Author: Gene Tunny

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Podcast episode

UBI: Universal Basic Income w/ Ben Phillips, ANU – EP126

Episode 126 of Economics Explored features a conversation about the pros and cons of a Universal Basic Income (UBI) with my old University of Queensland economics classmate Ben Phillips, now an Associate Professor at the Australian National University (ANU). Ben is one of Australia’s leading modellers of the impacts of tax and welfare policies on households, so he’s the perfect person to chat with about UBI. Here’s a video clip from the episode to give you a sense of the issues Ben and I discuss.

You can listen to the full audio episode using the podcast player in this post or via podcasting apps, including Apple Podcasts, Google Podcasts, Spotify, and Stitcher, among others.

A transcript of EP126 is provided below.

About this episode’s guest – Ben Phillips

Associate Professor Ben Phillips is a Principal Research Fellow at the Centre for Social Research and Methods. He has nearly 20 years of experience as an economic and social researcher in Australia. Prior to joining the ANU Ben was responsible for a range of modelling projects at NATSEM including the STINMOD microsimulation model of Australia’s tax and transfer system. Ben managed several key projects including the distributional analysis of the Australian Government’s 2014-15 and 2015-16 Budgets.

Prior to joining the ANU Ben twice worked at NATSEM and has also had roles at the Australian Bureau of Statistics as a methodologist and economist, The Housing Industry Association as a senior economist and the Bureau of Tourism Research as an economic forecaster. Ben has a first class honours degree in economics and is undertaking a PhD through the Crawford School of Public Policy focusing on the tax and transfer system.

EP112 – Taxing the rich: Billionaire and inheritance taxes with Miranda Stewart

Ben’s co-authored 2019 paper: A basic income for Australia? Exploring rationale, design, distribution and cost

Economist article Gene quotes from: Might the pandemic pave the way for a universal basic income?

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Transcript – EP126 on UBI w/ Ben Phillips, ANU

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. 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

Coming up on Economics Explored.

Ben Phillips  00:04

Well, I think there’s some ideas of UBI that we can borrow. I think a lot of the issues we’ve identified could be used to improve what we’ve currently got. I think a more realistic and practical approach is probably just to fix up some of the issues in the current system that have fairly minimal costs.

Gene Tunny  00:19

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 based in Brisbane, Australia, and I’m a former Australian Treasury official. This is episode 126 on UBI, universal basic income. The pandemic has amped up enthusiasm for a UBI, because people have seen government’s boosting various welfare benefits and paying new benefits. Would a UBI have been a better option? Does the huge spending on emergency support during the pandemic prove that governments could afford a UBI? These are intriguing questions.

My guest this episode is Australian National University Associate Professor Ben Phillips, from ANU’s Centre for Social Research and Methods. Ben is one of the world’s leading experts on micro simulation modelling. As background, here’s how the Urban Institute describes micro simulation. In the social sciences a micro simulation model is a computer programme that mimics the operation of government programmes and demographic processes on individual micro members of a population, people, households, or businesses for example. For each observation in the large scale survey, a computer programme simulates outcomes of interest, such as income tax liabilities or Social Security benefits, by applying actual or hypothetical programme rules to the survey data about that observation. This is what you need to do if you want to analyse the costs and benefits of a UBI.

And hence, I thought, Ben would be the perfect person to talk to about UBI. And indeed, he has done some great research work on a UBI here in Australia. I’ve known Ben for over 25 years. We’re both in the same honours year in economics at the University of Queensland. Ben’s worked at the world leading National Centre for Social and Economic Modelling, NATSEM, the Australian Bureau of Statistics, and the Housing Industry Association. His micro simulation work has been widely quoted in the media, and he’s the go-to expert in Australia on the impact of the federal budget on households.

Please check out the show notes for links to materials mentioned in this episode. And please check out our website economicsexplored.com. If you sign up as an email subscriber, you’ll be able to download my new ebook, Top 10 Insights from Economics. If you have any questions, comments or suggestions, then please either record them in a message via SpeakPipe, see the link in the show notes, or email them to me via contact@economicsexplored.com. I’d be really interested in whether you have any suggestions of good people to talk to about UBI in the US, the UK or other parts of the world. While I think that the points I make in my conversation with Ben this episode generalise to other economies, I’m conscious that there are specific circumstances in each economy, which may modify the economics of a UBI somewhat.

Okay, before we get into it, I’d like to ask you to please stick around until the end of the conversation, after which I will follow up some of the points in the discussion with Ben. Righto. Now for my conversation with Ben Phillips on UBI. Thanks to my audio engineer, Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Associate Professor Ben Phillips from the Australian National University, good to have you on the programme.

Ben Phillips 04:16

Hello there, Gene, how are you doing there?

Gene Tunny 04:18

Excellent. Thanks, Ben. Ben, I’m keen to chat with you today about this concept of universal basic income. So this has been requested by a listener of mine who’s just fascinated with this concept and suspects that given where the sort of views that are often expressed on this programme, he suspects I’m probably sceptical of it, and he’s generally right, but I’m sceptical of a lot of proposals. But I do remain open-minded and I want to understand what it would involve and just whether it could be feasible, what it would look like. And given that you’ve done some great work on this in the Australian context, so you’re one of Australia’s top micro simulation modellers. So you understand all the data about what people are earning, what they’re paying in tax, what welfare benefits they’re getting. And so I thought you’d be great to chat about this issue. So to kick off, Ben, I’d really like to sort of just establish, what is this idea of a universal basic income. So are we talking about a payment that goes to, everyone, so every adult in the economy, of a particular amount, so I don’t know, 10,000 a year or 20,000 a year? And that’s the idea to give a basic type of income? That’s essentially what we’re talking about?

Ben Phillips  05:47

Look, I think at its most simple level, there’s lots of different models of what it can be or what it might not be. But typically, what you’re talking about is, at the moment we’ve got a very means-tested system of welfare payments. So you say you have to be unemployed, or you have to be a single parent with young children or you have to have a disability to receive a certain payment. Those payments vary by your age, or what type of payment that you’re on. They’re relatively meagre, I suppose. Universal basic income, obviously, as I said, it varies. You’re typically looking at, as you say, of a payment of say at least the amount of say the JobSeeker Payment that we have in Australia at the moment, which is around about sort of $14-15,000 per year, and potentially higher than that. So I say maybe the age pension or even higher. I think the Greens at the moment, the Greens Party, are actually suggesting I think it’s about 1,150, 1,160 per fortnight, which is a fair way above even the age pension. So the age pension is about sort of nearly $1,000 a fortnight, and I think the Greens are after a payment of over 1,100 per fortnight, I think for all adults in Australia. So at the moment, current welfare payments might go to around about say, oh, with maybe around about 4 million people in Australia at varying levels, so JobSeeker, that 600 a fortnight, up to say, 1,000 a fortnight for the age pension, whereas if you had a full blown universal basic income, say as say the Greens are suggesting, you’d be looking at about, you know, a payment of 1,150 a fortnight or getting up towards $30,000 a year for around about 20 million Australians. So it’s a huge difference. And obviously, that requires some rather astronomical numbers in terms of financing. But of course, there are different models of basic income. That’s just, I guess, what we most commonly perceive as being universal basic income, everybody gets enough to get by. And obviously, someone has to pay for it, either through more personal income tax or wealth tax or some other form of tax.

Gene Tunny  07:41

Right. Okay. What are the different models, Ben? What sort of things are you thinking of?

Ben Phillips  07:48

Well, there’s various models in terms of, I guess, generosity. So the most generous one that I’ve seen is really what the Greens are currently suggesting. And that is where you’ve got about $30,000 per year for every single adult in Australia. Going down from that, there’s others who have proposed, I think Ross Garnaut, not that long ago, proposed a similar system where every adult gets a certain amount of money. I think it was more like the JobSeeker or the old Newstart payment, which is more like about sort of $13-14,000 per year, so a lot less expensive. And then going down from there, you have what I guess we’ve looked at a few different models that are much cheaper than that. And that’s where you’ve got more of a means-tested approach, or what in one of the papers we’ve called affluence testing. So that is, the higher your income or the more wealth you’ve got, the less you would receive. So it’s a little bit like means testing. There’s other versions that are similar. So things like a negative income tax, that’s where everybody gets like a tax refund, a full tax refund of say maybe $10,000 per person, that as your income increases, you lose some of that, and at some point, it goes to zero. So that’s another way of looking at it. Another one is sort of a guaranteed minimum income. So everyone has a sort of a guaranteed minimum amount that might be say you’ve got at least $10,000 per year. And again, that’s means tested. So the more you earn, the less of that you get, and obviously at some point, it peters out to nothing. So that’s sort of the basic models. Obviously, the full-blown basic income’s easily the most expensive, and I dare say the most unlikely to ever, evidenced to be so boring to legislation in Australia, or to the past legislation in Australia, whereas the guaranteed minimum income, that might be something that’s a little more realistic. Obviously, they’re all quite different to our current, very tightly means-tested system. We also have a lot of conditionality on our current payment system or current welfare system, particularly if you’re working age, obviously for an aged pensioner. If you’re under a certain income limit, certain wealth limit, you get that payment. But if you’re of working age, unless you’re disabled, there’s usually some sort of fairly strict sort of workplace sort of, I guess, work requirements that one must get through.

Gene Tunny  10:02

Yeah. And that’s allowed Australia to have a, well, a very cost effective welfare system, you could argue, or one that … I mean, arguably, the benefit of means testing is you can assist the people who really need it at a low fiscal cost, or that that’s the theory, isn’t it? So that you could argue that, well, you know, what’s wrong with that? Isn’t that a great idea? I mean, UBI is sort of moving away, a long way from that. It’s the opposite of means testing, isn’t it? Is that right?

