a little bit harsher, a little bit more bitter, has a lot more caffeine in it, and grows at a different altitude. But having said that, I’ve tasted some Arabicas that are so poorly processed, or so poorly created at the farm, I guess, that they taste worse than Robustas so quality of post production at the farm level does have a massive impact on the quality of flavour as well.

Tim Hughes  14:50  

Actually on that note, because I know there are three processes in having a great cup of coffee so the farming and the sourcing is one like how that part of the the process is done, and then the roasting is obviously really significant as to how it’s roasted and the temperatures and the time, and then how it’s made at the final stage. So if only one of those three stages isn’t done well, then the whole thing can be, well sort of fall apart a little bit.

Raihaan Esat  15:20  

Yeah, it’s like, the best analogy I can make is like, like a professional chef. Sourcing Green Coffee is like sourcing a great steak, or a great piece of ingredients that you’re gonna then transform into a delicious dish. That’s the roasting component of coffee. That’s where the chef takes a really amazing ingredient, turns it into something delicious. And then service at the end in the cafe is like the plating the final touch. They all matter, you can have the best chef make the best dish. If they don’t present it well. It just lacks something. So at any step in the process, whether it’s farming, whether it’s roasting, or whether it’s production in the cafe, it can all fall over and be butchered. So each each step in the chain is equally important. And each one is a craft. It’s a skill. It’s something that adds value to the coffee as it progresses along the chain.

Gene Tunny  16:16  

Yeah. You mentioned was it Rainforest Alliance Certification?

Raihaan Esat  16:22  

Yeah, so there’s a few different certifications that exist in the coffee industry for different reasons. Some are on sustainability, some are on farming practices, some are ethical standards. Rainforest Alliance, for example, mandates that a coffee farm should allocate a certain proportion of their farm to regenerating rainforest. For example, in Costa Rica, some of the coffee farms, the coffee farm that we deal with is a amazing coffee farm and community called Aquiares Estate. They are a community, people live on the farm, and they dedicate a lot of time to, to looking after the native rainforest. That is part of the ecosystem of their farm. It’s really, really an amazing community and encourage everyone to go and look up Aquiares Estate. They’re on Instagram there, they put up a lot of pictures of what they do. Their coffee is stunning.

Gene Tunny  17:19  

I’ll put a link in the show notes here for sure. Yeah, that sounds sounds sounds great. And I know that Tim your coffee is coming from, is your coffee coming from a community of women in Peru somewhere.

Tim Hughes  17:31  

The decaf is. So we’ve got the three coffees. Two of them are actually the same bean but a different roast. So that’s, and they all happen to be from Peru so that the caffeinated bean Luma Sol, as we’ve called it, we have a dark roast and a lighter roast. And so that is from a different place to the decaf. So the decaf, the one you’re mentioning, is the Cafe Femenino Decaf. And so I mean, Rai you’ve got more information on that, I know. But basically, it’s a co op of female farmers who, a lot of the profits go back into the community and libraries and schools. And it’s a fascinating, it’s a really, yeah, same Cafe Femenino. If we put it in the show notes, and if people could check it out, because it’s just one of those things, there seems to be in coffee, a lot of intent and purpose to do the right thing. And and Cafe Femenino was a really good example of that. Have you got anything to add to that, Rai?

Raihaan Esat  18:34  

Yeah. So this is an example of how some countries have structures in coffee that are not as simple as you might think. It’s not as easy as just going to a farmer and saying, I want to buy your coffee, for example, some of these farms at Cafe Femenino in Peru, they’re very small. They don’t actually have the resources to process their own coffee. So they grow coffee on the land that they have in their backyard, for example, or they may have a couple of acres of land and they’re producing coffee. But what they do is all the women producers in that area, then collect their coffee together and take it to a central processing plant where the fruit is removed from the seed, the coffee gets dried out and it all gets graded, the defects are removed. So they’re working together as a community. And they’re sharing a resource. It’s kind of a bit like the Coffee Commune here in Brisbane, where we have one resource and it’s being shared in the community. That’s how Cafe Femenino are working. And there’s a number of other countries that have similar styles of cooperative coffee production, so to speak, and they put so much back into their own communities from what they make.

Gene Tunny  19:49  

Yeah, with the grading. Is there an international standard for grading and who does the grading are there professional graders?

Raihaan Esat  19:57  

Yeah, that’s a great question. There, there is an in International Standard, it’s run by an organisation called the Specialty Coffee Association. They used to be an American Association, they’re European they have since merged. And they’ve basically set the global standard that is accepted everywhere. We have a lab here at the Coffee Commune in Brisbane, that is the only lab of its kind in Queensland, there’s a few around the country. But basically, we can look at a sample of green coffee, grade it, and then compare our results with labs all around the world. So hypothetically, if a coffee roaster looks at their green coffee and goes, I’m worried about this, I think it’s got a few defects in it, which you know, I wasn’t expecting, can you grade it for me, they don’t have to send the coffee back to the farm, to get checked, they can just send it to the lab here in Brisbane, we will check it and produce a report, which is, anyone around the world can read it as long as they are running the same the same systems as us which they are generally.

Gene Tunny  21:03  

And what’s being graded. Is it being graded for bitterness or I mean what’s…?

Raihaan Esat  21:09  

Yeah, there are two parts. There’s green grading, and then what we call cupping. So green grading is where you look at the green product that’s arrived. And if you think about it, green coffee is the seed of the coffee fruit. So it’s an it’s not a uniform thing. Every single seed is an individual. And there are many things that can go wrong in the process of producing that coffee. So if you imagine 1000 coffee plants all producing seeds that get harvested, some of those are going to be picked when they’re underripe. Some are going to be overripe. Some are gonna have insect damage on them. When they, after they get hulled and pulped. Some of them will get chipped or broken. Sometimes there’ll be mould that grows on the coffee. Sometimes they will be what we call sours or, and floaters, those are just immature coffees. So the the best quality coffee is what you imagine is the perfect coffee bean. It’s round, it’s shiny, it’s green, it’s got no additional defects to it. It’s got no mould growing on it. It’s not blackened or overripe. It was the fruit picked at its optimum ripeness, and then processed correctly and all the defects removed. Having said that defect-free coffee generally doesn’t exist. Right? There will always be to some degree some defects. So we categorise primary defects and secondary defects. So we couldn’t ask, for example, part of my job, a lot of my clients will say, I want this coffee and I want no primary defects in it. Primary defects are serious defects in the coffee. So for example, in the sample, if you take a sample of the green coffee, which is 350 grammes, and you look through it and you sort through it, you might find one which is completely encased in fungus.

Gene Tunny  23:10  

Haha, right? Yeah,

Raihaan Esat  23:12  

That would be a primary defect that that now eliminates that coffee as an option for that client. If we find no primary defects, there’s a whole guide book on this that explains every defect in coffee. There’s a number of them. We then look into secondary defects. Yeah, they might be like a little insect that has bored a hole into the coffee. One little hole on that seed might be a partial defect, but it’s not that serious compared to a full mouldy bean.

Tim Hughes  23:45  

And what’s the sample size of that Rai?

Raihaan Esat  23:47  

350 grammes

Tim Hughes  23:49  

350 grams sorry Yeah. Yeah, cool.

Raihaan Esat  23:52  

The next step is to do what we call cupping, which is to roast the sample of that coffee and then taste it. So there’s a sensory evaluation that has to happen. And the sensory evaluation is then scored out of 10. Well, sorry, it’s it’s out of 100. The, to qualify as specialty coffee, it has to score 80 or above. So for example, on the score sheet, we’re looking for things like flavour, acidity, balance, aftertaste, body, we’re looking for consistency across multiple cups. The score sheet is quite intimidating when you first look at it. But once you use it a few times, it’s actually quite straightforward.

Gene Tunny  24:36  

Yeah. So you’re looking at specialty coffees and you’re often going to what small or medium sized coffee farms is that right? Are there, I’m just wondering like, how is the market segmented because like, what about one of these, you know, what about Nestle? Or, or what’s the big, is it Dutch or the company that owns Moccona? I can never remember, I don’t know how to pronounce their name.

Raihaan Esat  25:03  

Douwe Egberts, JDE

Gene Tunny  25:07  

JDE, Gotcha. And like they must buy huge quantities of coffee. So they’re massive, do they just have massive coffee farms that are contracted to them to supply, are you dealing with the same ones?

Raihaan Esat  25:18  

Pretty much, pretty much so you can buy coffee on forward contracts. For example, JDE might say say, we project that we’re going to need 500 tonnes, 500 containers of coffee, each container being 20 tonnes next year. They can approach their producers and contract that coffee ahead of time and say this is the quality spec we expect. And we’re going to buy 500 containers from you over the next year. Now not every farm can fulfil that. So they may go alright, that farm can fulfill 20 containers, we have to now find other suppliers for the remaining balance of our requirements. So they do what I do, but on a much larger scale.

Gene Tunny  26:03  

Gotcha. But with what you do, does that mean you can get, like that they’ll have to go for something more, like are they basically going for something that is more mass market? And maybe they accept more defects than then you would? I mean, are there differences in in the quality of the coffee sourced? The the flavours, that sort of thing? I mean, you’re you’re producing specialty coffees, aren’t you? So you can go really niche? Is that right?

Raihaan Esat  26:30  

Well, I’ll, I’ll use Starbucks as a bit of an example for this because this is probably a better a better case study for your question. Starbucks buys very good quality coffee, what tends to happen is sometimes it goes wrong in the roasting or in the extraction phase, where if people tend to go “ah Starbucks is crap”, or they don’t like, they don’t like what they get from there. Starbucks has never promoted that they sell the best coffee in the world, but they’re very good at what they do. And they do buy very good coffee. And it’s all about setting up the requirements for quality before they go to market, just like you would in any procurement business. You set up what you need, what your requirements and projections are, and then you go to market and you try and find it or as close to it as possible.

Gene Tunny  27:19  

Gotcha. Would you be buying from similar farms to what Starbucks or JDE would be buying from?

Raihaan Esat  27:28  

Yeah. To some degree. So every every farm produces all levels of quality. A farm can produce absolute garbage, middle of the range coffee and super high quality coffee, because it’s an agricultural product, it then gets sorted, right? And so you get these different quality grades coming out of every farm on the planet. So it’s just about setting up the parameters of what you want. So we would buy, we buy everything from commercial grades of coffee, what we call commodity coffee, to specialty coffee, to super fancy boutique coffees, like experimental things, which haven’t hit the market yet. You know, we’re we’re funding where we’ve partnered with a producer in Colombia. And he wants to do some experiments. And we’re helping him set up the lab and the resources that he needs to do interesting fermentations using yeasts and bacterias to produce interesting and crazy flavours in coffee.

Tim Hughes  28:31  

That does sound interesting.

Gene Tunny  28:33  

And what’s Tim, is Tim, are you a specialty coffee Tim?

Raihaan Esat  28:37

Tim’s a specialty coffee yes.

Gene Tunny  28:39  

Right? Tim, you set some parameters for Rai didn’t you, how did that interaction work?

Tim Hughes  28:43  

Yeah, that was it was funny, actually, because it started when we came over last year when you were on that panel and got introduced to the Coffee Commune and seeing what you guys did here Rai was really interesting. And it was the right time with a lot of the work that I was doing, you know, my background in the health industry and listening to all the research on the health properties of coffee. Because it’s had a chequered past people, you know, that caffeine obviously sometimes isn’t great for everybody and overconsumption, you know, can be a problem. But the health benefits, the antioxidants, the polyphenols, chlorogenic acids, these properties are where the health aspects of coffee often comes in. So it was really interesting, and I had a chat with Rai about it. And I think at that time, no one had actually mentioned..

Raihaan Esat  29:31  

Tim’s request was one of the more unusual requests that I’ve ever seen in my life, but er…

Tim Hughes  29:36 

Thank you very much.

Raihaan Esat  29:38  

Normally people come to me and they go, Oh, look, I want coffee that tastes like this, or I want coffee that tastes like that, or it’s got to be at this price point. Those are 99.9% of the parameters that we work in. And then Tim comes along and he goes I want coffee that’s healthy for you. I went okay, we don’t have a measurement system for that. How do we measure that? He said I have, I’ve got a solution for that, we can do lab testing and figure out what the antioxidant levels are in coffee. And we want to do some testing and find out which one is the healthiest coffee that we can get. So, you know, that started the journey with, with Tim.

Gene Tunny  30:19  

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  30:24  

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Gene Tunny  30:53  

Now back to the show.

Tim just a question for you. Why do we care about antioxidants?

Tim Hughes  31:03  

Good question. I mean, basically, from health terms, antioxidants are what would be the chemicals or properties that combat free radicals in our body. So the oxygenation process in our body where cancers can thrive and the ageing process and all of these things they are basically free radicals running around our our system, antioxidants are known to combat those. So antioxidants in our systems generally work well for us, they slow down the anti ageing process. They’ve been shown, this is where new studies are coming through all the time, they’ve been shown that they can help prevent heart disease. They’ve got, you know, improved cognitive function. There’s so many different areas where they’ve been shown to be beneficial for us. And coffee is a good way of getting those antioxidants into your system. They’re also a good source of fibre, which was a new thing to me, that was a fairly recent thing I heard from, Dr. Tim Spector is somebody who does a lot of work with the microbiome. And he was he was stating that coffee is definitely a health food because he’d had different, a lot of people have changed their minds on coffee. And he’s one person who had changed his mind on coffee. He said, Yeah, it’s definitely a health food. It’s good for the microbiome, you get about three grammes of fibre from a cup. You know, if you have three cups of coffee a day that can supply 25% of your regular daily allowance of fibre, which, you know, for a lot of people, there’s not enough fibre in their diet. So it’s not just the antioxidants, it’s all these other areas.

Raihaan Esat  32:40  

Yeah what really stood out to me when we did the testing was what the variability was from one coffee to another. So you know, there’s a lot of good research out there that says coffee has antioxidants, that it has these health benefits for you. But choosing the right coffee can really accelerate that. And you can get very different results, depending on what coffee you choose. And it seemed like just, you know, just off the small sample set of data that we had, that the high grown organic coffees tended to perform better than the lower grown coffees that were not organic. So that was really, really revealing to me, and I found that super interesting.

Tim Hughes  33:22  

And it’s that thing of like, you know, you could you could get a coffee with even higher antioxidant levels than than the ones we have, but it has to taste great as well, you know, so these compromises that you do, you can’t do everything, purely for the antioxidants. It’s, it’s a bit of a balance. And I’m really happy with where we got ours to but we’re constantly on the search like we’ve got other beans that we’re checking out from different regions at the moment. So it’ll be an ongoing thing we’ll add either add or or move out coffees as we go along. Because that actually, that leads into something I was, we were going to talk about anyway. So that maybe this is a good time, Rai to talk about the supply and demand for coffee. Because it’s a living growing thing. It must be hard to secure coffee sufficient to demand all the time. So there’s a few prongs to this question. One is, is the overall supply or sorry, the overall demand of coffee, is that growing or is it plateaued? And the supply of coffee, is that because it appears from different, different people that I hear from that it’s getting more challenging to grow the coffee because it’s quite a sensitive plant with the altitude and the conditions and with the changing climate that that can be affecting the future of coffee growth. So with that, have we plateaued with the supply? Are we good with the with the demand, etc?

Raihaan Esat  34:47  

Okay, so, short answer good news. We’re not going to run out of coffee.

Tim Hughes  34:51

That’s good news.

Raihaan Esat  34:53  

But there’s a couple of key factors and it’s a very big full bodied “but” that I have to put in here. There’s agricultural factors. There’s economic factors. And then there’s demographic factors that are really interplaying in interesting ways right now within the coffee industry globally. So we read, read the global food and beverage report for 2023. And that showed demographics wise, who’s drinking coffee? And where are they drinking coffee? So generally speaking, you’ve got sort of your professionals, slightly older generation tend to be drinking more coffee than the younger generation right now. So across the demographics, you’ve got one population drinking the same or more coffee daily, but you’ve got one generation that’s slightly in decline. So that will transfer later to probably a slightly declining requirement for coffee. But it’s not declining at the same rate as production is at the moment, there is a problem with agriculture. Coffee is not sustainable generally speaking, for a lot of producers, the variability in the markets, the climate change, the difficulties of producing coffee consistently, because it’s an agricultural and seasonal product. The demands of producing coffee to the level that we are demanding it as consumers is so difficult, and it’s actually forcing a lot of producers off their farms, or forcing producers to change to other crops, like avocados, which are more profitable for them. So it’s supply and demand at the end of the day, and we’ve actually seen coffee prices jump very, very drastically in the last 12 to 18 months, coffee prices on green coffee have gone up probably close to double what they were. And you know, how much does it how much have you seen that flow through into the cafes? It has started to happen, you’re starting to see cafes charging a bit more and more for their coffee, because everything has to flow through. So you’ve got economic effects, you’ve got the supply and demand, everything comes down to supply and demand, you have a shortage on supply, demand goes up comparatively to that. And then you’ve got all the demographic interplays that go on with it, we have further problems that are driving the price of coffee up at the moment, things like interest rates, every time our interest rates goes goes up, we have to finance coffee, to get it into the coffee, into the country, right? When you buy huge amounts of coffee it’s all under finance. Interest rates play a big part in what we have to factor into the price then, and you know, a half a percent or a quarter percent interest rate rise is quite significant across 20 tonnes of coffee. So generally, the price of green coffee at the farm level is going up, supply is slightly restricted and so that’s further pushing the price up. And then you have, let me call it political issues, as well that sort of come into play. For example, in Ethiopia, there was a like a civil war last year, what didn’t get a lot of news coverage, but basically, there was a civil war that was affecting transport networks and that made it difficult to get coffee out of Ethiopia. Now Ethiopia is one of the largest producers of coffee in the world. As soon as that becomes difficult to get coffee from one of your biggest producers. It puts a lot of strain on the other producers so anyone with a even a basic economics background can kind of see what’s happening here it’s it’s a difficult place, marketplace to do business that’s constantly evolving.

Gene Tunny  38:54  

Yeah I’ve got a couple of follows on from that. Broadly, what is the what range is the coffee price in and so is it is it in tonnes? Is it US dollars per tonne what is it?

Raihaan Esat  39:05  

USD per pound. Generally gets quoted in US dollars per pound on the market on the coffee market. It’s called the C market. And right now the level is sitting at if I’m not mistaken at about one $1. $1.70 USD per pound.

Gene Tunny  39:24  

Okay and so that obviously means like just thinking about what it costs to buy coffee in the shops after it’s been roasted and, or ground or whatever. There’s obviously a lot of value add from in the roasting and then the distribution and…

Raihaan Esat  39:42  

Yeah, so, 1.70 USD per pound is your baseline benchmark for just bog standard commodity grade coffee. Okay, as soon as you go up in quality into specialty, for example, Tim’s coffee wasn’t $1.70 US per pound. It was much more than that. because we added the organic certification, we added the quality of it, it’s at least an 83 point coffee, if I’m not mistaken. So we’ve now got a quality level that we have to compensate for, then when you get to roasting, so that coffee would have cost us quite a bit more, factor in the exchange rate, Australian dollar’s not performing that well against the US dollar at the moment. So as soon as we have to pay in US dollars, the underperformance of our currency means that we have to factor that and our coffee costs a little bit more. Come to roasting, here’s the bit that is quite a tragedy. If I put one kilo of coffee into the roaster, I don’t get one kilo out, you have about 10 to 12% moisture in the green coffee that just evaporates, basically, plus you have a little bit of carbonization, basically, you lose close to 20% of the weight of the coffee, just through the chimney of the coffee roaster. So you’re adding 20% on top of the cost of the coffee just at the roasting stage. Then there’s all the labour, operational costs that go into packing coffee, transporting coffee around the world, out to cafes, and then it has to be made into a drink, and coffee these days, I mean, if you go and just just stand in line at a coffee shop and listen to everyone’s orders, not everyone orders the same thing. I guarantee you seven out of 10 people will have a very different order from each other, one will be on an almond alternative dairy, one will have a syrup in it, one will be double strength, one will have chocolate powder on top. A cup of coffee is now a cocktail made by a bartender effectively. It’s, it’s not a simple product to produce at any stage. It’s crafted by hand and by skilled people all the way through the chain. And so if I can be honest, 5 or $6 for a cup of coffee? It’s too cheap.

Gene Tunny  42:10  

Hmm, interesting. I mean, Australian households struggling with interest rates may not agree, but I know, I know where you’re coming from. I’m just, I’m just joking. Yeah, that’s some really good points there Rai, and can you tell us about the the finance, you mentioned you had to borrow money, so you have to settle the contracts in US dollars is that right? Like what’s going on there?

Raihaan Esat  42:35  

Usually yes. So practical example, we are now buying coffee for next season, we’re in contact with our producers in Brazil. And we’re going right, we need to, we need probably six to 10 containers next year of coffee. They’ll say right, we can, we can settle six containers at, I’ll put a hypothetical number on it, five US dollars per kilo. Contract gets written as soon as the coffee ships from the port in Brazil, we get a bill to settle the contract. So the contract is in place. But it only gets paid when the coffee gets shipped. Now there’s lots of different Incoterms here and different contracts, setups and scenarios, you could pay at the farm directly when the coffee leaves the farm, you could pay when the coffee reaches, reaches the destination. But we generally work on as soon as the coffee ships, we pay the bill immediately. And that’s in US dollars. Most of the time.

Gene Tunny  43:41  

Yeah. And so where’s the where’s that? Where’s Why do you have to borrow the money, I mean, rather than going to the, okay, I’m just trying to think how this works.

Raihaan Esat  43:54  

Ok so think about it this way. It’s a cash flow problem, right? For us to produce coffee and supply to cafes. If Tim wants to supply coffee, if he were to buy coffee from the farm, he would have to pay for the coffee before he sold it.

Gene Tunny  44:13 

Gotcha. Yeah, that makes sense.

Raihaan Esat  44:15

All right. So the coffee has got to come and land in the warehouse so that it can be roasted so that he can sell it. And then Tim can collect the money from the sale and and then pay back the loan that he took to buy the coffee in the first place.

Gene Tunny  44:30

Yeah, yeah so it’s for your cash flow. So yeah…

Raihaan Esat  44:35

It’s a timing thing. Sometimes we land coffee here, three months in advance of when we need to actually roast it. And that’s because of seasonal variations. If the coffee is ready to harvest now, I might not need it for six months. But I’ve got to buy it now because it’s on the trees. It’s being harvested, it’s an agricultural product. And I think people take that for granted sometimes that coffee has to be grown on a tree, harvested by people and then there’s an interim period where there’s no coffee on the trees.

Gene Tunny  45:08  

Yeah. And how long would you typically have the beans, the green beans here in storage or in stock in your inventory?

Raihaan Esat  45:16  

Look, green coffee has a shelf life that’s a bit better than roasted coffee, roasted coffee tends to sort of lose its vibrancy and character after about 30 days after roasting, but green coffee, we can we can store it for sort of six to, six to 12 months, as long as the storage conditions are good, not not too much light, not too much heat, not too much humidity. If the storage conditions are good, we can store the coffee up to 12 months, and then it really starts to fade, in flavour, in in character. So it won’t be terrible after 12 months, it just does fade a little bit. So there is a quality drop if we store it for too long. So that’s the balancing act that we have to, we have to navigate trying to get coffee at its optimum, balance the agricultural cycle and the demand cycle from roasters.

Gene Tunny  46:08 


Tim Hughes  46:10  

Now, it’s fascinating, I mean, and a good reason as to why I wouldn’t be able to do this on my own. You know, that’s why it’s such a great opportunity for what you guys offer here for, you know, the three stages of the coffee from the sourcing from the farm through ICT, the coffee alliance with the roasting and and then allows someone like me to, you know, benefit from all that experience and all those connections otherwise, yeah, yeah, so it’s from, from my perspective, it’s been great, very educational and very exciting. But yeah, it’s interesting seeing the dynamics behind the bigger operation, you know, and how far ahead you have to plan to get all this in place? I know, we talked about it with, with with my, you know, my business and the considerations that had to be made a long way ahead. And so yeah you have to secure those secure those, those coffee beans. It has all those different people? Yeah.

Gene Tunny  47:13  

Yeah, I found it interesting, you were saying, were you suggesting Rai that, I imagine coffee demand, it’s been growing has it, because the world economy is growing, population’s growing. But are you concerned that with these demographic shifts, I mean, I’ve found that extraordinary, but I guess that makes sense because the younger, the Gen Z’s in particular, they’re very health conscious. And maybe they, do they see coffee as not healthy, is that one of the concerns?

Raihaan Esat  47:43  

I just think that there’s a lot of, a lot of variety out there now, there’s a lot of choice. Let’s think back to say, you know, late 90s, early 2000s, anyone that wanted to look cool, carried around a cup of coffee with them. But now there’s so many alternatives. There’s bubble tea’s gone crazy. Right? So there’s an alternative for you. Tea shops in general have gone crazy. There’s an alternative for you. There’s so many other options for drink, hot and cold drinks. There’s yoghurt places, there’s milk bars, there’s so much different variety out there now. So I think there’s a lot of competition for choice. And that partially hurting the demand for coffee, even though the demand is still going up. It’s not going up at the same rates that it used to be.

Gene Tunny  48:34  

Yeah, I just wonder about some of the some of the bigger markets. I mean, I know in the States, they just all historically they’ve just drunk gallons of coffee and a lot of it in diners or wherever, just constantly pouring the filtered coffee.

Raihaan Esat  48:52  

People have changed where they drink their coffee as well. COVID was a big driver of this. When everyone started setting up home offices to work from home. What are the, what’s the first thing that they put in their home office? A coffee machine. Right? You, you could not buy coffee machines from white goods stores for six months, the demand for coffee machines went through the roof. So because everyone changed where they were drinking their coffee. So instead of say buying two or three coffees through the day, one coffee is now at home. And then the other two are out at work or from your local cafe. So the dynamics are changing a lot.

Gene Tunny  49:28  

Yeah, gotcha. But I’m just wondering, like, Are you starting, just like with the big markets, so say United States, China? Or is or is China a big market and India? I mean, maybe they’re not maybe it’s Europe, I don’t know what are the big markets for…

Raihaan Esat  49:44  

Yeah, China and India, Asia in general is, is an emerging market for coffee. They’re very traditional in, in tea. They’ve had long history of being tea drinking countries, and still are huge tea drinking countries, but what’s driving the growth in Coffee in those countries is this sort of middle, middle professional class, that’s growing like India has a huge middle class growing, that are professional people earning incomes really well. And they’ve got some disposable income. And so there’s time to spend on coffee because it’s the cool thing. Funny enough, though, in India, compared to Australia, Australia, coffee is a very morning thing. After two o’clock, it’s almost impossible to to get a coffee because all the cafes are closed, because no one’s really drinking coffee after two o’clock. In India, everyone goes out for coffee after work. Because they they have their day where after work, everyone goes out. So the coffee drinking culture is more evening time over there. Very, very interesting how the population uses the drink in a different way. For them, it’s more social. Whereas we’ve got a huge takeaway culture.

Gene Tunny  50:59  

Yeah, yeah, we do. I just realised that Arturo wrote a note on coffee and the market worldwide for my website for our website earlier this year. So I’ll put a link in the show notes. I think he might, we might have summarised the, where the demands coming from. But yeah, I found that fascinating that because of these demographic changes maybe here the growth will be moderated, or it won’t be as strong as it has been in the past. Or it could even mean demand could decline. Is that what you’re concerned about?

Raihaan Esat  51:33  

I’m more concerned about climate change, and the effects that it has on coffee production, because the demands for high quality coffee are so high right now, everyone wants the best of the best, or the best they can get for a given price. So the demand for high quality coffee is very high. But climate change is making it very difficult to produce coffee at a high level. For example, seasons are starting to change slightly. And there’s I’ll use a case study in Colombia, the farmer that we’re dealing with, never used to have a problem with what they call Broca. It’s the, it’s a beetle that bores holes into the coffee bean and basically eats it from the inside out. They are getting worse and worse and worse every year. And those beetles are actually very temperature sensitive. So they don’t like cold climates. As the temperature generally is increasing on average, these beetles are moving higher and higher up the mountain into the coffee plantations and destroying more and more crops. So to produce high quality coffee is becoming more difficult as a result of climate change. Weather patterns are changing as well. We’ve got rains happening when they shouldn’t be happening, triggering inconsistent flowerings in the coffee plants. And generally, it’s forcing producers to move higher up the mountain so to speak, right? The higher up the mountain you go, the colder it gets, the better it is for coffee, up to a certain level. But when you go up the mountain, there’s less mountain, there’s less land to produce coffee on. So I think there are some interesting pressures, especially on the climate change and geological side that are affecting coffee quite strongly. So finding high quality coffee is going to get more expensive, basically.

Gene Tunny  53:30  

Yeah I understand climate change. What do you mean by geological?

Raihaan Esat  53:33  

So we see countries that never used to produce coffee starting to produce coffee, or traditionally weren’t coffee growing countries, because the climate now is starting to move in a range that is suitable for coffee production. So maybe they were too cold or too high in altitude to be sustainable for coffee production. But as the climate’s generally warming up, suddenly that that geography of that area now is suitable for coffee production.

Gene Tunny  54:01  

Which countries are those?

Raihaan Esat  54:05 

So you’ve got countries like Nepal starting to produce some coffee. Some areas in Argentina are producing coffee as well. Cameroon. Those are probably the best examples. Ecuador’s producing a lot of coffee now as well.

Gene Tunny  54:23  

Gotcha. Right.

Tim Hughes  54:25  

That’s interesting.

Gene Tunny  54:27

Yeah. real example of climate change. Yeah, yeah extraordinary.

Tim Hughes  54:31  

Yeah, no, it’s that thing because I knew that those established countries were, yeah, having that problem of basically having a smaller, viable area to grow coffee, but um, yeah, it’s interesting, to, I hadn’t actually thought about it, but it’s clear that obviously those are the places that weren’t suitable and now becoming possible.

Raihaan Esat  54:50  

Yeah, yeah, look, another example is leaf, leaf rust. It’s a disease that affects the coffee leaves and it turns them from green into this rusty colour. And that also is seriously moving through coffee farms at a rate of knots and just literally destroying coffee plantations. So, you know, a lot of work is going by an organisation called World Coffee Research. We’re a supporter of them. And we actually sell little coffee trees that the Coffee Commune and all the proceeds go to World Coffee Research to find genetic varieties that are resistant to coffee leaf rust, for example.

Gene Tunny  55:28  

Yeah, good one. That’s great. Tim, what have we missed? Is there anything else we want to cover with Rai?

Tim Hughes  55:36  

No we’ve largely covered it. I mean, it’s so interesting. And I know that we could talk for a lot longer because it is it’s fascinating. Like, I’ve been immersed in this and been lucky to share a lot of time with Rai and use his expertise and ask him 100 questions. So this is a continuation of me asking in a broader sense, I guess, and learning more about the coffee industry as a whole. No, it’s been really good. I guess, what does the future of coffee look like would be the final point, I guess,

Raihaan Esat  56:03  

The future of coffee? Let me get my crystal ball. Where did I pack it, I must have left it in my other in my other bag. Hard to say at the moment, I think the coffee is at a bit of a point now where it can go one of two ways. Either, it’s going to get super expensive, because of all the pressures mounting up and and the result of that is we’re going to have to change the way that we drink coffee, which is only about probably 5, 10 years down the track from now. But if coffee gets to the point where it gets super expensive, let’s call it $10 a cup. I, we you’re going to be faced with the choice. Where are you going to drink your coffee? And what do you expect in terms of value for your cup of coffee? If you’re going to spend $10 on something, it had be, better be a damn good cup of coffee, and there needs to be a level of service that goes with it. I’ll use the burger analogy. I can go and get a $2 burger from a chain store. Or I can go to a fancy restaurant and pay $25 for a burger, right? Different level of experience that I received for my $25 compared to my $2, I think the same thing is going to happen with coffee, we’re going to see this widening spectrum of pricing, you’re going to still have the cheap coffees, and you’re going to have the more gourmet coffees, and there’s going to be a different level of experience that goes with them, the cafes, the organisations that nailed down that model correctly, will do well. And the ones that can’t keep up with it are unfortunately not going to do so well.

Tim Hughes  57:43  

That that’s actually really interesting. And just going briefly back to the point that you were saying about in COVID, all those coffee machines going out of stock, you know, as so many things did, of course, but I guess that’s one of the areas with with rising coffee prices. That third part, that last part of the stage of producing a great coffee, if it’s come from a great farm and grown well, if it’s been roasted well, that last part, which ultimately if you do coffee, you know have coffee at home, you have that responsibility yourself and there’s a massive growth opportunity for education as to how people can do that. Because it’s not easy making a great cup of coffee consistently. Like I’ve had some training. And it’s still hard, you know, to do something absolutely bang on each time as you do when you make a coffee. And I’m so impressed with the little designs you put in there as well, you know, just to top it off with but it really is an art form. But that’s I guess when it can become more affordable for a lot of people is if they have the capability to make good coffee at home. And it can be done reasonably inexpensively. But then it allows people yeah to, to save some money.

Raihaan Esat  58:56  

Everyone should have a good cup of coffee at home, definitely you should spend some time learning how to craft a nice cup of coffee, just the way that you would spend time learning how to make great pasta or a steak or a dessert. It’s, it’s part of a, it’s a ritualistic part of the process. It’s something that will enrich your life and gives you a lot of appreciation for what goes on in cafes as well. Because effectively when you go to a cafe, you’re paying someone to take your order to, you know, make and craft the coffee for you. Whereas you could do it yourself. So that’s probably where there’s there is a lot of scope for people to start exploring.

Gene Tunny  59:38  

I’ve got to ask you about that Rai in terms of you know, everyone can have a great cup of coffee. One of my favourite YouTube channels is the Whisky Tribal, or Whisky Vault I think they’re these guys in Austin, Texas, and they’re huge into their whisky. And they say the best whisky, because there are a lot of debates about whisky and whether you have single malt etc. The best whisky is the whisky you like to drink the way you like to drink it. Is that the same with coffee?

Raihaan Esat  1:00:07  

Very much so. And I think there’s a lot of room for exploration. Everyone is, generally speaking, how many times do you walk into a cafe and order the same thing, every single time. The coffee menu is generally quite large, there’s a lot of variation in drinks. So firstly, I’d encourage exploration, you know, explore the coffee menu and try different drinks, and then find the one that really does suit you. But the one that you like, might not be the same one every time. I drink a different coffee almost every day. Sometimes it’ll be espresso, sometimes it will be filtered coffee, sometimes it will be a milky coffee, depending on how I’m feeling on the day. And I’m sure the same thing goes for the whisky drinkers or for wine drinkers, if you just drank the same, the same beer every single day or the same wine every single day. Like, don’t you want to try something different? But some, but I understand some part of that is ritual as well. I want to, need to have some stability in my life. And coffee needs to be the stable thing in my morning. So I understand both sides of the equation, but I encourage explore exploration.

Gene Tunny  1:01:15  

Absolutely and given your own Economics Explored, and we’re all very much for exploration. I think that’s a good point to end on.

Raihaan Esat  1:01:23  

That was fun. Thank you guys.

Gene Tunny  1:01:24 

Very good.

Tim Hughes  1:01:25  

That was great. Thank you.

Gene Tunny  1:01:26  

Thanks Tim, thanks Rai, I really enjoyed it.

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

Speaker 1  1:02:18  

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Podcast episode

Digital Money Demystified w/ Prof. Tonya Evans – EP216

Professor Tonya Evans is the author of the new book “Digital Money Demystified: Go from Cash to Crypto Safely, Legally, and Confidently.” She discusses the topic of cryptocurrency with show host Gene Tunny. Professor Evans argues there are many myths surrounding digital assets, including their association with criminal activity and extreme volatility. She aims to dispel these myths and provide readers with a more accurate understanding of cryptocurrencies. Professor Evans is distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. Please note this episode is for general information only and does not constitute financial or investment advice.

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About Professor Tonya M. Evans

Dr. Tonya M. Evans is a distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. With a prestigious 2023 EDGE in Tech Athena Award, she is highly sought-after as a keynote speaker and consultant. Her expertise spans blockchain, entrepreneurship, entertainment law, and more.

As a member of international boards and committees, including the World Economic Forum/Wharton DAO Project Series, Dr. Evans remains at the forefront of cutting-edge research. She recently testified before the House Financial Services Committee and the Copyright Office and USPTO to advise on the intellectual property law issues related to NFTs and blockchain technology.

What’s covered in EP216

  • [00:05:31] Prudent crypto investing according to Prof. Evans.
  • [00:09:18] Crypto scams.
  • [00:13:18] Peer-to-peer technology.
  • [00:17:34] Taxing crypto assets.
  • [00:22:45] Central bank digital currencies.
  • [00:29:13] Exchanging value without government support.
  • [00:38:17] The currency of outer space.
  • [00:41:10] Self-custody and centralized exchanges.
  • [00:47:48] “Not your keys, not your crypto.”
  • [00:49:17] Underrepresentation in the crypto ecosystem.
  • [00:54:07] Learning the language of crypto.
  • [00:59:47] Tracking Bitcoin transactions.
  • [01:01:57] The speed of prosecuting crypto fraud.

Links relevant to the conversation

Amazon page for Digital Money Demystified:

Regarding a spot Bitcoin ETF, Yahoo Finance reported on 28 November 23 that “Crypto investors are awaiting Security & Exchange Commission (SEC) approval for a spot bitcoin ETF, which could unlock a surge of capital investment in the crypto space.”

Treasury Secretary Janet Yellen on Binance:

Transcript: Digital Money Demystified w/ Prof. Tonya Evans – EP216

N.B. This is a lightly edited version of a transcript originally created using the AI application We then used a human application, Tim Hughes from Adept Economics, to exercise his primitive brain and see if he could successfully hunt down mondegreens. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording

Tonya Evans  00:03

Now we have web three where not only are we exchanging messages of information, packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency.

Gene Tunny  00:32

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Hello, and welcome to the show. In this episode, I talked about cryptocurrency with the author of a new book on the topic. The book is “Digital Money Demystified” and the author is Professor Tonya Evans from Dickinson Law at Pennsylvania State University. Among her many achievements, Professor Evans was a 2021 Forbes over 50 listee in the investment category. She’s on the board of directors of Digital Currency Group and she’s testified before a congressional committee on digital assets. In other words, she knows what she’s talking about on crypto. This episode was recorded in mid November 2023. Please check out the show notes for any important developments since then, particularly for any news about spot Bitcoin ETFs that may have happened. I should note that one big thing that’s happened since the interview is Binance and its CEO pleading guilty to criminal charges for anti money laundering and US sanctions violations. US Treasury Secretary Janet Yellen has said “it’s willful failures allowed money to flow to terrorists, cyber criminals and child abusers through its platform.” As always, if you have thoughts on this episode, or other episodes or ideas for future episodes, please get in touch. I’d love to hear your thoughts on crypto, positive or negative. What do you think about Professor Evans defence of crypto against the major criticisms that it faces? Has she changed your mind on crypto? What about the recent news about Binance or SBF before that? Please let me know what you think after listening to the episode. Let’s get into it. I hope you enjoy my conversation with Professor Tonya Evans on crypto.

Professor Tonya Evans, welcome to the programme.

Tonya Evans  02:42

Thank you, Gene. Thank you so much. I’ve been looking forward to this. So I’m happy to, happy to chat about my favourite topic.

Gene Tunny  02:49

Oh very good yes. You’re certainly passionate about it, I’ve been reading your book over, well the last two nights. It’s, it’s an easy to read book. And I got through it in in two sittings on my Kindle. So well done on that. So yes, your book is Digital Money Demystified from go from cash to crypto safely, legally and confidently. To start off with, what do you think needs to be demystified about digital money? Or in other words, what motivated you to write this book?

Tonya Evans  03:26

Yeah, this it’s interesting because I do so many speaking engagements, obviously, as a not only as a law professor, which is kind of a different exercise in exploring things. I know, we’ll get into some regulatory stuff later. But at a higher level, there’s so much misinformation about the nature of the assets, why they even exist, what types there are, how they’re different. Some of the most common myths that I constantly explore and help people to right size include the level of crypto involvement in criminal activity, which is actually quite low. The nature of volatility, and the the existence of volatility is not the myth. This is a nascent asset class. And so, obviously, it’s very volatile. So when I compare crypto as a nascent asset class to earlier developments of assets like the stock exchange, for example, we go back to the 30s and Buttonwood and the volatility that was involved, so many things going on behind the scenes that people weren’t aware of. And that was very problematic when you think about the asymmetry of information which is often extremely problematic in the finance lane. You really need to have the transparency and accessibility for an open market. Otherwise you don’t have an open market and people are left to their own devices. People are investing in things when they don’t have all of the information. And so that’s what made it really interesting for me to 1) start to study the area, but 2) to make sure that people understood the existing system, how crypto assets and blockchain technology actually changed that. And kind of where we go from here. As you can tell, the book is not an argument. For someone to absolutely buy crypto, I still leave that up to the person, but I want them to have a more informed body of information to draw from so that they can actually make good choices. One of the ways that I like to explain it is to say, you can actually be a prudent crypto investor, which sounds like an oxymoron. It’s like prudent and crypto investing, how do those things go together, but people are afraid of what they don’t understand. And the reality is, and we will continue to talk about this in our conversation. This technology is here, not just as a matter of Bitcoin and Etherium, and some of the other coins, but every major, not major, but every country is looking at its own version of digital currency in the form of central bank digital currencies. We have FedNow which is not in and of itself a cryptocurrency. But it’s kind of like the the framework or the platform for digital assets that I believe, my personal opinion, the government would not have this official statement today. But three to five years from now, we’ll look back on this moment in time, where FedNow, the rails, the frameworks to enable digital asset transmission, I believe will be the precursor to a central bank digital currency in the United States. And finally, when I think about the various investment products that will become available, probably, I’m pretty conservative so I would say at the beginning of 2024, we will see an exchange traded fund specifically for Bitcoin, probably 12 to 18 months after that, for Etherium. This will be an investment product that is available to investors, and also the professionals, the financial advisors that have to make sense of this, the CPAs the lawyers. So for all of these reasons, at least demystifying the space so that people don’t fall victim to the clickbait and the sensational headlines, some of which are horrible. I, there is no place for criminal activity, Sam Bankman-Fried is going to enjoy a lot of time in jail. I’m absolutely for that. But you know, that is one small part of a larger ecosystem where the great majority is used for legitimate not nefarious purposes. So for all those reasons, I just think it’s important that people level up their, their understanding, you see from the book, The glossary of terms, just helping to demystify and understand so that people will lean into the education piece to decide then if this is something that they want to add to their profession, or their portfolio.

Gene Tunny  08:04

Yeah, yeah, absolutely. So you mentioned the glossary of terms just then I think that’s one of the standout features of the book. So yeah good work on that. Professor Evans, could you just explain the difference between some of these scams until, I read your your book, I didn’t appreciate the difference between an exit scam and a rug pull. So I hear about rug pulls all the time on Coffeezilla’s channel on YouTube, could, are you able to go over what those different crypto scams are and what to watch out for? Please?

Tonya Evans  08:40

Yeah they’re quite close, right. So it’s the difference of having a team that from the beginning, knows that they are going to turn the lights off at some point, they’re gonna, you know, pump up the price, get a lot of enthusiasm. And their goal from the beginning is to scam people out of their money, right, and to set the market conditions in order to get the highest price possible to leave others downstream holding the bag. Right, as opposed to someone that at least in the beginning, has some good intention and realises at some point in time, it’s not going well. And that people who have invested fall into what we talked about earlier about not having all the information. So you have a key some key decision makers that still have an influence on a project. Oftentimes, it’s not built yet. So they have grand plans, they have a roadmap, they might have a white paper, but at a certain point they run out of gas and they disappear with everyone’s money and all of a sudden you can’t find them anymore, closely aligned but so it’s more of the intentionality from the beginning. But the end result is a lot of people get caught holding the bag.

Gene Tunny  09:51

Right so the exit scam is where there’s that intentionality at the beginning is that right and the rug pull is yeah, we stuffed up let’s just try and get out of it. And yeah well…

Tonya Evans  10:01

That’s right, that’s right.

Gene Tunny  10:05

Bad luck investors. Okay. Righto, so you’re a Gen X law professor right? So I think I read that in the book. So you’re same generation is me and I often feel I’m probably, if I was five years younger, I probably would have got massively into crypto, but I was probably, at the start of it, I was a bit sceptical of it. How did you become like, as a lawyer, as a law professor, how did you become interested in crypto in the first place?

Tonya Evans  10:34

I had a friend who was getting an advanced degree in the future of media and kind of the intersection of media and new technologies. And to take a step back, I actually am primarily an intellectual property lawyer, and law professor, I just actually celebrated my 25th reunion from Howard University School of Law. So I’ve been around for a minute, I practiced law for 10 years before I even started teaching. And now as a recovering practitioner, also known as a law professor. And I get to lean in to things normatively, how they should be rather than day to day kind of practically what they are, right? That’s really the transition from representing clients to informing law as it’s being developed. And so I was very interested in the work that she was doing at the intersection of media and blockchain. I had heard of Bitcoin at the time, this was in 2017. Bitcoin was first launched in January of 2009. So it had been around for some time, but was really relegated to the fringes of cypher, the cypherpunk movement, mostly those kind of tech men, mostly with a technology, technology background, and also in finance, and kind of like this microcosm of two microcosms is the area of cryptocurrency. So mainstream adoption or even awareness just wasn’t a thing at that time. And also, as you mentioned, I’m a lawyer. I’m licenced to practice law in four states, New York, New Jersey, Pennsylvania, and DC, I am highly revered. In my profession, I have no intention of losing my licence. And so trying to make sense of this magic internet money was not something that, that I was at all interested in at the time. But what I was interested in is her discussions around the underlying technology that was organising financial data, the transactions and the balances in a very novel way, using existing technologies. But again, organised in a novel way. So what were the technologies, are the technologies? Cryptography, which is the encrypted messaging that has been around in some form or fashion, quite frankly, for millennia, obviously, it’s digital now. But the idea of going from point A to point B, or sending a message, often in times of war and other areas, the ability to send to encrypt and decrypt messaging was critically important. But that’s been around for forever, then we have peer to peer technology. So as an IP lawyer, I’m also interested in this part, because when I first learned about peer to peer technology, it was gonna, you know, upend the media, ecosystem, and that entire industry was going to fall because you and I could be in completely different places but I could send you a perfect digital copy of a media file, and then go on the internet and send it to 1000 of my not-so-closest friends without exhausting the original. So I guess that was great if you wanted to share music, not so great for the music industry, but for everybody else. But obviously, if you are doing that with money that runs into the double spend problem, where, you know, I can say I have $100 in the bank to send it to you and also to Susan, and the first person to cash that check is the one who wins that is that’s not going to work for money. So the novel way of using cryptography, peer to peer technology, the internet, and then a novel way of coming to agreement, we would call it we call this the consensus mechanism of coming to agreement where I don’t have to trust you, but I trust a software that is pre-coded with the rules of engagement. It’s open source software, which is also lends itself to copyright, to patent areas of interest as an intellectual property attorney, where I was like, Well, I have to figure that out. I have to let my students know that this is something that is changing the nature of intellectual property. And it doesn’t, it didn’t seem at the time that I needed to also fundamentally understand cryptographically secure digital assets. But I fell down the rabbit hole, it was quickly apparent that understanding the technology I need needed to understand the nature of the assets that were being validated, verified and secured. In this type of news decentralised database, I didn’t have any appreciation for all that language at the time. But being drawn in, in my existing area of expertise, I think was the best way for me to be intellectually curious, and to really learn more.

Gene Tunny  15:31

Gotcha. And are there many legal cases? Is there much litigation regarding crypto?

Tonya Evans  15:38

What we’re seeing now involves, the short answer is yes. Now, but mostly at the federal and state levels against federal or state regulators and various parties or, or stakeholders, participants in crypto. I don’t know if you have a lot of them in terms of the actual number but the import of of actions with the SEC, the Security Exchange, Securities Exchange Commission against some of the big ones we have coinbase, we have the ripple case with ripple is a network that has a native token called XRP. That has been tied up for a long time until recently, when a federal court said that the SEC led by Gary Gensler had really overstepped the boundaries of their regulatory power. The way that reg, regulatory bodies in the executive actually get their power is it’s delegated from Congress. So an agency can only do as much as they are empowered to do by their enabling legislation. And the federal court said that the SEC overstepped its bounds actually making it the, clearing the pathway I should say, for those spot, Bitcoin exchange traded funds or ETFs, that are likely to be approved begrudgingly by the SEC, in my humble opinion. But as soon as November 17, perhaps in the first quarter of 2024, that is one of the most exciting and also pressing legal issues that people will start to learn more about. There’s other things going on with Treasury, trying to make sense of how to properly tax crypto, it was always a nightmare when I first started buying and exchanging crypto in like 2018, where you literally had to have a spreadsheet because crypto, all crypto assets are taxed in the United States as a capital asset. So imagine that every time I am going from cash to crypto, as I say, from, you know, $1 to some portion of Bitcoin is a taxable event, even if I’m using the dollar to get bitcoin and then within the same day, or maybe the same week, then exchanging Bitcoin for ETH. And then using that to get a stablecoin every single time there’s a an exchange, that is considered a taxable event, even if it’s negligible. So the argument before the before treasury, in general and IRS in particular is there should be some de minimis amount. In right now, the number that’s floated is about the equivalent of $600, where we, I mean, it gets to be completely impractical to have to account for every single transaction under that amount, because you’re not worried about money laundering, you’re, you know, you’re not worried about significant fraud or anything like that at that level. And so that’s a really interesting thing to watch. And then finally, there’s a lot of, I don’t think it’s going to happen in 2024, because we’re in a presidential cycle, but a lot of support for various types of legislation to give greater certainty as a matter of regulation. But greater clarity of what agency is actually primarily empowered, if at all, will there be a primary or lead regulator as between this SEC and the CFTC? That’s major. The CFTC is responsible for futures and for commodities. But there doesn’t seem to be agreement between the head of the CFTC and the SEC about the taxonomy, the characterization of various assets. And it’s problematic because most of them are programmable. They actually can change the nature of their character, they might start out as a security. I argue that Ethereum actually did start out as a security. It was, the project was not yet built, they did an initial coin offering inviting people to invest and get a return on their investment. That is, and it was not registered. That would be a classic unregistered security. But years later when it was fully decentralised there’s no central foundation or entity responsible, I argue, and the head of the CFTC would agree that that ETH is a commodity. But the SEC is the head. Gary Gensler does not agree. So I say all that to say, there’s a lot of uncertainty that is driving business away from the United States, to other jurisdictions where it may not be easier, but at least it’s clear. And that’s one of the greatest dangers in the United States is that we would not lead in this area. So those are some of the things to really look for in the headlines that have a direct impact on mass adoption.

