Categories
Podcast episode

US debt ceiling & Gene’s Aussie debt ceiling experience in the GFC | Emerging economies debt crisis – EP190

Host Gene Tunny discusses the US debt ceiling and the emerging economies debt crisis with his Adept Economics colleague Arturo Espinoza. Gene shares a memory of his own experience with the debt ceiling the Australian Government had at the time of the 2008 global financial crisis (GFC). 

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

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP190

  • [04:35] US debt ceiling negotiations. 
  • [09:18] US hitting its debt ceiling.
  • [14:51] The trillion-dollar coin as a possible workaround. 
  • [16:14] Spending and revenue challenges. 
  • [26:05] Australian debt ceiling legislation in 2008-09. 
  • [29:05] US debt limit and consequences. 
  • [33:25] Argentina’s economic struggles. 
  • [40:02] IMF’s Nightmarish Identity Crisis & emerging economies debt crisis. 
  • [42:27] China’s role in emerging markets debt. 
  • [45:13] PNG and China. 

Links relevant to the conversation

Links relevant to the conversation

Noah Smith’s Subtack post:

https://open.substack.com/pub/noahpinion/p/the-debt-ceiling-deal-what-was-the?r=2hwg1&utm_campaign=post&utm_medium=email

Treasury to take ‘extraordinary measures’ as US hits debt ceiling | Financial Times 

Michael Knox’s note on the debt ceiling:

AUS_ESQ_230523_US government shutdowns and why US treasuries never default.pdf

https://www.whitehouse.gov/cea/written-materials/2023/05/03/debt-ceiling-scenarios/

Federal Spending | U.S. Treasury Fiscal Data

The future US fiscal crisis and how to avert it w/ Romina Boccia, Cato Institute – EP159 – Economics Explored

The IMF faces a nightmarish identity crisis

How China changed the game for countries in default | Financial Times

There Is No Chinese ‘Debt Trap’ – The Atlantic 

Fiscal Monitor April 2023

Argentina raises interest rate to 97% as it struggles to tackle inflation | CNN Business 

Argentina inflation smashes past every forecast to hit 109% | Reuters

Transcript:
US debt ceiling & Gene’s Aussie debt ceiling experience in the GFC | Emerging economies debt crisis – EP190

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  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning in to the show. In this episode, I chat with my adept economics colleague Arturo Espinosa about the US debt ceiling in the emerging economies debt crisis. We recorded this episode last week on Thursday the 25th of May. A few days before we learned the White House and the Republican leadership have agreed to a deal to avert the US government from running out of money and having to choose between paying bondholders or Social Security recipients. So please keep that in mind when listening to this episode. I thought the Republicans would hold out longer than they did and I was surprised they reached this agreement over the weekend, particularly given the new estimate of when the government will run out of money is June the fifth. That is Monday next week. They may have been worried about how the financial markets might react if an agreement wasn’t breached. And they wanted to avoid suffering politically for any market falls. Also, House Speaker Kevin McCarthy probably figured he needed to reach agreement with the White House over the weekend. So we could get the debt ceiling lifted by Congress this week. Apparently things can still go wrong, as the debt ceiling does need to be lifted by Congress. And it’s up to Speaker McCarthy to ensure his deal is backed by his Republican colleagues. From what I can tell the agreement between the White House and the Republican leaders doesn’t go far enough to fix the structural problems with the US deficit, which I’ve talked about on the show before. Prominent substack analysis Smith is written a manufactured crisis leads to an ineffectual solution. I’ll link to his post in the show notes because it contains a good summary of what the deal covers, including a freeze on discretionary spending in 2020 for 1% growth in 2025. And this will amount to a significant real cut in discretionary spending given inflation. However, as Arturo and I discussed in our conversation, the problem with the US budget is that a large part of it is non discretionary. Around two thirds of it is mandatory as a result of legislation and regulations defining eligibility for different government benefits. That’s an issue for budgets around the world. I should note of course, and we have a similar issue here in Australia. The point I’m making is that it’s very difficult to actually fix these budgetary problems without getting stuck into some major welfare programmes that that can be quite popular. So the Republicans got some concessions from the White House such as a spending freeze and expanded work requirements for food stamps. But I expect the US government will still have a sizable budget deficit and it will keep on accumulating debt. Again, the can has been kicked down the road, as they say. However, at least we may have avoided what could have been a new economic crisis for now. I’d be interested in your thoughts on the US debt ceiling? Do you think having a ceiling is good or bad? How can the US get its budget repaired? You can email me via contact and economics explored. I’d love to hear from you. As always check out the shownotes relevant links and information. I’m recording this introduction around 24 hours before this episode gets published. Anything major happens between now and then I’ll mention it in the show notes. Right oh, now on to the show. Thanks for tuning into the show. In this episode, I’m going to have a conversation about some topical global macro economic issues with my colleague at adapt economics. Arturo Espinosa, Arturo, thanks for joining me again on the programme. Hey, now happy to be here. Excellent. Out here. I thought given all of the the news around the US debt ceiling and the it’s unclear what these negotiations will bring that there’s a possibility the US Treasury could run out of money on the the first of June, according to Janet Yellen. So in early June, there are other estimates of when that will occur. But there’s a general view that things are going to be very difficult for the US Treasury in well next month. So yeah, we’re really at the The point in the negotiations was something has to happen, or else we’re going to have a real serious problem, aren’t we? So I thought we could have a chat about the US debt crisis first, then we might talk about the developing economy, debt crisis. And then if we get time, we might touch on what’s been happening in in Argentina with inflation and interest rates. There’s some big news coming out of there. So does that sound like a good approach? Good thing? Good agenda?

Arturo Espinoza Bocangel  05:29

Yes. It sounds interesting.

Gene Tunny  05:32

Very good. So when we’re talking about the US debt ceiling? Well, given we’re talking about I should know that we’re recording this on the On Thursday, the 25th of May. Now when this episode comes out, the week after, who knows? I mean, something could have happened, there could have been some development. I mean, I’m expecting they’ll just go right down to the wire, though. The Republicans, they will just hold out as long as they can. Before they agree to some package or some they make some compromise with the White House, with Biden and with the Democrats. Just because it’s politically advantageous for them to do this. And so there’s politics involved. And it’s very difficult to, to see how that how this, how this will play out. My view is that we won’t have the US government defaulting, there may be some sort of shut down for a few days, a week, a couple of weeks. The US government has shut down in the past. I mean, it’s shut down some agencies that shut down some national monuments you couldn’t get in to see them. And there were public servants that were temporarily laid off. But generally the US government does meet its its obligations to bondholders. It hasn’t defaulted. In fact, there’s a clause in the amendment to the Constitution that says it has to respect the the I think the executive has to respect the full faith and credit of the US or make sure that that is implemented. Was it the 14th Amendment, I’ll put it in the show notes. But I think it’d be it’d be such an extraordinary situation to see. This era, the US government effectively run out of money, and then not have to pay bondholders. And this is, this is something that Michael Knox has written about in a really good note that I’ll link to in the show notes, where Michael writes that he’s written this note US government shutdowns and why US Treasuries never default. And what Michael’s written so Michael is Chief Economist at Morgan’s here, a major financial advisory firm in Brisbane here. So they, while a stock broking, they do stock broking wealth management. He said in practical terms, the first right of payment for US Treasury bonds continues when the government shuts down us taxation revenue is used to pay the money owed on US Treasury bonds first, and US government employees second, this system has continued from 7091 until this day, this is why US Treasury bonds never default. So, Michaels fairly optimistic about how this plays out. Michael’s a keen observer of, of what’s happening in the States. And I think he’s someone that I respect a lot. So let’s hope he’s, he’s right there. Because I mean, it clearly would be a really extraordinary thing if the US Treasury couldn’t pay or couldn’t meet its debt re payments or couldn’t pay the interest on Treasury bonds, it would be extraordinary. And this is all come about because they have a limit, a legislated limit on how much the national debt can be what the total amount of bonds on issue can be. And that was around I think it’s around 31 trillion. I had that. I’ve got that in the notes somewhere. I’ll put it in the show notes. And they basically hit that limit earlier this year. So around around January, so January 19, the US hit its debt ceiling of $31.4 trillion. And since then, what they’ve been doing, they’ve been taken what Janet Yellen, the Treasury Secretary has called extraordinary measures. So they’ve been not making certain payments that they would into trust funds and so forth. I think retirement benefits for public servants have I remember correctly. So there are certain things that they’ve they’ve been doing to delay the the inevitable when you you run out of money. This is a sort of thing you can do if you’re in a Treasury or a finance ministry there. There is some flexibility there but you you can only do that for so Long. Yep. So I’ll put this in the show notes. There was a great article in the Financial Times earlier this year, which explained this. And it wrote that in order to create additional borrowing capacity, Yellen on Thursday said the Treasury would cease investments into the civil service retirement and disability fund, as well as the Postal Service retiree health benefits fund. So that’s one of the extraordinary measures that they’re being taken to, to really just delay the inevitable when that lack of ability to borrow new money from the market, so the ability to issue new debt, I mean, eventually, you’re going to need to do that. And, and Janet Yellen has previously said that, that critical date is essentially first of June or early June. So as you said that before and we’re fast approaching that date, aren’t we? So? Any thoughts so far, Arturo?

Arturo Espinoza Bocangel  11:02

Well, he’s a very important issue, the in well, in the worst case, or worse scenarios, one effect on the global economy.

Gene Tunny  11:15

Right. So you’ve found there’s a note from the White House, isn’t there? They’ve done some analysis? Yes,

Arturo Espinoza Bocangel  11:21

yes. In the White House, they have published I article, which is a potential economic impact of various debt ceiling scenarios provided by the CEA, the Council of Economic Advisers. The point to be highlighted here is that, for example, there are some estimates about economic effect of debt ceiling standoff for the third quarter 2023. For example, in terms of jobs, the American economy would lose around a point three millions of jobs, just in terms of real GDP, annualised growth, they will lose 6.1. And then deployment will reach almost 5%

Gene Tunny  12:13

G. Given Yeah, okay, I’ll have to I’ll have to look at the night to see how they’ve calculated or given those job losses you reported, I would have thought unemployment would would end up being higher than that in that scenario. Now, a couple of things to think about. It’s from the White House. So it’s they’ve got an agenda clear. They want the debt ceiling increase, they want the Republicans to agree to that with very few conditions. So we’ll come in, it’s going to be self serving to an extent. And I mean, it’s one of these things, how do you actually model this? This scenario? We haven’t really seen it before. We’ve seen plenty of government shutdowns. before. I think Michael had an estimate in his note that there’s been a it’s been over a dozen since 1980. If I remember correctly, I’ll put a link to that. I thought, Michaels No, it was really, really great. So yeah, I mean, it’s clearly would be bad. I mean, it’s a US government just completely was unable to function effectively, because it couldn’t borrow any new money, but it still had to make it was still obligated legally to pay Social Security benefits Medicare, and it also still wants to fund defence and all the other things the US government does, there. Yes, it’s got a problem there. And there have been various ideas floated for how the government could possibly get around it, but the legality of them is a bit suspect. There’s a view that Well, Congress is effectively saying, one view I’ve heard is that, because Congress is sent two different sets of instructions to the White House to the executive, it’s up to the executive to the White House to choose which set of instructions to follow. So on the one hand, Congress is saying you can’t borrow any more than $31 trillion, you are sorry, you can’t have that as your total debt, anything more than that. So once you hit that, bad luck, you’re not going to get any new funding. But then, at the same time, Congress has also told the White House has told the executive government that you have to fund these social security benefits, you have to pay this in Medicare, etc. And so there’s this conflict there. And and so one view is that we’ll the Biden administration should just ignore the the debt ceiling, but then yeah, then it’s operating in a very legal grey area, or probably a red area or however you describe it, it’s possibly illegal. The other idea is is trillion dollar coin. Have you heard this idea that the because the US Mint has the power to well, the US Treasury, the US Mint can mint coins, it has the power to do that it could essentially meant a $1 trillion coin, like a platinum coin would stay $1 trillion. This was one. This was one idea this was floated over 10 years ago, the last time they had a debt crisis. And the idea was your walk that trillion dollar coin after the Federal Reserve, and then say, Oh, here’s our deposit, can you put this in our bank account? So suddenly, we’ve got an extra trillion dollars. And that’s another thing that the legality of it was probably questionable. And, and look, it doesn’t, it doesn’t solve the problem. And in that sort of getting into the modern monetary theory, approach, where the government’s just printing money, creating new money, whereas what you want to be doing is, you do want to be selling the bonds into the private market so that you’re not adding to the money supply with your fiscal policy. So it’s important to be able to borrow from the market if you are going to run deficits. So yeah, really, really tricky. tricky situation there. Any any questions on that? Arturo?

Arturo Espinoza Bocangel  16:14

Probably the equity or the share market is like, quite volatile at this moment, given this, this issue.

Gene Tunny  16:22

Yeah. And imagine what would happen. I mean, the markets would just go crazy if they don’t resolve, which tends to suggest that they will resolve it somehow, because the Republicans there. They believe in America, they don’t want to harm America, they’ve got donors who, who don’t want the economy to crash. And so I think ultimately, there will be some sort of compromise, but it’s a bit of a game at the moment. It’s brinksmanship, as they call it, they want to get as much as they can. The problem is, and there was a great conversation I had last year in October last year, with Romina Bochy, she is a fellow at the Cato Institute in Washington, DC. And she was explaining how this is, it’s about it’s a spending issue. It’s that they’re spending too much relative to their revenue. And we talked about the structural deficit in the States, as in Australia, we’ve got this structural budget deficit, we’ve got this gap in sort of normal times, or if you think about trying to abstract from the economic cycle, try to control for that you’ve got this gap between revenue and spending. And given that tax increases are unpopular, and it’s so difficult to for governments to raise taxes, and there is an economic efficiency, cost with taxes. So you do want to keep taxes as low as possible. That’s not something they can adjust. But then at the same time, they’ve got these entitlements, such as Medicare and Social Security, that mean that government spending is just going to keep increasing. And it’s a big challenge. And they’ve also got the military now that could argue that I mean, does the I mean, America does spend a lot on the military. I saw the numbers from the US Treasury, the US Treasury fiscal data. I’ll put a link to this in the show notes. And you can see where the the federal government is, is spending its money or spending the money of US taxpayers, I should say, That’s stopped working on my machine. But it was a great chart. I’ll put a link in the show notes that I think it’s about $800 billion or something is it that’s spent on defensive you got it there, Arturo.

Arturo Espinoza Bocangel  18:45

You talk about the national defence? Yes. Is 767 767

Gene Tunny  18:54

billion was that in 2022 2020? Yeah. So there’s a lot there. Now, the US spends much more on national defence than any other country, but at the same time, it is one of the global superpowers and plays an important role in global security. So that’s a big, that’s a big challenge. Maybe you can get some efficiency gains in the Pentagon, there is a bit of concern about the efficiency of spending of defence spending. There’s concerns about the Pentagon failing audits. I don’t know if you’ve seen that John Stewart really ripped into one of the Pentagon officials department.

Arturo Espinoza Bocangel  19:36

So the problem there

Gene Tunny  19:39

are essentially she was asking her well, should we? Is it good enough? It’s been he’s employed, implying is not good enough that the defence department can’t account for all the all the money that it’s spending and it’s failing audits. So then she was saying, yeah, it is a problem. We’re trying to fix it. And he was really going after it. And rightly so they’re spending nearly $800 billion. But guess what, what if you look at the spending data, what I’m trying to say is that it’s difficult, given what they’re spending money on, and the big ticket items are health, Medicare, Social Security defence, you can’t really make the budget adjustments without touching some of those spending areas if you don’t want to raise taxes. And that’s probably not going to happen. But then if the problem that they’ve got in the US is that all of the the way you would fix this is by modifying programmes that are popular or going after the defence budget, and that’s going to be difficult because of the concern about the conflict with grants, growing risk of a conflict with China, so they won’t be able to do that. And politically, it’s very difficult to do anything about Social Security and Medicare, and Donald Trump came out and the other the other month, I think, a month or so ago and said, Look, I’m not going to touch it. So given Trump has declared that other Republican candidates, they won’t be able to, to propose any changes. So it’s, it’s going to be very difficult that they might be able to make some savings in, in other areas, but then you’re talking about things like the Department of Transportation or, or the EPA, other agencies like that Housing and Urban Development, perhaps, if that’s still around. So it is, it’s going to be very difficult for the US. Okay, yeah, yeah, HUDs. Housing, urban development certainly does still exist as an agency. Okay, so that’s the debt ceiling. I mean, we don’t really know how it’s going to play out, I think most likely, they’ll come up with some deal. So they will have to be some cuts to non core, maybe non core is not the right word. But they’ll have to be some cuts to agencies within programmes which are less popular. So that’s what we’ll we’ll end up seeing the Republicans will declare a win of some kind, maybe they’ll get some commitment that over five or 10 years, there’ll be there’ll be particular reductions relative to the baseline. But I mean, some they’ll have to, they’ll have to lift the debt ceiling, because the alternative is just so unknown, and new cause such global uncertainty, really, and potentially, lots of economic, economic pain for the US and for the world, given the role of the US and the global economy. And he thought so to her

Arturo Espinoza Bocangel  22:49

while thinking about the when I talk about when we talk about a ceilings of any timing economics. I think that individuals tend to spend spare, for example, if you say to your friend, you, you’re allowed to spend $100, yes, some maximum money they can pay you in order to pin one, let’s say to buy alcohol or drinks. Of course, the the train is gonna spend $100, I think that kind of ceilings are not optimal in economics, because people tend to reach that point, every time they have the opportunity.

Gene Tunny  23:37

Right. I think I understand what you’re saying. So psychologically, but wouldn’t that be suggesting that there could be a benefit from a ceiling? I mean, I don’t I don’t think that I don’t think there should be a ceiling on on this sort of thing, because I don’t think it’s helpful. And it does lead to situations like this. But if you’re saying like, psychologically, that this is, I think, in some cases, like, if there’s someone who has impulse control problems, then maybe they need to have some ceiling to control their, their, their behaviour. So I think, part of the logic for having the ceiling in the first place in the States and we had one in Australia, I’ll talk about that in a moment. It was the limit the the potential of the President to go and borrow a lot of money because there was a concern 100 years ago, or something that the President could go and borrow a lot of money for the to, you know, fund their own programmes and, and get around the Congress. And so they imposed a debt limit of much lower than it is now because it’s been increased over the years as the economy has grown, the federal government’s grown and they’ve, they’ve have needed to increase it. So you can see why they they might introduce it. The problem comes when you’ve got legislation that tells the government to spend money on other things and the spending is mandatory. There’s not there’s no discretion there. It has to provide the Social Security benefits by law or Medicare based on the legislation. And so you’ve got one active congress this priorities. Yeah, that’s conflicting with the other legislation. So this is why I think there is some logic to this, the concept that the Congress has sent two sets of instructions that are incompatible with each other, and therefore the White House should have some discretion in how in how to deal with it. I mean, I’m quite sympathetic towards that argument. I just think legally, it’s, it’s, it’s problematic, it’ll, it’s most likely problematic. So yeah, but one thing I would have thought I’d mention is that we had this issue in Australia here, about 14 years ago, when I was in the treasury, and this was one of the things I was responsible for, we had to amend the, what was called the Commonwealth inscribed STOCK Act. This is quite amusing. When you think about where federal debt is now. I mean, maybe it’s not amusing, or it’s amusing. It’s black humour. It’s, it shouldn’t laugh about this. But prior to the financial crisis, we only had $50 billion of government bonds on issue, because we’d pay down all this debt, partly because we sold off some public assets or government owned businesses like Telstra. And they set in the legislation in Section five, I think it was at the Commonwealth inscribe STOCK Act, they set a limit of $75 billion for government bonds on issue. Okay. And then as soon as we have the, we get into the financial crisis, and they only I think they set this limit in 2007. Okay, so come, we get to the end of 2008. And this is when I’m in budget policy division in the treasury. And we do the forecasts as to, you know, what’s happening with revenue. And then what’s happening with with the borrowing requirement, I mean, we suddenly had to start borrowing new money, we had to start increasing debt, because we’d have to be running deficits. We this federal government wasn’t running deficits. But now with the collapse in revenue, and the possibility of, of stimulus spending that the government wanted to enact or bring in, then we’re going to be running deficits would have to borrow, borrow money, and add to the debt. And this was going to be difficult, because there was a $75 billion limit. Now, when we did the budget update over the next month or so. And we published it in early February. And it was clear that the debt was heading toward 200 billion. So we had it was 50 billion before the financial crisis, then and the debt limit was 75 billion. But when we did the projections are the forecasts in Wait, oh, eight, early Oh, nine, we ended up figuring out we needed to lift that limit to 200 billion. And so we had to change the the act of parliament, it’s just changing one number, we had to change 75 to 200. But our cause such a political mess, and Malcolm Turnbull, the opposition leader decided to oppose it. And yeah, and the government got it up with the support of the crush the crossbench senators with the greens, I actually remember going with David Parker, who was acting treasury secretary at the time, and we had to go and talk to Bob Brown and his staff. He was he was head of the greens in Parliament House, we had to say why this was important? Well, it’s the same thing. I mean, the government has these commitments, it’s required to spend money on these different programmes. And you then can’t say that they can’t borrow the money to meet that to actually meet those commitments. It’s, it’s inconsistent. It’s not, it’s not right, you should lift the you need to lift the the debt limit, or there’s going to be bad consequences, the government might be able to pay to make payments or it won’t be able to enact stimulus measures. Now, there’s a debate about whether stimulus measures are unnecessary or desirable. And I’ve had some episodes on that. I might link to one with Tony Macon. So that’s an that’s an issue for another another day. What I was just emphasising is that the US is now I think I’ve heard it expressed that it’s the only country which has this actual debt limit, or it’s got this conflict between what the debt limit is and what other legislation tells the government to do. But we did have this in Australia about a well over 10 years ago, they amended it they got rid of this legal was about 10 years ago or so now, but we did have this issue. So I just thought I’d note that was that something I was personally involved in in Costa It caused a little bit of angst at the time, it was a huge political issue. Yeah. So yep. So there’s a again, we’re recording this on the 25th of May. So who knows? It may be resolved by the time this episode is published, but I doubt it. I think there’ll be negotiating right until the last minute and the Republicans will be trying to extract as much as many wins or gains as they can. Now, I’m not saying they’re badly motivated. I think they genuinely believe that there’s too much federal government spending and, you know, they, they do want to make savings there. But, look, it’s so difficult politically, because the programmes they probably need to cut according or to adjust, according to Romina had that great conversation with her last year. They are politically popular programmes, so it’s going to be very difficult. Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  31:00

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  31:29

Now back to the show. You’ve been looking at what’s happening in Argentina, I saw a news report the other week that the as a central bank have to they’ve had to put the interest rate up to 98% or 90%. Yeah, that’s, yeah. So what’s going on in Argentina? Well,

Arturo Espinoza Bocangel  31:49

I think Argentina in the last decades, is facing these problems, economic problems in terms of inflation, and also exchange rates. Both problems are the most important that Argentina are not able this case I’m an internet is not able to deal with it, or solve it. Currently in Argentina, there they are facing a soaring inflation. Also, there is a what there is a lack of USA dollars,

Gene Tunny  32:26

or on what’s the inflation right there.

Arturo Espinoza Bocangel  32:28

In April, the monthly inflation rate reach 8.4% 8.4%. Monthly. Yes. And the annual inflation rate was more than 100%. More than 1%.

Gene Tunny  32:42

Yeah. And is it the problem we talked about in our episode on hyperinflation? I mean, it’s not a hyperinflation yet. Technically, because then you Hyperinflation is when you have 50% a month, I think, is it just bad government? Fiscal policy? Is it money printing?

Arturo Espinoza Bocangel  32:57

The main one of them employment or mayor permanent is? Lack of fiscal rules at the school? What sorry? Rigorous?

Gene Tunny  33:07

Do you mean, they don’t follow good public finance practices? Yeah. Right. Yeah. Yeah. Okay, I might have a closer look at that. But I was just really stung by the what’s been happening there with the inflation and the interest rate, because it’d be there a country that in the past, they’ve had, you know, problems have borrowed too much money they’ve had to default effectively, and, you know, renegotiate with creditors. Yeah, I’ve

Arturo Espinoza Bocangel  33:35

found also that this inflation, has pushed one in four people into poverty in our country, in this case, Argentina that has battled for decades with high inflation. Yeah. And also, if we had another problem, which is the historical the historical drove, seen last year, which has damaged the Argentinian soybeans because they are the major producer of corns with and soybeans and they rely on on the export of those. Yeah, also, they are not receiving enough use of American dollars. So there was there’s no problem there.

Gene Tunny  34:17

Yeah. The extraordinary thing about Argentina is that it was once one of the richest countries in the world wasn’t it in the late 19th century? During the gold during the gold rush? Yeah. Yeah. And just bad policy over the 20th century. Was it? Was it the bronze who are in Argentina Yeah. Why and Aveda Braun? Yeah, yeah, just really beyond bad economic management. So yes. Anything else on that odd zero on Argentina,

Arturo Espinoza Bocangel  34:50

just to that there is a mediatic presidential candidate named Emily has allowed to burn to burn The central bank so they, they want to Oh, he wants to shut down the Argentinian cell from bang. If he assume HIV takeover the president, she’ll office.

Gene Tunny  35:11

So what did you say he’s a candidate is? Did you mention his party? Did you or?

Arturo Espinoza Bocangel  35:16

No, I haven’t mentioned the party, but he’s leading the boring.

Gene Tunny  35:22

Right. So he wants to get rid of the central bank. Does he want to replace it with a new central bank?

Arturo Espinoza Bocangel  35:27

Probably? Yeah, sure.

Gene Tunny  35:30

Well, given the given the problems that have gone in Argentina, I mean, who knows? I mean, maybe you need some radical approach like that? I really don’t know. I’d have to look more closely at it. It’s, yeah, it’s a bit of a mess. Right. Okay. Well, I mean, luckily, in Australia, and I mean, even in the US, we’ve, I mean, despite all the problems we’ve been talking about, we do have, we have had generally better management than, say, Argentina. But but let’s say they sorted out because you I think you made a very important point that the, the misery that this causes the misery that comes from bad economic policy, was it one in four people who’ve gone and been thrown into poverty? And that’s what inflation does, right? It erodes the value of, of the money that you’re holding? And, yeah, it’s really bad. And if you’re on a fixed income, or if you’re on a pension that’s been paid in dollars, a certain amount of dollars, then inflation goes up, you’re in a whole lot of trouble.