Ben Phillips  10:34

Yeah, so the current system, Gene, just to put it in perspective, so we currently pay out about a little over $100 billion per year in welfare payments to adults. There’s another sort of 20 or so million in family payments, which is effectively for the cost of children. So you put that to one side, if you will. So about $100 billion dollars. So the most expensive welfare system under a UBI, say under the grand scheme, would be somewhere around about $500 billion per year. So you’re looking at an additional $400 billion per year. Keep in mind, Gene, the current federal tax receipt is about 500 billion. So you go from 500 billion to 900 billion. That’s an unbelievable amount of money. And as you probably remember well, Gene, we had a big argument, big fight about carbon pricing in say 2012. That was over about a $5 billion tax. Now, regardless of what we thought of the carbon price, we’re having a big argument over 5 billion, how would we go with an additional 400 billion? Having said that, of course, you don’t have to have the full-blown measure, the full-blown universal basic income. But even the more sort of the cheaper versions, say like the affluence-tested model that we’ve modelled was more like a bare minimum of $100 billion per year. So you’re still looking at having to sort of double the welfare system in Australia, and knock-on from that is to increase taxes by, you know, 20, 30% across the country. So I think in a current environment that’s very unlikely to ever happen. But still it’s an interesting idea to think about, I guess.

Gene Tunny  12:04

Oh, absolutely. Certainly interesting to think about. So a couple of things I want to pick up on there. Ben, you mentioned negative income tax. So that, I think that was associated with Milton Friedman, who I’ve got a poster on the wall there. So he was advocating that back in the 70s I think. There’s a great paper that you co-authored along with Miranda Stewart, who’s been on the programme before. We chatted about wealth taxation, and in a way this discussion sort of goes on, or it’s related to that discussion. So we’ll go into that a bit later. And with David Ingles, or Ingles, is it? Sorry.

Ben Phillips 12:44

Ingles, yeah.

Gene Tunny 12:45

Ingles, great. Yep. And it’s got an excellent intro where you go through just the history of this proposal, and you talk about how it was suggested by Bertrand Russell, this basic income concept. And then the idea was resuscitated during the 60s, when Milton Friedman, among others, they proposed this negative income tax you talked about, and there was an experiment. There were negative income tax experiments in Canada and the US in the 70s. I’m going to have to look up those, because that sounds fascinating. And George McGovern, who was a US presidential candidate, he was proposing a $1,000 demo grant to all citizens. And then what the paper does, which I like, is it says, well, okay, this idea is coming back, because there’s this growing concern about wealth inequality, and there’s this growing concern about AI and automation, and we won’t have any jobs in the future, there’ll be fewer jobs, even for accountants and lawyers possibly, and just given how good the AI is getting. And so you’ve got a lot of people in Silicon Valley even, they’re proposing this idea of a UBI. I think Andrew Yang, who is a US presidential candidate, has this idea. So from what I’m sensing, it’s come out of this concern about wealth inequality. You’ve looked at the possibility of a wealth tax paying for this UBI. Is that the sort of thing that you’d have to do?  Because  you mentioned, look, people would probably, you know, they’d push back on a big increase in taxation. Is there a way of sort of taxing the richest or the wealthiest, the billionaires? Is it possible to get more tax out of that group to be able to pay for this UBI? Have you looked at that, Ben?

Ben Phillips  14:42

I think no doubt there’s probably some there’s … I think most of the modelling I’ve seen around taxing billionaires is a little disappointing in that the amount of money you typically get out of billionaires isn’t usually as much as what people might want to think. I think the Parliamentary Budget Office has done some recent work around, it was a Greens proposal again for taxing billionaires. I’m not saying it’s a bad thing to do that, but the amount of money is probably not really enough to be funding these sorts of schemes. You have to have a revenue base that I think is a lot broader than just say billionaires, which we may only have, you know, a couple of dozen or so in Australia. And it’s a pretty precarious base anyway. During good times, it might be healthy money, and during bad times, well, who knows, you might not have too much at all. So you need to have a fairly broad-based wealth tax, if that’s the path you’re going to go down. And that certainly could be done. I think we probably don’t tax wealth as much as we probably could in Australia. We’re very income-heavy. And that’s something that we could look into changing. But if you’re going to find additional money, you’d have to have a fairly broad-based wealth tax. And it’s certainly true to say that saying superannuation at the moment, there’s a lot of concessionality there in superannuation taxation, which perhaps goes further than where it needs to do. And I guess beyond that there’s the family home. There’s no tax on the family home. And there’s other concessions around wealth in Australia, things like trusts and so forth. So there’s certainly money that can be found there. I think for the sort of scheme that David Ingles and Miranda Stewart were proposing, that was probably quite a sensible place to go. They’re also trying to minimise the effective marginal tax rates. So if you fund it through personal income tax increases, you go straight to increasing what are called effective marginal tax rates. And that’s sort of lowering your incentive to work, whereas wealth tax, you tend to get at those people who perhaps are not actually even working, and it returns a little bit of money to the state through that avenue.

Gene Tunny  16:35

Right. Could you tell me a bit about that proposal that you modelled for Miranda and David? So what did the wealth tax look like? Can you recall the threshold and what the impacts were, Ben?

Ben Phillips  16:49

So from memory, Gene, the amount of money that was being given out through this scheme wasn’t actually particularly large. I think it was roughly in line with the sort of amount of money that we give out to family payments, which is around sort of five or $6,000 per year. So in that sense, it wasn’t there to replace the current welfare system. It was really just as a very low base addition to what we currently have. So it wasn’t a large amount of money. We didn’t need to find nearly as much money say as a full-blown universal basic income scheme. And I think in terms of wealth, we just made a very simple assumption around I think it was non-housing-related wealth, and taxing that. So you’ve still got a fair amount of money. You’ve got about $4 trillion in Super. That compares to say that $10 trillion in housing, which much of which we weren’t touching, because it’s in the family home. I think it was just a flat rate of tax per year. I can’t remember the exact rate. It was at probably a small amount per year, which is enough to sort of fill out probably the several trillion, the several billion dollars worth of money you need to fund these sorts of schemes.

Gene Tunny  17:54

Right, okay. Yeah. Okay, so I guess it’s probably the politics of it that’s going to defeat it, from just based on this conversation. It sounds like, I mean, sure, if you’re going to implement it, and if you’re going to implement what people would generally perceive as a universal basic income when they think of a universal basic income. So I think Andrew Yang was talking about in the States, was it 1,000 US advance then? And that’s why I was thinking, well, if we had it in Australia, it’d probably be around maybe 15 to 20,000 a year. And if we’re going to have that, then that does imply a large increase in taxation. And there will be a lot of pushback, but in some segments of the community, particularly where they’re going to be paying more. And we saw what happened in the last election, the last federal election when there was a proposed change. I mean, you mentioned the carbon tax and then look at what happened when the opposition proposed doing something about the franking credits issue with the with the shareholders. So yeah, it seems like people, if you look at what it actually implies, it’s probably politically infeasible to bring it in. Do you have any thoughts on that, just how the likelihood or feasibility of bringing something like this in?

Ben Phillips  19:30

Look, to be honest, Gene, and I don’t really think it’s something that’s on the radar of say the major political parties at this point, not to say it won’t be at some point in the future if the world changes, but at the moment, I think as you pointed out, the potential of the requirement for such substantial tax increases would virtually rule that out. Ignoring whether or not it’s sensible or that it’s economically sensible, I think it’s the tax increases will just be too substantial. I think there are some problems with our current welfare system at the moment. But they really are only, they’re relatively small changes that are required to fix that. So for example, the JobSeeker Payment many would argue is a little bit too light, needs to be increased by probably a modest amount per year. So at the moment it’s about 630 per fortnight. It probably needs to be at least another couple of $100 a fortnight higher than that. The cost of that is only a few billion dollars per year. There’s a few other issues with the welfare system, particularly around say some of the conditionality, that’s probably a little bit too punitive on those on the payment. You could loosen some of those up, I think you can potentially improve the current system that we’ve got. That is very well targeted, I think. And you can improve it with only relatively modest amounts of money. So maybe, you know, as little as say $10 billion per year could really make a very large difference to that system. So $10 billion for what I think could give you a reasonable system compared to say having to spend potentially at least $100 billion on one of these more grandiose schemes of universal basic income. I think that shows the relative costs and minimal additional benefit, I think, where you end up a very big sort of a churn, additional churn in the system, for no particular great benefit. So I think there’s some relatively easy fixes that are relatively cheap. More people might disagree with to say $10 billion is relatively cheap or not. But compared to these other big schemes, I think it’s relatively cheap. So get a relatively simple fix for not a lot compared to these very expensive schemes. That’s probably where I would see it potentially going, if we are going to go down that path.

Gene Tunny  21:33

Yep. So it’s probably not. I mean, the big issue at the moment is that, well, arguably, some of the welfare payments are too low, and that therefore if you’re going to do anything with the welfare system in Australia, then you should look at increasing some of those payments. I was just thinking, I mean, in other countries, maybe that there are different issues. I mean, with the US, for example, I guess what’s attractive about the UBI in the US is that their welfare system is not as generous as ours, or it’s not as much of a safety net. So perhaps that’s why it’s more attractive in the States. Although I guess it does have a lot of support here in Australia. There was something reported on ABC, a majority of Australians would welcome a universal basic income, a survey found. But then I think that’s because people aren’t aware of just what it means for tax rates. And if anyone actually proposed that as a real thing, and they had to talk about how they funded it, how they would fund it, it will quickly become apparent it was … It’s not something necessarily I’d support, but it would involve some redistribution. I guess where some people, why they support it is that they, you know, there are a lot of people who think housing’s becoming increasingly unaffordable. And this could be seen as a way of supplementing their income. So could it be seen as a way of … Is it basically about more redistribution? So redistributing more from the top end to the lower deciles? How have you done analysis of what it means in a distributional sense, this universal basic income? I suppose it depends on the model that you apply. But what could it look like? I mean, could it actually improve the wellbeing of households in the sort of lower deciles? Not just the most disadvantaged, where we’re assisting them currently with welfare benefits, but households where they’ve got people in the house are working? Is it going to be a way of supplementing their incomes and, you know, making it easier for them to say buy a house? Could that be a benefit of it?

