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Podcast episode

The Greedflation hypothesis – EP186

Economics Explored host Gene Tunny talks about the “greedflation” (greed + inflation) hypothesis with his colleague Arturo Espinosa from Adept Economics. They discuss whether greedy corporations might be responsible for high inflation rates in advanced economies such as Australia and the United States. Gene talks about how the excessive fiscal and monetary stimulus during the pandemic has been a major contributor to higher inflation. 

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’s covered in EP186

  • [00:01:28] Australia’s high inflation rate.
  • [00:06:57] UK windfall tax on oil and gas companies. 
  • [00:10:27] Greed inflation hypothesis. 
  • [00:13:29] Markups as a contributor to inflation. 
  • [00:16:20] Industry concentration and inflationary pressure. 
  • [00:21:11] Inflation outbreak and COVID stimulus relationship. 
  • [00:25:45] Problems with Covid stimulus. 
  • [00:27:58] Excessive stimulus and inflation. 
  • [00:32:35] Corporate power and antitrust.

Links relevant to the conversation

Greedflation articles:

Blaming inflation on greedy business is a populist cop out

Profits and Inflation in Mining and Non-Mining Sectors | The Australia Institute’s Centre for Future Work 

Underlying Australia’s inflation problem is a historic shift of income from workers to corporate profits

Corporate profits have contributed disproportionately to inflation. How should policymakers respond? | Economic Policy Institute

‘Greedflation’ is the European Central Bank’s latest headache amid fears it’s the key culprit for 

price hikes 

How Much Have Record Corporate Profits Contributed to Recent Inflation? – Federal Reserve Bank of Kansas City 

Cost-Price Relationships in a Concentrated Economy – Federal Reserve Bank of Boston 

Inflation is being amplified by firms with market power  

Chris Murphy’s economic modeling on stimulus and inflation in Australia:

https://onlinelibrary.wiley.com/doi/full/10.1111/1759-3441.12382

UK windfall profits tax:

What is the windfall tax on oil and gas companies? – BBC News

Energy Profits Levy Factsheet – 26 May 2022 – GOV.UK

RBA on sources of inflation in Australia:

Box C: Supply and Demand Drivers of Inflation in Australia | Statement on Monetary Policy – February 2023 | RBA

Charts:

Australian bank deposits

Australian money supply (M3)

Transcript:
The Greedflation hypothesis – EP186

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

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 could 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. In this episode, I chat with my colleague Arturo Espinosa from adept economics about the greed inflation hypothesis, our greedy corporations to blame for the high inflation that we’ve been living through. After you listen to the episode, please let me know what you think about the greed inflation hypothesis. You can email me at contact@economicsexplored.com. I’d love to hear from you. Okay, let’s get into the episode. I hope you enjoy it. Arturo, good to have you back on the programme.

Arturo Espinoza Bocangel  01:12

I’m very happy to be here.

Gene Tunny  01:14

Excellent. Arturo. So it’s at the end of the week, it’s Friday the 28th of April 2023. Earlier this week, we had the March quarter inflation number for Australia. It came in at 7%. So it was lower than at its peak of 7.8%. The quarter before but it’s still it’s still high. And mean, there’s still concerns about cost of living in Australia for sure. I mean, that’s something we’ve all been noticing as we go to the supermarket and other stores. So for sure inflation is still high. One of the things I think is interesting, and I must admit I’ve come to this issue late. Is this issue or this accusation of greed, deflation? Have you heard about this concept of greed, deflation? Arturo?