Gene Tunny  20:54

And what jurisdictions would they be Professor Evans that the activity could be driven to?

Tonya Evans  21:01

So we see a lot of offshore stuff in and by off, sometimes, when people hear offshore, they immediately think illegal, this is literally off of the shores of the United States. So it makes me think of the Bahamas that has its own central bank currency, the sand dollar, it makes me think of Bermuda. I’m a former member of their advisory board, their financial Technology Advisory Board. They were quite forward thinking. Bermuda is particularly interesting, because it’s a jurisdiction that has a long history of well regulated very clear insurance. And so that’s an interesting place. Zug Switzerland is known as you know, like the Crypto Valley, in the same way that we might think of Silicon Valley here in the United States, quite forward thinking. Singapore is ahead of the curve. Absolutely. It’s the UAE. Despite all that is going on in that area of the world. The UAE, in general, makes me think of Dubai in particular, and Abu Dhabi. A couple of years ago, I was one of the first of Forbes 50, over 50 listees and we celebrated in Abu Dhabi, for example. And I was amazed not only how opulent and beautiful, but how progressive in terms of forward thinking with with crypto. And finally, and this is not a leader that we want to follow, but it’s a caution… not, well, I’ll say it a cautionary tale regarding central bank digital currencies, is China. China was the first country to launch a central bank digital currency, which raises in me all sorts of alarm bells, not not for central bank digital currencies in and of themselves. But the huge issues around financial privacy that people need to get up to speed on if in fact, the United States would start to publicly explore CBDC here, that you want to have the same financial privacy that you do with cash, but have the convenience and things that are better, faster, cheaper, with respect to digital assets. So there’s a lot going on in this space and a lot of activity. In fairness to the United States, there’s some countries and I’ve mentioned a few where you have just one regulator. They don’t have the alphabet soup of the FCC and the CFTC and the partridge in a pear tree right in, in the executive. They don’t have the committees and the subcommittee’s wrangling for jurisdiction and oversight authority in the legislature. However, you know, it’s more simplistic. And so it used to kind of not be a great thing, but it is when you need to be nimble and move quickly because our system is not intended to move quickly. It’s actually built this way to slow things down and be more methodical, but that doesn’t work with this type of technology.

Gene Tunny  24:16

Hmmm, yeah, yeah, absolutely. I imagine that our regulators, I’m in Australia, so I imagine they’re looking closely at what’s happening in the States to see where things land. And you Yeah, it’s fascinating about this Bitcoin ETF. And I know that there was a group in Congress that’s looking at the regulations of how they changed the regulations around the SEC yet or is that something still to do? Do they need to give SEC more powers?

Tonya Evans  24:47

They’re exploring it. The short answer to your question is yes. Because the rulemaking authority that is delegated to an agency comes from Congress and so, we call those enabling or enabling acts, there’s another term as well, but enabling act. So basically, Congress says, here’s the framework, you’re the subject matter expert executive agency. So you all kind of you’re the mortar to these bricks. And it’s the executive branch in general agencies in particular that, that put into play the actual rules and regulations and actually run the thing you think of it like as you have a CEO, the President, and then you have all of these smaller bodies that take care of the day to day functioning, based upon, okay, we have this delegated authority from the legislative body, but it’s ultimately up to Congress to say you’ve over stepped, what we asked you to do, we empowered you to do X, Y, but now you’re doing Z, or also to say, hey, when we created this enabling legislation to empower this agency, we did not have this in mind. We did not have this in mind, right. And so we’re gonna need to go back to the drawing board on this. And I am encouraged that there is in many important, for many important issues, there seems to be a bipartisan effort. I don’t think this is beholden to one party or the other, although it is certainly playing itself out that way. When I think of President Biden’s executive order to order all of the agencies to look into the space and to come up with their rules, a report outs, etc. That happened back in 2022, in March of 2022. So a year later, we have some of those reports. The concern has been, and it’s been a bipartisan concern, that and what I what I testified about in March was about what appears to be a Choke Point 2.0. Choke Point 1.0 was an actual policy under the Obama administration that was cutting off banking access to certain industries deemed to be harmful at the time. So it was like the payday lenders and things like that. Ultimately, it was overturned. But you could at least intellectually understand why that might be. But it ended up not passing muster. We don’t have something on the books, but in effect, it has been very difficult for people operating in the crypto industry to actually be banked. They said, You know, it’s basically like, well, if you want it to be off, you know, off the grid and have your own little money, then you won’t use our banks to do it. And what we’re seeing is that and that has happened in the marijuana industry as well, it’s like if this is if something is otherwise legal, and lawful, that we shouldn’t have a government operating against it to thwart its progress and kind of kill it in its infancy, which what it appears to be. And so you will see this discussion around banking and and being able to onboard meaning going from cash to crypto, and off boarding, settling out, selling in the way that you would sell stocks, and then recoup in in Fiat. So we’ll see that playing itself out too. But that’s another major issue.

Gene Tunny  28:20

Right so is that really difficult at the moment so does the government make it difficult to do that?

Tonya Evans  28:24

It has been very difficult even for someone like me, in addition to teaching at Penn State, Dickinson Law School, I have my own onboarding platform. It’s a online business, I do not sell tokens, I do not invest for other people. And I have either been debanked or had an application denied just because I am a crypto educator, which makes no sense in the world. And it was too difficult because what banks were also hearing is, the government doesn’t like it, even though banks are private, they are in general, they are inextricably linked with the government, as we always see in terms of bailouts, etc, etc. And so when you hear from on high, that this is something that the government at this point in time does not fully support, in my humble opinion, because it is a customer service issue. When you start exchanging value that isn’t beholden to a government. That’s a big deal. You know, it’s we’re basically looking at a time where you have internet 3.0 web 3.0 is what people refer to it as, in the web 2.0 version. There was great support around the globe for the global exchange of information. Yeah, we had to use the internet, you had to protect the internet. Katie Couric and Bryant Gumbel had to figure out what the hell email was because we were all going to use it. Right. And that was great. And we wanted to support innovation, blah, blah, blah, blah, blah. Now we have web three where not only are we exchanging messages of information packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency. That’s a BFD. And so that changes the conversation even though the technology is the same. And so we have a customer service issue. And until governments can figure it out, I don’t think they’re always going to be very excited, particularly in the United States where we have the globe currently. Let’s talk about it in 10 years, but currently the global reserve.

Gene Tunny  30:42

Yeah, yeah. In your books title, you talk about going from cash to crypto. And that’s a you’ve got a registered trademark sign there, is that your platform is it Professor Evans can you explain what cash to crypto is about please?

Tonya Evans  30:56

Yeah, that’s my signature course. So I when I launched Advantage Evans Academy, my primary course and it’s still up and very popular today. It’s an on demand, evergreen version, I’m constantly updating actually, because things change every year. And it takes you in five modules from introducing folks to fundamentals or even the purpose. We start with mindset of even trusting ourselves, managing our own money, because as a Gen Xer I grew up, the minute that you had any money, you’re gonna put it in the bank. And it’s interesting to learn more, as I’ve learned more about the crypto space to really fundamentally start to unpack savings and loans, it’s like, Alright, so let me get this straight, I’m going to put a whole bunch of money into the bank, maybe you used to be able to walk down to the bank, I don’t know if people can do that anymore. And I’m gonna put my money in and it’s gonna be safe there and up to $100,000. I’ll get it back. If we all want our money, even though I plan to have way more than $100,000 stored for another day, right? But let’s say I just have 100,000, it’s FDIC insured, and I’m going to earn a pittance, if anything in interest. And then that same bank is going to loan me back my money for cars for homes, and they’re going to keep the spread. I don’t like that. I don’t like that system. I didn’t know that was a system where I was taught not to trust myself. And not to worry my pretty little head about it. Well, I’ve learned so much in the last six, going on seven years than I had, and I went to Northwestern and went to all the best schools I graduated with honours that from law school. My dad’s a doc, my mom’s a lawyer. I knew nothing about money before I really started to lean in and see how disconnected I was even from the process. Even from understanding when people ask me, what is bitcoin backed by, like what is the dollar backed by? And I don’t hate dollars, I love dollars. But we haven’t been on the global, excuse me the gold system standard for decades. Based on the full faith and credit of the government, we keep coming up against the threat of government shutdown, we’ve had two downgrades in our credit rating, because people aren’t trusting us as much as they used to. Because it’s our full faith and credit. Our word is supposed to be our bond, and it’s scaring the rest of the world. So this is an also, an alternative, alternative to that, that people need to get aware of. Not necessarily replacement in toto today. But you definitely want options in this world.

Gene Tunny  33:33

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  34:07

Now back to the show.

This is something I’ve covered on the show quite a bit because it’s obviously a huge issue in economics. And I mean the way that I think about it and that economists think about it’s well Milton Friedman in Monetary History of the United States, even you know, he acknowledged look, money is a fiction. But what will, what the question is which, which fiction is the most powerful do most believe and the fact is that with dollars, you can settle existing contracts, all the prices are in dollar terms. And you can pay your taxes to the inland ra…, internal revenue or to the Australian Taxation Office in the local currency. So that’s what gives the dollar power or means that that fiction is strongest. And I think that’s, that’s why many economists are concerned about that. And why there is that concern about well, maybe, I mean, is this volatility going to ever settle down? I don’t know. I mean, I think I take your points in your book, I think you make the best possible case for, for Bitcoin and for crypto. But yeah, I think that would be the concern of, of economists. Do you have any thoughts on that at all Professor Evans?

Tonya Evans  35:29

I think it’s important, it’s an important metric. I don’t even know if it’s a success or not, but just to understand what position crypto should have, if any, in an overall portfolio. And obviously, there is I mean, Bitcoin, for example, is up almost 70% this year. And it is one of the quickest ways over its lifecycle to get a significant return on investment as it goes through it’s bull and bear cycles in the same way that the stock market goes through bear, bullish and bearish cycles, the manipulation and I don’t use that pejoratively, but the way that monetary policy is set with inflation, we’re tweaking it’s kind of like we’re calibrating, right. And so there’s a natural energy lifecycle to assets. And as long as you are strategic, you could have something that is very, very safe and secure and predictable, offset with something that isn’t, with great risk comes greater reward, and then it’s an overall balance a balanced portfolio that I think is most important, I would not recommend, although I know some you know, Bitcoin maximalists will cash out their 401 K and put it all into Bitcoin and let it roll. They I think there’s a privilege in being able to do that, because I believe that if past is prologue, we are we will be entering a bull market soon. I think with more positive news. We’re getting past the crypto contagion, we have endured a two and a half, almost three year down cycle. And historically speaking, things have ticked upward. Bitcoin is generally the the rising tide that lifts all boats around. So even really crappy coins start to do modestly better. When bitcoin is doing better, that’s one of the many dangers I see in the space. But you know, whether or not this becomes this entire ecosystem becomes more stabilised. I believe that is possible. I just don’t know if I can read the tea leaves yet of when. But I do believe it’s not a matter of if but when giving, given the import of this technology that is just so pervasive across industry, and sector, it also makes me think of what will be the monetary standard. And this is not too far fetched to stay in space, in outer space, and we don’t have all of the sophisticated borders and things of that nature, but you’re gonna have to have a common currency that becomes more than any one government or, or country’s currency. What currency will that be? It’s probably going to be a digital asset. Which one I don’t know. It may not be Bitcoin, but it’s going to be some type of digital coin. And so preparing for that now and having a first mover advantage depending upon your risk tolerance is something that I’m willing personally to do. And I believe the first step to that is for folks to lean into education, from cash to crypto programme is great for fundamentals. Obviously, the book is a quick read that just level sets, facts so that people have a better idea of what questions to even ask, as they start to kind of become cautiously optimistic in the space, not fall victim to fear uncertainty and doubt or FUD and definitely not to fall victim to FOMO when people start talking about it and and celebrities are back in and NFT’s are all the rage and the next DOW comes out like you cannot be emotional about strategically investing for the long term. And so that’s what I want to educate and empower people to do through through my work through my courses. And certainly through the book.

Gene Tunny  39:22

Gotcha. You raise an interesting question about effectively what’s going to be the currency of the Galactic Empire. I’m gonna have to think more about that and see if any science fiction writers have thought about that. That’s quite a quite an important question. I like it. Right! With the, one thing I’m wondering is do you know how, how extensive is Bitcoin or crypto being used for actual transactions? Are contracts being written in do you see any of that going on?

Tonya Evans  39:53

That’s a great question. I’ve not quantified that yet. I love that question. You’ll have to have me back and we can uncover that. What I know for sure is that more and more legacy companies are creating opportunities for their existing customers to stay on platform and to have access, exposure or some of the the benefits of crypto and the underlying technology. So MasterCard and Visa have products now that will allow you to either earn crypto back, or to pay for things in crypto and you don’t really have to ever touch Bitcoin or whatever crypto is connected to it, because that happens behind the scenes. But you can say I offer this product, right? There’s still I don’t think they’re set their real time settlement is to the blockchain, right? They still have their legacy infrastructure, but they want to not lose customers, as people become more curious and have more opportunities. So Visa, MasterCard, PayPal, they will, PayPal first entered into the space, they would allow you to purchase Bitcoin, I don’t think it was other coins at the time, but you couldn’t take it off platform. So for me and for cypherpunks, or others, like the whole thing is your own personal self custody of your assets. So I don’t leave things on a centralised exchange, even if I trust it. Look what happened to you know, those who had left their property on FTX’s, centralised exchange or BlockFi. We saw a lot of lenders, you know, go out of business and file bankruptcy and your coins go with it. So self custody is a really important thing. But most people are not going to do that now. And PayPal knows that. So giving people the ability, they realised they weren’t going to get a lot of traction if they didn’t allow for people to take their Bitcoin off platform. And eventually they developed a product to do that. And in addition, they recently, I don’t know how to pronounce it, but they have their own coin. It’s like PY something. But it’s a PayPal, stablecoin so that they can do real time settlement within their own PayPal ecosystem, which is really really powerful Cash App, you have been able to buy bitcoin off of Cash App forever, and then transfer it off into your own self custody wallet. We have, in full transparency I am a member of the Board of Digital Currency Group, which owns Grayscale as in CoinDesk, it owns Genesis as well as well, probably 200 different projects and companies in its portfolio. And one of those is Grayscale, Grayscale has GBTC. So the Grayscale Trust, I’m sure a number of people have seen their commercials and Grayscale has petitioned or applied to exchange or change the character of GBTC into a spot Bitcoin ETF. And so there are so many companies BlackRock, one of the most prudent, traditional historical companies in the in the investment space has applied for an ETF as well. So Deutsche Bank, it just the gamut. So most of that exposure has been for high net worth individuals, but the crypto really is a democratic, inspiring currency. And that’s not a particular political party. It’s this the democratic with a little D that democratises access to, to money and not just money. Because we, it’s a bit of a misnomer to say cryptocurrencies. I feel like if we had to do all over again, we’d call it what I say as crypto asset, because some function well as currencies as we’ve talked about, but it also here in the States and around the world. In in Australia, for sure. We, it is a capital asset. So it’s not just currency. It has additional powers and properties, which is why many people right now, lending to its volatility. This idea of holding on we hoddle or huddle, you’ll see. So used to the proper word was hold and then it was misspelt and now it’s folklore to say huddle, instead of hold that holding for the long term, which makes Bitcoin in particular more valuable because it has a hard cap. Unlike many of the other coins and currencies that are more susceptible to inflation in the same way we see government issued currencies. So so so there’s a lot there to to focus on. You mentioned volatility is one thing I wanted to tie up with that as well, because it lends itself to what we’re talking about now. As more entrants come in to the space, as liquidity continues to rise, as clarity in the laws and regulations start to settle, historically speaking, the volatility of pricing starts to diminish. And the interesting question will be, how long will that take in this space? It just feels like everything is moving more quickly. I don’t know if it’s because I’m getting older or the world is moving faster or both. But what used to take decades and decades, I don’t know that it takes as long anymore, but time will tell.

Gene Tunny  45:36

Yeah, yeah. You mentioned GBT, was it GBTC? Could you? What does that mean? Sorry, I missed that before GB…

Tonya Evans  45:46

Grayscale has a Trust Company and it sells shares of its trust, and the trust holds Bitcoin and other assets. And what and so that was permissible, but it was set up as a trust, not offered as an exchange traded fund for Bitcoin specifically, and so Grayscale submitted a proposal, an application that is sitting before the SEC currently to be approved for a spot Bitcoin ETF. So it has an existing infrastructure. GBTC is available and traded, but based upon trust interests, not as a spot ETF, and that’s what we’re waiting to see. There are 12 different applications before the SEC, an important date for approval is the first one would be November 17. So there’s been a lot of speculation, will the SEC approve one, a few, all 12? So as not to be kind of like the kingmaker to say this is the first one we will approve, maybe that would unfairly, you know, nod to one particular company over another where I believe the SEC hates them all. My opinion, not the opinion of this show. But the federal court said what it said, so we’re gonna, you know, not a matter of if but when but will it be all of them? Will it just be the one from Grayscale? Will it be the first one that they receive? But there’s some date certains that are built into the application process and that’s what the SEC is coming up against now.

Gene Tunny  47:25

Right! Okay. Yeah, definitely. Look out for that. Right I’ve just got two more questions. If you have time Professor Evans this is fascinating. Really, really interesting. And I like the point you made about how you got to make sure you actually own the the assets, the crypto, there’s a phrase you use, I can’t remember off the top of my head but something about you if you don’t own the keys, you don’t own the crypto is that it? Something like that?

Tonya Evans  47:48

Yeah, not your keys, not your crypto not your keys, not your coins, not your keys, not your cheese, whatever you fancy.

Gene Tunny  47:54

Gotcha. Yeah, the other term I learned that is the Lamb bro. So for the Lamborghini bros. And so if we do have that, the bull market in in crypto, we’ll see a few more Lamborghinis out on the street. So it’s a bit of a…

Tonya Evans  48:10

We might, and I will have to say that those who, particularly cypherpunks, hate, hate, hate this moniker, they hate it, hate it, hate it, and I get it. I will tell you, as a woman who has gone to a number of conferences, it’s rough out there sometimes. I think there are men who have the privilege of not seeing how male dominated it, certain ecosystems can be, I mean, certain conferences can be and how intimidating it can be when people are drunk and things are going on and was very flashy. I think that is a misrepresentation in general of my experience, and I’m a black woman. As long as you know, I talk the talk and walk the walk I have, generally speaking, been received well, I have to say. That being said, the Lamborghinis, the parties, the strippers like that’s a lot. So when it makes me but, you know, you think of the idea that we have the finance world, and we have the tech world. And then they come together into this microcosm. The Crypto ecosystem is a microcosm of those two spaces where women are underrepresented significantly, even though it continues to improve people of colour, etc. And so there is no impediment other than one’s own education and knowledge and awareness of the space, which is encouraging. And I think for those who have been in the space for a long time, or maybe from the Cypherpunk movement would say, we’re not keeping anybody out. Right. Many are libertarians, they were like, equal …. is good. Get yours. I’m gonna get mine. I’m not going to keep you from yours. Don’t keep me from my, and I get that I respect that. I think there are other forces that work that make me want to be more intentional. To know how much personally and professionally I have benefited from the knowledge and awareness, the professional pivot I did as a lawyer, as a professor, as an educator, that now I believe, for anyone in the world, it is the best opportunity in countries like mine, and countries like yours, to get ahead to kind of level the playing field to get get caught up as a matter of generational wealth at any other time, in certainly my history, but I would argue the history of the world, because things are digitised, we’re starting to remove like redlining and gatekeepers, things that would maintain the status quo to have the best for just a few. And then the rest left for everybody else. This is one of those pivotal inflection points in life. And I don’t think it’s hyperbole to say, because I know personally, and for those who I’ve helped educate who are like me, that this was that makes it more exciting to. And so I, it was really important for me to put that chapter in the book, because I wanted to not only say, the crypto bro thing it has existed, but it hopefully is the exception and not the rule for people who are very serious in the space. But also it misrepresents all of those who are curious and well positioned to take advantage of the space too, because the only thing that is keeping people out presently is a lack of awareness, education, and some protection as they enter an untested space in many ways.

Gene Tunny  51:46

Gotcha. And that is one of the themes of your book, you were referencing it before. It’s the idea that you see this as it can level the playing field or can provide opportunities to people from minority groups. And I know you’re not saying definitely invest in crypto, but yeah, how do you think about it? Because I see risks in crypto. And I mean, is this the right thing for someone starting out or some someone with not a lot of resources to invest in first thing? How do you think about that?

Tonya Evans  52:17

I would like to see kind of a both and approach particularly with respect to Bitcoin. When I first started in the space I, for a number of reasons, one as a professional and thinking a lot of my profession and not wanting to misguide people, knowing people would trust my voice if they heard it from me. And so I didn’t want to be in the habit of saying buy Bitcoin, buy ETH, buy this, buy that, I’ve changed my approach because Bitcoin is quite special as are stablecoins, I actually think stablecoins are the best way for people to get in. They’re not going to get wrecked by volatility. There’s some really strong ones, USDC from Circle, I have great respect for that team doing exceptional job. I know some of those folks, personally, I love USDC. We also have Tether. I don’t know who the people are. But I know Tether is very important to the Etherium ecosystem. It’s kind of like the oil that keeps things going there. When people want to jump out of the volatility of the market, but not out of crypto, they often move in the stables. And there are ways that you can earn interest and yield and blah, blah, blah. And so, I believe the short answer to your question is that this is a space where you want to start buying, you do, the best days right now are when most people aren’t there. The best times to make a sizable return if it’s to be had at all, is when most people are scared. Right? Warren Buffett says be greedy when people are fearful and fearful when people are greedy. When people start to get greedy, that’s when you know you’re probably getting to the top of a cycle and it’s time to like stabilise move things around, rebalance, reposition. And to really understand that with all of those, you know, 1000s and 1000s of tokens and coins. I hope you’re not gonna buy them all. Probably not gonna buy the overwhelming majority but they’re the you know, the top five, top, top 10 have a proven track record. That doesn’t mean they’re always going to win. But if you start now, you start learning the language. It’s what I’ve even done with stocks when I started swing trading, not day trading, but swing trading sometimes I had to start to learn how to read charts and candles and wicks and bar graphs right to start understanding. If this is the way this particular assets move, once it hits this particular range, maybe that’s a great time to buy. Maybe I’m wrong, but at least I’m using some type of disciplined, non emo…, separate, disciplined approach like separate from emotion. And that’s really important. Some of those same strategies can be used in the crypto space, but the major caveat, not only as a matter of volatility, but also this is 24/7 365. There are no national holidays. There’s oftentimes no customer service. I mean, if you’re buying and holding on an exchange, you have some additional layers of protection. But you have some risks even being on exchanges. This is the time to learn about this. Stable coins, literally are pegged to a particular asset, in most cases, the dollar or some equivalent of that as well. So you don’t have to go up and down with the market, but you can learn about the market. And then finally, back to my original point about Bitcoin because it has a hard cap of 21 million coins that will ever be in circulation, and actually 19 million are already in circulation. But it’ll be a long time after my life. And yours when the final bitcoin is actually issued for some technical reasons we can talk about next time, but it’s special. It’s special. And actually, I don’t think and I think many people would agree with me, Bitcoin doesn’t really function well as a peer to peer cash for more stable economies in Australia, in the United States, in Canada, in very various places in Europe, because it’s a nice to have for most people, not a need to have. But then you go to other nations, you go to Central and South America, you go to countries on the continent of Africa, and you start to see places, Ecuador and El Salvador, where there’s complete destabilisation, there’s confiscation, it is critically important that people have access to something that will hold its value better than the national currency, that is more trustworthy and non-confiscatable in the same way that their local currency is. And when you when you start to learn about that, like people need to travel and understand different cultures and people to really get a handle on why this even if it’s not important, and like a nice investment to have, for some it’s life or death for others. And eventually, every one of us will be touched by some catastrophe at some point that will have a direct impact on our finances, be it natural disaster, something going on, God forbid, with the government and everything in between, like, we have to pay attention to what’s going on in the world. And to, there’s 99.9% of things we can’t control, control the controllables. And one of those is your own level of education in a space that’s transformative, but has the potential to be empowering and to protect you down the road. By the time you need to figure it out. It’s oftentimes too late. So now’s really the time, the market is kind of quiet, the bad actors are starting to get routed out. This is the time when you don’t have the FOMO and FUD pressure, and you can proactively start to take some significant steps in the right direction.

Gene Tunny  58:03

Righto, okay. Final question. You mentioned about criminal activity and as a proportion of all crypto activity, the criminal activities, very small proportion, okay, accept that, but has crypto, is there any evidence on whether crypto has enabled criminal activity? So it’s expanded the amount of criminal activity out there in, so does it make it easier to traffic arms or just you know, awful things like human trafficking, etc? Do we know in drugs? Do we know anything about that?

Tonya Evans  58:37

It’s just a small, small part. There are some significant bad actors who deal precisely in the things that you’ve mentioned. But and the Wall Street Journal here. Maybe within the last, well had to be within the last month, they ran this completely error-ridden report about Hamas, raising millions and millions in Bitcoin. And there was this huge rush by Senator Warren and some other folks signing off on letters saying that needs to be immediate action taken. And it was just completely wrong. And it was scary that our legislators would rely on something that was so faulty, and with not insignificant pushback and fact checking, mostly coming from the crypto community. The Wall Street Journal had to issue a retraction and the senators had to stand down. What was said to be millions and millions that Hamas, Hamas was like, please don’t send us any more money they can track it. Thank you. Send us dollars. Send us dollars do not, send send us dollars and oil. Do not send us Bitcoin because of the nature of the tracking. You can literally go to any bitcoin tracker and see in real time. Now it’s pseudonymous, not anonymous at but with Chainalysis and some other companies use what’sapp’s called blockchain forensics. And it’s really like following the money. It’s a paper trail. But only it’s not using paper and every single transaction all the way back to the original transaction in Bitcoin issued by Satoshi Nakamoto, him or herself, is on chain visible, and you can see from wallet to wallet to wallet to wallet, and you start aggregating pieces of data. This is the way the Department of Justice here in the United States starts to root that out, and it’s just a terrible place for activity. Now, the one point is, it might be easier to get it up front. But it’s not a matter of if but when, with the right resources behind behind it, some of that stuff is going to get found and people will be routed out and they will come to justice. So this is a terrible thing for for for criminal activity. That doesn’t mean criminals won’t try. They’re very lazy. And maybe they don’t know a lot about it either. But that’s why there’s a relatively insignificant amount because, you know, it’s easy to hide physical cash. Right? It’s not easy to hide something that’s there in plain sight. So it’s tough to combat that point because of the pervasiveness of, like the sensationalised headlines, and again not to diminish what’s going on we use Sam Bankman-Fried for example, as an you know, kind of the poster boy, but it took less time because he was apprehended in the Bahamas on November 7, in like basically almost a year to the date. He’s a convicted felon, and we’re just waiting for his sentence. It took way more time to find out who was involved in the the housing crisis, way more time to take down Bernie Madoff. It’s all garden variety fraud, but it happened far more quickly in the crypto space and I don’t think that the crypto space gets enough credit for that.

Gene Tunny  1:02:00

Yeah, good point. Very good point. Okay, Professor Tonya Evans, this has been amazing. I really value your insights and your your deep knowledge of this sector. This is this is really terrific. And I got a lot out of this. And yeah, I’d love to do a round two sometime in the future. But yep, Digital Money Demystified. I’ve got it on Kindle. I think it comes out in paperback. Next year, early next year. So yep, I think

Tonya Evans  1:02:28

It’s here now, yeah now here now go to your favourite place and buy buy buy, you can go to But it came out on October 24. So it’s available wherever books around the world are sold.

Gene Tunny  1:02:42

Okay, ah very good. I must have misread that. That’s, that’s terrific. Well, Professor Tonya Evans, thanks so much for your time. I really value the conversation.

Tonya Evans  1:02:50

Appreciate you Gene. Thank you.

Gene Tunny  1:02:53

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Iceland’s Secret: The Untold Story of the World’s Biggest Con w/ Jared Bibler – EP215

Show host Gene Tunny interviews Jared Bibler, author of the book “Iceland’s Secret: The Untold Story of the World’s Biggest Con.” Jared discusses his firsthand experience during the brutal 2008 financial crisis in Iceland, where he worked at a collapsed bank and later at the financial markets regulator. He sheds light on the dodgy behavior of bankers leading up to the crisis and the severe consequences that followed. Stay tuned to the end of the episode for Gene’s interpretation of Iceland’s secret and its relevance to economies worldwide.

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About Jared Bibler

Jared started his career as a consultant for a Wall Street giant in Boston and New York until moving to Iceland to support the Icelandic pension funds’ foreign investments. He resigned from his job at a leading Icelandic bank a weekend before the 2008 Icelandic financial crisis.

He was subsequently hired to lead a special investigation team, which referred more than 30 criminal cases to the Special Prosecutor of Iceland, including the largest stock market manipulation cases to be prosecuted globally.

Jared’s insider knowledge and unwavering persistence helped Iceland to famously become the only country to jail its bank CEOs. But the real story, deeply complex and sinister, has direct relevance today as banks once again begin to tumble.

What’s covered in EP215

  • 00:02:56 Iceland’s financial crisis was fueled by the growth of banks that became Enron-sized and collapsed, causing significant damage to the economy.
  • 00:05:49 Financial industry corruption and collapse.
  • 00:11:30 Iceland’s banking system collapsed.
  • 00:19:33 Icelandic banks manipulated stock prices.
  • 00:27:26 The financial system is vulnerable.
  • 00:34:58 Banking fraud and economic collapse.
  • 00:35:58 Currency crisis in Iceland.
  • 00:47:19 Iceland faced economic crisis and unemployment.
  • 00:50:54 Iceland’s recovery transformed into something ugly.
  • 00:57:38 Lessons from Iceland’s banking collapse.
  • 01:00:16 Incentives and regulation in finance.

Links relevant to the conversation

Amazon page for Iceland’s Secret:

Transcript: Iceland’s Secret: The Untold Story of the World’s Biggest Con w/ Jared Bibler – EP215

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Jared Bibler  00:04

What meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to but the central bank gave away most of its FX reserves. After the first two banks collapsed, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day and then the third bank also collapsed. And they, they have never got that money back. That was that was a substantial chunk of Iceland’s FX.

Gene Tunny  00:40

Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, and welcome to the show. This episode is about Iceland’s secret, the untold story of the world’s biggest con. That’s the title of a book by my guest, Jared nibbler. Jared witnessed the brutal 2008 financial crisis in Iceland firsthand, he worked at one of the banks that eventually collapsed, and later on he worked at the financial markets regulator. His work contributed to the prosecution and conviction of several bank executives. In his book, Jared highlights the dodgy behaviour of bankers leading up to the financial crisis in Iceland and just how bad things got stay tuned until the end of the episode to hear my interpretation of Iceland’s secret, which is relevant to economies worldwide. Okay, let’s get into the episode. I hope you enjoy it. Jared Biblia Welcome to the programme. Hey,

Jared Bibler  02:03

thanks so much for having me, Gene. It’s a pleasure to be here. Oh, of course,

Gene Tunny  02:07

Jared. So yep. I’ve been reading your book with much interest, Iceland’s secret The Untold Story of the world’s biggest con. Now, I was in the treasury here in Australia during the financial crisis. And so we had our own challenges here. And I mean, not as much as other places, but that I remember seeing the news about Iceland that I just didn’t realise just how crazy things that got in, in Iceland, and it was great. Your book, really set it all out and had all your personal stories and recollections in it too. So it’s terrific. So to kick off with, could you just give us a flavour please? What was Iceland secret?

Jared Bibler  02:54

Well, I think you have to read the book to see the secret. But the the secret of the of the crash, I think was that we had these banks, which had been very sleepy institutions catering to a population of just around the time at that time in the 90s, about 250,000 people, very sleepy small savings banks, one was called the agriculture bank. One banks really financed the fisheries, and so on. But these are very small institutions. And they were able to grow a Ponzi like doubling in size every year during the during the first decade of the century, for several years, and so they they grew to each become the size of an Enron. And at that time, when they crashed, the population was still only 300. Little over 300,000 people. So we had these, we had these huge Enron sized collapses in one week, in a country with, you know, one 1000 for the size of the US. When Enron collapsed, it was a it was a big story, you know, and it was, there was a task force of 600 federal investigators, I believe, looking into Enron, and there were movies, there were five or six books, there was an Enron musical, I don’t know if you remember. And I was talking to a reader the other day, and he said, Look, this Iceland story was just so much bigger. And what why is why is your book deal now there are a few other books about it. There’s a lot of books in Icelandic about it. But there’s not that much talking about it. I didn’t really want to write this book. But I felt like after a few years, I have to tell this story. And I actually really struggled to tell the story. But first because I was trying to tell the story as an outside, outside, you know, so third person just here’s what happened in Iceland. And a very good friend of mine who helped me with the book. She said, No, you have to tell it through your own, you know, your own walk through the crisis. So that’s, that’s what we ended up doing. Yeah,

Gene Tunny  04:52

because you had experience in a bank, one of the big banks in Iceland prior to the crash, and then you ended up as a regulator, didn’t you investigating what went wrong? Could you tell us? I mean, how did that transition go? How did you go from being the banker and then leaving just before the crash and then to the, to the regulatory agency? Well,

Jared Bibler  05:16

my wife who the book is dedicated to, she had a dream. And, and a prophetic dream, as I think you see in the book, and she told me just to get out of the bank, and I had been in an asset management role, we had been managing money for mainly the pension funds in Iceland. So we had we had funds of private equity funds and hedge fund to funds was my main product. But I was really unhappy with the things I was seeing around me in the asset management department. You know, it’s the standard asset management stuff that people do, you know, if you want a big client to come in you, you price things in a way that all the existing people in the fun pay for that person that come in, and they never know it, right. So there’s a lot of that stuff. And I guess that’s pretty endemic, still in that industry. But that really bothered me. I mean, I was really, I was studying for the CFA, I was signing these ethics statements, and I was saying, so my wife knew that how upset I was, she told me to quit. So I just quit, I didn’t have a job to go to. And that was a Friday that it was my last day the all the banks collapsed, the next two of them collapsed on Monday, and one of them collapsed on Thursday of the next week. Right? Then we were just really, almost penniless. Because at the time, I mean, the crash, how it felt to live through that cannot be overstated. It was it was a horrendous experience. Because we didn’t it at some points, we couldn’t even access the money in our bank accounts. And almost everything that we had was frozen and later hair cut and discounted, we ended up losing our house in the end. And a lot of our friends did as well. So I mean, it was it was a horrendous time, the British had invoked terrorist legislation against the whole country of Iceland, declaring Iceland a terrorist organisation. And, you know, and this is what was barely reported, you know, we were sitting there being called terrorists by Gordon Brown. And that meant that all the payments into the country and foreign currencies were frozen for weeks or months. So that was a very dark winter, people were out on the streets. And the winter in Iceland is not that cold, but it’s dark. You know, it’s in Reykjavik, it’s about zero degrees, most of the time in the winter, but it’s dark. And people would be out on the street in the dark banging pots and pans and in front of the parliament building. And so I finally I didn’t have a job for the for all these months, my wife had a new job. And so we were trying to live on what she was making. And in Iceland, your mortgage payment goes up every month. So the principal balance is recalculated with the inflation of the preceding month, and then the the monthly payment is recalculated each month. So our payments went up something like 40% 50% in a very short time. So then I got very luckily, hired by the regulator, they said they wanted to hire one investigator to help them untangle the mess of the collapsed, you know, the three Enron collapses that we’d had ended up hiring to others, they hired me, another guy who had been in the banks and a woman who was a lawyer. And they just said to us, you know, go investigate the crisis. And so that was about six months after. I eventually, as you see in the book, I eventually got more people. But it took, I think it took 12 months to get my first person to add add to my team. And then eventually, we got we got a nice team together to do these investigations. So yeah,

Gene Tunny  08:48

so I’ve got sort of halfway in the book. So I apologise I haven’t read it all. And I’m still learn Iceland secret. I thought I’d died. Yeah, yeah. What What I found fascinating about the book is just because you’re American, aren’t you? You’re You’re you’ve studied in the States, and you end up in, in Iceland, and the, the culture is different. And yeah, I thought some of those recollections were terrific. And you’re talking about, you know, working with your, your fellow team members, so that that was great. So it’s worth reading for that. So yes. Can I just fix it in time? So we’re talking, we’re talking about October 2008. Is that right? That’s right. Yeah. Yeah. And Lehman Brothers had collapsed a couple of weeks before so you weren’t worried about that?

Jared Bibler  09:40

Oh, everybody was ever Yeah. So for? Well, to put a timeline on the whole on the whole episode, from 1998 was the beginning. I believe of the banks being privatised in Iceland. So the banks had been government owned, more or less. And they were still Hold off in pieces, but not in a, in a way that’s still being criticised today, and in Iceland and still hasn’t really been fully investigated today. Because basically, the powerful politicians gave bank a lot of banks out to people affiliated with those political parties. And so there wasn’t a lot of transparency, there was no, there was apparently foreign interest for lunch bunkie which was the oldest bank, but then the guest that bid was never even really considered. They just wanted to keep it in the family. Keep it keep it national, you know, Icelandic owned. And so that was 98 203 was a sort of beginning of the privatisation wave. And then in oath 203, they floated the ISK on global currency markets. So it was an exchangeable currency. And when that happened, it just things just took off. Yeah, so So the boom years was really I moved there in oh four, which was maybe one year in one, two years into the boom. And the whole thing lasted only a couple of years, really. Because by oh five, according to one, former executive, I believe oh five, he said, a quick thing, bank was already insolvent. And so the only you know, they, they weren’t doing great banking, at any, in my opinion, in any of these years, the banks were not the only way to escape the bad decisions of the year before was to double the bank in size, the next year, and they had a they had big foreign lenders just pumping money into these banks, so that it for a few years, they could borrow as much as they wanted. From European and later American lenders, there was already a mini crisis in 2006, where the currency crash stock market crashed and everything was a bit a bit, you know, up in the air, what would happen. And at that point, the banks actually started open retail savings accounts for retail customers in Europe, in order to collect the funding that they needed. And they were able to then keep the party going. So then I started in LHINs. Bucky in the Asset Management Department in early oh seven. And the subprime in the trade press, people were talking about subprime already, January Oh, seven, I was started to follow it. And things got more and more. At first, we thought this isn’t gonna, this isn’t going to touch us. Now, Icelandic banks barely invested in subprime. They weren’t doing much, they were just making bad loans to their friends, more or less. But though eight was when things were getting more and more dicey in the bank. And by the end by, I think, looking back when Lehman collapsed, the credit markets between banks in the world really froze. And those weeks and the Icelandic banks were on writing on just fumes anyway. And so that was the final straw, but they were not healthy. Now, this is not the story that I’ll tell you today. By the way, my book is not so popular in Iceland. Because Because the story now is that we had a great banking system, even though it was 11 times bigger than our GDP, but we had a great banking system. And and Lehman killed it. When otherwise it would have been fantastic. But yeah, it was Yeah. Yeah.

Gene Tunny  13:26

What I was asking was because you you quit in a period where I mean, did you? Did you ever you had a parent or your wife or her or your partner had a premonition that the bank was just going to go down and you wanted to get out? You should get out as soon as possible is that is that she

Jared Bibler  13:45

actually said? And she never talked like this. She said, Don’t let those eight holes fire you. You need to get out of there. She said, she had a dream that I was being fired and something bad had happened. And she said you need to be the one to quit to get out of there first. So as soon as she said that, I I I went, you know, I think I quit within a couple of days. So yeah.

Gene Tunny  14:09

So it’s interesting you talking about the rock the fact that Iceland floated, visit the kroner the corona, was that in early 2000s, that late in I think it was oh two, I think oh two, right. And so probably liberalised capital flows. And, yes, so you’ve got all of these, all of this lending, what to have any idea what was in the minds of the lenders? I mean, what were they seen in Iceland? What is the story they’re telling themselves? I

Jared Bibler  14:44

have a thought experiment for you imagine if a small Caribbean nation with 300,000 people went to Deutsche Bank just to pick on them because Deutsche lay a lot of money and lost a lot on the Icelandic banks. Majan if a 300,000 person Island went to Deutsche Bank He said our main exports are fisheries and tourism. Yeah. And we’d like to have a great banking system. But they would have laughed, right? They would not have probably went into that. But because it’s this, especially in German because now we live in Switzerland, especially in the German speaking imagination, Iceland is really to lay Iceland is really the, the mythical land of of, well, well, it is. It is the mythical land of the Sagas and Vikings and so on. And so the they were happy to, to to lend into this. They said, Oh, we’re liberalising our banking system were developed Western economy. The interesting thing about No, I, I am an Icelander. So I have, you know, I have the passport. And, you know, we we have probably socially one of the very most developed countries in the world. Certainly for women’s rights, gay rights, it’s it’s, it’s, it’s, it’s leading edge. But the economy is not developed to match that. So the economy in those days was a lot of fishing, fish exports, and heavy power exports. And today, we’ve added huge and disgusting levels of tourism onto on top of that, so the cup before the pandemic, I think there were 10 tourists per year for every man, woman and child and in Iceland. And so that has become the, that has become the biggest export, I believe. Gotcha.

Gene Tunny  16:30

And can I ask you about? Yeah, that all of this lending, and where was it going? Was this going into your, into the property market in Iceland? Or what was what was being done with all the money that the banks were borrowing?

Jared Bibler  16:45

Yeah, the first thing they did is, is inflate all the bubbles they could domestically. So property bubble, they had a they had a little mini private equity boom in Iceland, maybe in? Oh, 304 I think where they, you know, did sale and lease backs of, I think who says Smithian, which is the it’s a home improvement chain in Iceland, but like a chain and Iceland maybe has only five, five locations or 10. You know, there’s really only one city in Iceland, which is Reykjavik. Yeah, most people live there. And so, so they did a sale and leaseback of these five or 10 properties, and you know, they did things like that. But then by Oh 405 They were increasingly looking to do investments abroad. And so there was a there were private equity style investment groups in Iceland that went and bought up things like European airlines. They bought a lot of high street shops in the UK, for example, they bought famously based on the really based on the historic relationship between the two countries. This was a big, this was a big win for Iceland. We bought Denmark’s Copenhagen’s most prestigious department store became Iceland owned, which was kind of a big, big faced, because Denmark had been the colonial masters for 700 years and just treat it still today that Danish tend to come to Iceland and bark orders at people on the street and so on. So to buy their department store was just seen as you know, the crown jewels, so they did a lot of very expensive deals in those years. You know, we had pretty low interest rates in those years, and there was a lot of a lot of these deals going on. But a lot of them ended up not being not being great. And so, yeah, so it was it was kind of a family family game where bankers made made loans to their colleagues in this in this connected private equity world of Iceland and they, you know, they went and did deals. The banks, the banks also bought other banks. So, they expanded hugely into Scandinavia. They bought some of the oldest London banks, singer and Friedlander inheritable and you know, they were by the time I think in oh eight, my bank lens bunkie had even opened a branch in Hong Kong, I believe, or Singapore. I mean, they were really they want it to be these globe straddling behemoths.

Gene Tunny  19:13

But a Yeah, yeah, but what happened? I mean, they, they borrowed too much from abroad. They learned domestically and in the, their, their data is they just, they couldn’t pay it back. And then the banks crash, they ran out of cash or liquidity. I mean, well, so what actually happened?

Jared Bibler  19:32

The first thing that I discovered as an investigator, which is which is how the book opens, is I get this letter from the stock exchange. Yeah. And the Stock Exchange says saying, hey, look, on the three days before these banks collapsed, they each seemed to be buying their own shares up on the exchange, and they seem to be doing it with with bank money. And I thought that’s a little bit crazy because they hadn’t announced any Any share buybacks, right. And the volumes on the last three days were huge. It was effectively, they bought the whole market. Every trade that came across the exchange was the bank’s cash on the buying side, keeping the price up. And I thought this is crazy, right. So as you saw in the book, I tried to figure out when that behaviour had begun. So I went back to the Lehman and went back a few weeks to cover Lehman because I thought, okay, probably after Lehman, they got really nervous, and they started trying to manipulate their own stock price, you know, I just wanted to put a book end on the activity, before I wrote up, you know, a criminal case to send to the prosecutor. And I had to keep going back and back and back. I went back to first I thought I was being very bold when I when I covered a six month period. And then it turned out that the activity was the same for the whole for basically the whole six months of April, oh, eight to the to the crash, more or less, they were in the market every day. And many days, they were buying more than 75% of the market for their own shares. And so I went back, we ended up going back to 2004, which is coincidentally when I had moved to Iceland, so for five years, they had been doing this behaviour. Later, when I was closing the research for the book, I came across some court documents where and we had seen indications of this. But there’s court documents where some of the traders openly talk about this behaviour going back to 1998. So from the first days of the banks being privatised by the government, they were already intervening in the market to to and so with my perspective, and of course, I’m biassed because I was the investigator who developed those cases, my perspective is without that share price manipulation, the banks could never have grown the way they did. Because they had such healthy performance on the equity market. One of them was dual listed in Stockholm and and Reykjavik. And so whenever they went to lenders, they could say, look at how great our results we will look. The markets love us, you know, look at our stock is up another 20% another 30% this year, or 100%. I mean, the markets, the Icelandic stock market in those boom years, it was going up 60% A year the whole market only Wow. Right. And, and the bat and that was that that lasted for several years, that was the broad market was 50 to 60% a year. And the banks, but the banks grew so fast, that they ended up becoming seven year 80 or 90% of the market cap because they crowded out everything else. And so when they collapsed, of course, the stock market lost 93%. In 2008, it was basically closed for equity trading after the bank collapse. And so all of our, for example, if you talk about damage to the people of Iceland, all of our pension funds had to be in the equity market. Right. And so, and basically that meant they had to be in the, in the banks. When when I was investigating the the manipulation that the banks did was looking at lists of buyers of the shares. And there were some periods in Oh 708, where the only legitimate buyers of the banking of the bank shares were the Icelandic pension funds. And all the rests were, you know, because, yeah, they were accumulating so many of their own shares each quarter that, you know, and that they were going to be in they had, you know, the big four auditors were, were their auditors. I mean, all this is all big names. You know, the Stock Exchange was called NASDAQ, oh, MX, Iceland, you have KPMG you have EY you don’t have the the big four auditors are in Iceland, they knew that when their books were audited, they couldn’t be sitting on, you know, $200 million worth of their own shares, which they had just bought on the exchange. So they did these complex and runs style machinations at the end of the quarter to offload the, the, the shares. And so they would create, I would find a shell company that British Virgin Islands that had just bought 100 million worth of shares. And so to answer your what one of your questions a few questions ago, what were they making loans to well, by the by Oh 607 their loan book was almost entirely to these bogus companies that they had just created to buy the shares from them. Yeah, so So you know, it doesn’t make any sense at all, but it was uh, I think fake wanted to keep that, that that. I call it shear laundering. I think they wanted to keep that scheme going as long as they could. Yeah. Now

Gene Tunny  24:59

is that all Iceland secret or is Iceland secret something far worse that I’ve yet to discover?