Ben Phillips  24:00

It’s certainly one benefit of it, Gene. Again, as you say, it depends exactly what sort of model you’re using here. It could vary wildly. But the models that I’ve looked at in the more sensible versions, they are funded usually through an increase in a wealth tax or increase in say, an income tax. And they usually tend to be quite progressive taxes. So as a result, you do tend to find that with most of the basic income schemes, at least I’ve seen, you do get a redistribution from the rich to the poor, effectively, and we end up having income inequality that looks a little bit more like Nordic countries, rather than our current system, which is fairly sort of middle of the road, I suppose, similar to the UK and a little bit better than the US, but more closer to the Nordic countries. So you do get that impact. A lot of people are concerned about why would you give say $10,000 to someone on $150,000 a year. Well, that’s understandable, but they’re probably paying even more than $10,000 in tax to fund it because we’ve got such a progressive system. So that’s true, it does redistribute the income from the rich to the poor. That’s probably one of the positives of it.

Gene Tunny  25:02

Right. Okay. Now, what does it mean for those effective marginal tax rates?  Does it actually reduce them? Is this a way of reducing the impact or am I on the wrong track here, Ben? Sorry, I think I’m off.

Ben Phillips  25:21

Again, Gene, I think it really depends on the model. You could have one model where it would reduce them, one where it would increase them. I think, as a general rule, the more money that the higher the programme costs, the higher the overall EMTRs are for the country. The more churn you have, the more you more you give, the more you’re going to take as well. There having said that, I think what it can do is it probably does lower the effective marginal tax rates for certain groups, particularly low-income groups and say, single parents, where they do typically have quite high EMTRs, but it would increase the EMTRs from say the middle of the income distribution to the higher end of the income distribution, because they’re the people who are funding it. So for example, I did some modelling with some guys from Macquarie Uni in Sydney. And we had a relatively cheap form of basic income, which is costing about 100 to 120 billion a year. And I think what we found there is you have to increase the marginal tax rates across the board by about 15 cents on the dollar. So that means that say that the 19 cents becomes 34 cents in the dollar. And so the 45 cents becomes sort of, you know, around 60 cents on the dollar. So obviously, for those who are not in the welfare system, at the moment, they would have a much higher marginal tax rate. Those who are in the welfare system, probably what we call the withdrawal rates of that basic income are quite small. So you probably have a lower effective marginal tax rate down the bottom end of the income distribution. So it really varies where you are in the income distribution. But I think as a general statement, overall, if you’re giving more money out, you’re probably going to have a higher EMTR across the board. But for certain groups that do face very high EMTRs at say, 70, 80, 90 cents on the dollar, they probably would come down.

Gene Tunny 27:04

Right, okay.

Ben Phillips 27:05

When you’ve slanted out across the income distribution is one way of thinking better, but a little bit higher overall.

Gene Tunny  27:10

Okay, I’m just trying to understand how this would work. So it sounds like with some of these, that well, the age pension, it sounds like that’s probably at the moment higher than any, or what I was thinking would be a universal basic income, which is sort of in the 15 to 20k range. So does that mean, could there actually be some welfare recipients who would be worse off under some models of UBI?

Ben Phillips  27:42

Yeah. Look, I think mostly what they do, Gene, is they, they only apply it to the working age population. So they say, look, if you’re an aged pensioner, we’re not so concerned about you. Many of the issues that relate to universal basic income, as to why you might introduce the UBI, don’t apply to the age pensioners, so we leave them as they are on the age pension. It’s more about the working age first. So if you’re on JobSeeker or say you’re missing out on JobSeeker at the moment because of you know, the wealth, the liquid assets test or some other income test you’ve got, you would be better off under the UBI scheme. And also, you would be losing that money more gradually as your income increases, whereas at the moment, you might be losing say 50 cents, or 60 cents on the dollar, for every dollar that you earn. It’s people who are on the JobSeeker payment, who are working part time, they might be better off and face lower effective marginal tax rates as they increase their income. Where it would impact people is say those around say 80 or 90,000 a year, you might go from say being on 30 cents on the dollar to say 45 cents on the dollar. That’s a big problem, I think, as I see it, for these more expensive versions of the universal basic income,

Gene Tunny  28:50

Right, okay, what about single parents? Do you know how they would be affected by a UBI if it was brought in and it replaced the current suite of benefits?

Ben Phillips  29:03

Yeah, so some of the models that I’ve looked at, what we’ve tended to do on this, really, it’s where you start to make … One of the main reasons you have a UBI is to have it as it’s sort of simple. One of the big arguments is that the current system is too complicated. And it is complicated, no doubt at all. I would argue it’s complicated because it is complicated. The world’s complicated. You’ve got single parents, you’ve got disability, pension recipients, you’ve got all sorts of different people in different situations. This is one of the things I like about the current system, where it targets to those sorts of issues. But in terms of single parents, yeah, if they are on 15,000 a year, they will be worse off. And that’s where you might have some special clause where if you’re a single parent, you remain on the current payment, but then you’re going back to another complicated system. This is why I sometimes wonder about what the point of a UBI is, unless it’s I’d say at the age pension level.

Gene Tunny 29:58

Right, which is …

Ben Phillips 30:00

Which is about say about $25,000 a year.

Gene Tunny  30:05

Okay. And is that similar to what the Greens is proposing that’d be …

Ben Phillips 30:10

Thereabout 30,000 a year.

Gene Tunny 30:11

30,000 a year, right, okay.

Ben Phillips 30:13

So where that comes from, Gene, is when the JobSeeker was increased when we had COVID, it was increased to about 1,115 per fortnight. And I think the Greens have gone along with that number, which is closer to about sort of 28, 29,000 a year or 30,000 a year. I forget the exact figure. Which relates to the Henderson Poverty Line, which is, in my view, a fairly outdated version of … As you probably recall, Gene, it was constructed by the Henderson review into I think, probably in Australia back in the 60s and 70s. Yeah, so it’s very outdated.

Gene Tunny  30:50

Yeah. So UBI, I mean, it certainly would be a nice thing to have, just thinking about it. I mean, and one of the advantages that’s put all the pros or the arguments in favour of it is it would allow us to be able to choose our lifestyle. And I mean, we could take a few months off and devote it to yoga or to improving our wellness, that sort of thing or writing a book. So look, I can see the attraction of it. It’s just the fiscal cost of it and implementation. We’ve already got this welfare system in Australia, at least that seems to do a reasonable job at not too high a cost. But I can see the attraction. What about this, there’s this vision of the future where with AI on automation, we have massive job losses, even among white collar professionals? Now, I mean, you know, we’re economists, so we’re probably great believers in the market adjusting, and eventually people finding new jobs in this in the services sector. But do you have any thoughts on that, Ben? I mean, how big a risk is AI and automation? And to what extent does that improve the argument for a UBI, if that’s the case that we could see these massive job losses in the future?

Ben Phillips  32:26

Yeah, look, I would, probably a bit like yourself, Gene, be clouded by my economics background. I guess looking at history over the past 50 or 60 years, we’ve had some pretty incredible technological changes that arguably are larger than what we’re currently seeing. And you know, you have periods of course, where you have some higher unemployment. But generally speaking, the economies have transitioned and people have transitioned. Perhaps there are strong arguments for, I guess, helping people restructure their lives, structural assistance packages for those in industries that disappear, and that there is the argument of, as you said, of basic income advocates that you have a UBI for that potential outcome in the future. But I’m sceptical of it, Gene. That said, I’m not a futurist, so I don’t really know what the future holds in that area. I could be wrong, but I’m a little sceptical, just given that we’ve had very large technological change in over the last century and people still remain in jobs. Yes, there are issues, you know, for certain people in certain industries. But that’s sort of part of the ebb and flow of the economy.

Gene Tunny  33:34

Absolutely. Okay. Well, just finally, this affluence-tested model, is that the one you recommend? Would you be able to go over that again, please, Ben? I’m just interested in what exactly that is.

Ben Phillips  33:50

The affluence-tested model, Gene, this is the model that some co-authors of mine, Ben Spies-Butcher from Macquarie University and Troy Henderson from University of Sydney, I guess it’s their model, their version of universal basic income. Obviously they’re well aware that a full-blown UBI is very expensive and politically difficult to implement. So it was an attempt to come up with a model that might be a little bit more politically possible within Australia. And that model really was, let’s look at the current JobSeeker amount. We’re a little bit higher than the JobSeeker amount, so that 15,000 or 18,000, two different models, 15,000 year and a more generous 18,000 a year and apply that to all adults. But it was in effect means-tested or affluence-tested, as they called it. So that was as your income increased, you’d lost some of that payment. So basically, up to about 10. You can earn up to 10,000 a year in income, and you’d receive the full 15 or 18,000 for the year, by that median income that have gone to  about half and by about 180,000 you have none at all. So it still costs about 100 or $120 billion per year. So that’s still roughly a doubling of the current sort of welfare system. So it’s very, very substantial. But obviously, it’s a lot cheaper than a full-blown system. And it does have the benefits of, some of the benefits of the basic income. It sort of becomes a bit more like a guaranteed minimum income, I guess, rather than a universal basic income. So that was their model. I think it’s quite interesting. But again, it’s got that concern of being wildly expensive, and we didn’t need to increase personal income tax rates, I think it was by 15 percentage points to the more expensive version. And I think adding that on to the current personal income tax rate regime would scare a lot of people off and would be politically extremely challenging.

Gene Tunny  35:43

Yeah, yeah. Okay. So just for clarity, this was a proposal that the other authors, it was their proposal, and you were doing the modelling for that.

Ben Phillips 35:53

That’s correct. Yep.

Gene Tunny 35:54

Gotcha. Okay. Ben Phillips, any final thoughts on UBI before we wrap up?

Ben Phillips  35:59

Oh, look, I think we’ve covered pretty well, Gene. I think it’s a really, in one sense, it’s interesting. I think that people are talking more and more about these sorts of schemes. I do feel that there are some problems with the current welfare system and I think there’s some ideas of UBI that we can borrow. I think the a lot of the issues we’ve identified could be used to improve what we’ve currently got. I think a more realistic and practical approach is probably just to fix up some of the issues in the current system at a fairly minimal cost, as opposed to the full-blown versions of UBI that I think are interesting, but perhaps not really realistic in the current environment. Too much of a change for Australia, whether we like it or not.