Arturo Espinoza Bocangel  02:05

Well, lately, yes. But when I was student in Peru, I haven’t heard that

Gene Tunny  02:11

nine. I think it’s a it’s a new term that that’s been thrown around. There’s this accusation that a lot of the inflation we’re seeing is due to profiteering it’s due to greedy corporations. So obviously, we do need to be concerned about big business and monopoly power. There’s, that’s a legitimate thing to be concerned about. But there is this question of, to what extent can we explain the inflation that we’ve seen by greedy corporations? So is it greed, flotation. And this has been quite prominent in the media. So there’s a think tank here in Australia, the Australian Institute, and it’s put out a paper in which they’re saying that this is a big part of the inflation problem. So we might talk about that in a moment. And it’s an accusation that’s been thrown around in other countries, too, in the States. And also in Europe, there was an article in Fortune magazine earlier this week. Greed flash deflation is the European Central Bank’s latest headache amid fears it’s the key culprit for price hikes. And I mean, what we see in whether it’s in Europe, or whether it’s in the States, or whether it’s here in Australia or the UK, if you just look at the data, if you look at data on inflation, you look at data on corporate profits and wages, and you look at data on other input costs. It is the case that profits have been have been high and they have grown in this post pandemic period. And this has led some people to argue that, well, they’re just profiteering they’re putting prices up more than can be justified. Now, I think this is a difficult hypothesis to prove it been thinking about it a bit and how you might demonstrate whether it’s the case or not that this is true, or whether you can whether we can rule it out, or or is it something that is it is a legitimate possibility. We do know that certainly profits for oil and gas companies and also coal mining companies here in Australia. They’ve been, they’ve been very high and also profits in other sectors to have been, have been higher. So in banks and, and in other sectors, and that’s what The Australia Institute argues. One of the challenges I see however, is that in economics as in other sciences, you need to be careful to distinguish should join correlation and causation. I think what Institute’s such as research, researchers think tanks, such as The Australia Institute have found I think they’ve found a correlation isn’t causation I think that’s a lot harder to establish and might go into, into why that’s the case. So I want to talk about correlation versus causation, how might you prove whether there’s green inflation is, is a legitimate thing or not? And we’ve also got to think about here, what’s the what’s the scientific way to look at this and to come to a conclusion now, The Australia Institute is a think tank, and it has a particular agenda. It has a progressive or a left wing bias. And so this type of hypothesis of green inflation appeals to it. So we need to keep that in mind. And we should think rigorously about whether it makes sense or not. Okay, so that’s, that’s a bit of an intro to this idea of greed, inflation. Or one of the other things I just wanted to mention in the intro is that there have been calls for a windfall tax on oil and gas companies in, in many countries, and they did impose one in the UK, I don’t know if you saw the news about the that windfall tax that they imposed on oil and gas, know, what will happen are they put on a, an energy profits Levy, because arguably, a lot of the the excess profits that the oil and gas companies were making, that was due to the higher prices associated with the war in Ukraine. And if you think about it, from an economic perspective, they really didn’t need those profits to have been motivated to invest in the first place. So you could argue that they were, they were x supernormal profits. And so therefore, you could make a case for a some sort of excess profits. Levy. And so that’s what they did in the UK, they put on a an energy profits levy a 25% surcharge on extraordinary profits, the oil and gas sector is making and, and that’s we saw a similar thing here in Australia wheeling, Queensland with the higher royalty rates on coal. So they put in a new, a couple of new tiers in their royalty rates. I think they had a 40%. There’s now a 40. What is it a $40 a tonne royalty rate, once the coal price gets above a certain, certain level? And I mean, this, this is something that’s controversial, because then companies say, Well, there’s a sovereign risk that oh, there’s a risk of that, that we didn’t anticipate before. Now, we have to really think about whether we invest in your state or your country. So there’s that that to consider. But that’s just to say that why this is relevant is because if you think that this green inflation is a problem, then you might be more inclined to to advance policy measures like that, like a windfall profits tax or higher, higher company tax or something like that. So I think that’s a that’s one of the issues in the policy debate I thought I’d mentioned. Okay, Arturo, any thoughts on ADD or green inflation? So far,

Arturo Espinoza Bocangel  08:26

it seemed that probably these inflation can be caused by these corporate big multinational corporation that wants to maximise the profits. Without taking into account what happening in the White House household level, the pressure of these inflation particularly is on the household Australian households, that they need to pay higher prices in energy, fuel, my grocery staff, so that is, that is painful.

Gene Tunny  09:04

Yeah. How plausible Do you think there’s greed inflation hypothesis is so basically it’s saying that the corporations are taking advantage of this concern over inflation? Or that they see that? Okay, so prices have started to rise and corporations think, okay, let’s just keep increasing prices, because we’re, we’ve got the cover to do. So now. We’re, it’s, we can get away with it, essentially. Now, what’s the problem with that argument? So we’re thinking like economists would say that the problem with that argument is that if one company decides to do that, and they’re doing it illegitimately that their costs of production really haven’t increased. Wouldn’t another company try and undercut them or try to they just, they wouldn’t raise their prices as much and then they could steal some market share from them. Yeah, the third point? Yep. So it requires some time. coordination among the companies, doesn’t it some sort of implicit collusion. And I think this is where some of these models, there are some theoretical models that appears which are trying to lend support to this greed inflation hypothesis. Did I think you found a study, didn’t you, Arturo, that said that this or that? Was that an empirical study you found that said that where there’s market power, it looks like there is some tendency to have

Arturo Espinoza Bocangel  10:25

there’s a few of them, the the those paper have found positive correlation between higher concentration higher inflationary pressure,

Gene Tunny  10:36

really? Okay. And do you think they’re good studies, though they published in good journals, do we what do we know?