Jared Bibler  25:04

I think I’ll tell you that secret, if you want. I’ll do a spoiler alert. I don’t know. This. That is the secret is the share is certainly a big secret. Because you know, that that was never really reported. This is one of the reasons I wrote that was like, I have to tell this story. I mean, yeah, they basically deceived the whole country. And all the investing world, I mean, London, all the big markets knew about these Icelandic banks that were lending to them, they were doing business with them. And the whole time they had created, you know, an illusion of success based on this market manipulation that they were doing daily behind the scenes, you know, the guys who were doing the manipulation had to do it so much that if if there’s a famous phone call, and one of the court documents where the guy’s late for work in the summer, and the price in Sweden has already dropped a couple of percent, and his boss is calling him saying, Get in here, man, we’re losing, like, you know, if they had to be in there on every trade, to keep up this illusion, and they did this free for for a decade. So I think that’s, that’s, that’s one of the secrets of the book. Well,

Gene Tunny  26:14

I can we can leave it under wraps. Okay, because I don’t I don’t want to ruin any potential sales of your book. And I don’t want to spoil that for myself, too. But I was just wondering, because when I when I saw the title, and then I started radio, then I that must be the seagull you’re talking about. But if there’s something far worse that that really gets me interested,

Jared Bibler  26:35

there is something far worse. Okay. And I would, you know, go ahead. Well, I just want to make the point that a lot of people say, Who cares about Iceland, and I, of course, I love Iceland. So I care about it a lot. But, for example, when people here in Switzerland, read the book, or hear me talk about it, I get a lot, there’s a lot of scared faces in the crowd. Because a lot of a lot of the world’s financial markets are are subject to the same forces and incentives as we had in Iceland, which led to this incredible collapse, which devastated the country. And I think it’s really the story again, I’m biassed, of course, but I think this is really kind of the story of what we may be all facing in the next couple of decades. Because we, we haven’t managed yet. And that and I also people get offended when I say this, but in two or 300 years, I think people will look back on us and the way we structured our financial systems and laugh at the way we laugh at Dutch tulip mania, or, you know, because we have kind of no put in no incentives, or no structures to keep an Iceland from happening elsewhere. Now it’s going to be maybe the nice thing about Iceland is it’s such a small place. It’s such a small population that the scam is very easy to for me to describe to you. I think in a bigger market, it’s going to be more it’s gonna be more subtle. But But still, all the incentives are on the side of of cheating, and building in, in sustainability to our markets. And nobody is really paid good money to, to stop these things can mean you have some window dressing like you have comply. I mean, they stopped some things. But in my experience, when senior management of a bank wants a big deal to go through, that deal is gonna go through nobody’s sitting, nobody’s gonna get paid have a 5 million franc bonus to stop to stop to stop something. This is not how it works.

Gene Tunny  28:41

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  29:16

Now back to the show. One of the interesting stories in the book is where you’re having to clear or run a transaction, aren’t you or make a transaction or deposit two was at a bank in Europe and trying to remember exactly yeah, it was trying to remember the details but in your manager, he initially said I Yep. Sounds fine to me. Just let it go through then. Later on. Oh, that must be it’s Jarrettsville. Sir, could you tell us about that?

Jared Bibler  29:49

Oh, yeah. So I tried to sprinkle in actually, my dream is to rereleased Iceland secrets sometime in the future with with more of the stories in there but my publishers said, you know, you’re a first time author, you only get 300 pages. Sorry, Jared, but, but I had more of more of those things have I tried to sprinkle in stories in the beginning, which are representative of the culture within the bank? And when actually when other bankers and other countries read this state, none of them says, They all say, oh, geez, yeah, that’s exactly how it is where I work, you know, none of them says, oh, Jared, this, this only happens in Iceland, they all say, Oh, yeah. So the story you’re referring to is we had a, some guys who call themselves a hedge fund. And they wanted our bank. To be basically we were the administrators of the fund, and the custodians of the funds, assets, but they were going to trade. And they had, they had got the investors, and they had, I think 120 million euros come into the fund. And they, as far as I could see, they weren’t hedging anything. They were just buying long positions and in equity, and very few companies. And I think they, I think they had some inside information, basically, on these few of these companies. But as the, as the saga went on, they did more and more crazy things. And one point they said, We’re, we’re investing in a shipping portfolio. I don’t even know what that means. And I was waiting for like the paperwork about because when you do an investment, you know, you know how it is. I mean, there’s there’s a contract, and there’s there’s there was nothing. They said just Just what please, they wrote me like, please help us wire 5 million euros to this account in Norway. Yeah. At at such and such bank, it was one of the biggest Norwegian or Scandinavian banks. So it was a reputable bank, but we didn’t count just had a person’s name. All I had was like an AI ban and a person’s name. And I went to my boss, and I said, I don’t think we should send 5 million customer money out of this fun to this account. We don’t have anything. He said, Why are you always making problems? You know, bring the solutions. And so I just decided, eventually I did it. I sent the money. I mean, I copied him on and and in an email to cover myself. And I said as as we discuss, you know, and as soon as I sent the 5 million, as soon as that went through they, they wanted another five. I mean, within within, as I remember it within a day. I mean, it was very quick. They ended up they ended up sending out 15 in cash. And the other weird thing about this was that it was such a, you know, when you’re looking for fraud, usually round numbers is a good flag, because most things don’t. There’s always a commission or you know, taxes or something, or exchange foreign exchange differences. Things never come out or rarely do they just come out to like 5,000,005. So yeah. So then the fund within a couple of weeks, got into trouble for some other things. Now, I had been trying to warn these guys about about the problems with this fund for more than a year. And they just said, you know, making problems just it’s going to be fine, you know, let it ride. And so you can see more of that in the book, but that they were going to scapegoat me then for this 15 million they went out. Because yeah, when his boss looked at it, and all the transactions that just jumped off the page, they were the biggest ones. And you know, all these zeros, they just jump off the page at you. He said, he said, What’s this? And my boss said, Oh, I don’t know, that looks like something that Jared did. That was that was the weekend. I think that happened on a Sunday. If I recall correctly that night was when my wife had the dream. And that Monday, she woke up and she said you have to get out of there. Yeah.

Gene Tunny  33:53

Was very smart. And that was a Friday. So yeah, there was the Friday that.

Jared Bibler  34:00

Well, I quit. So I put me so that was a Monday in Monday. Yeah, that. Well. That was right after Lehman. I have to go back. And look, it might have even been the Lehman weekend that that happened. It was in September, then I quit when you resign in Iceland, you you resign on the on a month end. Gotcha. So I put in my resignation for 31st of October. Sorry, 35th of September. So I probably put that in within a couple of days, effective 30. September, then I would have needed to work three more months, according to my contract. So So I should have been there October, November, December. But they was that stories in the book too. They basically let me go on the Friday October 3. And then the banks collapsed on the seventh eighth and the sixth, seventh and ninth of October.

Gene Tunny  34:58

So the banks collapsed. This is a day that was at the three biggest banks in Iceland collapsed. Yes. Right. Yeah. And you talked about the the hardship before. But so what did it mean, you know, one could get people weren’t able to get cash they the economy basically stalled? Yeah, it

Jared Bibler  35:18

was. So I’ll try to walk you through it. I mean, it was, it was frightening, because for months, the currency of the currency against the euro had been depreciating. So it’s through the, through the crisis week, the currency depreciated so much that it was it had lost half of its value, since maybe five, six months before that. So everything we were used to like flying to Europe and having vacations and things, everything was now double in price in a very short time. So that had already been going on. And the politicians were just saying, well, the currency will come back. There’s, there’s nothing on the other side, it’s never come back, of course, still today, and then what happened in the crisis is that it actually just, they just stopped trading. Nobody. So outside of Iceland, during the good years, it was 60 or 70 krona to the dollar. And then the offshore rate became something like two or three or 400 to the dollar raw. So anybody offshore who had ISK, they just wanted to dump it, they didn’t care what the rate was. So you had this offshore rate of two or three or 400, whatever it was. And then onshore, we had capital controls, which lasted a decade. So in Iceland, you could buy euros for, you know, for a predetermined rate set by the central bank. And they would basically give you the euros that they had against ISK. This lasted for a long time. And but you couldn’t get them you could only get them if you were travelling. Or if you hadn’t, if you had an invoice. That’s it. Yeah, there was no way to get dollars or euros or anything else for a long time. And of course, that that begat a huge new scam industry. All the bankers who had just been laid off from the banks, not all some of them started faking invoices from foreign companies. And you know, get if they had a relative in the UK, they have the relative send an invoice which said so and so’s consulting company 50,000 British pounds, they would get the, the onshore Icelandic rate, they’d wire the pounds out to the foreign account, the foreign guy would would take the British pounds and buy some Icelandic government bonds from a British guy who didn’t want them and would take the offshore rate. And they’d send the bonds back in in one in a one or two day round trip. They could double their money or triple their money in local currency terms. So that became a whole industry, which ran for about six. Yeah, to try to profit on the capital controls and but what it was really doing was depleting. The what meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to. But the central bank gave away most of its FX reserves. After the first two banks collapse, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day. And then the third bank also collapsed. And they they have never got that money back. That was that was a substantial chunk of Iceland’s FX. Yeah.

Gene Tunny  38:56

And you mentioned the the exchange rate and prior to the crisis, and you tell a story about how I mean teachers and people you would normally expect would be going they’ll be travelling overseas for shopping trips. Yeah.

Jared Bibler  39:10

Yeah. Because I just realised I didn’t really answer your question, the last one about how to live through it, but but to come to the teachers. Yeah, I mean, for those few years after the after the FX trading was free, you know, globally available. There was a huge demand for ISK assets among investors around the world because the yield was so high, you could get an eight or 10% and it was perceived to be a safe place to invest. And so a lot of money just flooded into the country. And that meant that the exchange rate went, the ISK got 20 3040 Maybe 50% stronger in a very short time. So people felt very rich and Um, but things in Iceland are still very expensive because you have almost no competition on retail and wholesale and, you know, maybe one wholesaler for anything you might buy. And so the currency was very strong. But that doesn’t mean that domestic prices are going to go down. They should, but they’re sticky. They don’t go down, right? Yeah, but that means you can go abroad and for and for the savings that you will have on buying, like, say, a laptop computer, you go to Boston to buy it would pay for the trip, the savings would pay for the trip. So that was a calculation that many of us made, people would just go to buy. I was in Boston once and someone had bought four big tires for his SUV in Iceland, and he was putting them on the plane they were putting them on, it’s just luggage with, you know, with a tag just wrapped around the tire and putting them on the belt, he probably saved enough on that to pay for a weekend in Boston. So as if it was a calculation a lot of us made. And so yeah, we felt super rare, we felt like the world was our oyster. And when we would go, also things seemed very cheap. So I went to Boston, and I took out my mom and dad, my brother and his wife for a meal. And even with a generous tip for a meal for the five of us, it cost only a little more than a meal for one person would have cost in Reykjavik at that time. So we just felt they felt like for me, it only lasted maybe 36 months or 24 months, but we felt like kings. Yeah. And then And then yeah, the the, the loss of that was that the times were very desperate in, in especially the autumn of Oh, eight, we had no idea what what the next week was going to bring. I mean, we had the terrorist thing from the UK, which really, that meant that all the companies in Iceland, let’s say that you had a fishing exporting fisheries company that was expecting to be paid for fish that they’d already exported to the UK or to the mate or mainland Europe. The payment would be just frozen in Swift, it would just have to be blocked somewhere in the UK and not allowed to go through because the whole country was considered a terrorist organisation. So

Gene Tunny  42:16

what was going on there? Jared? Was Was there any? Was that legit? I mean, what what’s going on? What were the banks? Did they have? Did they take deposits, so facilitate transactions for some shady people? What was actually going on?

Jared Bibler  42:31

That was just to punish Iceland? There’s many there’s different explanations? I’ve never heard a great one. I mean, Iceland, in England have a long standing tension are overfishing actually, there’s something called the cod wars in the 70s. Which Iceland one. But it meant that the fishing grounds that the English had been using, were no, we’re now claimed by Iceland. So some people say that this was retribution for the cod wars. Others say that, you know, it was retribution, because there was a lot of misunderstanding around savings accounts. And, and, and more generally bank products in the UK, that the Icelandic banks had offered. And so for example, there’s something called Icesave under under EU law, a bank in one country can open a branch in another country, and not be regulated by this by the new country. So so the Icelandic banks, when they were running out of money in oh six, they decided to use this to open online savings accounts in the UK. And take money from retail depositors in the UK, pay them higher interest rates to to lower them and take the British pounds, because they needed, they needed FX they needed foreign currency to keep to keep going. And so there was a there was a big misunderstanding between the two governments on the eve of the crisis, where famously the key was the finance minister, but he was a veterinarian, and he did not speak very good English, he should have had a interpreter. And he also should have had a UK cultural interpreter. Because as you as you know, you know, when, when an Englishman says I’m very concerned, that means like, you’re dead, you know. And so Alistair Darling was on this famous phone call. He says, I’m very concerned about the status of these deposits and so on, you know, I can’t remember the exact words, but the Icelandic guy just as well, well, we’re looking into that. And, you know, dollar darling is like, look, we’re going to talk tomorrow at eight in the morning, I’m going to call you but if this isn’t done, you know, we’re going to take we’re going to take measures, and I think I can’t remember the days how they played out but it was that day or the next that, because they had after 911, they had these new terrorist powers in the UK where they could put on her majesty’s treasury, they could put like al Qaeda on there, and that would just freeze all payments. Okay. So Gordon Brown just decided to put, so they put. So it was like al Qaeda, al Qaeda in Syria, I want to say or al Qaeda in Iraq, there was a whole bunch of terrorist names. And then it said republic of Iceland, Central Bank of Iceland. Financially, they even put the Financial Supervisory as a separate separately from the Republic as its own its own line item. But that just killed us, man, because that was in the middle of it. These countries are ostensibly NATO allies, right. And that just that just devastated us. And so yeah, so those months were just super dark we. Because they’re because of the freezing payments, there wasn’t like no food being imported. So we were eating more and more just locally, and we were anyway, for price reasons, eating only locally grown stuff. We just, I mean, we stopped driving the car. I mean, just I don’t want to sound like these are not complaints compared to what people have going through in Gaza right now, for example, but I mean, our lifestyle just was cut down to just the just getting through which we lived like that for years after, after that. Because the SAT and what is also sorry, the salaries were the same, but the buying power of the of the salary was half of what it had been in real terms. And then they they also raised taxes, the government raise taxes so that the income tax was almost 50%. In the years after the crisis, so I mean, I always tell Swiss people living in Iceland is like paying Zurich prices, but getting a Lisbon salary, you know, you have a quite low salary with high taxes, but then you have one of the most expensive cities in the world. So it’s all, even in the even in the good years. It was a struggle. Sometimes. Things are just unbelievably expensive. And even Swiss people today who go to Iceland as tourists, they say, Wow, it’s so expensive there. Then I say, Yeah, imagine living there and an Icelandic salary. It’s, you know, it’s not easy. Yeah. So

Gene Tunny  47:19

yeah. So during the crisis, you had a big increase in unemployment. Didn’t y’all have to look at what the stats are. But it was a huge economic shock. And it went

Jared Bibler  47:28

up four or 500% the unemployment rate. Right. Yeah, it was a huge shock, because the banks had employed the banks for so huge. I think they employ between them 10 or 12,000 people in a country of only at the time, 300,000 or so. And then you have all the you know, the follow on effects of such a big layoff. So, yeah, the unemployment rate was just just rocketed. And we just tried to Yeah, we just somehow got through it, everyone somehow got through it. But a lot of us lost our houses and, and all the pensions, pension savings that we had thought we had was was was decimated when the stock market dropped like that.

Gene Tunny  48:14

Right. So people are still feeling the effects of it. 15 years later, I would just I mean, people

Jared Bibler  48:20

don’t talk about it. Well, actually, they do. They do talk about it. Yeah, they are. Because they were they were projects like infrastructure projects. It’s almost like it’s, it’s almost though, like if so friend of mine was in Iceland, and said she was trying to talk to people about the crisis, and that nobody would talk about it still, like, people want to forget about it. Basically. There were infrastructure projects and ideas that we desperately need, like expansions to hospitals. There’s no rail infrastructure in the country at all. And the International Airport to Reykjavik is like a, it’s like an hour drive, it should have a train link. So there, there were things that the country needs that have just never been executed. And now they’re put on the back burner for 50 more years or something, who knows. So that’s definitely an effect and they actually closed some hospitals and some birthing centres, which forces people to drive over these, you know, really dangerous mountain passes and stuff in the winter to get medical care. So there were effects like that. And a lot of people lost their family businesses and, and so on. So the biggest effect is that when when the currency lost half of its value, Iceland suddenly became a tourist, you know, hotspot and, and Iceland marketed itself as such. And so that that that began the tourist wave, which continues today, but it’s like, it’s like what’s happened in other European cities but on steroids because the city of Reykjavik, the old towns centre is really only five or six streets. I mean, it’s a very small village. And now and that had very cosy things there like, like an old cafe with doily lace doilies, where the grandmothers drank coffee. And, you know, there was some classic things of old Reykjavik that were there. And almost all of that is gone now. Because it’s all just t shirts stores, or they’re selling like stuffed animal puffins, you know, and at the end, all the neighbourhoods around the old centre, including where I used to live, have become dominated by Airbnbs. So you can even walk around and not even hear the Icelandic language in the nation. And the, the old neighbourhoods are very giving because it’s just become tourists defied. And so that was the response. So people, often I face resistance, people say, Oh, Jared, come on Iceland recovered. And I’m like, well, first of all, nobody, nobody knocked on my door and said, Here, here’s the keys back to your house. But the other thing is that it all it only recovered by transforming into something pretty ugly for my from my eyes. Yeah, yeah.

Gene Tunny  51:19

Yeah, yeah. Yeah, it’s. Yeah, I mean, it really was a huge shock. And I mean, I didn’t appreciate like we we sort of sailed through it. Reasonably. Okay. Here in Australia, there was a little bit of a slowdown, but then we were insulated from a lot of it partly because of mining. Right? Yeah, it was extraordinary to see just how bad things were there. So I’d recommend the book on that count, for sure. Just a couple more things before we wrap up. What happened to the perpetrators? Were some of the people do jail time. Is that correct? That’s,

Jared Bibler  51:51

that’s part of the secret at the end. Yeah, they some of them actually did a few months here and there. We, because the headline of Iceland was it was the only country that prosecuted bankers after 2008. Yes, and that is true. And the cases that you read about in the book are the reason the main reason behind the big prosecutions, but in the end, so in many European, I’m not a lawyer, so this surprised me. But in many European legal codes, you can’t get charged for multiple counts of the same crime. So if you if you did market manipulation, but you did it every day, for 1000 days in a row, which is what they did, when I and the max penalty, if you read the way the law is written, which is a European legal code that Iceland imported. But clearly, the spirit of the law is for someone who did a manipulation, maybe for a day or two or a week or like a single event. And then in Iceland, its maximum of six years in prison for that. So I was naively thinking, Oh my God, these poor guys, like they did it every day for 1000 days. It was gonna be, yeah, up to 6000 years in prison. And people said, No, charity, don’t be silly. Like it’s market manipulation. That’s one thing. And so the sentences that the so we were able to show that a lot with emails and internal documents, we’re able to show that, of course, the knowledge of this multibillion dollar manipulation went all the way to the CEOs of the of the banks, and even higher into the boards, and the ownership. But we were able to show that that went up in the biggest bank to the executive chairman of the board that he was getting daily reports on the manipulation directly from the traders. So they were they were writing these things, and I’m paraphrasing here, but Hey, boss, you know, we bought another XYZ number of shares today, the price is up 1.2%. You know, so that was a daily update to the chairman.

Gene Tunny  54:10

And did they not just not appreciate what they were doing was? I mean, I presume this I mean, this is illegal in Yeah, it sounds it sounds healthy, go. Did they just not appreciate it or they?

Jared Bibler  54:23

That’s what I think the book is, of course, I’m biassed again, but I think the books super important because it gets into a little bit. And you see this now with Sam Backman freed and the FTX trial and so on. The behaviour of white collar scammers, part of their shtick is that they can’t even admit to themselves that they’re doing criminal things. They, even after they’re charged, convicted and they serve jail time. My experience with the Icelandic situation would would lead me to believe that Sambac been freed for example, will probably never have a moment of clarity He, where he says I did some bad stuff. I mean, he should because it would help his soul it would help him like karmically to, to release that right. But he, I hope he does, but he probably will not. Because So, for the very top people who are masterminding the scheme, their justification is always like, Well, we were doing great things with the bank. So whatever it took to keep the bank alive is good. And then the people lower down in the scheme are just following orders. You know, like, like the guards that Auschwitz or something, you know that, and, and many of them are naive. So, some of them knew it, but some of them in my experience actually didn’t even think about. Because Iceland can also sometimes be very hierarchical culture where if your boss tells you, hey, buy all the shares on the market today, you’ll do in, it’s like, oh, my boss told me, you know, I’ll do that. So I think this is kind of a good template story for how these frauds go on. And, and I don’t know if I say this in the book, but the entire business of the of these banks, by the end, was perpetuating, perpetuating the buying of shares in the hiding of shares offshore. And they involved every department. And so, a lot of those people, I think, just just were just doing their job.

Gene Tunny  56:34

That’s how they see it. And so this was an important or this was an essential part of making the banks look much better than they were, and attracting the letting them borrow more from overseas, and then they lend that onto their, their friends or cronies. Okay, that’s

Jared Bibler  56:52

right. That’s yeah.

Gene Tunny  56:55

Yeah. Yeah. So the untold story of the world’s biggest con so. Yeah, I mean, that’s a big call world’s biggest con, but you, you’re confident it is. So you think

Jared Bibler  57:05

maybe it’s maybe it’s been outpaced now by crypto or, you know, but but certainly in the sense of a con that takes down a whole country. I think that scale definitely is still the biggest.

Gene Tunny  57:18

Yeah, yeah. It’s pretty extraordinary. Yeah. Okay, so, Jared, this terrific. It’s really, this conversation has really motivated me to finish the book and make sure I understand all the details as best I can. I think it’s yeah, it’s just extraordinary. What happened, I guess, to end on what do you think the lessons are for the rest of the world? I mean, we talked about how the, you know, you mentioned there could be a certain type of person who’s a white collar criminal, and there’s the quite brazen, I guess, you’ve got to look out for those people. I don’t know how you do that. I mean, you obviously need some sort of regulation. It sounds like the regulator in in Islan, Mae, it probably wasn’t doing the job it should have been doing beforehand. I mean, you discovered that you could actually go and visit these banks and force them hand over documents, which are was very good. So yeah, what are the lessons for the rest of us? Now for the rest of the world?

Jared Bibler  58:15

I think we need to. So this pattern keeps repeating. And my point with the book is that if you let this thing get out of control, it can take down your whole country, because our financial system is not just a playground of of, you know, Sam Backman, freetds and billionaires. But it’s also how we pay for things. It’s also how we save money. And we rely on it to it’s, you know, we take it for granted. But it’s kind of like the air we breathe in our daily lives to get to get groceries to, you know, buy a car or house, whatever. And so those two things, unfortunately, are connected. And the incentives for for having a system that that works well, and is not subject to gaming and collapse, I think are not. We have we have plenty of we have too many regulations probably, you know, we have a lot of people who spend their days checking boxes and things like that, both at regulators and within these institutions. But we haven’t really yet thought about what structure do we want the market? The markets to have? Markets are always created by us, you know, they’re not we, you know, people say, oh, you know, that let the market sorted out. But markets always have rules. You know, I used to work at the Swiss stock market here you have an opening time and closing time you have a cloud closing auction, how that works. I mean, you have the whole thing is rules. And we need to think more about as citizens I think we need to think more about what do we want our banking system to do, what are the outcomes we want? And then how can we best get those incentives, incentivized and I think and again, I’m biassed, but And this is very controversial, but I would like to see someone try this, I would like to see what happens in a country where the country’s regulator regulators would be incentivized to bring in the biggest cases they could, or prosecutors, right? Imagine, imagine if the incentives that bankers get, because if you do a $10 million, or $100 million deal, you get a piece of that as a as a bank employee, if you bring in that business, if I bring in which in Iceland, I brought in three, I don’t know, you can measure the cases different ways. But let’s just say conservatively, three $4 billion frauds. Each of the banks, for example, if you just take the last year, each of them spent about a billion US dollars or more just buying up their own shares on this tiny Icelandic stock market that you’d never heard of. Right. So but my team doesn’t get any, we don’t get any team dinners or anything for that, we just get a salary. So there’s actually, it’s even worse in most regulators. If you are someone like me, who’s a bit of a maverick, who wants to go after things, you don’t last, you won’t have a job, because that’s not the personality that anybody is looking for in those in those institutions, unfortunately. So we need to incentivize that we need to have the same type of risk taking and so on, on the regulation side that we have on the banking side, because otherwise you have a and the same thing with salaries. I mean, if you’re a great regulator, you know, you can always walk across the street to a bank and double your salary. So, so what’s going to make you you know, go after people at that bank or or look too deeply into anything you don’t. So the whole system is kind of really tilted. One one way. I don’t have all the answers to this, but I would really like to have this be in the conversation. And I suspect that after the next financial crisis, which I think is coming, I think it I hope, my hope with writing the book was to get this out there so that we could start to have that conversation. Because since 2008, we haven’t changed enough to keep that from happening again.

Gene Tunny  1:02:10

Yeah, absolutely. Fully agree with you there. Have been talking about this on my show from time to time, so absolutely, fully agree there. Okay, Jared, is there another book coming out anytime soon? I

Jared Bibler  1:02:23

have one but I’m, I’m not sure what I’m gonna do with it. But I’m working on one.

Gene Tunny  1:02:26

Okay. Okay, so

Jared Bibler  1:02:28

you keep that under? Yeah, under under wraps. It’s another secret, it might have secret in the title.

Gene Tunny  1:02:35

If they’re sick if they’re if I still don’t know, Iceland’s secret, I’ll put a segment at the end of this episode just for those who want to know, but I’ll encourage people to read the book. Because I think it’s an enjoyable read. And I love the all the stories and just how you learned about the issues in Iceland’s before the time before you saw teachers going by on buying trips overseas, people were importing BMWs and Mercedes while you are importing your rav4. Stories. Thank you, Jared. That’s, that’s great. Right. Any any final thoughts for wrap up?

Jared Bibler  1:03:13

No, I just really appreciate the time to talk to you. And that was it was lovely to be on your show. Very

Gene Tunny  1:03:20

good. Thanks, Jared. Thanks. Okay, I hope you enjoyed my chat with Jared. Thanks got pretty messed up in Iceland didn’t that. According to Jared, things aren’t much better today. Jared left his job at the regulator in late 2011. After there was a reduction in the resources he had to investigate the misdeeds of the bankers. Unfortunately, the response to Iceland’s financial crisis ended up being inadequate. Several wrongdoers were punished, but they received relatively light sentences and many bankers got away with it. In Jarrods opinion, the regulator’s still don’t have enough power in Iceland. Politicians were unwilling to make tough decisions and apply the level of oversight and enforcement that is required in Jarrods view. That’s possibly because of the close relationships between politicians and bankers and business people in Iceland. Iceland is still experiencing financial scandals. For example, in October 2023 Bjarni Bennett Dixon, a former Iceland Prime Minister, he had to resign as finance minister, there was an irregularity with the privatisation of one of the banks that was taken over by the government during the financial crisis. It turns out is a company owned by his father was one of the purchasers of shares in the bank that was, that was privatised, so that raised a few eyebrows. Okay, Mr. Bennett Dixon, he has a reputation for being a Teflon politician. Though and only a few days after resigning he was appointed as Iceland’s foreign minister. That’s an impressive comeback for sure. From what I can tell what Jared thinks is Iceland’s big secret is this ongoing permissiveness regarding dubious financial dealings. It could be a big secret in in many other countries too. So for those of us in Australia, the US, UK and elsewhere, we need to be vigilant and watch for any signs of financial shenanigans in our countries. Finally, I’d encourage you to pick up a copy of Gerrard’s book, Iceland secret. There’s a lot of fascinating and intricate detail about the various financial shenanigans that occurred in the lead up to Iceland’s financial crisis. Jared did a great job with his book, and I’m very grateful to have had him on the show. Thanks for listening rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

John Cochrane on Free Markets & Economic Growth and the Fiscal Theory of the Price Level – EP214

Professor John Cochrane of the Hoover Institution discusses the importance of free markets for economic growth and highlights stagnating growth as the biggest economic issue of our time. John talks about what may be his next book, “Free to Grow,” which aims to update Milton and Rose Friedman’s “Free to Choose” for today’s world. After John speaks, show host Gene Tunny interviews him about his views on growth and his controversial Fiscal Theory of the Price Level. This is a recording of a live event at the Centre for Independent Studies in Sydney on 26 September 2023. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About Professor John Cochrane

John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute. 

Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago’s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor’s degree in physics at MIT and his PhD in economics at the University of California at Berkeley. He was a junior staff economist on the Council of Economic Advisers (1982–83).

For more on John, check out his bio here:

What’s covered in EP214

  • 00:03:36 Importance of economic growth.
  • 00:16:06 Incentives drive productivity and growth.
  • 00:17:12 Regulation hinders economic growth.
  • 00:22:59 Fixing problems requires better solutions.
  • 00:28:53 Fixing social programs by embracing free markets.
  • 00:39:28 Regulatory state causing innovation slowdown.
  • 00:46:24 Free market healthcare benefits the poor in John’s view.
  • 00:48:47 Fiscal Theory of the Price Level: Inflation caused by government debt.
  • 00:53:56 Avoid old left-right division.
  • 01:05:21 Government debt may lead to a sovereign debt crisis.

Links relevant to the conversation

Video of the Free to Grow event on YouTube:

CIS web post about the Free to Grow event:

Transcript: John Cochrane on Free Markets & Economic Growth and the Fiscal Theory of the Price Level – EP214

N.B. This is a lightly edited version of a transcript originally created using the AI application It was then looked at by a human, Tim Hughes from Adept Economics, who did his best to decipher some tricky dialogue that otters understandably missed. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:03

Yeah, John has written this immense book. It’s fascinating. I’ve picked it up but then I discovered I had to buy three more books to be able to, to interpret it. But it’s it is it’s, it’s terrific.

John Cochrane  00:17

Get past, past, just ignore the chapters to the equations and get to the fun stuff…

Gene Tunny  00:26

I’m getting through it!

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Hello, thanks for tuning in to the show. In late September, renowned US economist Professor John Cochrane spoke at the Centre for Independent Studies in Sydney. I’m an adjunct Fellow at CIS and I was lucky enough to interview John after his talk, and I also moderated the Q&A session. John is usually based at the Hoover Institution at Stanford, but he was visiting Australia and New Zealand to attend conferences held by the central banks of both countries. The theme of the event that CIS held was “Free to Grow”. John emphasised the importance of free markets for economic growth, and how stagnating growth is the big issue of our time in his view. After his talk, which I’m replaying entirely because it’s so good, I asked John about his views on economic growth and about his controversial fiscal theory of the price level. So stay listening to hear what he says about that. If you’d like to watch the video version of the CIS event, it’s available on YouTube. And I’ll put a link to it in the show notes. I’ve edited the audio so it’s a bit shorter. But if you’d like to hear the whole thing, including a great introduction of John by the CEO of CIS Tom Switzer, then check out the video, I’d be interested in what you think about what either John or I have to say in this episode. So please get in touch. Contact details are in the show notes. Okay, let’s get into the episode. I hope you enjoy it.

John Cochrane  02:24

Thank you. Thanks, it truly is a pleasure to be here. You may ask why, why do I visit central banks rather than just coming to talk to you? The answer is because central banks pay business class, you know, you know who pay, who prints the money. So I want to tell you a little bit about a project that I’m on. I call it Free To Grow. I hope it’s the next book, you’ll notice the allusion to Free To Choose. But Free to Choose was nearly 50 years ago. And it’s time to update it for today’s world and today’s problems. And it really amounts to I’ve been blogging and writing op eds, and so forth for about 15 years now. It’s time to put all that together in one place, which I discovered is not as simple as copy paste. Because you copy paste and you get immense amounts, it means copy, paste and boil down. And that’s much much harder than I thought. So part of that process is to come to talk to people like you where I have to boil it down, because after half an hour, you’re gonna fall asleep. And we can’t go on and on too far. So thank you for coming. What is the most important economic issue of, you know, facing us or the globe or anyone else? Is it climate change, inequality, unemployment, recession? The answer is none of the above, long term growth, the one that nobody talks about now, to get you to think about growth, why it’s a problem and why we need to do something about it. Let me ask you another quiz question. When was the best economy ever? Now a lot of my left wing friends, they’ll point ah the 1950s were just wonderful because, you know, the economy was growing and middle class jobs and so forth. 1950 the average American income was $15,000 in real terms, today it is $60,000. 15 versus 60. Which do you want? It’s not even close. The absolute best economy ever, in all of human history is right now. by a long shot, unless you want 15 versus 60. Now gee, this is GDP per capita and it evokes yawns, but I want to get you excited about it. GDP per capita is not just about more stuff. It’s about first of all better stuff. That household in the 1950 at a tiny house badly insulated, terrible cars that rusted immediately. One maybe black and white TV, health care. You know, they they all smoke. But you know most things you know if you got cancer in 1950 well, they you know, it’s cheap and then they’ll send in the priest. GDP per capita is health, environment, education, culture, defence, social programmes or any hope of repaying government debt, GDP per capita, that people look down on it, but it correlates with everything else. I’m trying to appeal to the progressives in the audience, which might be a few, but we nonetheless, we have to listen. You want to eliminate extreme, you know, extreme poverty, health, child mortality, clean water, all of those things are just collapsing the number of people who live in extreme poverty around the globe is is fallen dramatically. Child mortality what our ancestors even 100 150 years ago, many of their children died. And as a father and grandfather, I cannot imagine that heartbreak that’s just practically unknown, that comes from GDP that comes from economic growth that comes from it’s all part of it. Even you know, things like parks and a clean environment that that all cool, you have to be able to avoid that stuff. One of the things I find most shocking is the new degrowth movement. A lot of the climate movement will admit that it’s really not about the climate, it’s about an excuse to stop growth, and go back to some idea of the farm. These people have never been on an actual farm, say in India, and had to go get the water by hand first thing every morning. It’s just and it’s also annoys me because how much how much does the world economy have to grow before everyone can enjoy the standard of living of say, a social justice activist who likes to fly private jets to Davos we got along great growth before that, for that can happen. GDP is actually a vast undercount. People say, Oh, it doesn’t include, you know, parks and so forth. But it’s a vast undercount of how much better off we are now than than in the past. Among other things, it’s you know, it’s at market prices, it doesn’t count willingness to pay. If you remember, your your economics, the willingness to pay is always much greater than the market price, we get Google Maps for free, that’s worth a lot GDP counts it as nothing, and no medicines, medicines may be expensive. But if you’re about to die, you’d be willing to pay a whole lot more than that $10,000 it costs. A lot of our progressive friends worry about, oh, you know, we’ll run we can’t keep growing forever. That’s wrong. GDP is not just more stuff. First of all, we keep forecasting the end of resources, and it keeps not happening. But where we’re going GDP is the value of things, it’s producing valuable things for your fellow citizens. You know, it’s it’s funny, they say, oh, it’s immoral to go make a profit, you should go do social justice, the most moral thing you can do is to get up in the morning work hard for your fellow citizens. And and and they pay you for it, which shows you how valuable it is to them. But what we are doing, you know, where we’re going is the services economy, the economy of the future, the GDP of the future, will be for example, health, it will be the ability to to live longer and to conquer diseases and to live happier that that doesn’t take a lot of materials. Now I emphasised across time 15,000 in … from like 1,000 in the 1800s 15,0oo in the 1950s, 60,000 today, this is just an enormous increase in prosperity. Let’s look across countries. What’s the economic problem for India? Should they worry about recession? Should they worry about inequality? Well, their income is 2000. Our income is 60,000. The number one question for India is how to be more like us. That’s just orders of magnitude more important. Even China’s only only 20,000. This swamps these kinds of numbers 15 to 60, 2,000 to 60,000, that swamps every other economic issue. A recession is maybe a fall of 2 to 5%. We’re talking orders of magnitude. Climate is as you know, in the news, let’s just take the IPCC reports that say this will cost us 5% of GDP in 100 years, 5% of GDP versus, you know, doubling tripling, quadrupling, the process of growth. India $2,000 plus or minus 5%, or $2,000 to $60,000. And this is just the swamps, that that kind of issue. Now the question is, will this continue? As long as we’re thinking climate change and the economy of 100 years from now, instead of 5%? better off, will growth continue at say 2% a year? Well, then it’s 200% better in 100 years or three times better than today? If it was 4%, we would be five times better than today. That’s Those are big numbers two times better than today four times better than today or just like today that the the end of growth. So the question I see for Western society is will that continue? And the danger is the creeping stagnation, but it may not continue. The US from 1950 to 2000 grew per capita three and a half percent a year. Since 2000. It’s been 2%. We’re cutting the growth rate nearly in half. And the US as much as I will bemoan it is doing better than everywhere else, except maybe Australia, you guys are catching up. But Italy, my favourite country to go visit stopped growing in in 20, in 2010, just a disaster, Europe, Europe is falling behind, the UK, mother country to us both the UK is half as well off as the US in GDP per capita. And it’s just it’s stagnating and going nowhere, you know, half again, I’m going to I’m going to pick on climate, not because climate isn’t important, but just to get a sense of proportionality of what’s important relative to other things, the crisis of climate change 5% of GDP in 100 years, relative to doubling the UK GDP per capita, if they could just be like the US, you know, so climate change is, you know, that UK versus us is 10 times worse than the damage of climate change, we should be paying attention to long term growth and that and that convergence. So for us, the issue is is stagnating growth, and if it keeps going whether our children and grandchildren will experience what we did relative to our grandparents, of course, for for India, for China, for Africa, the ability to live lives like we do in 100 years, rather than be stuck in grinding poverty forever. That is the most important issue. So where does growth come from? Productivity. In the end, it’s all about what can each person produce per hour. It’s about supply. It’s about efficiency. It’s not about stimulus demand, central banks sending money out. It’s not about it’s not about unions. So why are why are we all wealthy? Because our grant, say your grandfather likely worked in a mine. And it’s 1890 and kaboom with a pick? Did Did we get richer because unions made the profits of the mine go to the worker, and now he gets, you know, 50 cents an hour rather than 25 cents an hour at the pick? No, it’s because now the mine is run with some enormous machine. And everybody else moved to the city and got nice jobs like we have. It’s about productivity. In turn, it’s actually, something is really stuck in our in our policy discussion. It’s always 1933. It’s jobs. It’s stimulus. No, Keynes is dead. We’re stuck with the long run. And the long run is about growth and supply. Where does productivity come from? In the end ideas, ideas, not just products and inventions, the you know, the iPhone, we all we all understand that’s an idea. But the little ideas of how to run businesses better. My my favourites is I spent a lot of time Southwest Airlines if you ever travel in the US, they figured out how to board an aeroplane in 10 minutes, United still takes us 30 minutes because we’re all going there fighting for the overhead bins then you swim upstream to check your bags. That is productivity growth. 10 minutes to board a plane versus 30 minutes to board a plane. Every little thing, you know old fashioned businesses like steel, steel I just found out in the US is is cut by at least in half how many man hours it takes to make us a tonne of steel, the yields on boring things like wheat, are just boom, boom, boom up every year. That’s the slow improvements in how do we do things. So it’s ideas. And ideas are very tricky, economically the crucial event and I’m gonna say something that you probably won’t like. The crucial thing about an idea is that it’s what we call non rival, its intellectual property. iPhone property, real property if you use, take my iPhone, I can’t use it anymore. If you take my wonderful recipe for spaghetti alla Puttanesca I can still use it. It doesn’t hurt me at all for you as you use it. Now, why are we all upset about intellectual property? Intellectual property, Once created, should be used by everybody immediately and then we’re all more productively. Why are we so upset about intellectual property? Well, you do need the incentive to create it. But you only need the incentive to create it. It’s it’s tricky that way. Universities you know, my business is creating intellectual property and giving it away for free. That is the good thing. Now that leads you to say, well, we should subsidise research. We should subsidise new ideas. No, no, no, don’t jump to that fact many of my growth theory economist jumped to you know, subsidised research. That’s the answer to producing new ideas. The problem is and let me tell you for sure because I work in a university. It is very easy to subsidise terrible ideas. You know in In the past, there used to be theology departments, whatever, I don’t know what you think religiously, but that doesn’t improve productivity. Now, it’s called departments of intersectional studies, which is the same thing. But it does not lead to productivity gains is what what matters with us whether you want, it is easy to fill academic journals with BS. So we need ideas. And for us, we need new ideas and better ideas. It’s much easier for China, India and Africa, because the ideas are there, they just need to copy. The only reason, the only reason India is not as productive as the US is they don’t do things the way the US does. Their technology, their productivity is not as high, which is a whole bunch of things, education, legal system, management, all the rest of it, but they don’t have to invent anything new. They just have to copy ideas, and it’s not going to hurt us, for them them to copy them. Ideas need to be embodied. So ideas, not just ideas, lots of inventions that are that they need to be embodied, usually a new products, new businesses, new ways of doing things. So they need incentives. And that is, I don’t really call it free market economy, economics, I call it incentive economics. That is the one thing we have to offer. Nobody else pays attention to incentives. Our job is to pay you need the incentives to take those ideas and implement them in new products, new businesses, and every step is hard. We think of growth as 2%. For years just gonna happen. No, every one of those 2% is is is is hard work to do things a little better, and to upset the established order. The problem is, every step is disruptive. So think about Uber and taxis. Easy example, Uber comes in, obviously better, right? We get cheaper rides, cars get used, people get employment opportunities, part time work, and who hates it? The taxi companies. Now I don’t know what happened here. But what happened in the US is just an unholy mess. The taxi companies had been protected forever. They, they they don’t like it. Nobody, don’t count on businesses to be for free markets, businesses hate free markets. Businesses want protection from competition and an easy life. And that’s the problem. This process of productivity enhancement has to be embodied in new businesses that disrupt the existing order. So all of regulation is designed to stop growth. Think of economic regulation, what does economic regulation do? By and large, it says I protect you from competition from him in order to keep the existing way of things going. A lot of it is about transfers, I’m going to take money from you and give to him but we’re going to do it very inefficiently by making you charge by forcing you to charge a higher prices. This regulation is designed to stop growth, not to get it going to preserve jobs, businesses always of doing things. Why? Because we live in democracies. Democracies are responsive to the needs of their citizens. And when the citizens come come screaming to stop competition and preserve my way of life. Democracies give them what they want good and hard as HL Mencken used to say, My ancestor I have an ancestor who came from Germany to the US and he came to the US. They hated Germans at the time, he went to New York, didn’t speak English. He wrote back come to America, the streets are paved with gold. Why? They were in a business they they made furniture and they wanted to move into pianos. But the guilds in Germany didn’t like this. There’s no damn guilds here stopping us from doing what we want to do. That’s what it needs. So why how do we how do we get around that? Well, we have property rights. We have rule of law, the institutions that protect our ability to innovate and and to and to cause problems for the existing people. So why are we stagnating? In my view, the answer is simple. We got people we got ideas, we’ve got entrepreneurial spirit, we have abundant investment capital, we just can’t get the permits. Now my notes say US regulatory nightmare insert horror stories. And you can we have all heard horror stories of regulation gumming up the works of doing things. Good ideas include public institutions. Now I’m I’m a good libertarian with lots of adjectives in front and one is a rule of law in libertarian. Property lights a rule of law and efficient legal system, that the the prep protections against depredation against the ability of your neighbours to go and demand competition that’s really important. And we see that good institutions are one of the most important things to get into growth, that’s why. So how can we get going growth again? Well, let’s we gotta fix the all the sand in the gears that’s getting in the wing. Can this help? There is a strain of thought and economics that says we have just run out of ideas. That’s the end of that, you know, growth is bound to end. I don’t think that’s true. But let’s let’s fix what we can, we can look and see lots of sand in the gears and we can certainly improve the level and, and I think we can do an enormous amount. When you look across countries, the GDP per capita from the Central African Republic, which is about 200, to India, 2000, China, about 20,000. UK about 40,000 US 60,000. There’s a very strong correlation between our incomes and ease of doing business index rule of law index, those kinds of institutional indices, so we know what’s good. What’s amazing is is how big the effect is, from 200 to 60,000, is really just institutions that my favourite is the my colleague, Chad Jones has a textbook on growth theory. And the cover is is a picture of Korea from a satellite, North Korea dark South Korea light. Now, now the good Lord has given us a controlled experiment, I’m sorry for the people of North Korea, but you want same background, same culture, same language, same everything. In fact, North Korea was the wealthier part in before the for the war, you want a controlled experiment on what government can do, it’s just amazing that it can do so much damage. But But there it is, for you, well, continue that regression line, the ease of doing business index puts the US at 82, 100 is possible. 100 just means the best observable everywhere, as I run that regression line out that puts the US 400% higher than it is today. Well, that seems possible that that is I think, a struggle. So how do we do? Erm fixed regulation sounds, you know, like pie in the sky. And the bulk of what I have to offer is, you know, concrete ideas of how we do it. The problem is, here’s there’s a political problem, stimulus is so attractive, stimulus is, ah, I the great politician will give you money and this will float all around, say yay give me, write me a check. Fixing things is a reform effort. And every market is screwed up in its own way with a bunch of vested interests, I call it what we need is the Marie Kondo approach to our public life. You can’t just stimulus, you can’t just go down and buy a lot of containers. You got to fix the sock drawer, and then the underwear drawer and my god the garage is waiting for us the tax code?.Well, that’s the way it is, you know, you have to know where you’re going and and, and start that reform effort. So I want to give you some examples. You’re not going to get in the next 10 minutes programme for everything, but it is the Marie Kondo approach. How can we get out though of the debate, you can see there’s sort of stuck. And I, what I’ve been thinking about mostly is I don’t want to call it out of the box, because that’s so trite, but a way beyond sort of the standard left right dilemma. And I think that’s right, I think there is an answer to air, to most of our problems, that is not just one or the other side more of this. What do you have to do first? Many regulations actually have some reason to them. So understand why, but then do a better job of what they’re doing. One important exercise is what’s the question? As you look at policies, most are answers in search of a question. My favourite being like tax the rich, it’s always tax the rich, but why keeps changing over the time? Well, let’s get the question. And then we can find a better answer. Regulation, regulation is not more versus less. Regulation is better, worse versus worse, well crafted versus not well crafted, full of unintended consequences and bad incentives or not. The the game is to fix, not just more or less, that’s harder. Another important principle, think of the overall incentives, the overall system, not just parts in isolation. And above all, think about the incentives. No one else is thinking about the incentives. It’s politics is just about taking from you giving to him. Nobody’s thinking about the incentives. If you think about the incentives, you’re away from the political wrangling about about who gets what. So for example, let’s think about let me start with an easy one, taxes. What should we do about taxes? Well, what’s the question? If the question is raise revenue for the government with minimal damage to the economy? I said the question once you say the question, the answer is very simple. That the answer to that question is eliminate income taxes, corporate taxes, state taxes, taxes on rates of return, basically just a flat sales tax on absolutely everything. That raises the most revenue for the government with with least cost and and now the objection what’s what’s wrong with that? First objection is, wait a minute, that’s gonna be like a 50% tax rate. Yeah. If GDP if if The government spending 50% of GDP, the tax rate average tax rate is going to be 50%. And if you don’t like that, you need to spend less. The it’s the same tax rate now it’s just raised in a different way. What we do now is we, we put it in lots of different places, so people don’t know. But the idea is simple. What about inequality? Well, number one, get the rich at the Porsche dealer. If you have a flat sales tax, you’re gonna get them you’re just gonna get them at the Porsche dealer, not when when they make the money, and it’s vastly simple. But what about inequality? Oh, you mean that wasn’t the question? The problem with our tax code is it’s trying to do and this is the US, by the way, I should say, I don’t know anything about Australia, and I hate Americans who wander around the world telling other people what they should do. So but I’m gonna seem parochial as a result, because all my stories about America, we’re trying to do 15 things. We’re trying to raise revenue, we’re trying to transfer income, we’re trying to subsidise all sorts of stuff, like my neighbour in Palo Alto lives in a $5 million house got 7500 bucks from the government for his new Tesla. That’s nice. We’re trying to and we’re trying to subsidise all sorts of things off budget without actually, you know, we’re taxing and spending without taxing spending? Well, you’re trying to do too many things. No wonder you get a mess. Let’s separate these. So the way I’d like to do it is let’s put all of that stuff on budget as expenditures. The flat taxes said, Oh, it’s not progressive. But what is the taxes don’t matter. What matters is the whole system. If we raise money efficiently with a flat tax, and then spend checks to whoever you want to spend, the whole system can be as progressive as you want. And as progressive as the voters will like, or as less progressive as you want. But it doesn’t matter. There’s this focus on each one individually, no, look at the whole system. And that can be as progressive as you want. And that you know, but if you put it on budget, then it’s up to the voters. I’m gonna follow principle, I got nothing to say about transfers, all I got to say about is incentives. And I want the lowest possible marginal rates, with the highest possible revenue for the government, that fixes the incentives, how high those rates are? up to you how much you want to spend, how much gets transferred up to the voters? how much they’re happy to do. Let me talk about social programmes. We are in the US at least, we’re running 5 to 7% of GDP structural deficits. And here come the retirement of the baby boomers. That’s our that’s our debt problem. Well, here’s a classic of left versus right. Right, oh, we gotta cut social programmes, we’re gonna go bankrupt. Left, you heartless whatever, you’re gonna throw grandma from the back of the train, how can you do that? How can we break out of this one? Let’s look at incentives. What’s the real problem with American social programmes. The real problem is not how much money we spend. The real problem is the disastrous incentives and it’s incentives that the programmes all put together. You take the average American between zero and $60,000. They if they earn an extra dollar in legal income, they lose $1 of benefits. And that’s on average, there’s many cliffs where you earn $1 And you lose all your health insurance. Make sure not to earn that extra dollar. If you have, if you have affordable housing with an income limit, earn an extra dollar, you lose your house, people are very smart, they respond to incentives. The other problem we have is that low income Americans basically don’t work. The labour force participation is just catastrophically low. Well, duh, why don’t they work? Because if they earn extra, do you want to cheer after me? If you earn an extra dollar, you lose $1 of benefits. So why don’t we work on fixing the disincentives of social programmes? What will happen then, what will happen is more people work, so they won’t need so much social programmes just save money, you’ll help people who actually need help much more effectively. And you reduce the cycle of poverty and dysfunction in a lot of our neighbourhoods. How can we do that? Well, one of the most important ways is that the problem comes from all programmes together. It’s the the food stamps you it’s only like a 50% implicit tax rate. But if you add the food stamps, the Social Security, the low the earned income tax credit, the the low income bus pass, that actually exists, I mean, all the things that are income limited, you put those together, so why don’t we put those all together instead of having 15, 150 actually different different programmes, remove the cliffs. One of the most crazy things in the US if you get another dollar of income, we lower your benefits. If you go get out and get another programme that gives you another dollar of transfers. We don’t lower your benefits. Well we can fix these things. Control the disincentives. Banking, oh boy. banking regulations. This is a classic one of disincentives. And there’s we have we’re in we’ve just done this again. We’re in this cycle of, the crisis comes, bail everybody out, promised to fix it. It doesn’t work. Great. Run comes again, bail everybody out. Again, this is a ne.., this is an important one because there’s remember the little old lady who swallowed the fly, just swallowed the spider to catch the fly and so on and so forth. This is when you think about how things got bad is not just dumb people. It’s smart people patching up a dumb system. And that’s what happened a run happens. What do you do? You got to bail out the creditors to stop the runs. Now you have moral hazard. A bailout deposit insurance is like giving your uncle Luigi your credit card on his way to Las Vegas. That’s what we economists call moral hazard. So we write rules, okay, no double down on 16. No spinning double black or whatever. Luigi figures out, I have an Italian family so I get to use this. Luigi figures out and goes to the craps table and next thing you know you got another crisis. We have the answer. It’s it’s a sensible thing. But now it’s it’s it’s falling apart we have the answer, which is was put in place 1992 but it requires tearing the whole system down and starting from scratch. And that’s the hard part, the answer, by the way is banks should get their money by issuing stock. And then deposits should just flow into flow into trade. It’s called narrow banking. It’s been around since the 1930s. There’s a lot of money people making money in the current system. Housing, you have a housing problem, we have a housing problem, let them build. And I’m only beginning, health, oh boy, healthcare. This one always causes me problems. But I got to tell you so healthcare in the US is one of the most dysfunctional things around. It’s actually possibly worse than socialised health care. Fully private health care can work. Now here and in 30 seconds, I’m not gonna give you the programme. But health is a complex personal service. It’s like lawyering, accounting, architecture, construction, aeroplane pilots, car repair. It’s a complex personal service, all of those we leave to the free market, there is no reason that healthcare can’t be left to the free market as well. And then a brutally competitive market can give us better service and lower prices. Oh my goodness, I haven’t even gotten to horrible publication, public education, labour laws, occupational licencing laws, immigration restrictions, regulatory barriers, lawsuits, prevailing wage, domestic content rolls, the sand in the productivity gears. What are we gonna do? Well, that’s it, those are all out there. But you can see the general principle can, can be used to fix all those if we want to, you know, free, free markets is still a vital way to fix today’s problems. And that’s just today’s economy. Well, you know, new ideas are also the the sand in the gears is there too. You know, there’s a possibility of factory built mini nuclear power plants. Why don’t we have those in the US? Because the Nuclear Regulatory Commission has not licenced a single new plant since 1975. AI, we live in a moment of a spectacular technological advance. It’s like Gutenberg. It’s potentially like like Gutenberg’s movable press. And immediately what do people want to do? Run to Washington to regulate it. And where’s this, it’s not just coming from fear the robots will take over. There’s a strong demand to regulate it because this is information. We are we’re living at the outbreak of the technical censor the censorship state, and boy, oh boy who has control over ChatGPT3, has control over politics, especially biology I see great advances in biology, better health, longevity, that what we’re learning about about the fundamentals of life is fantastic. But good luck getting FDA approval, or increasingly politicised research funding. So let me summarise here we can’t just bemoan, there’s a tendency among us free marketers to have a beer and just say, Oh, how dumb Why are their zoning zoning laws are so dumb, they’re stopping that. But if you understand where they came from, and what the disincentives are, I think you have a better chance of fixing you have to understand where they came from. That patchwork the old lady and the fly, how to how to ask the right questions, to get the answer. You have to examine the whole system, you have to examine the incentives. And you have to make your opponents state the question. And then often there’s a very simple answer. And then they go duh, that wasn’t the question I asked. It’s okay, now we’ll have a better conversation. There’s a way to do this. Economists are quite a bit at fault, my fellow economists. What you’re taught in economics school, is how to look at every problem, diagnose some failure of the hypothetical totally free market, and then advocate new rules that the benevolent omniscient planner will do to fix the problem. But we don’t live in a free market. When you see a problem. Look first, not at a hypothetical failure of some free market look for the regulation that caused the problem, as you can see with zoning and housing, it’s not a failure of the market, it’s regulatory. Now I have to close on a optimistic note. You know, people often tell me, Oh, if only we could get leaders who will listen, They all believe in democracy. How does this happen? Things things will get better when the average person understands how it works and votes for sensible policy. I know a lot of politicians, they, by and large, understand perfectly well how things work. And they understand they won’t get voted in office for it. So when the average person sees, you know, when the average person sees too high house prices, and says, Well, why don’t we let people build more houses, you’ll get politicians who understand that. So really, the way things work is there’s leaders, there’s the chattering classes around them, and there’s the vast amount of sensible voters around that. If you operate in the world of ideas, then the politics will follow. And that’s why institutions like this one exist, we exist to help the ideas that then will make their way into policy. The idea that you can just whisper into the into the great emperors ear, that’s not how a democracy works. And thank goodness, that’s the way our society works. Okay, thank you.