Gene Tunny  36:41

Yep, yep. Absolutely. I agree with you. So yeah. Thanks, Ben. That was great, a really good overview of the issues in Australia. I’ll have to have a look at what it might mean in other countries, but I’m guessing that it would involve a similar high level of expenditure, additional expenditure, and therefore a higher tax burden. I will have to look into that. And, yeah, I thought that that point you made about how well it could be seen as a way of addressing some of these inequality issues. And then we’d look more like the Scandinavian countries. And perhaps we do. I mean, our inequality isn’t as high as in the US, but you’re saying it’s similar to UK. It’s lower in some of those Scandinavian countries. So that’s something I’ll cover in a future episode. Just, you know, what’s going on in those countries. Always fascinated with that sort of Nordic model they talk about. So I thought that was a really good point. So Ben, but just want to thank you so much. I think what’s great about your work is that you’ve really modelled all this out, you’ve thought about what this looks like, in a practical sense, how it could be implemented, what that means for all the different groups in the community. And so yeah, I can highly recommend your work. So there’s Basic Income for Australia: Exploring Rationale, Design, Distribution and Cost, that you co-authored with David and Miranda. I’ll link to that in the show notes. So Ben Phillips, really enjoyed that. Thanks so much.

Ben Phillips  38:26

Thank you, Gene. My pleasure talking to you.

Gene Tunny  38:29

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

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Gene Tunny  39:04

Now back to the show. Okay, I hope you enjoyed my conversation with Ben on UBI and got a lot out of it. I certainly did. In this segment of the episode, I want to cover some issues that I didn’t get to chat about with Ben, particularly whether UBI will have a big negative impact on people’s labour supply. So their willingness to work. Will we see people dropping out of the workforce, drastically reducing their hours of work, and therefore reducing the capacity of our economy and the government’s capacity to raise money to pay for a UBI?

Now around the world, we’ve had several experiments of different types of UBI over the years. I intend to devote a future episode delving into the details of these experiments, and even into the negative income tax experiments in the 70s. I probably don’t have enough time at the moment to do full justice to those experiments, but I will try to summarise what I’ve found so far. One UBI experiment which received a lot of media attention happened in Finland, in 2017 and 2018. 2,000 randomly selected unemployed people received a 560 euro a month payment, which was similar to the unemployment benefit payment. But they received it for the trial period, and they didn’t lose it, they didn’t lose the UBI if they started working.

Now, I’m going to rely on a great article from The Economist. So one of my favourite magazines. This article was in March 2021, Might the Pandemic Pave the Way for a Universal Basic Income. I’ll put a link to that Economist article in the show notes, but it may be paywalled, and you may need an Economist subscription to access it. In the article The Economist reported evidence from the experiment was muddied by a change to a law in 2018, which tightened conditionality for receiving unemployment benefits. Even so, the results are intriguing. Among the biggest worries relating to UBI is the possibility that it might discourage recipients from seeking paid work. Yet, participants who received unconditional payments actually work more than those on the dole. Reported wellbeing was substantially higher. Recipients also registered less depression and stress, a higher degree of confidence in their abilities, and more social trust than did those in the control group.

The Finnish results are broadly consistent with findings from other experiments. Rebecca Hasdell of the Basic Income Lab at Stanford University conducted a review of 16 basic income studies published between 2009 and 2019, that covered rich and poor countries. The research provides consistent evidence of a positive effect on educational attainment and on measures of physical and mental health and reduce poverty. Effects on labour market participation are generally small. Half of the studies that assess its impact do not find a statistically significant effect. Most of the rest find a positive effect, she writes. Okay, so that’s really interesting.

Based on the experimental evidence that we have, and assuming the Economist is reporting it correctly, we may not have to worry about lots of people dropping out of the workforce if a UBI is implemented. However, as the Economist notes later in that article, these experiments don’t necessarily tell us what would happen if a UBI were available on a wide scale. They talk about the possibility of a social multiplier effect. Okay, so the Economist notes, some activities become more enjoyable as more people engage in them. So what they’re getting at there is that being out of the workforce is going to be much more enjoyable when more of your friends or family are also out of the workforce, they’re not working, so you can more easily spend time with them.

Possibly, you could even foresee a risk that you have sizable groups of people that maybe they can drop, they might drop out of the workforce at the same time and set themselves up in, well, for lack of a better word, communes. Perhaps that’s something that could happen. Are these legitimate concerns? I really don’t know.

But I do know a UBI would cost a lot of money. As Ben and I chatted about in our conversation. So the major criticism of UBI that it’s incredibly costly, and it would require much higher taxes, I think that is an important criticism and it still holds. On the work incentives issue, Ben Phillips’s view is that the net impact of a UBI is unclear. This is because of what Ben and some of his co-authors describe as a complex interaction of income and substitution effects. Okay, what do they mean by this? Here’s how I understand it.

The income effect that they’re talking about is the change in labour supply expected to be negative due to the change in income brought about by a UBI. So, a UBI, all other things equal, will boost income. And people might choose to spend that income on more leisure by working less in paid employment, okay. The substitution effect that they’re talking about relates to the substitution between work and leisure, as the relative price of leisure changes as the opportunity cost of leisure. So the loss of income, the money that you get in the bank, if you take an hour off work, or you, you take an hour in leisure, there’s a substitution effect. Because a UBI affects what is called the effective marginal tax rate, the EMTR. So Ben and I were chatting a bit about that, in our conversation.

Let’s remind ourselves that the effective marginal tax rate is the percentage of additional income that we earn, that we don’t get to keep. So it’s the percentage we don’t get to keep. And we don’t get to keep it because either A, the government takes it off us in tax, or B, the government reduces a welfare benefit that we’re currently receiving. And it does that because we’re earning money from working. If there’s a change in the EMTR, then the relative price of leisure changes, okay, so if the EMTR increases, so the government’s taking more off you in tax for an additional hour that you work, then that makes work less attractive to leisure, it means that the relative price of leisure has fallen, so the opportunity cost of leisure has fallen, because you’re getting less money for that additional hour of work. That makes leisure more attractive. And so you might work less, you’ll take more leisure.

Okay, I hope that makes sense and I explained that properly and I didn’t get lost midway. As you can appreciate, this is extremely complex. There’s quite a lot going on. As Ben and I discussed in our conversation, a UBI is expected to reduce the EMTR for current welfare recipients. So if you’re currently receiving a payment from the government, then your effective marginal tax rate is expected to fall, because the UBI wouldn’t be as aggressively taken away or clawed back as current welfare benefits are when people start earning money. Okay. So for welfare recipients, a UBI could actually result in additional hours worked, depending on their circumstances.

This gets really complicated, as Ben tried to explain in the in our conversation and as they go into in their papers. Okay, so Ben and his colleagues, David Ingles, and another colleague of his, previous show guest Professor Miranda Stewart, they wrote in a 2019 paper, which I’ll link to in the show notes, that the aggregate impact on work incentives is unclear. This is because the high linear tax rate required to finance the BI, so BI is what the authors are calling UBI in whatever model that … They go through a few models in their paper, but when they say BI they basically mean UBI. That high linear tax rate may increase work disincentives across the population.

Okay. So to finance the UBI, we’ve had to put up tax rates. And that’s going to increase the effective marginal tax rate for many people who are working and aren’t receiving welfare benefits. And so therefore, if they work an additional hour, they don’t get to keep as much. And so what does that mean? Well, that means that the relative price of leisure or the opportunity cost of leisure, if I take an hour off, then I don’t lose as much because the government, it wants to take more of that money I make, an additional hour. So it affects the work incentives for that group of people.

Now look, there’s a big literature on labour supply and how it’s affected by after tax earnings that we don’t really have time to go into today. I should cover it in a future podcast. I think it’s enough for now to say that look, this is very complex. This is the point Ben’s trying to make. The key takeaway is that the UBI will mean different people will respond to it in different ways. And it’s hard to know what will happen to overall labour supply unless, well, unless we actually introduce a UBI and find out.

Okay, I should note that Ben has used a static micro simulation model. So his modelling has been conducted using ANU PolicyMod. So he hasn’t explicitly modelled those work incentive effects or the impacts on labour supply. Now, my feeling is this, this is something that would be extremely difficult to model. Policy experiments are possibly our best hope of figuring out whether a UBI is simply a utopian fantasy that is unaffordable, or whether it is something that really is feasible, and that could improve our lives immensely.

As always, I’m trying to keep an open mind on these important policy issues. So that’s all I have to say on UBI for now, but I’m sure I’ll come back to it in future episodes. I know a lot of people are interested in it. So please consider this as a first instalment. I hope you enjoyed it and found it informative. Please get in touch with any comments or suggestions. I would love to hear from you. You can email me, contact@economicsexplored.com. And again, there’s a SpeakPipe service that can let you record a voice message if you’d like to do that. Okay. Thanks for listening.

Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com and we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.

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Transcript of EP125 on price controls w/ Larry Reed, FEE

This post contains a transcript of EP125 on price controls, infrastructure, and other topics with President Emeritus of the Foundation for Economic Education Lawrence W. Reed. Also, note we’ve published a new video clip from the interview, featuring Larry talking about his article Why I wish we could put Chester Arthur and Joe Biden in a room together to talk infrastructure spending.

Transcript of EP125 w/ Larry Reed, FEE

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close.

Gene Tunny 00:01

Coming up on Economics Explored.

Larry Reed 00:04

When government comes in and says, “We don’t like prices rising as fast as they are. We’re going to impose controls to prevent that from happening.” First of all, it is treating a symptom of something else. It’s not dealing fundamentally with the issue at hand that produced the rising prices in the first place. It’s a political diversion.

Gene Tunny 00:25

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 based in Brisbane, Australia, and I’m a former Australian Treasury Official. This is episode 125 on price controls, which some commentators are suggesting could be used to reduce inflation. We also explore some other topics, such as whether Jesus was a socialist, why Joe Biden arguably should look back to the 21st president Chester Arthur, and why the separation of bank and state is so important.

My guest this episode is Lawrence W. Reed, President Emeritus of the Foundation for Economic Education, a leading pro-free market educational nonprofit headquartered in Atlanta, Georgia. Larry has authored nearly 2000 newspaper columns and articles and dozens of articles in magazines and journals in the United States and abroad. His writings have appeared in The Wall Street Journal, The Christian Science Monitor, USA Today, The Epoch Times, and The Washington Examiner among many other places. Larry is frequently interviewed on radio talk shows and TV, including on Fox Business News.