Arturo Espinoza Bocangel  10:42

Those are probably most of them are publishing good journals. And also in economy, we know that the mythologies bar are different. And also each metal he has his pros and cons. So we need to, to consider that and analyse in detail what is.

Gene Tunny  11:05

So probably too much for us to do in this episode. But we’ll put links in the show notes. So if you’re in the audience, and you’re interested in having a look at those studies, you can check them out, and I might have a closer look at them after this. I know that there are studies like that, and that would lend support to this greed inflation hypothesis. And so maybe we can’t completely rule it out. There’s a paper by John Quiggin and Flavio ministers, and John and Flavio, their professors at University of Queensland and economics. I know both of them. Well. And John’s actually been on the show before. And they wrote a piece in the conversation. I think they had a working paper to back it up and inflation has been amplified by firms with market power. And so their argument is that where one or more firms is big enough to have market power for any given quantity sold, prices will be higher. Yep, and increasingly higher as demand for the product climbs, okay. This means that after a boost to demand such as the one that followed the COVID stimulus, in the end of the lockdowns, firms with market power amplify the resulting inflationary shock. Okay, so they’ve got a model where they come to a conclusion that having market power means that you’re more likely to be able to take advantage or to put your prices up if there’s this, this demand shock, okay. Possibly. I mean, my feeling is that if there is a level of competition in the market, then that should constrain that. But look, if there is market power, maybe that’s an interesting, interesting hypothesis. And there are studies from the States did you see this isn’t just something in Australia, there are studies from the US as well as a Kansas City Fed study from 2021 There’s a really interesting point they make in this that I think it’s worth thinking about in this whole green inflation conversation. So I think Andrew Glover Jose, I think you know how to pronounce his name. Yeah, cuz Sam was traded veal. Okay, that’s great. And Alice Vaughn and Rebecca they present evidence that markup growth so markups on products sold. So for the to get the profit. So the markup growth was a major contributor to inflation in 2021 markups grew by 3.4% over the year, whereas inflation as measured by the price index for personal consumption expenditures was 5.8%. Suggesting markups could account for more than half of 2021 inflation. This is what I think’s fascinating. They note that the timing and cross industry patterns of markups growth of markup growth are more consistent with firms raising prices in anticipation of future cost increases rather than an increase in monopoly power or higher demand. I think that’s a really critical point. So look, it might be the case that if you look at the data, at the moment, that it looks like the businesses are doing incredibly well. So they’ve got high profits. And they’ve they’ve increased their prices, but it could be that they’ve increased their prices in anticipation of future cost increases. Now to some extent, you have seen those future cost increases will in fuel I mean fuel prices were higher for I think they’re starting to come down. But energy prices here in Australia are still going up. Costs of other inputs are increasing labour costs. Labour hasn’t responded as much as some people have been forecasting for years. So wages growth is still It hasn’t really been that spectacular. But look, I mean, there’s something to that that could be the case that what we’re seeing is businesses. It’s not as if they’re being greedy. They’re just concerned about their own costs rising and they’re increasing their profits. Another thing to keep in mind, of course, is that that profits are procyclical. And this inflation has occurred at a time of a booming economy, the economy post COVID boomed. And as we came out of the pandemic, and that’s a time when you’d naturally expect to see higher profits. And we’ve also seen high inflation, unfortunately. So it could be correlation rather than causation. Again, look, lots of there’s a lot going on. There are lots of aspects of the economy. And I think that Kansas City Fed study, and I’ll link to that in the show notes that makes a good point about how you need to consider expectations in assessing what companies are doing. Okay. There was also a study by the Boston Fed that you found wasn’t there. So this is one of the other Federal Reserve Banks. So what was that cost price relationships in a concentrated? Economy? Was this a study you were talking about before?