Arturo Espinoza Bocangel  36:33

They’ve retired. Suffering from

Gene Tunny  36:37

Yeah, and I mean, our pension is here in Australia, as suffering from the inflation we’ve experienced. And now we’ve just learned about 22%, or whatever it was increase in electricity bills. Right. Okay. So that’s, that was Argentina. The other thing I wanted to talk about Arturo, is this, this developing market or developing economy, emerging market, debt crisis that we’ve that’s become quite prominent and was talked about at the the IMF World Bank spring meeting that they have in, in DC, and this was in April, but it’s still still going on. This is something that an issue which will be with us for some time. And what we’ve seen is that there’s been this big increase in, in debt of many developing economies over the last decade or so. And China’s playing a part in that. And this whole debate about China debt trap is China and trapping countries, by lending the money and then seizing their assets when they can’t repay as at lending them for and knowing that they’re not going to be able to repay. Now there’s a big debate about that. I might have to cover that in a specific episode, because I know one of the things we’ve been looking at on this show is, to what extent should we worry about China? To what extent is China a threat? What does that mean for the global economy? And I mean, I’ve been trying to get a wide range of views on that. There was a paper in the wall, there was an article in The Atlantic Monthly from some quite prominent academics in the States. So Deborah Browder, gam from the China Africa Research Initiative. And she’s a professor at Johns Hopkins, very famous school over there. And Meg rothmeyer. Meyer, who is a associate professor at Harvard Business School, so an equally famous school. And they argued that the Chinese debt trap is a myth. So I’ll put a link to that. And they go over all the complexity of what actually happened in Sri Lanka when, when the Chinese bank, I think it was took over that, that port. So there’s a bit of a debate about that. But there’s no doubt that there is this developing economy debt crisis at the moment, we’ve had large increases in debt to GDP. And one of the things that the managing director of the IMF pointed out in the, in her opening remarks is that of this very high percentage of well, not well, you could say it’s, it’s high, if you think about what it means. So 15% of low income countries were already in debt, distress. And so we’re talking about countries like Zambia is is one of those countries in various other African countries. And they’re having they’re having problems paying back their debts. And then there’s this need, potentially to restructure their debts reach a new agreement with their creditors. And one of the one of the issues that we’re we’ve, we’ve discovered, and this is something that’s concerning commentators, and it’s also concerning the IMF because they’re caught in the middle of this. The Economist has called this a nightmarish identity crisis. For the IMF, it said it’s caught between America and China, its purpose is unclear, because an increasing amount of the debt that that has been accumulated by emerging economies, it’s coming from China. And that’s, and that was before Belt and Road Initiative. But it’s also associated with this new Belton Road initiative that Xi Jinping has introducing that is introduced, because a lot lot more of it’s coming from China, then it’s, it’s difficult because the IMF when it wants to assist countries, if they get into trouble, because the role of the IMF is to try and guarantee financial stability and one, one thing they do is to provide emergency lending, Short Term Lending to countries that get into trouble. But what we’re finding now is that because China is involved, it’s one of the creditors. Usually the IMF wants the country to renegotiate its, its debts with its its creditors. It wants to make sure it’s sustainable. It can it’s got sustainable debts, that it’s it’s going to be in a good position to to repay the IMF, if the IMS gonna lend to it, it’s going to provide some emergency assistance, that that countries might need to help shore up their exchange rate or to help them actually meet their their debt obligations. Because part of the problem is that if you’re an emerging market economy, you typically have to borrow in foreign currency you have to borrow in US dollars. For example, actually,

Arturo Espinoza Bocangel  41:50

Argentina has received almost 44 billion from the IMF,

Gene Tunny  41:54

sorry, Argentina has received 44 billion Yep. So Argentina is part of this part of the story. Yeah, but what they’re finding, and this is, this is something that is really a concern to the people in in DC and London and the other, the other Western capitals. The problem is that China is playing hardball in the negotiations, and it’s been difficult in terms of the renegotiation of the debt. I mean, support is a China also has just been like any other creditor in the past, like US banks may have been in the past. But it’s essentially saying that if the US or if the IMF is gonna come in and lend money, then they have to lend on concessional terms to they have to share the pain with with China or with other creditors. So historically, the IMF has been superior to the IMF and World Bank, they’ve been superior to other creditors. But now that China’s involved there, China’s pushing back. And yeah, it’s a rather fast, fascinating story. I’ll put some links to these articles from the economist in the FT but possibly paywalled. So maybe I’ll also try to find some some articles that don’t have a paywall. But basically, this is part of this new conflict that we’re seeing between the US and its allies and China. So we’re seeing, you know, this is another area of tension and other another aspect of that, that conflict. That is that’s heating up. So I just found that really fascinating that we do have this emerging market debt problem again, I mean, this was a huge issue in the in the 80s, then it was Latin America. And now it’s a wide range of countries, including Papua New Guinea to our north, apparently, I saw that they’re a country that’s high risk of fiscal distress where they, they need to, yeah, they may need to renegotiate their debts. So it’s countries in Africa and

Arturo Espinoza Bocangel  44:11

in the case of PNG, Australia, would play an important role in case they they fail in some economic indicators, or

Gene Tunny  44:23

Yeah, I mean, we do provide assistance already to PNG and I think yeah, worst case scenario, we would have to do something because it’s, it’s to our north,

Arturo Espinoza Bocangel  44:33

but now with the Chinese presence is that is gonna be different.

Gene Tunny  44:39

Well, I know they’re in the Solomons ought to look at what China I mean, I guess China is trying to get influence all around the Pacific. But yeah, I mean, I think we would try to, you know, make do it. Do as much as we can for to, you know, to help out p&g Given that it’s to our north, and it’s strategically important. I mean, when we fought the Japanese during World War Two, there was fighting in PNG. Right. So that was a battlefield. Okay. So, yeah, it’s strategically important. Now, yeah, I’ll put a link to some information about PNG and this, you know, how it figures in this conflict with China or this geopolitical tension, maybe not maybe conflicts around work, because I’d like to, I’m hoping that that we are going to be able to, to maintain peace. The alternative is just so horrific at the same time, we need to we do need to protect our national interests, and be conscious of any attempts to go against that. Yeah. So yeah, China’s Yeah, the Chinese President Xi Jinping visited Papa New Guinea four years ago, there was no doubt about China’s green ambitions in the region. This is saying that much of China’s promised aid and investment never materialised. So Beijing is trying to ingratiate itself with PNG. It’s a great defund construction of a hospital for PNGs. Military. So I guess it is an issue that we do need to watch. But we’ve got a star, we’ve got historic links with PNG, Australia is very close to PNG, the Australians living over there. And so I’d like to think that PNG is not a country, we need to, to worry about. And I’m confident that maybe there’s a bit naive, but I expect that we would be able to work, we will be very conscious. And we will we will make sure that we don’t lose png if it if it comes to any sort of any sort of conflict with China. Okay. So there, my thoughts are, I’ll put links to relevant data, there’s a great statistical annex that the IMF puts out, and it’s public debt monitor that shows just how much these public debts have been going up. There’s some great material on what’s been happening with the IMF and how it’s facing this identity crisis. And it’s part of this whole. The problem we’ve gotten now is that, well, we had a post war world, which was essentially underpinned by American preeminence. And I’m talking about the Western world, the communist world did its own thing. But then it collapsed in 89 to 91. So that’s no longer an issue. You know, Russia, of course, is a threat and of its, its decoupling from the West, China, I mean, very difficult, because it’s such an it’s a very populous nation. There are great benefits from trade. But there is this growing tension that we’ve talked about on this show. And one of the aspects of, of this tension is in the international financial system, and it looks like the the preeminence of will, the massively important role the IMF and the World Bank have played in the past. Now they’re in competition with, with China and China’s making life difficult for the IMF, it appears from what I’ve been what I’ve been seeing. And the IMS seems to be failing in this mission, really, it’s had all of this additional, what’s got all this capital that will finance or these got these financial resources that could deploy, that it’s been unable to deploy? So the effectiveness of the IMF is in question. So the economist talked about how nearly $1 trillion so 1000 billion has been injected into the funds since COVID. began to spread, but its loan book has grown by only $51 billion. So yeah, the the economist is painting this picture of the IMF is as really not as effective as it can be. It’s and caught between America and China. So Well, I mean, we may need a we may need a rethinking or re creation of these international financial institution. So that might be something we find some international expert on and talk about on the show in the future on on Argentina, we’re going to try and get a local expert on Argentina to talk about that. So yeah, Julie, so that was a bit of a whirlwind tour of some major macro economic issues that we’ve been monitoring. Arturo anything before we wrap up anything else?

Arturo Espinoza Bocangel  49:57

No, I think this Question was very informative.

Gene Tunny  50:01

The one takeaway I would, I would suggest, as a takeaway I always like to make is that it’s so critically important to get those your government budget under control to get your institutions, right. And, yeah, really, really try and avoid accumulating unnecessary debt. I mean, you can borrow to build arguably, but when you’re in a situation when you’re borrowing money just to to meet recurrent expenses, which is essentially what’s happening in the states now. And you know, it’s happened in multiple countries around the world, when you you’re not getting a return on that investment, then you’re gonna get into trouble. And we just see this time and time again, unfortunately. So just the main takeaway, I think, is just be very conscious of, of what you’re spending if you’re, if you’re in government, if you’re a policy advisor, just be really cautious. And that’s, that’s what I’d say there. And that’s what you’d probably expect a former Treasury person to say. So. Very good, Arturo. Again, thanks so much for your time, and thanks for listening. If you’ve enjoyed this, if you have any questions, let me know. I’d love to hear from you. Contact at economics explored. Thank you. Right Oh, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

52:05

Thank you for listening. We hope you enjoyed the episode. For more content like this. To begin your own podcasting journey. Head on over to obsidian-productions.com

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

The Invisible Hand: economic, religious, or mystical concept? w/ Dan Sanchez, FEE – EP185

The Foundation for Economic Education’s Dan Sanchez argues that the invisible hand is a legitimate economic concept and not a religious or mystical one, as some critics of economics claim. Dan and show host Gene Tunny discuss the efficient organization of economic activities by the market mechanism in a decentralized way, without the need for a central planner. The conversation turns to TikTok and economic engagement with China. 

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

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP185

  • Introduction to this episode [0:06]
  • Dan’s article on the “invisible hand” [2:06]
  • The production of a pencil is like an orchestra without a conductor [5:25]
  • Is the invisible hand the hand of God? [8:34]
  • What is the problem with central planning? [12:27]
  • Central planners don’t like the idea of economic laws because they circumscribe their utopian dreams [15:45]
  • Dan’s views on big tech [19:23]
  • Is there a case for regulation or a ban on TikTok? [23:32]

Links relevant to the conversation

Dan’s bio: https://fee.org/people/dan-sanchez/

Dan’s Twitter handle: @DanSanchezV

Dan’s article on “How Atheist Anti-Capitalists miss the point”:

https://fee.org/articles/how-atheist-anti-capitalists-miss-the-point/

Von Mises book on the economic calculation problem

https://mises.org/library/economic-calculation-socialist-commonwealth

Article about problems with Soviet shoe production:

https://www.econlib.org/archives/2009/09/soviet_shoes.html

Bio of 19th century British free trade advocate Richard Cobden who Dan mentions:

https://en.wikipedia.org/wiki/Richard_Cobden

Transcript:
The Invisible Hand: economic, religious, or mystical concept? w/ Dan Sanchez, FEE – EP185

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  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, I chat with Dan Sanchez about the invisible hand, the efficient organisation of economic activities by the market mechanism in a decentralised way, without the need for a central planner, the great Scottish Enlightenment economist and philosopher Adam Smith observed, every individual neither intends to promote the public interest, nor knows how much he is promoting it intends only his own security and by directing that industry in such a manner, as its produce may be of the greatest value, the intense only his own gain. And he is in this as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Is the invisible hand a legitimate economic concept or is it instead of religious or mystical concept as some critics of economics argue? My guest this episode, Dan Sanchez argues vigorously against those critics. Dan is the director of content at the Foundation for Economic Education. The foundation is one of the world’s leading pro free market think tanks, and it’s been operating since 1946. Okay, let’s get into the episode. I hope you enjoy my conversation with Dan. Dan Sanchez, from the Foundation for Economic Education. Welcome to the programme.

Dan Sanchez  02:06

Thanks, Gene. It’s great to be here.

Gene Tunny  02:07

Excellent. Dan, I was keen to get you on the show to chat about an article that you wrote for fi recently in the world in the last few months. So how atheist anti capitalists missed the point why they’re wrong, to sneer at the invisible hand and, and our pencil. To start off with Dan, could you just explain what you were reacting to? So what was the sneering that was being done at the invisible hand? And, and eyepencil, please,

Dan Sanchez  02:40

yeah, well, I tried to make it evergreen, partially because this is a criticism that is levelled at eyepencil and about free market economics in general, a lot. And another thing is that I just didn’t think that the I don’t even remember the author of the book that was in the latest smear, and the latest attack on Leonard Reid’s eyepencil was then I just wanted to sort of make a blanket case against that kind of line of attack. And what the line of attack is, is that is that free market economists believe in the invisible hand, that there’s a line and a pencil that says, Since only God can make a tree, I insist that only God can make me. And therefore free market economics is invalid, because ultimately, it is based on faith instead of reason. And that it relies on some kind of a supernatural divine intervention for the free market to work. So it was that line of attack that I wrote my article to counter attack.

Gene Tunny  03:55

Rod, okay, I didn’t realise there was that line in eyepencil, I’ll have to go back and have a look at it to see the context. eyepencil is a great article that explains how no one no one person knows exactly how to make a pencil. There’s all of these, you know, hundreds of or however many people 1000s of people involved in the supply chain and the production from the growing of the timber, and the mining of the graphite, and the assembly of all the components into into a pencil. And that’s all coordinated by the market system. I mean, what Adam Smith and you know, the, the invisible hand, this is this metaphor from Adam Smith. That’s about how he sees as there’s, it’s almost as if there’s an invisible hand at work in how the market coordinates people and we owe our DNA to the self interest of the butcher and the baker. So yeah, that’s what that’s broadly speaking, correct. isn’t enough characterise that, right?

Dan Sanchez  04:57

Yes, that’s exactly right, Leonard. Reid is actually the founder of the organisation that I work for the Foundation for Economic Education. And he wrote this classic essay I pencil. And really what it is, is it’s a, written from the perspective of a pencil, like the pencil is the narrator. And the pencil is giving his family tree, his ancestry. And the point that he has to make is that, as simple as he is, like a pencil is not a super high tech product. But as simple as it is, its production is vastly complex, really, involving millions and perhaps 10s, and millions and hundreds and millions of people in its production, because you might think that the components are relatively simple, because there’s wood, and then there’s the lead and the eraser, but each one of those components had to be manufactured. And oftentimes, those the capital goods that were used to manufacture that they have to be manufactured, and it just keeps radiating out and out. And when you really trace what it all that goes into the production of a pencil, it is an orchestration of millions of people. But it’s an orchestra without a conductor. And that’s the, that’s the marvel that eyepencil really reveals is that there’s no mastermind, there’s no central planner, a lot of people would like to be central planners, they’d like to centrally plan pencils, and they’d like to centrally plan everything, but it is way too complex for them to be able to do that. And yet it happens every day without a central planner, because of the market price system. And, and that market price system is very orderly. But it’s not order that comes from the mind of any single participant of it, that that it’s an order that emerges out of the interactions of all these people pursuing their own little corners of order. And so there’s a transcendent order that emerges out of that. And so Adam Smith and Leonard Reid characterise that as, as sort of like an invisible hand, because all these wonderful things are coming out of the market, like a pencil, that wasn’t the intention of any single participant of it, a lot of people involved in producing things that go into producing a pencil, don’t even realise that they’re contributing to a pencil. So like someone who is, you know, manufacturing an axle that goes onto a truck, that ships the wood that ends up in the pencil. That person never thinks about his work as contributing to pencils. It’s not his intention, it’s not his order. But the market price system coordinates that all so that he actually does very effectively contributes to a pencil. And so like Adam Smith said, that it’s as if an invisible hand is ordering people’s actions to yield results. That was not any intention of their own. That you could see that that Leonard Reid and Smith and and also Frederick Basia that you could see like the hand of God in that, and that’s where the critics pounce because the critics say, Aha, you’re talking about God so therefore, everything that you’re saying is invalid. But in my article I explain how, how that actually is not a valid criticism.

Gene Tunny  08:57

Broad Okay, so we’re Smith and last year and read with a religious Did they say they compared the market mechanism to the to the hand of God is that what is that correct?

Dan Sanchez  09:09

Yes, they were all they were all Christian. And Leonard Read had that line that I mentioned, Frederick Basquiat in one of his essays warned against, quote, rejecting the order, God has given it, referring to the market and cautioning against social schemers who, who want to reject that order. And so a lot of free market thinkers see that there is something divine in it, that the order of the the world including the social order, is because of God it was created by God. But the thing is, is that even people who maybe are atheists and who who disagree with with Basquiat and read, they have no cause for disagreement with their conclusions, because as I explained in the article, the way that they reach their conclusions, was not through recourse to any kind of divine intervention. And it was not like God exists, therefore, the free market or anything like that, they reach their conclusions through economic reasoning, and through observations about human nature. So when, when Adam Smith explained the invisible hand and the workings of the market, he talked about the division of labour and exchange and prices and incentives and, and the logic of the market, resulting in that. Similarly, when Leonard Reid talks about eyepencil, and the wonders of the market, again, it’s all about about human action and exchange and the prices that result from it and the coordination that results from that same thing with with Bostian. And they think of that order as having been created by God, but, but they don’t say that, like, it relies on continuous divine intervention all the time. And they don’t rest their conclusions on, you know, holy scripture or anything like that. And so, in my article, I compare it to Sir Isaac Newton, Isaac Newton was also Christian, and was also religious, and also saw something divine in the physical order that he was describing. And that, I think there’s a double standard here, because these, these critics, they, they wouldn’t then say that, you know, Isaac, Newton’s physics were invalid because of, of his, you know, religious perspective. Because his optics and His laws of motion and everything that they were derived from using reason and using experiments and using observation, and they don’t have that criticism for him, because they don’t have an axe to grind against physics, they have an axe to grind against capitalism. And so they’re going to level this unfair attack, in this case and not in the other.

Gene Tunny  12:27

Yeah. Yeah. I was just thinking, Dan, I mean, I first came across eyepencil, I think it must have been in one of Milton Friedman’s books, because Friedman might open one of the chapters in Free to Choose talking about it, I can’t remember exactly. And Friedman love that example. I mean, the way Friedman always explained it in terms of the market, it provides us clear signal is that price signal that, and that’s all you need to observe in the market. And if if there’s a shortage of say, timber than the price of timber is going to increase, and that’s going to send a signal to the loggers to, to harvest more, more timber. So, yeah, he talks about that efficient signal. And, you know, 30 or 40 years ago, there were, it was much clearer that that was a better approach than central planning, because we had real life, socialist economies, the centrally planned economies still, that were failing to produce the goods and services, the consumer goods that that people wanted. And I might try and dig up some of those examples of those, you know, just the inefficiency of production, the failures to when you got central planning, and you don’t have the market to tell the factories, what needs to be produced, you have all sorts of bottlenecks and problems in production. So yeah, but we seem to lack that now those it’s not as clear anymore, because we’re not in that. There’s not there aren’t in real life. I mean, maybe there are some in Cuba and North Korea, but we don’t see we don’t hear a lot about them. But we’re very conscious of what was happening in the in Eastern Europe and Soviet Union back in the day. I don’t know if you have any reflections on that at all.

Dan Sanchez  14:12

Yeah, and even in those cases, the Socialist quasi socialist economies aren’t really fully socialist because they have recourse to market prices that are generated from capitalist economies. So the problem about socialism that you can see in eyepencil, in Leonard Reid’s discussion of central planning and my pencil but also in Ludwig von Mises is explanation of the calculation problem is that without market prices, production is just arbitrary that that there’s there’s no way of balancing one production course of action against another course of action because you just don’t have prices and you don’t have the the gun either profit and loss to know whether, you know whether one line of production is any better than another. And so it’s just arbitrary. But but at least if, if you have a socialist economy and the capitalist economy exists elsewhere, at least you can use those prices as a as a rough metric to have some kind of rationality in your production. But in a completely socialist world, it would be utter chaos, like there wouldn’t even be that so it would be even worse.

Gene Tunny  15:34

Yeah, you know, it’s good. You reminded me of that. Sorry, Ludwig von Mises the calculation problem, I’ll have to refresh. My understanding of that. It’s a very good point that that he makes there. Okay, there’s one thing I wanted to dive into with your article you write that those who try to dismiss eyepencil do not want to admit that they or their favourite social schemers cannot outsmart or outdo the transcendent order of the market, those who sneer at the invisible hand won a free hand to remould society as they please. Okay, I largely agree with you what I just want to ask you about your thoughts on, there’s a lot of concerns. Now. I mean, there’s concerns about inequality, and housing, I mean, we’ve got their housing prices are out of control, a lot of young people are concerned about whether they’ll be able to afford a house, there are a lot of particularly the millennials and the Gen z’s. They’ve got a more favourable view of socialism than then older generations. And I’m always conscious, I don’t want to have a not that I’m a boomer. But I don’t want to have that burger mentality. Like there are a lot of people who are so try to see where people are coming from. There are a lot of people who think that the market, this is a problem with the market. This is why we’ve got all of these issues. How do you respond to that? Do you think it is such a transcendent order? If we do have this perceived issue of inequality and lack of housing affordability? How do you respond to the people who are critical of of capitalism, or neoliberalism or whatever you want to call it for delivering these outcomes.

Dan Sanchez  17:24

So a lot of the times what central planners or would be central planners, what they want to do is they want to basically pander and demagogue to people to pretend that they would be able to outdo the market, and provide them with more goods and services than then the market would provide. And so they don’t like the idea of economic law, because it puts a crimp in their plans, because it it shows that there are just some things that can’t be done, just like in the realm of physics that, you know, there’s a law of gravity, a president can’t walk off the presidential palace and expect to be able to fly. Similarly, a president can’t impose price controls, and expect there to not be shortages. It’s like these these economic laws, circumscribe the utopian dreams of these demagogues and the central planners, you know, that relates to housing as well. So for example, rent control, central planners don’t want to believe in economic law, because economic law means that they can’t impose rent control, without creating housing shortages for the very people they pretend to want to be able to provide for. So that’s why they are really averse to any kind of notion of a transcendent order any kind of order that that is beyond what a central planner can can encompass, or some kind of an ingenious social reformer can’t outdo, but they do get away with it to a large degree, they are able to put one over on the people to make them think that they can outdo the market. And so they do manage to do a lot of interventions. But then those interventions create a lot of these shortages. They blame that on the market, and then that buttresses their case for even more intervention if people don’t actually understand economics. And so So yeah, it’s true that there are housing shortages, there’s lack of options for living, housing is unaffordable, but it doesn’t make any sense to lay the blame on the free market. Because when you when you trace what is causing these problems, especially in in certain areas in particular is that you, you see policies like rent control, and you see policies like zoning restrictions and all these anti production policies that that put a strict limit on the production of new houses. And if you have fewer houses, then they’re going to be more expensive. Again, it’s an economic law of supply and demand.

Gene Tunny  20:22

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

Female speaker  20:28

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, where we work all over the world. You can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  20:57

Now back to the show. One of the other concerns I hear expressed from people who aren’t sympathetic to Foundation for Economic Education, is this point about monopoly. There’s a growing concern about monopoly in well, in tech, in particular, surveillance capitalism. How do you think about that? I mean, is that part of the transcendent order? Or is that is that something malignant? There needs to be policy action, perhaps antitrust action against? How do you think about that?

Dan Sanchez  21:29

Yeah, I think a lot of the problems that we’re seeing with big tech, again, can be traced to government intervention, we saw with Twitter files, how much the FBI has been in Twitter’s DNS. And I’m sure if we ever had the YouTube files or the Facebook files, that, you know, we’d see the same results. I think that it is really short sighted, especially for conservatives to want to use the power of government and antitrust policy, to give the government even more power over these big tech companies, and expect that to solve the problem when when, if anything, that’s just going to give the government more leverage to be even more censorious against critics of the government. And so it just seems really, really short sighted to me. And the answer is to free big tech in the tech industry and social media and media in general of government and influence. Because if there wasn’t so much intervention, a lot of these behaviours, they’re doing it because of government pressure. It’s not because of, like a market demand for it. And if that government pressure was was released, I think people like freewheeling conversation and don’t like censorship. And and I think market demand would leave these these big tech companies to either them or their competitors and their successors, to not be abusive in their practices. And a lot of times big tech companies, like incumbent, like already dominant big tech companies, they actually like regulation, because it places a heavier burden on upstarts than it does on them. Yeah, even if you want, you know, giants, like like Facebook and YouTube to go under, again, you know, because of abusive practices. Again, the answer is to get government out of it. So that there’s less regulation, and there’s more room for competition.

Gene Tunny  23:32

Yeah, fair points, has feed on any thinking on tick tock, because it’ll mean tic TOCs, a company that there’s a bit of concern about in terms of privacy and security issues has feed on and you thinking on that? Is that is that a special case where there might be case for regulation, or a ban of some kind?

Dan Sanchez  23:50

Tick tock? Like, really, I think the reason why there’s so much pressure on banning Tiktok. For one thing, again, it’s anti competitive. The biggest supporters of a ban on on Tik Tok are Facebook and YouTube, because basically, they want to crush the competition. But the actual bill that would ban Tiktok doesn’t only ban tick tock it gives the government sweeping powers over monitoring and censoring the internet in general. And really, I think it is a a Trojan horse, on one hand for these big tech companies to to eliminate competition and on the other hand for governments to have even more power regulating speech, because ultimately, the biggest threat to our own civil liberties is not China. It’s the American government. Thankfully, it’s the American government that that is having this constant siege on our liberties. And this is just this is just part of that really.

Gene Tunny  24:56

That’s an interesting perspective. I thought I’d ask you Here’s it’s I mean, one of the things I’ve been trying to figure out through my conversations with people is, is China and how big of a threat is China? And does that mean we need to decouple from them? No, that’s not what we’re talking about today. I’ve had conversations with different people. And I know that the it’s a huge concern that a lot of people are really concerned about national security. But yeah, I think that’s a that’s a good point you make about the legislation and the wider reach that it could have. So I might have a closer look at that. That’s been great. Dan, thanks so much for your time. Are there any other points about your article or what you’ve been thinking about lately, you’d like to get across before we wrap up?

Dan Sanchez  25:44

Yeah, I mean, something that about I pencil that is brought to mind by the whole question of decoupling from China is that, you know, what the eye pencil story is, is a story about this vast division of labour, that is at the root of our prosperity, that millions of people are coordinating through the market system. And because of that vast coordination, that vast division of labour, because of the efficiencies of that, that is why we have hot, such high living standards, that we can have this huge population, but living better than any time in human history. And China is a big part of that. Because China, and having integrated with the global economy, that contribution to the division of labour, That is a big reason why we are as prosperous as we are. It’s also a big reason why the relations with China aren’t even worse. Because when peoples are interconnected through trade and through exchange, then that does create an interdependence. But that’s actually a good thing. Because that is what prevents wars, like once people are completely separate, then the only way that they can benefit from each other is through violence is through war. It’s like, there’s a saying that if if goods don’t cross borders, armies will, and that kind of separation, if anything, it would lead China to become even more totalitarian. Because it would create such a like a crisis situation and in times of crises, like the tyrants get are able to gain even more power. And so one thing that, you know, Leonard Read and people like Richard Richard Cobden talk about is that the more that exchange and the diverse division of labour knits people together, the more peace and cooperation and harmony and prosperity it creates,

Gene Tunny  28:00

here so Richard Cobden, an English radical and liberal politician, manufacturer and campaigner for free trade and peace. Yep. Okay. So very good. I’ll put a link in the show notes. So I remember, I’ve read some of his stuff many years ago, but it was a good, good reminder. So very good. Dan, thanks so much for your time. This is this has been really great. And I loved your thoughtful piece on on Smith, and Bastiat and what the the atheist ad capitalists get wrong. So that was excellent. And yeah, again, thanks again and keep up the great work and yeah, hope to see more of your stuff in the future.