Please check out the show notes for the links to materials mentioned in this episode and for any clarifications. You’ll find the show notes via your podcasting app or at our website, economicsexplored.com. If you sign up as an email subscriber, you’ll be able to download my new eBook, Top 10 Insights from Economics, so please consider getting on the mailing list. If you have any questions, comments, or suggestions, please either record them in a message via SpeakPipe. See the link in the show notes or email them to me via our contact at economicsexplored.com. I’d love to hear from you.

Now, for my conversation with Larry Reed from the Foundation for Economic Education. Thanks to my audio engineer, Josh Crotts for his assistance in producing this episode. I hope you enjoy it.

Lawrence W. Reed, President Emeritus of the Foundation for Economic Education, welcome to the programme.

Larry Reed 02:45

Thank you very much, Gene. It’s a pleasure to be with you.

Gene Tunny 02:47

It’s great to have you on, Larry. I have been reading a lot of your writings lately. You’ve started off the year very well and coming on important issues, crazy proposals such as price controls. We might chat about that a bit later. But first, I’d like to ask you about the Foundation for Economic Education. Could you tell us a bit about what its role is and the type of activities it engages in place?

Larry Reed 03:16

Your listeners and viewers can learn a great deal more by visiting its website, which is FEE.org. The foundation was created in 1946 by a great man named Leonard Read. He was no relation to me. He spelled his name R-E-A-D. But after World War Two, he looked around and realised that there was no organisation in the world that was full-time devoting itself to explaining and defending how free enterprise, the profit motive, private property, how that system works. He created the foundation for the purpose of spreading those ideas.

Over the years, our message and our principles have not changed. But the focus of our message and principles has somewhat changed. It’s become a bit more focused on young people, specifically high school and college age. We do that through programmes in-person all over the country, in the US, and abroad, as well as the website videos, on the website courses, you name it. All designed to explain how freedom and free markets work.

Gene Tunny 04:31

You mentioned Leonard Read? Did he write that famous essay, “I, Pencil”?

Larry Reed 04:37

Yes, he did in December of 1958. That has had a remarkable impact on people all over the globe.

Gene Tunny 04:45

Absolutely. I think it shows how complex even products that we think of as simple are and there’s no way any central authority and this is what we discovered with the Eastern European socialist economies with the Soviet Union. You can’t plan this sort of thing. You need to rely on the market mechanism to be able to produce even something that we might think as mundane as a pencil. I’ll put a link in the show notes to that essay because I think it’s brilliant. I think Milton Friedman quotes from it in Free to Choose, if I remember correctly.

Larry Reed 05:23

After someone reads it, they are well-armed to take on a central planner type. Every time I run into somebody that thinks that he knows enough that he can plan an economy of millions of people, I always say, “Wait a minute. You don’t even know how to make a pencil, let alone an entire economy.”

Gene Tunny 05:44

That’s right. You got to think about it. You’ve got to get the timber, you’ve got to cut it, you’ve got to get the graphite, etc., combine them all together. A great essay. Is Hazlitt associated with the foundation? He wrote that book, is it “Economics in One Lesson”? Is that one of the books that you promote?

Larry Reed 06:07

Yes, it is one of the more popular offerings from FEE in the last 70 years. Henry Hazlitt was long associated with FEE. He was one of the charter members of its board of trustees, a good friend of our founder, Leonard Read, and was on the board for decades. I’m happy to say that I knew him personally for the last decade of his life.

Gene Tunny 06:33

That book has had a big impact too. He must have been pleased with how that was received.

Larry Reed 06:40

Yes.

Gene Tunny 06:42

Very good. We might get on to some of the topical issues. The big economic issue at the moment is inflation. We’re seeing accelerating inflation in advanced economies. In a way, this probably should have been expected, given the big expansion in the supply of money that we’ve seen in United States, United Kingdom, Australia, to a lesser extent, but still a substantial increase.

Now, we’re starting to see that in inflation. Some people are saying it’s temporary. There could be some temporary element, there’s a supply-chain disruption. Who knows? My view is that it is something we’ve got to worry about. People are starting to talk about, “What do we do about it?” There’s a monetary policy response. But there are people who are thinking, “Let’s be careful because we don’t want to constrain economic growth and cost jobs. Why don’t we look at price controls?” You’ve written a great article, “Price Controls: Killing the Messenger If You Don’t Like the Message”, could you talk about what you mean by that please?

Larry Reed 07:51

Yes, I’d be happy to. We should think of prices as conveying immense amounts of information. Prices result from the free interplay of supply and demand, which in turn reflect the individual choices, ambitions, opportunities, tastes, and you name it of endless consumers in the marketplace. Prices don’t accidentally arise. The notion that you can fiddle with them by government decree with no consequences is ridiculous. It’s anti-science. It’s anti-economics. Prices are what they are in free markets for good reason because they’re reflecting conditions of supply and demand and people’s preferences and tastes and so forth.

When government comes in and says, “We don’t like prices rising as fast as they are. We’re going to impose controls to prevent that from happening.” First of all, it is treating a symptom of something else, it’s not dealing fundamentally with the issue at hand that produced the rising prices in the first place. It’s a political diversion. It’s politicians, who on the one hand, have got their hand on the printing press cranking out easy money at low interest, easy credit, and pumping up prices. At the other hand, they got a club in their fist and they want to beat people for responding the way you would.

If at any time you massively increase the quantity of something, it will affect the value of every single unit and they’ve been expanding the money supply immensely. If they put on price controls to prevent prices from being at some higher level, all that does by treating a symptom not the cause, is to create economic problems of their own. It creates shortages, for instance, if the market price of something would be $10. But government says, “No, you can’t charge any more than $7.” What happens is at $7, more people want the stuff and fewer suppliers will provide it. That would be the case at $10. You got a double whammy. You got less of the stuff coming on the market and more people wanting it at that artificial price. Bingo! Long lines at stores and shortages. People who propose price controls are ultimately anti-economic science and oblivious to the effects that we have seen historically, literally for centuries with no exception.

Gene Tunny 10:22

One thing about this issue, it seems to be something that the vast majority economists seem to be in agreement on which is good. You quoted in your article, there was an Op-Ed in The Guardian. The title was, “We have a powerful weapon to fight inflation price controls, it’s time we consider it” and Paul Krugman responded, “I am not a free market zealot. But this is truly stupid.” Absolutely. You’ve had experience in the US in living memory of price controls? Was it in the 70s that Nixon’s Whip Inflation Now and then Carter, perhaps with their controls on the price of gasoline that did lead to these big lines at gas stations in the States?

Larry Reed 11:21

The Whip Inflation Now thing actually was Gerald Ford. That was a campaign to get people to wear buttons that said, “whip inflation now” as if that would somehow whip it. Before him, it was Richard Nixon, who actually imposed wage and price controls. First, in the form of a 90-day freeze on virtually all wages and prices and then followed by government directed prices that limited by how much they could rise.

Every economist worth his salt knows that that produced disaster. That was no solution to anything. It gave us long lines at the gas pump and empty shelves in the stores. It was ridiculous. I used to know a man, he’s deceased now, but he was chairman of the Council of Economic Advisers, Paul McCracken, great economist. He cautioned Nixon not to do this. He said it’s never worked in 4000 years, don’t even think of it. Nixon went ahead anyway and shortly thereafter, McCracken resigned.

We’ve had lots of experiences. Lots of countries have had experiences with it. Revolutionary France in the 1790s, the government imposed the so-called Law of the Maximum, which said that government will fix the maximum price of things and the penalty for violating that will be death. They guillotined a lot of people for that and it did not make anybody produce more of anything.

Gene Tunny 12:55

That’s a negative supply shock too, isn’t it? Killing your producers? Terrible. That’s some good stuff there. I take it your view would be that inflation is a monetary phenomenon. Therefore, the key to controlling it is to get your monetary policy, right? This isn’t about monetary policy, but I’m guessing that’s where you’re coming from. There’s a big debate about what that means and role of the Fed, etc. But would that be your view?

Larry Reed 13:33

Inflation, Milton Friedman famously said, “is anywhere and everywhere a monetary phenomenon.” I’m sympathetic to that but I also point out that there’s another dimension here. Prices ultimately reflect, to a great extent, what’s going on in people’s minds. There are extraordinary circumstances, but there are occasions when you could have soaring prices without an increase in the money supply. One of the examples I like to point to is the Philippines.

During World War Two, when the Japanese had occupied it, they imposed their currency on the Philippines. General MacArthur was attempting to ultimately take the Philippines and he was jumping from island to island, getting closer and closer. The Japanese weren’t dumping any more of their paper money into the Philippines and yet, prices would leap every time word came that MacArthur was now a few hundred miles closer. That’s because people’s estimate of the value of that money declined because they knew if he gets here and takes the Philippines back, the Japanese currency will be completely worthless. Given that prospect, we’re happy to pay any price to get anything now while it’s worth something. That’s a rare occasion.

We’re not facing that circumstance today. We do have to fall back on the fact that today’s inflation that we’re witnessing is not a Philippine-style rise in prices. It is a monetary phenomenon, reflecting the massive increase in money and credit that our Federal Reserve in the US has manufactured. Many central banks around the Western world have done as well.

Gene Tunny 15:21

That’s a great story about the Philippines. I’ll have to look that up. MacArthur is a great hero to many of us in Australia because there’s a view that he essentially saved Australia. He based himself in Australia after he fled from the Philippines and he had an office a little bit down the road from where I am here in Brisbane in the ANP Building during World War Two. That was one of the locations from which he waged the war in the Pacific. Great story. Very good. That’s a good discussion of price controls, Larry.

I’d also like to ask you; you’ve also written about whether Jesus was a socialist. I’d like to ask you about that. Also, I don’t know if you saw the recent controversy around Dave Ramsey’s comments. Dave Ramsey, the esteemed financial commentator in the US.

Larry Reed 16:21

Yes. Although I may not be aware of recent comments that you’re bringing up.

Gene Tunny 16:26

Essentially, someone asked him a question, “As a Christian, should I feel bad if I raise the rent on my properties to the market rent, and then that means that some of my tenants can’t afford to live in those properties anymore. It causes them financial hardship.” Dave Ramsey’s comments weren’t received by many, particularly on the progressive side of politics because he said, “There’s no problem with doing that because it’s not me that is evicting you. It’s actually the market.” He was appealing to the market. I’d like to ask you about that. If you haven’t seen his comments, and it’s probably worthwhile considering the whole context of them, feel free not to comment on that.