Gene Tunny  36:19

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  36:24

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Gene Tunny  36:54

Now back to the show.


John, thank you. And now it’s time for our Q&A session with our friend and colleague leading proceedings, Gene Tunny is director of Adept Economics in Brisbane. And he’s the author of a recent CIS publication that I’d encourage you to read, Debunking Degrowth. Gene Tunny, over to you Gene.

Gene Tunny  37:17

Thanks, Tom. And thank you, John, for that excellent lecture. That was terrific. John, I’d like to start with this idea of the age of stagnation or the risk of stagnation. And it seems like you’re attributing that to government, I’d like to understand what evidence there is behind that. So we’ve, if you believe the people on the left, we’ve had an age of neoliberalism, we had the reforms of Thatcher and Reagan and in this country, we had Hawke and Keating and then Howard. And there’s an argument that we’ve deregulated too much. But you would push back on that, could you tell us a bit more about why you’re so confident, it’s it’s government regulation that is driving that slowdown?

John Cochrane  37:55

You got an alternative for me? I mean, just look out the window, and you know, try to run a business and and see how hard it is to get anything done. So Reagan and Thatcher were great, but they just scratched the surface. They sort of talked about deregulation, but you know, how many federal agencies did Reagan actually get rid of? You know? So there was a little bit of a pause. But the regulatory state just kept adding more and more. And I see it’s a larger issue, not just of the size of regulation, but the nature of it, our public institutions in the US are fraying. I actually am a free marketer, I look back with nostalgia at the era of regulation. And by which I mean, when our regulatory agencies had rules and cost benefit analysis and public comment and proper procedures. Now, it’s just an executive order and a Dear Colleague letter, you know, and so that that’s in many ways worse as an example. Also, it’s getting more and more politicised. I was shocked. So you may or may not know what’s going on. There was a case, Missouri v Biden that revealed what was happening the censorship of the internet during the COVID era, and went unremarked. The Biden administration was simply threatening businesses like Twitter, we’ll close you down. We’ll send the EEOC, the NLRB, the EPA, you know, this alphabet soup of agents, we’ll send them after you. But by saying that, you know, you see right there, it’s taken for granted. This isn’t rules. This isn’t law. This is just we arbitrary power to close things down. So I see the regulatory state getting bigger, the the legal system in the US, you know, you can’t get anything built because you’re gonna get years of environmental suits. And it’s part of sort of the scorched earth politics. That may not be the answer to the question you wanted, but that’s what I see.

Gene Tunny  39:45

No that’s okay, I just wanted to ask because the the alternative view is that there has been that slowdown in the rate of innovation that you mentioned the the Robert Gordon thesis of the rise and fall of American growth. I think it’s, yeah to me, it seems like a difficult thing to be able to prove one way or another,

John Cochrane  40:02

It is no, what you’re asking me is not just my view but what I think of those views. Yeah. So these views, we got to take this seriously. Gordon basically said, our growth was an SJ thing, it was a one time thing, we learned to use fossil fuels. And that’s over, just, you know, that the possibilities are over. And there is evidence, you know, it’s taking more and more in resource, find an invention. But in part, that’s always been the case. So there’s a great study of the steam engine, steam engines invented, it wasn’t, you know, 18, if you’ve been to the museum’s, it wasn’t like the final steam engines 100 years of making it better and better, and it gets harder and harder to harder to make it better. And we’re kind of running out of ways to make steam engines better. And then someone invents the diesel engine, and then someone invents the aeroplane. So I think we’ve been in a period of sort of, there was a new invention, we kind of work and all that, and you’re waiting for the next new thing to come, which I think is potentially biology or AI. So just wait. But who knows, you know that that’s a possibility. We but we also know, the regulatory state is causing tremendous problems. So you know, maybe we can only raise GDP by a factor of four, before we run in, run out of ideas, factor four will be pretty good. And to let India and Africa have our way, know how to do things the way that will be pretty good, too. And if 200 years from now, that’s where we plateau. Okay, we’re done.

Gene Tunny  41:20

What do you think the risks are with? With AI? I mean, there’s a lot of potential there with biotech is that is the risk that we’re going to be too timid, that we’re going to over regulate, because of the precautionary principle, for example, how do you see that? And what alternative would you offer? What, would you have a principle that you could apply for there?

John Cochrane  41:38

The last big thing on the internet was was, you know, social media sorts of things and Google, and then they’ve been kind of looking for what, I live in Silicon Valley, they’ve been looking for what to do for 10 years. And I talked, everybody wanted crypto for a while that was kind of going nowhere. Not that kind of hard. But the old tech companies have turned into regulatory regulated utilities with remarkable speed. And I worry that this, this is really a demand for the new stuff to do that I don’t, the idea of the robots will take over. They’ve been worrying about that since 1850. I think just technically, that’s silly is just complete sentences, it completes your sentences. Don’t worry about that taking over. I think the demand for regulation is the demand to control the flow of information that we get, and we’re worried about tech is there’s no monopoly that doesn’t get enforced by the government that lasts very long. People say tech’s a monopoly? Oh, yeah, Netscape, AOL, Yahoo, they got that one wrapped up, don’t they? And the same thing is happening to the big tech tech companies now. So the demand I think, really is the danger is the danger of the surveillance state. And, and so, you know, there’s you can see the political demand for regulation, and people like to keep their profits up. So that’s the demand for regulation. Not that the robots are gonna come get us.

Gene Tunny  42:57

Okay. I’d like to ask, again about, well about government. And you mentioned the, the Marie Kondo approach to fixing government and if I remember Marie Kondo correctly, it’s you pick up an item and if it doesn’t bring you joy, you toss it out. Are there parts of the government that don’t bring you joy, that you would toss out?

John Cochrane  43:16

I think the converse of that question is going to be harder or easier to answer. Yes. What what do I like about the government? I think the US is vastly underfunded the legal system, that it takes years to get to get something through the courts is just a shame. That’s part of public infrastructure. You know, where roads, bridges and efficient courts. So that’s why as much as I hate lawyers, and environmental suits and all the rest of it, nonetheless, that’s, you know, that’s a part of the work that we can have some public infrastructure there. Is there anything else that we actually like? What do we like in the government?

Gene Tunny  43:54

That’s okay.

John Cochrane  43:56

Sorry? Yeah, National Defence. That’s a big inefficiency that we put up with. Thank you. It is remarkable. I’m a good libertarian and free marketer, that the military is so efficient at what it does. I mean, it’s a big inefficient waste, but that it actually wins wars is pretty amazing. You know, given given the structure that they’re really amazing people.

Gene Tunny  44:17

Okay. John I’d like to ask about health care, for example, and you’re a proponent of free market, in health care. A lot of the other advanced economies or most of them would have large public health care systems. And the concern is that if you have the free market in health care, there’d be some people that would miss out, they’d be left behind, there’d be people who couldn’t afford it, people who wouldn’t be insured. How do you deal with that objection given, if you look at the US system, US life expectancy is significantly lower than other advanced economies. How would you cope with that objection? How do you, I know it’s difficult to unscramble from where we are and you do have regulation intervention already, but how would you deal with that, that objection?

John Cochrane  45:01

Yeah the US already has a public health system that’s just a remarkably inefficient one. So most of the population is on some sort of government thing, whether it’s Obamacare or federal employees, and the US, you know, in other countries they say, You’re we’re paying taxes, you’re gonna pay some taxes to pay for his health care. In the US, the government says, well, we don’t want to tax and spend instead you business are going to provide her health care, and is that any different than taxing and spending? But then we have this horrible system of cross subsidies, which is what kills the competition? You know what, so government doesn’t want to pay that much. So we say, well, you hospital, you have to provide free health care, and the hospital says fine where are we making up the difference? Well, we’ll let you overcharge everybody else. Okay, but now you can’t have any competition. That’s where the whole homeless comes from. Now, now the left behind issue. So US life expectancy is lower. That’s because we shoot each other. And we and we do a lot of bad drugs. But US life expectancy, if you have cancer, it’s a whole lot better than anywhere else in the world. So it’s horrendously expensive, but but not that bad. You know, the poor people have cars and houses and lots of things, they don’t get great health care, by the way, anywhere in the world. Everywhere in the world, rich people have ways of getting really good quality health care, and we sort of have a fig leaf that that everybody else is, is getting great stuff. So I don’t see that free market health care, because it’s going to be so much more competitive, so much more cost effective. I think it’s gonna serve poor people, poor people, you know, have money just like anybody else. They’ll they’ll buy health insurance and it’ll be cost effective. And, and I don’t mind subsidising it. So you want a subsidy, so we can have transfers, I said, do you know all the transfers you want? I just I’m gonna give you a voucher, you can have a voucher for 5000 bucks, 10,000 bucks here, I don’t care what it is. Go buy your health care on a brutally competitive insurance and healthcare market. You’re going to come great because you got a $10,000 voucher.

Gene Tunny  47:00

Okay, okay. Might be good to ask, go to the audience soon. ButI’ve got one more question…

John Cochrane  47:04

I’ll try to shorten up my answers. Stop asking such good questions.

Gene Tunny  47:08

No, I’ve got one more question about your fiscal theory the price level, which is, yeah John’s written this immense book. It’s fascinating. I’ve picked it up. But then I discovered I had to buy three more books to be able to, to interpret it. But it’s it is it’s, it’s it’s terrific…

John Cochrane  47:27

Get past the, past, just ignore the chapters of the equations and get to the fun stuff…

Gene Tunny  47:31

I’m getting through it. But John, how do you distinguish this from, say, the Milton Friedman view that inflation is always and everywhere a monetary phenomenon, you’ve got a fiscal theory of the price level. We look at what happened during the pandemic, when we had this massive monetary expansion in the Western world and in Australia and the United States, UK. And then we see the inflation following that. And we think, Well, this is what Milton Friedman was telling us. But you’ve got a theory of inflation that is different. You’re saying it’s to do with fiscal policy with government debt? What do you say about Friedman’s theory and how is yours different how does yours add to it or reject Friedman?

John Cochrane  48:08

That’s not a question that’s gonna get you a short answer. 600 page book in 30 seconds, here we come! The fiscal theory of the price level says that where does inflation come from fundamentally? It comes from more government debt than people think can be repaid by future taxes. Government debts and assets just like stocks and bonds. If you think the stock doesn’t have is not doesn’t have any dividends coming, what do you do you try to sell the stock the price goes down. If you hold government debt, and you think, you know, these guys are never gonna pay this off. What do you do? You try to get rid of the government debt? How do you do that? You try to buy stuff to try to sell the government debt, but we can’t all sell it. The only the you know, what is if we try to sell the government debt, we buy stuff, prices go up. That’s where inflation comes from. Now, what about Milton Friedman? I love Milton Friedman. Milton Friedman was 99% right. Wrong about one little thing. So Friedman, he said money causes inflation, not total government debt. Now, how do we agree and disagree? Suppose you take $5 trillion of money and hand it out from helicopters, as Milton said, that’s gonna cause inflation. I agree, because money is one form of government debt. And when you drop money from helicopters, you’re telling people here’s debt, we have no intention of paying this off with future taxes. So we agree that is, it’s an expansion of government debt is money that finances a deficit. But suppose the government drops $5 trillion of money from helicopters. And simultaneously the government burglars come and take $5 trillion of treasury bills out of your safe, you have no more wealth, you have lots more money, but we took away your treasury bills. Now monetarism would say that causes exactly the same inflation as just giving you the debt. And I say ah ah ah, what counts is overall amount of government liabilities and as proof, yes, in the pandemic, the government did drop a lot of money and debt on everyone and got inflation. It was financing huge deficits. That was a fiscal expansion. The government also did $5 trillion of giving you money and taking back debt. That was called quantitative easing. And what did that do? Nothing. So 5 trillion in quantitative easing designed to increase inflation, absolutely no effect whatsoever. 5 trillion of deficits, which could have been money could have been debt, 5 trillion deficits, we got inflation. That’s actually Episode One for the fiscal theory.

Gene Tunny  50:27

Okay. Thanks, John. That explains it better to me for sure.

John Cochrane  50:31

And Milton was great. Now many not that many episodes of money causing inflation, and they were almost all governments printing money to, to cover deficits. So we agree on all those episodes.

Gene Tunny  50:43

Very good. Okay, Tom, should we open up to the floor for questions? And question I’m going to enforce the questions must be questions rule. Gigi Foster?

John Cochrane  50:54

I welcome speeches. Short speeches.

Gigi Foster  50:56

I’m Gigi Foster. I’m a professor of economics at UNSW, one of our local universities. And thank you so much for your lovely talk, which I will be trying to get somehow for my students, hopefully CIS will make that possible. So I really agree with you know, 99%, of what you said. But towards the end, I thought maybe your optimism about being able to fix this through democratic processes may be a little bit overstated. And my worry is that what we have now is this sclerotic mess in not just in government, but in organisations as well, including universities. And it is sustained by poor incentives on the part of the people in the state and the bureaucracies that are not accountable, and the politicians themselves who are career incentives. And what we face is a situation similar to what Kafka saw, similar to what we had in the USSR before it fell. And we know that how those bureaucracies end is they they either have wars that defeat them, or they come crashing down under the weight of their own inefficiency. And right now, our democratic mechanisms are not very strong. A few elections, sometimes, to me, it’s just not a strong enough force. So I’ve been advocating for a lot of direct democratic revival in the resistance and restoration movement here in Australia. And I wanted to know what you thought about the need for that. And if we don’t think it’s necessary, how is this going to come to pass?

John Cochrane  52:08

In the past, democracies, especially actually, small countries, who seem better able to do it than the US are capable of reform. Even the US we’ve had a social security reform, we had a tax reform there, you know, historically, we’ve been able to fix things. I worry as you do, that the institutions are fraying that we are we are in the US having, the government is so powerful, that it’s worth scorched earth tactics, to destroy the institutions to grab power for the next round, because then you get control of the Justice Department, the surveillance state, the taxes and all the rest of it. There is a limited government allows you to lose elections and go lick your wounds and try again. So and I, I’ll be a little political here. I think our big, one of our biggest challenges is we face a political religious movement on the far progressive left, that is understood the march through the institutions. It’s a small fraction of popular opinion, but they know they grabbed the educational institutions, they grabbed the bureaucracies they grabbed the philanthropies, they have the universities, they have the institutions of civil society in their grasp. And they are profoundly undemocratic. They they are, they call themselves save our democracy, but they are Maoist in their in their policies and that and with the fraying of institutions, and the rise of a technical surveillance state, that, you know, that is a genuine threat to democracy and growth. So I was trying to close optimistically, I’m making your point. I am, you know, very worried about that, and our freedom to have events like this.

Gene Tunny  53:47

Righto, Peter Tulip, at the back and then over here… Thank you, Chief Economist at CIS, yes.

Peter Tulip  53:54

Thank you. I’d like to ask about you’re talking about avoiding the left right division, that a lot of the regulations you want to get rid of have a strong constituency within the economics profession. But that’s not true of all of them. There are some views and in particular, free trade, or housing policy, you mentioned where left wing economists, like Jason Furman or Paul Krugman, have almost exactly the same agenda, as you do. But the general public is on a different planet. And part of that is that the public just doesn’t trust market forces. I was wondering if you have views, how do we prosecute those other issues where economists across the spectrum agree, and we’re against the general public?

John Cochrane  54:43

Boy, that’s a hard one, by the way, Econ profession is in many cases very interested also. You know, how do you get consult like health economists, you know, they live to consult for the for the big health either, they’re not gonna say free market. They live to provide advice and benevolent dictators, they tend to be pro regulation as well. How do we get, boy, basic education on basic things that support the institute? I get to think about that one and come back after another question, but because those are fairly straightforward, and of course, the far left doesn’t believe in the far right doesn’t either. You know, Trump has 25% tariffs on everybody. In fact, I was so disappointed in California. There’s a there’s now a yimby movement where progressive lefties they’re saying, You know what, I get it. The only way to bring down housing prices is let people build housing and market rate housing, not just government subsidised housing. And instantly the Republican Party said, no, no, no, no, we must have zoning control and local local. Don’t Don’t count on the right to be free market either.

Gene Tunny  55:56

Over here, and then we’ll go over here. Yes, if you could just…

Michael Potter 55:59

Yes, Michael Potter. So I just wanted to ask about you mentioned I think a when you were talking about health care that the US system is actually worse than a socialised system was just wondering if you could expand or develop on that idea. Why is the system which is sort of partly free market and partly regulated or socialised, why is that actually worse than a fully socialised system?

John Cochrane  56:23

Well in part I was making a joke. But you know, what, there’s a couple of original sins in US healthcare, and one of them is this idea that we’re going to do, we’re not going to tax and spend, we’re going to do it by forced cross subsidies. Because if you tax and spend, you can still have a competitive system. When you do it by forced cross subsidies, you you have to stop competition, and then just the price just explodes. So, you know, we have better health care than most places, but we pay we have twice as good health care at five times the price. And actually, you know, there is this issue, what do you do about poor people? And I said, vouchers is one way to do it another way is, let’s just, if you want it, you know, deal with the homeless people shouldn’t die in the gutter, why don’t we pass some taxes and give them whatever health care you think is a compassionate society deserves the least fortunate. And then the rest of us can be left to the mercies of the free market. And one of the crazy things is that my health care insurance has to be so screwed up, just because to provide health care to the bottom 5% of the homeless person in the gutter, that’s silly. You know, we, we need, you know, I can still go to a private hotel. And we don’t, you know, we don’t we don’t try to socialise that in order to solve the homeless problem. So there is, you know, I assume a government provided system all one in is pretty horrendously inefficient. But a system a crony capitalist system can be as efficient as a, as a well run, government provided system. And I’ll say it I would be for taxing and spending, you know, one way to, you know, tax and provide a a community hospital for the poor, and then we get the free market.

Gene Tunny  58:07

Okay, with some questions over here. And then we’ll go to you, we’ll go to this gentleman. Thank you. Thank you. Thanks.

David Tregenza 58:14

Hello, my name is David Tregenza. I was just wondering, when you talked about development economics. I’ve read arguments from maybe more progressive that the reason America has such all those ideas booming is from their large spend on military, which then leaks to entrepreneurs. And that’s where computers, internet, rockets, satellites, and all that come from? What do you say to that?

John Cochrane  58:38

Well like, China seems pretty good at taking our military ideas and implementing them. You know, those ideas are available for anyone. Now, to what extent was, you know, to what extent the idea is that the most efficient way to produce new ideas, you know, Apollo programme was 1% of GDP, we got Tang and Teflon, you know, maybe we could have gotten that cheaper from from other ways. So some of the basic ideas did come from the military. But the hard work is not the basic idea. The hard work is the implementing it and starting the new company, you know, famously, Xerox, created the mouse and didn’t know what to do with it. Steve Jobs saw the mouse and boom, that, you know, he knew what to do with it. So I’m not sure that we have a dearth of basic ideas. We have as the dearth of is the ability to take new ideas and implement them in new companies, which then challenge the profits and ways of doing things of the old companies.

Gene Tunny  59:36

Nicholas Moore is it? Has the microphone.

Nicholas Moore 59:37

Thanks, thanks for the presentation. It’s been terrific. I’m, of course a subscriber to to, as you say, 99% of these views, using a natural experiment US versus the UK I think is a good test. But I always used to get confused when I looked at France and the UK because the French obviously wouldn’t embrace the sort of ideas we’re talking about, whereas the UK, typically would have, and again, looking at the US, you know, the contrast between California who arguably embrace all the wrong ideas. And when we talk about AI, you know, Where’s that coming from? So, so there does, you know, the natural experiments throw up a bit of challenge don’t they in terms of where GDP per capita ends up where ideas come from?

John Cochrane  1:00:23

I don’t know are France, France and the UK that different in terms of overall level of so…

Nicholas Moore 1:00:28

That’s a point so their GDP is per capita is the same, one’s more open and one’s more closed

John Cochrane 1:00:33

France spends 55% of GDP the UK spends 50% of GDP on on government stuff. There’s sort of this de industrialised, the UK is a financial centre and then tourist de industrialised wasteland, France has a certain efficient technocracy. So they they may be socialist, but they kind of they send people to the Ecole Polytechnique, and then they build nuclear power plants and we don’t kind of let you I don’t know what it’s like in the US. There’s kind of anything we want to build in the US there’s just this chaos of regulatory nightmare. And, you know, can you get stuff built in the in the UK the way it can, you know, you get the technocrats in France to build something they build something you know, they can build a high speed train, the US can’t build a high speed train. SNC, I don’t know if I told this story SNCF bailed out of the contract to build the California High Speed Trains. They said you guys are crazy. Not even socialist France works like this. I don’t see a great. I wish the UK had taken Brexit and become Singapore on Thames. But they don’t seem heading that direction.

Gene Tunny  1:01:44

Very good. Michael Brennan is it Michael?

Michael Brennan 1:01:46

Thanks yeah, Michael Brennan, used to be the chair of the Productivity Commission in Australia up until a couple of weeks ago, I wanted to ask about the economics profession, and where you see the role that it has played. I mean, I hate to indulge in nostalgia, but it does feel as though in your country and ours the economics profession had and played a much stronger role in the economic policy debate but had a much stronger feel for markets, institutions, the broad sweep. We feel it feels to me as though a lot of economists have gone down different rabbit holes, either very abstract, or ultra empirical, but involved in very narrow questions rather than the sorts of big questions that that you’re posing and answering.

John Cochrane  1:02:31

You know, to the extent that economists want to waste their time on technical stuff, they’re not harming anybody. So enjoy it. The economics profession has actually always been quite left wing and statist and, and serve and view their job as sort of advancing progressive goals. The American Economic Association was was founded that way, there’s kind of a, you’re thinking Milton Friedman, University of Chicago, but that was a very small number of people for a very short window of time. And now mostly, they’re in their advancing progressive agendas. You know, you can’t even you can’t publish a paper that says raising raising minimum wages, lowers employment anymore, so it’s kind of going a way of the other sciences as well. So we’re really the danger I see is that it is becoming part of the ideology production machine for the progressive narrative, and becoming less open to critical empirical work that challenges that that narrative, and you know, well, when you work for the government’s guess what you tend to say that the government’s good things?

Gene Tunny  1:03:36

Okay. There’s one question over here.

David Murray 1:03:39

Yeah. David Murray. How do you help people understand these concepts of corporate social responsibility and social licence?

John Cochrane  1:03:47

Do I want them to understand those concepts? With Friedman, your job is to to make profits for your shareholders. Unfortunately, right now, the way you make profits for your shareholders is to keep the regulator’s out of your hair. And the way you do that is to echo whatever political blather is in the regulator’s minds these days. So never count on big businesses to challenge the regulatory state or argue for free markets. They’re in business to get good regulatory treatment, and maybe you can protect us from your markets, and that means they go along with whatever nonsense is coming out of Washington.

Gene Tunny  1:04:21

Okay John, I might ask one more question. I’ve had a gentleman on my podcast who produces these things called Goldbacks. So there, there are a lot of people maybe, still, maybe, I don’t know, it’s under 10% of the population. But there are a significant number of people who are worried about the future of the US and the future of the global economy. And, you know, worry about fiat money. Is fiat money a problem? Do we need to go back to something like a gold standard or goldback currency? What’s your view on that before we wrap up?

John Cochrane  1:04:51

Fiat money is now a share in federal government. It is not, fiat money means money that’s backed by nothing but our money is backed our money is backed by the willingness of our government to raise taxes to soak up the money if necessary, I’m giving you fiscal theory the price level. So it’s a great system, so long as our governments maintain the fiscal space to always back their money with taxpayer, that’s a good system, so long as governments are fiscally solvent, I think the danger of the of the current, not fiat money, so the current system of money backed by the present value of fiscal surpluses is that it might not be backed anymore. And that therefore I do see a possibility of a of a sovereign, a grand sovereign debt crisis. When do you get a crisis? Nobody ever sees a crisis coming, right? Because if you knew the crisis was going to happen tomorrow, then it would have already happened today, you’d run and get your money out. What is the one cl.., and crises always happen when there’s money that can’t be paid back, shady accounting and nobody doubts that this is good stuff yet. Have I just described government debt? So I think, you know, in the next crisis, there is a possibility that our, we reveal our governments to have debts that they have no way of repaying and you could have a global inflation a default on you know, Italy, in some of the EU states, basically, a run on sovereign debt is possible. I don’t, we’re not there yet. But that’s kind of where the end of Western civilization goes. And then you got a problem because our monetary system is all built on the idea that government debt is sacrosanct. Now really any idea of history and you think government debt is the safest assets since the since the Henry the Henry the Third, I think defaulted on the Petruzzi government debt has been the riskiest asset around. And so we live in this kind of golden age. So to your question. I think if that happens, not, I mean, we’re in smoking financial ruins, but you might want some monetary system that doesn’t depend on the value of the government. And, you know, we all have our free market fantasies about that’s the one one place I’ve kind of stuck with the government we have a decent system of short term government debt is long, you know, it works okay. In free market fantasyland. And, you know, after we’ve had our third drink, we should talk about private monetary systems for the moment I kind of put it in, you know, airline pilots. Yeah, pilot licences should be privatised. Okay. Maybe that’s not the first thing we want to do. It’s kind of thing you talk about at the third rank of the Cato. So the same thing? Now gold is not the answer. So a gold standard is a government promise to deliver gold. So you haven’t gotten rid of the government. And a gold standard is a fiscal commitment. No government’s ever had enough gold to back their currency. So what is the gold standard, a gold standard, the government says I promised all these notes. One for one with gold, I know that the gold so what keeps that afloat? What keeps that afloat is the Government’s commitment, that if you start coming to ask for gold, I will raise taxes, and I or enough to get or borrow the gold to give you it’s a commitment to running the fiscal theory the price level. And it’s a bad one because the relative price of gold and other stuff fluctuates, it just would not work in a modern economy, because we don’t use gold coins. So So gold isn’t the answer. And gold doesn’t obviate the problem of if the government’s are bankrupt, they’re not going to be able to give you a gold standard. Is there something in the Bitcoin space that could maybe do it? We need to Yeah, I believe money has to be backed. So you need to find a security that’s backed by real assets that has a steady real value that there’s a lot of it, and that in and that people could use, we could devise such a system but you know, why don’t we just have our governments not default and have to build this from the smoking ruins anyway.

Gene Tunny  1:08:46

Very good Professor John Cochrane. Terrific, thank you. John’s gonna move a vote of thanks. Very good.

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Is the American Dream a Broken Promise for Latinos? w/ Dr Paul Rivera – EP213

Dr Paul Rivera provides insights into the $3 trillion Latino economy in the United States and questions whether the American dream is a broken promise for Latinos. Dr. Paul Rivera is co-founder of BeActChange, a former senior economist at USAID, and lecturer at California State University Channel Islands. Dr Rivera and show host Gene Tunny also discuss the challenges of delivering foreign aid and the importance of understanding local communities. Rivera shares a compelling example to illustrate this point.

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google Podcasts, Apple Podcasts and Spotify.

What’s covered in EP213

  • The American Dream and Latino economy with Paul Rivera. (0:03)
  • International development, strategic planning, and community engagement. (4:41)
  • Inadequate consultation in international development projects. (10:23)
  • Latino population’s role in US economy and American dream. (14:07)
  • Latino mental health and the American Dream. (20:13)
  • The economic power of the Latino community in the US. (25:45)
  • Latino homeownership, education, and mental health. (29:12)
  • The American Dream and its accessibility. (34:46)
  • Immigrant experiences and the American dream. (40:06)
  • Latino population growth in the US and its impact. (43:48)
  • Marketing to the Latino community in the US. (47:26)

Links relevant to the conversation

About Dr Paul Rivera on his BeActChange website:

Paul’s LinkedIn page:

Paul’s book Creating Your Limitless Life co-authored with  Dr. Esther Zeledón:

Latino GDP report 2023:

Transcript: Is the American Dream a Broken Promise for Latinos? w/ Dr Paul Rivera – EP213

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Paul Rivera  00:03

Part of the problem with the American Dream is how we’ve translated it, how we’ve measured it. You know, if you look in the Oxford Dictionary, the definition of the American Dream is basically that this idea that the situation in America offers those who work hard, the equal opportunity to achieve and the dictionary says their highest aspirations. And that highest aspirations piece is something really important that I think people don’t hang on to enough.

Gene Tunny  00:35

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. In this episode, we explore the Latino economy in the United States. And we consider whether the American Dream is a broken promise for Latinos. My guest is Dr. Paul Rivera. He’s the co founder of be act change. He’s a former senior economist at USA ID. And he’s a former academic at CSU Channel Islands, which is part of the California State University system. Given his background, as well as asking Paul about Latino economy asked him about the challenges of delivering foreign aid. Paul gave some great advice about the need for donors to really understand the local communities they’re providing aid to. And he illustrates that point with a vivid example, which is worth listening to the episode for. Right, so let’s get into it. I hope you enjoy my conversation with Dr. Paul Rivera. Dr. Paul Rivera, welcome to the programme.

Paul Rivera  02:03

Thanks so much for having me. Gene. It’s so great to be here.

Gene Tunny  02:05

It’s good to have you on Paul, you’re really interested in the conversation, you’ve got a background in economic development, which is something I’m very, very much interested in. And also well, at the moment, you are the VP and co founder of the Act change. Could you tell us a bit about big change? Please, before we get into the conversation, absolutely.

Paul Rivera  02:27

No, that would be my pleasure. It’s basically my spouse, and I who’ve co founded this company, it’s a consultancy, where at the end of the day, our job, our mission is really to impact lives. And it really comes from from our background, you know, it’s both of us have lived to the immigrant experience in the United States, we’ve both have careers in academia, and international development, you know, I come from, I come very much from the lens of critical thinking, that’s, that’s the most important thing for me is sort of attacking, looking for solutions from the lens of critical thinking. And I know that that’s, for example, what led me to economics as a field, you know, and that’s one of the reasons why I love it, the whole idea of of optimization and having a goal, and having an understanding of what are the constraints there? And what are the resources? And what are they efficient ways to get there is something that really, really sort of warms my soul a little bit in a strange way. I don’t know that. I don’t know that anybody ever talks about economics that way, but, but it’s really very much that my, you know, that, that for me, you know, because that approach to problem solving. I think that there’s a lot of, you know, as I look around the world, and I, you know, you see, you know, the world’s kind of a mess right now, and you see how much bias there is and prejudice and all of these things. And I think that if people really went out of their way to approach things from a critical thinking lens, that that there would be much less of that, you know, people, if people took the time to read the data to do the analysis to ask the questions, you know, to what are the questioning the assumptions, I think is huge. So, I started out actually, after I finished my PhD in academia, I spent I spent about 15 years as a as a professor at an at a university that was brand new, it actually opened the year that I arrived. And so I got to be founding faculty at a brand new University, which is an incredible experience just to see the level of impact that you can have, you know, on the formation of that university and, and the direction that it takes and this particular university was, was set in a heavily Hispanic Latino Area in California, in the US where there was no public university at the time. So it was a very underserved market. And so just just to be able to create that impact and bring that access into of university education there was was tremendous, you know, and I saw so much of what people struggled with, you know, this whole concept of of the American Dream, which I know we’re gonna get into a little bit later. Yeah, but you know, folks who who really did everything they could, they left their homelands, you know, to come to this land of opportunity and, and to see their kids getting into that university collegiate sphere was really, really impactful, you know, and I get emotional about it sometimes when I talk about it, because you see the transformation in these kids and these families and that sort of thing. And, you know, my, my whole thing has always been critical thinking, and so bringing that to the, to the youth. But as you mentioned, in my intro, my field is development economics. Yeah. And that’s always, that’s always what I studied. That comes a lot from my background to my parents, my mom was from Mexico, my dad is from El Salvador. And so I come very much from from that perspective and understanding not only the economic forces that are there, but really the cultural things, and, and understanding how those things mesh together to, to sort of create a reality both back in the home country, and in and in the the sort of immigrant receiving countries, you know, and so my, my push was always to go into that international development field, because I saw that there was so much opportunity there, I’ve travelled to 112 countries in the world at this point. And, you know, you go and you see that these countries have so much potential, there’s so much that can be done there to really improve quality of life. For for folks there, you know, and so I moved, I left academia after a while, and moved into this international development realm. Because I saw that opportunity, I wanted to have a greater impact in the world, you know. And as we sort of went into this, it was, it was really interesting, because the way in which development is carried out by a lot of these large organisations, you know, whether it’s bilateral governments or these international financial institutions, the World Bank, the IMF, there’s, there’s a changing of the tide a little bit, but it’s very paternalistic. Very, very, you know, it’s, it’s very prescriptive, that we are the experts, we come in to these countries, we assess the problem, and we fund the solution. If we happen to ask the local communities what it is that that they want, it’s just to say that we consulted them oftentimes, but that genuine integration with the community and what they need, and what’s really going to be sustainable, in terms of an intervention for them is, is really rare. You know, and it’s one of the biggest problems in international development, that that sustainability of impact is, is really difficult. And I’m 100% convinced that a large portion of that comes from failure to secure that buy in to actually listen to those communities. So from all of that, from all of that experience, really came this motivation to create the change, where it’s something that so we work with individuals, and we work with teams and organisations to really help them think of themselves as not just high achievers, and you know, and we’re high achiever, you and I sitting here, we’re definitely high achievers, you know, we have people who’ve achieved a certain success academically, professionally, and that sort of thing. But it’s folks who really want to take that and, and move to what we call trailblazers. So not just necessarily following the prescription that they’ve been given, but really digging deep, finding their purpose, and creating the the real action plan that moves them ahead in a way that fulfils them. So and so it’s something that’s been really, really rewarding for us at this point, you know, in terms of the business, because we’ve really been able to see tremendous transformation in how people, people in organisations perceive themselves, how they understand their mission, and how that impacts how they carry on their day to day, how they think about their future, how they talk about themselves. So it’s something that that it’s, we’re just really excited about it, it’s something that’s going gangbusters at this point. And, and we’re happy to, to be sort of spreading that message of, of self empowerment, and how that dovetails with, with with especially for a lot of these Latino communities that we work with, you know, how that dovetails with not only greater satisfaction, but also improvements in their economic standing and their ability to help themselves, their family, their community. Rod, okay,

Gene Tunny  09:19

so just specifically, are you doing, you’re doing consulting work for the communities? Are you are you engaged by aid organisations to to work with communities, how does it work?

Paul Rivera  09:31

So we’re sort of two parts, right? So I’m a specialist in strategic planning. So when one of our arms is still actually doing strategic planning with some of these larger aid organisations, they have a country strategy that they need to develop and how it is that they’re going to carry out the depending on the country, you know, so um, sometimes hundreds of millions of dollars that are going to go towards that country. And so when some of the contracting that we do is basically helping the As aid organisations create strategic plans, and then action plans, and then monitoring and evaluation plans that are going to push them towards their objectives in that sense, you know, and my push always is really to make sure that that’s, you know, founded at the grassroots that that’s something that’s been vetted and not just vetted, but really engaged and bought into by those local communities.

Gene Tunny  10:23

Gotcha. And I thought that was interesting. That comment you made about historically the, say, the World Bank and other big, big lenders for development, Asian development, bank, etc. Were you suggesting that? Yeah, they weren’t. They didn’t think enough about what the communities needed? Do you have any examples? Was it too much of a focus on big ticket or big, you know, flashy or fashionable projects or big infrastructure, projects, dams, etc? Is that part of the problem?

Paul Rivera  11:00

I would say there’s, there’s a couple levels I’ll give you. I’ll give you an example. That’s my anecdote. Okay. One of my first consulting jobs that I ever that I ever took was with one of these large international financial institutions, which shall remain nameless. But they had a they had been working in Western Africa somewhere with these with these fishery fisherman communities. Somebody had the idea that, you know, in my last situation, they said, they had worked somewhere in East Asia, I think, I believe it was in Thailand. And they had worked with Fisher communities, and they had created this project through which they purchased sort of these long boats with motor but with motors, that would help the fishermen they said, basically, that the problem in that situation was that there was a sort of a low level capital investment. And so they just infused this capital. And that’s what was needed to bring our productivity. And so they said, copy paste, it worked in East Asia, so it’s going to work in West Africa. And they they did absolutely no consultation. Okay. So I came in actually, as an ex post evaluator, about three years after the project had been completed. And so I go in to this community where I know they had worked. And I started asking about the boats and the fishermen and how things are going and people are looking at me with blank stares, like, What are you talking? I’m like, I’m like, a few years ago, there was this project and this organisation came, and they’re like, Oh, you have to talk to the chief. And so this particular country still had sort of a chief says, Chief type chiefdom society organisation, right? So they take me to the chief, and the chief walks me down to the beach, and I see 10 of these boats upside down, sitting on the beach completely rotted out, and there’s no motors. Okay. And so what they, when I started asking about it, he said, Well, what if what essentially they didn’t understand was that their society is a very highly structured society. And the fishermen, they were considered to be sort of not high loss, high status, folks. And so this organisation had come in, and given a very high status gift, in effect, to a relatively not high status person. And so the natural thing for them to do was to say, I can’t accept this gift. So they gifted all of the boats to the chief, the chief is the chief. So the chief doesn’t fish. He doesn’t, he’s not a fisherman. So the chief basically sold the boats, sold all the motors, he used the income to buy himself a new house in Switzerland. And that was it. Right? So what happened, right, and I can, I can give you five other similar examples, there was there was basically they external parties came in, they gave some sort of analysis of what they perceive to be the problem, they copy pasted a solution. And they put in millions of dollars for it. And at the end of the day, there was no real impact from that, because they failed to secure the buy in from the community, they failed to do the basic consultation that would show you know, what it is that was actually needed in those communities. So you know, that’s our, that’s our big thing is really, really engaging in listening. You know, before, you know, when we talk about wasting taxpayer dollars, and that sort of thing, it’s our responsibility to make sure that that’s that that’s going to be used in a proper fashion, you know, yeah,

Gene Tunny  14:23

yeah, that’s a that’s a really good example. I didn’t bring you on to chat about foreign aid or development assistance, but we might have to have another session on it. Because it’s it’s a big area and I know that there have been a voice I’ve read Billy’s delete stuff. I think there’s some good stuff there. I mean, he’s doing some great analysis that that that is a really good example Paul. So yeah, really, really thankful that You sure that Yeah, but we’ll have to we’ll have to have another conversation otherwise, we’re going to use the whole hour on, on on talking about those issues. Okay, so let’s go Miko back to Through the question of Latinos and the American dream, because that’s what, yeah, what got my interest? When when I learned about you, there’s this idea that you have of the broken promise or the what is it the fallacy of the American Dream for Latinos, and you mentioned this university, this new university was this in California is this part of the University of California system,

Paul Rivera  15:26

it’s actually part of the California State University system. So So California has, has multiple tiers, the, you know, the University of California has, you know, it’s the UCLA, it’s the UC Berkeley, which are the high level, what they call the, you know, the r1 institutions and that sort of thing. And then there’s the California State University system, which I believe has 23 campuses across the state, and they’re really the ones that are designed. So most teachers in California have gone through the California State University system, and it’s, you know, it’s, it’s, it’s a, it’s a huge amount of, of students, and it’s really the most is the entry point, it’s the access point for for, for collegiate education there. And it’s, it’s a wonderful, wonderful kind of institution, that that, you know, has, it has helped so many but, you know, the Latino thing, especially in the United States, and in California is really fascinating, there are close to 63 million Latinos in the United States, which is not quite 20% of the population. So it you know, if you, if you kind of separate them out, they’re kind of a country all all in themselves. And if they were a country in and of themselves, that that $3.2 trillion, Latino GDP. So that’s, that’s the latest calculation that Latinos in the United States generate 3.2 dollars $3.2 trillion dollars in GDP, which would make them the fifth largest economy in the world, right? It’s a massive amount of, of money, that that is generated through that. Yeah. And, you know, and and if you look at at that figure in terms of growth rates, for example, over the last 1012 years, it’s been almost a 4% annual growth rate, which is pretty much double what the US GDP growth rate has been in this in the comparable period, right? So it’s really, as a as a whole at a macro lens, it’s really something that has grown substantially, right. And then there has to be, though, the, the flip side, the micro side, that has to be looked at a little bit, right. And so when, when you start to dig into it a little bit, you start to see that, so much of that of that macro level of growth for one is coming from population growth. Yeah, it’s the it’s the largest, you know, it’s the most, it’s the fastest growing population demographic in the US, Latinos work like crazy. It’s the it’s the, it’s the population group with the highest labour force participation rate. And the estimate is that over the next 10 years from now, 78% of the net growth in the in the labour force will come from Latinos in the United States. So you know, that those numbers are really accelerating. So when you think about it, when you start, when you start thinking about that, that calculation, the per capita figures are not doing great, right? That the macro figures are doing, you know, are significant. But as you start to look at that per capita scenario, it’s not something that’s super robust, you know, and, and so, Latinos are really very much invested in this idea of the American dream. And, you know, I’ve been to just about every country in Latin America, and all my family’s in the United States. And these are the folks that I talked to, and, and that’s my community. And as you talk to as you talk to Latinos, the statistics and the statistics bear it out, it’s the population group that most believes in the American dream, right, this idea that, that in a land of equal opportunity, hard work is going to get you to success, you know, and that’s, that’s really the core of the American dream as, as, as immigrants see them, and it’s, you know, it’s worth saying that having having been all over the place, the American dream, it’s what we call it, but it’s something that’s, that’s really universal, right? I know, like, I know that Australia has a tremendous amount of, of immigration, and I know that basically, they’re all going there looking for some whatever it it is, but it’s some version of the American dream, you know, and so it’s it’s, it’s a it’s an aspiration that you see worldwide, but at least in the US, at least looking at the at this Latino population. Their their progress on it is stumbling in a lot of ways. You know, the, the there’s a wage gap of about 23% compared to non Latino white population. More significantly, is Is this wealth gap. So the average Latino household has about $36,000 in wealth measured as compared to about 190,000. For non Hispanic white population. So it’s, that’s more than a five fold difference. And you know that difference, that gap is really something that drives so many of the decisions that Latinos are making, right, so they don’t have that wealth base, which means they don’t have the investment base, they don’t necessarily they don’t have the same levels of financial security, they don’t invest as much in health, and certainly not mental health, which is one of the places where you really see these impacts play out, you know, we start looking at, at at the Latino populations, and how it is that they see themselves in their situation, and they’re so deeply invested in this idea that all I need to do is work hard and work hard and work hard and work hard. And that’s what they’re doing and still struggling, you know, so the statistic that always pops out to me is that of these 63 million, Latinos, 4 million of them every year suffer what what is termed a major depressive episode. So to the point where they are basically unable to function in some way that that others start to notice their, their depression and become worried for them. You know, and that’s part and parcel from, you know, the, the the sort of regular levels of depression that you see, these are people who are just down for the count in some way, you know, and when you ask them, What is it, you know, when they, when you ask them about the source of it, it’s exactly these things, you know, it’s this struggle, this chase toward the things of the American Dream towards that financial security towards the homeownership towards, towards the stability, that were there, they’re stumbling, and, and it’s stressful, you know, and they’re less likely Latinos are also less likely to seek help for it. So they’re sort of, they’re not making it, they’re not feeling good about it. And now they’re trying to make it while they’re, you know, their, their brains and their their emotions are not are not helping them either, you know, so,

Gene Tunny  22:12

yeah, it’s,

Paul Rivera  22:13

it’s a struggle, you know, it’s a, it’s a, it’s a tough place to be. And yet, you know, the, the Latino population continues to be so optimistic about immigration and the American dream and moving towards those things, you know, so a big part, I would say that a big part of our push, in our business and in our mentorship, and a lot of the work that we do, is really trying to shift that narrative, you know, to be to be a place where, where, for one, you know, I’m, I’m a micro economist, by, by training, by practice and by love. So for me, everything starts with the individual, you know, so so much of this work comes down to, I think helping people understand their, their why their purpose, like, like, I mentioned it earlier, but that sort of digging deep as to who you are, and why do you do what you do? And, and the how, you know, what, what’s your unique problem solving approach in this world? What’s the value that you bring, and having people understand their their own values and beliefs and how those things sort of come into play to create, really we work a lot on helping people create and organisations helping them create their brand? Yeah, you know, very good,

Gene Tunny  23:24

Paul. I’ve got about half a dozen questions after that, though. All right. That’s, that’s fascinating. First, what do we mean by Latina? And I don’t mean to sound dance, but because I understand Latin American, but predominantly, what what are we talking about now? Because I mean, like, I mean, I’m living in Australia. So I mean, my knowledge of America is limited by, you know, generally what I’m seeing in the media or in film and TV. And so I know, historically, you’ve had large, you have a large Puerto Rican population, and particularly in New York City, and and then you’ve got the Mexican immigrants and the, you know, lots in in oil and gas in Texas and California. And then there are the communities from Central and South America. What’s the Latino community look like in the US?