Dan Sanchez  28:40

Thank you, Gene. I really appreciate it. Very good.

Gene Tunny  28:49

Okay, I hope you found that informative and enjoyable. I was really impressed by Dan’s insights into the invisible hand and his passionate defence of the free market. I think the main takeaway of this episode is the efficiency of the market mechanism in organising the production of goods and services. The invisible hand is a beautiful thing. Dan describe the market is bringing about a transcendent order, because the results transcend the intentions and efforts of particular individuals in the economy. As Dan noted, Smith, Bastiat and read demonstrated that transcendent order using economic reasoning and empirical observations about human nature, that demonstration did not rely at all on religious premises. Whether those men saw in that transcendent order something literally divine has no bearing on the validity of their reasoned demonstration of that order. I fully agree with Dan on that point. Dan has certainly given me some ideas for future episodes. It’s probably worth talking about the economic calculation problem posed by von Mises in a future episode. Von Mises argued socialist economies would fail because of the huge computational problems they faced They will have to centrally plan and direct the flows of resources across various industries and the distribution of products to consumers. Something the market mechanism does in an efficient decentralised way. In a future episode, it would also be useful to explore some of the failures of central planning in the former Soviet Union. There are various stories about recurrent shortages of bread and toilet paper and about uncomfortable and unfashionable shoes no one would wear but it would be good to delve into some specific well evidenced examples. I’ll see what I can do. What do you think? What either of those future episodes interests you? Let me know. And please let me know what you think about what either Dan or I had to say this episode. You can email me via contact@economicsexplored.com. Thanks for listening. rato thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

31:33

Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey head on over to obsidian-productions.com

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

How to Defeat the Dictators w/ Charles Dunst, Asia Group – EP180

Have democracies failed and is authoritarianism winning? How can democracies reinvigorate themselves? Does the West need to decouple from China? These and other questions are considered in Economics Explored episode 180. Foreign affairs expert Charles Dunst talks about his new book Defeating the Dictators with show host Gene Tunny. Among other things, Charles and Gene talk about the potential benefits of Public Private Partnerships (PPPs), such as Operation Warp Speed, the Trump administration’s COVID-19 vaccine plan. 

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

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About Charles Dunst

Charles Dunst is deputy director of research & analytics at The Asia Group, an adjunct fellow at the Center for Strategic and International Studies, and a contributing editor of American Purpose. He is the author of Defeating the Dictators: How Democracy Can Prevail in the Age of the Strongman (Hodder & Stoughton, February 2023). 

For further information about Charles, check out https://www.charlesdunst.com/

What’s covered in EP180

  • What is the Asia Group and what does it do? [1:35]
  • Is democracy no longer seen as the path to prosperity in developing economies? [5:28]
  • What are the most important organizing principles for a democratic system? [11:38]
  • Accountability and the lack of trust in government [16:34]
  • Best practices for running a democratic country in the 21st century [21:36]
  • Too much money in politics in the US [25:41]
  • Does the West need to decouple from China? [27:37]
  • The role of public private partnerships (PPPs) such as Operation Warp Speed [32:27]
  • How will dictators be defeated if we govern ourselves better? [34:59]
  • The importance of engaging in the conversation through social media and local governance [38:32]
  • Inequality and the Dream Hoarders [39:00]

Links relevant to the conversation

Defeating the Dictators (Please buy the book via this link to support the show):

https://amzn.to/3liQrjx

Matthew Engel’s FT article “The foreign states that own Britain’s railways”:

https://www.ft.com/content/e57c5fd0-bf54-11e9-9381-78bab8a70848

Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It

https://amzn.to/3LvCOrL

Track Nancy Pelosi’s stock portfolio:

https://www.capitoltrades.com/politicians/P000197

https://twitter.com/PelosiTracker_

Transcript: How to Defeat the Dictators w/ Charles Dunst, Asia Group – EP180

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  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Thanks for tuning into the show. This is episode 190 on defeating the dictators that’s the name of the new book by up and coming Foreign Affairs expert Charles danced, who joins me this episode. Charles is deputy director of research and analytics at the Asia group based in Washington, DC. I thought Charles’s book would be good to cover on the show, because the revival of authoritarianism around the world is not just a political and human rights issue. It’s an economic one, too. It has profound implications for our trading relationships with other countries. And as we’ve seen with the invasion of Ukraine, the actions of authoritarians can massively disrupt global markets. Please stick around to the end for some additional thoughts from me. Okay, let’s get into the episode. Charles danced, welcome to the programme.

Charles Dunst  01:35

Thanks for having me on.

Gene Tunny  01:36

It’s a pleasure Charles. Nicholas grew and passed on your details to me, regarding your new book, defeating the dictators and yes, very keen to chat about that. I understand you’re the deputy director of research and analytics at the Asia group. Could you just tell us a bit about the Asia group and your work there first, please.

Charles Dunst  02:00

Sure, the Azure group is a strategic risk advisor, essentially, for companies looking to do business in Asia, and we’re headquartered in Washington. But with offices in Tokyo, we have an office in Vietnam, we have an office in in New Delhi, I think we had one or one or two advisors at one point in Australia. But basically, it’s mostly companies looking to do business in Asia on things like how do I start selling cell phones in Vietnam? Or how do I start manufacturing something in India and kind of understanding those marketplaces given just challenges of doing business in those markets. And basically, people come to us looking at former US diplomats, people with longtime business experience in the region, who just need a new knee to help and we can kind of provide that expertise. And at the research team, I kind of said to denied point of the firm where I’m not super client facing in terms of on a day to day basis, I’m not necessarily engaging with, you know, X, X company or y company. It’s more so we look at pan indo-pacific issues. So we Lee, I write a daily news wire that goes to clients, that’s basically four stories from overnight, overnight us time, that happened throughout the region that matter for either business, economics or politics. So we do that we lead coverage on things like the Indo Pacific economic framework on the quad issues that don’t directly fall in one country team baskets, there’s something that’s not China’s specific or something that’s not Australia specific, we kind of handle the pan regional issues. And I handle a lot of the public facing media stuff, just given my given my own background as a journalist. So it’s a really interesting, firm really dynamic. And we just, I think our New Delhi office is now under a year old. So really, lots of lots of movement.

Gene Tunny  03:42

Raw. Yeah, absolutely. Okay. That’s very good. And depending on I mean, it’s hard to know what the right stats are. But India could well be the largest country in the world at the moment. I mean, given China’s declining population, so yes, makes sense to be boosting that Indian presence. Absolutely. Okay. Well, we better talk about your book. It’s getting some it’s got some good testimonials, is really impressive. You’ve got a testimonial from the current UK Chancellor of the Exchequer, Jeremy Hunt, you’ve also got one from? Is it McMaster, a former national security adviser? Yep. And then yes, yes, very good. So defeating the dictators. What motivated you to write this? Charles, why did you think this was an important book to write?

Charles Dunst  04:31

Sure. I mean, I’ve spent a lot of time living in non democracies or kind of countries on the on the cusp, as one might say. So I lived in Hungary when I was still in university. And I remember I was kind of a quasi young journalist at the time, and it was writing articles and pitching around articles about Hungary and writing academic work about Hungary. And it wasn’t getting so much attention because it was this was 2017. So kind of right before Orban became an internationally known figure, precisely because of his his illiberal ism. Ah cracy his notion of kind of setting the stage for folks who win elections legitimately come into government, and then do away with the liberal institutions within. And I basically lived in Hungary I then lived in Southeast Asia and I lived in London and I kind of travelled all throughout Eastern Europe, all throughout Southeast Asia spent a lot of time in the Middle East. And something that kept coming up, when you talk to the intelligence is of say, Hanoi, or the intelligencia. In Kabul, maybe less so Cairo, but the intelligence is certainly in the Gulf. There is this notion that democracy is no longer the path to prosperity, there is a sense that you can follow the models of the Singapore’s of the world that you can follow the model of China that you can follow the model of Saudi Arabia. And I think more and more when I travel around the developing world, that was something I heard, and particularly in our little Western bubbles, sometimes, particularly in the US and the UK, I think we don’t do such a great job of communicating the virtues of democracy, and basically answering the question why democracy for people in the developing world, because if you are Vietnamese, and you’ve seen your country’s GDP, and you’ve seen it grow so much, and you’ve seen your, your life expectancy increased so rapidly over the last 3040 50 years, it’s not entirely clear to me why you might look around and say, well, this system’s not working, we need a democracy, when you see January 6, there when you see three prime ministers in three months in the UK, so I wanted to write a book to make a very affirmative case for democracy. Because there are many books, I think, in recent years, kind of lamenting the decline, the decline of democracy and the rise of the Viktor Orban types. But I wanted to say, write something a bit more affirmative. And saying, well, here is what can be done to actually make sure democracy works once again. And when democracy works, once again, most importantly, you can keep democracy where it already exists. democracy works better in the United States. So if democracy works better in the United Kingdom, you’re going to get fewer elections of people like Trump, who may not necessarily be the biggest believers in the democratic system. And once you can kind of tamp that discontent at home, it’s my belief that democracies can serve as a better model for countries in the developing world, well, maybe this, they might not look at the United States and look at Australia, and look at the United Kingdom in five to 10 to 10 years and say, well, those systems are more innovative than the one in China that they’re more solid. I mean, that right now, I think, if you’re sitting in Vietnam, that might not appear to be the case. So I wanted to write a very affirmative case for democracy and looking how do we can advance our values and really practical ways?

Gene Tunny  07:32

Sounds? And we’ll use that affirmative case for democracy. What do you think are the key points in favour of democracy?

Charles Dunst  07:38

But key point for me is study after study still shows, despite the kind of discontent in our democracies that if you live in a liberal democratic society, or even just the democratic society, you are likely to live longer, you are likely to make more money. And I know there are no studies that can necessarily show this, but it is my belief that you’re likely to live a richer cultural life, and you are more likely to innovate, that is true as well, that the world’s best generally still comes from democracies. And this is not to say that Singapore and China cannot innovate. Of course, of course they can. And of course, great art and great movies and all that can come out of non democracies. But there is a reason why when you travel around the developing world, particularly in Asia, that the media is the the music people listen to his Japanese and Korean democracies, or the movies on TV are mostly American, maybe British, maybe Australian, but it’s not like Chinese, Chinese culture has become predominant in the developing world. And that is kind of a silly example. But it’s indicative to me, of the ways in which democracies embrace the kind of tumult and chaos of our systems and we are better for it in the long run. So it’s just about making sure that we are making sure that our systems are providing for our people, while also embracing this chaos that allows for a Jackson Pollock painting, or allows morikami to write when a cue for these are not works, that someone will be able to conceptualise in a non democracy and think that’s a very, very key point that the art and the innovations that are going to be really necessary for the future particularly think about things like climate change. Well, the Evie transition is going to be fixed by innovations that are primarily coming out of democracy, or democracies. And it’s the same thing on healthcare innovation. I mean, where did where did the COVID vaccines come from? Exclusively democracies, not only the United States, Germany as well, of course. So that was my affirmative case for democracy was starting at this point of saying, well, even the things look really messy. Right now, if you look around, you would rather be the citizen of a democracy than an autocracy bar, not

Gene Tunny  09:41

just on Vietnam, and that was an interesting point you made. Do they recognise that? I mean, a lot of their prosperity does come from embracing the market, doesn’t it from embracing the market and as someone who I mean, I’ve read a lot of Milton Friedman when I was younger, and I mean, Friedman used to make the case that the market and democracy were very closely entwined. Or that you can’t have one without the other. I think Friedman’s argument was. So the people in Vietnam recognise that the importance of the market, and then the importance of freedom more broadly,

Charles Dunst  10:17

I think not so much the notion of freedom more broadly. But I think there is a recognition of the need to have liberal ish economics, I mean, Vietnam, China, Singapore, these countries all got richer. I mean, certainly Vietnam is not rich, like Singapore is, but they all got richer by embracing liberal trade. And I think what’s really not troubling, but a little concerning if you’re in a democracy is that those countries and others have proved that you can have mostly liberal trade without liberal politics. And that is a very different scenario than with the Soviet Union, or the kind of Soviet bloc writ large, or China before dung XIAO PING, where essentially, these were the countries that were illiberal politically, and also illiberal economically, so they couldn’t really grow in any meaningful way. So those systems never had a tonne of legitimacy, because they never worked. Whereas now, I’d be hard pressed to say that the Vietnamese system has not worked, or that the Singaporean system has not worked. Clearly, you can get rich without democracy. And that’s a new relatively new point over the last 180 years. It really was this notion that the way to get rich in the post colonial era was to be a democracy. So the fact that you can actually decouple liberal values from liberal trade is definitely a concern. And part of the reason why why I wanted to write the book,

Gene Tunny  11:38

yeah, just on Singapore, you mentioned Singapore quite a few times in the book. And that’s an interesting example. And probably, I mean, that relied upon just that extraordinary figure of Lee Kuan Yew, didn’t it and someone who was, you know, almost just by his background, and by his education could be that benign dictator or authoritarian, that he was an exceptional individual and probably someone you can’t count on having another another kind countries. So I thought it was interesting. You did tackle that question of Singapore, head on in your book. So yeah, just an observation just while I remembered it on Singapore. Okay. In your book, you give a really good summary of your argument early on, and you’re talking about a No BS approach to the future, committing to our values and, and also to the practices but not buying into utopianism. I really like this, but you go that we must convince the world in practical terms why our organising principles remain preferable to those of autocracies both at home and abroad. We need to look our own failures in the eye while learning from the successes of others. You talked before about the affirmative case for democracy, but could you just restate or reiterate? What are those organising principles? What are the most important ones, Charles,

Charles Dunst  13:03

when I was talking about liberal organising principles, I’m really thinking about the things that are necessary to be a democratic system. So things like freedom of speech, things like free and fair elections, broadly open societies space for civil discourse, space for civil rights organisations, for civil society organisations, this notion that it is actually good to have a dynamic and open society where there can be really aggressive, loud debate and disagreement. And that’s not I don’t think that’s a bad thing. I don’t think it’s a bad thing that we can have really heated political debates. I’d rather that than the opposite of kind of no debate at all. So but I think we really do need to convince countries of well, why should I have? You know, why? If you’re Vietnamese, or your, you know, rich, Chinese rich, rich Chinese person, you turn on CNN, you’re gonna say, Well, why would I want that? Why would I want two people kind of debating angrily at each other over on TV? I mean, how is that helpful for my government? So I think we really need to say, well, here’s why. Because that loud debate tends to lead to a society that’s open enough to produce really strong innovations that’s really good, strong to produce the best kind of art. And these are all things that are vital to the future, but clearly just kind of walking around and dropping into annoyance. And well, you shouldn’t be like us, because our systems are open, and they’re so great isn’t enough, when there is a need to demonstrate very practically, well, why is the United States or why is Australia? Why do we offer a better path for prosperity broadly, than do China or Singapore? So that’s really how I how I thought about it.

Gene Tunny  14:41

Gotcha. Right. And what do you think the failure is? You talk about the failures, so we have to look at our own failures in the eye. What failures do you think are most significant?

Charles Dunst  14:53

I think honestly, one of the biggest ones that I talk about very frequently is this is more of a problem I would say in the US in the UK than Australia, but broadly kind of the mismanagement of globalisation in the sense of thinking that we could essentially export manufacturing to places like Vietnam and China without experiencing any domestic discontent at home, that people who would had who’ve had who have had these manufacturing jobs for generations are mining jobs for generations, would lose them turn around and say, I’m all good. Okay, and wouldn’t revolt in one way or another, and particularly in the US the it is this programme designed to kind of ameliorate that loss with some economic assistance, but it’s kind of a mess and doesn’t really work effectively. And that, to me is so indicative of the problem that the United States China, the UK comes through this free trade through globalisation, we all got richer, but the average person did not get as rich as their as the god the government did, or as the kind of top 1% did. So I think there’s this increased frustration, it’s saying, well, people turn against globalisation, because they turn away because they’re mad or with the way globalisation was managed. And I think really pushing back against that is really important and saying, Well, trade isn’t the problem, or liberalism isn’t the problem, the problem was the way it was managed. And that gets into the broader question of inequality, where, particularly in the United States, particularly in the United Kingdom, inequality is one of the major fuels beyond anti immigration politics beyond I would argue, kind of very strong, populist politics, that lead to things like Brexit or elections of people like Trump. So that those are kind of two big ones. And the other, I think, really, really vital. One is a relative lack of accountability and which is fueled a lack of trust. I think there was a notion if you talk to enough people in the UK or the US and even even Australia times, that there are two sets of rules that there’s a set of rules for normal people and a set of rules for everyone else, me everyone else who kind of that top 1% of rich people and rich people in the government. And that view in the US, I think about the example of the fact that there are so many Congress, people who trade stocks, I’m sure some of them are I’m sure many of them are not doing it illegally, technically. But clearly, you’re privy to some kind of information as a lawmaker with a certain type of security clearance that you probably should not be allowed to turn around and trade stocks. And even when a lawmaker is caught either not filing their stock disclosures on time, nothing seems to happen. They pay a little slap on the wrist fine, and then they’re done. And that’s fuel this notion that if that’s a normal person, that person is getting punished very severely. And I think making sure that we’re restoring accountability is key. So it’s about economics, but it is also about things like accountability, which leads to distrust in government. And when when your government lacks trust, it’s really hard to do just about anything.

Gene Tunny  17:50

Wrong. Yeah. Yeah. Good point. I’ll put a link. I think there’s a Twitter account that tracks Nancy Pelosi stock portfolio. So Pelosi has been one of the strongest performers in the Congress. And I don’t think she’s the top performer. But I’m sort of stuck fix, which is, you know, far exceeds market performance. So yes, does does raise some questions there. Charles, do you have any reflections on how democracies fared relative to autocracies during the pandemic?

Charles Dunst  18:22

Yeah, I mean, I think certainly the US performance was was quite poor. And I don’t think that’s anything intrinsic to democracy. And that’s kind of how I would approach the UK as well as there was nothing intrinsic to democracy that made them fail on the pandemic, it was more so we were just the two of those two countries, my country and then the United Kingdom, kind of had not great leaders for pandemic management when a pandemic happened. Whereas certainly, there are other democracies that did much better, certainly South Korea did much better. Certainly, Taiwan did much better. Certainly, Japan did much better for a period. And when you think about the autocracies, Vietnam had a very strong performance for a while. And again, that’s not because Vietnam was an autocracy, it’s because Vietnam had an extremely high level of social trust, that this is trust in government and social trust between one another so in the government, the government was extremely blunt, and extremely honest with its people and said, This is going to be very painful economically. But please stay home, stay off the streets, and we’ll get through it. We’ll get through it as a country and there was really smart messaging of talking about it like it was another war like the Vietnam wars, the another foreign invader was gonna be kind of overstating, but it was another war, the long line of wars against the Vietnamese people, and they banded together. And for a long time, Vietnam, controlled the pandemic extremely well, kind of until the Omicron variant showed up which no one could contain. So Vietnam performed quite well. And I think the the example people go to all the time, and I think kind of wrongly, to talk about COVID and a COVID. Management in a positive light is China where people say, well, zero COVID policy was great. And I think the irony is that The zero COVID policy was maybe very effective and could have been more effective for like a year, in the sense of if you can manage to have these strong lock downs, where you kind of say, well, you know, please stay home, whatever, whatever. And then you get vaccines and you get good vaccines, the Western vaccines and you get your way out, maybe I would sit here and say, well, that’s not a policy I would sign up for. It’s too restrictive, keeping people at home that long. I mean, as a as a democratic citizen, I am not in favour of giving your government that much power. But I do think the irony of the Chinese approach was they kind of demonstrated the efficiency kind of quote, unquote, efficiency of autocracy of saying, well, we can because we have so much power, we can shut everything down for a year, and then we’ll open up it’ll be fine. But the irony is that autocracy was then the reason she didn’t things her personal disdain for the West, was the reason why China didn’t accept the COVID vaccines from the West, that there was no way of reopening, without what models they were probably a million people who died when China reopened. And certainly that’s a lower death fold in the United States. But most of the US deaths took place before the vaccines were if it were available. So I do think at this point, it’s very hard to sit here and say, well, the autocracies managed COVID. So much better than democracy. did. I just don’t think that’s the case. I think it is. Countries with a large amount of social trust in their governments managed COVID better than others. And that’s kind of the Taiwan case. That’s the South Korea case. Those are both democracies, and they manage COVID better than most countries because, I mean, in Taiwan more so people do trust the government raw,

Gene Tunny  21:35

okay. Are they places to learn from? Are they countries and economies to learn from? You mentioned that in your book, you look at examples of good governance from everywhere past and present to detail best practices for running a democratic country in the 21st century could? What do you think those best practices are? And what examples Could you point to Charles?

Charles Dunst  21:58

Yeah, I mean, in Vietnam, I think one example, I’d point to a lot of government’s focus on winning social trust, and the focus they spend on being communicative to their people. And even in a one party state, I think there’s a recognition of what because there are not elections are not real elections, you need to win over that social trust much earlier. And you need to kind of maintain it much earlier, because there is no way at the ballot box of kind of seeing how citizens actually feel. So you need to be a little more transparent and communications at times. And some of the other examples I think about where I would like if democracies had more put on paper and more of these long term plans. People like to make fun of China’s five year plans because they are modelled off the Soviet five year plans, which of course, set these targets Soviet Union was never going to hit. But I do think the idea of democracies happening, well, maybe let’s have a 10 year critical minerals plan, or a 10 year health care plan. Because far too often, those plans are very much focused on security and defence, which are important. It’s important to have maybe a four or five year review of the state of your country’s defence infrastructure, or of your security infrastructure, what are your cybersecurity infrastructure, but I would like that apply to other things I’d like that applied to things that actually matter to normal citizens on a day to day basis. I think the idea of saying, Well, what’s our healthcare sector looking like right now? What’s our infrastructure looking like right now? On what do we want it to look like in 10 or 15 years? And I think that’s something that there are a few autocracies, particularly China and Saudi, spend a lot of time putting out these reliefs, five years to five year plans, or in Saudi Arabia, kind of the vision 2030 plan, and of course, because they’re autocracies, I would argue that they’re probably less likely to actually fulfil many of those goals. And certainly I don’t think Saudi Arabia is on perhaps the greatest trajectory. But I do think the idea of putting things on paper can be really beneficial. And one other example I don’t, I’m not gonna run through all of them. But one good one that I thought the UAE has pulled out in recent years, is they ranked every health care centre in the country, and then publish the results, and said, you know, this one in Dubai is great, this one in Sharjah is terrible. And it I really do think that’s not the worst idea, particularly in a smaller, smaller countries, you can do it state by state or city by city, where I’m from New York City, I can only imagine if New York City, the New York City government, basically brought in an unbiased agency and have them rank the New York City hospitals, and the ones that are at the bottom, clearly, you’re going to be motivated to perform better, because nothing motivates people like a fear of being embarrassed. So I do think that is this kind of odd way of being accountable and transparent. Of course, as a democracy, you can be more transparent in those rankings and and you can be more accountable than an autocracy ever could. So that was kind of the main thesis of the book was well, there may be things that autocracies put out plans or they look to build social trust, kind of in ways that I think are, are okay are kind of they’re interesting, but because democracies are a kind of a superior system, any of those reforms that we look to put in place into a liberal democratic system, I think we can do better.

Gene Tunny  25:09

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

Female speaker  25:15

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world, you can get in touch via our website, http://www.adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  25:44

Now back to the show. Just thinking in the States, one of the things I hear a fair bit is that there’s too much money in politics in the US. And that’s related to that was at Citizens United that decision. Do you have any thoughts on that? Is that an issue that the lobbyists have too much power to sway the the people in Congress, and they’re, you know, they’re looking for donations and all of that. So do you have any concerns over that?

Charles Dunst  26:13

Yeah, I mean, I think I definitely do have concerns about it, even if at times, it’s slightly overstated. I think maybe in the media of how much power lobbyists actually have preside over the reality is perception at one point or another. And people do think that the lobbyists do have so much power in one way around that. And something I suggested in the book is to essentially, make sure you’re being much more transparent about where the money is coming from and who it’s going to where if the Supreme Court made a ruling, clearly the money is going to keep flowing. There’s no way around that at the moment. But what a government can do, what the US government can do is create a really accessible online database that very clearly demonstrates, well, where’s the money going? Who is it going to, and there are efforts to do that. But you know, the current system is so not user friendly, it’s so difficult to go online and actually look at who’s donated to who, there’s certainly some kind of dark money that doesn’t come that doesn’t isn’t clearly registered. And I think it would be very helpful just to have this transparency, it’s a way to kind of mitigate the problem. Because if you’re a politician running for Senate or running for Congress, and you know that every donation you accept from they come from a big corporation, or every lobbyist to meet with is going to be very much public, it’s going to be a very easy to access database, you might be a little bit more hesitant to take those meetings. Whereas now you do have to register those meetings, but no one knows where to find them, and no one’s actually looking. So that’s not a wholesale solution, but I think we could mitigate the problem.

Gene Tunny  27:37

Okay, a lot ask you about how do we think about and how do we deal with authoritarian countries? So at the moment, the major ones are China and Russia? I mean, obviously, we’ve cut off a lot of ties with Russia due to their invasion of Ukraine. But what about China? I mean, in the last five years, there’s this new concern about China as a strategic threat. And they’re increasingly calls to decouple to. I mean, there are some rather extreme proposals out there, almost trying to cut ourselves off from China and not trade with China. Which, you know, in Australia, we’ve actually had some retaliation from China. And that’s affected some of our exports. But I mean, China has been a major destination for our exports. So that would be very difficult for us. How do you think about that? How should we engage with these authoritarian regimes in the future?