But I would like to ask you about your work on, was Jesus a socialist? Could you take us through what your analysis of that question has revealed, please, Larry?

Larry Reed 17:29

I’d be happy to, Gene. In fact, the best way to begin that is to tell the story from the New Testament that answers your first question. Along the lines of what Dave Ramsey apparently said. Jesus Himself told nearly 40 parables and most of them deal with things like eschatology and salvation and so forth. But at least three of them have very strong economic content.

One of them that’s relevant to what you’ve just raised is the parable of the workers in the vineyard. This is about a man who apparently owns a substantial vineyard and he needs to bring the grapes in, it’s harvest time. Jesus tells a story of how he gets a group of workers together first thing in the morning and he says, “I’ll give you each a denarius for a full day’s work.” They say, “Okay.” They go out and they start picking grapes.

Around noon time, the owner realises, “I’ve got to get even more out there.” He gets another group together, and he says, “Look, I know that the day’s half-gone, but if you’ll go out for the rest of the day and pick grapes, I’ll give you each a denarius.” Finally, at the end of the day, with maybe an hour before a dark and he still has grapes that have to come in, he calls another group of workers and says, “If you’ll take time out, go out for an hour and pick some grapes, I’ll give you a denarius.”

Later, according to the story, the owner gathers all these three groups of workers together to pay them. The first group is very angry, because they’re saying, “We worked a full day and you’re giving us the same as those guys who showed up at the later, even the ones that only worked for an hour.” You would think that if Jesus were a socialist, he would have the vineyard owner saying, “You’re right, this is unfair. I’m sorry about that.” But instead, Jesus has the vineyard owner say to these guys, “It’s my money. You signed the contract. I’m giving you what I promised. Now, take it and get out of here.”

That’s Jesus basically saying, private property, voluntary contract, keeping your word, honest dealings, and I think supply and demand all defend what the vineyard owner is saying. Presumably, he had to pay that last group of workers a hefty premium to get them. They probably worked for somebody else all day and now, they’re being asked to go for yet another hour, he has to pay them a premium to do that to bring the grapes in.

Jesus does not say, “Let’s be compassionate and give this group the same as that group or in proportion to their time.” Instead, he says, “Each man is getting what he was promised when he agreed to by contract.”

I think Dave Ramsey is essentially right. There is no obligation, moral or otherwise, for someone to endure a loss or to get less than he could for property that’s his when market conditions suggests that a higher rent is worth it. It’s the higher rent that will likely bring more housing units into the marketplace, which will solve the problem in the long run anyway.

Gene Tunny 20:47

By inducing more supply, more investment in rental properties. That’s a good point. I’ll put a link to the article on Dave Ramsey. I thought it was a fascinating discussion. Also, I’ll find something to link to that. Was it a parable?

Larry Reed 21:12

The parable of the workers in the vineyard. I discuss that in more detail in my book, “Was Jesus a Socialist?” if anybody cares to look at it from that perspective.

Gene Tunny 21:25

It’s an interesting question. I must say, I’m surprised that it is something that’s up for debate. Is this because a lot of people on the left side of politics have appealed to Christianity as a way to support what policy positions they’re advocating for?

Larry Reed 21:51

I think so. I don’t give the left much credit for their economics, but I do give them credit for their marketing, because they’re always out there saying, “Go with us because our way of thinking will produce more for people. We’re going to take care of people. We’re going to give them stuff. It won’t cost them anything, they won’t have to worry about where it’s coming from.” The rhetoric is always very promising, but the results and the outcomes are pretty dismal and miserable.

A lot of people come to this mistaken conclusion that Jesus may have been a socialist because He talks so much about helping the poor. But I think in capitalist countries, where more wealth is produced, you have more giving and more caring and more philanthropy than you have in socialist countries. In fact, even government-to-government foreign aid is primarily from the predominantly capitalist countries to the predominantly socialist recipients.

If Jesus came back today and spoke to a large audience of people and said, “I was interested in the poor. Tell me what you all did for the poor?” If you raised your hand and said, “I voted for all the politicians who said they’d take care of that.” I don’t think He’d be impressed. I think He would say, “You’ve resorted to theft? I told you not to steal and I told you furthermore that the poor are folks that you, from the generosity of your hearts and your own resources, ought to help. I never told you you could pass it off to politicians. If they solved the problem, it’ll be at 10 times the price.”

Gene Tunny 23:33

Yes, that’s a good point. I’ll have to come back to this in a future episode and looking at what are the best ways to reduce poverty of it if we’ve actually figured that out? Clearly, the welfare state that we’ve got in countries like Australia, the UK, to a lesser extent, the US, you could argue it has relieved some absolute poverty. But at the same time, it does, arguably, traps many people in poverty in a way.

Larry Reed 24:07

To make a long story short, you can’t solve poverty if the pie is shrinking. You have to make a bigger pie and there is no known system in the history of mankind that makes a bigger pie faster than the system of freedom and free markets.

Gene Tunny 24:24

Absolutely. We’ll take a short break here for a word from our sponsor.

Female speaker 24:33

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Gene Tunny 25:03

Now, back to the show. The other things I wanted to chat with you about before we wrap up are some recent articles of yours. There was a piece, “Why I Wish We Could Put Chester Arthur and Joe Biden in a Room Together to Talk Infrastructure Spending”. I’d love to hear about that, particularly about Chester Arthur, because he’s one of the lesser-known US presidents.

Larry Reed 25:34

Yes, he is one of the lesser-known ones. He served less than one full term. He took office as vice president, became president when James Garfield was assassinated in the middle of 1881. He served about three and a half years, the rest of Garfield’s term. He’s often written off as sort of—he was tied to the corrupt Tammany Hall machine in New York and so forth. On the good side, historians will remember that he did support civil service reform and made the federal government a little less corrupt. That was a good thing.

But he also understood the Constitution and appreciated it more than Joe Biden does. I wrote that article pointing out what Arthur’s view on infrastructure spending was compared to Joe Biden’s in America. We recently went through a national discussion, a bill passed, supposedly bipartisan. It was a massive, almost $2 trillion in infrastructure spending.

An equivalent bill was called a Rivers and Harbors Act and Arthur vetoed it. In his veto, he raised some great objections, all of which are applied to the bill that Biden recently signed. He said, “This is way too much. There’s no way that a government of our size can know where all this money’s going to go. It looks like a small portion of it is even earmarked for infrastructure. There’s a lot of pork barrel stuff in here. Quit doing this, loading our bills and all this other nonsense.”

That’s what Joe Biden should have said about the recent infrastructure bill. But he was all for it from the start. I think about 10% was aimed at infrastructure, the rest is pork barrel and progressive agenda stuff. I would like to put Joe Biden and Chester Arthur in the same room and say, “Chester, go at it. Tell this guy what infrastructure is and why it’s wasteful to spend so much on.”

Gene Tunny 27:46

At the same time, would you say that there is an issue with infrastructure in the US with the quality of infrastructure? This is something I’ve chatted with Darren Nelson about in a previous episode and Darren’s view was, “We need to get the private sector more involved in public-private partnerships, perhaps.” Do you have any thoughts on that, Larry? What is the quality of infrastructure like? Is there a problem to solve and how would you go about it?

Larry Reed 28:19

With infrastructure, I think there has always been some measure of problem, because government has assumed from the start that this is a legitimate profits of government. Once you do that, you have to at least expect that they’ll keep it up and do it right and keep an eye it to prepare for when it falls apart. But politicians come and go and they’re more interested in the flash in the pan. They show up to cut the ribbon at the start of a bridge that’s being built. But once it’s built, it’s no longer politically sexy to stand around and keep an eye on it in case it collapses because they figure, “If that happens, it’ll be a long after I’m gone. Why should I care?”

You do end up with politicians putting more focus on the construction of the stuff and less on its repair and maintenance. That’s where you can get a bigger bang for your dollars or if you will, by writing contracts with the private sector that require ongoing maintenance and inspection and so forth. I wouldn’t want the government with its own employees and its own infrastructure monopoly becoming a bridge builder. They don’t know about bridges. That’s best done by the private sector. They should be contracting with private sector providers to do it and monitor the contracts. Put all the provisions in those contracts that would require proper maintenance.

Gene Tunny 29:52

That’s a good point. It’s one of those great challenges, how do you get the infrastructure that you need cost-effectively? In Australia, one of the problems we’ve got, there’s a lot of government investment going into infrastructure at the moment that it seems to be at very inflated prices all over the country. There’s a powerful construction union, which is allied with the government in the state that I am, Queensland, which has ended up inflating the cost of any infrastructure project by 30% or 40%. It’s quite extraordinary and taxpayers end up wearing that.

Larry Reed 30:43

I wouldn’t be surprised if you have some of the same kind of history in Australia, as we do in the US. But there’s a lot of history in America of government spending on infrastructure that produced disaster, because it dangled subsidies in front of private contractors, who then went after the subsidies and cared little about how well the infrastructure itself was actually built. The best example is America’s transcontinental railroads.

There were five of them built across the country. Four of them got extensive federal government land grants and subsidies. Not only land grants, but they got subsidies on a per mile basis. Four of them threw down tracks just to get the goodies. And in fact, the two famous ones that met at Promontory Point, Utah, as they were getting closer, they were crossing over to the other companies’ territory and blowing up the tracks because they wanted to get more subsidies by laying more track down. There was only one transcontinental that got no government subsidies. That was James J. Hill’s’ Great Northern. It was not by coincidence the only transcontinental that never went bankrupt because they had to put down tracks when it made economic sense, not because the government was throwing money at them,

Gene Tunny 32:06

Another good example I’ll have to investigate. This is the last question; I’d like to ask about some of your other writings and it looks like you have been prolific or regular traveller. Obviously, COVID cut back on all of our travels, but you’ve written some great pieces. You’ve made observations on what we can learn from other countries around the world and in some places that you generally don’t hear about. One of your articles is, “The World’s Oldest Republic Reveals the Secret to Peace and Prosperity”.