Paul Rivera  24:14

It’s extremely diverse, you know, as you look at as you look at the numbers, by far the largest Latino population is in California. And, and most of those are Mexican descent. But as you know, as you rightly point out there, there are basically pockets, pocket maybe to an understatement there. There’s there’s significant populations of Latinos in everything that is the southwest, so basically, California, Arizona, New Mexico, Texas. All in that path. I would say that most Latinos, by far are Mexican, Mexican American descent. And then you get to other other portions of the country, as you said, sort of New York, Atlanta, Miami, where you’re gonna get a lot more of the The Puerto Rican Dominican, especially as you get down in sort of that South Florida area, you’re gonna get the the mix of all all Latin Americans, you know, Cubans, Colombian, Salvadorans, Nicaraguans, and that sort of thing. So it’s that I’ve met Latinos of every variety at some point somewhere in the United States. But I would say that there’s definitely in terms of numbers, that concentration on the coasts. At the same time, 43% of people engaged in the farming industry, in the United States are Latinos. So there’s also a huge Latino population within sort of the mid sections of the country, but they don’t have that same density necessarily, that you find on the coasts.

Gene Tunny  25:45

Gotcha. And is there a recognition among Latinos of a, of a community of a broader Latino community for eternity, so to speak, I

Paul Rivera  25:54

would say that that’s something that that we, meaning I in this business, and the folks of us who work in similar things work really hard to create. I, you know, that there’s, there’s so much common history that that binds us, you know, I mean, I mean, for one, starting with, with language, you know, from South of Mexico, down to the tip, with, with a few exceptions, we all speak a common language. And, and obviously, it’s like, it’s like, it’s like the United States, you know, people in Texas don’t speak quite the same way that New Yorkers do or Californians do. And I think that those are differences that we need to celebrate. And I don’t think the Latino community does that enough. And then, the other side of it, though, is that everyone is very proud of their, their unique country heritage. You know, my family is very proud to be Mexican. My wife’s family’s very proud to be Nicaraguan. And so it is hard when you come to as an immigrant to the United States to suddenly you’re not Nicaraguan anymore, you’re not Colombian, you’re not Mexican, you are Latino, right, and you’re put under this general umbrella. And so it is, it is a bit of a mindset change to say, you know, I’m in a brotherhood with all of these people who don’t come from my country, you know, so it’s, I would say that it’s something that’s still evolving, and it’s something that that the Latino community would benefit tremendously from, by by having sort of that mindset shift that brings people closer together, I think, I think it would be revolutionary, you know, you would stop the just the ability to stop saying, you know, oh, you know, he’s, you know, whatever, he’s from x country, and you can’t trust those people kind of a thing, you know, to really say, you know, what, we have a common history of economic struggle, and, you know, it’s Latin America. So corrupt government is something that, you know, really binds Latin Americans together and, and the impacts of that. So, you know, I think you could be transformational in terms of how the Latino community would, would evolve as a as a group in the US if they were able to better come together those ways. Yeah.

Gene Tunny  27:58

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  28:03

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Gene Tunny  28:32

Now back to the show. Okay, so you mentioned a $3.2 trillion GDP. So yeah, that’s roughly that must be about twice the size of the Australian economy measured in Australia in US dollar terms. So maybe a bit under but now but yeah, it’s a it’s a substantial amount. What where does that figure come from? Pull? What does that estimate come from?

Paul Rivera  29:01

There’s a there’s a recent report that came out that’s called the Latino GDP report. They’ve published it every year, for the last six years or so. And they’ve seen it, you know, they’ve seen they’ve seen that growth, and it’s a group that their aim is really to see how it is, in particular that that sort of the three pillars of Latino homeownership and business ownership and asset ownership have increased or decreased over time. But you know, it’s it’s part it’s part of that that whole tracking and objective calculation there.

Gene Tunny  29:35

A lot link to that. In the show notes. Yep. You talked about a wage gap of 23%. Is that largely because Latinos are working in there are fewer Latinos working in professional occupations more so as labourers or in, in in service occupations? Would that be the I would say so

Paul Rivera  29:57

yeah, I would say so. You know, that the the If the educational attainment is not the same, and then you know, there’s, there’s a lot of things that that go that go with that, you know, we talk, as I said, I have a lot of experience at the university level, and one of the things that you see, for example, is that, you know, a lot of Latinos are scholarship kids, you know, they go to college under under these scholarships, because, you know, the parents don’t, we don’t have the wealth necessarily to, especially in the US to Shell out the money for their full collegiate education. So they have to take some sort of loans, and they have to take scholarships, and that sort of thing. And it’s fascinating, because the way that the system goes, it’s, it’s supposedly helping them out, you know, which it is, because otherwise they wouldn’t have access, but at the same time, it puts them behind the eight ball, you know, now, now you’re the kid whose parents didn’t go to college, so you didn’t grow up, talking about college, hearing about college or understanding what that culture is, like, suddenly, suddenly, you’re in this place where your school work is much tougher. And now you’re told oh, but to be here, you have to have a job. Now, right. And, and so there goes a big part of your time that should be devoted to studying and really dedicated to these other things. And now you have to know you have to have a job to pay for, for the privilege of being there, and that sort of thing. So you know, that all of these things, you know, they’re, it’s, it’s not that they’re, that they’re bad in any way, but that they, they’re there, they’re one more barrier, one more hurdle, that you have to jump, you know, and so once they get out to, for example, the workforce, a lot of them are not folks that have done, they’ve never done an internship, they can’t do an internship, they can’t afford an intern, and they can’t afford an unpaid internship, you know, so, you know, they get out into the working world, and you know, what the job that they’re going to apply for, is going to be, it’s good that the competition is tough, you know, they’re, they’re there, as I said, they’re behind the eight ball a little bit. And not, it’s not quite the same situation. So. So even those that are professionals have a wage gap, because they don’t necessarily see the same. They’re not perceived as being equivalently qualified. And the other thing is that, that goes sort of along with this as, as Latinos in our culture, as part of this whole American Dream thing, and believing that hard work is what matters, we’re really told, we’re really told that you just keep your head down, don’t make waves just work hard. And one of the consequences of that is that we’re not taught the value of networking, the importance, like the essential, the essential pneus, of, of networking, you know, and I know, it’s something that I’ve, I’ve had to learn the hard way over time, that, you know, if you really want to have that next level come to you, there has to be somebody at that level, who’s gonna vouch for you. And and we’re not we’re not taught that, you know, it’s something that that we’re told to be humble, we’re not we’re, that it’s, it’s rude, actually, to ask for some of those for that help for that push for that phone call? You know, so it’s, it’s something that, that we push for a lot. And as I said, you know, coming back to your question earlier, if there were a much stronger feeling of community among the Latino community, and I think that’s even something that that we could create for ourselves, and it’s slowly happening, but I think that pace needs to really accelerate.

Gene Tunny  33:25

Yeah, yeah, absolutely. Okay. So one of the other things you mentioned, is depression rates of depression, is the incidence of depression in Latino communities higher than in non Latino or non Hispanic? Do you know, it is,

Paul Rivera  33:40

it is a little bit higher, you know, statistically, it’s a little bit higher than that there are two major differences. One is that the basically, Latinos don’t have don’t have the wherewithal the resources to seek help as much. So, you know, they the incidence happens a little bit more often. But it’s it, it’s going untreated, basically, in a lot of ways. And then the second piece is that the the incidence, as I said, is slightly higher similar, but the depth of the depression is also is also different. So one of the things that you see is that the they measure the incidence of suicidal ideation, so not just are you depressed, but do you get to the point of actually thinking about an ending, you know, the pain and and that rate among Latinos, and especially among younger working age, Latinos is significantly higher than then, you know, other comparable groups,

Gene Tunny  34:46

as the Latino community have been affected by the opioid epidemic, and you know, data on that, that

Paul Rivera  34:51

I’m sure there isn’t that’s that’s not something that I am super specialised in. So I I wouldn’t want to go. I wouldn’t want to speculate beyond my beyond my realm on that one.

Gene Tunny  35:06

That’s okay. I might look into it. I was just interested, then when you’re talking about depression in the depths of depression, just

Paul Rivera  35:14

I mean, I mean, what is what is the case is that there’s a tremendous, I would say, more sort of high functioning alcoholism, and that that would be a much more prominent thing. But you know, I don’t I don’t as I say, I don’t want to speculate too much on Yeah,

Gene Tunny  35:30

fair enough. Fair enough. I might, I might look into that myself. Getting to the just going to the American dream. So I was interested in how you, you phrased it, how you conceptualise it, or how people conceptualise it, there’s this idea that given that America has this equal opportunity that you’ve got this, you should be able to prosper? And then if you don’t prosper, if you don’t do well, then in a way, it’s your own fault, and you’re a loser? I mean, that’s the implicit message there isn’t. I mean, it’s quite right. It’s terrible psychologically. When you think about it, so I guess one of the issues is this, just how, you know, is there this equal opportunity, and one of the things I’ve been looking at lately, those his book that came out a few years ago, Dream hoarders, and there’s this growing literature on just the transmission of advantage or disadvantage across generations, and it looks like the US if you look at the data, there’s less intergenerational mobility in the US than in, in other countries such as Australia. I mean, we’re, we’re maybe not as good as we once were. But we’re still better than the US, it seems. So this this issue of the American dream, is this this part of a broader problem ball? It’s not just for, it’s not just a problem affecting Latinos?

Paul Rivera  36:51

I think it absolutely is a much broader problem, you know, and I speak to it from, from my perspective, and, and my, my knowledge, where, you know, I have that that intimate connection, but I mean, as you look at things, I mean, yeah, as you say, the you know, the, the first one, just from a, from a basic, big level perspective, as you look at sort of the the top developing developed countries in the world, and you look at life expectancy, that the US is, is close to the bottom, on some of those, you know, there, there’s actually quite a few sort of middle middle income and developing countries that are, that are surpassing, if not, at least dangerously close to life expectancy in the US. So, you know, at a fundamental level, the, the, the sort of American Dream is failing Americans too, in a lot of ways, you know, and I think that, that there’s that there’s some interesting, there’s a lot of interesting things there. You know, in a, in a past life, I was a consular officer working for the, for the US government in basically issuing visas overseas. And so I met 1000s 1000s and 1000s, of, you know, people in other countries who were literally in front of me requesting to come to the United States, you know, and so I had a lot of a lot of conversations with, with people about that, that subject, you know, and, and the ones who, it’s a really interesting thing, so most of them want to come as tourists, right? They want to come to the US for some period of time, just to see and then go back. And your current your job as a consular officer is a terrible job, because you’re judging people that you’ve never met before, based on, you know, some sort of not arbitrary, but but at least you know, not very in depth criteria necessarily. But the people who are most sincere and the most convincing are the ones who are who are able to tell you a story about their community and their connections and their rootedness in their home country. Right. So you know, as as an American consular officer, you want to give a visa to the person who’s going to come to the US and then go back home. Right? That’s the whole idea. Yeah. And and those these folks who, who, some of them speak so eloquently, so romantically about their, their connections at home and their and their family and their roots and their beliefs, and that sort of thing. And those are the many of the same people who for because their situation in their home countries is often so tough, they find themselves in the position of where they make the choice to come to the United States, you know, and this whole concept of the American dream of part of the problem with the American Dream is how we’ve translated it, how we’ve measured it, you know, as you if you look in the Oxford Dictionary, the definition of the American Dream is basically that, that this idea that the situation in America offers those who work hard, the equal opportunity to achieve and the dictionary says their highest aspirations, and that highest aspirations piece is something really important that I think people don’t hang on to enough because as as we see it, As we measure it as we watch it play out, the American dream, so often is measured by Do you own a house? Do you? Do you have a certain income? And then do you? Do you have a college education? Are you married? Have you had kids yet? You know, and the conversations that go that way? And in many ways, it’s a very individualistic type of pursuit. It’s about what have I done? What have I achieved? What have I acquired, and so much of the value in I think any community, the US included, Australia included, but certainly, as we’ve seen in Latin America, and lots of other countries, community is the core, you know, community is what is it’s, it’s the place that that helps form your values. It’s the place that’s that helps you with your resilience, when things get tough, there’s, there’s a core that you rely on. And when you as an immigrant, you are extracted from that core and dropped in a new situation, and told that the checkmarks that measure your success, are these individualistic things, it’s really, really tough. You know, so, you know, we’ve come back a couple of times to this idea of, of community. But, you know, as we think about how it is that, that, that we sort of build that, that I think that community pieces is essential not. And really, it’s kind of interesting, because our our model is really one of individual purpose, right? Our whole big change model is really one of building individual purpose, but at the same time, recognising that in others, and then building that community, that sort of network of strength that sort of holds everybody up together. That’s that’s sort of our vision for it. Yeah.

Gene Tunny  41:42

Yeah. Very good. I should, I should also not so just so we’re getting the right, or we’ve got the balanced picture of what’s going on. Sure. Because we’ve talked about a lot of the issues with the American dream and challenges and how it’s, it may not be playing out as, as Latinos expect. Is it generally the case, though, that I mean, immigrants from Latin American countries into the United States, they’re generally doing better than they were in their, in their, their source countries, and they’re not going back? There’s, there’s not much of a flow back. Is there? Do you have any observations on that?

Paul Rivera  42:23

Yeah, yeah. So I think I think there’s, there’s a few ways to see it, you know, if you look at their, their same thing, if you look at their financial positions, I would say that that is true. You know, if you look at sort of their their household, their household GDP, sort of scenarios, I would say that that’s absolutely true. However, you know, I’ve spending, having spent a lot of time in these immigrant Latino communities, both in the US and outside, I would say that there’s, you kind of have to temper that with, with the reality of the situations in some ways, you know, there are safety, for example, safety and security aspects to a lot of the communities where, where Latinos end up, end up in, that they don’t necessarily have in their home communities, they don’t have the same, the same support systems that are there, the implicit and explicit sort of biases against them that they see in the workplace are real, and those things, those things have an impact as well. So you know, I, I would say that many, many, many Latinos dream very, speak very romantically and longingly about where they came from. And the and the option of going back is a tough one. You know, my, my dad actually just re emigrated back to El Salvador, not not long ago, but it’s basically in his retirement and because he was able to go back, in a sense, in a triumphant way, right, that he’s the guy here, it might and, you know, I’m fortunate that my parents were, were did well have done well in the United States, you know, and he’s able to go back as someone who is triumphant in that situation, but a lot of Latinos who, who are struggling more in the US, there’s, I think that they struggle with the, the pressure of not wanting to go back, not triumphant, you know, the, with the idea that, you know, it’s not that easy just to just to say, You know what, it didn’t work over here. So we’re gonna go back, you know, the folks count on them, remittances are a massive thing. So even though they may be struggling in the US, the remittances that they send back home are often supporting an entire extended family and They can’t just, you know, walk away from that either, you know, so there’s there’s a lot riding on them and, and you know, those those stresses are real and they affect how they live out their lives.

Gene Tunny  45:09

Yeah, that’s a really good point, I’ll have to look for data on that, because those remittance flows are potentially very large. So they’re massive,

Paul Rivera  45:18

you know, you get countries like El Salvador, and remittances on any given year are somewhere between 17 and 20%, of of GDP, is coming in as remittances from primarily from the United States, you know, so it’s, it’s really some, it’s more than just something that’s, that’s giving that little extra boost to the economy. It’s what’s really driving the economy. And in a lot of these cases, you know, and, and as you see countries that are struggling, like like Haiti, or or Venezuela and that sort of thing, you know, a lot oftentimes these remittances are what’s what’s keeping food on people’s plates back at home?

Gene Tunny  45:49

Yeah, absolutely. And it’s providing us dollars, but it’s providing foreign exchange that helps you there Exactly. Yep. By imports, for sure. That’s a very good point. Right. Oh, so just to just to finish off all and I’m wondering, do you have any reflections or thoughts on what this means the growing proportion of the growing role of Latinos in the US? I mean, you mentioned it’s got a 4% growth rate, which is higher than, I don’t know, off the top my head what the average US growth rate is, but I imagine it’s lower than that. So they’ve got the Higher, higher growth rate, and there’s going to be a growing proportion Latinos in the population, the economy, do you have any thoughts on what it means for the broader society? Or the or for? I don’t, I don’t want to get into politics, necessarily, but what does it mean for, you know, the social makeup where America is heading? Yeah,

Paul Rivera  46:45

you know, I mean, you know, the, it’s not a, it’s not a new, new thing at all, you know, between it, you know, there’s, there’s a large South Asian population in the United States, there’s, there’s a large African American population, you know, it’s been a long time that the US has been, has been becoming a brown replace, you know, for, for, for lack of a better term, at least in terms of the Latino population. One side of it is that, you know, if you’re a business person, and in the United States, and you’re not somehow targeting the Latino population, you’re missing out on a huge, huge market, you know, so that, that part is, that part is super clear. But you know, as, as a Latino, myself, and somebody who’s concerned about about my community, I really love to see, see it go past that, you know, because that’s, that’s the consumer side of it, right? That’s, you know, marketing to Latinos is, is really sort of targeting them from as consumers, and I would love to see, the Latino population become much stronger in terms of them as a core of investment. And that, and that’s really, where a lot of the stress comes down, a lot of the sort of the problematics come down in a lot of ways, you know, if we continue to see, for example, this population expanding without really closing off the not just the income gaps, but the wealth gap, that’s there, you know, you’re you’re creating systemically in some way and a sort of permanent underclass. And I don’t particularly want to go into politics, either. But history shows that when you create a, a, an underclass, that that isn’t that doesn’t have that, that mobility and doesn’t have the wherewithal to, to move up, it’s bound to cause instability, it’s, it’s bound to cause all sorts of problems, you know, so I would love to see the country as a whole, but certainly, certainly the Latino community come to, you know, be a little more cohesive, focus more, as you know, as just I know, I’ve said it a couple of times, but it’s, it’s really important to us, you know, this idea of focusing on not just the the check marks of the American dream as we see it, but but really something that focuses more on, on valuing individuals valuing their purpose and our work, it sounds, it sounds a little bit dreamy, sometimes, but you know, it, make no mistake, Mark, our entire concept is that based on your purpose, based on your unique value, whether you’re an individual, an NGO, a team, small business, that if if you start from that core, that your financial position can be much stronger, right, that your wealth position can be much stronger and much more sustainable. And that’s, that’s sort of really what we’re going for, you know, something that that helps turn that tide a little bit and start making those inroads and, and building some of that, that wealth that gives the financial stability and the and I think ultimately the the economic stability, the macro stability that and there and the and the growth that we would like to see. Yeah, yeah, absolutely.

Gene Tunny  49:53

Absolutely. Can I ask you about, you mentioned businesses in the US I mean, You’ve got to you should be, you should recognise you got this growing market there, there’s large market businesses in the US. Is there advertising? Or there is? In Spanish? I mean, the advertising? are they preparing advertising materials and informational materials in Spanish? Sure,

Paul Rivera  50:19

sure. Yeah, for sure that they’re, you know, it’s sort of they’re sort of a bipolar situation, you go to you go to places like Los Angeles, New York, Miami, there’s, there’s billboards in Spanish, you know, and there’s, and there’s, you know, plenty of radio stations, and, and, you know, television things in, in completely in Spanish, and those are there. And then you see, sort of this growing core of smaller businesses in the US that are that are just sort of niche marketing, targeting, specifically the Latino, the Latino markets. There, you know, and a lot of it is, is really trying to bring some of the more authentic, culturally appropriate sorts of goods and products into into the market, but they have, you know, they have the same problem that small businesses have everywhere, but even multiplied, you know, because they’re because they’re Latinos, which is the access to credit. So the, you know, the, the growth potential there for a lot of these small businesses is really, really tough. The statistic is that less slightly less than 2% of venture capital in the US, goes to Latino entrepreneurs, you know, so it’s, it’s, that growth is is is slow and tough. But, but definitely, you know, the, the Latino population is, as I said, we’re, we’re, we’re, we’re almost 19 20% of the population. So there’s definitely, you know, advertising in that direction and products that are that are definitely targeted to that market.

Gene Tunny  51:46

Yeah, just occurred to me then. And then I mean, it makes sense that they’ve got Spanish language radio stations. Yes. Yeah, that that makes perfect sense. Okay. Paul Rivera, that’s been terrific. Any final thoughts? And please tell us where we can find out more about the work you’re doing?

Paul Rivera  52:03

No, this is this has been incredible. Thanks so much for, for having this conversation with me. I truly, truly appreciate it. You can find us we have our website, be act, you can find us also on Instagram on be dot Act dot change, you can find me on LinkedIn. I’m Dr. Paul Rivera. And we have also as I mentioned, my my wife and I asked her I said Alana and I are, are being changed together, we have a book that’s just been released called Creating your limitless life. It’s available on on Amazon. And there’s a there’s an accompanying workbook, at least for now, the Kindle versions are extremely, extremely low priced, I think it’s about 125. Australian. So it’s, it’s a really, really great book, it’s something that that’s really written from the heart and talks a lot about the personal experiences, and then translating that a little bit into, into what i’ve what I’ve at least, hinted at here a little bit, which is sort of our approach that’s based on purpose. Looking for alignment in your actions, finding the resilience, when things get tough, and, and, and really creating a legacy for yourself and seeing seeing your life or your business, your organisation as something that seeks to leave a positive legacy in this world and, and creating the pathways towards that. And, you know, you know, we wrote this from, from our perspective, as I said, you know, as Latinos, as people who’ve lived the immigrant experience, we’ve had so much tremendous feedback from all sorts of folks saying, you know, I’m a white male, and I really, I really, you know, resonate with, with the message is there and I’ve felt, you know, the imposter syndrome and the people pleasing and, you know, all of these things that, that sort of people feel they hold back and hold them back and from, from really carrying their life forward in a different way. So it’s, we’ve been really happy with the, with the success we’ve had, and our ability to get that message out. So if you get a chance, I highly recommend picking up the book, leave a review if you if you enjoyed it. And and that’s where we’re at, you can always find us as I said on the website, big Very

Gene Tunny  54:14

good, Paul, I’ll definitely have to get the Kindle edition. One of the this is this is not necessarily an ad for Kindle, but I would say that one of the things that’s changed my life the most in the last few years has been getting a Kindle. So I guess I was slow to get into the get into the Kindle. But since I’ve got out I mean, it’s you’re just able to, to get I just read so many more books or different books that I wouldn’t look as the price I was lower price and I’ll try it out. So I love the

Paul Rivera  54:43

I mean, the device itself has gotten so much better to Yes, you know, with the screen and the battery life and all of those things and now you can make notes on them and all of that they’re tremendous. Yeah, it’s, and we’ve, you know, we had the great fortune to work with with a really excellent Australian publisher and getting this book out. So we certainly feel like we’re we have a spiritual home in Australia to to thanks to them. So that’s been a great experience as well. Yeah. Excellent.

Gene Tunny  55:07

That’s what I want to hear for. Paul Rivera. Thanks so much for your time. It’s been a great conversation. Really enjoyed it.

Paul Rivera  55:14

Absolutely. Thanks so much Gene.

Gene Tunny  55:19

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Carbon as an emerging, liquid asset class w/ Michael Azlen, Carbon Cap Management – EP212

With carbon prices becoming more common globally, carbon is an emerging, liquid asset class, according to Michael Azlen, CEO and co-portfolio manager of Carbon Cap Management. Michael shares his insights into investing in carbon markets with show host Gene Tunny. Michael, an experienced investment professional and regular speaker at investment conferences, shares his research on the benefits of diversifying investments across multiple carbon markets. Tune in to learn more about the potential of carbon markets as an investment opportunity. Disclaimer: This is for general information only, and does not constitute investment or financial advice. 
Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

What’s covered in EP212

  • Carbon markets and investing in an emerging asset class. (0:03)
  • Carbon markets and their correlation with other asset classes. (2:57)
  • Carbon markets and impact investing. (9:20)
  • Carbon markets and emissions trading schemes. (13:42)
  • Carbon market mechanisms and their effectiveness. (20:52)
  • Carbon markets and their potential for investment. (28:19)
  • Climate change impact on asset management industry. (33:35)
  • Final thoughts on carbon markets and investing with Michael Azlen. (38:25)

Links relevant to the conversation

About Michael Azlen and Carbon Cap:

Michael’s article on “The Carbon Risk Premium”:

Transcript: Carbon as an emerging, liquid asset class w/ Michael Azlen, Carbon Cap Management – EP212

N.B. This is a lightly edited version of a transcript originally created using the AI application It was then checked over by a human, Tim Hughes from Adept Economics, to see if the otter had missed anything, and with all respect to otters they do miss quite a bit. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Michael Azlen  00:03

By investing across all five of these markets, your overall portfolio volatility really comes down of course because your your nicely diversified, while it doesn’t necessarily impede your return expectations so that’s that’s one of the key observations of our research paper was this this very low cross correlation between carbon markets.

Gene Tunny  00:27

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Hello, thanks for tuning into the show. In this episode, you’ll learn about carbon as a liquid emerging asset class. Emissions of carbon dioxide are increasingly being priced globally through various emissions trading schemes, or through other mechanisms that impose carbon prices. To explore carbon markets I talk to a fund manager who is investing in carbon markets globally. My guest is Michael Azlen, CEO and Co-Portfolio Manager of Carbon Cap Management. Michael has 25 years of experience as an investment professional, and he’s a regular speaker at investment conferences worldwide. Also he’s been a guest lecturer in graduate programmes at London Business School for more than 15 years. I’m really pleased to have been able to interview Michael because he has some great insights into carbon markets. For instance, he explains how carbon markets are generally uncorrelated with equities, bonds and real estate, and hence they can help investors diversify in uncertain times. For the lawyers, this is for general information only and none of this should be interpreted as investment or financial advice. Okay, let’s get into the episode. I hope you enjoy my conversation with Michael Azlen on carbon markets.

Michael Azlen from Carbon Cap. Thanks for joining me on the programme.

Michael Azlen  02:20

Pleased to be here Gene, thanks for inviting me.

Gene Tunny  02:22

Oh, of course. I’ve covered climate change quite a bit on the show. But I haven’t had anyone who has the expertise in the carbon markets and investing in carbon as an emerging asset class or, or another way I’ve seen it expressed as a liquid asset class. So Michael, to start off with, could you tell us a bit about Carbon Cap, please, you’re the CEO and Co-Portfolio Manager there. What does Carbon Cap do exactly?

Michael Azlen  02:57

Sure. So So Carbon Cap runs the World Carbon Fund. It’s a climate change impact fund. And the Fund invests into the regulated compliance carbon markets around the world. The fund has two objectives. The first objective is to generate a positive return over any rolling 12 month period. So we don’t want to be up every month or every quarter. But over every rolling 12 month period, the objective is to be positive, regardless of the performance of carbon itself. And the second objective of the fund is to have an impact, a direct impact on climate change. And we do this in a number of ways. But the hardest impact is achieved through our commitment to take 20% of the performance fees that are generated. And we use those to purchase compliance carbon permits, again in the regulated market Gene. And we cancel those permits. And in the fund has been running for three and a half years, the total return net of fees to our clients is in excess of 100% now, so very strong returns over this three and a half year period. And therefore, you know, the nice thing about performing it is aligned with direct climate impact. So higher performance means more impact. And that creates a nice alignment of interest between between the investors ourselves as the manager and having an impact on climate change. The fund has grown significantly from the launch, we launched with only 10 million the fund is now $280 million in size. So we’re approaching 300 million and our client base is now moving much more institutional in nature. In terms of impact allocators. The fund holds Article Nine status here in Europe and that that status, Article Nine is the highest level of impact under the European taxonomy. So it’s an uncorrelated absolute return fund with climate impact. So it’s quite a quite a unique fund and I think you know, more and more clients are seeking uncorrelated returns as we’re, you know, the global macro situation is becoming quite difficult. I think the forecast from here out.

Gene Tunny  05:14

Okay, so yeah, I’ve got a few questions based on that. Michael uncorrelated, do you mean uncorrelated with the business cycle with the stock market? What do you mean by uncorrelated?

Michael Azlen  05:24

Yeah, so the background to to Carbon Cap Gene was after I built and sold my previous asset management business to a public company, I then became deeply involved in research onto the into the science of climate change, so nothing to do with carbon. And that led me to enrolling at the London School of Economics and their climate change programme. And this is where I learned about carbon markets. At that time, this was in 2018, carbon was trading in the different markets around the world about half a billion dollars daily. So it’s quite liquid. And I was quite surprised by that. And my first question as an investment professionals was, was your question. What are the what are the statistical properties of the asset class, you know, return and volatility and correlation. When I looked for the research Gene, there was no research on carbon. So I hired a PhD student from the LSE, myself, we collected the data, and we analysed and wrote that up as a full research paper. Now, it did take three years in the peer review process with academic papers. But I’m very pleased to tell you the paper was published last year in the Journal of Alternative Investments. So, so coming back to your question, when you’re asking, you know, what do we mean by correlation? In this sense, if you take the, you know, the daily, weekly or monthly returns of carbon, which is a liquid tradable asset class now, I should mention that, that that liquidity where it was trading half a billion a day, that was in 2018, now we’re trading 4 billion per day. So the liquidity has increased significantly. And and when you look at those correlation numbers over rolling periods, carbon just exhibits effectively no correlation at all to equities, to bonds to real estate to other commodities, it has very unique correlation properties

Gene Tunny  07:18

Right and what about the volatility is it much more volatile than those other asset classes?

Michael Azlen  07:24

So it varies between markets. So you know, today in the World Carbon Fund, we invest in five different liquid regulated carbon markets. And those volatilities vary from probably the lowest volatility market is between 10 to 15% volatility, and the highest volatility market maybe is about a 60% volatility. So there’s quite a difference in volatility in the different carbon markets.

Gene Tunny  07:48

Okay, so I might ask you about those different carbon markets in a moment, there are just a few other things to clear up. You talked about institutional investors, so you’re talking about, what investment banks, so the Goldman Sachs, or Morgan Stanley, you’re not okay, who are you talking about there? Pension funds, perhaps?

Michael Azlen  08:10

Yeah, exactly. So generally, you know, high net worth investors, and then retail investors would be non institutional, and then kind of in the middle ground, you would have family offices and multifamily offices in the middle ground. And then you would move into more institutional, which would be, as you say, professional investment management organisations. So this, these could be other investment management firms that have maybe a multi asset product, or they might run a fund of hedge funds product, and they would be an investor into our fund. And finally, the classic, you know, asset holders like in Australia, the super funds and other big pension funds. So we’re seeing also interest from the bigger pension funds now, because there’s an interesting aspect, not only the return and the low correlation, but the climate impact, and the potential for carbon exposure to give you somewhat of a climate hedge in your portfolio is another another interesting aspect. If you understand that climate change is now impacting equity and bond portfolios by having some carbon it’s somewhat of a hedge against some of those impacts.

Gene Tunny  09:19

Yeah, that makes sense. And can you explain, you mentioned this Article Nine, in the European taxonomy? I’m completely unfamiliar with that. Sorry. Could you explain what what that’s about?

Michael Azlen  09:32

So, Europe a couple of years ago, launched a new taxonomy to identify the level of transparency and impact for funds and they set minimum standards, reporting standards in order to achieve those different article levels and the highest level there of impact is Article Nine. So you know, in an in an effort to create an environment that kind of weeded out greenwashing, they said, let’s put some standards in here. Because you know, I mean, three years ago, every single fund was green in some aspect, right? Even if it really wasn’t green, it could be labelled green. And so Europe brought in this taxonomy and said, now, unless you meet these very strict reporting requirements, you can’t make a green claim. Or more importantly, you know, your fund will be ranked Article Six, Article Seven, Article eight, Article Nine. So there’s a varying degree of reporting, and you it to achieve Article Nine, you must demonstrate meaningful impact in terms of the activities of the fund have to be reported in detail, and you have to demonstrate impact. And so in our case, we have now a three year audit trail where we have purchased carbon permits with those performance fee amounts, and then we just cancel them. And that’s all audited and documented.

Gene Tunny  10:57

Okay, okay I’ll have to look more into that, that’s interesting. I mean, yeah, there have been a bit of concerns about greenwashing, or concerns about just how effective some of these carbon offsets are, whether they’re actually legitimately reducing greenhouse gas emissions. So I think that’s, that’s fair enough. Righto! I’ve got to ask you about this $4 billion a day of trading. And I mean, you’re involved in this sort of thing. And oh, can I ask first? Actually, you might have mentioned it before. Assets under management, are you do you disclose the assets under management of your of your fund?

Michael Azlen  11:36

Yeah so as I mentioned, we are currently running 280, two eight zero million dollars in the World Carbon Fund.

Gene Tunny  11:44

Gotcha. Because I latched on to that there’s that four billion dollars a day that’s being traded, who’s trading it, and who ultimately needs these carbon permits or these assets? So we’ve got, I mean, what is it that’s being traded? There’s the permit. So in Australia, we I think we call them Australian carbon credit units. So they represent what is it a tonne of co2 equivalent? And then there are also offsets. Can you tell us a bit about that market, who’s in it and what’s been traded, please, Michael?

Michael Azlen  12:13

So this, this is a real area of confusion Gene. So it’s really important that we clarify the difference between various carbon markets because there are actually three very distinct carbon markets. And they’re very, very different. So this is very, very important. So the first market that most people are actually familiar with, and let’s leave the Australian ACCU market. Let’s leave that to the side for a minute. I’m talking globally now. Most people are familiar with what’s called the voluntary carbon market, voluntary, because it means it’s a voluntary participation, a corporate can choose to buy these credits, can choose to buy these offsets. And here Gene terminology, we use the term credit and offset. In the voluntary market, it’s a carbon credit or a carbon offset. In the markets in which we invest, we invest in a completely separate market, the regulated market, the compliance carbon market, where companies must comply, and those are called carbon allowance permits. So in the voluntary market, most it’s called a carbon credit or offset. The normal project here Gene is planting trees, or trying to protect a forest or a mangrove swamp. It’s some type of project related activity. And then an independent party will calculate how much carbon is sequestered from the activity. They give it a rating, and they calculate the tonnes and they issue these credits and offsets. I’m going to give you five key bullet points about this voluntary market very, very important. Number one, it is completely unregulated. Number two, it’s illiquid, it’s it’s not a liquid asset. Number three it’s very small in size. I’ll come back to that. Number four, because it’s all of these different methodologies. It’s very opaque and complex to figure out, well, how did they calculate these credits, how many credits? And number five, I think very important, in the voluntary market, there is effectively an unlimited supply of these credits. This is where Gene you mentioned in the last ,just the last nine months, this year alone, there have been a number of investigative journalist articles that have uncovered practices in that market that have proven to show that some of the projects have not actually sequestered any carbon at all. And I think the key here Gene is that in any market as an economist, you’ll know this when you have a financial asset without any financial oversight, this brings moral hazard into the equation right? So if we can create more credits or offsets through a different methodology, we all benefit within that ecosystem. But there’s no independent oversight of that. So the problem of over crediting and sort of supply has become an issue. And so I think what we’re seeing is corporate buyers of wanting to make a climate impact are now somewhat shying away from that market, because they don’t want to be involved in these in these scandals. So that’s the voluntary market. If I move the lens to the regulated markets Gene, I want to give you five key bullet points about the regulated market. The first one, of course, it is highly regulated, because it is run by governments. Number two, it’s it’s very liquid, it now trades $4 billion every day. Number three, it’s large. So when we compare the size, this market is traded, last year, about 1 trillion with a T dollars, and the voluntary market did about 1 billion. So this is a 1000 times difference in size, not 10 times or 100 times this is huge. And number four, it’s very transparent. Of course, these these markets, because they’re run by the government, so they put all the rules on the website, it’s transparent. And number five and most important Gene, in the regulated market the supply of the permits is capped and every year that supply lower and lower and lower. So in one market, unlimited supply just keeps increasing, and in this market it’s capped and it keeps going down. So it’s quite, there’s quite a big difference between these two markets.

Gene Tunny  16:28

Yeah, gotcha. So you’re talking about the permits that are part of emissions trading schemes, or cap and trade schemes or whatever you want to call it. So what are the major markets, Michael, which economies have these schemes and which economies therefore have these regulated markets, there are these permits that you’re involved in investing in and trading?

Michael Azlen  16:53

So the good news here, Gene, is that not only is there, are there current, currently multiple countries and jurisdictions, but there are at least a dozen new countries that have announced they’re going to launch full Emission Trading Systems, cap and trade systems as you as you correctly identified, so the growth of the asset class is going to be tremendous in the next five years. The current markets that we invest into today are the European emission trading system. Number two is the UK emission trading system, which was established after Brexit more than two years ago. When the UK left Europe, they launched their own emission trading system. The third market is the California carbon market, which is in the state of California. Fourth market is the regional greenhouse gas cap and trade market, which is on the east coast of the United States. And it consists of 11 states together on the East Coast in one block carbon market. And the fifth market we invest in is the New Zealand carbon market, which has been around for a long time, it’s gone through transformations. It’s a small market, but it’s we think it’s quite a well run market and and that’s the fifth market. Um, one thing I want to point out, Europe has is the most liquid market, it trades probably half of that 4 billion daily, 2 billion a day is the European market. So very, very liquid and it was launched in 2005. From 2005 until today, emissions in Europe have dropped by 1 billion metric tonnes per year. That is a big success. And and for this reason, I think because of that success, obviously without impeding economic growth. I mean, that’s quite important, right? I think that is why we’ve had these big announcements in the last well, even the last three months, Brazil is moving legislation to launch a full cap and trade market, India and Japan, Japan, the third biggest emitter in the world. China, of course, launched after doing extensive research on the European market and the California, China launched the world’s biggest cap and trade market two years ago, covers 4.5 billion tonnes of carbon. So it’s massive. South Korea, Mexico should go live next year, they finished the two years of their pilot programme. So we’re expecting that may be the next fund that we could add into the fund. But there’s there’s many more countries I was recently in Singapore three weeks ago and Indonesia just launched their cap and trade market. Most of the Asian Tigers, Vietnam, Malaysia, Indonesia, they’re they’re all have plans at various stages, it’s taking time to, but they all have plans to launch cap and trade carbon markets, which is great news.

Gene Tunny  19:51

Right. The US is obviously a major omission from that list of countries. Do you think there’s any prospect of the the US, there are some states out there that you mentioned, is that right? But the whole US there’s no federal cap and trade scheme in the US is there?

Michael Azlen  20:09

No, and I think it’s unlikely we’re going to get a federal scheme, because of the, you know, the polarisation, you know, at the federal level, but but what we’re seeing Gene is, you have the state of California, and then you have 11 states on the east coast. So we already have those 12 states. Three months ago, the state of Washington, the 13th US state launched its own carbon market. That market launched three months ago. And in the last six months, New York State has announced it’s going to launch a full blown cap and trade carbon market probably within 18 months. So things are happening at the individual state level, but I think it’s unlikely we’re going to get federal carbon pricing.

Gene Tunny  20:52

Gotcha. And where’s Australia sit in this? So do you have any thoughts about these, these A double C Us or ACCUs that we have here? Is that something you’re not interested in investing in?

Michael Azlen  21:04

So in the fund, we have a market entry framework that has a number of criteria that a carbon market must pass in order for us to onboard that into the fund. And there’s very practical considerations like access to that market. But then there’s there’s other considerations such as, you know, transparency, country risk, policy risk, currency risk, and items like that. So, you know, on many of those, of course, Australia being a, you know, a Western democracy, there’s no issue, but the actual structure of the ACCU market in Australia is somewhat of a hybrid between the regulated market which has, you know, a cap which gets lowered every year, and the voluntary market, which is unlimited supply effectively. And, and therefore, when we apply those market, market entry, that market entry framework against the Australian market, it simply doesn’t pass it, it’s it doesn’t meet the stringency test, because of the fact that it allows voluntary project supply units to come in of very questionable calculation methodologies. And and really the other thing is Gene, durability. When you have a project that it I think we can measure that it may have sequestered carbon, but but it what is the risk of reversal? And how long will that carbon be stored, if it’s only stored for 10 years and then released back into the atmosphere, well, then you know, that that perhaps hasn’t been a very valid carbon credit. So durability and risk of reversal of the carbon then being re re emitted is very high. And so projects, such as soil carbon and whatnot, they do have this potential for risk of reversal and therefore low durability. Most projects now that I think more corporate buyers are looking at more permanent removal, such as, you know, direct air capture, and other strategies where you can prove long term, you’ve pulled the carbon out, you’ve injected it deep underground, you liquefy it, inject it into a storage well, for very long term durable storage, over 100 years, or maybe even over 1000 years. So you can really demonstrate storage.

Gene Tunny  23:21

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  23:55

Now back to the show.

Now, who ultimately needs these permits, it’s emitters isn’t it? It’s big companies that are polluting. So smelters and power generators, fossil fuel generators. Is that right? They’re the ones who ultimately need it. They’ve got the demand.

Michael Azlen  24:17

Yeah, so in a cap and trade programme, the government controls the total quantity of emissions. But because there’s a limited number of permits, exactly, as you said. And the way they decide who’s in is they normally set a threshold Gene. So in most markets, it’s a 25,000 tonne per year threshold. So any company that emits more than 25,000 tonnes per year they’re notified by the government they’re in, they don’t have a choice. So that’s why we we call it a compliance instead of a voluntary market because you must comply. It means that the government audits you every year, and you must give the government the permits based on the audit. So if you we audit you and you met 2 million tonnes by April of this year, you have to give the government 2 million permits and the government controls the supply of those permits. So that’s a cap and trade. Every year the government, in the case of Europe let’s say, we, we sell at auctions 1.3 billion permits, at the end of the year the companies are audited. And if the total emissions are also 1.3, the companies then give those permits back to the government who destroy them, they they destroy the permit, and that that compliance cycle for one year has now been completed. The second year now the government sells 1.2 billion, destroys those then 1.1, then a billion then 900. So every year the supply of permits is going down. So we know within the ecosystem 1000s of companies, someone must select themselves to stop emitting carbon. And that’s the beauty of the mechanism Gene, it allows the price, the market sets the price of carbon, and that price signal is taken by participants and internalised. What do I mean? They compare the market price of carbon to their internal cost of abatement. In other words, the CEO calls in his head of engineering and says, John, you know, we’re emitting 2 million tonnes a year, it’s $100, that’s costing us $200 million a year. Can you get her emissions down? He says to the head of engineering, right? He’s profit motivated. And the head of engineering then looks at the latest technologies for that industrial process, and comes back and says to the CEO, yeah, we can get it down. But it costs $160 a tonne. Well, that that CEO has a very clear decision, then he’ll he will simply buy the permit for 100. But there will be another company in the ecosystem, where the head of engineering says it’s $40, we can reduce our emissions for 40 bucks a tonne. That’s a no brainer. The CEO chooses then to invest in that low carbon technology and they choose to cut their emissions. So this is the power of the mechanism. It forces what we call the three magic words, least cost abatement. Right, that those are the three magic words, tap and lower the emissions. That’s good, but we want to achieve it at the lowest possible cost. As an economist you will appreciate this is you know, this is a parsimonious solution to to this quite difficult problem.

Gene Tunny  27:17

Oh, yeah, absolutely. I mean, I think, yeah, that’s that’s something that economists would would agree on. I mean, one of the things that’s happened in Australia is because we, we don’t have a carbon price, but yet the politicians have made commitments to try and get emissions down, we end up doing all sorts of things that may not end up being that that least, what is it the least cost of abatement?

Michael Azlen  27:41

Yeah to achieve least cost abatement. Yeah, yeah. So because we want to we all want to cut emissions of course, we’ve seen the terrible impact, but we don’t want to do it at any price, right, we want to do it at the lowest possible cost. And so in a carbon market, as we keep lowering the number of permits, the supply, we know we as long as we have liquidity and price discovery taking place in that market, that that is important. We can be quite confident it’s the companies with the lowest cost they self select themselves to choose to reduce their emissions. And the reason they do it is they make more profit. I mean, they they’re not being green or ESG. They simply are reducing their emissions because they make more profit.

Gene Tunny  28:19

Yeah. Okay. I’d like to ask you a couple of questions about the market some of the technical details. Is there a futures market in, in these permits, the derivatives? I mean, what’s the, what’s the market look like?

Michael Azlen  28:34

So in each market that we invest in is slightly different in four of the five markets Gene, there is exchange listed futures and exchange listed options that trade like many other commodities, like oil, or wheat, or corn or, you know, other commodities. And most of the liquidity is in that exchange listed futures market. Most of the trading activity in carbon, probably no one knows the exact number, but I would say 70, or 80% of the trading activity, is those big end users hedging their carbon obligation. And as you said, it’s the power sector. electric utilities, steel, cement, chemicals, glass, these high emitting sectors are the main participants in, in carbon markets.

Gene Tunny  29:18

Gotcha. Gotcha. But they’re not your investors are they or are they? Oh, you’ve got no, no, no. Okay. So, but you’re you are participating in the market, but they’re the ones who ultimately need the permits. Okay. Gotcha. That makes sense. What about foreign exchange risk you mentioned? I mean, what you’re saying there, it sounds really embarrassing for Australia for our ACCUs, those criteria that you set out and how we don’t meet them over here. That’s, yeah that’s quite embarrassing for us, I imagine. You mentioned foreign exchange risk, do you hedge that foreign exchange risk?

Michael Azlen  30:00

In the fund? We do yeah. So where we invest in, you know, in a carbon market and in another currency we hedge that out. That’s, you know, quite common in our industry.

Gene Tunny  30:11

Gotcha. Okay. So we’ve, we’ve talked about, you know, regulated and you’re in the regulated space versus voluntary. I was surprised just how much larger the regulated is than the the voluntary, I suppose it makes sense if it’s, if it’s compulsory. You talked about a euro, the European scheme, and then the UK scheme. To what extent are these markets connected? Can I buy permits in in one scheme and use them in another? I mean, how does that how does it all work? Are they are these markets connected in any way?

Michael Azlen  30:48

So the long term plan, Gene is for carbon markets all to link together. So to give you an example, you know, four or five years ago, Switzerland had its own separate carbon market, and then it chose to link with the EU carbon market. And that is the long term trajectory. I think if we look 10 or 15 years into the future, hopefully, we initially will have maybe regional carbon markets, Asia, North America, South America, that kind of thing. And then eventually, one would hope, one global carbon price and carbon market, and we believe the asset class, you know, now is trading about 70 billion a month, as I mentioned, we think that, you know, when when China, South Korea, Mexico, Brazil, Japan, when all these markets spin up in the next three to five years, we’ll be trading probably well over, you know, half a trillion a month, I mean, it’s going to be a huge asset class, probably overtaking crude oil as the most heavily traded commodity in the world, probably within five to 10 years. So strategically, I think it’s a very important asset class. One of the very unique things is Gene, they’re not linked yet. So even though the California market the permit covers one tonne, same same commodity as the one tonne in the European market, because there’s no fungibility you can’t bring the permit and hand it in, in Europe, from California. When you look at the cross correlation. It’s zero, effectively. So to give you an example, this year, year to date performance, the European market is about flat on the year, the UK market is down 40% on the year, the California market is up 20% on the year, and the RGGI market on the east coast of the US is up I don’t know about 5% on the year. So you can see just from these numbers, very diverse performance, there’s no cross correlation. So by investing across all five of these markets, your overall portfolio volatility really comes down of course, because you’re, you’re nicely diversified. While it doesn’t necessarily impede your return expectations. So that’s that’s one of the key observations of our research paper was this this very low cross correlation between carbon markets.