Charles Dunst  28:38

Well, I think it’s important not to, of course, lump them all together, where I think approaching China is very different. We’re approaching Russia at the moment, where certainly, I’m in favour of the broad sanctions policy against Russia saying, Well, this is a country that invaded its neighbour, I don’t know if there’s anything wrong with setting this precedent of Oh, you don’t get to evade your damper. I just kind of continued business as usual, at least with with the broader West. When it comes to China. I think the question is, how do you compete responsibly? I don’t think the idea of complete decoupling is, is really workable, if you’re the United States, if you’re the United Kingdom, if you’re Australia, because the economies are too intertwined. I mean, this is not the Soviet Union, where basically our economy didn’t really touch theirs. Whereas every basically every field is these overlap again, do I think there’s anything problematic about selling a refrigerator to China? or selling shoes to Chinese consumers? No, I that’s not a concern for me. But I do think there was a question of, well, where do you draw the line? What kind of tech is to sell what kind of goods are too sensitive to be sold to to a one party state in China, in which basically, the government does kind of oversee everything and it does seem like if you are selling some type of technology to a private firm, you could never be just how sure how private that firm actually is. And if the government could step in and kind of take that tech in one way or another. Every country is going to define a different only, but basically do I think there’s anything wrong with not selling military applicable semiconductor technology to China? No, I think that’s fine. I think basically recognising that this is a country helmed by a government that does not, frankly seem super interested in positive ties with the West. And that, of course, has been more aggressive in the broader Indo Pacific in recent years. Think about the South China Sea, you think about the drills around Taiwan, I think it makes a lot of sense to deny them certain technology. But the broad way I think about relationships with autocratic countries is just to make sure they’re in our own benefit. Where when you think about us ties with Vietnam, the current state of us Vietnam ties seemed very much in America’s interest. You know, you get a trade partner, you get, broadly a security partner, we raised human rights with them privately. I think we’ve successfully made some advancements on LGBT rights in Vietnam has been broadly kind of a success. Certainly Vietnam is not just liberal society, or is Liberal government as we would like them to be. But we don’t have the luxury of saying we’re only going to engage democracies, there are more autocracies than there are democracies today. So we do have to engage Vietnam, we do have to engage Saudi Arabia, we do have to engage Oman, and we do have to engage Rwanda. It’s just making sure that those relationships are in our benefit, and that we’re using them in our national interest, whether that’s trade, whether that’s security, and making sure that we’re not, we’re not giving the autocrats too much credit, if that makes sense. So we’re not overstating well, how important is the US, the US Saudi relationship, when I don’t think we should just sweep, sweep things under the rug, because we think that relationship is important. I think it requires a real reevaluation of well, how important is that relationship? Actually? How much how much do we actually care and it’s gonna be different for every country, it’s gonna be different. Of course, Australia has a different relationship with Vietnam, United States does, but I think that my broad sentiment is, it’s not reasonable to cut off all ties with autocracies, but it is about managing those relationships carefully.

Gene Tunny  31:59

Okay, Rod, I’ve got two more questions, if that’s okay, I’ve got a question about PPP, public private partnerships. One thing I really liked about your book is, is your openness to the potential gains from these arrangements, these cooperative arrangements between public and private sectors? Could you tell us a bit about PPS, please, Charles, and what you see is their merits?

Charles Dunst  32:27

Sure, I mean, I’m in favour of public private partnerships, only when the goals match at the beginning. And one example I talked about here very frequently, is operation warp speed in the United States, which was the development of the COVID 19 vaccines. And basically, the government gave out a pot of money to companies to develop the current vaccines as quickly as possible. And certainly, while some of these companies share, they probably had a profit motive very well. So thinking, well, this is a terrible pandemic, we need to get our vaccines out as soon as possible. And that was the government goal as well. So clearly, the goals were very meshed from the beginning. And even if the companies in the end are going to make profit, the goal was not necessarily on profit, the goal was then actually delivering. Whereas some of the examples that I’ve other people have raised, particularly when I talked to British media, as well, our our PPVs haven’t necessarily worked as well. And I would argue, well, that’s because the goals weren’t aligned from the beginning, where the government wondered one thing, and the other party was much more focused on profit than anything else. So making sure that you’re partnering with responsible private sector actors, he’s really key. I mean, he should not just be throwing money at private sector firms hoping they’re going to deliver, it needs to be a 5050 partnership goals need to be aligned. But when PPP is work at their best level, I think they serve to actually boost trust in democratic governments, because poll after poll shows that and I showed it for last three or four years, that the private sector is actually more trusted than the government. And that’s true across Europe. It’s true in the United States are basically people look at their governments think of them as sclerotic, and think of them as old and not super effective. When they look at Tim Cook and Apple, they look at the company at Tim Cook, they look at something someone like Pfizer and say this, these are great look at these great innovations they’re doing, look at the iPhone, look at the vaccines, look at the pharmaceuticals. And people do tend to trust the private sector more. And I think governments would be wise to leverage that trust in a way that also helps the government’s deliver. And I think it’s just a question of making sure you’re doing that in a responsible way. And I think there’s this irony, I raised it all the time. That’s the study from a few years ago showing that in the United States, when Americans get good public service, they actually believe that it’s coming from the private sector, because the idea of effective government service is like incomprehensible. Because our system doesn’t work. So well at times that people think, well, of course, you know, I got this, I got this great assistance, I got this homeowners assistance, or I got this vaccine, it must be from the private sector, even when it’s actually from the government. So it’s just one way of basically saying well, publicising, that cooperation, I think can actually help boost trust.

Gene Tunny  34:59

Yeah. Yeah. Okay. And you mentioned that there have been failures of P PPS in Britain that have meant that people in Britain have been negative about them. And we’ve had some notable ones here in Australia too. But what I found interesting is you noted one of the great successes or most successful PPS in the book. So I’ll, I’ll put a link in the show notes to your book, Australia’s upgraded the Ballena bypass highway, completed in 1996, along with four private firms, as in conjunction with the government seven months ahead of schedule and for USD 100 million less than estimated. So that’s an impressive example. And so one I’ll probably use in the future. So yeah, good, good work finding that one. Excellent, Rado? So my final question, Charles is, I mean, how do you think this will will actually work? I mean, how, in what ways will the dictators be defeated? If if we in the democratic countries govern ourselves better? What’s the mechanism here?

Charles Dunst  35:58

I think the mechanism works twofold. Where primarily, if democracies are working better at home, you are less likely to elect people like Viktor Orban, or like Donald Trump, or like ei or Bolsonaro, who come to power through liberal democratic means, and then don’t necessarily govern in a liberal, democratic way, who have little concern, I would argue, in most cases for those liberal institutions, particularly in thinking about Orban Bolsonaro, where there’s no sense of respect for freedom of the press, there’s an effort to stack the judiciary, these are all things that can hollow out democracies from the inside. My argument is that if democracies are delivering better on economic issues on issues like the social safety net, and issues like infrastructure, if people feel optimistic about their future, which many people in democracies Do Not at the moment, they are less likely to vote for reactionary people like these that can erode democracy internally. So that is way one to defeat the dictators at home. And point to is only if you can defeat the dictators at home and prevent that autocratic impulse from taking root at home. Only then can you turn around and actually say, well look at how good we are, as a model. Look at how the United States is outperforming China or look at how Australia is outperforming Singapore, and more people in the Vietnams of the world, or people in I don’t know in a rock or in Egypt might actually look and say, well, we would like to be a democratic system. Even if we don’t agree the United States of the West, then everything. We see how well Australia is functioning, or we see how well Taiwan is functioning. Were looking at how sclerotic Saudi Arabia is their kind of messy, messy internal politics, that corruption scandals, we don’t want that. But it’s making sure that we are working well enough to fend off the autocratic impulse, and simply just that we can be the world’s model once again. Gotcha.

Gene Tunny  37:45

Okay. So showing that you’re the world’s model. Okay. Yeah. Any final thoughts? Charles, before we wrap up? Yeah,

Charles Dunst  37:55

the one thing I would just say briefly is one thing is the line, I keep using it over and over again. But I think it’s important is the lack of faith in democracy right now is really troubling to me. But something I want to say that’s positive is faith in democracy is not necessarily the problem. We all should believe in democracy and work for it. The problem is faith and democracy is automatic functioning, and the sense that everything will work without our engagement. I think the key message of the book for citizens for people who are not lawmakers, not politicians, not in government is just make sure we stay engaged. And we keep pressuring our politicians to actually make democracy work for us.

Gene Tunny  38:31

Got you. And that’s through, I suppose social media or in through, I guess, you’re engaging in the conversation? Is that what you mean?

Charles Dunst  38:40

engaging in the conversation, making sure you don’t miss elections, engaging in your local governance? I mean, it can be on a school board in the United States, you can be in your city council, you can all these local thought their town council, I think far too often we look at our messy politics or messy governments, they just write it off and stop being engaged. But I think engagement is really key to making anything work down the line.

Gene Tunny  39:01

Okay, very good. I guess one more thing, just looking back on my notes. You mentioned one of the big issues with inequality was inequality, I should ask before we go, I mean, do you have any thoughts on how that can be addressed? Or use proposing specific measures to address inequality in your book?

Charles Dunst  39:17

Yeah, one of the things I talked about was inequality in terms of education. And the notion that, basically, I think far too many democratic governments are not starting or not looking at the unequal starting points of children. And basically saying, Well, you know, once you get to university, it’s meritocratic. Its meritocratic when you get into your universities. But of course, if you are born into a lower income household, you’re less likely to have certain academic achievements that gets you into one of those schools. And if you don’t get into one of those top universities, you’re less likely to earn as much money as those who do. And I think there’s this increased need to actually look at starting points and say, Well, how do we make sure that we are doing all we can to let the talented children from lower income households actually rise? Is to top tier universities. And that’s how I think about inequality. There are certainly broader economic reforms that other folks have proposed. But I think about inequality in terms of the lack of meritocracy in the way that basically it does seem like we’re perpetuating kind of an elite with the same people and go to the same schools, their kids go to the same schools, because they have a nice starting point. But I want to make sure that we’re kind of giving more believing and more active inequality of opportunity.

Gene Tunny  40:28

Yeah, and there’s probably another episode in that, talking about how we improve that. But yeah, just wanted to check on that. Because that’s, that’s clearly one of the big issues. Yeah, but I hear about the dream hoarders Is that what you call them in the States? Of hurt? That’s one of the terms that’s been applied to your just that self perpetuating elite or whatever? Have you referred to it? So yeah,

Charles Dunst  40:52

I’ve never heard that one. But that’s a good one. Yeah,

Gene Tunny  40:54

I think that’s what yeah, I’m trying to remember who wrote that book. I’ll put a link in the show notes. So yes, it seemed a bit overly negative to me. But, but I think the data do show that the US is not as there’s not as much social mobility, as people might think, and not as much intergenerational mobility as you might like, relative to some other countries. So I think that’s an uneven in Australia, and in Britain, it’s not as high as as we would hope so. Absolutely. Good point. Okay, Charles Dance from the Asia group. Thanks so much for your time. I really appreciate it. And good luck with the book. I’m sure it will go. Well, I think the message is an important one. And I really enjoyed reading it. So thanks so much. Thank you. Okay, I hope you found that informative and enjoyable. I think Charles is someone we’ll be hearing a lot more from in future years, so I’m very glad I could interview him about his first book. I must say I was impressed by Charles’s passionate advocacy for democracy, and his call for existing democracies to provide better examples to other countries. I hope that Charles is right that we can inspire movements for freedom in non democracies by improving our democracies at home. Maybe that’s a vain hope, but at the very least our own countries will be better run. In our conversation, Charles and I touched on a few ways that democracies could be strengthened. I liked how he talked about improving our education system so that all children get the best start in life. I found a link to the book on the dream hoarders that I was reminded of while chatting with Charles and I’ll include it in the show notes. I think it’s worth having a look at. As always, feel free to email me at contact at economics explore.com. I’d love to hear from you. Thanks for listening. rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

43:46

Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey. Head on over to obsidian-productions.com

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

China’s falling population & global population update   – EP174

The world’s population keeps growing and passed 8 billion in late 2022, but China’s population is now falling. There are concerns over what that means for its economy and the wider global economy. Is Paul Krugman right that a falling population means a weak Chinese economy? Show host Gene Tunny and his colleague Tim Hughes discuss the possible implications of a shrinking China, as well as global population projections out to 2100. The conversation touches on the environmental impact of a growing population and how well-placed we are to manage environmental challenges.    

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

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP174

  • The world’s population is on the rise and passed 8 billion in November 2022 [4:24]
  • Why post-war population growth was so strong [7:43]
  • What does a declining Chinese population mean for the Chinese and global economies? [14:09]
  • The importance of immigration in Australia population growth [19:27]
  • How the world’s population will eventually level out toward the end of the century [23:35]
  • Can governments solve environmental challenges? Discussion of the hole in the ozone layer and the Montreal Protocol [30:09]
  • Paul Krugman vs Dean Baker on the future of China [42:07]
  • Tim asks how do you maintain a growth mindset in a declining population? How do you make it work? [47:25
  • Will demographics and a weaker economy bring down the Chinese administration? [53:06

Links relevant to the conversation

UN World Population Prospects 2022 data

https://population.un.org/wpp/

Paul Krugman’s article “The problem(s) with China’s population drop”

https://themarketherald.com.au/the-problems-with-chinas-population-drop-2023-01-19/

Dean Baker’s article “Paul Krugman, China’s Demographic Crisis, and the Which Way Is Up Problem in Economics”

https://cepr.net/paul-krugman-chinas-demographic-crisis-and-the-which-way-is-up-problem-in-economics/

China’s old-age dependency ratio

https://population.un.org/wpp/Graphs/Probabilistic/Ratios/OADR/65plus/15-64/156

Stanford Business School article “Baby Bust: Could Population Decline Spell the End of Economic Growth?” discussing Charles I Jones views on the link between population, innovation, and economic growth

https://www.gsb.stanford.edu/insights/baby-bust-could-population-decline-spell-end-economic-growth

Transcript: China’s falling population & global population update   – EP174

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  00:07

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. This episode, I discuss China’s falling population and other global population issues with my good friend, Tim Hughes, who helps me out in my business Adapt Economics from time to time. Tim is not an economist, but I always enjoy chatting with him and hearing his views. And I think he asked very good questions, please check out the show notes, relevant links and for some clarifications, for instance, I need to clarify that the fertility rate for Hispanic women in the US has fallen over the last decade, and is now lower than what I remember it being although it’s still higher than for non-Hispanic women. The general point I make about Hispanic fertility contributing to a higher than otherwise, total fertility rate for the US is correct. I think about doing a deeper dive on fertility rates and other demographic issues in a future episode. Please stick around to the end of my conversation with Tim for an afterword from me. Okay, let’s get into it. I hope you enjoy the show. Tim, he is good to have you back on the show in 2023. Good to be back gene. Yes, Tim. Lots to chat about this year for sure. And today, I thought we could talk about one of the big bits of news that’s already come out this year is the news about how China has had a falling population. The population started to fall for the first time. So that was over last year. Did you see that news?

Tim Hughes  02:01

I do. Yeah. And it’s sort of in line with previous conversations we’ve had about world population and declining growth in a lot of countries. But that’s been mainly in the Western countries. So I think it’s the first time we’ve seen this in China.

Gene Tunny  02:15

Yeah, and this is one of the big concerns for China that China could get old before it gets rich. So it’s got an ageing population. And now it’s got a falling population. And there’s concerns about what that means for its economy, its economic dynamism, its ability to look after the elderly people. So that’s one of the concerns, you know, there’s concerns over the dependency ratio and the number of people of working age to support those.

Tim Hughes  02:46

So that’s the same principles. Because I know we’ve talked about a lot of the Western countries have declining, population rates are declining growth rates. So there’ll be the same challenges that those countries face as well, then yeah.

Gene Tunny  03:01

To an extent, it’s much worse in China than in many Western countries, because China really shot itself in the foot, really, if you think about it with that one child policy. And it seemed like a good idea at the time, because at the time, we’re concerned about, well, how do we feed a billion people or so. And so there was a government policy, instituted late 70s, early 80s, that each family can only have one child. And that seemed like a good idea at the time, to help improve living standards, and help feed the population. But what it’s meant 40 years later, is that they’ve now got a declining population. And while they’ve relaxed that one child policy, what they’re finding is that Chinese couples, they’re quite happy with one child, because you know, that’s been the norm for four decades or so.

Tim Hughes  03:56

Yeah, because that was in place until 2016, I saw,

Gene Tunny  03:59

Yeah, around then I think. Yeah.

Tim Hughes  04:03

So I mean, it’s pretty radical, because I guess China is one of the few countries that could implement that – that kind of law. I can’t imagine many countries being able to do that. So it’s interesting seeing it pan out, because it’s interesting that Western countries have a declining growth rate anyway. So without that being put in place.

Gene Tunny  04:24

Yeah. And one of the other big challenges for China, which is less of a challenge for Australia, and for the US, for example. Immigration is a that helps us alleviate some of the challenges from an ageing population, not completely. We’ve got a really strong immigration programme here in Australia, the US gets a lot of immigrants from all around the world. And also because the US has got the benefit of having a large Hispanic population and the fertility rate among Hispanics. So people from Mexico or from South America or wherever Puerto Rico, it’s, I don’t know, it’s over 2.1 For sure, which is the replacement rate. And so what that means is that the US, their fertility rate is not as low as in other other economies. And so they’ve there not the pressure doesn’t come a lot from that source. I mean, in Australia, we’ll end up having that that natural increase turned to a natural decrease eventually. And then we will have to start relying on immigration for additional people at the moment, we’ve still got some natural increase, because we’ve got, because the baby boomer cohort was so big, and then their children, there was plenty of them. And so there are still more people being born in Australia than dying. You get a problem if you don’t have people being born and you got everyone die in, that’s when you know, you don’t have immigration. And that’s what’s happening with China.

Tim Hughes  05:56

immigration has been a big part of national growth for so many countries for since forever. Like, that’s always been the case. And so certainly, places like Australia has count on that massively. Zooming out to a macro level. We’ve been talking about the cause, I remember we had this conversation years ago, and I was open-minded at the time but I was wondering, like, what happens, you know, if world population gets out of control? And you mentioned at the time that the thinking was it was going to level off around 2050 at around 10 billion? I think that might have been raised?

Gene Tunny  06:33

Yeah, it’s been revised. So if we look, we might go to the World Population Prospects. So I’ll put a link in the show notes to this. This is the really authoritative set of projections from the UN. And I mean, they’re really good. They essentially, they were forecasting that China’s population would start declining around now. Yeah. And, you know, India’s, the mean, India’s population is going to overtake China pretty soon, if it hasn’t already overtaken China’s population that we chat about that a bit later. There are some good references I found on that. They’re on the 8 billion mark now. Yeah, I think we crossed 8 billion last year. If you look at the world population, Prospects report, they’re released last year. So the world’s population is projected to reach 8 billion on 15 November 2022. Can you remember what you’re doing that day, Tim?

Tim Hughes  07:24

No,

Gene Tunny  07:25

No. But that was back to the momentous day for the world. So you know, 8 billion amazing. I don’t know what it was, when I was born, it might have been in the 70s. It might have been put it in the shownotes. But I remember when I was at school, it was 5 billion or so

Tim Hughes  07:43

This is a thing that I saw, I remember at the time when we first had this conversation, because the rate of the doubling of the world’s population was so fast. I mean, the turn of the century around the First World War turn of the previous century, is around the 2 billion mark, I believe. And so to get where we are now is like a billion. I mean, that’s a huge growth. And this is the history of the universe, for instance, like for our species on this planet, any planet, you know, to be this money. So it’s a really, it’s a really fast growth.

Gene Tunny  08:19

So why that occurred? It’s because of improvements in agriculture is because of the fertiliser, the ability that’s that process the was invented by those German chemists.

Tim Hughes  08:33

Those German chemists, yes.

Gene Tunny  08:34

I’m not going to pronounce it. I’ll mispronounce it for sure. But there’s a there was a process that to artificially or create ammonium, I think for fertiliser, if I remember correctly, so there’s a something like that there’s a there’s a chemical process that was perfected in the early 20th century by some German chemists. And that meant that we were able to produce, you know, fertiliser artificially, and then that meant that our agriculture could be much more productive. And all of these, you know, we could support much larger populations in India and Bangladesh, and all over Asia, in Africa. So that’s a big part of it. And the other part of it, of course, is just improvements in public health and understanding of germs and bacteria and viruses and all of that eradication of smallpox, all sorts of things that have that mean that billions of people who wouldn’t have been born or wouldn’t have survived beyond infancy, are able to survive and now we’ve got 8 billion people. It’s just incredible. When you think about it.

Tim Hughes  09:42

Infant mortality at that time was terrible, like, it was very common for families to have any number of kids who didn’t make it through to adulthood. And that has definitely improved.

Gene Tunny  09:58

Well, just got any I mean, you got any cemetery and yeah, any older cemetery and you just see all the graves and memorials to infants. It’s incredible, isn’t it?

Tim Hughes  10:08

But go back to the conversation that started this? Well, certainly, as far as I was aware, because so I was of the mind, like, you know, what happens if we just get more and more and more, there’s a massive problem, and it just gets out of control. But you mentioned that this was actually foreseen that there will be a levelling off. So this extreme growth that we’ve seen from so taking that 2 billion mark around the 1900 mark, 2 billion to where we are now 8 billion. I mean, if, you know, I’m thinking, Well, what happens at the point where we can’t sustain any more people, but it was foreseen that we would have this levelling off around 2050. And then 2100, not much growth between 2050 and 2100. Is that still the case?

Gene Tunny  10:49

Yeah, yeah. So if I’m looking, I’m looking at the UN, the world population projections that were put out last year, the latest projections by the United Nations, suggests that the global population could grow to around eight and a half billion in 2039. 9.7 billion in 2050. And 10.4 billion in 2100.

Tim Hughes  11:12

So that’s a real that’s slowing down a hell of a lot from where we are now.

Gene Tunny  11:15

Yeah, yeah. And that’s because of that demographic transition they talk about. So I think we talked about that last time. How as economies get wealthier, as people get wealthier, public health improves, then they have fewer children.

Tim Hughes  11:30

That’s interesting to me, because you would think it’d be quite logical to think it would go the other way, that people would have more children under those circumstances. But there’s actually fewer.

Gene Tunny  11:39

Yeah, yeah because in poorer economies in poorer countries, children are in insurance policy. And they help look after their parents in old age. Yeah, So that’s, that’s how it works.

Tim Hughes  11:52

 I’m thinking that my kids, I might have to mention that to them.

Gene Tunny  11:58

Yeah, so that’s why. And historically, yet, so you’d have that have more children, of course, birth controls, and other another thing, too, right. So birth controls part of the story. But I think largely, it’s, it’s due to the fact that if you’re in a more if you’re in a poorer economy, then it’s probably more likely to be agrarian, or you have lots of people on the farm. And you know, having children’s that’s, that’s your workforce. Right. Okay. Yeah. So, I mean, that sounds harsh, but that’s what it is, right. So that’s  your workforce, it’s to help you out in the home, and it’s to look after you when you’re old. And so that’s why in poor economies, they have more children, and there tends to be this demographic transition, that’s well observed that countries really have this sharp or this big drop in fertility, as they get wealthier.

Tim Hughes  12:53

It’s a really interesting, I mean, I think it’s a good thing, like, you’d have to say, you know, I mean, I was, I was pleased and relieved, to see that that was going to level off, you know, because it’s obviously, you know, if we think of like, a parasitic kind of relationship, you know, and the planet, if we’re a parasite on this earth, and just gonna get too many of us, and potentially, like, trash it, which is still possible with 10 billion people. But it looks like everything’s turning around there to make better choices towards the future generations. So hopefully, that works out. But if the population was going to keep growing, that was certainly going to be a bigger issue. But hopefully, that will make it easier for us to manage the planet and our lives on it in some more sustainable way, you know, that we can sort of level out and do something. And I know, this then brought us to another question of, you know, sustainable growth being constant. Always more, always more. What would that sustainable contraction look like? Or D growth or flexible growth, that we’ve got a few different terms for it that we’ve come with for it. But it’s an interesting sort of concept of like, well, you know, not everything is going to grow, grow, grow. So how do we sort of like, manage that levelling out, you know, as humans on this planet?

Gene Tunny  14:09

Yeah. Well, this is one of the big questions about the Chinese economy and what that means for the global economy. Paul Krugman wrote a really provocative, I mean, really well written piece in The New York Times following that news, or might have been earlier actually a better check when he released it. We might cover that in a moment because there is a question about what a declining population in China or Japan what that means for the dynamism of the economy and your ability to keep everyone employed. So we might talk about that. Just wonder if we need to go back over those world population implication?

Tim Hughes  14:47

Yes. Because that’s in China, for instance. That’s what implications already hasn’t it with what’s going on there. So there’s a lot to unpack just with China, let alone the rest of the world.

Gene Tunny  15:00

Yeah, so these are the big takeaways from this World Population Prospects report. So population growth is caused in part by declining levels of mortality as reflected in increased levels of life expectancy at birth. So globally, life expectancy reached 72.8 years in 2019. So that 72.8 years, that’s a globally that’s not that’s across the whole world, right, not just in the wealthy countries an increase of almost nine years since 1990. So that’s a huge achievement. The other thing I think’s really interesting, in this UN report, this is this demographic transition we were talking about. In 2021, the average fertility of the world’s population stood at 2.3 births per woman over a lifetime. So that’s above the replacement rate of 2.1. Because you need that extra point one to account for the fact that some children won’t make it out of childhood. So that’s 2.3 births per woman over a lifetime having for having fallen from about five births per woman in 1950. Wow, that’s extraordinary, isn’t it? Global fertility is projected to decline further to 2.1 births per woman by 2050.

Tim Hughes  16:14

So was the baby boom, in 1950, yeah?

Gene Tunny  16:18

Yeah, I mean, a lot of that’s going to be in the reason, it was five births per woman. A lot of those births would be occurring in the developing economies in the emerging economies in India and China, because I think China had a big baby boom. And in Australian trying to remember what our fertility rate got up to, I think it peaked in the early 60s, because I remember looking at the data, because we will look when we were working on the intergenerational report in treasury, we were all over this data, I think, maybe got to three or three, between three and four. In Australia, which was pretty high for Australia. Now it’s under two. So it’s below replacement, if I remember correctly.

Tim Hughes  17:01

That reminds me because wasn’t it Peter Costello, who said, have one for each other and one for the country? Yes. So that was the opposite of what China were doing. So Australia was like popping out? Well.

Gene Tunny  17:11

Because we were determined that we need people. Yeah, so it’s interesting. So historically, we wanted to grow Australia’s population for defence reasons. I think Arthur Cornwall who was a minister under Chifley I think that was his he wanted and that’s why he encouraged migration. Isn’t that how you got over here?

Tim Hughes  17:33

Do not tell the authorities, will you. No, my mom’s Australian. So that is my connection.

Gene Tunny  17:42

Oh, that is right, I am just kidding. We encourage, we encourage migration after the war to try to build up the population, I guess, because we thought there’s a limit to how many you know how many how fast you can grow the population just relying on the fertility of, of the population.

Tim Hughes  17:59

I know there was a big like that there’s been a constant source of people from the UK anyway, like, the Ten Pound Poms and all of those guys who came over.

Gene Tunny  18:08

BJs. Yeah. And it’s so I guess we were relying on immigration quite a bit. And even with immigration, we will still have facing this ageing population challenge. And then Treasury crunched the numbers, and it looked like, Okay, this is going to be bad and 30 or 40 years time, because there are going to be fewer people of working age supporting the people of the elderly people also children in the dependency, like, I can’t recall the figures off the top my head, but you’d often see figures, which would suggest that whereas once there were five working people, for every dependents by, some data, there’d be two and a half or whatever, they’d be those sorts of scary statistics, and the budget deficit would end up being 5% of GDP if we didn’t correct this. And so then they the government of the day developed a strategy to try to boost population, or boost the fertility rate and the baby bonus and there’s a huge debate over whether it was effective, whether it was whether it made sense to spend that money, because a lot of people just got the whatever it was $5,000 baby bonus and went out and bought a plasma TV.