Arturo Espinoza Bocangel  16:15

Exactly if the concentration, right,

Gene Tunny  16:19

okay. So the US economy is at least 50% more concentrated today than it was in 2005. So they, their findings suggest the increase in industry concentration over the past few decades, could be amplifying the inflationary pressure from current supply chain disruptions in a tight labour market? Okay, so this was a paper from 2000, until I’ll put a link in the show notes. Right. So that’s, that’s supporting that greed foundation thesis. Look, there’s there’s a whole bunch of you know, there’s studies that support it to an extent and then there’s others that question it, or there’s commentary that questions that. And one of the things you found Arturo, which I think was fascinating was that the so the Reserve Bank of Australia, so as central bank, and here in Australia, it doesn’t really give any credence it doesn’t really think much of this whole green inflation idea, does it or it hasn’t hasn’t raised it or doesn’t talk about it as a possible explanation does

Arturo Espinoza Bocangel  17:20

exactly here that RBA pointed out that there’s a place I fuck towards accounting for around half of the increase in inflation over the year to September 2022. But they didn’t mention anything about really corporations.

Gene Tunny  17:35

Right. Okay. So what I’ll do is so I can be to be objective and to be to be fair, on both sides of the argument, I’ll put links to, to, to what the RBA has been saying to both of those fed studies and also to what The Australia Institute has been, has been saying, I mean, they’re been the most vocal about about this. I mean, their analysis to them suggests this is an analysis of national accounts data. Again, it’s it’s an analysis of correlations of data that’s that they seen these things happening at the same time and drawing a conclusion based on that now, can you make the conclusion that this is due to greedy corporations, or corporations being more greedy than normal? Okay, I mean, we live in a capitalist economy. Okay. So businesses are going to maximise profits. There’s no doubt about that. But look, that’s the system we’re in. But is this something that in times of inflation, does it amplify the inflation or lead to, to more inflation than you you’d otherwise expect? I think that’s the hypothesis, The Australia Institute, based on their correlation, all analysis I call it says just looking at correlations, they would argue that it does. So their analysis suggests to them that 69% of excess inflation, so above the, the Reserve Bank’s target of two and a half percent, since the end of 2019, came from higher unit corporate profit margins, while only 18% of the student labour costs. Right. Okay. And they go on in that report to say that, look, it’s not just the profits in the mining sector, because it was just profits in the mining sector. And whereby, okay, the miners are really profitable. And so there’s a lot more profit in the Australian economy that’s on that’s because of all these export earnings. Right? So it’s not as if they’re making all of these profits by exploiting people in the domestic economy. So that’s where that argument of theirs would fall down. But then they do go on to point out it’s not just mining, that where there’s these excess profits in their view, there’s, you know, higher profits in it. in financial services and banking and in other sectors, so, yeah, check that out. And I think they ask a good question. And it’s good that they’ve made this contribution to the debate, because it forces us to think rigorously about what’s been driving inflation and what’s the cause of inflation. And we’ll get on to that again, in a moment. Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  21:03

Now back to the show. One of my old Treasury colleagues, John to in the financial review, John has written an opinion piece, which is very good. John’s good writer. Blaming inflation on greedy business is a populist cop out. And I think what John is saying here, I think this is where a lot of the economists in the Reserve Bank or the Treasury, I think they would agree with John, I think I largely agree with John, and I’ll go into into why in a moment. And John’s main message is that it was the spillover of public sector stimulus that lasted for too long, not price gouging by companies that fueled the inflation outbreak. Did you have a look at that? That article by John?

Arturo Espinoza Bocangel  21:55

Yeah, yes, I rebuilt the conclusion. Yes. He made a good point.