Gene Tunny  33:03

Gotcha. Okay. Yeah, I’ll have to, I’ll put a link in the show notes to that. Michael, yeah this has been fascinating. I’ve learned a lot about about these markets. And it’s, it’s, there’s a lot I’m gonna have to follow up on just to make sure I’m as across it as I can. Can I ask you about your, your story how you ended up at Carbon Cap? I mean, you’re you’re in the UK now, aren’t you? You’re, so you’re based in London, you’ve got an office in Mayfair. But you’re obviously, I mean, you don’t have a British accent do you so what, can you tell us a bit about your story?

Michael Azlen  33:35

Yeah, so I’m a Canadian, and worked, began my career with two of Canada’s banks as a proprietary trader. After, I then came to London to do my graduate degree at London Business School. And I’ve actually been teaching now for 18 years on the graduate degree programme at London Business School. The last five years, I’ve been teaching a segment on the impact of climate change on the asset management industry, which is a very, very interesting and fast moving area. I worked in the hedge fund industry here in London in a number of roles. And then I set up my first business, regulated investment management business in 2005. And I was very fortunate Gene to grow that business to a decent size. And we were approached, and I managed to sell the business to a Swiss public company. And it was after that sale, and my earn out period, I had a little bit of time off, but that’s when I became deeply involved in research into climate change itself, nothing to do with carbon, I was, I was quite sceptical of the whole area of climate change, you know, because, to me, the you know, the temperature and weather didn’t seem that bad. And I also had known that the climate had always changed prior to humans being on the planet, quite dramatically right? Humans have only been on the planet 250,000 years or so. And we’ve got paleo climate records way back before then showing great variability in weather and the climate system. So I just sort of wanted to bottom out those two questions. And I’ve now read more than 200 Peer Reviewed papers, I was I was in a fortunate position because I didn’t have to work, I could simply focus on that. And I’m a bit geeky, you know, I like to read these these peer reviewed academic papers, and I fairly quickly, over about two or three months became convinced that the problem is extremely acute. If you’re an empirical person, you just weigh evidence, you just base your decision on evidence. It’s, it’s, you know, the concentration of co2 now in the atmosphere at 425 parts per million. I mean, it’s increased by 50%. And it just keeps climbing higher and higher. And the impacts, I don’t know, if you, you saw the data that came out just a few days ago, on September, me, not only was the month of September, the hottest September on record, but the deviation above the previous record was enormous. So the impacts that we’re seeing now are becoming, you know, massive. I know, in Australia, in particular, there’s been, you know, some some very big impacts both in fires and flooding events. And those are unfortunately likely to continue. So hopefully, you know, we can address this so that, that, that spurred my passion to do something Gene and I was fortunate to be able to get a Swiss private bank to back me to launch my second business. And now we have a very interesting Climate Impact Fund.

Gene Tunny  36:26

Hmm, good one, good one. Can I ask you about this course you are teaching, the impact of climate change on the asset management industry, I mean, I mean, you’re a case study of that, I mean, yes, obviously, you know, carbon now is a liquid asset class or an emerging asset class, as you call it. But are there other impacts that you that you consider in that course? I’m just just interested in what the content of that is broadly and what you see is the, those impacts.

Michael Azlen  36:54

Well, I mean, it’s a, this is a massive area now for, for academic investigation. It began with things like, for instance, looking at a diversified equity portfolio and trying to calculate initially, you know, the carbon footprint of that portfolio as a proxy for you know, the emissions. And then academics began to research well, what is the difference in performance between a portfolio that has a bigger carbon footprint, they call that a brown portfolio, versus a portfolio with a with a less carbon foot a green, and this Brown versus green, if you just Google that, that spread of performance in equities, and in fixed income markets, has been an area of very great research. But things have moved on since then. And now, what the research is looking at is trying to really identify with the actual climate risks that individual corporates are exposed to, either insurance companies in their in their insurance portfolio right with regard to flooding risk, fire risk, things of this nature. You can imagine banks, their lending risk. So in terms of a kind of Basel three stress test, but, but instead of looking at credit quality, we’re now trying to assess are they lending money to companies where those companies have undue climate risk, and therefore, you should factor that in? So it really extends to a pretty wide range. It’s a really fast moving and interesting area.

Gene Tunny  38:25

Gotcha. Okay, I’ll have to have a look at that. I mean, that might be a topic for another episode, I won’t to go into it now because you’ve, you’ve given me, you know, lots of good stuff to think about already, Michael so that’s been that’s been terrific. Any final thoughts before we wrap up?

Michael Azlen  38:42

No, I would just like to say, you know, I think everything begins and ends with education and learning about a topic, if you’ve got questions, if this has interested you today, I would direct you to our website, we have an open access website with a research library and we have a section on the website of little educational videos, short snippets, to help people understand how does the, you know, what do you mean by voluntary carbon market? What do you mean by regulated carbon market? And we have information, of course, on the latest science on what’s happening on climate change. So I would encourage people to, if you found today interesting, to you know, do your research and and please use the resources that are available our research paper, I think it is not available on the website, but I would happy, anyone who emails me, I’d be happy to send it and for any, you know, Australian based investors that would be interested in thinking about our fund, you know be of course very happy to have that conversation too.

Gene Tunny  39:43

Yeah, absolutely. I mean, I imagine it could be of interest to with yeah, super funds. I mean, we’ve got some big, obviously some big super funds here and we’ve got, I mean, I’m in Queensland here we’ve got a Queensland Investment Corporation, which is owned by the state government. I know that they’ve got, they’re interested in alternative investments, I’m not sure to what extent they’re interested in the carbon market, but anyway, it’s uh, yeah, absolutely if there is a, if there is someone listening right now and investors in Australia or anywhere, yeah, I think I think definitely check out your website, Michael and you know, this is obviously not financial advice, I can’t, this is general information only. But, you know, certainly, this is, it, I think you’re right. It is an emerging liquid asset class, and it’s something that really has to be considered in future portfolios. So, Michael Azlen that’s been terrific. I’ve really enjoyed the conversation. So thanks so much for your time and for your insights really, really thought it was great.

Michael Azlen  40:46

Gene, thank you very happy to participate today. Thanks for inviting me.

Gene Tunny  40:50


Michael Azlen  40:51

Cheers. Bye bye

Gene Tunny  40:53

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Uncovering the Secrets of Valuing and Selling Businesses w/ Arthur Petropoulos, Hill View Partners – EP211

Show host Gene Tunny is joined by Arthur Petropoulos, founder and managing partner of Hill View Partners, a company specializing in mergers and acquisitions, business sales, and capital advisory services for middle market companies. They discuss how Arthur finds, values, and sells businesses, as well as the wider economic impacts of his work and the role of private equity. They also explore whether we should be concerned about modern-day Gordon Gekkos and how the business landscape has changed since the 1980s. 

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What’s covered in EP211

  • Business sales and capital raising with Hillview Partners. (1:22)
  • Business brokering process and outreach strategies. (5:18)
  • Business valuation and acquisition strategies. (8:10)
  • Buyers and sellers in mergers and acquisitions. (14:47)
  • Business sale process and foreign investment constraints. (17:34)
  • Selling a business, focusing on narrative and information sharing. (24:18)
  • Private company sales and legal risks. (28:00)
  • The role of capital markets in the economy. (38:05)
  • Private equity’s role in the economy, including pros and cons. (44:10)

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Transcript: Uncovering the Secrets of Valuing and Selling Businesses w/ Arthur Petropoulos, Hill View Partners – EP211

N.B. This is a lightly edited version of a transcript originally created using the AI application It was then looked over by a human, Tim Hughes from Adept Economics, just in case the otters missed anything whilst they were munching on fish. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Hello, thanks for tuning in to the show. I’m delighted to be joined this episode by Arthur Petropoulos, Founder and Managing Partner of Hill View Partners, which specialises in mergers and acquisitions, business sales and capital advisory services for middle market companies. We talk about how Arthur finds businesses to sell, how he values them and how he sells them. We also talk about the wider economic impacts of the work he does and the role of private equity. Should we be concerned about modern day Gordon Gekkos or were the 1980s different from today? Okay, let’s get into the episode. I hope you enjoy my conversation with Arthur Petropoulos.

Arthur Petropoulos from Hill View Partners, thanks for coming onto the show.

Arthur Petropoulos  01:22

Good to be here. Gene. I appreciate it. I like, contents great, listened to a bunch of it and happy to add to the archives.

Gene Tunny  01:30

Excellent Arthur, what I’m looking forward to is learning a bit more about what you do and in Hill View Partners and the broader community that you’re part of the broader industry. One of one of my favourite podcasts is David Bahnsen’s Capital Record. And David’s someone who’s always talking about the strength of American capital markets, and just what that contributes to the economy. So yeah, I’d be keen to explore that with you. To start off with, could you tell us a bit about what you do at Hill View Partners please?

Arthur Petropoulos  02:06

Sure. So fundamentally, our company helps companies do two things. We advise and assist companies in the sale of their business and we do the same for companies that are seeking to secure capital. So you can think of it investment banking business brokerage intermediary, but the simplest way to explain it is when you think of a real estate broker, or help people sell real estate, we do the same thing, but with businesses, and we’re helping people find capital for those businesses. And it’s a real area of specialisation and focus, privately held companies generating one to 10 million in pre tax profit, typically owned by families, entrepreneurs, small groups of investors. So in the broad scale of the economy, it’s kind of that line between the lower middle market and middle market, that’s our area of specialisation. And really where we focus.

Gene Tunny  02:53

Right and what sort of businesses would they be? I’m just trying to think I mean you’d have some professional services businesses, do you have bakeries or…

Arthur Petropoulos  03:02

So if you think of kind of the, and the reason why we started the business and folks in this space is I spent about 10 years in New York, doing this both on the investment banking side of helping companies as well as the private equity side of buying companies. And what we found is there’s this doughnut hole of sorts, where very large companies kind of work with the Wall Street investment banks, and then very small companies work with the local business brokers. But there’s a huge swath of stuff in between. So you might have a software company that it’s kind of it has a very specialised niche that generates a million or $2 million in profit a year. I think everybody thinks of software’s giant companies are just growth growth. There’s plenty of kind of very niche software’s dashboard, task force management, pricing tools for particular industries, whether it’s construction or satellite dish installation, it could be anything, right. And those companies are a lot of what we do a b2b and b2c services. So you could think of window cleaning companies we’ve sold or gutter cleaning or roofing companies or, you know, irrigation, those are broad Real Estate Services, then there’s just general kind of like specialty manufacturing or distribution companies. So we sold a company that sold cleanroom supplies into pharmaceutical companies. There’s another company that manufactured component parts that went into aeroplanes. And so what I will say the consistent theme for companies we represent so we really, we’re agnostic of industry, so so long as it fits the profitability criteria as well as kind of the complexion of ownership. But what you find after iterations and iterations is that companies in the size that we represent, are not competing on the cost of capital. They do not provide commodity products, and so whatever it’s b2b or b2c services products offering, where we’ll be is there will be something specialised about it, there’ll be something niche something proprietary, there’ll be something they do better than anybody whether they have just better economics, whether they have access to certain markets or customers, or whether they just have a capability or an aptitude that’s unique. There’s usually something so that’s, you know, that’s part of the fun. And part of the exercise is as we’re talking to new people, figuring out what kind of that secret element is to their, to their respective business.

Gene Tunny  05:18

Right? Can I ask you, how does it, how does it work? I mean, so say you’re in business broking. And you’re selling some of these businesses, you’re trying to get the best price for the the seller, and then you get obviously commission, I don’t need to know, you know, that’s probably proprietary and confidential, but I’m interested in, like, do they pick up the phone? Or do you go actively looking for these businesses? You’re in Rhode Island, are you driving around Providence, and you go up to New York City? I mean, how do you how do you do it?

Arthur Petropoulos  05:51

No, so I mean, look, we endeavoured to make this business a national and international business from the get go, because I think historically, it has been a hyper regional business where you have, you know, three guys sitting at the back of a bar, you know, drinking with the guy who owns a local lumberyard, right, or whatever the business may be. And I think as things have evolved, where middle market businesses have, now they’re doing much more national and international work, we find that there, it’s really about just having the dialogue with people and really understanding the objectives and facilitating the process. And so we work with companies all over the states, as well as international to a lesser degree, but Western, Eastern Europe, Southern Asia, then a small amount of Middle East, but it’s really about finding the business that meets kind of the size, ownership complexion, I think season and in the business lifecycle where they’re looking to accomplish one of these goals. But it’s a because it’s not, it’s not a hyperlocal business. Because there’s you can’t just drive up and down a main street or high street and find a lot of these things. They’re kind of, there’s more of them than you think in some places. And there’s less than you think in other places, right? It’s a it’s a quirky business, because you might not realise but there’s a large like, you know, pillow manufacturer down the street from you, or a software company that’s in just this nondescript building that does this thing. And so, our outreach, we do some direct outreach, whether it’s email, whether we’re chatting on LinkedIn, with people, we put out content that on LinkedIn, as well as YouTube, we have two videos going out every week, kind of just explaining different categories, we get a lot of inbound conversations from that. And then I think some of the best relationships and conversations you have are from other happy customers. And so every time a deal closes, and our client’s very happy, they do tell their friends and say, Hey, we know a firm that did a real good job for us and that and engenders some goodwill. So, you know, I think there’s this kind of direct outreach inbounds there’s some warm outreach from kind of relationships and referrals. And then there’s just kind of goodwill generated by I think, good results.

Gene Tunny  08:04

Good one, and in that process of the sale, like getting it ready for sale, are you, are you involved? Are you providing advice on business operations, governance, that sort of thing to try and improve the value of it at the sale?

Arthur Petropoulos  08:20

Yeah, I think there’s certain things that, that are malleable at that stage of the game. There’s other things where it’s a matter of characterization and kind of just understanding it and documenting because a lot of times the processes are there, the people are there. And it’s just a matter of kind of memorialising precisely what the different people do, how are they cross trained? What are their capabilities? What are the processes of the business relative to origination and sourcing of new business operations and the administration of the company as well as kind of the execution and fulfilment of the actual work? And so, most of these things are there. They just need to be crystallised as part of the narrative. And but look, there are time to time where as we’re having those dialogues, where there are things that, hey, you know, it would if this, we don’t want, we call kind of like single source reasons for failure, right? And so if there’s one employee that does this one very important thing, who else could do that if they couldn’t, right? Or if you’re getting certain raw goods from one particular source, what happens if you can’t get it from them? And so I do think it’s kind of parsing through each part of the business and trying to poke holes in it, that has a lot of good dialogue, because the more we can try to poke holes, the more we either get the answers as to why there’s a safeguard or, you know, it allows for the implementation and incorporation of a safeguard and mitigation means at that juncture.

Gene Tunny  09:46

And how would you know, if you’re getting a fair price, I mean, how do you know what sort of sort of price to to aim for there? Is it multiples of earnings or the how do you actually work that out? And also how do you do it across all these different industries you mentioned you’re industry agnostic. I mean, yeah, that you mean, you must have to get across a lot of new industries really quickly. How do you do that, Arthur?

Arthur Petropoulos  10:10

Sure. So by virtue of focusing, I think on the size of the profitability of the company, and by virtue of that it must be profitable. Capital tends to kind of work in different ecosystems. And what we find is that the delineation of ecosystems is much more predicated on the size of the company than necessarily the industry in terms of capital and in terms of acquirers, right. So you have, if it’s a not profitable business, but it’s growing fast, and it’s that venture capital world, or growth equity, right, that’s its own ecosystem, whereas private equity for the profitable companies that we work with, strategic acquirers in the middle market, that’s its own ecosystem. So it’s fascinating, but you’d be surprised at how many of the counterparties on the other side are looking kind of agnostic of industry as well. And more specific to size and complexion. And then kind of large private equity, and publicly traded companies have their own ecosystems as well. So we focus on our one ecosystem, which is important to do. And then but there is always kind of a specialised research that’s necessary for a particular industry, because there are quirks and idiosyncrasies with any industry as we’ve done, you know, 100 plus transactions as Hill View Partners, and I’ve done 100 plus transactions in my life before starting the company, you do learn kind of which, where to look and how to research different industries. And so it’s not so much that you need to know every industry, but you have to know what to look for in every particular industry. So as we kind of get into any particular new ones, and there’s not many that we have not been involved with, but we still take a fresh look towards it. You know, it’s a matter of finding who are the active parties, we have our own internal database, as well as some, we subscribe to external databases and Cap IQ, PitchBook Data, there’s a handful of them out there. And we do a lot of our own kind of proprietary research. I think the difference in largely what we do is, many intermediaries will just kind of gather all the information, puke it to the universe to 20,000 people and just wait for the phone ring. We are proactive, not reactive, we do a lot of research upfront. That way we’re pinpointing who to reach out to. And what that ultimately does, is A) it mitigates a lot of the kind of typical pain points. So shrinks the duration limits, distraction keeps the discretion generates better results. But also, it really fine tunes the conversation. So getting back to your question about multiples, that’s usually a good place to start, right? The fundamentals are the driver. So if we look at it, you’ll see like different stratas of size will usually have different multiple ranges. So a company that does a million dollars in EBITDA will generally trade at four to seven times EBITDA, a company that does 2 million will trade at five to seven, five to eight, maybe 3 million you probably see six to a four, 5 million, maybe you start getting towards nine, 5 million plus, can you get to 10 at 10 million, can you get to 12 times but there’s this multiples expansion. And candidly, I mean, that’s a lot of the private equity thesis, right is if you buy 10 $1 million companies for $6,000,000. Six times multiple for a million dollars of EBITDA for each acquisition, once you have 10 of those together, it’s worth 10 to 12 times EBITDA right? So that’s how you spend 60 and it’s worth 120. But our logic, our research is finding what the comps are, looking where it kind of falls in the strata. But then also, by doing research about finding where our client is the missing puzzle piece for someone’s bought a puzzle, right? So yes, well, you know, if we sold a company that made a certain type of widget, that mega widget company just doesn’t have this one thing to sell, right? We want to talk about that as a buy versus build opportunity for them. So yes, you have the fundamentals but the two other reasons why companies are bought are A) access to certain end markets, but B) proprietary capabilities. And so if it’s something special about what the company does, or if it has very unique access, then we can pivot the conversation to say, Well look, yes, you may think that there’s $1 million EBITDA company’s worth $6 million. However, it would cost you $15 million to start this company from scratch, to build, to take time the resources to allocate to try to build this. So maybe you can buy it for split the difference, right? And so what we say is we wanted to the fundamentals are the starting point. And then the access to capabilities and pivoting the dialogue to buy versus build. Those are the enhancing factors that hopefully we can get even better but to answer your question more simply a lot of research and a lot of conversations. That’s how we know we’re getting the best results.

Gene Tunny  14:46

Yeah, good one. Okay. And can I just clarify some things so you’re on the the sell side, you’re a business broker or an investment bank, or you’re similar, are you similar to an investment bank?

Arthur Petropoulos  15:00

Yeah, I mean, the key differentiator is investment banks deal with security. So they’re dealing with publicly traded companies for the most part, and we deal almost entirely with privately held companies. So that’s why we’re an M & A advisory firm would be the phrasing because we don’t deal with securities.

Gene Tunny  15:15

Yep. Gotcha. Okay. And private equity so they’re on the buy side. And is that companies like Carlyle Group, is it Carlyle is it?

Arthur Petropoulos  15:26

Yeah, so Carlyle, KKR, Blackstone are the really big ones. TPG, I mean, there’s a lot of them. And then there’s different stratas of them for size. There’s industry specialists. But yes, that’s generally the buy side are, so it used to be you’d have kind of two big buckets, you’d have private equity that were funded just to buy companies and sell them. And then you had strategic acquirers that were basically just large companies that would occasionally acquire smaller businesses or different capabilities. But now you have lots of strategic companies have have created corporate development and strategic acquisition groups. There’s private equity that buys strategic companies. And so it’s a bit more of a continuum. But yes, generally speaking, that is the buy side is companies and financial buyers and strategic buyers that are looking to make acquisitions. And we represent solely the sell side. So the companies that are looking to either sell or receive that capital.

Gene Tunny  16:22

Okay, so you mentioned your private equity, strategic acquirers. Could that include individuals or is it generally corporations at this or companies?

Arthur Petropoulos  16:34

So what’s interesting about the companies we work with, I was just telling someone, I believe we have the broadest swath of prospective acquirers for a company, right, like, if you were selling that bakery, you probably wouldn’t be selling it to a person or a few different people. Now, if you were selling a billion dollar company, you’re probably only selling it to private equity or a very large strategic company. But in our businesses say you’re selling a $2 million EBITDA company for $12 million, or $15 million, right? The buyers for that are going to be incredibly broad, it could be a publicly traded company, it could be a private equity firm, it could be a family office, it could be an independent sponsor, a search fund, a high net worth individual, right. So yes, it runs that whole spectrum. From of, of both size, and I wouldn’t, sophistication is not correlated entirely with size, right. So like sometimes the best buyer that knows something inside and out is just a person who’s obsessed with one particular field who really wants a company. And sometimes it’s the largest corporation. So the important part of our job is to just, you know, we say kiss a lot of frogs to find the prince, right or turn over, a lot of rocks to find gold, but it’s having all those dialogues, both within each category, and then across categories to make sure we’re finding the right the right home for a business.

Gene Tunny  17:54

Right and how long does it typically take to sell a business? Like once you get in touch, or once they get in touch or you find the business? You get the the contract to, to, you know, you’ve got the agreement to, I mean, I imagine you’re going to be an exclusive seller is that correct? You’re that…

Arthur Petropoulos  18:14


Gene Tunny  18:16

Gotcha. Okay, what what’s, how long would it typically take?

Arthur Petropoulos  18:19

This is not a shameless self promotion. But if you weren’t using Hill View Partners right, these processes can take, you know, 18 to 24 months. We want in the part of why that proactive versus reactive process is important is we want six month processes we want offers within 100 days. And then after the 100 day mark, it’s really the confirmatory diligence from an acquirer, but we have the process broken down and crystallised into different component parts. That way, the day we sign an engagement with a client, we are getting the information that we need, putting our materials together and doing the research about the acquirer so that we’re out there in the market within two to three weeks talking to people. We’ve pushed the dialogues through a process of asking people for follow up questions, having conversations, Zoom meetings, indications of interest, letters of intent, there’s, we have a lot of steps along the way to keep shaking the tree, if you will, right. And so that way, every time you shake the tree, things fall away, and things fall away, right. And that’s the fastest way to get to the conclusion, while not losing any of the substance cohesion or comprehensive approach to it. And so we find our processes we can run in a six month process, if sometimes it’ll slip a month or two, depending on if the diligence has taken too long, depending on negotiations, but largely speaking, six months start to finish. That’s the goal, and we stick to it.

Gene Tunny  19:44

Gotcha. And in the US, what are the rules around foreign investment like so if you’ve got a foreign company or or you know, high net worth individual wanting to buy a business in America, how does that is that a constraint is there, are there barriers there?

Arthur Petropoulos  20:01

I mean, not really because it doesn’t tend to be, you know, if you’re getting the foreign investors that will come and acquire businesses in the states are largely part of larger organisations that have a global business that’s doing something, right. Like the probability that someone’s going to want to move from Dubai to Oklahoma to buy a water hauling company is probably low. So, you know, candidly, we’ve had people I mean, look, I mean, it’s more likely, you know, that hey, someone’s moving it from, you know, from London and, and they want to buy a business in New England somewhere. I’ve seen those things. So Oh, no, it’s it hasn’t been an issue on our part. I guess there were a couple businesses that were a little sensitive relative to they sold into the aerospace and defence industry. So there was some prohibition against even then we were just told, like, don’t even bother talking to people in these countries, because couldn’t sell to them anyways. But that’s, that’s where we’ve seen so less about the individual or more if there’s kind of sensitive stuff that’s going into government agencies or something that they don’t want to have the exposure to foreign ownership.

Gene Tunny  21:09

Yeah, yeah. Just back on the sale process. So do you have a Expression of Interest process? And then you have a tender process? So how does that work?

Arthur Petropoulos  21:18

Yeah. So so we don’t we don’t go out there with an asking price on something, right? I mean, we can give some guidance in the sense that if someone says, Well, what are they looking for, this or that we can say well, you know, we’re seeing comps, we’re seeing transactions for companies like this falling in this range. Because we don’t want it to always just focus on the dollar amount too because the structure matters, the transition period for ownership matters, what happens to the stakeholders, the employees, the community, the buildings, that whatever it is, right, there’s a lot of variables. And so we’ll provide a little bit of guidance. But largely speaking, we let the process determine the price because the people we’re talking to are sophisticated parties, they know what these things trade for. And, and I think people know, we’re pretty communicative in the sense that we say, Look, if, if you’re looking to just kind of kick the tires and lob something in here, like don’t waste your time, like don’t waste our time either. And so we’re able to get down to the real bonafide parties quick. And in the process. Typically, there’ll be dialogue questions going back and forth, we have a data room that we populate, but we’re usually asked for an indication of interest, and then a letter of intent. So what that means is, send us an email tell us generally how you valuing this, how are you looking at structure this or that, because then we can have a constructive dialogue with the prospective acquirer so that when they finally put something forward on letterhead, they now have a good sense as to how probable it is that it’s gonna work. And it’s kind of had some dialogue, if you will, or discussion. So we like to have information sharing conversations, indication of interests, and more communication form a letter of intent. And a lot of that happens from day 60 to 90 of a process.

Gene Tunny  23:02

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  23:37

Now back to the show.

Can I ask you about how you promote or advertise the businesses? I’m just thinking about real estate. And I mean, you look at some of the things that real estate agents are doing now particularly in, in capital cities in Australia, where people are mad about real estate, you know, they’ve got these cinematic type videos, they’ve got the the houses all dressed up, they’ve put a lot of work into it. And they’ve got these really impressive videos. I imagine you have a prospectus of some kind, like, how do you how do you promote it?

Arthur Petropoulos  24:14

Yeah, I would say there’s less style points in this business. Right? The because it’s less of an emotional acquisition for the most part, right? Like it has to make fundamental sense for companies to buy things. They’re buying capabilities. They’re buying access, like you know, it’s slightly a different sale than saying like, you know, imagine drinking you know, hot chocolate on the veranda on a Friday night, right? So, the product or if you will, or the thing that’s actually transacting has a slightly different approach. Now, that being said, must be professional must be crisp, clear, concise, but the substance of the narrative is more valuable than the form if you will. And so we communicate to the to the prospective acquirers. We have materials that we put together, it’s in our space, we found like the 100 page pitch book, you just everything gets drowned out in, in the one page thing is far too brief. So we have a happy medium that provides kind of the high level overviews of all the things that are important. We have data rooms that we support back, but we kind of sequence or phase the sharing of information. So that way we make sure people are focusing on the optimal or the key elements of it first. But yeah, so it’s it’s, it’s clean, it’s crisp, it’s direct. It’s not as not as razzle dazzle as some other things. But the goal being to communicate the narrative clearly, communicate the value proposition clearly to the prospective acquirer, and getting their attention. Because, you know, the trick in this business sometimes is that if we’re representing a small company to a very big company, the hardest part of that dialogue is getting the first part of their attention, right? If we can get their eyeballs on it, and they like it, well, then it just creates traction amongst themselves, right? Because now they’re saying, Well, this is interesting, want to look at it want to learn more, and they have their own momentum. And at a certain point, they don’t really care what I want to tell them, they care what they want to look at, right? And so they say, Well, I want to learn more about this and learn more about that. So you can’t drown them out with your own narrative. But you do have to make sure you’re giving them enough for not too much and get the attention. And then if the attention leads to interest, it kind of becomes self fulfilling at that point.

Gene Tunny  26:24

Gotcha. And what if, say, I’m looking at, I don’t know a plumbing supplies business in Milwaukee or something like that, could I actually, and I’m a prospective buyer, could I line up a visit to the, the company’s premises and talk to the management?

Arthur Petropoulos  26:41

Sure. At a certain point of the conversation. So we try to phase things out, right? Like, you should be able to, if you are the plumbing supply distributor guy, and you know, this business, right, so we have to kind of validate prospective buyers. So what’s your track record? What’s your history? What’s your industry knowledge? What’s your financial capability to do these things? And let’s say you check out on all these things, well, then you really should be able to give an offer, or at least a skeleton of an offer just based on numbers and conversations with ownership, right. And so there is a certain, so only when we get to like a high level structure, that you would, you can at least put the ? on the back of an envelope. And that ownership can get on board with that we then pivot to you know, whether it’s an in person meeting, facility review, I think the problem with a lot of intermediaries is they allow too much access too soon. And it’s like, you know, this isn’t a field trip, right? Like, we’re not looking to have like 25 people come around and kick the tires and things because it creates an environment of instability for the employees. It’s not good, right? And so you really don’t want to do that until, you know you have something and we try to push. And it’s a tug of war sometimes, but we really try to push things as far as we can. Before we’re doing anything, that could be a disruption.

Gene Tunny  28:00

Gotcha. And you mentioned so you’re trying to validate or vet the buyers, is that that’s a risk mitigation measure I it? Are you, I mean, you’re I guess you want to protect the legacy of the business for the person who sells it. Like, what’s the what’s the thinking there?

Arthur Petropoulos  28:19

It’s not so much from a, I guess it’s qualitative in a way, right? Like, we’re not gonna we don’t want to sell businesses to criminals, or people who have bad track records, you know, in terms of like treating employees and stuff. But, you know, we also don’t, you know, it’s not like, oh, I don’t want it to what’s the Aussie word, you know, a bug in some way, right? Like we don’t like so it doesn’t get to that level, where it’s like, I don’t want these kinds of people or those kinds of, it’s really about capability. It’s about, you know, it’s about industry experience knowledge, feeling comfortable, that they would be a good steward of the business from a fundamentals perspective. Because you’d be surprised. I mean, you know, we always joke and say it’s separating the prospects from the suspects. But it’s, you there’s, there’s a lot of people out there that I think are looking at businesses is like, you know, when you sell a house, right, like you ever sell a house and you put the house for sale, and take buyer, the neighbours show up? Yeah. And it’s like they’re not buying the house. And it’s like that same neighbour, it’s like their hobby is to go look at houses every weekend, right? And they just go in and they like, eat the food and kick around and like, take some paper towels. And so in business, you’d be surprised that a lot of the same names show up and so we want real buyers, but we don’t want to waste any time. There’s no value. There’s no style points to fluffing up the numbers of interested parties on the front end. It’s no good for anybody. So it’s more about capability and are they a bonafide prospect. And and you know, qualitatively, are they going to be the right steward. It’s less about, you know, did they go to a proper preparatory boarding school. It’s more about actual capabilities.

Gene Tunny  30:01

Yeah, yeah. And is this regulated Arthur? Like I imagine it’s not SEC, but are there state regulations around this? I mean, what’s the

Arthur Petropoulos  30:10

Yeah, and there are there are SEC regulations pertaining to private company sales, you know, relative to sizing and structure of deals in a way that does not kind of conflate with securities. And then state by state, there’s different considerations depending on on what it is, for the most part, though, this is it’s kind of free market, third party transactions to other people who are owning things. And, you know, not many of these transactions are going to be either, you know, pivotal to national defence, or, you know, under like, Hart Scott Rodino Act for like, antitrust and stuff like that. I mean, these tend to be, you know, if you said, What is kind of the typical situation, it’s a company that does a thing, either for a particular product or geography, there’s a giant company or bigger company that does it everywhere else, and wants to get access to their geography, and they kind of bolt them on. So. And that’s, you know, sometimes it’s merger of equals, sometimes it’s just one person, but a lot of times it’s kind of the aggregation strategy that’s looking to bolt something on. And so it is regulated, and there’s certainly laws and rules to it. But it’s not to the same level of securities, because not dealing with, you know, selling shares, small amounts of shares to large number of kind of passive investors.

Gene Tunny  31:31

Gotcha. Is there much legal risk on the seller side, I’m thinking, I mean, you know, with any sort of tender process or auction, there’s always, you know, there’ll always be a significant number of people where there’s the the winners curse, so to speak. How do you deal with that?

Arthur Petropoulos  31:47

Yeah, so part of the negotiation. And so once we have a deal, basically, under a letter of intent, you enter into the diligence phase, in which case, the buyer puts forward a purchase and sale agreement for the consummation of the transaction. So unlike real estate, where you have a purchase and sale agreement that you sign, and then you enter into diligence, in corporate transactions, you sign a letter of intent, you do the diligence, and then the purchase and sale agreement is signed, kind of coterminous with the closing of the transaction. But within that, within the purchase and sale agreement are representations and warranties both ways, right. There’s disclosure schedules, so that a seller would have to say, Are there any pending litigation? Is there any complaints? Or what are the customers you’ve lost? There’s things that have to be put in there. And from a buyer’s perspective, they have to say, what they are willing to take, you know, at face value. And so the way we an old, an old mentor of mine said, reps and warranties are there for, you know, fraud, willful misrepresentation, things like that, to protect buyers against, but it is not in what he called, he said, It’s not schmuck insurance, right? It’s not, it’s not insurance that you paid, you didn’t pay too much, or you didn’t know this and do that, right. Like, this is a business between sophisticated parties. And so if a seller sells a company, you know, without using a person like us, and they don’t get a good price and don’t get a good structure, they really don’t have any recourse to complain about it, because that’s the deal they agreed to. Buyers similarly if they, you know, if it’s not, if it’s not in the contract, then then it’s, it’s not part of it. So point is, it sounds more adversarial than it is. There’s just kind of customary reps and warranties that very clearly define what the post transaction risk or exposure is from both parties. They are negotiated pretty heavily by the attorneys. And, you know, as it pertains to the business elements, we get involved as well. But our general positioning on it is we want to protect the buyers from fraud from, you know, willful misrepresentation things we don’t know, which don’t happen with the clients that we work with. But what we don’t want is for anybody to just say, like, I bought the company, I mismanaged it. And now I want, you know, some money back because I didn’t do the right thing, right? That’s not That’s what we avoid. And nobody really asked for that. But we don’t want it to be grey.

Gene Tunny  34:15

Right. So do you engage the lawyer or does the seller engage the lawyer?

Arthur Petropoulos  34:21

It depends on the situation. And it depends on what kind of an attorney a seller’s using. And so sometimes, if a seller is using a corporate attorney for a lot of activities that they’re with they’ll say, hey, I really want our attorney in the mix here. And that’s perfectly fine. We work with lots of people’s attorneys and that usually when we get the letter of intent, negotiated but not signed, that’s typically when they come into the process review that and then we work alongside them shepherding diligence. But there are other times where people say like, you know, I you know, my attorney is a great guy. He’s a great friend. You know, he helped me buy my flat in Brisbane, but you you know, I have a $50 million business, maybe he will play a part in the process. But do you have someone that you can bring in that just does corporate transactions all day, in which case, we have a global network of people that we’ve worked with, that we can bring in, depending on the locale of the business. So it’s situational. And we can work with clients either way, depending on their preference, but we always keep a strong roster of, of attorneys. And I, what I’d say is the right types of attorneys, because you can have, you know, anybody can pick up the phone book and call up the most expensive law firm in the world. But it’s where do you find kind of that optimal mix of value and capability? And so whether it’s people that have spun off of the big law firms running smaller boutiques that are slightly off the radar, or are more tactical people, we like those kinds of relationships.

Gene Tunny  35:46

Yeah, very good. I should ask Arthur, how did you get in, how did you get into this? I mean, you mentioned you worked on Wall Street. Could you just tell us a bit about what you studied? And did that help you get into Wall Street and then your path to Hill View? Partners, please?

Arthur Petropoulos  36:03

Yeah, sure. So when I grew up, my father used to read, he had a very broad spectrum of books he was interested in, and ideas. And so I remember, you know, it was gonna be Plato’s Republic or Aesop’s Fables. But he read a lot of history books to us. And so I remember going through like, you know, Amerigo Vespucci, he was travelling the world selling pickles or the Dutch West Indies Company was fine, you know, whether it was silk or spices, but it felt like the history of the world was the history of business and war for other things, but business, right commerce, and, you know, the idea of a finite amount of resources and an infinite amount of want. And so when I studied more and I would get into like the industrialization of America, and, you know, Carnegie Steel turning into US Steel, and all of these aggregations, I found the combination of business transactions of finance of growth and in aggregation of industry to be fascinating. And when I grew up, the only people I knew that who really had their hands in these things were always attorneys, you hear like, oh, this attorney just helped this person sell this company. Because I do think particularly in days past, I think a lot of attorneys kind of served a dual role in these things. And they still are, you know, key advisors to companies. But so I went to law, I studied undergrad business, I actually wanted, I wanted to get a minor in music theory, I played the piano. But I remember my mom said, if you want to play the piano, you can just leave school and stay in the living room. But we, but anyway business was the key focus in undergrad, and I went to law school, and law school doesn’t have majors, but you can effectively create your own focus. And so we created or I focused on corporate transactions, both from a mergers and acquisitions and financing perspective. And it was when I was in law school that I was reading the case law, you’d have to study of your KKR and acquiring Nabisco and Philip Morris, and this and that. And when you started reading all of these cases, you’d say, well, who is that? And how do they work? And how does this work? And so once I figured out, what is an investment bank, what is a private equity firm? How does capital work, who are these lenders, that’s when I think the world kind of opened up and I said, Ah, like, there’s this whole ecosystem of corporate transactions and all these participants in it. And then I realised, you know, although I believe the law degree is phenomenal in terms of understanding the allocation of risk and structuring of things. I found that, you know, the investment banking was a bit more firmly in line with where my interest was. And so it’s not an atypical path in the sense that I think Lloyd Blankfein and Brian Moynihan and Sam Zell like they all actually had law degrees, because I think they went through a similar kind of learning exercise. And so even that’s, that’s how I was in law school. And then did whatever a young guy looking for a job, you know, picked up the phone and found lists of names and called and called and called and got a job helping middle market companies sell themselves and then went to the buying side and had a few jobs in New York and then said, Hey, we should start our own thing, came back to Rhode Island to do that. And here we are today a little wiser, and with a little more grey hair.

Gene Tunny  39:19

And I mean, there’s no disadvantage to being in Rhode Island I imagine is there?

Arthur Petropoulos  39:24

You know what, there was a time but I think it predated me a little bit where if you wanted to be in finance in the States, it was either really LA or New York. And then you saw outposts pop up in Houston for oil and gas businesses or, you know, Florida because of how many New Yorkers moved there. You know Boston for pharmaceutical businesses. But my notion when we started Hill View was it was already felt like no one really cared where anyone was, as long as A) you could get to where you need it to be, and B) you produce results and B was far more important than any other stuff. So, so no, I mean, I think like we sit right between Boston and New York. So it is a nice hub to kind of do stuff locally, but we’re doing things all over the world at this juncture. And, you know, again, so long as we produce the results, then, you know, it doesn’t matter if we’re in San Francisco or Saskatchewan.

Gene Tunny  40:05

Yeah, yeah. Because even if you did take a meeting in New York City, for example, what’s that a couple hours away is it at most?

Arthur Petropoulos  40:19

Yeah three hours.

Gene Tunny  40:21

Three hours. Gotcha. Okay. Righto. So before we wrap up, Arthur, I’d like to ask I mean, like what do you see as the value that you’re adding to the economy or the business brokers, then we might talk about the other side of it, the private equity, because there are a lot of there’s a lot of negativity out there about private equity, a lot of concerns about market concentration, and these leveraged buyouts and all of that. So could you just talk about what you see as the benefits to the economy of you’re, what you’re doing to start with please?

Arthur Petropoulos  41:04

Sure, I believe that, you know, capital and transactions are kind of the the oil that facilitates or greases the skids for the economy in the sense that transactions have always taken place. But if you read about, you know, John Rockefeller going through Standard Oil, I mean, he was just kind of bludgeoning people and buying things for nickels and in like, you know, there was a lot of unfair competitive practices. Whereas I think, as the capital markets, and as the M & A markets have evolved, it’s facilitated things so that they happen faster, so that they happen in fairer terms for the selling party. And ultimately, I think, allow for the evolution of industry on a quicker and more efficient basis. And also, I think bolster, economic, competitive positioning, you know, particularly for domestic companies, versus kind of international, you know, many times like you have US conglomerates, competing against, you know, state run organisations in other countries, right. So the only way you’re going to compete is on scale and is own size and is on innovation. You know, there’s always that joke about politics, they say, the number one rule of economics is the idea of scarcity, that there’s more want than there is stuff. And the number one rule of politics is to ignore the number one rule of economics. And so I forgot what economist said that but so in reality, right, there’s scarcity. And there’s, there’s scarcity of talent, there’s scarcity of stuff of services of goods. And so the further you can evolve any particular industry, it does allow for even as painful as it can be the reallocation of human capital, to things that are less efficient, right. And so it’s almost this, like, it does push things forward, like, you know, irrespective of how much anybody could complain about, you know, life in America in 2023. Like, it’s hard to argue that, like, your life is not just as good as like a mediaeval King, right, like you have. I mean, literally, I’m sitting in a chair right now, I’ve got the Library of Alexandria, in my pocket, I can have more pizzas show up at my door in a half an hour than then I can ever eat. I mean, it’s like, it’s amazing. But the only reason all of these things happened is because, you know, the guy said, Hey, I have one pizza place, I could own 10 pizza places, and we should do delivery. And then so, you know, Little Caesars and Pizza Hut and Domino’s. Right. And so it’s like, I think that there’s, there’s places and ways to kind of rein in just the pure animal spirits that can come out with that. But at the same time, I mean, that is why for all of our black eyes, you know, the, you know, the most capital, capitalist focused countries have been the most economically dominant because they allow for that. And I think that the part that we play as intermediaries in the capital, intermediaries is facilitating the efficiency of that exercise and allowing for innovation and consolidation on a quicker and effective basis and protect while protecting the interests of those who contributed to the evolution right to the sellers of companies.

Gene Tunny  44:10

Gotcha. And what about on the buyer side, the private equity, do you have any thoughts on on that side? There’s this caricature of Gordon Gekko going in and, you know, the concerns about loading companies up with debt and stripping money out of companies and, and sacking lots of workers. Do you have any thoughts on that? Do you think private equity adds value out there in the economy?

Arthur Petropoulos  44:37

Absolutely. Because I mean, I think that they very much are the facilitators of innovation and consolidation. Right? It’s capital. It’s looking for return on capital that’s doing that. But you know, taking a few steps back, you know, if you think of the United States economy, a lot of that kind of Gordon Gekko element was a bit of an idiosyncratic situation. So you had, you know, let’s say, we leave World War Two and all all of these conglomerate companies start to form, right? Because they basically apply like war learned processes and they just say, we’ll buy everything right and putting it together. And so you had, you know, CBS owned the Steinway Piano Company, and you had all these, like things that came together because they figured they could just run the same process. And so you hit the 1970s, you have huge inflation, because of too much money printing and we won’t get into that. And then Nixon takes the dollar off the gold standard, inflation goes through the roof values of companies go down. And so you start to see all of these companies where it’s like, you’ve got five different companies combined, that all do different things, and no one knows how to value any of it. Because it’s like, you know, the same company owns Jello pudding that owns like, you know a concrete company, or whatever it might be. So the initial premise of it was buying under, under, misunderstood assets that were put together incorrectly, and disaggregating them in a way that allowed for a better value of each constituent element. Secondly, there was a lot of, you remember the Gordon Gekko speech about, you know, tell their paper company when he’s saying like, all of the executives own 1% of the company, and they’re just pillaging it from cash. There was a certain glut of industry in that time period of inefficiency, that was losing kind of our competitive positioning on a global basis. So you can make the argument that and this is where it gets tricky it because, yes, there were a lot of layoffs. But truly it created efficiencies and companies that allowed them to be globally competitive reallocating the human capital to industries, you know, that made that were more ripe for innovation. Now, there’s pain that goes along with that. And then it’s not to be ignorant of the fact that there were a lot of greedy people involved, right, like all of that leverage was not necessary to accomplish these things, it was just a way of choosing the, you know, choosing the return. So the pendulum goes back and forth. And anytime it goes too far, it will pull back, what I would say is that the modern incarnation of private equity has largely been one of innovation and scale, right. And so buying up a lot of small companies and aggregating them, I think, the biggest myth in private equity in today’s environment. Now, I’m not saying if private equity goes out and buys a bloated software company and fires a bunch of people. But you know, that wasn’t making any profit. But I’m saying when private equity goes out there and buys an aggregation of distribution or manufacturing companies, they want to keep the people, the people are the valuable part. That’s where there’s scarcity. So in today’s environment, that notion of over levered like financial engineering and layoffs is really, I think, a relic in private equity in today’s environment does a lot more, I think, good than harm, and a lot of those excesses have been had been pulled in. That’s not to say, you know, there’s not exceptions to that. But in today’s environment, they are a accelerant of aggregation and innovation, I think in in industry as they consolidate different businesses.

Gene Tunny  47:59

Okay, very good. Arthur that’s been terrific, I’ve learned a lot I learned, I hope you don’t mind, I grilled you over the process and what you do exactly. And I mean I learned a lot about how this, these transactions occur. So thanks, heaps for that. That was great. Tell us about your, your outreach, or your YouTube and newsletter or whatever, please. That’d be great.

Arthur Petropoulos  48:23

Yeah, so I’d say check us out on YouTube at Hill View Partners, if you just typed in Arthur Petropoulos, you’d come up on and on LinkedIn our company page Hil View Partners both on YouTube and LinkedIn, we put out two videos a week, talking about just different topics in the mergers and acquisitions and capital world kind of recurring themes, almost like an FAQ of the things we’re always talking about. And then reach out to us, either on LinkedIn, myself, or the company page, or on our homepage, So hillview, P as in Peter, S as in sam .com, where you can reach out and set some time up as well. But that’s where to where to find us. And on a, you know, on a closing thought, not to get too philosophical, but I think I think anytime you kind of take a position, that something is just entirely wrong or entirely right, or you’re you’re missing a lot of the nuance, right? And so a lot of the economy has excess in both ways. Right? And so, there are, you know, have there been situations where, you know, companies have been too greedy? Yes. Have there been situations where, you know, look at the industrialization of what America had lots of greed there, right? Look at situations where the unions were too greedy and look at how the steel disappeared in the 1970s. Right, so like, so I think the key to being good at our job, and I won’t extrapolate it enough to say good at anything is like you must understand nuance, you must understand subtlety. There’s four sides to every story and the truth sits somewhere in between and so it’s our job to kind of see reality for what it is not necessarily what we wish it would be. And by virtue of taking that kind of sober yet realistic look on things you know, we’re not, we’re not people that are always cynical and say it’s bad. We’re not people that are always optimistic and it’s always good. But we say, life is hard. The world can be a nasty place. But there are glimpses of good and nice things along the way. And we, we, we like those. And so any event for what it’s worth, that’s our that’s our view of the universe that you didn’t ask for. But this is a this has been good Gene, I appreciate it.

Gene Tunny  50:22

Very good, Arthur. I’ve really enjoyed it. And yep, I like having rounding it out with that philosophical thought. So I think that’s terrific. So yep. Very good. Arthur Petropoulos from Hill View Partners. Thanks so much for the conversation. I really enjoyed it.

Arthur Petropoulos  50:37

Likewise Gene. Appreciate it.

Gene Tunny  50:41

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

From Adelaide to Global Power: Young Rupert Murdoch w/ Walter Marsh – EP210

Journalist Walter Marsh talks about his new book “Young Rupert: The Making of the Murdoch Empire.” Walter and show host Gene Tunny discuss Rupert Murdoch’s early years in Adelaide, South Australia and how they shaped his later career. From challenging established systems to becoming a globally influential media mogul, Murdoch’s career has been highly controversial. 
Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest: Walter Marsh

Walter Marsh is a journalist based in Tarntanya/Adelaide with a background in history and culture. A former editor and staff writer at The Adelaide Review and Rip It Up, his writing has appeared in The Guardian, The Monthly, The Saturday Paper, and InDaily.

What’s covered in EP210

  • Rupert Murdoch’s career and the making of the Murdoch empire. (0:00)
  • Rupert Murdoch’s life and career. (3:09)
  • The origins of Rupert Murdoch’s media empire in Adelaide. (8:16)
  • Newspaper circulation wars in Adelaide. (14:01)
  • The business strategies of a successful entrepreneur. (20:28)
  • A controversial murder case and its aftermath in Australia. (23:35)
  • A historical libel trial involving Rupert Murdoch and his newspaper. (28:09)
  • Media, power, and ethics in the Rupert Murdoch era. (33:20)
  • Rupert Murdoch’s legacy. (38:15)

Links relevant to the conversation

You can purchase Young Rupert via Amazon:

Author’s website:

Transcript: From Adelaide to Global Power: Young Rupert Murdoch w/ Walter Marsh – EP210

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Walter Marsh  00:00

I found it very telling that in this period where he is kind of the good guy challenging systems that were overdue for a challenge and these elite establishments that were kind of begging to be shaken up and undermined. You know, the variables were so different when he started but this kind of dynamic have always been the inside or outside of sticking it to these establishments kind of set the groundwork for everything that came afterwards.