Tim Hughes  19:27

We had a baby at least one baby in that time, maybe two, we had three altogether, but I think two of them had a baby bonus. Yeah. So we’re very happy with that.

Gene Tunny  19:37

Yeah. Totally, but the fertility rate did increase over that period. And which, which meant that there was all this talk about Well, Peter Costello’s being the only minister in the Western world, has ever managed to increase the fertility rate or something like that. So we got a lot of praise over that. And there’s that famous photo of him with all the babies surrounding him. Yeah, so I guess we work tried to address our concerns about ageing about declining population, well, we don’t I mean, we’ve still got a growing population, we’ll end up where 26 million now, I think and we’ll end up at 40 million by 2050. Possibly.

Tim Hughes  20:16

So the reality of that is that that’s going to be mainly from immigration.

Gene Tunny  20:19

Yeah, there’s still they’ll still be some natural increase, but a lot of it will be immigration. That’s correct.

Tim Hughes  20:25

I think it’s a really good. I don’t think it’s widely known by everybody, of the importance of immigration, like it’s it, as far as like feeding that growth and like, supporting the ambitions of a country, immigration is essential to have that growth. You know, it’s a big part of it. I know, certainly, in the UK. I know, people from West Indies and, you know, the Caribbean, India, Pakistan, you know, massive influx at different times to be invited over into work, you know, it. And, of course, then there were thriving communities of generations now of people who are British and add to the whole vibrancy and diversity in the country. And that’s part of I mean, I know, it’s a very controversial subject in many countries. You know, we’re not going to cover here. But the fact is that immigration is needed for that growth. Yeah.

Gene Tunny  21:18

Yeah, there’s one way that you can get around this, this challenge in particularly in the western economies, which are projected to have falling populations, you can take advantage of the fact that, well, the population is not falling in other parts of the world in the emerging economy. So there is that opportunity for migration. And we’ve got to look at better ways of allowing people to, to migrate, including on a temporary basis, a lot of the concerns about migration or about people migrating for work purposes, and then settling there permanently and bringing their families. So there’s a lot of concern that. So countries like Germany, which have had bad experiences with or they do them perceive the perceived that they’ve had bad experiences with guest workers in the past, that they’d want to make sure that any migration is temporary. So I think countries are looking at ways that they can have temporary workers schemes that I mean, we’ve got all sorts of visas for temporary workers now. And we’re getting people over from the Pacific where we were before COVID, to help pick fruit here in Australia. So that’s, that’s, yeah, I think migration, certainly part of the solution. At the same time, you want to make sure that it’s, it has community acceptance, and you’re not putting too much pressure on community services, you want to make sure you’ve got the infrastructure to support the population. Yeah, so a bit of a challenge there. Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  22:57

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice, we can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world, you can get in touch via our website, http://www.adapteconomics.com.au. We’d love to hear from you.

Gene Tunny  23:27

Now back to the show. Let me just check that Australian population forecast Tim.

Tim Hughes  23:35

So I was gonna ask you Gene like, with that levelling out, frustrating gets around 40 million.

Gene Tunny  23:41

That’s what I wanted to check. Yeah. Right, because that’s the number I had in my head. But let me just check with that. That, but go ahead, keep going. 

Tim Hughes  23:48

Yeah, I was gonna say, I mean, I guess Western countries are already there, where they’re starting to level out and have a very slow rate of growth, or in decline. And so it’s just with infrastructure, and all those different things like at some point, you can imagine that people will still want to move around the world. So even with 10 billion, 11 billion, it might be a case of people leaving one area on mass to try and get into other areas, which happens all the time. I guess it’s certainly happening now. Yeah. And so a big part of that is just managing the amount of people that are on this planet, but with the sustainability sort of question, you know, it’s that up until now, everything’s been about growth, you know, population growth, and more, more and more, to getting back to the point I was talking about earlier, like, you know, it’s gonna get to the point where it’s like, well, this is we have to manage this the best way we can. And so yeah, it was going back to those areas of D growth or flexible growth, sustainable contraction.

Gene Tunny  24:45

Yeah, sure what you mean by that, Tim. And well.

Tim Hughes  24:47

I guess, I guess it’s the kind of thing because of, with that levelling out of the population, I mean, like I said, I think it’s a good thing, you know, because there are enough of us.

Gene Tunny  24:57

Yeah. If you’re concerned about the ability of the planet to support the population and there are plenty of people who are who are saying, Oh, well, we’re actually exceeding the planet’s carrying capacity at the moment, which I don’t believe because if we were, I mean, we wouldn’t be able to keep growing our population, and obviously, where we’re able to support the current population, just by the fact that we are supporting it, right,

Tim Hughes  25:20

I guess at some point as a planet, they’ll still be moving people moving around, like I mentioned, like, yeah, that’s understandable. But the growth mindset, as far as population goes, will have to change at some point, you know, like, you know, it’s not just going to be more and more, it’s a case of like, doing better with what we have. Does that make sense?

Gene Tunny  25:38

I think we should always be trying to do better with what we have. I mean, as an economist, as an economist, I think, yeah, I totally agree with that. We’ve got to be more efficient and do better and, and make sure we’re not we’re properly pricing our impact on the planet. So we’re talking with, we’re not polluting too much, or we’re managing the environment as best we can. Yeah,

Tim Hughes  26:02

yeah. I mean, I see good things coming from it. Like, I think it’s a good sort of place to be, because everything up until this point, like it’s, you know, from 2 billion in 1900, to a billion now to 10, or 11 billion. This is, I would imagine that things will have to change in the way that the world is looked at, as far as its population goes and said, Well, this is, this is, how many of us are going to be putting, you know, waste into landfill? How many of us are going to be, you know, how we deal with our own sewerage, and all that kind of stuff? You know, what I mean? Like, the stuff that ends up in the oceans, how we treat our soil, all of that, like as a global sort of, like management of, okay, how do we do this to the best of our abilities, so we can keep doing it indefinitely. And if we have if we had an exploding population that was getting forever, and that was going to be a scenario that would be potentially catastrophic. And so that’s, I guess, we’re looking at it’s like a macro sort of like view of the whole planet, it’s okay. Well, you know, what can we expect to do better? Where we’re not just constantly expanding? As far as like the population goes?

Gene Tunny  27:07

Yeah, I think why is this definitely an issue to manage? How do we deal with all of that, and greenhouse gas emissions? We’ve got to, we need to get them under control sometime, and then you can debate how quickly or not in the Greta Thunberg, we’re all going to die in 10 years, or there’s a climate catastrophe. I think we’re gonna I can’t say, well, basically,

Tim Hughes  27:36

I haven’t heard that.

Gene Tunny  27:39

Oh, yeah. I think so, I mean, we’ve had 30 years of blah, blah, blah, not doing anything, which is actually true, right? I mean, the government’s leaders around the world will talk about how they’re doing all of this, all of these great things to reduce greenhouse gas emissions and get climate change under control. And meanwhile, global emissions keep rising. And so this is one of the points that are the conservative critics of Jacinda Ardern pointed out was, she’s very popular. She’s a progressive politician. She’s very popular among progressives worldwide. And yet, before COVID emissions were rising in New Zealand, according to these commentators, I probably should fact check that one. It’s a big challenge, because our whole industry of our industry, and our economies have been reliant on fossil fuels for so long. And it’s like turning the Queen Mary around. Right?

Tim Hughes  28:34

Yeah, because I know, we’ve talked about that with the energy sector changing massively, yeah, at the moment, and there are good things that potentially can come from it, it seems to be heading in the right direction, but it’s, you know, obviously, in a transition period, at the moment. And I wonder how much of that, you know, is down to having short term governments, who, you know, we’re expecting too much from governments, with a limited term of three or four years to be able to make these changes, you know, like, because obviously, this is a long term view that we need to take, I don’t know, 2050. Net Zero, are these sort of like goals that get put in? But sometimes I think with the longer goals, it’s easier for people to say, Yeah, we’re gonna do that. And then the action is less than what it needs to be.

Gene Tunny  29:15

Hmm. I think you’re right. I mean, the system we have the democratic system, the three or four year electoral cycle, yeah, I think that makes it harder. But I think it’s better than the alternative. I mean, we wouldn’t want to have a dictatorship was I mean, they could end up imposing, you know, a very rapid decarbonisation or that is incredibly costly on us if they thought that that was the right policy, like look what China was doing with the lock downs with the COVID zero until I realised that okay, we’re going to have a revolution on our hands if we don’t relax this policy. I think you’re right I mean, I think the democratic system we have this short term focus. Yeah, the fact that it is easy to always point to the cost the short term costs of any action. Yeah.

Tim Hughes  30:09

I mean, because I have to say like, you know, at times it seems that with governments, it’s hard to know how much difference they do make, or they can make, you know, even with the best intentions in a term, which goes very quickly.

Gene Tunny  30:21

Well, I think they can make a lot of difference. Look at problems we have solved, look at the Montreal Protocol, which meant that we eliminated the use of Chlorofluorocarbons. The ozone hole.

Tim Hughes  30:36

I saw that that was that had improved that that was a Yeah, a good improvement from what it had been.

Gene Tunny  30:42

So 1987. I think that was the Montreal Protocol. Where all the governments, particularly all the governments of the world agreed that yet we’ll phase these things out. Now. That’s different from the climate change challenge, because there were easy substitutes or substitutes, which weren’t too expensive for CFCs. Yeah, that we could replace them in the aerosols. But I think, yeah, I think governments can make a huge difference. The problem with the current mean, there are all sorts of problems is the issue of, well, for Australia. I mean, the view I’ve always had is there’s no point us doing, doing much of if China and India are still going to keep increasing their emissions, and also the states. I mean, we need ultimately, you need the major economies to be leading this. Otherwise, it’s not, it’s not really going to happen.

Tim Hughes  31:37

Well, it seems clear that innovation is going to drive it, you know, because and I get that, yeah, because it’s hard to put yourself at a disadvantage when everyone else is able to take advantage of that, you know, so that argument, for instance, here in Australia, where we’re smack fairly small country, but not necessarily been supporting too many of the netzero sort of ambitions around the world, you know, because of what you’re saying, like, let the big guys lead the way. But innovation, I think we’ll do that as soon as it gets to the point where the energy is cheaper than digging coal out of the ground. If there’s a clean way of producing that energy, then everyone will follow.

Gene Tunny  32:16

Oh, exactly. And that’s what we need. We need that technological innovation.

Tim Hughes  32:21

And the market, like from our discussions before with people in the energy sector, has been that the market is driving this. So we don’t have to, I mean, governments can help by making it easier and sort of greasing the path towards encouraging those changes to happen. But certainly the market is driving it and innovation is providing the opportunity for the market to take up those options with renewable energy.

Gene Tunny  32:42

Yeah, you’re thinking about that conversation we have with Josh. Yeah, yeah, that was interesting. Or he’s talking about the fact that the nature of this transition of any transition really is it’s going to be disorderly, it’s hard to get these things done in an orderly fashion.

Tim Hughes  32:58

I always manage to steer it back to this, don’t I Gene. It doesn’t matter what we talk about.

Gene Tunny  33:01

It’s important. If I’m thinking about, well, what’s the big potentially the big risk to I mean, other than nuclear war, I mean, it’s always a threat, particularly with what’s happening in Ukraine. Now I’m in the risk of that elevated, but the other big, potentially existential risk. I mean, you’ve got to put some probability on it. I’m not as concerned about it as some other people. I’ve got the Steve Koonin view of it, he used to work for Barack Obama, he was in the administration, I think it was in science, one of the I don’t know if he was in cabinet, or he had a, he had a senior position in the Obama administration is a scientist, he was at Cal Tech. And his view is that Yep, this is something we’re going to deal with. But we’ve got decades to deal with it. So what we’ve got to do is to start putting in place agree on some policies globally that are going to get us on this smooth transition path and, and also fund innovation trying, you know, it’d be great if we could find the cost effective solution, perhaps nuclear fusion, that there’s, there’s a lot of excitement about that. But then you got to deal with the nuclear waste. And what was that? What was actually, maybe there isn’t waste with nuclear fusion? Maybe that’s one of the advantages of it. Well, there’s less waste.

Tim Hughes  34:18

I still get my fusion and fission mixed up. So

Gene Tunny  34:21

Fusion is more powerful. Fusion is what the sun does.

Tim Hughes  34:26

Yes, right. Yeah. Fission is the separating of fusion is the joining. Yeah. Yeah. But so and with and there was a breakthrough with Fusion then yeah, just the other week, but it was still claimed that that could be decades away from it being useful for an energy source on a commercial scale. However, if it’s decades where that’s significant in the history of humans, however, with that, especially with that conversation with Josh, it was record notion that, you know, having a suite of different options for clean energy makes a lot of sense. You know, we don’t have to put all our eggs in one basket. And, you know, one choice so, and clearly those things are happening as we speak. And quite successfully. I mean, like the, you know, there’s still a lot of clean, renewable energy is getting more and more prolific.

Gene Tunny  35:22

Oh, no doubt about that. I mean, aren’t they turning the North Sea into a wind farm in? Have you seen that in? Because the North Sea is really good for the wind turbines. Well, it’s I mean, it’s not shallow, but it’s it’s not very deep the North Sea? Was there’s bits of the North Sea that are only a few 100 metres deep, I think, isn’t there?

Tim Hughes  35:48

I mean, obviously, it must be, you know, viable. But it seems odd to me that a wind farm in an ocean, you know. But, obviously, there’s, you know, there’s something in it. Yeah, yeah. It’s extraordinary. It’s a really interesting time. So because all of this is coinciding with this levelling out of the population. So it seems to be a, I don’t know, it feels like it’s a good place to take stock and see how we can sort of really manage this planet. Well, you know, and cleaning it up is the first way to do it, you know, so how we can keep the oceans cleaner than they currently are, like, clean them and stop polluting them and how we can manage our waste, you know, 10 billion, it’s a lot of foods.

Gene Tunny  36:30

Well, I guess this is what’s part of this is what’s motivated all of these measures or measures we’ve had in Australia to reduce plastic waste, and then I was growning about it when they initially announced it. But I guess you adapt. I mean, you can’t get the single use plastic bags any more at the supermarket.

Tim Hughes  36:48

You’re still hurt about that one.

Gene Tunny  36:51

You can’t get the single use plastic cutlery Well, anyway, we should get back to this population stuff. It is important. I do recognise the importance of what you’re talking about. The population of Australia is projected by the Treasury, this was last year, or this was 2021, I mean, who knows. But if they updated and they’ve got different migration projections, these numbers could be significantly different. But they were forecasting the population would grow from around 26 million, around 2021, up to 32 million in 2041, 36 million in around 2050-51 and then 39 million by 2060-61. I think I’ve seen previous, I think I hadn’t had in my head the idea that it’d be about 40 million by 2050. And yeah, it’s hard. It’s hard to forecast. It depends on fertility, it depends on migration, and then all of that sort of thing. So and life expectancy. So quite a few moving parts there. Right. The other thing I want to talk about, Tim, if you still got time, yeah, it’s this issue of what does the declining population mean? So what is China’s declining population mean for its economy and therefore the global economy? One thing to keep in mind, of course, is that I think, what were we talking about a reduction of a population of 850,000 people. So that’s under 1 million, the Chinese population is 1.4 billion. So in percentage terms, we’re talking. What’s that less than point one of a percentage point? Yeah. Does that make sense?

Tim Hughes  38:37

Yeah, I mean, it’s. So it’s level that basically.

Gene Tunny  38:42

I guess that’s one way of looking at it is that it’s yeah, it’s hardly you’d have like, really noticed that on a chart, if you drew the population. The thing is, it’s a sign of things to come, because we all know that it’s expected that the Chinese population would, is going to start falling. And there are all sorts of projections as to where it could get to. By 2050-2100, I think I’ve seen an estimate somewhere that their population by 2100, could end up being, I don’t know, 700 million or so. Yeah, it’s a really big reduction because of that one child policy. I’ll put the actual figure in the show notes, but it’s quite dramatic. Just looking at what that impact of that one child policy, ultimately will be on their population in the future, because you’re not replacing your population. Right. So that’s, yeah.

Tim Hughes  39:42

So it’s funny actually, China is like a microcosm of the globe in a way, isn’t it? Because it sort of has fairly tight borders. And so the decline that that would be for China, would be an example of like, how do you manage that sustainably, how do you sustainably contract successfully from 1.4 billion to 700 million. And yeah, the thing is like, you know, China is extreme in many ways. They may manage it very well. Now, I’ve got no idea how but I think that’s a really interesting sort of point. I mean, they’ve had massive change. Was it 1962 to see the great leap forward? You know, I mean, certainly from 1980. They’ve made in the last 20 years, 25 years, they’ve made themselves this sort of, like, workshop of the world, you know, they’ve produced so much stuff. And they’ve become very wealthy in that time.

Gene Tunny  40:36

Well, the wealthier and some people have become very wealthy, their per capita income is still I don’t know, it’s under a third of what it is in the States. It’s gone. It has gone through big changes. I mean, yeah, considering that once but I mean, I don’t know when you were young and when I was young people were saying, well eat your food, because there are people starving in China. Right. I don’t know if maybe that’s an Australian thing. Yeah. I mean, yes. It was probably still true when I was when I was young. Right. But it’s not, I don’t think it’s true now. Or it’s only in small pockets. Right. Whereas famine used to be a huge problem. And you know, people were incredibly poor. And most people lived on the land. But now I’ve had all the shifts of hundreds of millions of people from the agricultural areas in China into the cities. And it’s just, it’s just amazing.

Tim Hughes  41:27

It is fascinating, because made in the 80s, like you couldn’t go to China, like it was closed off to I think it was around the mid 80s, that they sort of opened up or towards the end of the 80s. You know, and it was a new thing, like tourism in China was a new thing. And of course, it’s really well, I mean, COVID aside, you can travel there freely now. But it’s gone through massive change in a very short period of time. It’s really, you know, I don’t know, if they’ve come to a critical point in their sort of growth as, as this powerhouse of production. With a declining population, I guess that’s going to make a big impact.

Gene Tunny  42:07

Yeah. So a lot of the discussion that pundits and commentators and economists having at the moment is around well, what does this mean for their economy? What does it mean for their society? Paul Krugman had a great article. I’m not sure I entirely agree with it, because there’s a really excellent response from another American economist, Dean Baker, which I’ll link to in the show notes. But so Paul Krugman in the, in the New York Times the other day wrote, a declining population creates two major problems for economic management, these problems aren’t insoluble. But will China rise to the challenge? That’s far from clear, the first problem is the declining populations, also an ageing population. And so you’ve got this issue of the dependency ratio, paying for looking after those people. The other thing Krugman is worried about is that a society with a declining working age population tends other things equal to experience persistent economic weakness, Japan illustrates the point. Now there’s a debate about just how badly Japan’s fared relative to other countries, it certainly hasn’t grown as fast as the US or, or the Australia. But it hasn’t collapsed either. I mean, it’s managed to maintain reasonably low unemployment, it’s kept people employed. But at the same time, they’ve been the government’s had to try to prop up the economy, it’s accumulated a huge amounts of debt. So there are certainly challenges with Japan. And partly that is because it’s, it does have that declining population, as Krugman notes. So the point Krugman is making its a Keynesian point, in a way. What he’s saying is that if you’ve got a growing population, then that, from that, for what follows from that is the need for additional capital investment in your economy, additional spending that helps keep people employed. Yeah, so that’s the that’s the point he’s making, and that if you don’t have that growing population, then you’re at risk of what Japan experience with his last decade or so and potentially at risk of deflation. So I’ll put a link in the show notes here, because we’re getting up to near the time we set for ourselves. This might take a while. Yeah. It’s incredible. And so Krugman is concerned because he thinks that what this declining population could mean ultimately is that China has a period it ends up being economically weak. And there’s also some evidence or there’s an argument from this, this economist at Stanford School of Business, Charles Jones, he argues that we’ll get a declining population is problematic because then you’ve got fewer people to solve problems, it’s less likely you’ll get an Isaac Newton or Albert Einstein, etc. So that’s one of the concerns. When who knows if that’s, I don’t know how valid that is. That’s enough. That’s a hypothesis. I mean, we’ve still got billions of people, right?

Tim Hughes  45:21

I mean, you can say those guys came around when there’s a far fewer people on the planet.

Gene Tunny  45:24

Exactly. So who knows if that’s actually a legitimate concern or not. But that’s quite a, that’s a, I should have him on the show just to talk through. It’s no Charles Jones, you know, and get him on the show rather than just say, I don’t agree with it, or maybe I haven’t done the the concept justice. But there’s certainly I can see the logic, but there are concerns that the dynamism of your economy would be at risk. If you have fewer people. There are concerns about well, how does your economy adjust to this in the short term as you’ve got declining population, and you’ve got less need for investment? We’ve got all of these buildings that have been, you know, what we don’t have as much need for new housing or new construction, which does help employ people? How do we how do we manage that? And that on the other hand, there’s this great critique of Paul Krugman by Dean Baker, who’s an economist and co founder of the Centre for Economic Policy Research, which is DC Think Tank, it’s a progressive Think Tank. I really thought this is a clever critique. And Dean Baker, apparently, his Wikipedia entry claims that he was one of the first people to have foreseen the subprime mortgage crisis in the States. So yeah, I think he’s, he’s got a good reputation. He makes the point that well, Japan’s not really as bad as you think. And then it hasn’t collapsed. They seem to manage to muddling through in some way. And then it’s not, obviously they’ve still got problems because of all the debt. But he’s saying look at something you can you can manage, and there are actually benefits from a declining population. He, he notes that Japan cities are less crowded than they would be if its population had continued to grow. This means less congestion and pollution, less time spent getting to and from work and less crowded beaches, parks and museums, these quality of life factors don’t get picked up in GDP. I’m actually not sure. Does Japan have many beaches? I mean, I understand his point.

Tim Hughes  47:25

Yeah, Echo Beach, yes that is in Japan. That’s one beach that I know.

Gene Tunny  47:32

I was just wondering, I don’t know, never haven’t been to Japan on an island. So I guess it’s yeah. Oh, of course, they have beaches. Yeah.

Tim Hughes  47:39

But that’s actually a really good way of putting, I guess one of the things that we’re talking about is like, you know, declining population doesn’t have to be bad news. I mean, I guess, you know, the, the challenge would be how do you keep maintain a growth mindset in a declining population where can you make it work to your advantage? Or, you know, how can you do the best, you know, with, because part of it would be in a declining population. Once that first surge of older people goes, then it should level out with the number of older people as opposed to the number of younger people, I guess, because as you’re peaking towards your peak population, you’d have the most amount of old people is that right? I’m sort of thinking out loud here. But I’m just wondering,

Gene Tunny  48:25

Tim, is a good question mate. I mean, you’re asking does the as if as your population declines, what happens to the age composition of the population? So I’m gonna have to take that on notice. I mean, I think that’s a hard one. I mean, there could be a point, there could be a time when both the dependency ratio gets worse and your population keeps falling? That’s a good question. I don’t know, let me put something in the afterword about that. I don’t know, conceptually, I can’t figure it out right now on the fly. That’s good question. 

Tim Hughes  49:00

But it’s that thing of like, I imagine, like the you know, because the challenge is this is to manage that. Well. Yeah. And like, so. I mean, one thought that comes to mind with that is, like, the whole thing of retiring at 65 has been around for a long time and around 65, whatever it is now.

Gene Tunny  49:16

67 in Australia now.

Tim Hughes  49:19

Y eah, this thing of like, it’s not necessary for people to stop doing what they do, you know, there’s so much wisdom and, you know, a good life experience that gets lost with that mindset of like, see you later at 67. You know, and I think opening up the opportunity for people to stay in a lower capacity timewise you know, because I think it’s important for people to wind down or do something different or start a new career, you know, like whatever it may be. So, I think maybe the way that you know, we approach ageing or the way we look at ageing, could be one of the factors that changes that declining population as to no right this could actually be looking at how do we manage a declining population better you know, maybe it’s our attitude towards all the roads that we can start with.

Gene Tunny  50:04

Yeah, I think it has to start changing because all the baby boomers are nearly retired, aren’t they? And then Generation X will start retiring.

Tim Hughes  50:13

But it’s that thing of like, you know, as we live longer, we can expect to have more good years, you know? Yeah, hopefully, yeah. And they can be, they can be good years to contribute back towards society as well. It doesn’t have to be just a retirement where you don’t pay any tax at all, because that’s part of the problem isn’t like we’re fewer people paying tax to support an ageing population. You know, so I guess and it’s not just making people work later unwillingly. You know, to give people the opportunity to have different options, different levels of engagement, you know, so they don’t have to do 40 hours a week, of course, but yeah, doing something different stimulating that, you know, people could enjoy doing for longer.

Gene Tunny  50:57

Podcasting.

Tim Hughes  50:58

Podcasting. Exactly. Everybody wants it to be a DJ, everyone was a DJ in the previous life.

Gene Tunny  51:05

Yeah, exactly. I don’t have the turntable, give it time, give it time and we can bring that into the show. Cable

Tim Hughes  51:13

Maybe that’s the way we merge the two.

Gene Tunny  51:17

See how we go. Okay, so I’ll put a link in the show notes to this, these articles by Paul Krugman and Dean Baker. I mean, I don’t know. I mean, some hours of the day I think Krugman is right, then I think I actually Dean Baker is making some great points. I’m still processing it all myself. So Dean Baker, I’ll put a link to this article. It’s on the Centre for Economic Policy Research website. One final point, I thought that well, I thought I should make that Dean Baker may not that was a good one is that? Well, actually, I mean, see it as an opportunity. I mean, China’s got a, it’s got an ageing population, still, while its population is starting to decline, you can put people to well, you’ve built all of that’s right. He’s saying one of the issues that Krugman identifies is that they were building all of this, all of these buildings that, that they may not need these ghost cities. Well, you could use them for aged care accommodation. Or, you know, I don’t know how feasible that is. But that was one of the points that he made. So I thought that was that’s potentially interesting. I mean, there will always be things people can do that the challenge is, can your economy adjust to employ them? So do you have a flexible economy? Gotta make sure you’ve got you’re not regulating business, there’s not the burden on businesses and to hire so that there can be that that adjustment, you don’t have rigid wages or rigid, rigid IR policies that prevent people moving into to new occupations? Yeah, so Dean Baker’s quite positive about what could happen in China. And I’ll encourage, if you’re listening, please read his article. I probably haven’t done it, done it justice. With that, that quick summary there. So yeah, I’d recommend reading that I thought that was really good. And Oh, one other thing we should talk about is that there’s one other concern with the declining population. And the issues with ageing population in China lack of dynamism and what it could mean for their economy, the stability of the whole country, right, the political issues. So Peter Zeihan, I think that’s how you pronounce it. He’s a academic over in the States, he’s come out with his controversial view that the Chinese system as it exists now, that Communist Party regime can only last another 10 years out.