Larry Reed 32:46

Yes.

Gene Tunny 32:48

You’ve also drawn lessons from economic history in Italy. I think it was in Italy, your article, “Why the Separation of Bank and State is Important”. Would you be able to explain what is that secret to peace and prosperity? How that’s revealed by the world’s oldest republic and also the point about the separation of bank and state, please.

Larry Reed 33:13

Both of these articles, you can at FEE.org and you can find them also on where I blog on lawrencewreed.com. With regard to the oldest constitutional republic, we published that last Sunday, it’s about the tiny country of San Marino. It’s the fifth smallest country in the world. It’s entirely enveloped by Italy. It’s in the northeast of the Italian peninsula. Right in its middle is this big rock called Mount Titan.

It’s the oldest Republic in the world, dating back to the early fourth century when that chunk of territory was gifted from its private owner, a woman in Rimini, now part of Italy. She gifted it to a Christian stonemason who had fled there to avoid the persecutions of the Emperor Diocletian. She said, “You can have this property.” He, in effect, declared the first, and now the oldest constitutional republic.

Only twice in its history has it been invaded. In both cases, within a matter of months, the pope ordered the invaders out, lest they be attacked by papal forces. They maintained their independence all these years. They have a GDP per capita that’s a shade below that of the United States. The secret is that they have kept themselves economically free.

Freedom House is non-profit that rates countries as to their degree of economic freedom and they rate San Marino as the 12th freest country in the world. Its capital gains tax is only 5%, which is a third of what ours is in the US. It’s much lower than it is in the European community. A great little success story in that quiet little enclave in the Apennine Mountains.

The other example or article that you’re referring to comes from Genoa, on the other side of northwest Italy. Genoa was, for hundreds of years, an Italian city state, much as Pisa and Venice and Gaeta and some others were. The secret to its success, more than any other single entity, was a private bank that was so private, it was in effect, a country within a country. It was called the Bank of St. George.

When it was chartered in 1407, the separation between the bank and the government of Genoa was as complete as it could get. It basically said, “We’re not paying any attention to you and you don’t have to pay any attention to us but you need us.” Because the bank consistently bailed out the state when it got in trouble. But the bank was very firmly on a gold standard, it had a policy of not issuing any paper for which you did not have gold coin on deposit. It was reliable, it was honest, and for hundreds of years, until Napoleon invaded and shut the bank down, it was a rock of stability and a big reason that Genoa became a maritime trading giant in the Mediterranean.

Gene Tunny 36:37

This wasn’t something positive Napoleon brought then. That’s interesting, I have to read more about it. How does it illustrate that the separation of bank and state is important? How does it illustrate that?

Larry Reed 36:52

The Bank of St. George exerted an anti-inflationary pressure on the government of Genoa. Governments love to inflate, and the moment they get in charge of banking, that’s what they do. They print the stuff and makes it easier for them to pay their bills and to run deficits and so forth. The Bank of St. George did not abide by that. They wouldn’t have recognised any coin or paper from the city of Genoa if it hadn’t been sound. Their example spoke volumes to the people of Genoa and across Europe. Here’s a bank that’s in great shape. It has to bail out the government of the region every now and then because they’re profligate, but the bank is not.

I think the separation of bank and state is an issue I wish we spent a lot more time on these days. We’ve assumed that government should be orchestrating the banking system, but the history of government and banking is not a positive one. They take over banking whenever they can because it’s their avenue to depreciating and debauching currency.

Gene Tunny 38:06

I think it’s a big concern when governments set up these banks or shadow banks to promote particular policy objectives. I remember, back in the late 2000s, there was a lot of talk about an infrastructure bank that was something the Obama administration was looking at but didn’t go through with. There were similar moves here in Australia that didn’t amount to anything because it reminded people of what happened in the 80s with the state banks of South Australia and Victoria, the Tricontinental merchant banking arm and they got heavily involved in speculative property development, if I remember correctly, and ended up going bust and costing taxpayers billions of dollars. People still remember that. There’s a risk if governments get involved in banking and financial shenanigans.

Larry Reed 39:06

Too often anyway, we judge government by the stated intentions rather than by actual outcomes and results. If a government came to me and said, “What do you think about us getting into the banking business?” I would probably say to them, “Aren’t you in the post office business already? Aren’t people complaining about that? Why don’t you get that right before you go into banking?” In US, everybody complains about the post office. What makes you think the same entity can manage a nation’s banking system?

Gene Tunny 39:38

Exactly, very good. Larry, any final words? Anything you think we should be thinking about or looking out for?

Larry Reed 39:48

I would say this thing that people everywhere should be thinking more than they are about the importance of individual liberty. We take it for granted in places where we’ve had a lot of it. But there’s nothing about it that’s either automatic or guaranteed, and it can disappear with bad ideas almost overnight. And yet, life without liberty, in my estimation, is unthinkable. We better think about it. I can’t imagine a life in which you aren’t living yours. You’re not making your choices, somebody else is imposing their choices on you. They’re living their lives through you.

I can’t imagine living in that environment as they, to a great extent, do in places like North Korea or Cuba. Liberty is precious, it’s rare in history. It’s never guaranteed and it deserves the conscious deliberation, and sometimes sacrifice of everyone wants to be a free person.

Gene Tunny 40:50

Absolutely. It just occurred to me, we probably should have touched on the pandemic. Feel free to respond to this if you like. Otherwise, we can wrap up. In Australia, we’ve had quite severe restrictions relating to COVID at times and they’ve raised eyebrows around the world. People have thought, “What’s going on there in Australia?” But what a lot of people in Australia say is that’s necessary for the public good.

You may bang on about civil liberties and I have, at times, think some of these restrictions have been excessive. But you get a lot of pushback and people say, “You think you’ve got the rights to do that but you don’t have the right to spread a deadly virus and spread the disease.” That’s how they push back. I agree, I think we’ve lost the original commitment, a strong love of liberty that we’ve had. I think we’ve lost that. People are terrified of this virus and they push back with that line, “You don’t have the right to spread the virus.” I don’t know how to win those arguments, to be honest.

Larry Reed 42:12

There’s something to be said for this and that is that this circumstance was unprecedented and it’s not over yet. That the jury may not yet be completely in with all irrelevant verdicts. I have a sense though, that the more we learn, the more of this we go through, the more experience we have with it, the more we’re likely to look back and say, “Those lockdowns were counterproductive. The mask mandates went on far longer than they should have, if they ever should have been in existence in the first place.” I think a lot of the tools that government employed will come under more scrutiny and questions.

If you’re a cheerleader for them now, I would say, “Why don’t you hold off because you may be embarrassed in the not-too-distant future?” But what concerns me the most is that all of this totalitarian impulse sets dangerous precedents because people who love power, who want it to be concentrated in government and think that the right people will do the right things, they don’t stop with the power that they get. They usually say, “It’s necessary now, I’ll hold on to it.”

In the long run, if we allow this COVID experience to set the new norm for government intervention, radical intervention in our lives across a broad front, we may look back and say, “We would have been a lot better off if we simply endured COVID.” Because one of the worst things that people can do is to consign their lives to politicians. There are a lot of things they end up regretting whenever they do that.

Gene Tunny 43:51

I think that’s a good point, Larry. We might end there. Thanks so much for your time. I enjoyed that conversation. Some great points and excellent historical examples that I’m going to have to look up and add to my arsenal of historical examples that I can bring up. Very good. Lawrence W. Reed, President Emeritus of the Foundation for Economic Education. Really enjoyed the conversation. Thank you so much.

Larry Reed 44:20

My pleasure. Thank you, Gene.

Gene Tunny 44:22

That’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to Contact at economicsexplored.com and we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

Price controls to fight inflation a bad idea + infrastructure lessons from POTUS 21 – EP125

Price controls are being suggested by some commentators as a way to fight inflation. But price controls would be a really bad idea, as Lawrence W. (“Larry”) Reed, President Emeritus of the Foundation for Economic Education (FEE), explains in Economics Explored EP125. Larry also chats with show host Gene Tunny about whether Jesus was a socialist, why banks and the state should be kept separate, and why President Biden would benefit from lessons on infrastructure from the 21st President Chester A. Arthur. You can listen via podcast apps including Google Podcasts, Apple Podcasts, Spotify, and Stitcher or via the player below.

Here’s a video clip of Larry discussing the Parable of Vineyard Workers and whether Jesus was a socialist:

About this episode’s guest – Lawrence W. Reed

Lawrence W. (“Larry”) Reed became President of the Foundation for Economic Education (FEE) in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. He previously served for 21 years as President of the Mackinac Center for Public Policy in Midland, Michigan (1987-2008). He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

In May 2019, he retired to the role of President Emeritus at FEE and assumed the titles of Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty. 

He holds a B.A. in economics from Grove City College (1975) and an M.A. degree in history from Slippery Rock State University (1978), both in Pennsylvania. He holds two honorary doctorates, one from Central Michigan University (public administration, 1993) and Northwood University (laws, 2008).

Reed has authored nearly 2,000 columns and articles in newspapers, magazines and journals in the United States and abroad. His writings have appeared in The Wall Street Journal, The Washington Examiner, Christian Science Monitor, Intellectual Takeout, USA Today, Baltimore Sun, The Epoch Times, Detroit News and Detroit Free Press, among many others. He has authored or coauthored eight books, the most recent being  Was Jesus a Socialist? (a major expansion in 2020 of an earlier essay) and Real Heroes: Inspiring True Stories of Courage, Character and Conviction.  Additionally, he co-authored and edited five e-Books. See the “Books” section of this web site for more info. He is frequently interviewed on radio talk shows and has appeared as a guest on numerous television programs.