Gene Tunny  00:32

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. Last month in September 2023, it was announced that Rupert Murdoch would be stepping down as chairman of the Fox News corporations in November with the possible exception of William Knox, Darcy Murdoch’s been the Australian businessman who’s had the greatest impact on world affairs. He’s had an extraordinary and of course highly controversial career. And believe it or not at all began Adelaide, the city of churches in South Australia. Adelaide journalist Walter Marsh has written a great book about Murdoch’s defining years in Adelaide in the 1950s. The book is called Young Rupert, the making of the Murdoch empire. And I’m delighted to have been able to interview Walter for the show. You’ll learn about how the fear satellite newspaper circulation will set Murdoch on a path to domestic and then global expansion. And you’ll learn about how Murdoch figured out he needed to get close to the politically powerful if he was to succeed. Young Rupert’s a great book, so please consider buying it and supporting a really talented journalist. Details are in the shownotes Okay, let’s get into the episode. I hope you enjoy my conversation with Walter Marsh on young Rupert Walter Marsh, thanks for joining me on the programme.

Walter Marsh  02:18

Thanks for having me, Gene.

Gene Tunny  02:20

It’s a pleasure, Walter. I’ve really enjoyed reading your new book, young Rupert, the making of the Murdoch empire. So came out earlier this year, it’s become even more topical with with Rupert Murdoch stepping down as the head of News Corp the other week. So this is really good timing. So it’s good to have you on the show.

Walter Marsh  02:44

It’s been a pretty crazy to the books been out for two months, and it all the way through writing it. I you know, you’ve conscious when you’re writing a book about a 92 year old that there are certain inevitable deadlines, I guess that you’re on the playing in the back of your mind. But the fact that’s come out that this this resignation happened after the book came out, works pretty well. So I’ve been keeping very busy. So thanks for having me on.

Gene Tunny  03:09

Pleasure. Yeah, so just thinking he’s got good genes, I think because his mother lived until over 100 or nearly 200, if I remember correctly.

Walter Marsh  03:17

Yeah. And there’s a recurring thing in the book as well as people have observed and I didn’t want to, you know, body shame a young Rupert Murdoch. But a few people observed that he were on quite a bit of weight in his 20s. But then I was finding when I was researching the last chapter, which sort of takes the story full circle in the 80s. That these reports on these takeover attempts of the Hilda weekly times when he came back to to Australia in the 80s. And they often started with the sort of doorstop interviews that he was taking whilst going for his morning jog, in his, you know, running short shorts. And so clearly, either one of his co workers or one of his wives whispered in his ear, Hey, your dad died of a heart attack in his 60s and had many health problems got to really become a thing. Other people did describe him as a fitness freak later in life. So he got the memo.

Gene Tunny  04:12

Yes, yes. And his father, of course, was Keith Murdoch, the famous newspaperman. So we might talk about him a bit a bit later, before we get into it. Walter, would you be able to tell me a bit about your, your work as a journalist? Are you a freelancer or your independent journalist at the moment?

Walter Marsh  04:29

Yeah, I’m a bit of freelance for the past three years. Before that I was. I worked as the digital editor of the Adelaide review, which was a long running sort of arts culture magazine, here in Adelaide, that shut down in 2020, sort of as a result of the pandemic. So that kind of was the big push that it took to get cracking on this book project that I’ve been thinking about for a few years. So I’ve kind of come from that culture and arts reporting background, but also In history as well, I’ve been working in the history space and studied at uni. And there was at uni when maybe 10 years ago now that I first started looking into this area as my honours thesis, right. So I did that kind of saw a lot of the sources, a lot of the the narratives that later inform the book, but then happily put on a shelf for the best part of 10 years and tried to work as a journalist. But you know, the way the industry was going, it led me inevitably to go back and think about writing this book. Yeah.

Gene Tunny  05:30

And where was your Where did you do your thesis? Which university? The University of Adelaide? Good one. Okay. All right. And that’s on. Is that on North Terrace? Yeah. And is that near? I mean, Adelaide. So it’s quite compact, isn’t it? So you’d be close to where a lot of the events in you would have been close to where a lot of the events in this book took place, wouldn’t you?

Walter Marsh  05:51

Well, we so much of the events of this book, the Adelaide stuff at least happened? Yeah, on North Terrace. It’s a long street, but they really crafted cram a lot in there.

Gene Tunny  05:58

Yeah. And lots of old, you know, the famous buildings, the parliament, the railway station, if I remember correctly, grand old colonial buildings. So yes, yes. Very good. And can I ask have you ever worked for the Murdoch? Corporation for News Corp?

Walter Marsh  06:18

Yeah, it’s a great question. I did. And I kind of touched upon it in the book, just at the end. But I, when my first big job in the media, editing this sort of street press music, magazine website called rip it up that close down. And one of the things I’ve found about being made redundant in the media and the publication closing down is it’s a very public way of saying I’m unemployed and solid, please hire me. So someone reached out and I did probably the things a month that most in 2016 of, of copyediting work as a freelancer for a food guide that the advertiser were publishing. So that was my little experience inside Keith Murdoch house, which was the launch of that magazine after I’d finished working there. That is the informs the opening scene of the book, and this rooftop party. So that was my experience. Really. Yeah. And that was an interesting time as well, because it was 2016. And even though I was in this very kind of inoffensive corner of the Murdoch for the Empire, it was you know, Trump was in the background debating Hillary and the 2016 blackout happened while I was in the office. So it was an interesting time.

Gene Tunny  07:30

Yes, yeah. Remember that now? Now you mentioned it. And that’s the that’s quite a striking building out in Adelaide. Is that the Keith Murdock house, if I remember correctly? Yeah. So

Walter Marsh  07:39

yeah, way mastery. It’s this big, big glass building that they built less than 20 years ago, and before that, they had this big 1960s building, which really got opened just at the end of the events that are focused on in the book as well. But yeah, it’s definitely looms large over over Adelaide, even though in the last couple of years, because, you know, News Corp has shed a lot of workers lately that I think, as of when I published the book, multiple floors were actually rented out to SA Health, the government health department, so that an E News Corp doesn’t even fill it up anymore.

Gene Tunny  08:14

Right? Oh, yeah, exactly. Given what’s happened with with media. We can chat about that a bit later. So, Walter, I’d like to begin by reading from your summary. I think this is terrific. How you’ve, you’ve summarised this so this is one of your this is a note from the author. For as long as I can remember, my hometown Adelaide, has been a one paper town, a capital city, whose sole daily newspapers been owned by Rupert Murdoch’s use limited for the past 30 years. As I grew up, I realised the company behind this press monopoly extended far beyond my city, was a vast and controversial media empire with global reach. From the cartoons. I watched to the tabloids and cable news networks raising the temperature of Western democracies. And Adelaide wasn’t just a piece of that story. It was ground zero. Although, can you explain how Adelaide was ground zero for the Murdoch empire, please?

Walter Marsh  09:09

Yeah, I mean, it’s the sort of the starting point really, of the book. But in terms of the greater Murdoch story, it really, when piecing together the narrative, you can see that it could have gone a number of different ways. So it really the story starts. And the book starts with Rupert’s father, Sir Keith Murdock, who had spent his whole life his whole career building his name in journalism. He had started off as a freelancer as a reporter and sort of worked his way up over decades, to be the chairman of the Herald and weekly times and he really built that into a nation wide press Empire really. But he was sort of a manager really didn’t actually own that company. So the last few years of his life was spent really carefully trying to build stitch together this sort of separate Separate empire that he could hand over to his son Rupert. And sometimes that involves some, you know, some almost underhanded tactics of convincing the board of the Herald to sell off things like News Limited to him in a private capacity and used, I think it was there’s a, the British Parliament had a Royal Commission into monopoly. And he kind of used that as a as impetus to offload some of their Adelaide holdings. So they didn’t get accused of a press monopoly, but that played into a kid’s hands. So he had the Adelaide interests. He also had a magazine publisher Southdown press in Melbourne, which published new idea, this women’s magazine still going, I think, and there was also the Courier Mail and Queensland press, in Queensland, in Brisbane. And that was the kind of the crux of what Rupert was in line to inherit. But then, because the family itself, you know, Keith had been this a newspaper executive for his whole life. But he wasn’t necessarily a very rich, or at least a liquid sort of rich man himself. So it stretched himself very thin to build up this inheritance for Rupert took on a lot of debt. But when he died, quite suddenly, really, he had staged a border and coup at the Herald only, like 24 hours before he died. So he wasn’t expecting to die quite as suddenly as he did. But he left a lot of things hanging in the air with this inheritance. So Rupert, and his mother or Rupert’s Mother, you know, was very intent on not leaving the family in debt. So sold off a lot of the really key pieces of the furniture, the particularly the Brisbane papers, which left Rupert to basically go from Oxford, to Adelaide to sort of start start over again, you know, this wasn’t a small company, by any means. It had this afternoon newspaper. He also had the Sunday mail, which was the biggest circulation paper in Adelaide. So it was it was nothing to sneeze at. But it was, you know, if Keith had lived a little bit longer, and had managed to pull off what he was trying to work towards, maybe would have started off in Brisbane, maybe if Rupert had convinced his mother to hold on to Brisbane and get rid of News Limited, he would have started off in a different place. But it just so happened that in the circumstances, and this sort of economic pressures that were facing the family that he had to kind of bite the bullet and come to Adelaide, and I do think the circumstances in which he came to Adelaide and the environment he was working in, did have quite an impact in the kind of company that later became.

Gene Tunny  12:31

Yeah, absolutely. So Keith Murdoch had a really, I mean, even though he died in his 60s, I mean, he had a huge life, didn’t he? And he, he was a war correspondent. I think he was famous for highlighting just the some, you know, just the, you know, what was going on at Gallipoli and the Dardanelles campaign, just what a shambles. That was. I think he was famous for that, wasn’t he? If I remember correctly, yeah. Yeah. And so Murdoch, Rupert, Rupert Murdoch comes back to Adelaide. He’s from Oxford. And he was renowned as a Marxist at Oxford, wasn’t he? And he comes back, is he 22 years old, and he turns up in Adelaide is at 1953.

Walter Marsh  13:11

Yeah, 19, September 1953, is when he really touches down. So I’d been under a year after his father’s, his father died, he finished his studies at Oxford, you know, corresponded with his mother furiously, trying to convince her not to sell, unable to convince her at the end, but then eventually says, Yes, I’ll come to Adelaide and sort of start off, you know, take the reins of the company there. And the board in Adelaide of us limited were all much older men, and they were kind of content to let him have a go at it. And he had this very the title we have as publisher, which isn’t very common in Australian newspapers in the sort of hastily defined enough that he could get away with doing whatever he wanted, and poke his nose into a bit of everything and the money side, the editorial side and kind of ease himself into the company.

Gene Tunny  14:01

Yeah. And so what was the paper in Adelaide that he inherited? And its its rival was the advertiser is that right? That’s the famous paper in Adelaide. Is it? What’s that? Yeah, so

Walter Marsh  14:11

So the, the advertiser is the morning paper, and that was the biggest daily newspaper in the city. And it still is today, it’s the only one. But then it’s afternoon competitor in the time of afternoon newspapers when they still exist. It was the news, which was owned by this company News Limited, and actually the advertiser and these limited head since 1930, early 1930s. Keith Murdoch had actually come into Adelaide on behalf of the Herald and weekly times and sort of invaded and taken over both of these papers. So up for you know, the best part of 20 years the Herald weekly times had run Adelaide as a virtual press monopoly of their own it was only a few years before Keith’s death that he carved out the News Limited and the news as this sort of our sort of rival to the Herald and weekly times owned advertiser that was run by the chairman of the weekly time. So there’s a lot of conflicting interests. And then when Rupert comes into town, sort of the gloves are off and it’s just open competition between the two papers.

Gene Tunny  15:16

Okay, right. Oh, so he’s he’s got a newspaper and obviously it gives up any any ideas of socialism or Marxism. That interesting little aspect of Murdoch. Yeah. So I like how you describe this. So I might read this other passage out because I’ve got a question about this. So in the synopsis for the book, it says led by Rupert’s friend Ally and editor in chief Rowan rivet, the fledgling Murdoch press began a seven year campaign of circulation, wars, expansion and courtroom battles that divided the city and would lay the foundations for a global empire if Rupert and Rowan didn’t end up in custody first. So okay, well, you’ve got to tell me more about that. What? How nasty did this circulation wall get? What were the courtroom battles about? And were they really at risk of doing in doing jail time?

Walter Marsh  16:12

Well, the circulation matters really start from even before Rupert touches down in Adelaide. So in an in amongst the the sort of aftermath of case death, there’s this guy sort of trying to convey in the book, there’s a scramble for control of these assets that he’d been building up. And all of his former colleagues at the Herald, his rivals, as well. They’re all sort of competing to sort of carve up Rupert’s inheritance. And they’re all telling each other vastly different stories. And they’re all saying, you know, Keith told me he wants to do this. Keith told me he wanted to do that. Keith is always playing people off against each other. So no one really knew what he what his true plans were. And in amongst that, once it became clear that that Rupert would have to come to Adelaide, to start over, the chairman of the advertisers to Lloyd dumar, who had been installed by Keith Murdoch, you know, 20 years earlier, when they came into Adelaide. He made this overtures to Rupert’s mother, Elizabeth, and kind of said, look, the News Limited sort of financial security depends on having this Sunday paper, which is the only Sunday paper it has this huge circulation, there’s no competition in that kind of market. It’s got its own little monopoly. We’re going to come in and we’re going to launch a Sunday paper, and we’re going to really put up a huge fight, you guys have limited resources. And, you know, there’s every is every likelihood that we’re going to just completely crush, crush this fledgling Murdoch press as it was at the time. But the alternative, the ultimatum he gave her was that you can sell the mail, and he’s limited all back to the health and weekly times and sort of restoring sort of a reset to what the status quo was three years earlier, before, you know, three or four years early before Keith had started carving it away for Rupert’s inheritance. And when Rupert found about about this, he was outraged. He was absolutely incensed. There were some really colourful letters that I was very pleased to find in the National Library of Australia. And so as soon as he’s made the decision, and he makes it very quickly that they’re not going to sell out he does want to have a go at making his life in newspapers. They said about the news news and his team, Ron Rivera, they all start secretly making plans about sort of battening down the hatches and preparing for the competition that’s about to happen when they launched, the advertiser launches this Sunday advertiser. And meanwhile, across town, the Sunday advertisers, you know, they’re they’re all doing these big research trips and criss crossing the world to find out the most modern advances in in sort of circulation building and newspapers and building up audiences. And so in, I think it’s August or September, the advertising the Sunday advertiser launches, and it’s immediately it’s a big threat to use them to them Rupert’s inheritance, and it’s not long after Rupert touches down that the mail, the news, limited paper, fires back and puts on the front page, accuses the advertiser of making a bid for press monopoly, and makes public this story of this kind of overtures to his mother, you know, the newly recently widowed recently bereaved wife of Sir Keith and kind of trying to strong arm, the Murdochs into selling them out, and they fret and it was framed in these terms where it wasn’t just a story of a family business, or, you know, the inheritance of a 22 year old, but it was this big, you know, this was a question of freedom press freedom in South Australia. And, you know, the the male and US Limited was going to stand up against this attempt to have, I guess, what was the quote something along the lines of all the states press in the communities press in the hands of one click, or group or group of businessmen, which is, of course deeply ironic now because the advertiser is the only paper in town and it’s been owned by Murdoch since the 80s. But that was really the start where the You know, the gloves were off, and they were really launching into this fight. And they thought they both papers threw everything at it for about two years until they eventually reached a kind of stalemate, they were kind of both speaking to the same audience both using all the same techniques, and haemorrhaging money in an unsustainable way. And so eventually, they, the advertiser kind of Rupert viewed as a capitulation, where they said, Actually, let’s merge the papers and publish one Sunday paper that’s co owned by the two companies. So it was kind of a draw, I guess. But for Rupert, when he’s coming up against this much better resourced paper and company that has ties to the Herald and weekly times, but also internationally as well. Now to have survived to your Onslaught was a pretty huge achievement, but also drove home to him that to really compete and to beat them, I guess that he had to expand it and match them in terms of the resources. So that kind of led to this treadmill of never ending expansion, I think that we see intake all around the world. And because, as Keith was, you know, he didn’t have a lot of capital, the family’s own capital to draw from the way he funded that was by taking out loans, he didn’t want to dilute the family’s control of the company by bringing in extra investors or shareholders. So a lot of borrowed money from banks. But that led him to this sort of cycle where the expansion is funded by borrowed money, he has to pay off the borrowed money. So in every town that he acquires something, in order to expand, he has to make that as profitable as possible as quickly as possible, as quickly as possible. So I think that goes a long way to explaining how, in a structural way, those early competitions kind of set him on this path of this sort of fight back siege mentality, which set him on the on this path of never ending expansion. And in every place, he went to, kind of pushing, pushing the bar, and maybe lowering the tone and pursuit of profit in every place that he went all around the world. And when you do that on a kind of industrial scale, it has, I think, a cumulative effect. I don’t think anyone would deny that.

Gene Tunny  22:10

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  22:45

Now back to the show. I was gonna ask you about that I was going to ask you about how his time in Adelaide set him up for later expansion. And I was wondering whether it was because he, it was super profitable. And then that gave them the capital, but it sounds like no, actually. I mean, it did provide some earnings, obviously. But they went and expanded. They needed, they needed to borrow the money. And then that set them on that on that growth path. And they just because

Walter Marsh  23:14

he and because he’s a real opportunist as well, like he worked, he didn’t have so much money and resources that he could pick and choose. He’d always just buy whatever was available, whatever got his foot in the door of the market, whatever he could convince someone to sell to him who whoever underestimated him enough to sell something to him. He took it and then turn it into something profitable, which you saw repeated. But to go back to your question about the whether they were going to end up in jail along the way. Alongside this, this sort of economic competitions, there was this political aspect as well where South Australia in the 1950s. And the decade before it had been run by this sort of conservative establishment, the liberal country league party had been in power for over two decades. And they were kept in power by a gerrymander where country voters had twice the electoral power of those in the city. And so even though they were losing the popular vote, this party kept getting returned to power and that party and that establishment was backed in hard by the advertiser. So So Rupert, and this comes back to the sort of left wing aspect of Rupert and rounder of it. They were both quite left wing at the start politically, their personal politics, but they also saw that there was, you know, if more than the the majority of voting for labour, but they’re not getting in. Clearly, that is a huge potential readership, if they made a concerted attempt to speak to this disenfranchised market that isn’t being spoken to by the advertiser, then they know they’ve got a lot of ground to gain and a lot of money to make. And I think that ties into this challenging of the establishment through legal challenges to the report. chewing through, you know, matters of good taste and things like that, that leads to them kind of raising the temperature in Adelaide and sort of pushing the boundaries of acceptability and challenging these systems in a way that over the seven year period, it gets to the point where when they get tied up in this case of ribbit, Max Stuart, and this royal commission, which is formed the crux of this book, and when they’re the libel trial, where the paper and Roland ribbit, the editor will on trial, that’s really the culmination of a lot of tensions that have been simmering and getting more tense over over a seven year period where it all comes, comes to bear.

Gene Tunny  25:38

Could you tell us a bit about that? Walter, what was the libel? What was the libel that it was about?

Walter Marsh  25:44

Yeah, so in in 19, December 1958. in Sedona, which is a town on the far west coast of South Australia, it’s a coastal town, a nine year old white girl, called Mary all of Hatton disappeared, she was later found murdered. And within a couple of days, the police arrested 2627 year old Aaron demand called Rupert next to it. Within a few hours of them arresting him, they emerged with this time confession in the early hours of the morning. And he was convicted of murder and sentenced to death. And the judge at the first trial basically said the all this other evidence they’ve got doesn’t really amount to much. It’s basically this confession or nothing. At the trial. Stuart and his lawyer said that the police choked him and beat the confession out of him. He was illiterate, didn’t speak particularly good English as well. He was signed, he signed the confession, which was typed by the police. But those to his name was the only thing he knew how to read or write really. And so there were appeals and appeals, nothing really worked. There was this growing community campaign, there were academics who became convinced that he was, you know, if not innocent, had certainly been wrongly convicted. Eventually, a Catholic priest called Tom Dixon goes to sort of attend to Stuart, in his cell, because he, you know, he’s facing death. And he, he speaks errand this priest does, because he’s worked in remote communities. And he becomes convinced that Stuart not only doesn’t really know anything about the day of the crime or the events, but doesn’t speak English in the way he doesn’t speak English competently enough that he would have been able to dictate this confession, which is very precise language, lays out how the crime, how he committed it, how he did so in a way that matched all the evidence that the police had put together. And so that kind of lit a fire under the campaign again, and people became convinced that he physically couldn’t have done this, given this confession, which the police at trial had sworn was verbatim. Anyway, so Dixon is introduced to Ron ribbit, this, the editor of the news, and he agrees to get behind the campaign and pay for Dixon to fly to Queensland to try and track down an alibi. But Stuart he does successfully. And then it just becomes this huge press campaign. Virtually, it’s reported all around the world and the Playford government facing this extraordinary pressure that they hadn’t in 20 years because they’ve enjoyed such a unchallenged power, eventually decided to hold a Royal Commission. And then it’s at the Royal Commission where this lawyer who’s come in to represent Stuart, he is questioning the police officer who first identified Stuart as a potential suspect. And he gets interrupted by one of the Royal commissioners who also happens to be the Chief Justice of the Supreme Court in South Australia, who had previously heard one of Stewart’s appeals. So there was a lot of in a very, very Adelaide, sort of incestuous With tensions right away. And this idea of he wasn’t getting a fair go. So the lawyer, he walked out, essentially, and flew back to Sydney. And it was the news. The news is reportage of this event. It was perfectly time for the afternoon papers. And they basically said they sort of paraphrased quoted him on the front page and of these news posters saying, you won’t give Stuart a fair go these commissioners can’t do the job. And it was this coverage that incensed the state government because they weren’t just criticising the commissioners, but this was the chief justice as well, because Playford the premier has installed the chief justice as the Commissioner. So it’s a real challenge to the legitimacy of the entire judicial system in South Australia and the plaque the premier Tom Playford stood up in Parliament and waved these headlines and said it was the gravest libel ever levelled judge in South Australia. And so the Royal Commission eventually wraps up the verdict is upheld, but he his life sentence is commuted his death sentence sorry is committed to life so the campaign has managed to save Stewart’s liked one way or another. But then a few months after that at the start of 1960, some police officers and this is where I start the book off with the scene, some police officers walk into US Women’s headquarters to interview round rivet and later Rupert sort of interrogate them about these these headlines. And then within a couple of months, the report is basically the whole of these limited in the organisation they run is put on the witness stand and really forensic ly pulled apart by Crown lawyers as they face these charges of libel, including seditious libel, which is sort of the headline charge, which is basically just bringing the state of South Australia into kind of disrepute, I suppose. And that was the really finding that that case, the Stuart case has been talked about a lot. There are three books that go into it in quite a lot of detail. There’s a movie made about it, but it was this libel trial afterwards, and what the libel trial tells us about how Rupert ran his company, at that point, the relationships and his role in this coverage that’s very kind of not sensationalist. But it definitely was provocative. They got them in a lot of trouble. That was, that was the kind of the climax of what I thought hadn’t really been looked at in the book before. And sort of in this, you know, writing it today, with the backdrop of, you know, the libel cases against crikey and dominion, and all this stuff, and the Sedition is a big word with January 6, and all that it just felt like a much different set of stakes, a totally different era, but felt like it resonated a lot with the era that we’re living through now at the end of Rupert’s, if not life, sort of his tenure in the news. So, yeah, I really dig into that a lot.

Gene Tunny  31:50

Yeah, that’s fascinating. And so Murdoch, he successfully defended himself against that libel, is that correct?

Walter Marsh  31:58

Yeah. So it was it was the company News Limited. And Ron Roman, the editor that were on trial, so not Rupert himself. But the as the trial progresses, it basically becomes clear that Rupert had written at least two, I think of the headlines that had gotten them in hot water. And in addition to that, there was an editorial that was published a week or so afterwards, when it became clear that, you know, the play for government was absolutely outraged by the coverage. And it was kind of trying to, I guess, calm the farm a little bit and set the record straight. But that this editorial was held up by the by the prosecution as admission of guilt, essentially, by the newspaper, by admitting that those headlines were not quite accurate and shouldn’t have been printed. And it’s revealed that Rupert wrote that headline himself. So it shows a lot about the kind of proprietor he is and how he’s, you know, never too far away from the action, but it’s particularly in relation to the more modern day cases that are happening where he’s kind of recognised that they, you know, pushed the Fox News, sort of Trumpian base a bit too far, is a sign that even Rupert sometimes recognised as when the company has gone a little bit too far and and flying too close to the sun.

Gene Tunny  33:20

Yes, exactly. Well, he had to sack Tucker Carlson, the noted commentator over there, which is one example of

Walter Marsh  33:28

an event and revenge gets sacked shortly after the final charges are dropped. So it’s, everything kind of comes to a head. And that’s a good way to bookend the book and wrong.

Gene Tunny  33:41

Yeah, it’s fascinating, because it sounds like he was probably on the right side in that on that issue. And yeah, years later, I mean, Murdoch would obviously come under intense criticism. And there have been some massive scandals that we don’t need to go into here. But what happened with News, News of the World and the UK and the phone hacking, just absolutely appalling stuff.

Walter Marsh  34:02

I mean, it’s all kind of sorry, it’s all it’s all very speculative when I’m just looking at this early period. But I do think that I found it very telling that in this period, where he is kind of the good guy challenging systems that were overdue for a challenge and these elite establishments that were kind of begging to be shaken up and undermined. And that’s kind of siege mentality. And, you know, he’s not the little guy by any means, because he’s still the inheritor of a newspaper company and the son of the press Baron that set up this whole empire, but it kind of shows what I’ve been discovered. This is sort of foundational contradictions that we see, you know, his his resignation letter, the other week, you know, he still tried to rail against the elite and collaborate and eliteserien co cahoots with the media whose you know, sacrifice truth for political agendas. I think it was in thing and it’s just that the cognitive dissonance on display when he talks about that kind of thing as the billionaire head of a hugely influential Empire that’s had a huge influence on politics. You know, how do you make sense of that, and then seeing it in the context of what he’s been fighting and fighting since day one. And when, you know, the variables were so different when he started, but this kind of dynamic have always been the inside or outside of sticking it to these establishments, kind of set the groundwork for everything that came afterwards.

Gene Tunny  35:27

Yeah, well, he’s no longer on the News Corp is no longer in its ascendancy, if that’s the right word. Because it’s been really battered by the internet and all social media, YouTube, etc. So it’s, it is struggling with Sky News, Australia seems to do it seems to do okay on YouTube. And I mean, there still is a, there’s a dedicated audience of some people out there for sky, but I know elsewhere around the world and the papers here, I mean, the Courier Mail in Queensland’s lead off a lot of people over the years, and they’re just not the force that they once were.

Walter Marsh  36:00

Well, even things like YouTube, like how Yes, Sky has found this huge, sort of secondary, you know, in Australia, it’s on pay TV, or it’s being beamed into airports or country TV free to air. But on YouTube, they found this quite lucrative secondary market where they put some insane videos, some rant on YouTube, and there’s gets 1000s and 1000s of views from America within minutes. And it just made me think that a lot of the things that I explored in this book in the 1950s, the media landscape today, and the one that I’ve navigated in my professional life, is in so many ways unrecognisable from the one Rupert inherited, you know, in, in Rupert’s days, you know, as a building, full of hundreds and hundreds of men and women and just hours and hours of labour. And it was a huge physical process to put together the news each day that everyone read, you know, on trains all at once in two distinct waves, completely. And today, it’s completely different in so many ways. But then at the same time, I kept being reminded that a lot of these arguments and questions that are being explored in that period, things like Monopoly, and ownership and the truth and sensationalism. They’re the same questions, the medium is completely different, the society looks a lot different, but they’re still the same questions. And to bring it back to what I was talking about with YouTube, and how that these algorithms, these online algorithms kind of favour content that provokes a strong reaction that kind of fuels conflict, and instead of moderation and sort of nuance, it’s in a lot of ways, it’s very similar to after the newspapers, because, you know, they had to, had to sell to sell papers, they had to put together headlines and stories that caught the eye and sort of captured the emotional feeling of just random communities passing by, that could be held out by newsboys on the corner, if they weren’t doing that they weren’t selling papers, and the company fell over. So is that these mediums, the mediums are totally different. But there again, and again, we see that they’re kind of structurally predisposed to things like sensationalism, which Yeah, is kind of defies the time period.

Gene Tunny  38:15

Yeah, yeah. Yeah, absolutely. Okay. And I think that’s a that’s a good point. I mean, he learned, I mean, Murdoch. I mean, he obviously cut his teeth in Adelaide, he, he learned a lot about what works in media, and then he managed to scale that up globally. So I think that’s and the other point about Adelaide, which I liked that you made in the book, is that in Adelaide, did he learn the importance of political influence, he learned that the, the people at the advertiser, they were politically connected, if I’m remembering this correctly, and he just learned how important that was. And then he called, he learned to cultivate politicians. And we saw that, you know, famously over the years, and he for a while he was making and breaking government’s Gough Whitlam in, in Australia. He backed him then he didn’t back in and then that was played some role. It wasn’t obviously the decisive factor, but it did play a role. So yeah, incredible. I just found I found that really interesting. I can see how his experience in Adelaide taught him that lesson.

Walter Marsh  39:15

Because he was kind of, even though he had this privileged upbringing in you know, I was raised, lived and breathed newspapers growing up the son of his father who was understood the power of influence in politics. But when he stopped when Rupert started out, he had Yeah, this six or seven year period when he was an outsider, and even though he was doing a lot to challenge the establishment, he also was finding really experiencing the limits of what you could achieve by just throwing rocks from the outside and I think yeah, by 1960 when we kind of leave Rupert it’s very clear that he you know, when he’s been hauled to court and you know, as editors sent him into custody and threatened with jail time is discovered the upper limits have that kind of approach and takes a different path?

Gene Tunny  40:04

Yeah, indeed. Okay, so just two quick questions for the just at the end. Because when you mentioned those a movie about the Stuart case, I wanted to know what that movie was. And then second, if your book is optioned, which it may well be given, it tells a it’s a riveting rollicking tale as Jenny hocking has described it, who do you think could play young Rupert in a Netflix series or a movie? You thought about that?

Walter Marsh  40:37

I haven’t know. But it’s a good question. I haven’t I should say I haven’t thought of anyone off the top of my head. It’s kind of a bit of a backhanded compliment. I think for any very young actors. We I think you could perfectly embody young Rupert Murdoch. But the movie is called black and white. It was made in I think, 2001 I think it’s on Netflix. It kind of comes in and out of the streaming services, but the young Rupert plays a small role in that story, and he’s actually played by a young Ben Mendelsohn. So maybe they can get Ben Ben back to play. Stick Keith Murdock.

Gene Tunny  41:17

Yeah, absolutely. I’m gonna have to watch that. That sounds fascinating. Okay, Walter Mosh well done and well done on the book. I hope it sells well. And I’m sure you’ll be getting lots of media in the future on Rupert Murdoch, his legacy. I mean, he’s still alive. He’s still chairman emeritus of News Corp. And I expect they will. Lachlan Murdoch. I mean, you’ll have a tough time, but I expect they’ll still be important in the media landscape for at least the next decade or so. If you have any final thoughts on that on the legacy where they’re going? Please let me know. Otherwise, you’re happier to wrap up.

Walter Marsh  41:57

Yeah, I mean, the one thing that, that reading that letter, and I mentioned this in a column I did for the guardian. But reading Rupert’s resignation letter did make me think of another resignation letter I’ve found in my research from his father, Keith Murdoch from 1949, where he was having some health issues. And he’d been sort of compelled in late 1949, to announce that he was handing over the day to day running of the Herald weekly times as managing director to his successor, Jack Willett, John Jack Williams, and Keith Hill to remain chairman. But clearly, this was intended as a kind of changing of the guard, you know, getting into semi retirement. Within the next three years, I was going through all these letters were keep spend all that time, you know, coming into the office whenever he could, just white anting Williams eroding his influence, asking all these questions at meetings. And then finally, the last six months, he’s incredible letters where, you know, he’s back and forth with executives that are on his side, about this disintegration across the company. And finally, 24 hours before Keith dies, he launches this, I guess, boardroom purge, where he gets gets Williams turfed out of the company and sort of reassert his control over the company in this really defined way. And then dies within 24 hours, which, you know, in the context of Rupert and whether or not he can really, you know, sit the out of office and go and relax while Lachlan takes over. I feel like the whole 70 year arc has been about control and the whole company being built around his decision making. So I think that that will you know, that would be a tough one to relinquish. But then interestingly, and this is just a little fun tidbit for you. But I was it was fascinating to read about in the aftermath of Keith’s death when they when the call came in, obviously, Williams went straight back into the office and got someone to drill open, keep safe, and they found all these papers which kind of expose his sort of all these tactics he had to build up Rupert’s inheritance. So by the time kids funeral had come around, on Thursday of that week before Robert had even gotten back to the country, the minutes had been the decision to get rid of Williams had been scrubbed from the minutes. He’d been reinstated, and he ended up one of the pallbearers for Keith, just a few less than a week after keep that down, tipped him out of the company. So it’s hard to relinquish control when you’re a Murdoch is my take home.

Gene Tunny  44:26

Yeah, yeah, absolutely. Okay. Well, Tomas, thanks so much for your time. I really enjoyed the conversation.

Walter Marsh  44:32

Thank you. Thanks for having me.

Gene Tunny  44:35

rato thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about The Show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week


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Podcast episode

Private vs public sector jobs, consulting scandals & economics as an ‘imperialist discipline’ w/ UQPPES – EP209

Show host Gene Tunny speaks with students from the University of Queensland Politics, Philosophy and Economics Society. They discuss topics such as private versus public sector jobs, the future of consulting, and the risks of outsourcing for government officials. Gene takes an historical perspective and goes back to the time of convict transportation to Australia. He also talks about, among other things, his time working in Treasury during the Rudd Government, and how psychology is relevant to economics. The students express concerns about the consulting sector in light of a recent scandal involving PwC partners misusing confidential government information.

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What’s covered in EP209

  • Economics career paths and differences between public service and consulting. (3:04)
  • Consulting industry challenges and scandals. (15:39)
  • Outsourcing in government and potential mitigation of risks. (17:50)
  • Greedflation. (28:30)
  • Limits of economics as a discipline. (33:59)
  • Public vs private sector work experiences. (38:22)
  • Government consulting and ethics. (43:48)

Links relevant to the conversation


On how badly designed outsourcing of convict transportation created the ‘death fleet’, see:

Transcript: Private vs public sector jobs, consulting scandals & economics as an ‘imperialist discipline’ w/ UQPPES – EP209

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:03

I mean, I think economics is an incredibly powerful tool where it gets difficult is trying to predict behaviour and, and in in cases where people don’t act fully rationally, and that’s what you need to bring the psychology in. Right. So, I think any idea that economics is the imperialist discipline and we’ve got all the answers, I think that was destroyed by the financial crisis. Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. If you’ve listened to my recent episode on degrowth, you would have heard a little bit of the recent event that I spoke at. The event was hosted by the University of Queensland PPE society where PPE stands for politics, philosophy and economics. This episode features the rest of the conversation that I had with the students. We talked about private versus public sector jobs, the future of consulting and the risks that government officials need to watch out for and outsourcing. In the conversation I picked up there many of the students appear especially concerned about the future of the consulting sector, which is a major employer of graduates. The context is that we’ve had this big scandal in Australia over some PwC partners allegedly misusing confidential information they received from the government. They allegedly used it for private gain. As you’ll hear the students were super interested in the differences between working in the private and public sector, and which was the better option for economics students, I gave the best advice that I could on this question among many others. As with many questions, there’s no easy answer. It says good things and bad things about private and public sector jobs. And a lot will depend on people’s individual preferences and personalities. As you’ll hear, I think that the public sector provides a better training ground for young economists. The work environment and training opportunities are generally much better. But there are challenges in the public sector. As the higher up you get, the more you get exposed to the political side of government, which brings new challenges. That said, there are some people who thrive on that. So it depends on just what you’re looking for. If you have your own thoughts on working in the private versus the public sector, or any of the other issues that we talked about this episode, then please reach out and share your thoughts. My contact details are in the show notes. Okay, let’s get into the episode. I hope you enjoy it.

Joe  03:04

Welcome, everybody. Thank you very much for coming. My name is Joseph. I’ll be your emcee for this evening. And I’d like to say a very, very warm welcome to esteemed economist gene Tunny. He is here with us tonight. He’s the Director of Adult economics, and a 1997 CIS liberty and society alumnus. He is a former Australian Treasury official, and has worked on a range of domestic and international consulting projects. So we’re very lucky to have someone with such expertise. Joining us tonight to answer some of our questions about economics. So I guess to start off with Jean, could you maybe tell us a little bit more about yourself about the work you’ve done and how you maybe came to work in consulting?

Gene Tunny  03:50

Yeah, so I’m an economist, done a broad range of things are taught at this university in the past. So in this very room, subjects such as cost benefit analysis, there’s probably macroeconomic policy that I taught in 2015 in this room here. So I’ve got a background in macro policy budget policy when I was in the Treasury in Canberra, so worked on a lot of issues there, industry policy issues to do with the car industry, the budget debt, so we had to borrow a lot of money again, during the financial crisis. So I was heavily involved in that. And yeah, around probably around 2009, I started thinking I’d be good to for a bit of a change. And a friend of mine, Tony, Hans, was heading Mars and Jacob up here, the consulting office, and he was doing a lot of good stuff, cost benefit studies of all the new water infrastructure we needed because we’re in a drought. And I thought I’d be great to come back to Queensland I think it might have been a wedding that was up at nursery or went up to a wedding, a friend’s wedding. And you know how magical nurseries and the reception was at sales and a probably had a couple of glasses of champagne and thought, what on earth? Why would I want to go back to Canberra when you’re on the beach here and beautiful? That was partly why I wanted to come, I came back. So I worked here at uni, I worked in state government, as a public servant do different analytical roles, workers compensation, industrial relations, then treasury. And since 2009, I’ve been doing consulting since 2014, my own firm and yeah, work for a huge different range of clients, agribusiness companies, some government agencies, industry bodies, major corporations, ANZ Bank, for example, say all sorts of clients,

Joe  05:39

you know, you said in, you know, you were thinking of wanting for a bit of a change up coming back up here and working in consulting what, because for us, consulting and public service are too so the main employment pathways, could you maybe give us some sort of insights into the differences between the two, the, you know, the positive sides of both, and perhaps some, some negative sides or things you didn’t like, as much from either?

Gene Tunny  06:06

Yeah, so the public service is a good training grounds, and there are a lot of a lot of opportunities. They look up to you. So I think if you’re beginning in particular, you’re studying PPE, places like treasury, productivity commission, Reserve Bank, de fat, foreign affairs, and trade, I think they’re excellent places to go to learn about the issues and potentially get training opportunities or international postings that they can be really great opportunities. And public sector. Yeah, it’s different. I mean, the different The obvious difference is that, in one, there’s a mission that set by the government of the day and there’s a, you know, there’s a bureaucratic national, you’ve got to achieve some tasks. So that could be improving the health of the population, running the health system, or the education system, educating people, or could be Treasury where it’s this broad concept of well being, and you’re overseeing a whole range of agencies, you got to make sure that the budget is in good shape. So that’s, that’s a bit more of a, like, every agency has got a different mission. And that’s, that’s what determines that. In the private sector. It’s about profit. So profit. I mean, that’s, that’s what Yep, you need to make money to be able to keep the operation going. So there’s a clear goal, and that ends up driving a lot of things and forcing efficiency. So when I think one of the challenges in the public sector is because you don’t have that, there’s not that focus on profit, things can become a little bit inefficient. Yeah, there’s not the same sort of laser focus on, on doing things efficiently. And going after profitable opportunities. Your mission is set by politicians. And that can be problematic, because sometimes they can change their mind. Sometimes the politicians, I mean, maybe some of the things that they that they’re aiming for aren’t necessarily sensible. But yeah, as a public servant, you do have to try and achieve the objectives of the government of the day. To me, those would be the major differences. But if you want to explore that any more feel free either. Because because I’m not sure about answer that question very well. But that’s just what occurred to me. And with the private sector, I mean, you’ve got like, I work for a whole range of clients. And it can be a different project, like one day, it can be looking at lb farms. So there’s a client of mine, who’s built a big lb farm out at Dundee windy, and he’s trying to extract Omega three rich oil from the the algae. So now he can make some money out of that. And so I’ve helped him get a grant from the state government to do the r&d. And that’s fascinating. But then another day, I might be looking at parcels and issues to do with freight transport. So there are a whole range of things that you study, whereas if you’re in a public service agency, one of the risks is you could what you want to avoid is staying in the one spot and just doing the day to day because there is a lot of day to day responding to emails or letters from the public and writing Minister replies writing speeches, writing question time briefs, you want to get into an area where you you’re not. You’re not doing that day to day public service stuff, but there are a lot of good places like treasuries, terrific. Reserve Bank, doing rigorous analysis trying to inform the monetary policy decision that that’d be a great place. Yeah.

Joe  09:32

Super interesting. Yeah. I mean, I would never have even sort of imagined that consulting firm would be working out in Gander windy.

Gene Tunny  09:40

Oh, well, I mean, I mean, in Queensland, Australia is huge in agriculture, okay. And you’d be blown away if you if you go out there and just see how advanced a lot of these operations are. Here. There’s a lot of work for consultants. I mean, economists are probably I mean, we would have only a very small part of the work I mean, this has worked for Engineers is work for agronomist experts in agriculture. Yeah, there’s all sorts of all sorts of work and in a lot of things are automated. Yeah, they’re increasingly used. I think they’re even using AI now to work out, you know, optimal irrigation and optimal spraying of pesticides and things like that. Yeah, right. Yeah.

Joe  10:21

Very cool. That’s a good point. I think that you said that, you know, economist consultants would be doing a small part of it. And I guess, for your firm, or just for consultants, in general, as you say that the jump between lots of very different projects from different clients? How do you sort of go about preparing for a new client or, you know, perhaps in an area that is not necessarily somebody that you’ve worked before, but still have to deliver services or help your your client in some way? Well, you’ve

Gene Tunny  10:54

got to be a quick study, you have to get across the issues as best you can. And it’s like, if you’re doing an assignment at uni, you want to start early, you want to get all the resources, do the reading, learn as much as you can ask questions. So I mean, when you’re doing consulting projects, the the client is they’re motivated to help you to assist and to provide all the information they can see, it’s about being a detective or a journalist, and asking questions, to get all the information you need. But you do have to be a quick study. Ultimately, the, the Principles of Economics are the same. And I guess you learn a process of gathering the information, you sort of get an idea of what they might have on hand, what you might, sometimes you might need someone else to help out, you might need an engineer to come in and, and help work out how to solve a particular problem like in, in on their farm or in their factory, and they might have an estimate of what that will cost. You might need an architect or a quantity surveyor to do lifecycle cost estimates for a building that you’re doing a cost benefit analysis on. So there are the experts that you might have to bring in. But yeah, you need to have a, you need to plan you need to think think with the end in mind, begin with the end in mind, which is one of the seven habits that Stephen Covey talks about, it’s so true, you got to think about what’s the ultimate thing I need? And where am I now? What needs to happen to get there, you got to figure out the most efficient route to get there. So a lot of problem solving.

Joe  12:26

Yeah. And that’s, I think, a really big, exciting thing about economics and about, like studying policy and things like that is that a lot of it is problem solving? Would you have any advice for any students studying economics, or PPE, or any sort of related discipline in sort of getting into the consulting world, post

Gene Tunny  12:46

graduation, I mean, I wouldn’t get into consulting unless you are super passionate about it. Or, I mean, there are some good places that are working to death. I mean, if you get a, if you get a really good GPA, I don’t know what you need to get now that if you can get into some or like McKinsey, or BCG or aubaine, they’re really good training grounds for getting into C suite or, or getting into a, you know, really top job. So I think if you if you could get into one of those coming out as a grad, that’d be great. Other places where signing, you’re probably better off going, you want somewhere that will give you I mean, it sounds silly. It sounds terrible. What’s the word I’m trying to think of the word, but you want something that looks good on your CV, right. And so you want something that is recognisable, and that’s why Treasury or productivity commission or RBA works so well. So I’d be applying for somewhere like that and get good training and, and learn how to and what’s good about those biases is that they have high standards, and they teach you how to write well and communicate. And I think that’s very important. And they can also give you international opportunities. So one of the things that I that blew me away when I went into treasury was just all the international opportunities there. You work on issues with OECD or G 20, or IMF, World Bank, and Treasury people get postings all over the place. Beijing, Tokyo, London, Jakarta, Washington, DC. So that’s, yeah, that’s, that’s a good way to get a national experience and D fat too, of course. But that’s what I’d be doing. I’d be trying to get into, you know, as you probably all know, this, you got to work hard, study hard, try and do extracurricular things that will impress people have a reasonably good interview performance. And yeah, that’s, that’s all I can recommend is just work hard. You’re probably doing all that already.

Joe  14:39

Some of us maybe not awesome. Thanks for the advice. Like it’s really helpful, especially from someone who’s working in the industry. Yeah.

Gene Tunny  14:49

I mean, why I’d say that I mean, I mean, I enjoy consulting but I always see it as something that I’ve sort of fallen into. I mean, it’s good for me because it allows me to do a lot of interesting things and work with different people. And you know, potentially develop a business and grow the business. So what you ultimately want to do is specialise create products. So that’s the path I’m on now. So you probably don’t want to be doing lots of different things. I mean, I’ve been opportunistic, I’ve been trying to, you know, get the contracts in. And to do that I need to work on a lot of different things. Because partly, it’s because I’ve got a wide range of experience. So I’ve dabbled in different areas, and I can do those for a wide range of things. But ultimately, I’d like to sort of niche down and develop products that, that provide that recurrent revenue, that’s what you ultimately want, I think. And I think consulting can be difficult when you’re at the beginning, I wouldn’t say the bottom. But you know, the Finder mind their grinder model? Have you heard of that? But they talk about it, like Deloitte and PwC. The big four? Well, the finders, the partners, they’re the ones who have the connections, they’ll have, they’ll know the CEOs, they’ll go cycling with him, or they’ll play golf with them. And the CEO will ring them up, and can you do this analysis for us? Can you crunch the numbers for us on this project, and then there’ll be no partner or go, Okay, that’s great. Well brought that in the Finder, they don’t want to do the work, they just want to go to the, you know, the soirees, they just want to do the networking, and bringing the projects ever mind who’s a senior person, and not necessarily that senior, just there a few years or five, five or 10 years, they’re the managers. And so they’ll manage the projects being done. And the people who are doing the projects are the grinders. And today, the analysts, and that’s where the grades come in. And they could just work ridiculous hours. And partly because it’s a tournament because everyone wants to get up to the next level and prove themselves. And to get into one of those firms, you have to be really good generally. And so you’ve got young, ambitious people, they’re all competing against each other. But it can be very difficult that people work ridiculous hours. So that’s why I wouldn’t necessarily recommend consulting to start off with you better coming in later on when you’ve got some experience. So you can come in as a manager, or you could come in or you can do freelance on your own or set up your own business. I think it’s much more enjoyable then.

Joe  17:16

And then you get to work on your golf skills as well.

Gene Tunny  17:20

Yeah, although cycling, I know, golf used to be the big thing. I think it’s more cycling now. Yeah, yeah.

Joe  17:27

Awesome. Well, I guess speaking about the Big Four, as someone who’s working in the consultancy industry at the moment, what’s your take on the ongoing scandals that have been happening involving PWC and other consulting firms at the moment? Do you think this may be raises questions or concerns about the efficacy of outsourcing public policy?

Gene Tunny  17:50

Oh, look, I think there’s always been concerns about the efficacy of outsourcing. And if you look at the history of contracting out, I forget which fleet it was, but was it the Third Fleet, there was one of some of the convicts ships are all put out to tender right by the by HM Treasury, or the Admiralty in in the UK, and the Admiralty or the the Treasury they want, they want the most people to get out, they want people to come to Australia, they don’t want to people to die on the ship. Right? They actually want people to survive the voyage. But the ship owners, the ones who are who when the contract, they want to fulfil the contract to just to the letter so they can get the payment from the Treasury. But they don’t really care much about the people who were the people survive unless you make that explicit in the contract. So and there was a scandal with one of the convict ships, if I remember correctly, I can look it up, and we can put it in the show notes. So yeah, there’s always been issues with government contracting, there’s always been concerns. And so I’m a great believer in outsourcing, because I think it does save money. But you’ve got to do it for specific things for specific jobs that you can keep a close eye on and where you trust the people to deliver those jobs. So I think the problem with PwC is you have too much trust was placed in people that they shouldn’t replace that trustee and given the incentives on their end their ability to make money out of it. Right. And so the, arguably the people in the government should have seen that as a risk and pay closer attention to it. At the same time, what the partners in PwC did, what they allegedly did for the lawyers appears unethical. And you know, just just terrible. I mean, I’d like to think that if I was in the same situation, I wouldn’t do the same thing because I’ve been on the I’ve been on the other side of that in the treasury, in government. And I know just, yeah, there are opportunities all the time to profit off information that the government has, and I don’t know if you’re aware There’s an insider trading scandal with the lad who was working in ABS and he had a maid in Melbourne, and he was leaking the inflation data to him. So yeah, you’ve guessed that’s the problem in the public sector, you’ve got to there’s what I’m trying to say is there’s information in the public sector has is valuable. If you’re giving outsiders access to that, you’re going to make sure that there’s controls on it, you keep an eye on it, at the same time, what the PwC partners allegedly did was unethical, really bad form. Will it stop outsourcing? No, because there’s a lot of benefits to it. There’s a lot of expertise out there, that people who can help government from time to time they’ll take on things that are really big, and they need the outside advice and the outside labour outside assistance. So I think we’ll still need it. But there are lessons. And but that’s outside, as I was saying those lessons, we’ve been learning them for 200 years, and we keep forgetting them.