Tim Hughes  53:44

And I mean, it’s been speculation, but it could be true.

Gene Tunny  53:47

If it turns out to be right, he would be held as a genius, the genius.So who knows.

Tim Hughes  53:52

Someone, somewhere will be making those calls.

Gene Tunny  53:54

I mean, my feelings is what I was talking about with Alan Morrison in this chat about enterprise China toward the end of last year. And I think ultimately, that there has to be a regime change in China. I think as economies get wealthier, then there’s naturally more support for democracy.

Tim Hughes  54:14

There seems to be a bit of a paradox with ideology in China at the moment. I mean, we’ve communism is the main ideology, of course, but they’ve embraced capitalism, to the point where individuals are getting mega wealthy, but then they’re sort of getting called into the headmaster’s office and sort of like, you know, put in detention for a bit to sort of keep them in line Jack Ma, from Alibaba, and different people who sort of like disappear off the, you know, public space or forums. And so there seems to be a bit of a tussle there going on, and you wonder how long that can go for. But yeah, there certainly, I think it’s fair to say that there would be an expectation of change coming sometime in the next 10 years. I mean, it’s really everywhere. I mean.

Gene Tunny  54:57

I guess change of some sort. I mean, let’s hope it’s a peaceful change. And there is, uh, you know, maybe the I mean, I don’t know whether they’re going to relinquish power will Xi Jinping I mean what what are the chances of him relinquishing power? I mean, given he set himself up as Emperor for life or whatever it was, I mean.

Tim Hughes  55:15

There’s only Jacinda Arden that I can think of this relinquish power. Yeah, it’s it’s pretty rare thing.

Gene Tunny  55:22

It is very rare because power is seductive, isn’t it?

Tim Hughes  55:27

So they say?

Gene Tunny  55:31

Tim, that’s been an amazing discussion. That’s been fun. Yeah, it’s been good. I’ve really enjoyed that. As always, we managed to go much longer than we expect to or prepared for. Any final thoughts?

Tim Hughes  55:45

No, I mean, it’s funny because it does crossover. I mean, I guess that’s why other things come into it, you know, because they’re all connected. And they, it’s a really fascinating time to be going through this. I mean, like, you know, we’re at a really interesting time, for anywhere in humanity’s history in our like, we’re at these sort of peaks that haven’t been reached before. So yeah, I’m really, and I personally enjoy the direction that things are going in for, you know, the environmental future of the planet, you know, like, I think it’s the right way to go. And I think that’s the overriding direction that it has to get when because otherwise, potentially, yeah, we’re gonna end up in a situation that’s going to be very difficult to reverse. And so seems to be heading that way, which I think is a really good thing. And hopefully, we’ll get there as quickly as we can. Safely.

Gene Tunny  56:39

Yeah, yeah. I mean, I’m optimistic. I think the biggest threat we’ve got is nuclear annihilation. So see how that goes.

Tim Hughes  56:49

It’s still it’s funny, isn’t it? Because that was those threats come and go. But I think our capacity to have our attention on it sort of comes and goes, I mean, it’s sorry, the threats always been there. But our focus on it sort of comes and goes with different things. It’s hard to live under that existential threat constantly.

Gene Tunny  57:09

Yeah, very true. Very true. Okay, Tim Hughes. Thanks so much for your time. I really enjoyed that conversation. I thought that was really he really enjoyed it. We got through a lot, and it was a good discussion to kick off the new year. So thanks so much. Yeah.

Tim Hughes  57:22

Thanks, Gene. You’re welcome.

Gene Tunny  57:25

Okay, I hope you found that informative and enjoyable. In my view, the main takeaway is that China’s declining population is a big challenge to the Chinese economy. And by implication, the global economy, it will be difficult for the Chinese regime to manage this declining population. And indeed, it could even contribute to the end of Communist Party rule, if the declining population actually does lead to a weaker economy and hence an erosion of support for the party. Arguably, one thing that Chinese administration could do to help partly offset the problem of a falling population is to have a more liberal immigration policy. Of course, the administration may worry that bringing in too many foreigners may create political instability which could cost at power. I’d note that for countries which are more open to immigration, and also which didn’t have as bigger collapse in the fertility rate as China did, I’m talking about countries such as the US and Australia, those countries are much better able to cope with demographic challenges. And indeed, they’re actually projected to grow over the future decades. For example, the UN projects that the US will have a population of 375 million in 2050. And between 390 and 400 million in 2100. That’s up from 335 million or so today. Before I go, I better respond to a question that Tim had in the episode. Paraphrasing, Tim asked a question about what happens to China’s old age dependency ratio as the population peaks and starts falling? To answer this question in the shownotes. I’ll put a link to a chart from the UN showing the projected old age dependency ratio for China. That is the ratio of the number of people aged 65. And over to the number aged 15 to 64. The chart shows the old age dependency ratio in China will keep rising for several decades, probably into the 2080s. So in China, we’ve got a falling population, and we’ve got rising old age dependency. So that ratio will increase from around 20 People age 65 and over per 100 working age people. So that’s today it will increase from 20 to 90 people aged 65 and over per 100 working age people in the 2080s. It’s expected China will eventually have almost as many old age people as working age people. That’s the median projection from the UN and everything depends on how closely reality complies with the UN’s assumptions of course, that said there’s no doubt The dependency ratio is increasing and China has a big problem. China’s one child policy has meant that too few people have been born in the last few decades, nowhere near enough to keep the population growing and to look after an increasingly elderly population. Many of the Chinese born are the big cohorts after the 1949 revolution, and before the one child policy was introduced in 1980. They’re still alive and they’re ageing. Right? Oh, I must confess that population dynamics are complicated. And I might try to get a demographer under the show and a future episode for a deep dive. If that’s something you’d be interested in, please let me know and I’ll see what I can do. Okay, thanks for listening. rato thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets, you then place router review and later writing. Thanks for listening. I hope you can join me again next week.

1:01:30

Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey head on over to obsidian-productions.com

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Economics Explored is available via  Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Enterprise China: what western businesses need to know w/ Prof. Allen Morrison  – EP171

Professor Allen Morrison has been studying China for over three decades, and he’s an expert on the Enterprise China model, the close relationship between business and state in China. Chinese companies take the lead from Beijing to help meet state objectives, including reduced dependency on the west. In return, they get competitive advantages over western businesses trying to break into China. In this episode, Prof. Morrison, from the Thunderbird School of Global Management at Arizona State University, talks to show host Gene Tunny about his new book with INSEAD’s Prof. Stewart Black on Enterprise China. 

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

What we discuss with Prof. Morrison

  • How the business model in China differs from the model in the west [01:50]
  • How the Chinese Communist Party oversees businesses in China [10:20]
  • What western businesses need to know when doing business in China [12:40]
  • Does China have an imperial ambition? [17:28
  • Companies which have done well and those which have done badly in China [22:29]
  • Challenges to the Enterprise China model and the CCP [27:48]
  • Gene’s takeaways from the episode [39:30]

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.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About this episode’s guest: Allen Morrison

Allen J. Morrison is professor in the Thunderbird School of Global Management. Morrison previously served as CEO and director-general, senior advisor for global management education and executive education initiatives at Arizona State University. Before joining ASU in 2014, Morrison was professor of global management and the holder of the Kristian Gerhard Jebsen Chair for Responsible Leadership in the Maritime Industry at IMD. Professor Morrison was also director of the IMD Global CEO Center, which focuses on the challenges CEOs face while leading their companies in the global economy.

For further information about Prof. Morrison, check out his ASU page:

https://search.asu.edu/profile/2551923

Links relevant to the conversation

Get a copy of Enterprise China: Adopting a Competitive Strategy for Business Success:

https://amzn.to/3YMb1aI

Prof. Morrison’s article “Competing with “Enterprise China” vs. Chinese Enterprises” on the Thunderbird School of Global Management website:

https://thunderbird.asu.edu/thought-leadership/insights/competing-enterprise-china-vs-chinese-enterprises

William Kirby’s HBR article “The real reason Uber is giving up in China”:

https://hbr.org/2016/08/the-real-reason-uber-is-giving-up-in-china

Transcript: Enterprise China: what western businesses need to know w/ Prof. Allen Morrison  – EP171

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  00:00

Coming up on Economics Explored.

Allen Morrison  00:03

The Chinese model is the enterprise China model. If you want to do business, you will wait for the signalling and the support of the government, the government or the there that like the puppeteer is controlling this.

Gene Tunny  00:16

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny, broadcasting from Brisbane, Australia. This is episode 171 on enterprise China. My guest is Professor Allen Morrison of the Thunderbird School of Global Management at Arizona State University. Allen is the co-author of the new book enterprise China, adopting a competitive strategy for business success. In this episode, I chat with Allen about the close relationship between Chinese companies and the Chinese government and what that means for businesses wanting to compete in China. I also ask Allen about just how worried we should be about China’s global ambitions. Please check out the shownotes relevant links and information and for details they can get in touch with any questions or comments. Let me know what you think about this episode. I’d love to hear from you. Right now in my conversation with Professor Allen Morrison on enterprise China. Stick around to the end of the conversation for what I think are the big takeaways. Thanks to my audio engineer, Josh Crotts visit assistance in producing this episode. I hope you enjoy it. Professor Alan Morrison, thanks for joining me on the programme. 

Allen Morrison  01:30

Great to be here. 

Gene Tunny  01:33

Excellent. Allen, I’m keen to chat with you about your new book, Enterprise China. Could you begin please, by explaining what motivated you to write this book? And then what do you mean by Enterprise China, please?

Allen Morrison  01:50

Right. Right. Well, thank you. It’s good to be here. Thanks for having me. So I’ve been working in and around China for my entire professional career, well over 30 years. In fact, I was in China in Beijing in Tiananmen Square when they declared martial law. I’ve been a visiting professor several times in China, I’ve spent well over a year living in hotel rooms in China, advising Western companies, Chinese companies, also state enterprises in China. So my interest in background in China goes back more than three decades. What has fascinated me about China is that the story about China is very different than anywhere else in the world. And the business model is very different, how the approach to business is very different. In the West, we have long held the belief that if we invest in China, China will grow and it has grown. If we help them with technology, China will grow, and it has grown. And we have believed based on our own experience and values that as China advances up the per capita income curve that the public would hunger for democracy, China would open up would befriend everyone in the West. We also believe that as capitalism flourished, the role of the state would diminish. China has flourished, the economy has prospered the people are richer, 800 million people have been taken out of poverty. But the system didn’t change. In fact, the state is doubling down. And what has emerged is a very successful model we call the enterprise China model, where the state and the enterprise in a free market environment, a free market background, if you will have come together to create a very different model of competing, the model has enabled China to prosper. And we in the West are a not we’re not accepting of the model. We just don’t understand it. We are convinced it’s going to fail. It hasn’t failed and may not fail, and we don’t have a good solution for it. So that really prompted us my clue my co author, Professor Steward Black, was affiliated with INSEAD great business school, that really prompted us to better understand how the Chinese model works with the state and companies working together and how we in the West can best respond.

Gene Tunny  04:40

Gotcha. What I think is great about the work you’ve done, Alan, is that you’ve highlighted just how extraordinary this change has been just what’s been happening with China and there was an article that you wrote a couple of years ago Competing with Enterprise China versus Chinese enterprises, which summarises this, and I might just read this out, because I think it’s fascinating. In 2020, China dethrone the US from the top of the Fortune Global 500. In 2021, China extended its lead with 13 more firms on the list than the US, 135 versus 122. And I think that would, that would surprise a lot of people. So could you tell us a bit more about this enterprise China model, please? How did you learn about it? What is there a framework? I mean, are they are these companies? Are they been directed by the administration? I mean, how does it work?

Allen Morrison  05:39

Yeah, so enterprise, China consists of three types of Chinese enterprises, which captures most of the economy. Okay. On the one hand, we have state owned enterprises owned by Beijing, we’ll just say 100 of these firms. Not many of them. Many of the biggest firms in the world on that Fortune list are these firms. They are owned by the state, they’re an appendage to the state. The second level of firms are also state owned enterprises. But they’re owned by provincial governments, municipal governments, there’s 150,000 of these firms. Some of the big firms on that list are also in this set. But there are a lot of these firms out there, the third set are privately owned enterprises. These are firms like Alibaba, Tencent, and so on. But these firms are also heavily influenced by the state. And that owner influence comes in two ways. One is the state typically owns a small piece of these enterprises. They own 4% or 8%, or 12%, either of the parent or subsidiary organisations. So you scratch the surface of we’ve been quite, quite rigorous and looking at a whole swath of mid sized and large Chinese firms. Every single one of them has some component of Chinese ownership, albeit 4% 6%. So the second way they influence these firms is simply by, you know, through regulation or through signalling. So for example, you know, we go back to 2020, when, when Alibaba Jack Ma, Alibaba has, you know, market cap was $665 billion. Jack Ma himself personally was worth about $50 billion. And part of Alibaba is ecosystem is this company called Ant Financial, Jack Ma wants Ant to go public, it would bring in about 300 would value at $315 billion and bring in about $35 billion from the IPO, that would value add at more than Deutsche Bank, Credit Suisse, Barclays, ING, Goldman Sachs, together, huge. But then Jack Ma makes a few comments that this state viewed as disrespectful, shall we say? The IPO is shut off. Jack Ma is basically exile, the stock plummets in value. And this is just a signal to other tech companies that who’s in charge. It’s the state. And so the state can influence these and they influence them directly and indirectly, that what is very typical with these firms, even the privately owned firms are those that are traded in Hong Kong or those that are traded in the NASDAQ. These firms will partner with a state enterprise or a municipality, and they’ll say look, you know, municipality will say here’s the deal, we’ll give you the factory, we’ll give you the land. We’ll provide infrastructure, we want 6% ownership of your company. And we’ll give you discounted finance. So the Chinese partner, the Chinese, privately owned enterprise, they work with the state, then the state will say we’d like you to work with another company, a sister company, and so they’re matchmakers that put it together. This is this kind of ecosystem. If you want to compete in China, you have to be part of that ecosystem. And that we kind of refer to as the enterprise China It ecosystem. Right. Okay.

Gene Tunny  10:03

Now, this is yeah, this is interesting. I think I understand how they’re getting a competitive advantage. It’s because they’re getting some support from the state. Is that right? You mentioned that they might get land for a factory or there could be some rights, some incentives.

Allen Morrison  10:20

Right, but it’s more than that. It’s the ability to play in it to be in the game. Okay. So if you want to compete in China, you will be part of this ecosystem. You know, the, the Japanese had their model, the Keiretsu Model, the Koreans had the Chaebol Model, the old Hong’s of Hong Kong, it’s these interlocking ownerships and so on, the Chinese model is the enterprise China model. If you want to do business, you will wait for the signalling and the support of the government, the government or the there, they’re like the puppeteers controlling this. So it’s not just that we’ll give you a little discount on the financing, it’s not just that we’ll give you an old factory, it’s that if you want to play the game, here, you will listen to take direction from the subordinate to the state. One other thing many in the West don’t recognise is that companies in China with 50 or more employees must have on site and office of the Chinese Communist Party. They have a representative on site, medium companies, well, any company over 50 employees. So they’re all listening waiting for the signalling of the state. So it’s a matter of, you know, come almost arranged marriages and partnerships, that, that and I don’t want to say that that government is always, you know, always has tremendous foresight, they don’t. But even if the initiative is taken at the company level approvals, and a wink and a nod from the government, at the state, municipal level, are, are essential. Now I have to say, that’s a Chinese from a Western perspective, you have to think so what are we as are, what do we do about that? We want to do business in China? How do we integrate ourselves with that model? And that’s what much of our book is focused on? What do we in the West do about this?

Gene Tunny  12:29

Okay, okay. Well, I might ask about that, then, Alan, what do we do about it? I mean, I guess when you’re in Rome, you have to do as the Romans do, is that what you’re arguing in your book.

Allen Morrison  12:40

to some degree, it’s obviously not black and white. The first thing we look at in our book is, is we create a model or identify a model for strategy involving China. And on the one hand, one kind of strategy for China involves companies that are primarily focused on accessing China as the factory of the world. So I want to do business in China because I can buy, you know, my cheap couches or coffee pots, or whatever that is they become the factory that was so I’m interested in. That’s my, that’s my focus for China. There are other Western companies that are focused on the Chinese market. So I want to be in China because I want to access corporate or individual customer accounts. And in many industries, China is the second largest market in the world. And in many industries, it’s the biggest market in the world. So your approach to China depends in part on why you’re there. Most companies in the West there’s over a million companies in the West, doing business in and with China today, a million companies. Most of them are small, have a small, relatively inconsequential presence. They’re basically buying an option. They’re there, they don’t really understand why they’re there. They kind of burned the box checking business. Those companies are at risk. They’re at risk. So number one is understand why you’re there. Secondly, is to think very carefully about the industry you’re in because China has targeted 10 industries. Where if you’re a Westerner you’re going to be in deep, deep trouble. If you don’t think you know two or three steps ahead of the Chinese. These are the industries we typically think of associated with the Fourth Industrial Revolution, the kind of the industries of the future, robotics, pharmaceutical, aerospace, advanced materials. The Chinese have put a big umbrella up You know, and they keep reading, readjusting the definition. But these are the industries most in the West who would say, look, we’d really like to be there. In those industries, if you’re a Western company competing in those industries, the Chinese have been clear about this. They have identified market share levels, hurdles, and they go from 70, to 80, to 90%, domestic production domestic market share in these industries. So if you’re an aerospace, it’s going to be about 80% of the industry must be controlled by Chinese enterprises, period, doesn’t matter how good your technology is, doesn’t matter how good your service is, your market share it has been determined will be reduced to at most that 20%. But you’re gonna have to cut that up and share it with other Western firms. So be very cognizant of what the Chinese are after the Chinese are, after three things, they’ve been very clear about this, it’s been published, it’s not, you don’t have to be a spy and go in there and take pictures of their, you know, secret ID documents, their strategy is based on three steps. Number one, we want to become less dependent on the west, we want to reduce our dependency. Number two, they want to dominate domestically. And number three, they then want to go out into the world and lead the world to flip that dependency relationship. So we in the West are dependent on China. That’s that’s their approach. And they’ve been doing this for 30 years. And they have articulated it since the early 2000s. And so in the West, we need to be very aware of, of what we’re up against. That does not mean that China wants to decouple from the west. I think the worst thing that could happen to China is it would decouple from the west. And by the way, it would not be a good thing for the West to decouple from China. But they clearly have an engagement strategy and a strategy. That’s whose objective is to ultimately win and flip that dependency relationship.

Gene Tunny  17:28

So do you think that’s the main thing thereafter? It’s, it’s reducing that dependency, rather than? I mean, to what extent do they have imperial ambitions I suppose you could call it was one of the concerns we’ve had in or people in Australia have had is that there are concerns about espionage. And we blocked the telecommunications company, Huawei from being involved in our 5g rollout. So to what extent should we be concerned about that? It’s not just about them, wanting to become more independent. It’s a broader, it’s a bigger game.

Allen Morrison  18:08

You have a former, well, relative of mine, Morrison, who was the prime minister who lashed out on some of this. So yes, by the way, if we’re not closely related, okay. Don’t blame me. So look, I think that the Chinese to understand the Chinese you understand need to understand the history. Every country has its history. But China fresh in China’s memory is what happened in the 19th century when China was subjugated by the West by Britain, to a lesser degree, the US, but you know, that particular animosity visa vie, the Japanese, it was a last century is the century of embarrassment for them. A humiliation is what they refer to it, as they do not ever want to go back to that. They that is, even though it’s 150 years old, it is still part of the Chinese psyche. So they, rather than think of them as imperialist, I would think of them more than seeking respect and seeking a return to what they we all refer to as the Middle Kingdom of China. You know, for 900 years, China led the world as the world’s biggest, most influential, most prosperous economy. And they want to return to that. And so, you know, to the degree imperialism, you know, helps, sure, they’re not going to push back on that, but it’s not. They’re not culturally, an imperialist by mentality, as opposed to say the Russians. So it’s about respect. It’s about power. It’s about control. It’s about influence. More than I would think it’s about imperialism. Now, does that mean we shouldn’t be a lot smarter about it? We should be a lot smarter about how we think about China. And we’ve been, I think, pretty naive about the Chinese. And we’re starting to wake up in the West about what it means to contain the ambitions of China.

Gene Tunny  20:26

Right? And what does that mean for a company say that? I mean, there are plenty of Chinese companies that are operating in the West, does that mean we need to have closer there needs to be closer scrutiny? There’s a lot of talk about tick tock in the US, for example. Do you have any thoughts on that?

Allen Morrison  20:45

Yeah, I mean, that what you need, just think about the kind of mindset I hope we can communicate with with this book, is when you think about China do not think about it as Chinese enterprises, as individual entities, think of them as having an umbilical cord back to the state. So when you do business with Chinese enterprises, you are ultimately doing business with this whole ecosystem, and ultimately, with the state, so it doesn’t mean you can’t do business with them. But you have to recognise that whatever you share, whatever you give them will be absorbed and spread throughout the Chinese eco ecosystem. In terms of best practices. I think that one of the keys to the you know, for the West, is to understand how that model provides big advantages to China, but also provides some significant barriers and problems for the Chinese.

Gene Tunny  21:55

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

Female speaker  22:00

If you need to crunch the numbers, then get in touch with Adept Economics, we offer you Frank and feel is economic analysis and advice. We can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, http://www.adapteconomics.com.au. We’d love to hear from you.

Gene Tunny  22:29

Now back to the show. Allen, do you have any examples of companies that are engaging with China? Well, and then perhaps some that have been burned or that are doing it badly?

Allen Morrison  22:42

Yeah, absolutely. So the companies easily that had been burned or doing it badly. I think they come in a couple of different categories. The first stars are many of these tech companies, which have been pushed out of China. These are companies like Amazon and Uber, typically tap tech companies that have through because they’re threatened because of their target industries, their initial investments have been wasted, and they’re out of the country. So it’s not difficult to find those examples. Companies that have done it well, in China. I think I would, first we and we do this in the book identify kind of a continuum of what that means and how they’ve done it. But on you have companies like for example, Honeywell, Honeywell is approach to China has to basically go in with the following premise. That is, they want to be in China, for China. They’re not in China, you know, to suck profits out to invest in another part of the world. They are in China to look after the Chinese to as best they can to become an insider in the Chinese market. And because of that they’ve had a CEO who has become fluent in Mandarin. He just recently retired. They’ve been fully engaged with Chinese partners, ingratiating themselves with the Chinese ecosystem. And so other companies like Coca Cola have done the same. They have a myriad of partnerships in China. They every one of these has some tie in, typically with a municipal government. Their approach to China is to be in China, for China. Then you have a company like Yum brands, these are the guys who are Kentucky Fried Chicken, Pizza Hut. They went so far as to say if we’re really going to be in China for China, we cannot have ties back to the corporate parent.  And there are some reasons for that because of public relations because of oversight. And so they have determined that for them, they need to create a separate publicly listed company, Yum China, which is only focused on China. And there are some good reasons for that. By the way, it does protect the parent company, from Chinese behaviours that many in the West will find embarrassing. So we’re seeing companies that are having problems in China, are the ones who, despite making lots of money in China, are compromising some of their values to be there. We’re seeing examples, left, right and centre, whether it’s Daimler Dolce and Gabbana, or the NBA National Basketball Association, whether it’s Apple, Apple, which has a heavy overhang in China, heavy exposure to China, they have made in many ways deals that would be unacceptable were they to be brought to full light in the West. One of those, for example is their iCloud, basically data farm, in that they’ve created with a Chinese partner, which they had to do to bring on a partner in order to do this. But they then stepped out to let the partner manage it gave them the encryption codes. And this partner has ties to the state. So if you are using Apple in China, the state can access all of your data. And by the way, that includes a data that could compromise potentially your identity and your and your personal security. In the West, Apple would never engage in this kind of behaviour. Nor if it was really made public. With China, would Apple be able to survive? I think the torrent of negative press that that would overwhelm it. So I think you’re seeing a lot of these deals going on, to make peace with China, through apology tours, that in the West, are going to cause some problems. So working in that, you know, that model of in China for China is going to require Western companies to rethink some of their global values and the degree to which they need to cut the umbilical cord, just like we’ve seen with young China.

Gene Tunny  27:48

Yeah. Okay. One last question, Allen. Can I ask you about how sustainable you think this enterprise China model is given that economists would argue that this is not the best way to run a company or that it’s going to you’d have less efficient corporations? I mean, how sustainable is this and also, there are the issues with the lack of democracy in China, just how sustainable is this whole model in the next, over the next decade, two decades, etc.

Allen Morrison  28:23

You know, we have been more than happy to interpret China through the prism or the lens of the West, which may not be the most effective lens out there. And let me add the other caveat, we’ve been wrong about China too many times to to do predict with any accuracy, what’s going to happen. So here’s a couple of things that the Chinese have to deal with, which are significant problems. Problem number one is the shift from what we call vertical China to horizontal China. Vertical China’s a command and control going back to Mao the state controls everything, you know, why did your factory makes shoes you know, pairs of shoes because we’re only told to make the left shoe and not the right shoe. Just stupid things that come when the state controls everything. That’s traditionally been the model, horizontal China’s where we have empowered consumers educated informed with resources with money, the ability to travel, the ability to think for themselves. And horizontal China also includes municipal you know, mayors and governors, which are pulling and tugging, you know, and trying to fight the horizontal model of Xi Jingping. So there is that pressure out there. And that pressure is not going away. If anything, it’s going to get worse. Number two, despite China’s efforts to break the dependency curve, the dependency cycle, they have not been able to do that in the areas of highest technology, which, you know, I’m thinking semiconductors microprocessors, for their most advanced three nanometre chips. They are wholly dependent on Western technology, including Taiwan Semiconductor, which is, you know, across the straits. They don’t have the capability to do they barely have, they certainly don’t have enough capacity by indigenous Chinese firms even handle five nanometer technology at a level that would satisfy demand. They have not been able to do this. They’re several generations behind. They have committed $250 billion to kick starting this. But there are some reasons why I’d be concerned that they’ll be able to do this, I’m not sure they will be able to do this, because we in the West have increasingly stopped allowing the shipping of tools, foundry tools and so on for these plants. Number three, there are some phenomena in China called a byline, which translates to let it rot. That’s it. That’s this kind of younger millennials, the Gen Z age who are, you know, 28 years old, who are because of the clamp down on technology in particular, finding themselves unemployed, underemployed, and spend their days playing video games, and fighting and chafing against the state, the state with the motto in the West, translated, let it rot, we hope the whole system burns down. So there’s this anger palatable. I would also argue demographics are, are probably China’s worst enemy. We saw this exact model play out in Japan, where we saw the Chinese population peak in the 90s, has been on a steep decline. It’s paralleling that in China, Chinese population reached its peak in about 2007. Between now and 2050, China’s slated to lose about 230 million people, 230 million people, when the economy shrinks by that amount, the only way the economy can keep its own, if you will, is by dramatically increasing its productivity levels to offset declining population, or they can open the door and have all kinds of immigrants coming in. There’s not a chance of the second happening. And, so can they increase productivity? Not like they have in the past. They have many internal problems, those agrarian farmworkers who left to come to the cities, that’s all played out the ability tp increasingly used capital, that’s to drug jackup product that is decreased, particularly as the economy gets so big, this issue of the challenge of numbers. So China is facing some serious headwinds. And we haven’t even talked about the political blowback from the west restrictions increasingly blocking the transfer of technology. Huawei, you mentioned earlier, Huawei is in many ways, yes, absolutely world class company. But pretty much every major technology advanced made by China made by Huawei, was made outside of China at Huawei facilities outside of China. So China’s seem very adept at importing expropriating technology from the West, not the greatest at doing it in house. They are facing a lot of headwinds, China.