Larry’s article “Price controls: killing the messenger”:

Price Controls: Killing the Messenger If You Don’t Like the Message

Larry’s article “Why I wish we could put Chester Arthur and Joe Biden in a room together to talk infrastructure spending”:

https://fee.org/articles/why-i-wish-we-could-put-chester-arthur-and-joe-biden-in-a-room-together-to-talk-infrastructure-spending/

Larry’s article “The World’s Oldest Republic Reveals the Secret to Peace and Prosperity”:

https://fee.org/articles/the-world-s-oldest-republic-reveals-the-secret-to-peace-and-prosperity/

Larry’s article “Why the Separation of Bank and State Is so Important”:

https://fee.org/articles/why-the-separation-of-bank-and-state-is-so-important/

Leonard E. Read’s article “I, Pencil”:

https://fee.org/resources/i-pencil/

Article on “Is It Wrong for Christians to Raise Rent on Tenants? Dave Ramsey Sparks Controversy With His Answer”:

Is It Wrong for Christians to Raise Rent on Tenants? Dave Ramsey Sparks Controversy With His Answer

The parable of the vineyard workers:

https://www.bbc.co.uk/bitesize/guides/zd76rj6/revision/5

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Video clip

Value of dissent for analysis & decision making – Leonora Risse quotes RBG in EP124

In Episode 124 of Economics Explored, Australian Women in Economics Network Chair Dr Leonora Risse reflects on the value of diversity and dissent for analysis and decision making. In the conversation, Leonora mentions that, in a 2019 journal article, she quoted late US Supreme Court Justice Ruth Bader Ginsburg on the importance of dissent. RBG had said:

“There is nothing better than an impressive dissent to lead the author of the majority opinion to refine and clarify her initial circulation.”

Here’s a clip from Episode 124 with Leonora featuring a discussion about the value of having diverse views in economic research and policy advice.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

Women in Economics with Dr Leonora Risse of RMIT, Melbourne – EP124

RMIT’s Dr Leonora Risse, formerly of Harvard’s Women and Public Policy Program, argues greater gender diversity in economics would improve the quality of economic analysis and policy advice. Arguably, it would shine more light on and promote solutions to gender inequality (e.g. the gender pay gap). Is Leonora right, or is this “self-serving identity politics” as some fellow economists have alleged about a focus on gender issues? In Episode 124, Economics Explored host Gene Tunny explores this question in a wide-ranging conversation with Leonora. The discussion considers differing average preferences among male and female economists on policy issues such as fiscal austerity and redistribution, touching on UBI. 

Continue reading “Women in Economics with Dr Leonora Risse of RMIT, Melbourne – EP124”
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Economic update

Price controls aren’t a solution to inflation

Regular Economics Explored guest Darren Brady Nelson has republished some of his papers strongly criticising price controls, which some commentators are now suggesting as a solution to the accelerating inflation we’re seeing in advanced economies. Great points that Darren makes include the following:

The imposition of price controls to deal with inflation does not stop inflation. Rather it combines with inflation to produce a different and worse set of consequences than would inflation alone…

…Politicians have cited a plethora of reasons for introducing price controls – ie price ‘ceilings’ and ‘floors’. At the end of the day, whether they believe these reasons or not is irrelevant to economic outcomes. The outcomes are always bad. Price ceilings always lead to shortages and price floors always lead to surpluses, which often then lead to further government interventions such as rationing and subsidies as well as more taxation, regulation and money printing. Artificial government laws of price controls cannot overcome natural economic laws of supply and demand.

Check out Darren’s papers via the LinkedIn posts below.

https://www.linkedin.com/posts/darren-brady-nelson-702746a3_2016-literature-review-part-1-activity-6890767705268387840-nisu

https://www.linkedin.com/posts/darren-brady-nelson-702746a3_2016-literature-review-part-2-activity-6890768207213330432-HDqa

Regarding inflation, I spoke about the UK’s highest recorded inflation rate in three decades in my latest livestream last Friday:

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

Truth (or the lack of it) in politics and how to think critically with help from Descartes – EP123

Why politicians need to stop lying and cut the endless BS. Episode 123 of Economics Explored features a conversation with Philosophy Professor Deb Brown, Director of the Critical Thinking Project at the University of Queensland. Deb also chats with show host Gene Tunny and guest co-host Tim Hughes about what it means to think critically, drawing on her expertise in philosophy, including her study of Descartes. 

https://economics-explained.simplecast.com/episodes/truth-or-the-lack-of-it-in-politics-and-how-to-think-critically-with-help-from-descartes-ep123

About this episode’s guest – Professor Deb Brown

Deborah Brown is Professor, School of Historical and Philosophical Inquiry at the University of Queensland, Australia. During her time in the Faculty of Humanities and Social Sciences, Deb has coordinated a wide range of projects focusing on critical thinking. She has been instrumental in establishing connections and partnerships within the school sector, including with the Queensland Department of Education, as well as building partnerships across UQ and with international education providers. 

As part of her role, Deb works to link the UQ Critical Thinking Project into relevant projects within the university to provide educators with an understanding of how to embed critical thinking in classroom practice and assessment and to maximise outcomes for students, particularly those from disadvantaged backgrounds. Deb has established a professional development program for educators, booster courses for school and university students and research collaborations with a diverse range of researchers from the broader UQ community. 

Deb has a Bachelor of Arts from the University of Queensland and a Master of Arts and PHD from the University of Toronto.

Abbreviations Deb uses:

  • NAPLAN: National Assessment Program – Literacy and Numeracy
  • SES: Socio-economic status

The Australian ABC News article Deb was quoted in:

Is telling the truth too much to ask of our politicians?

A book Deb highly recommends:

On Bullshit by Harry G. Frankfurt

Article on the AUKUS (Australia-UK-US) nuclear submarine agreement:

What is the AUKUS partnership?

NPR report on Trump-Trudeau argument about the US’s trade balance with Canada:

Trump Admits To Making Up Trade Deficit In Talks With Canadian Prime Minister

Note that the allegation made by President Trump was that the US was running a trade deficit with Canada, whereas the US typically has a trade surplus with Canada (i.e. typically US exports of goods and services to Canada exceed imports to the US from Canada). The White House argued that President Trump was referring to the trade balance relating to goods only and excluding services. 

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

Dan Mitchell on the global tax cartel and California’s economic suicide – EP122

136 countries have agreed to implement a global minimum corporate tax rate of 15%. Renowned US public policy economist Dr Dan Mitchell explains why he thinks this “global tax cartel” is bad news. In episode 122 of Economics Explored, Dan also explains to show host Gene Tunny how California is committing “economic suicide”, and why entrepreneurs are moving to Texas, Nevada, and Florida, among other low tax states. 

https://economics-explained.simplecast.com/episodes/dan-mitchell-on-the-global-tax-cartel-and-californias-economic-suicide-ep122

Here’s a clip from the conversation that Dan has shared on YouTube:

About this episode’s guest – Dr Dan Mitchell

Dan Mitchell is Chairman of the Center for Freedom and Prosperity, a pro-market public policy organization he founded in 2000. His major research interests include tax reform, international tax competition, and the economic burden of government spending. Having also worked at the Heritage Foundation and Cato Institute, he has decades of experience writing editorials, working with the public policy community, and presenting the free-market viewpoint to media sources. He holds a PhD in economics from George Mason University.

Relevant posts on Dan’s International Liberty blog:

Yes, Starve the Beast
The Need for Global Tax Competition
The Global Tax Cartel Is a Victory for Politicians over Workers
The Necessary and Valuable Economic Role of Tax Havens
California and Economic Suicide

Other relevant material:

https://www.weforum.org/agenda/2021/11/global-minimum-tax-rate-deal-signed-countries/

https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/g20-endorses-global-minimum-tax-rate

https://www.reuters.com/business/ireland-backs-global-tax-deal-gives-up-prized-125-rate-2021-10-07/

Information on incidence of corporate taxation 

In his textbook Public Finance and Public Policy (6th edition, p. 748), MIT’s Jonathan Gruber wrote:

Suarez Serrato and Zidar (2016) estimate that 35% of corporate taxes are shifted to wages, 25% is shifted to land owners (through general equilibrium effects), and 40% is borne by corporate owners. 

The study Gruber cites was published in vol 106, no. 9 of the American Economic Review:

Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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What is the Economy? And Why It Matters to You | EP121

What is the Economy? And Why It Matters to You is a new book from UK economics writers Beth Leslie and Joe Richards, who are interviewed in episode 121 of Economics Explored. Legendary music producer Brian Eno has endorsed the book, writing “This clear and comprehensible book is long overdue.”

https://economics-explained.simplecast.com/episodes/what-is-the-economy-and-why-it-matters-to-you-ep121

About this episode’s guests – Beth Leslie and Joe Richards

Beth Leslie is a writer and editor. She became interested in economics when she realised it was a great way to better understand the world around her. Beth is currently the Editor for Economy, a charity that seeks to make economics more understandable for everyone.

Joe Richards is an author, educator and economist. After the financial crash of 2008, Joe’s family lost their business and the home they grew up in. Spotting a lack of public understanding in the economy, Joe’s journey in economics began. Joe campaigned to make economics more accessible for everyone, working with organizations from the Bank of England and BBC News, to local schools and the UK government.

Where you can purchase What is the Economy? And Why it Matters to You:

US https://www.bloomsbury.com/us/what-is-the-economy-9781786995605/

UK https://www.bloomsbury.com/uk/what-is-the-economy-9781786995605/

Australia https://www.booktopia.com.au/what-is-the-economy–beth-leslie/book/9781786995605.html

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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Podcast episode

120. Inflation, Covid, China & Crypto

2021 saw accelerating inflation in advanced economies, the pandemic continuing, cracks appearing in the Chinese economic model, and massive price growth in cryptocurrencies and NFTs. In episode 120, Economics Explored host Gene Tunny discusses the big issues of 2021 and looks forward to 2022 with frequent guest Tim Hughes.

https://economics-explained.simplecast.com/episodes/120-inflation-covid-china-crypto-looking-back-on-2021-and-forward-to-2022

The episode also features discussion on the COP26 climate change summit, the idea of “degrowth” advanced by some ecologists and environmentalists, and feedback on EP115 on the Opioid Crisis and the War on Drugs.  

Crazy Crypto charts Gene refers to in the episode

Australia’s largest bitcoin mine hopes to utilise unused renewable energy and lead the world on decarbonisation

Covid: Dutch go into Christmas lockdown over Omicron wave

 WHO forecasts coronavirus pandemic will end in 2022

China struggles to shrug off weak consumer spending and property woes 

China Evergrande reports progress in resuming home deliveries

Life in a ‘degrowth’ economy, and why you might actually enjoy it

EP115 – The Opioid Crisis and the War on Drugs

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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