Joe  20:56

Do you think I remember reading a few months ago, there was quite a bit of talk about this new in house consulting section of the Department of Premier Prime Minister and Cabinet that they were bringing in? Do you think that that might be sort of a potential solution to that sort of issue, or

Gene Tunny  21:14

I think it will, it’s worth trying, I just don’t know how well it will perform partly because of the role of the profit motive in motivating consultants. So consultants to get jobs done, because they know that if they don’t get the job done, the client won’t pay the money. And then that looks bad for them. And if they’re, if they’re the actual proprietor or if their partner, then their compensation is gonna directly depend on that. And even if they’re, they’re an employee, then that can affect their progression, or they could even get the sack if they really stuffed something up super badly. There’s a lot of incentive to get the job done and get it done efficiently work weekends work long hours. I mean, there are some times I’ve stayed up till God, yeah, I’ve done at least one or two all nighters. Some people will do multiple all nighters to get jobs done, but you will really push yourself. Is there the same incentive? And in that government body? I don’t know. And, and I don’t know to what extent they’re going to be constrained by the the APS pay structure, and to what extent bonuses can be paid. So I think that’ll be the test of that. Look, it’s worth trying out. Yeah, I’m a bit sceptical about whether it’ll work or not. Yeah, that you got to make sure you get the best people in there. And if I was in government, I’m not sure I’d want to go to that team. I’d probably rather be in PMC or Treasury if I was federal, yeah, yeah. Yeah. So the idea that it was in PMS? Yes. I think it’s supposed to be a subsection of, of the PMC, portfolio or whatever. But yeah, you’d want to, I’d be concerned, if I was in the public service, I’d want to be in one of the core areas where I was working on the really juicy policy issues. And yeah, where you got the potential to advise the ministers, often directly, some will sometimes directly up at Parliament House, that’s that they’re the really interesting things to do. Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  23:16

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Gene Tunny  23:46

Now back to the show.

Joe  23:51

I guess another sort of perspective that I was thinking about is having independent public institutions like the Productivity Commission, for example, or the RBA, that you mentioned before, that are not necessarily beholden to a particular department, but still part of the public service. How do you see the role for those sorts of institutions evolving?

Gene Tunny  24:15

Yeah, I think they’re terrific. I think that’s, that’s a good idea. I think the PC has done a lot of good stuff. But we’ll have to see how it goes under the new commission head. So Danielle wood, who’s an old friend of mine, we’ll see how it goes. And I think she should be she should be great. She might have a different focus, she might be more focused on social policy issues than than some of the previous Productivity Commission heads. But yeah, I think Productivity Commission is a great idea a lot depends on the terms of reference. It’s given by the government though. So it can be it can be effective if the government uses it right. But a lot depends on what the government gets us to do. Yeah. The other one that’s interesting is the parliamentary Budget Office, which is really good. So I’m not too familiar with that. So that’s That’s in, that’s based in the parliament itself on the hill, rather than in a public service agency. And what it is, is it’s an independent costing agency, and it estimates the cost of policies. So if you’re from the opposition or the grains, or your tail, you can go to the parliamentary budget office and say, Hey, I’ve got this policy idea. Can you produce a costing for us and tell us, you know, what, what do you think this would cost? And so that, that provides a service to the whole parliament. And it provides a service to the public, because we’re not just relying upon the Treasury, which works for the government of the day. And potentially, I mean, I’d like to think they wouldn’t be influenced by the government the day but there’s that perception that maybe they’re not independent? Well, they’d certainly not independent, but maybe they’re not. Yeah, there’s a perception that they could be influenced to extent by the government. So therefore, it is good to have something like parliamentary budget office. And it’s really, it’d be a really good place to work. They’ve got an amazing data set, they’ve got a 20% extract of the ATO is taxation data, right. So all data on all the taxpayers out there, the the PBO has got a 20% extract of that, and that helps them work out, you know, the impacts of policies is pretty impressive.

Joe  26:25

Yeah, very interesting. I’m surprised that it doesn’t come up more as sort of a, an option.

Gene Tunny  26:30

Yeah, it’s either that I think it’s a textbook tax, the tax database, or the census that’s linked to the tax database, I’ll have to, might look that up as well. But it’s impressive data set that they’ve got. And that enables them to do really detailed, precise estimates of the cost of policies, because there’s policy at the Commonwealth level is so complex, because of all of the rules around social security payments, superannuation and taxation. It’s everything so complicated. And so therefore, you need really fine, detailed data to be able to cause some of these policies.

Joe  27:06

Yes. super interesting. And I guess really, like sort of a dream for an economist or quantitative economist to have access to all that data? Yeah, yeah. Well, I

Gene Tunny  27:15

guess I mean, that’s one of the things that’s really changed. And just the the amount of data that is available now. All these big longitudinal or panel data sets, blade, the business longitudinal data set Hildur, household incomes, Labour dynamics, Australia. And you can do all really neat statistical methods with them lots of good econometrics. So if you’re into econometrics, and yet see if you can get somewhere like PbO, or there are some think tanks that are really good like Grattan Institute, or II 61, you would have heard of those places. So yeah, I’d, I’d highly recommend either of those. II 61, the research director, there is an old UK boy, Dan Andrews, who worked at Treasury OECD, he’s good value,

Joe  28:00

no relation to the Victorian

Gene Tunny  28:06

though he’s not a dictator, that’s a good guy. Wasn’t a political COVID.

Joe  28:20

Also, thank you for that sort of tour of the landscape of policy and consulting that was super interesting and hopefully informative for all of us going out there into the world. Moving sort of to another topic, I guess, there’s been obviously over the last year or so inflation has been one of the main policy points or issues, pretty much any sort of discussion about the economy is related to inflation. And a lot of there’s been a lot of media coverage talking about wage growth, particularly over the last six months and and how that might be contributing to inflation or might potentially contribute to inflation. So we have a question here asking, is it misleading for the media to highlight wage growth as a contributor to inflation? Given that, in Australia, we are experiencing negative real wage growth at the moment?

Gene Tunny  29:18

I don’t know to what extent the media has been blaming wages, I mean, that what we’ve seen is that the central banks that reserve bank is concerned about this concept of a wage price spiral that if wages take off, then that’ll feed into prices, and that’ll force up wages again. Now, we haven’t really seen that yet. Okay, so look, some of those concerns may be misplaced. There’s a bit of a debate about that. At the moment. The Australia Institute’s got a lot of press, arguing that it’s all because of greedy corporations. This greed inflation. I’m a bit sceptical of that I’m not sure whether to what extent corporations are any more greedy than they were previously and whether the markets more concentrated than it has been in the past. So I’m sceptical about about that story too. But essentially, we had, it’s the classic story of too much money chasing too few goods, right? We had this big COVID stimulus, additional hundreds of billions of dollars more in bank accounts, and, therefore, extra money, not enough supply prices a bit up the whole wage price spiral thing that central banks have been worried about. Yeah, that that actually hasn’t happened. So maybe you could say it’s misleading, but I’m not sure that’s been I think that’s been what some of the economists and central bank governors have been talking about. I don’t know, to what extent the media have been blaming them or talking about that. I think, if anything, it’s that great inflation story that that’s been dominant. Yeah, I think there’s problems with that, too. I mean, essentially, it’s just prices have been rising, because there’s been a lot more money, and there’s been the shortages and your businesses have, yeah, they’ve put up their prices. And that’s helped them, you know, that’s encouraged them to expand, supply where they can. Yeah,

Joe  31:08

I agree that it definitely has sort of picked up pace in the media over the last few months, this idea of, and often you see it linked to earnings calls or record profit margins. Oh, yeah. Do you think that profit margins should sort of receive more scrutiny from economists as a sort of concept, especially when we’re thinking about inflation?

Gene Tunny  31:32

Well, I guess, what you’re seeing is you’re seeing a correlation, right? Because we’ve had, we did have a very, very strong rebound, after the pandemic, okay, when we came out of lockdown. And so you’re going to expect high profits, okay, because the economy was really performing strong, it’s slowing down. Now, as we all know, and we’ve got this per capita recession that they’re talking about. So yeah, it was natural that profits would increase, because we had such strong economic conditions, that’s just the business cycle. And at the same time, we had inflation because we had all of this extra money chasing only so many goods that could be produced profits, I mean, we do want companies to be profitable, I think you should be looking at what’s causing the profits, if there is market power, or if there is concentration, if they’re abusing it, then we should be looking at that. And that’s what the a triple sees. Therefore, now you could argue that may be the a triple C isn’t as effective as it should be the a triple C’s, it’s looked at groceries in the past, it’s looked at all sorts of sectors in the past, and now we’ve got a competition policy review. And I think it’s looking at the airlines, that’s where we should get. So maybe there is a case for there’s possibly some restriction of competition, or in the airline sector, maybe weak that could be more competitive, it’s a lot better than it used to be when it was super regulated back in the 80s. And it was really expensive to fly around. But no one be jetting around to different cities, it was a certain it was very expensive. It’s because we deregulated it back in the 80s. And we allowed in a lot more competition. Now, this is why this whole issue of the Qatar decision not letting them in on those international routes. That’s why that’s become so politically difficult for this government, because that was something that could have helped reduce the cost of flights, particularly to Europe. And so so you could argue cornices was getting some protection from the government. And so we shouldn’t be thinking about what are their barriers? Are there? Is there a problem with an issue with the market structure? Is there too much oligopoly or monopolistic power? And are there levers that the government can can use to stop that? In cases where it’s where they’re clearly doing something anti competitive? Can we prosecute them under the age of the consumer and competition policy? I can remember the exact name off the top of my head. But yeah, we should. It’s definitely something we should be concerned about. And it is something that, that economists do study. Yeah.

Joe  33:59

Awesome. Thank you for that. Yeah. I mean, as a personal anecdote, I remember I wanted to catch a flight to Europe a little while ago, and I had to go fly with cuantas to first before I could even get a Qatar flight and it was so much better, that I’m going from Perth, Qatar Airways. I will. I think they’re really good. So yeah, it was an interesting decision. We’ve got another question here. Again, sort of taking another step. Russ Roberts, who is the host of econ talk a podcast. He refers to economics as an imperialistic discipline. This idea that, you know, being like, you know, economists often try to apply economics and economic thinking too broadly, to domains where the assumptions may no longer hold and its utility is questionable. I guess, someone that might come to mind is someone like Gary Becker, you know, bringing the idea of economics and supply and demand to the family and areas that typically it hadn’t been applied to before. And for you personally, what do you think the limits are of economics as a discipline? And are there things that economics can’t explain? And we might need other sort of perspectives to understand?

Gene Tunny  35:15

I think certainly, I mean, even economics requires other perspectives. So I think economics is an incredibly powerful tool. And, you know, it’s a science of the economy and studying the economy there. There’s some core economics, you need to know, where it gets difficult is trying to predict behaviour and, and in in cases where people don’t act fully rationally. And that’s what you need to bring the psychology and right. So I think any idea that a court economics is the imperialist discipline, and we’ve got all the answers, I think, that was destroyed by the financial crisis. I mean, maybe up until 2008, people could have believed that. But after 2008, I think there was a recognition that, okay, we haven’t really solved the business cycle, we thought we’ve solved the business cycle as this Great Moderation. markets aren’t always rational, you can’t, there are periods of irrationality in economics is not going to help you there. That’s where you need psychology to bring psychology. And that’s why behavioural economics is trying to bring in psychology with economics. So yeah, I think there are clearly limits to economics. And one of the one of the important limits or considerations, is that economics to the extent Well, if it’s, you could say it’s a science or it’s a study a field of study, it can answer questions of fact, or we can make predictions. Or we could argue, analyse what might be the most efficient course of action from a the perspective of consumers consumer welfare, from economic welfare, broadly construed. What we can’t necessarily answer is what’s the best thing to do for society? Because then you’ve got ethical issues, value judgments, how do we look if something is affecting the environment, for example, and that affects future generations? How do we, how do we analyse that, that those can be difficult issues? Or how do we make choices regarding health policy measures? So it’s not always they’re not always issues where economic considerations are the final determinant, you may need to bring in value judgments? Yeah, the whole distinction that thing was David Hume between isn’t board? Yeah, yeah. Yeah. Yeah. Could

Joe  37:34

all Hume who I guess himself was sort of an economist when he talked about Yeah, money and things like that? Yeah. Well,

Gene Tunny  37:42

anyway, he wrote a famous essay on the gold standard on price, the seaflo mechanism? I think it was, yeah, yeah. I

Joe  37:50

think the argument was that, yeah, it doesn’t matter if you if you have the money supply, and prices have as well, like, every, the welfare of everyone is the same, essentially, I think I only remember that because Polanyi then talked about it. Yeah. He was a pride our economist. Yeah, for sure. Yeah. So that’s all the pre prepared questions that we’ve got. I’m gonna go over to the lectern mic, and then we’ll be handing the handheld around to the members of the audience, if they want to ask gene any questions.


Just going back, I guess, to your discussion about public and private. And I guess, us as university students entering into the workforce, I just wrote a question down. So as university students, we are involved in Dubai, developing a variety of skills that, I guess were not explicitly taught in university, but that we hope to apply when we get into the workforce, from your experience, or what schools have surprised you from the recent generation of you know, incoming university graduates, and what do you think, you know, is missing from you know, they’re the skills that they’ve developed that they might not have been taught explicitly? Throughout University?

Gene Tunny  39:00

Okay. What’s most surprised me is just how savvy or how brilliant uni students are at producing PowerPoints, like slide deck, Oculus nowadays, we’re all competing in these case study competitions. I’ve been blown away. So yeah, that’s really impressive. Otherwise, yeah, just, I guess maybe I’ve been lucky. But yeah, I found the slide decks. The students type employed generally have good presentation skills, very good at research, good at getting across data and information. I think the skills you need to learn, like everyone needs to learn them, it’s it’s about writing as clearly as you can. Being proactive. It’s hard once you get out of uni because uni, you’ve got the targets to hit, you know, when the you’ve got to lodge your, your papers or when the exam is on, you got to turn up to it. It’s more structured work can be a bit unstructured at times. And so you got to, you’ve got to learn how to manage yourself, manage others get others to help you out a lot of those interpersonal skills, it’s just about building those up, you’ve probably been developed in developing them here at UNI. Anyway, that’s what I, I’d say, the I’ve been really impressed with UQ students in particular.


G’day, Gene, thanks for the talk. And for your time, I just want to go back to, again, back when you were talking about the distinctions between working in public and private sectors you mentioned as a downside, or a potential downside of working in the public sector was perhaps changing ministries disagreement with, I guess, the government of the day and, you know, a general sense of inefficiency about projects that you’re doing as a possibility. Did you find that your experience in the private sector was a bit more alleviated of those concerns? Or did you also have times where you disagreed with the direction of your projects,

Gene Tunny  40:54

I guess, you’ve got choices in the private sector. So you could actually refuse to do a job. But then you want to try and do a job if you can, if the client is going to pay you, that you have so many clients, you can move on and you can you can sack clients in a way and go okay, I’m not working with you again, if there if, if you didn’t enjoy it, or if it was just hard work. So that’s, that’s what I was getting out there. Whereas with, with government, if the government’s in for several years, and like, I think you’ve got to work for the government of the day, this isn’t a matter of politics. I’ve worked for both labour and coalition governments. And, and I don’t think the quality of the work, I actually think it’s more related to the people in charge at top, I think it relates a lot to their personal characteristics rather than their politics. So I don’t think there’s any correlation between the political strife of government and how good it is to work for, but yeah, you’ve got to be you’ve got to be flexible and realise, I mean, some people enjoy it. I can be challenging. Yes, Minister might be too old. But there was a show for two years, you know, yes, Minister, from the 70s and 80s with Nigel Hawthorne, and, and Jim Hakka. Do you remember he played Chewbacca, too? Anyway, it was a great show. But there’s a line in it where Bernard who was the principal Private Secretary to the Minister was talking to Humphrey says, I don’t understand why the minister wants to do this. How do we how do you cope with all of these changes in in policy direction and sound free says look, if I actually cared about what the policy direction the government was, I’d be stark raving mad because one minute, I’d be pro nationalism, nationalising steel, I’d be then Pro D nationalising steel, and then I’d be pro renationalising steel, because those things change. You’ve got to be flexible in government, that maybe that’s not for everyone. And politicians, I think can be difficult too. Because, you know, working for the government is can be challenging, because there’s a lot of media, there’s a lot of light on the government, and there are a lot of crises. And you can be called in at odd hours, particularly, like, the craziest time in Australian politics in the last 20 years was the Rudd Government. And I mean, it was just completely different from the previous government. But you know, a lot to his credit. I mean, Kevin Rudd wanted to do things, he he saw urgency, he had a great sense of urgency, he was an incredible hard worker himself. But that meant that there were requests coming in at odd hours, he’d he’d be flying back from a meeting a DC, he’d be there for the first time g 20. Meeting, and then he is playing with land in Hawaii. And then we get a call that the wants a paper on. So it’s such it’s such an issue by the time he lands in, in Canberra. And so this is might be on a Sunday or something. So it can be a bit crazy. But that’s what you get, if you want to be in that sort of environment, because there’s that political aspect to working in government. Some people really enjoy that they thrive on it. Others find that find it difficult. So yeah, that’s just Yeah, who knows? I mean, my experience could be a bit idiosyncratic. So that’s one thing to bear in mind to


sort of on that with the PwC scandal, they ended up selling all of their public sector work company, do you there’s been talk about whether all the big four companies are gonna end up having to do that. Do you think that that will happen and also just sort of see that as a good path forward

Gene Tunny  44:27

in terms of preventing corruption or in front of the think? Yeah, I think I mean, PwC has been forced to do it. The other firms, I think, would rather not do it. I’m trying to remember if v y looked at it and try remember where EY was trying to split its audit from its the rest of its business. And I don’t think it went ahead. I’ll have to look at the details of that. There are probably other ways to stop that, that conflict. I don’t know if that’s going to happen with the other firms, or not close enough to the people in those firms too. Uh, to make that judgement, but yeah, I don’t know to what extent it would look, if you got a job at one of those big four firms, then, you know, that’s, that’s going to be good, it’ll be good experience, even still at PwC is probably still good experience, despite the scandal, they’ll bounce back, they’ve got so many connections, they had a good reputation for a while, I’m sure they’ll be able to turn around eventually. Now, I’d have to wonder, like, as if you want to do consulting work, I’m not sure whether you’d want to go to a company just focused on public sector work. Because then why not just go into the public sector itself, if you like, if public sector is your thing, I’d go into government itself, because one of the things with consulting, I enjoy it, because I actually get to do a wide variety of things. I found personally, I found government difficult because I’m reasonably opinionated. And like, I wasn’t the Sir Humphrey cat character who could been just changed, not not care about the political, you know, the actual policy direction or, yeah, I thought I’d find that very difficult to do. So I actually quite enjoy being on my own or having freedom to, to write to comment. Whereas you can’t do that in government, you can’t say anything critical of the government. It’s difficult. There are advantages, because you can then get involved in, you know, in the policymaking and the decision making. You can work with the minister’s office, even the ministers. But if that’s what you want to do, you’re more likely to get that to do that in the public service, than if you did a public sector, in a public sector consulting organisation that consults to the to the government just depends on what you’re after.


This is kind of flowing on from that question a bit. Do you see any other consequences coming out of the PwC? Scandal? And I guess now, the KPMG scandal with defence contracts, I think, that kind of flow onto other consulting firms outside of the big fall? Or do you think that I guess, kind of trust in interpersonal relationships that might already exist? Kind of, I guess, being more important than that? Maybe?

Gene Tunny  47:09

Yeah, I think government public servants will be more conscious of the risks. And it may be harder as a consultant to work for, to work for government clients, because they may not automatically trust you. It may be harder to get access to information, you may have to sign more documents. It can be difficult, it’s difficult already working for the government agency. So projects I’ve done, Nicholas grown and I and another colleague did a job for services in Australia recently, looking at my gov and looking at the the investment in that and the benefits of of improving the Margao functionality. And I mean, we had to sign all’s we had to sign those documents that said we wouldn’t share this information. Of course, we wouldn’t. And you know, then PwC, they I think they probably their person who allegedly breached the trust signed documents to and they should have, they should have taken it seriously. And it looks like they didn’t. But what Services Australia did was they wouldn’t let us take documents away. We could only see some documents physically, in a Services Australia offers, because they’re highly confidential information relevant to the budget process. So they had the right controls in place. I think you’ll see more of that there. There’ll be less trusting. I think they’ll still be consulting opportunities. I think I think that they need the expertise from outside so much. They’re not going to cut back on that. But it’ll be more difficult. There’ll be more constraints in terms of access to information, they won’t automatically trust you. But I think they’ll still be, they’ll still be jobs that consolidate if you want to do that. Yeah.

Joe  48:44

Awesome. Well, if there’s no more questions, we just want to say thank you so much gene for coming along. And we’d like to offer you this gift. This is the statecraft which is our PPE society, student magazine. So lots of different articles from all sorts of students. Yeah, so thank you so much for coming and sharing your knowledge with us. It’s been really great and really appreciate you and hope to see you again in the future.

Gene Tunny  49:15

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Growth or Degrowth? w/ Oliver Hartwich, NZ Initiative – EP208

Show host Gene Tunny delves into the concept of Degrowth: the idea of deliberately shrinking economies to avoid the runaway climate change, ecological collapse, and societal breakdown that degrowth proponents are worried about. Gene first discusses degrowth with Oliver Hartwich from the New Zealand Initiative, and then responds to questions about degrowth at a recent University of Queensland Politics, Philosophy, and Economics student event. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About this episode’s guest: Dr Oliver Hartwich, NZ Initiative

Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative. Before joining the Initiative, he was a Research Fellow at the Centre for Independent Studies in Sydney, the Chief Economist at Policy Exchange in London, and an advisor in the UK House of Lords. Oliver holds a Master’s degree in Economics and Business administration and a PhD in Law from Bochum University in Germany.

What’s covered in EP208

  • [00:04:39] Degrowth to stop climate change? 
  • [00:08:00] Economic growth and adaptation to climate change? 
  • [00:11:53] How a threatened lungfish colony stopped a new dam in South East Queensland. 
  • [00:15:47] Are we rich enough already? 
  • [00:20:20] Democratization of wealth and prosperity. 
  • [00:24:05] Economic growth as a positive. 
  • [00:30:39] Carbon pricing. 
  • [00:34:10] Decreasing Antarctic sea ice extent.

Links relevant to the conversation

Gene’s September 2023 Centre for Independent Studies (CIS) paper on Degrowth:

NZ Initiative podcast from which part 1 of this episode was borrowed:

Transcript: Growth or Degrowth? w/ Oliver Hartwich, NZ Initiative – EP208

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Oliver Hartwich  00:03

William Stanley Jevons in the 1860s actually predicted the word would run out of coal. This is general tendency to do linear thinking where everything is always continuing on a certain path. I mean, there was a letter right I believe, in the London Times in the early 20th century, predicting that London at some stage would be under six feet of bossman year from all the offices in the city. It is this tendency to always think we’re just continuing on the same path and it will never change.

Gene Tunny  00:41

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information now on to the show. To grow or not to grow, or indeed to D grow. That is the question. Do we need to rapidly shrink our economies to avoid runaway climate change, ecological collapse and societal breakdown? This episode features on my recent conversations on degrowth I speak with Oliver Hartwich from the New Zealand initiative. And thanks to Oliver for letting me reuse the recording from the New Zealand initiative podcasts that are recorded with him. This episode also includes a response that I gave to a question from Joe Christiansen at a recent event hosted by the University of Queensland politics, philosophy and economics society. Okay, let’s get into the episode. I hope you enjoy it. After you Listen, please reach out and let me know your own views on whether we should pursue D growth or not.

Oliver Hartwich  02:07

Hello, and welcome to the New Zealand initiatives podcast. My name is Oliver Hartwich, and today we are joined by our special guests from Australia we have gene Tunny, who is an adjunct Fellow at the Centre for independent studies, and also a director of ADAPT economics consultancy in Brisbane. Welcome to the podcast Gene.

Gene Tunny  02:24

Hello, Oliver, pleasure to be here.

Oliver Hartwich  02:26

Great to have you with us because we want to talk about a paper you just published last week with a centre for independent studies called debunking degrowth. Now, I thought we should start this conversation by just admitting freely that we are both economists. So degrowth is something that doesn’t come naturally to us usually, because normal economic theory, correct me if I’m wrong is all about trying to find better ways of combining factors to do more with less or to do more with the same, to find different combinations to create growth, to really find out what works and make an economy grow. And now suddenly, we’ve got a bunch of scholars turning this on its head telling us to actually try to not create so much wealth and not create so much prosperity, but really put the reverse gear in and go in the other direction. Is that a fair summary of what this movement is about?

Gene Tunny  03:16

Yes. I mean, they certainly want us to go in the other direction. I mean, the two steel man, their argument, I think, how I describe it is that they think we’re breaching these planetary constraints. So they think that we’re at a level of consumption, whereby we are essentially, you know, we’re sacrificing the well being of our children or grandchildren. So they’re concerned that we’re, we’re going to destroy the planet, some of this degrowth literature is it’s apocalyptic. It’s, I mean, I think it’s catastrophizing. But you know, they, they’re worried about climate change. They’re worried about ecological breakdown. They’re worried about resources being exhausted. So yeah, look, I largely agree with you, but to to steal man their argument, they think there’s evidence to support the view that we’re consuming too much if we want to have you know, sustainable living standards for future generations.

Oliver Hartwich  04:18

Right. And in your paper, you then produce a reproduce their claims, and you’re debunking them one after the other. And you’ve got five claims in your paper. So I thought what we might do so much is go through the list, and try to figure out what this movement wants and your response towards so the first unproven claim you talk about in your paper is one that you already alluded to. We need to de grow to stop climate change. Why do they say that and why do you think this is wrong?

Gene Tunny  04:46

Oh, well, essentially they’re they think that we’re on these tipping points. I mean, you’d know that it appears that the planet is warming I mean, there’s scientific support for for co2 We were warming the atmosphere to an extent. So that’s difficult to contest. But they claim that they believe these real these tipping points sort of scenarios. Whereby, I mean, the permafrost melts. There’s all this methane release, you know, we have the, what is it one of those ocean currents that shuts down? And I mean, all sorts of apocalyptic scenarios. And I mean, just looking at it. I mean, I think that the evidence for that is, I mean, a lot of it comes out of computer modelling, there are all these computer simulations, whereby if you look at what they’re doing a lot of the conclusions, the apocalyptic conclusions are essentially assumed or built into the model. So I mean, my feeling is that the evidence isn’t, isn’t strong enough to justify that apocalyptic thinking. Sure, there’s some warming going on. But there are policy measures been introduced to try to address that, or, I mean, none of the credible modelling on climate change mitigation has degrowth. in it. I mean, we can still grow, we’ll still be wealthier in per capita terms. Maybe the growth rates less or more if we respond to climate change. I mean, now we’ve got people saying that if we don’t address climate change, we’ll have lower growth. So look, I think they’re making big claims about how we’re going to, you know, have this unsustainable runaway global warming if we don’t do something radical and massively cut back our consumption. So that’s essentially their argument. And I just don’t think the evidence supports that.

Oliver Hartwich  06:43

But of course beyond that, because we’ve already decoupled economic growth to a degree from emissions. Yeah. So just because you’re growing doesn’t mean you’re necessarily growing your emissions.

Gene Tunny  06:53

Yeah, yeah, exactly. And I think they’re ignoring a lot of the technological change. They’re, they’re ignoring our capacity for innovation. Yeah, that’s absolutely correct. So I guess not to not to necessarily defend them, but they do address that decoupling argument. And they do acknowledge that that, you know, the emissions intensity of GDP is declining. But in their view, I mean, we’re still increasing co2 emissions, or sorry, we’re still, you know, the co2 in the atmosphere is still growing. So they’re a bit sceptical of that whole decoupling argument.

Oliver Hartwich  07:31

There’s another aspect to the whole climate change debate. And that’s adaptation, of course. So I mean, if we’re comparing countries like the Netherlands and Bangladesh, Bangladesh is subject to flooding, but so is the Netherlands because they are mainly under normal sea levels. And yet, the Dutch build dikes and all sorts of infrastructure to deal with that, because they could afford it. And then Bangladesh, and they’re still waiting for that to happen. So actually, isn’t actually economic growth, the thing that saved the Netherlands from flooding

Gene Tunny  07:58

out? Yeah, look, that’s, that’s a good point. I mean, you wouldn’t want to de grow and stop emerging economies from getting wealthier, because that will decrease their capacity to actually adapt to deal with it. I absolutely agree with you there. And look, that’s one of the things that the degrowth movement misses in my view. I mean, there’s all of this, you know, it’s a lot of the standard sort of criticism of, of capitalism and, and economists that you get from people on the left, and yeah, I mean, it ignores the fact that I mean, since countries such as China and India embrace the market, right, China in the 80s, and things are paying and then we had the, the end of the licence, Raj and in India, I mean, they’ve they’ve had, you know, much better growth than previously and we’ve had over a billion people lifted out of poverty. So yeah, absolutely agree with you there, Oliver.

Oliver Hartwich  08:52

Okay, then let’s move on to your second unproven claim, we need to de grow to stop resource depletion, environmental degradation and biodiversity loss. That leads us straight into the debate around Julian Simon, or if we want to go back a little bit further. Thomas Malthus. Yeah, absolutely.

Gene Tunny  09:08

And I think history shows that I mean, we are able to address these issues. And a lot of the concerns came best addressed through the market through clear delineation of property rights. A lot of the problems we have in Brazil, for example, that there was a recent economist article I’ve mentioned in the, in the paper, which is essentially saying a lot of the problem with the rainforest, destruction of the rainforest is lawlessness, it’s bad enforcement. Right. And look, you know, there are efforts all around the world to, to conserve to the off the common Exactly, exactly. So it’s really just, yeah, they just seem to ignore that. You know, what economists know about the people who own a resource are going to, you know, protect it and conservator. So yeah, absolutely. And look, I mean, look, you have to acknowledge that there has been a loss of biodiversity over over decades. And I mean, I think we’re starting to address that we’re starting to arrest that decline. And certainly the so I’ve got a there’s some evidence there about the decline in biomass globally or number of animals. And, you know, that’s, that’s been arrested that decline, which, which is good. So look, I think, you know, it’s a lot of just negativity, and isn’t capitalism awful. Whereas, really, I mean, we can address these issues, they’re within our ability to control and look, just look what we’re doing in Australia. I mean, we’re a wealthy country. So we, and this goes to your point before all over that the wealthier countries are going to be better able to address these issues. I mean, we’ve got things like biodiversity offsets. Anytime you want to do a development that impacts the environment, you have to prove about how you manage those impacts. And we’ve even stopped, we stopped the dam in southeast Queensland, even though we need the water. Right, it’s good. We’ve got a hugely growing population. And we stopped a dam because we were concerned about a lungfish. So yeah, I mean, we are trying to address these issues. And I think, yeah, that that argument really doesn’t, doesn’t hold up. And the other point too, as you know, as an adopt a dam over length, yep. Travis didn’t dam. That sounds like an episode straight out of utopia. Well, it happened. It was Peter Garrett, who was environment minister here. So um, yeah, it was a huge issue, because we had a water crisis in the 2000s here in southeast Queensland. And so we built a desalination plant, which is hugely expensive. We built a recycled water plant. And then we were looking at a dam north of Brisbane in the Murray Valley, the travesty and dam and it got right to the point where the federal government had got to the federal approvals process and it was blocked by the environment minister, Peter Garrett, former lead singer of Midnight Oil. Yes, I have this man. He was the environment minister. It’s a burning blocked it because the lungfish was threatened. So yeah, apparently there was no way of, of looking after the lungfish if you built the dam. So yeah, that’s that’s just an example of how we do care about the environment in this country. It’s not as if we’re sacrificing the environment for growth.

Oliver Hartwich  12:31

The other idea of course, in all of us resource depletion seems to be one of these ideas that you simply cannot ever refute, keeps coming back. Going back to Morpheus, of course, that’s the starting point. But William Stanley Jevons in the 1860s actually predicted the world would run out of coal. It’s this general tendency to linear thinking where everything is always continuing on a certain path. I mean, there was a letter right, I believe, in the London Times in the early 20th century, predicting that London at some stage would be under six feet of horse manure from all the horses in the city, it is this tendency to always think we’re just continuing on the same path, and it will never change.

Gene Tunny  13:11

Yeah, exactly. So and the thing with the scarcity of resources, I mean, we know that as they do become scarcer, the price is going to increase. And that’s going to encourage conservation, or it’s going to encourage people to switch to two alternatives. So and you mentioned, you alluded to the Julian Simon Paul Ehrlich bet, which ended up losing because he thought we were in the 70s, they thought we were on a path to, you know, massive resource scarcity. And that

Oliver Hartwich  13:41

perhaps, just for the benefit of listeners who may not be aware of that, so can you tell us briefly what this bench was about?

Gene Tunny  13:49

It was about prices of commodities, they selected, maybe a couple of dozen commodities, major commodities. And Ehrlich was betting that that increase in price over the the 80s by a certain percentage, amount across extreme people would run. Exactly because there was all of that modelling in the world. Ehrlich was infamous for that population bomb book in the late 60s, which forecast that you know, would, you know, even with, like, what was it 888 billion people which where we are now we’d end up with, you know, massive famines and the chaos and all of this. And

Oliver Hartwich  14:27

then we’ve got the Club of Rome, of growth and all of our

Gene Tunny  14:30

forests and meadows, and there was all of this apocalyptic thinking, you know, Doomsday was at hand. So I think what I found interesting looking at this old degrowth literature, is a lot of the a lot of the concerns or a lot of their arguments could could be questioned or rebutted, if you go back to just what sensible people like Robert Solow and then the Treasury here in Australia, what they were saying in response to the club Right, right. Yeah. So

Oliver Hartwich  15:03

we make made a very similar point in one of our publications. A few years ago, we had a little booklet published under the title The Case for economic growth. And we were talking about environmental Kuznets curve, where, first of all, when the economy grows, yet there is an impact on the environment, and it might be negative. But once you get past a certain point, people will demand action and clean it all up. Yeah. And actually, it gets better over time.

Gene Tunny  15:26

Yeah. And that’s one of the points that I made in the paper. Yeah, absolutely.

Oliver Hartwich  15:31

Your third point, your third unproven claim is perhaps even more interesting. We are rich enough already? Well, it would be harder to make that claim in New Zealand, because we’re 25% behind Australia. What’s the thinking behind that?

Gene Tunny  15:47

Oh, well, they make the argument that if you look at happiness, Carl, you know, correlations of happiness and GDP per capita beyond a certain level, it starts to flatten out. And so the argument is that countries such as Australia, and I mean, maybe New Zealand doesn’t qualify yet, but we’re wealthy enough already got a way to go. It’s all about you know, it’s it’s an issue of inequality. So there’s this sort of argument that I look, the West is rich enough already. It’s if you concern about the rest of the world, and it’s, you should redistribute that income. And you know, the people in the West were the ones who, of course, we’ve caused all the problems with climate change, et cetera, it’s all our fault, imperialism, and all of that. And so that we should redistribute our income and wealth, the problem is, that’s only going to go so far. Right? It’s not going to solve the problem. And it’s not good for, you know, incentives. Right. It’s not good for it’s not sustainable. So it’s just a really bad argument, I think. And, and it also, I mean, when you look at it, this, this is going to require authoritarian measures to introduce because at the moment here in Australia, we’re going to cost a living crisis, right? So you’re not going to be able to tell people, and we’ve got no shortage of housing, you’re not gonna be able to tell people, you’re rich enough already. Because a lot of people who don’t know when I’m What are you talking about this nonsense? You’d have to engage in really authoritarian measures to bring about D growth. So yeah, I think it’s a really bad argument of the D growth people.

Oliver Hartwich  17:20

Exactly. Right. I think there is another point actually, that we should consider. Sometimes it’s not so much the absolute wealth that you hold. It’s the direction of travel. So I’ve actually seen some really happy people and countries that are not that rich yet, but they’re travelling in the right direction, whereas you can be in a richer country that’s kind of stagnating, declining, and feel really miserable about it. So actually, people want to have hope they want to see that the future is better. And then it almost doesn’t matter from which starting point you come in just the direction of travel that actually determines how happy you are.

Gene Tunny  17:51

Yeah, that’s a good point. I mean, the the example of a country that was rich and started declining, everyone was miserable. It’s probably Britain in the 1970s. So yeah, I think that’s a that’s a good point. Yeah.

Oliver Hartwich  18:03

unproven claim number four, we need to de grow to reduce inequality. What about well,

Gene Tunny  18:11

yep, I mean, I guess this is this is related to that previous point. So and this is part of their whole critique of capitalism that capitalism makes the rich richer and the poor, poor? And look, I think that’s a really silly argument. And there’s not a lot of evidence for that. And, and if you look at just the huge gains we’ve had in living standards in emerging countries, emerging economies over the last 30 years, since we’ve opened up to the market, and it’s just extraordinary, over a billion people taken out of out of poverty, there are a few stats that I use, or that the World Bank’s produce, which shows that I think, around 1990, it might have been 70% of the world was living on $6 us a day or something like that. So not the diarist poverty of $2 a day, but And now that’s under 50%. Right. So if you look at the numbers living on $2 a day, then you have, you know, a big decline there, too. So we’ve got huge gains, so that in relative terms the world is becoming more equal, but we are seeing in some countries that, you know, there is an increase in inequality, particularly in the United States. But I think you don’t want to then conclude that our the market systems terrible isn’t, because a look I mean, that’s associated with new technology. I mean, we’ve gone through a period of, of huge technological disruption and I mean, America, America is the leader in that and so therefore, the people who are responsible for that are doing doing very well. And look, you probably you’re better off having a more productive a wealthier economy. And you know, having In the pie bigger and then sure you can then have a debate about the, the shares of that pie. But you want to have the biggest pie possible, I’d say,

Oliver Hartwich  20:09

because in the end, what capitalism and what economic growth? Does it actually share us? The wealth with more people, it’s the democratisation of luxury, if you like. Yeah, I remember actually speaking as an event, and quite a few years ago, under the headline, people with flat screen TVs should stop whinging about capitalism. One of the arguments I made was actually, if you teleport at someone who was really, really rich a few 100 years ago, so you take the Sun King Louis Catorze, and you kind of get do rica tours and visit 21st century Australia or New Zealand? What would Luca tours be really impressed about? Well, that you could switch on the light with a switch, or that you could read your newspaper from a foreign country on your phone, or that you could just call someone in a distant city. But I think what he would really be surprised about was that this was available not just to his modern day equivalent, but to everybody. And so we have actually completely democratised wealth and prosperity to a degree that we had never seen it before in the history of humankind. No, absolutely.

Gene Tunny  21:13

I mean, indoor plumbing is one of the great innovations and better sanitation. I mean, the world today is clearly much better, even even if you’re a king and seventh eighth 13th centuries, and yes, you’d much rather live today I’d say yeah.

Oliver Hartwich  21:30

Yeah. Even if you’re not a king. Which then leads us to the combination of all these unproven claims. Number five, we need to de grow to avoid economic and social collapse. So listening to you, it seems obvious, it is the opposite. If we want to avoid social and economic collapse, we need to grow.

Gene Tunny  21:50

Yeah, well, this is part of that whole, apocalyptic or catastrophic line of thinking. And you know, that there was that study a few years ago by she was a consultant. And she wrote this, I should have I’ve got the I’ve got the reference in the in the report, but she reproduced the the meadows analysis, or the the Limits to Growth analysis from the 1970s. And she’s saying, Oh, if you look at the data, we’re on track for societal economic and societal collapse, which is what the limits to growth model was predicted. So she had an update to limits of growth. Harrington is a surname. But I mean, it just, it’s part of this, you know, catastrophizing, when you look at these models, and this is a point that solo made back in the 70s, when he just tore apart the, the whole Limits to Growth analysis in his great challenge article he wrote is the is the end of the world at hand that are referenced in the paper. And I mean, they just build in the fact that we’re going to hit some point of no return, and then everything’s just going to collapse. So there’s a in their simulations, they have eventually population industrial output, reach some peak and then just collapse. But it’s just built into the model that programme that into it. And you can’t say that because we’re or maybe some variables are tracking with what the model forecast, you can’t then conclude, oh, here, well, then we’re gonna hit this peak, and then we’re going to suddenly collapse because there’s no evidence that that’s going to happen. And any person who does forecasting knows that these tipping points, these turning points are the most difficult things to actually forecast. So yeah, it’s just, again, it’s just catastrophizing.

Oliver Hartwich  23:42

Absolutely. So, in conclusion, you have saved conventional economics, you have actually demonstrated that what economists have been telling us all along is basically Correct. Actually, economic growth is a positive. And by finding better ways of combining economic factors of production, we are improving prosperity, we are making societies return that’s a good thing.

Gene Tunny  24:05

Look, yeah, I largely agree with that, Oliver. And what I would say is that, just as we degrowth, like targeting negative growth would be silly, or not, when I’m not necessarily advocating that we target a specific rate of economic growth, because ultimately, that’s going to be the product of, of the market of people making. Yeah, and I don’t want to be, I’m not saying that look, unfettered capitalism is what we want. I mean, we need some regulations, we, you know, there are some market failures we may need to address but what I’m saying is that, you know, this whole degrowth thing is rather silly and, and there’s no evidence to suggest that we can’t continue to grow and really, I mean, growth is a solution to a lot of problems. So particularly if you’ve got a shortage of housing, you know, if we want to lift living standards in emerging economies, where they’re still much lower than, than here in Australia and New Zealand,

Oliver Hartwich  24:58

and of course for the last few years we’ve had a movement, trying to make the case that actually it’s not about growth. It’s not about conventional economic measures, it should be something bit fuzzier, something like a well being budget. That’s what we pay on it here in New Zealand. And I think your minister of finance or whatever he’s called an Australian federal, Jim Sharma has has bought completely into that narrative. And, you know, also on to wellbeing budgets, but that’s not really compatible with and with a growth mind or growth. Focus.

Gene Tunny  25:27

Yeah, I mean, that’s, that’s a separate thing. I mean, I don’t necessarily have a problem with looking at a broader range of indicators than than GDP per capita, but you just don’t, I mean, look at a lot of that. The well being or to

Oliver Hartwich  25:42

me, it always sounded as if they were trying to find an excuse for not having to deliver GDP per capita increases. And so they’re looking for something fire and quality well being. Yeah,

Gene Tunny  25:51

quite possibly. And, yeah, I mean, it’s another thing that the treasurer couldn’t launch and, you know, makes them look like they care about different concerns of the community. So look, yeah, I think it’s a bit, you know, a bit of a waste of time, the whole well being budget, because, yeah, a bit of a distraction. But yeah, take your point. Maybe that is what they’re trying to do that it’s a, it’s a cover for not actually achieving a decent rate of economic growth.

Oliver Hartwich  26:19

Well, that could be a topic for your next paper. And if you’re looking for materials, you’ll find them all in New Zealand. Very good. Okay. Sounds good. But, but for now, can I just thank you for sharing your thoughts with us on the podcast. And just for all our listeners, genes paper is called debunking degrowth, you can find it on the Centre for Independent Studies website in Australia sets ci But for now, thank you, gene for being our guest. And good luck for your future papers, we look forward to seeing them.

Gene Tunny  26:50

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  26:55

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Gene Tunny  27:24

Now back to the show.

Joe  27:29

You mentioned the environment there and sort of political movements and value judgments obviously very, very important. For everyone alive, yeah. But especially with the sort of younger generation. And one idea that is sort of gained popularity in recent years has been this idea of D growth as a way to sort of solve the ongoing climate crisis. And you wrote an article, I think recently, the Centre for independent studies about about D growth. And you said that any attempt will like to sort of implement this idea that we need to have negative growth will greatly reduce the living standards and cause significant unemployment. We have a question here that says, if it is as severe as predictions suggest, then is not some form of dramatic economic structural change necessary to prevent continued pollution, mass production, carbon emissions, environmental degradation. So yeah, it seems that either this change will be voluntary, in that we will decide to do it, whether that be D growth or some other sort of economic restructuring, or it will be forced by the nature of the crisis in that our economic system will collapse?

Gene Tunny  28:46

Well, I hope that’s not the case. You talk about prediction. So well, this is where it’s difficult. Like this is a very difficult area to actually talk about, because there’s so much complexity going on there. And in terms of predictions, there are projects, some predictions that have catastrophe of permafrost melting all this methane being released to the atmosphere, this Supercharged global warming, ocean currents shutting down in Arctic melting. And I mean, horrible scenarios. Now, that’s not generally what we think is going to happen. I mean, that suppose look, there’s anything really could happen, right? I mean, I’m not a climate modeller or an expert on climate change. But if you look at what the IPCC has been, what it’s been modelling or projecting what our own governments have been doing, they do show that there is a path to get into net zero by 2050. There will be warming of one and a half to two degrees, probably two degrees Celsius on average. There seems to be an acceptance that by many that, okay, that that’s something we can adapt to it’s there will be a First consequences of that, but it’s not going to be catastrophic or lead to that Armageddon scenario. Now look, the question, if that is the case, if it is the case that we are in that situation where the worst predictions do come to come, you know that they do occur, then we will have to do something radical, it won’t be a matter of trying to get that change gradually over time. And the idea of having a carbon price is to send that signal to the market to, in an efficient way, reduce your emissions, invest in new technology to get to net zero. So that’s what the policy’s been now, governments are finding it very difficult to do that. Okay. So we’ve got an implicit carbon price in Australia, we’ve got these Australian carbon credit units, we’re going to market for that. We’ve got a safeguard mechanism, which is going to be requiring big emitters to reduce emissions. And so we’ve got an implicit carbon price. But you could, you know, there’s arguments about what that should be, are we are we doing it fast enough, there’s the how many we’re gonna have to keep coal going coal fired power stations going for a lot longer than we expect. We wanted to because we’re worried about the reliability of the energy grid. Unless we can get the hydropower stations on on schedule. And then that’s pretty difficult to see what’s happening with snowy 2.0. They’ve had one of the tunnel boring machines stuck. So it’s, it’s a big challenge. Now, I don’t know if you saw what Rishi Sunak has done in the UK, they’re delaying their transition to net zero. So Boris Johnson had committed to stopping the sales of petrol powered vehicles by 2030. Rishi Sunak, push that back to 2035. And there are a few other things to do with I think, gas in the home. So I think the push push that back when I have to stop having guests in the home, because these policies are they’re challenging to implement, or politically, they’re difficult. And as we we really need American leadership, we need China, America and China, the EU and Japan. They’re the major economies we need them to come up with a binding global agreement. And we go along with that. Yeah, it’s, it’s a big challenge. So we’ll get my opinion there. And I’m, I’ve got to admit, I’m not an expert on the climate. So for what for what it’s worth, my opinion is those predictions. There’s apocalyptic predictions, I like to think of them as catastrophizing. We’ve had predictions of doomsday for as long as I’ve been alive. And before then Malthus were Club of Rome. I mean, this is the latest. And in that sort of line of thinking, I’d like to think that there though, those horror stories, I mean, look, if that if we if it does come to be that that is the situation, we will have to change very rapidly. And that will require very strong measures. And it may be that yeah, there is a big hit to GDP. But at the moment I my sort of judgement, the judgement of I think practically all the people in governments around the world is that that’s not the situation we’re in. Could they be wrong? It’s very possible that I sit? I hope not. But look, I admit there, there are certainly concerning signs out there. I mean, and, you know, I’m a lot older than than you are. So you’d have to live with it more than I will. So maybe that’s something to that. I know that I understand why young people are concerned about it, for sure.

Joe  33:24

Yeah. Yeah. Awesome. Thank you. For that perspective, we have John Quiggin. Yes, he teaches still, he teaches one of the PPE courses, and that’s sort of his, like the the environmental economics perspective on climate change is very much up his alley way. So it’s, it’s good to hear your perspective as well. But not

Gene Tunny  33:45

having John here. So we can get you on the question, but I’m not. I don’t imagine John Wooden is there’ll be arguing for degrowth would eventually be arguing for a high carbon price to bring about that transition as rapidly as possible. And to try and encourage innovation. And the great thing about him is that we’re proven is that we are great innovators when there’s a challenge. So be maybe there’ll be people we did have to have that that radical policy shift because the Antarctic starts, you know, I mean, we know that the sea ice is the extent of that is not as great as it has been. It looks. You look at that chart. Okay, that’s a bit of a worry if that continues. And if we do have all of these record heat waves, I mean, we’re currently in El Nino at the moment here. So that’s driving as the lot of the heat. Yeah. If things get really bad, then yeah, sure. We may have to act rapidly. There may be a hit in the short term, but I expect we’ll solve it somehow. Humans are great innovators, loose. That’s the hope maybe that’s naive optimism.

Joe  34:48

No, definitely. Definitely something to cling on to at least with hope. Yeah. Awesome.

Gene Tunny  34:56

Righto, thanks for listening to this episode of Economics Explored If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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