Gene Tunny  33:52

Right. Okay. So I mean, are you saying that we’ll look at there are a lot of challenges. So look, I mean, who knows what could happen? I mean, there is there is this growing dissatisfaction. That we’ve got the demographic issues. So yeah, the whole, so the legitimacy of that administration. Am I right, that it was based on strong economic growth since the 80s. Since the liberalisation and bringing hundreds of millions of people out of poverty that underpins the legitimacy of the administration. Right.

Allen Morrison  34:30

right. Yeah, it does. And, of course, COVID crackdown hasn’t helped. Yeah, I’ll just share one story with you. And maybe the the audience would be interested in this in the late 1980s, when I was in in Beijing, and we had all those demonstrations and martial law. I had dinner with a very senior university administrator, very senior, I don’t want to embarrass him or implicate him. And we were talking about These demonstrations and the tanks rolling and so on, I asked his opinion, his opinion it kind of shocked me, very informed guy. He said, first off, I doubt that the demonstrations really took place the way they’re portrayed in the West. Like, really? Secondly, he said, but even if you’re accurate, he said, What you fail to understand in the West is that in China, we don’t care particularly about democracy. I said, Really, that’s shocking to me. He said, Here’s the reason what I am one vote. In a country with over 1.2 billion people. My vote has no impact on anything. What I care about, is economic prosperity. That’s what I care about. And so when you look at this, from that perspective, where that stability and prosperity, what will propel the regime forward is prosperity, economic growth, and so on, when you start to make compromises, and when you start to say, no politics trumps prosperity, politics trumps economic growth, then you’re going to see this, you know, empowered middle class and upper class begin to change more and more and more, I’m by no means predicting that, you know, that we’re going to see a change in regimes in Beijing, what I am predicting is that tensions within China are going to continue to rise. And either the government will clamp down on that, or we’ll have to become more open. And I’ve taken great, you know, satisfaction and seeing Xi Jinping relaxed, some of those COVID restrictions, based a week or 10 days ago on kind of this groundswell of, of opposition. So I think the Chinese are in for a very interesting 5,10, 15 years going forward. I’m not predicting that, you know, we’ll see a groundswell of change. But I do think that the Chinese model will evolve. One final thing I will say about this is that, it would be a mistake to think that Western companies, by in large, are losing money are getting somehow hammered in China. Some of Western companies, most profitable businesses, one of the kind of ugly secrets out there, they’re coming out of China. There many companies are making embarrassing amounts of money in China. And the Chinese are fine with that. The Western companies are kind of hiding that obfuscating that through transfers, through creating, you know, trading centres in Malta or something, and funnelling money, very smart about this. Where the Chinese will get very upset is if you’re in one of these targets, very upset, and focus is your one of these target industries. And if you refuse to play in their sandbox in their ecosystem, you can figure out how to do that. And you can get out of the way of these strategic industries, China can and will remain or can be and will remain a very viable market for Western firms into the decades ahead.

Gene Tunny  38:37

Okay. Oh, that’s, that’s been great. I think it’s a well researched book, published by Wiley. Is that right? So very reputable.

Allen Morrison  38:46

Wiley and yeah, thank you. We love the book.

Gene Tunny  38:50

Yes, absolutely. So I’ll put a link in the show notes to it. So people who can get a copy. Any final thoughts before we wrap up?

Allen Morrison  38:58

No, I’m delighted you’re you’re talking about this. China’s a huge issue of the day. I will only say that our book steers clear of politics, and focuses on what’s happening with business and what business leaders can do to prepare their companies better in a world where China is not going away.

Gene Tunny  39:19

Okay, gotcha. Righto. Well, Professor Allen Morrison, thanks so much for appearing on the show. I really enjoyed the conversation.

Allen Morrison  39:27

Thank you so much.

Gene Tunny  39:30

Okay, so what am I big takeaways from my conversation with Allen? My first takeaway is that enterprise China, this close relationship between business and government has a wide reach, and it has huge implications for companies wanting to do business in China. In the words of Allen and his co author, enterprise, China extends far beyond this core cluster of state owned enterprises and includes virtually all privately owned enterprises of any significant size or importance. That’s pretty concerning if you’re trying to compete in China. This leads into my second takeaway, but it is very challenging for Western businesses to do business in China. Various Western companies such as Uber have lost a lot of money trying to break into the Chinese market. It couldn’t compete against enterprise China. I found a great quote from Harvard Business School professor William Kirby in 2016, about what happened with Uber. Uber is leaving China, not because of interference from its rivals, but because of interference from the state. It was worried about the prospect of unfavourable national regulations that would damage its business in China. Disney is another prominent example of a company which has had difficulties in China. As Allen and his co-author noted the book Disney’s 2020 Milan film was not only bad for Disney’s reputation in the West, because it was filmed in a region where Uighurs are oppressed. But the Chinese government shut down coverage of the film in China, so very few Chinese people ended up seeing it. The government apparently was concerned that a lot of the media coverage drew attention to China’s human rights abuses. Reflecting on what happened with Disney, Allen and his co author write in the book, beyond appeasing the Chinese state with carefully chosen words and at the ready heartfelt apologies. Western companies face an even larger challenge, responding to rules and regulations that are inconsistent with their home country values. Many of these rules govern the collection and sharing of sensitive data with the Chinese state. As an example, many Western executives in China report being pressured to facilitate China’s social credit system that uses data on such things as credit scores and parking tickets to determine social benefits, and even employment opportunities for Chinese citizens. Okay, that’s very concerning for sure. My third takeaway is that China faces some big headwinds, which will challenge the enterprise China model and the regime in the coming decades. These include China’s ageing and declining population, demographic changes will reduce the rate of economic growth. As I discussed with Allen, economic growth in recent decades has helped the regime stay in power. And I expect that as growth slows, the regime will become even more unpopular as an economist to expect that the enterprise China model will ultimately deliver inferior results to our more free market style of capitalism in western economies. Okay, those are my big takeaways from my discussion with Professor Allen Morrison on enterprise China. Do you think I pick the most important ones? Do you agree or disagree with my takes? If you’re willing to share your own takeaways from the episode, please send them to me via contact@economicsexplored.com or send me a voice message via SpeakPipe. You can find the link in the show notes. 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

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Please consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

Categories
Podcast episode

China, Taiwan & the Indo-Pacific w/ Dr Greta Nabbs-Keller – EP146

The next big global economic shock could come from a Chinese invasion of Taiwan, a shock which would probably have more extensive economic impacts than the Russian invasion of Ukraine. Joining show host Gene Tunny in episode 146 to discuss China and Taiwan and the Indo-Pacific more broadly is Dr Greta Nabbs-Keller, Senior Specialist in Defence Research at The University of Queensland and the Program Director of the Australian Program Office for Advanced Hypersonics. 

You can listen to the conversation using the embedded player below or via Google PodcastsApple PodcastsSpotify, and Stitcher, among other podcast apps.

About this episode’s guest – Dr Greta Nabbs-Keller

Dr Greta Nabbs-Keller is a Senior Specialist in Defence Research at The University of Queensland (UQ). She is also an Affiliate Senior Specialist at UQ’s Centre for Policy Futures where her current research project centres on issues of contestation and coherence in Indonesia’s national security policy making. Greta has extensive professional experience working on Australia’s bilateral relationship with Indonesia and continues to utilise her Indonesia country expertise in consulting, research, and international development roles. She contributes regularly to media and think-tank analysis on regional strategic, political and foreign policy issues, and engages with policy communities through submissions, dialogues, conferences and executive educations programs. Greta’s broader research interests include Indonesian civil-military relations, Indonesia-China relations, politico-security developments in Southeast Asia, and Australia’s regional foreign policy. Greta is an Executive Council member of the Australian Institute of International Affairs (AIIA) Queensland and Adjunct Research Affiliate at Griffith Asia Institute.

Links relevant to the conversation

Greta’s articles at the Lowy Institute Interpreter:

https://www.lowyinstitute.org/the-interpreter/contributors/articles/greta-nabbs-keller

Greta’s articles at ASPI’s the Strategist:

https://www.aspistrategist.org.au/author/greta-nabbs-keller/

Greta’s conversation article on Australia’s relationship with South East Asia:

https://theconversation.com/how-well-has-the-morrison-government-handled-relations-with-southeast-asia-181958

Background reading on China and Taiwan:

https://www.cfr.org/blog/what-xi-jinpings-major-speech-means-taiwan

Transcript of EP146 – China, Taiwan & the Indo-Pacific w/ Dr Greta Nabbs-Keller

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…

Greta Nabbs-Keller  00:04

I think Biden has, whether there were slips or not, he’s made it quite clear that the US will intervene, but I think it’s increasingly likely that we would be looking at essentially World War III if China did decide to attack Taiwan.

Gene Tunny  00:21

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 146. On China, Taiwan and the Indo-Pacific.

The Russian invasion of Ukraine has highlighted how geopolitical developments can disrupt global markets and economies. The next big geopolitical and global economic shock could come from a Chinese invasion of Taiwan. The Chinese government claims Taiwan belongs to China. It has an ambition of taking over Taiwan by 2049, the 100th anniversary of the founding of the People’s Republic in 1949, following the Communist Revolution led by Mao Tse Tung. Various actions of the Chinese government and its military in recent years, have raised concerns that a Chinese invasion of Taiwan could happen sooner rather than later. Obviously, this would have profound implications for the global economy, and hence, I feel it’s important to cover the issue on the show.

Joining me in this episode of chat about China and Taiwan, among other geopolitical issues, is Dr. Greta Nabbs-Keller. Greta is a senior specialist in Defence Research at the University of Queensland, UQ, here in Brisbane. Currently, she is the interim Program Director of the Australian program office for Advanced hypersonics. Greta has an extensive background in defence and foreign policy issues with a specialization in Indonesia and Southeast Asia.

I invited Greta onto the show because I thought she’d be a great person to help us understand what’s happening with China and Taiwan, and what China has been up to in the Indo-Pacific region more broadly.

This episode, you’ll learn why foreign policy experts are so concerned about China, because it’s what they call a revisionist power, one with a goal of remaking global institutions and rules for its benefit. In the show notes. You can find relevant links and details of how you can get in touch with any questions, comments or suggestions. I’d love to hear from you. So please get in touch and let me know your thoughts on this episode. This is a big issue we deal with in this episode, and allow him to return to it in the future for a closer look at the potential economic impacts of a Chinese invasion of Taiwan, if that were to happen.

Right on, now for my conversation with Dr. Greta Nabbs-Keller on China, Taiwan in the Indo-Pacific.

Thanks to my audio engineer, Josh Crotts for his assistance in producing this episode. I hope you enjoy it.

Dr. Greta Nabbs-Keller, welcome to the program.

Greta Nabbs-Keller  02:57

Thanks very much, Gene.

Gene Tunny  02:57

Excellent, yes. Good to have you on the show. I thought I’d invite you on; I had a recent conversation with Michael Knox, who’s the Chief Economist at Morgan’s, which is a major stock broking wealth management firm, here in Australia. And I asked Michael about China. And I must say I was rather, surprised by his answer that he was so concerned about a potential Chinese invasion of Taiwan sometime in the future or in the next few years. So that’s, that was the original reason I thought I’ll be good to have you on the show. And then I know you’re also an expert on Indonesia and Southeast Asia. And we’ve got a new government here in Australia. And the first trip the PM made was to Jakarta and he had a bike ride with Joko. So, we got to ask you about Indonesia too.

But before we get into all of that, would you be able to tell us please, what is the Australian program offers for advanced hypersonics? That’s where you’re the interim Program Director. Can you tell us a bit about that, please?,

Greta Nabbs-Keller  04:10

Yeah. Thanks, Gene. Well, my position at UQ on both senior specialists Defence research in our engineering, architecture and IT faculty. And my other hat is the program director of the Australian program office for advanced hypersonics which is probably one of the most exciting titles, I think I’ve ever had Gene. Essentially, the program officer, the APOAH, as we abbreviate to it, it’s fundamentally about bringing Australian university expertise in hypersonics together So, University of Queensland is the world’s largest hypersonics group. And I don’t think many people are aware of that that the southeast Queensland with the University of Queensland and USQ are home to considerable expertise in hypersonics science and technology and indeed, I think really the genesis or the story of hypersonics in Australia from Professor Ray Stalker’s time, for around 35 years is largely been centered on the University of Queensland and the subsequent integration with US hypersonics program.

So, the Australian program offers for advanced hypersonics it’s fundamentally, a team Australia approach to advancing hypersonics research and more blue sky or beyond, you know, near horizon research, things around electric propulsion and plasma field engine. And it’s also fundamentally about workforce pipeline. As you know, Gene, Australia is facing increasing shortage of STEM graduates and the APOAH look at pathways to citizenship and basically developing a nurturing that workforce pipeline that’s in such demand by Defence and industry.

In essence, the APOAH provides a single gateway into the Australian university hypersonics ecosystem to include UQ, USQ, University of New South Wales, and RMIT. So, we’re developing that concept to be ready to provide Australian Department of Defence with hypersonic solutions and capabilities.

Gene Tunny  06:26

Okay, so hypersonic, that’s five times the speed of sound?

Greta Nabbs-Keller  06:30

That’s correct. Mark five and above. And I must say, Gene from a non-science and engineering background, and you introduce me as an Indonesian specialist. So obviously, I have more on international relations or comparative politics background, I’ve been on a steep learning curve about hypersonic about scram jets and various modes of propulsion. And it’s been very, very interesting for me.

Gene Tunny  06:56

Yeah, well, it’s certainly relevant in geopolitics, because one of the things that I’ve heard is that I mean, the Chinese, they’re making great advances in hypersonics. So, and I don’t know whether they’re ahead of the Americans or ahead of us or the British, I don’t know. But I know that that’s one of the concerns that’s out there. I mean, there are these hypersonic missiles that have been developed, or is that the Russians do?

Greta Nabbs-Keller  07:23

It’s both. You’re both right. I mean, the Russians have long had hypersonics technology and other players are India and Japan. And indeed, there may be others because a lot of that is closely guarded. Chinese did fire a advance hypersonic missile last year, which caused some alarm, at least in media reporting, Gene within the Pentagon and Washington. I think one senior US General described it as a Sputnik moment where the US I think, was, fundamentally alarmed at the advances in Chinese hypersonics technology.

Again, I’m not a hypersonics scientist myself, but certainly China’s formidable military buildup and integration of critical and emerging technologies is quite significant. And the rest of the world is looking at that with some unease, of course.

Gene Tunny  08:29

Right, okay. So, we might talk about China now. So, what stunned me as an economist in the last few years, I think it’s the last few years, is just how much that relationship with China has deteriorated. Because there was so much excitement about China joining the WTO in 2001. And I mean, we all saw the economic gains to Australia from the growth of China through them purchasing our coal and iron ore and what that meant for that sector. So yeah, this is all come as a real shock. And it looks like I mean, there’s been a real; it’s a big challenge for our country, and also for our allies, the US and Japan. And I suppose we’re part of this quad group now with India. So, I’d like to ask you about that later. What’s that all about? Because I thought India was not aligned. But now it looks like it’s aligned.

To begin with, could you just describe what’s your assessment of the current strategic environment, the current environment facing Australia and I suppose the US as well in the Indo-Pacific, I mean, how concerned should we about what’s going on?

Greta Nabbs-Keller  09:55

I think it’s deeply concerning, Gene, for those of us who follow international political and strategic developments closely, I think there are real reasons for concern and you know, indeed, in terms of Australia and take Australian strategic guidance and defence and foreign policy documents, you know, they describe the environment as more uncertain, and more complex and more dangerous. You might recall Peter Dutton talking about the drums of war, a beating and being criticized for that. But I’ve seen in my own career, particularly over the last, I’d say, post COVID, particularly Gene that that word war, is being more openly discussed and acknowledged as a real prospect due to the deteriorating strategic environment and rising strategic tensions between major powers.

So, I think in a nutshell, many of the current geopolitical tensions in the Indo-Pacific centre on a rising and a revisionist China and of course, it’s not only sino US strategic rivalry that we can see, you know, playing out, across economics, geo-economics, around technologies, around trade, around human rights, around maritime strategic competition. But of course, one also has to remember that it’s not only US and Australia have difficulties with China, but indeed, many countries even actually, European countries as well. Particularly, you mentioned the Koba particularly Japan and India, of course, as significant Indo-Pacific powers. And they have their own issues, which are probably, to some degree more concerning and more pressure than Australia’s facing, particularly India, on the line of actual control up there on the border. And definitely, India and China have gone to war previously. Over their contested border, they’re in the line of actual control up there in the Himalayas, you see increasing pressure on Japan, particularly in the maritime domain in the East China Sea.

So, China under current president, Xi Jinping and I acknowledge, as you introduced me, I’m an Indonesian specialist rather than a China specialist. But of course, I follow these developments closely. And a lot of these uncertainties centre on China and a more assertive, and aggressive China and decision Jinping’s presidency and how various states in the region are responding to these pressures and constraints. I think particularly with Australia, if you’re an observer or student of Southeast Asian politics particularly, you would have seen some of the coercive and punitive behavior playing out previously on Southeast Asia that was later applied to Australia, particularly once our former Prime Minister, Scott Morrison, called for and rightly so, an independent inquiry into the origins of the COVID 19, the virus.

Indeed, in Southeast Asia we’ve seen for a number of years, very coercive tactics, particularly in the maritime domain, and some implementation of coercive trade practices against Asian states like the Philippines, over tensions in the South China Sea; rival maritime claims in the South China Sea. And if I’m not mistaken, there was some tariff barriers put on Banano, a Philippines banana export. So. there have been a number of precedents here.

I think China, after COVID-19 obviously became more brittle and much more brittle and more sensitive to international criticism over the origins and the management in the earlier days of the COVID 19 pandemic. And I think a number of, you know, even seasoned foreign policy experts and senior Australian public servants are probably shocked by Australia’s treatment by Beijing after calling for that independent inquiry into the COVID 19 pandemic. But also, I think, a number of countries, we saw what was characterized as wolf warrior diplomacy, by Beijing, that list of 14 grievances against Canberra.

But there has been some precedent here in their treatment of other countries and indeed, it’s not just Australia that’s experiencing these problems as I said, countries like Japan are really at the frontline of increasing coercion and intimidation.

I think also China’s willingness to engage in grey zone tactics. And that’s something that Russia has also employed successively in Ukraine. Prior to the actual invasion of Ukraine, and you see, militia groups that, rather than they’re not Russian military forces, per se, but there are militia groups, you see disinformation campaigns, and I think China has increasingly engaged in those grey zone operations or what is termed hybrid warfare. So, their acts of intimidation and coercion, shorter warfare. And I’ll give you an example on that Gene, in the maritime domain. You’ll see China deploy heavily armed paramilitary vessels escorting their fishing fleets in the South China Sea, rather than PLA Navy vessels, for example, increasing cyber intrusion, cyber hacking against Australia, but a range of countries all around the world.

You’re seeing increasingly, aggressive and assertive China that looks to fundamentally kind of reshape the Indo Pacific and probably more broadly the global order; more convergent, with its own interests. So, I think there’s no doubt that, you know, China has achieved particularly, in Southeast Asia, increasing political, economic; in terms of military balance of power, that’s something we can discuss. I think it was quite a shock for Canberra and the Australian public to be on the receiving end of that rough kind of diplomacy and treatment post March 2020.

Gene Tunny  16:56

Absolutely. Well, they applied higher tariffs on many of our products on beef, barley; they restricted the imports of our thermal coal into their ports. I’m going to have to look at those sporting grievances. That’s interesting. And you mentioned Peter Dutton, was he a Defence minister?

Greta Nabbs-Keller 

Yes, former Minister for Defence.

Gene Tunny 

So that’s why those comments were picked up and he was accused of being, was it sensationalist? It was the right word to describe that. But yeah, there were people who were thinking that sort of commentary wasn’t helpful at the time. Right. Can I ask you what you mean, by revisionist? What do you mean by a revisionist China?

Greta Nabbs-Keller  17:42

The concept of a revisionist power, is a power or a nation state that wants to remake the international order, an international system and the rules. As I said, it convergent with their own interests. Undergraduate students studying international relations and politics, they understand about the post Second World War kind of US led global system, whether and of course, you Gene, you’re more an expert on the international trading order and the WTO, and the basis of rules and norms, and that extends, of course, to international legal norms that govern the maritime domain.

And so, it’s really that post Second World War Bretton Woods, US led system of strategic alliances that emerged out of the Second World War, where the US has largely been the dominant, the preponderant global power and that’s very much been changed. And I give a practical example, because it sounds abstract. So take the maritime domain and on class, the 1982 UN Convention on the Law of the Sea, which governs territorial waters and exclusive economic zones, and indeed, Indonesia, was one of the architects of on class the UN Convention, and as diplomats, played a key role being the world’s largest Arca pelagic state, and a system of rules and governance and norms that guaranteed maritime governance and nation states access to their territorial and the resources within their 200 nautical miles exclusive zone.

So, China has, increasingly refuted international legal norms, Permanent Court of Arbitration ruling 2016 which found in favor of the Philippines on rival maritime claims. China simply chose to ignore that and refute that. So, I think what you’re seeing more generally Gene, in terms of geopolitical tensions, you’re seeing countries like Russia and China who are more willing to challenge those established legal norms and international principles that have largely underpinned prosperity and security and stability in the Indo Pacific. And we’re seeing the erosion of that and that’s creating increasing uncertainty and tension.

Gene Tunny  20:21

Just on those maritime boundaries, is that what you were talking about before and China isn’t respecting what was decided by this international body? What does that mean, practically? Does that mean that they will help their fishing crews go into those waters and fish?

Greta Nabbs-Keller  20:45

Absolutely. The problem in the South China Sea; and you might be familiar with, China’s very ambitious South China Sea claim that takes in around 95% of the South China Sea, irrespective of those maritime boundaries that were decided under the UN Convention on the Law of the Sea in 1982. So, you’re seeing effectively, Chinese paramilitary and fisheries activities inside our state’s exclusive economic zones. You’re seeing increasingly belligerent and coercive behavior against the Coast Guards; more often Coast Guard, sometimes military assets of Southeast Asian states, littoral states that have claims in the South China Sea. So, you basically have a very powerful nation state who’s not willing to follow the rules of the game and has the power and the might to simply ignore that. And of course, the US is not innocent of ignoring international law. Let’s be fair here. But, we’ve also had harassment of regional states like Vietnam and Indonesia and Malaysia with their exploration of hydrocarbons, oil and gas in the maritime domain and harassment of oil rigs and oil exploration activity. So, it’s kind of spans a range of activities in the maritime domain, but again, it undermines the principles of sovereignty, and of course, maritime sovereignty and of course, that’s inherently destabilizing.

Gene Tunny  22:29

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

Female speaker  22:34

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, www adepteconomics.com.au. We’d love to hear from you.

Gene Tunny  23:03

Now back to the show.

I thought it was interesting before you mentioned this concept of grey zone activities. And I mean, they’re also engaging in applying economic pressure in a way, aren’t they? Or that they’re coming into these countries and they’re signing memorandums of understanding or they’re doing deals and then there’ll be some financing. But then what can happen is that if they don’t meet the repayments the country, then the Chinese can take it over or they can apply leverage on those countries. That’s a concern, isn’t it? So, there’s a whole range of things that the Chinese are doing, they’ve signed a deal; there’s some sort of deal with the Solomon Islands, you know what’s going on there? Does that fit in with a sort of a grander or a broader plan to dominate the Indo-Pacific?

Greta Nabbs-Keller  24:01

You’re talking about debt? What’s term debt trap diplomacy. And usually that some understood in terms of China’s expansive infrastructure and connectivity program, the Belt in Road Initiative or the VRI and indeed, there have been legitimate concerns about these massive infrastructure projects, extending from Africa and through, South East Asia, Pakistan, and the Pacific. The problem, particularly of debt exposure of these countries; they’re taking on debts for infrastructure projects that they’ll never be able to repay.

One of the key-case studies there is Sri Lanka actually, and the Hambantota port; I think I might have a pronunciation regret. Hambantota port facility in Sri Lanka, and exposure to too much debt and China can effectively take control of that strategic port facility, which of course, not only has, civil applications and uses, but strategic and military benefits, of course, by buying ceding control of that.

So, I think countries are increasingly aware of some of these risks. And I think the US has even the State Department has done work in some countries, including Myanmar, to revise the terms of those infrastructure projects, which had, incredible interest levels and unfavorable term. And some of them have actually successively, successfully been renegotiated.

I think what you, I don’t know if admires the right word, Gene, but certainly, I think if you’re talking about grand strategy and sweeping strategy, and coherent whole of government strategy from Beijing, using all its policy arms, from military, from economics, from political to technological, and so on. It’s a very strategic approach to, if it’s not dominance, to increasing economic influence and political leverage, and ultimately, being able to project military forces. It’s very sophisticated.

And we’ll turn to Honiara deal for a moment, the Solomon Islands China deal. I mean, that’s deeply concerning on a number of levels. First of all, for the Solomon Islands, people and parliament, it was not a transparent negotiation process. So, that’s been of great concern. There’s also a sense also from looks at Southeast Asia; it’s an indication of what will increasingly happen in the Pacific and some scholars and analysts call it elite capture that you’ll find in Southeast Asia, for example, that, Beijing’s ability to wield significant economic blood, yes, it has some respects, captured some of the region’s elites. But that doesn’t mean that there’s broader strategic distrust in in those countries in Iran. I think you’re seeing the same sort of thing with the Pacific that China can successfully co op some of the region’s elites. But there’s certainly lingering distrust and unease remains around in the region’s politics.

I think on the Honiara deal, what what’s most concerning to Australia as well, that Solomon Islands is only 2,000 kilometers from Cannes and if you look back to your history in the Second World War, and the Guadalcanal, fiercely contested battles between the US and Japan, principally. I mean, that was basically about, preventing Japan from gaining a strategic foothold and strategic access, that would cut the US off from allies like Australia, and indeed, if China was to increasingly base or rotate, military assets and military personnel through Honiara, that’s a deeply destabilizing concerning strategic development for Canberra.

Gene Tunny  28:42

Right. I mean, was that a failure of diplomacy on our part, or on the US’s part? It just seemed to take everyone by surprise that that came up. I was stunned when I heard it.

Greta Nabbs-Keller  28:53

Well, I think, again, about sophisticated grand strategy that I think Washington and Canberra and a number of countries are being outsmarted by Beijing on a number of levels. And there’s a lot in this and I won’t unpack it all, but I think the previous government could have done more. In some ways, I think during the Morrison government’s pacific step up, which I think was announced, if I recall correctly, around 2017, or 2018, was somewhat an admission of neglect. Now, I don’t want to overstate the neglect because obviously, both Southeast Asia and the Pacific have a fundamental, foreign policy importance to Australia. There’s no doubt about that. But I think the step up was a recognition in the context of growing geopolitical tensions Australia needed to do more with our Pacific neighbors, or as Canberra terms it, Pacific family.

I think the US has also realized recently that they need to do more in the Pacific, particularly in response to China. Fundamentally, Pacific countries like Southeast Asian countries want to be taken on their own terms, they want to be considered on their own terms. And they don’t want their relationships with Australia or Washington to be viewed; you’re only within the prism of sino US rivalries or geopolitical tensions. Yeah, they have their own fundamental development concerns, and as you know, Gene, the Pacific with existential threats from climate change, rising sea levels are, an abiding concern for Pacific Island countries.

The other thing I’d say about China and Bina Indonesian specialists have a number of decades, something I note with interest, Gene, is that the China builds the capacity and regional expertise of its diplomats. So, they have Chinese diplomats who are real Pacific hands, they have years of rotational postings through the Pacific, so they become Pacific experts. And they engender that kind of expertise and the context and the relationships that come with that. And I think Canberra could do more, I think, to build again, or rebuild from what’s a generalist type model with our diplomats. And when I say diplomats, I don’t only mean Department of Foreign Affairs and Trade Representatives, I mean, all our agencies that are involved in international engagement and diplomacy. And as you know, treasury and finance as much Defence and Home Affairs, and others are posted into regional capitals. I think we could do more; we need a more sophisticated approach, we need to recalibrate our policy settings and more whole of government approach to regional engagement, and particularly on the Pacific and Southeast Asia.

Gene Tunny  32:01

It sounds like it. The way you were describing it earlier, it sounds as if China has this coherent strategy. So, there’s coordination between the different arms of the government, the different departments with state owned enterprises, perhaps? I mean, is it because they’re an authoritarian country with the President; I mean, is he President for life now or something?

Greta Nabbs-Keller  32:24

Constitutional change; I think there’s some more detail, I think, in the machinations that remain outstanding, whether that’s, guaranteed by the senior leadership of the Chinese Communist Party, but it seems that there were there was some agreement that his tenure would be ongoing, but I don’t know if that’s absolutely guaranteed genuinely in that context. But, it looks certainly a very, very strategic approach. I think you’re right, in an authoritarian kind of party-controlled state, centralized command, it is much easier, of course, to formulate and operationalize a very coherent kind of, strategy as opposed to democracies, where intrinsically, there’s more bargaining, there’s more difference, there’s more debate. And, indeed, the parliamentary system with the government and opposition that’s sort of; the foundations of Westminster democracy. So, I think it is much easier in a centralized party-controlled state to wield power and influence and sort of mobilize all your arms of government, and you mentioned State owned enterprise, for the purposes of very sophisticated strategic kind of policy approach.

Gene Tunny  34:00

Yeah, I found fascinating to that concept of; was it debt trap diplomacy? Yeah. Because I heard about what happened with Sri Lanka. I’m going to have to look more into that and probably cover it on the show. It’s fascinating and disturbing.

Right, my chat about Taiwan. How big a risk do you think that is? I mean, because that would be so disruptive to the global economy. I mean, we’ve seen what’s happened with Russia – Ukraine, but if China did invade Taiwan, I mean, it would have different impacts, but it’d be just as bad, probably worse. I mean, if you think about how much of the world’s industrial production has shifted to China, they make all the iPhones, they make computers. And then in Taiwan, it’s a major producer of semiconductors, I think, the chips that go into computers, I mean, this would be profoundly destabilizing.

Do you have a sense of how big a risk it is? And I mean, what would actually happen? Would the US respond? Would Australia respond? How would it all play out? I’m hoping it doesn’t happen; we’re all hoping it doesn’t happen. My feeling is that it’s unlikely but when I talked to people like Michael Knox, and then I, I listened to people like Ian Bremmer and other global commentators, I realized that the risk is much higher than I understand at the moment that I had expected.

Greta Nabbs-Keller  35:42

I think, again, I’m not a sonologist or China experts. I’m not privy to classified briefings. I’m not privy to the inner workings of the Chinese Communist Party and their thinking, but in broad terms, of course, I follow these strategic developments in the Indo-Pacific.

I think there’s no secret that Beijing, and Xi Jinping is made no secret of seeking, as they term it, to reunify with Taiwan, but of course, Taiwan, strictly speaking, was never part of China. The Republic of China was originally under Japanese controllers; Formosa and then the Shang Kai Shek. After the  China’s civil war, the remnants of his army fled to Taiwan. And, if not a country formally, it’s a very successful; indeed, it is a country whether it’s formally recognized as a sovereign country in political terms is another aspect. It’s been a very successful democracy, very dynamically, economically, and of course, it’s a democracy. And I think Beijing’s made no secret, it seeks to peacefully reunify with Taiwan, but they have not ruled out military force to do so.

I’ve been present at the Shangri La dialogue in Singapore, which is the preeminent security defence dialogue in in in the Indo Pacific region based in Singapore at the Shangri La Hotel, every two years and there’s no secret that, senior Chinese officials and generals, speaking at that dialogue, make no bones about it, that Taiwan, is an inseparable part of China, and they will seek to reunify.

Now, the implications of China’s invasion of Taiwan are memes, as you say. I mean, it’s almost difficult to really comprehend the massive implications. I mean, we look at Russia’s invasion of Ukraine, and the flow on effects for the global economy, and indeed, food security for millions of people looks like they’re going to be threatened with food shortages, rising interest rates. And you’ve got the supply chain issues in China associated with COVID 19 lockdowns which are exacerbating that. And of course, you as an economist know very well about this.

Let’s look at some of the key implications, and there’d be many implications. But I think if China successfully invaded Taiwan, it fundamentally changes the Indo Pacific region, it gives China force projection. So, occupation of some of that first island chain, as we see that island chain along the eastern part of the South China Sea, it enables them to forward deploy military forces and to deny the US access, around the Philippine Sea, and more broadly threatens, they’re leaving implications, for us, us force disposition in Guam. Fundamentally, for Japan, this will be a profound concern for Japan because it effectively cut or deeply imperil Japan from US military assistance. So, in strategic terms, it provides Beijing with a forward presence to project military force and potentially control vital sea lanes and air space. So, I think also, it would have broader consequences, as we’ve seen it in Russia’s success in Ukraine, because it means authoritarian states can simply annex and occupy democratic ones. So, it’s more fundamentally a threat to democracies and those fundamental principles and values of democracies that we hold dear.

We hear about European values Gene, in the context of Ukraine, and Ukraine’s potential membership of the EU and NATO. And we talk about European values and what we’re talking about, there are the fundamental tenets of liberal democracy. And I think, more powerfully, in some respects, if the US did not successfully defend Taiwan, it’s the end of that post Second World War order, it’s very profound, it’s the end of basically US hegemony in the Indo-Pacific region, the US would lose credibility with allies and also mean the consolidation of a China centric order. And all that entails; I don’t know about you Gene, it doesn’t feel me, the prospect of living under a China dominated doesn’t fill me with great glee on a range of France from just environmental management. And I talked about maritime and the maritime domain about, exploitation of fisheries, you’ve got seabed mining emerging as a warrying prospect, but also, in terms of political liberties, surveillance, cyber intrusion, and coercion, it doesn’t fill me with confidence that if China could successfully take Taiwan, and then it would fundamentally impact on the balance of power and all that would entail.

I’d like to quote, Malcolm Turnbull actually on this, as what’s at stake here, more generally, with China’s revisionist tendencies, as Malcolm Turnbull, our former Prime Minister said, you, you can’t have a situation where the big fish eat the little fish and the little fish eat the shrimp. And that’s the basis of the international rules-based order, is making sure all sovereign states at least, have some equality in the international system. And I think China’s might and power is fundamentally eroding that rules-based order and this is the danger of highly destabilizing.

It’s hard to imagine; the economic implications are something you wouldn’t be able to talk about. But this would be profound, absolutely profound. And, the US has tripped itself up a little bit, particularly Biden on Taiwan, because there was a deliberate policy of ambiguity by Washington recognizing one China policy and ambiguity around whether the US would actually deploy military force to defend Taiwan. And I think Biden has, whether there were slips or not, is made it quite clear that the US will intervene, but I think it’s increasingly likely that we would be looking at essentially World War 3 if China did decide to attack Taiwan, because that would invoke Japanese involvement. And certainly, we’d be involved as well.

Gene Tunny  43:25

Right. Yeah. I mean, I just wonder what it would look like. Would it look like a block aid? I mean, I’m struggling to think of how they would respond; there’d be diplomatic pressure at first. I mean, we don’t know how it would go. Would the Chinese easily; would they take it over? I’m sure the Taiwanese have, I mean, they’ve probably been training for this, preparing for this. They would have their own military equipment to defend the island. So, it could be like Ukraine. I mean, that’s been a surprise that the Ukrainians have been able to push back on Russia so well. And I mean, the Americans have been supporting Taiwan, haven’t they? They’ve been arming the Taiwanese?

Greta Nabbs-Keller  44:13

Yeah. It’s been a number of congressional acts on Taiwan, the increasing number of US officials, much to Beijing’s consternation flying in into Taiwan. And that’s, of course, in China’s eyes, undermining one China principle. I mean, Taiwan, has some formidable military capability. So indeed, that the Taiwanese and Americans are looking very closely at Ukraine.

What has surprised strategic analysts about Russia’s invasion of Ukraine is that the Russian military was always considered, a formidable, and highly capable military force. But the Ukrainians in asymmetrically have been able to impose significant costs on Russia. You’ve got issues around morale, conscription with the Russian military, the use of drones; successful application of drones and sophisticated anti-tank missiles and anti-aircraft missiles. Ukrainians have; they’re defending their homeland and they’ve done surprisingly well.

You could imagine, Gene, this would be quite devastating. I think the inevitability of war, as sad as it seems, it’s very hard to see this not being on a trajectory towards war, because there’s so much at stake as, as I stated, for the US and other countries in Taiwan. And from China’s perspective, they fundamentally see Taiwan as part of the Chinese mainland and homeland. Again, what makes it dangerous is there’s a sense of domestic political legitimacy in reunifying, with Taiwan for Xi Jinping regime, which perhaps makes it more dangerous and as economic trends and deterioration, the global economic environment will buffets China, as it will other states. Does that make Xi Jinping, more inclined or less inclined to consider an attack on Taiwan?

The longer the US leaves it, China grows inexorably stronger and more military capable as the years tick by. So, there’s very, very high risks at the moment, Gene, of a conflict or regional conflict emerging. And that’s what worries countries in Southeast Asia feel so much, you feel sort of, pawns and caught in the middle of these kinds of dynamics?.

Gene Tunny  47:12

So we’re recording this on the 23rd of June, 2022. On 22nd of June, 2022, CNN reported China sends dozens of war planes into skies near Taiwan. So, it’s acts like this that make people very concerned about the future.

Can I ask about the other sort of players in the region, the major countries, Indonesia and India? So where do they fit in this because they’ve traditionally been nonaligned. We’ve been in, was it Bandung? Did have a famous conference there. We were there on a course for the Indonesian Ministry of Finance and stayed in the Padma on the Gorge there, which was beautiful. But there was, was it the East West Conference? I’m trying to remember it. There’s that old colonial building in downtown Bandung where they had a famous conference back in the 50s.

Greta Nabbs-Keller  48:09

You right Jean, that’s the Asia Africa conference of 1955, still lauded as one of Indonesia’s greatest diplomatic achievements and out of the Asia-Africa conference, which was essentially, that was in a cold war environment, but it brought the newly independent countries of Asia and Africa together. And it was the birth of the nonaligned movement. Of course, these countries who are effectively post-colonial states, didn’t want to be two sides between the US and the Soviet Union; a Soviet bloc in the Cold War, and they wanted to forge an independent path. And out of that, emanated the peaceful principles of coexistence and it was historically a significant development in an international political history.

There’s one thing I just want to pick up from your previous comment about the Chinese planes, PLA Air Force planes are flying into Taiwan border area air identification zone. This is what makes it so dangerous too, it’s not just the rhetoric, and the polemic around Taiwan, It’s China’s increasing willingness to engage in that kind of conduct both in the maritime domain and the air domain that make the risk of miscalculation and escalation so high, you can foresee a situation where, missiles are locked on and in this game of brinkmanship, you can see how something could go terribly wrong and escalate very quickly. And indeed, the ABCs reported this morning on more details of PLA Air Force interception of rafts Australian Air Force planes are flying out from the Philippines over the South China Sea around the Paracel Islands, challenging them in some very dangerous midair maneuvers. Things are escalating.

Now, Indonesia and India, very interesting states – pivotal states, of course. India is the second largest country in the world in population terms. And Indonesia, many people overlook is the fourth largest country in population terms and the world’s third largest democracy. So, India and Indonesia are pivotal states to the Indo-Pacific. And you’ll see India’s been very, interesting and you’d said, of course, they’re both formally nonaligned. India and Indonesia have a lot of historical and cultural similarities.

India, of course, has become increasingly concerned about Chinese actions on its Himalayan border there around Ladakh, in the line of actual control. There’s been physical skirmishes up there between PLA and Indian troops that saw at least, I think around 25, roughly, Indian soldiers killed, and the Chinese China never released the number of their troops killed in the physical skirmish up there.

So, that’s been of increasing concern. And certainly, India’s responded with increasing its military presence at Himalayan border significantly. They’ve banned dozens and dozens of Chinese apps. I’m talking about mobile phone apps around the risks of surveillance and intelligence collection, and intrusion.

And you’ve seen India move; although it’s formerly nonaligned, India has moved much closer to Washington, and indeed Japan and Australia, as those four states of the quadrilateral security dialogue or the quad, look to act in coalition and it’s not a formal military alliance with note, because of the nonaligned status of India. But you see, you’re increasing coordination between the quad members, around vaccine diplomacy and vaccine infrastructure, economic technological cooperation.

Now, the military component of the quad is probably the Malabar naval exercises. There’s sort of a tenuous link with the quad and as I said, the quadrilateral security is a dialogue. It’s not a military path or alliance, but perhaps the Malabar exercises for nation exercises and conducted in the Indian Ocean between those four states. You can see is the kind of the military defence component of the quad.

Now Indonesia, of course, is a country that’s been very much at the forefront of my research and professional interests for decades. Indonesia is an interesting country. It’s again, formerly nonaligned, it’s effectively the largest state in the Association of Southeast Asian Nations and Southeast Asia and effectively the veto actor. Indonesia has a foreign policy doctrine, a free and active foreign policy doctrine, and it seeks strategic autonomy and to manage the influence of what it considers external powers and I mean, the powers external to the Southeast Asian region. Although China’s proximate in Indonesia’s foreign policy conceptions, China, Japan, US and other countries are external to those ASEAN states.

And I think, Indonesia and many of the major Africa; the go back to Bandung Conference were born out. They were decolonized within this Cold War, polarized global political context, and they don’t want to be seen as pawns in great power rivalry. So, this is increasing policy complexity to Jakarta.

You’re acutely worried about rising geopolitical tensions and what that means for decades of stability and growth in Southeast Asia and you know, ASEAN as a bloc is a significant economy collectively. Over around 650 million people in ASEAN; significant collective strength in ASEAN.

So, Indonesia hedges and balances; it has close and constructive relations with China and very close and constructive relations with Washington, and of course, Canberra and Tokyo. Tokyo, and one cannot forget Japan; Japan is still a significant global economic power. And Japan before China was the engine of growth in Southeast Asia, for decades. It was Japanese investment – FDIs, you know, Gene, in Southeast Asia that really spurred, Southeast Asia’s growth there, for decades.

Gene Tunny  55:40

And so now China has taken up that role, has it? Within Southeast Asia, it’s engaging a lot of foreign investment. And so that’s giving them political leverage..

Greta Nabbs-Keller  55:51

Absolutely. As I said, don’t underestimate Japan, as an economic partner and political partner for Southeast Asia. But of course, like China, is a major trading partner of all Southeast Asian states.

It’s much more China and Japan are both very good in comparison to Washington I’d say through ASEAN mechanisms are more integrated than the US is into Southeast Asia, through ASEAN Plus mechanisms and economically. And also, I’d say, Gene, in the context of the COVID pandemic, as young countries turn to Beijing, because Beijing was able to roll out very quickly; the Sinovac vaccine was most readily available and cheaper to Southeast Asia, then, AstraZeneca or Pfizer, and even though Southeast Asian states knew that the efficacy of those vaccines was higher than the Sinovac or the Chinese manufactured variants, China, to be fair, has been able to offer the public, goods and the investment vaccines that the education opportunities that US has neglected to do, and I think you see, increasingly in Washington’s or regional policies that they’re looking to make up ground, and that it’s not only about the importance of military partnerships between Washington and Southeast Asia.

And I must say that for Indonesia, for Jakarta, Washington is a much more important strategic military partner than China. They know they have to do more work in infrastructure, in trade, in economics and climate finance to basically compete with China in the region. The US knows that too. And of course, Australia as well.

Gene Tunny  57:50

I think they’re finally woken up to the threat in the region. Or it’s become more apparent with what happened in Solomon Islands, because they sent one of the very senior State Department officials over, didn’t they? To go and visit Honiara, if I remember. Yes, I just remembered, we’ll wrap up soon. But I just remembered when we’re talking about the FDI, the Foreign Direct Investment, we were talking about Bandung before, there was that rail line; they were going to rebuild that line or was it a fast train high-speed rail from Jakarta to Bandung? That’s a Chinese Indonesian Consortium. But now, that’s been thrown into disarray, because the Indonesians are looking at moving the capital away from Jakarta, because apparently, Jakarta is sinking isn’t it? Do you know what’s going on there?

Greta Nabbs-Keller  58:42

Yeah. That’s been really interesting, Gene. As you know, we both worked on infrastructure courses and finance public policy courses that considered the Jakarta bundle high-speed rail. And, in many respects, I think the problem has been at Indonesia and to be fair, rather than China’s. Their huge problems from the start, I think when President Joko Widodo Giancoli turned over the soil; the groundbreaking ceremony, which was a number of years ago, I think even back to around 2017, 2018 If I’m not mistaken. There have been problems from land acquisition problems, these transport infrastructure corridors. They might identify the anticipation; but the land acquisition has not been resolved, which is one of the fundamental impediments to infrastructure projects in Indonesia, more generally.

 So, there’s been a range of problems with the Jakarta bundle high-speed rail. Part of it is built, I’m not up with the absolute latest, but I know there have been ongoing challenges which are blown out the timeline for delivery of that infrastructure project.

You mentioned about the move or relocation of the Indonesian capital to East Kalimantan Province, which many people know as Borneo, Kalimantan is Indonesian. Borneo, of course, you have Brunei and the Malaysian states of Sabah and Sarawak in the northern part of Borneo. There’s fundamentally some environmental challenges with Jakarta, it’s a capital that is widely understood to be to be sinking. Anyone who’s been to Jakarta knows that there are infrastructure challenges, some of the basic infrastructure has not been updated since the Dutch colonial times. There’re issues around governance and corruption and things.

So, Jokowi, the infrastructure president has announced and that’s been recently legislated to relocate the capital to East Kalimantan, a very, very ambitious project. And I think there are also benefits and risks, although it’s going to be a smart and Green City. I think there are broad implications for the environment and biodiversity and ecology up there. Whether this will be a white elephant project, Gene, which won’t outlast Joko Widodo’s presidency; we know the presidential elections will be in 2024. Whether this capital, I guess what I would say, if you take the, at a micro scale, the Jakarta bundle high speed rail project and extrapolate that to a much more ambitious infrastructure project in the new capital city, how successful and how protracted and how problematic? Will it be? It remains to be seen?

Gene Tunny  1:01:59

Yeah. One of the things that economists have observed over the years is that any mega project brings big risks of cost blowouts. So, you just see it all the time. I’ll have to cover that on the show in the future. Right oh! Greta, this has been fabulous. I think we’d like to wrap up have picked your brain for nearly an hour. Any. Any final thoughts? Before we wrap up? Anything we should we should have covered?

Greta Nabbs-Keller  1:02:27

No, look, I think you could talk for hours about strategic developments and regional dynamics, Gene, and there’s so much going on at the moment. It’s barely possible to keep abreast of all the developments. So, I’d like to thank you very much for having me today.

Gene Tunny  1:02:46

Oh, pleasure. Where can we find more about your work? Do you publish your work on, is it LowE Institute from time to time or SB?

Greta Nabbs-Keller  1:02:56

Yeah, I publish but it’s on that SB’s blog, the strategist and the Low E Institute for International Policy. The interpreter recently I’ve had some analysis published with the conversation and Australian foreign affairs, AFA on Indonesia and particularly the new government, Albanese governments, Indonesia policy settings.

Gene Tunny  1:03:20

Ah, right. Okay, I forgot to ask about that. I guess it’s early days. So, I’ll put a link to your article in the show notes so people can have a read of that.

Very good. Okay. Dr. Greta Nabbs-Keller, thanks so much for being on the program, really enjoyed it. Thank you. 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. Till next week, goodbye.

Credits

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Please consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at www.economicsexplored.com. Also, 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.

Categories
Podcast episode Uncategorized

US Inflation, Woke Capitalism & China w/ Darren Brady Nelson – EP127

With US inflation at a 40-year high, who wins and who loses? Are greedy corporations to blame as some pundits are suggesting? Episode 127 of Economics Explored features a wide-ranging conversation with Darren Brady Nelson, Chief Economist of LibertyWorks, an Australian libertarian think tank, which also considers so-called Woke Capitalism and what’s going on with China. Here’s a video clip from the episode featuring Darren chatting with show host Gene Tunny about the 40-year high US inflation rate.

In the second part of the show, the Grattan Institute’s Economic Policy Program Director Brendan Coates explains the franking credits controversy, related to some peculiar Australian tax rules, to show host Gene Tunny.   

You can listen to the episode using the podcast player below or on Apple Podcasts, Google Podcasts, Spotify, and Stitcher, among other podcasting apps.

About this episode’s guests

Darren Brady Nelson is an Austrian School economist and liberty evangelion as well as a C.S. Lewis and G.K. Chesterton style Christian. He is currently the Chief Economist at LibertyWorks of Brisbane Australia and a long-time policy advisor to The Heartland Institute of Chicago USA. He is also a regular commentator in traditional and online Australian and American media. Check out his full profile at Regular guests – Economics Explored.

Brendan Coates is the Economic Policy Program Director at Grattan Institute, where he leads Grattan’s work on tax and transfer system reform, retirement incomes and superannuation, housing, macroeconomics, and migration. He is a former macro-financial economist with the World Bank in Indonesia and consulted to the Bank in Latin America. Prior to that, he worked in the Australian Treasury in areas such as tax-transfer system reform and macro-economic forecasting, with a strong focus on the Chinese economy.

Americans Return to Work as Biden Administration Work Disincentives Expire, but Jobs Remain Over 7 million Below Trend | Latest | America First Policy Institute (article referring to inflation tax of $855/year for an American family associated with a 7% yearly inflation rate)

Summers stumbles – John Quiggin

Woke Capitalism Is a Monopoly Game | Mises Wire

Joe Biden appears to insult Fox News reporter over inflation question

The implications of removing refundable franking credits – Grattan Institute

Here’s another video clip from the episode in which Gene and Darren compare the contributions to economics of Friedman, Keynes, and Mises:

Charts

US CPI inflation rate, through-the-year

US Producer Prices inflation rate, through-the-year

US inflation expectations – University of Michigan estimates

Clarifications

“Average hourly earnings for all employees on US private nonfarm payrolls increased by 5.7% year-on-year in January of 2022” (see United States Average Hourly Earnings YoY – January 2022 Data – 2007-2021 Historical) This compares with inflation running at 7.5% through-the-year. 

Amazon hikes average US starting pay to $18, hires for 125,000 jobs | Reuters

Abbreviations

CPI Consumer Price Index

PPI Producer Price Index

Credits

Thanks to Darren and Brendan for great insights and conversation, and 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.

Categories
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.

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.

Categories
Podcast episode

EP111 – Australian Senator Matt Canavan – COP26 Dissenting Voices Part 2

In Episode 111, Australian Senator Matt Canavan, Australia’s most prominent critic of the Net Zero by 2050 policy to address climate change, speaks with Economics Explored host Gene Tunny about the 2021 UN climate change summit, COP26 (i.e. the 26th Conference of the Parities) and policies to address climate change. 

About this episode’s guest – Senator Matt Canavan

Matt Canavan is a Liberal National Party Senator for the state of Queensland, Australia. Matt was first elected at the 2013 Australian federal election for the term beginning 1 July 2014. He was the Minister for Resources and Northern Australia between February 2016 and February 2020. Matt holds the degrees of Bachelor of Arts and Bachelor of Economics (Hons.) from the University of Queensland. He has professional experience working as an economist in Australia’s Productivity Commission, and he has also worked as a consultant at KPMG. Matt’s main office is in Rockhampton, in Central Queensland.

Matt spoke with Gene over Zoom while located in his Parliament House office in Canberra, Australia. The conversation was recorded on Friday 22 October 2021. 

Links relevant to the conversation

FLASHBACK: Queensland’s hydrogen-powered car | 7NEWS

Global Coal Plant Tracker

EP110 – COP26 Dissenting Voices Part 1 – Dr Alan Moran

EP108 – COP26 climate change summit with Tony Wood, Grattan Institute

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

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

Categories
Podcast episode

EP110 – COP26 Dissenting Voices Part 1: Dr Alan Moran

In Economics Explored Episode 110, Dr Alan Moran, prominent Australian critic of climate change and renewable energy policies, speaks with show host Gene Tunny about the 2021 UN climate change summit, COP26 (i.e. the 26th Conference of the Parities).

About this episode’s guest – Dr Alan Moran

Dr Alan Moran is Director of Regulation Economics, a consultancy firm. He is a noted economist who, in his own words, “has analysed and written extensively from a free market perspective.”  Dr Moran was the Director of the Deregulation Unit at the Australian Institute of Public Affairs from 1996 until 2014. He was previously a senior official in Australia’s Productivity Commission and Director of the Australian Government’s Office of Regulation Review. Subsequently, he played a leading role in the development of energy policy and competition policy review as the Deputy Secretary for Energy in the Victorian Government. Dr Moran was educated in the UK and has a PhD in transport economics from the University of Liverpool and degrees from the University of Salford and the London School of Economics. 

Links relevant to the conversation

Beware a blind charge to net-zero emissions | The Spectator Australia

Australia’s Obscene Green Subsidy Machine – Quadrant Online

The Business Council of Australia’s green schizophrenia | The Spectator Australia

Bruce Mountain article The verdict is in: renewables reduce energy prices (yes, even in South Australia)

Australia’s Renewable Energy Target (RET)

EP108 – COP26 climate change summit with Tony Wood, Grattan Institute

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

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

Exit mobile version