Gene Tunny  22:00

Yeah. And he relied on a study by Chris Murphy, who’s a former Treasury model. I actually work with Chris’s daughter in Treasury, Carol, I believe, if I remember correctly. So Chris, is a well known Australian macro, economist. And he was at KPMG e contact for a while. Now he’s a visiting fellow at ASU. And he’s done something a bit more advanced than what The Australia Institute did. The Australian Institute just looked at the national accounts and inflation data and tried to draw conclusions from that from just basic data analysis. Now, I think the problem in economics is, you can only go so far doing that, if we’re talking about testing hypotheses, what’s the scientific approach to do that, you probably need something a bit more than just the basic data analysis. Now, one of the problems we have in economics, of course, is that you can’t run controlled experiments as you can in the lab. So we’re always trying to come up with clever ways to, to analyse the data, to do econometric modelling of some kind, to work out whether these hypotheses can be maintained, or whether they’re, they’re rejected. That’s what I’d say on that. And what Chris Murphy does is he runs a simulation. He’s got this macro economic model, this econometric model of the Australian economy based on a broad range of macro economic data, and relationships that have some basis in economic theory. And what he does is he simulates the economy, if it was subject to COVID. But there wasn’t all of the arguably excessive monetary and fiscal policy response there was the there was some contraction in GDP. I mean, there’s a quite a substantial contraction in GDP still in that first quarter of COVID. Because people just would have naturally socially distanced anyway, right, even in the absence of policy measures. And we did say that in in some economies, that there was no, there was no way of avoiding the the economic shock from COVID entirely. But if you didn’t have the, all of that stimulus than by his estimates, you would have avoided a lot of the inflation. And I think this is really, really interesting, really interesting modelling. And Chris Murphy has a paper in the economic papers journal, which is a journal that’s actually published by the Queensland branch of the Economic Society was aranea, which I was once the secretary of. No longer though, but you can get that online, I’ll put a link in the show notes, fiscal policy in the COVID, 19. Euro. Really good paper. And what he does in this paper, which I think is excellent, is he just highlights how massively generous the COVID stimulus was, the stimulus during COVID was particularly job keeper, which was just incredibly generous, and he ended up because of the eligibility rules, there are all these people who are they were only employed part time, but they effectively get compensated as if they were full time workers. So there are a lot of people getting access excess money. And there’s an argument that that stopped some of those people from searching for a new job, if they were if they are on job keeper, or if they’ve been supported by job keeper. So, yeah, lots of problems with that, that stimulus and I think we’re, if we had another pandemic, I mean, let’s hope we don’t, I mean, still getting recovering from that last one. I mean, it was just the excessive response was just at it, and just, yeah, incredible. But if we do have it, I think we would have a much better, or a hope, whatever much better economic policy response. But what Chris Murphy found was that the fifth and this is in Australia, the fiscal response to compensate for income losses. In services industries meant that unemployment was around two percentage points lower for three years than otherwise, than it otherwise would have been. And there was over compensation for every $1 of income, the private sector lost under COVID, fiscal policy provided $2 of compensation. And then there was of course, the ultra low interest rates, point 1% cash rate, the hundreds of billions of dollars of monetary stimulus via quantitative easing, all of this additional money in bank accounts, I’ve got some charts that I’ll put in the show notes. So just show how much the Australian money supply is grown. I think since 2020, the amount of money so the stock of money in Australia has increased by nearly a third or around a third or something like that. And think about that. This is part of this whole. And this is something that what I’ve been saying on this show for the last couple of years, I mean, what we’ve got is too, too much money chasing too few goods, if you looked at what happened during the pandemic, and within the fiscal policy and monetary policy, what we saw with the inflation now, no doubt, significant part of it was due to the invasion of Ukraine. But what we end up seeing with inflation is what you would have expected based on the the massive stimulus and particularly the massive monetary growth that we saw. And so therefore, you don’t need this green inflation hypothesis. You can explain a lot of it by the excessive stimulus. And this is what Chris Murphy shows in that paper. Germany thoughts on that, Arturo?

Arturo Espinoza Bocangel  28:09

Whoa, this point, you the last point that you have mentioned is very clear. It made me think, okay, yes. The these re the cooperation argument is not 100%? Sure, shall we, whether if some academics, or you know, researchers will try to understand the drivers behind inflation. When I mentioned, drivers, of course, we include these government expenditure in increments. And also lit, we can include another factors at fame level, like, for example, to, to use markups in order to maximise profits. So that kind of thing is,

Gene Tunny  29:03

yeah, I think you made a good point before. I mean, we really want to have a look at what’s been happening in specific firms. I think we’ll have to wait for studies that really examined what’s happened at that firm level, maybe using that business longitudinal database data? I don’t know. But yeah, clearly, this is a it’s a big issue. And I think it’s one that we need more evidence to resolve. But I guess what I would say is that we shouldn’t jump to the conclusion. I mean, I’m pretty confident that we shouldn’t jump to the conclusion that it’s greed flesh, and that is just because a greedy corporations, I think there’s there’s a lot more. I’m not even sure to what extent that’s a significant factor. In fact, the corporations more greedy than normal. I mean, it’s this idea that it could amplify a shock that is inflationary, possibly, but I’d like to see, yeah, I have to sort of think deeply about what that means. It’ll is and what that mechanism is, I mean, my view is that you don’t need that great inflation hypothesis to explain what’s happened because it’s perfectly understandable if you just think about the the massive, the massive shock that we saw now. So think Chris Murphy, what he found was that if you didn’t have the stimulus, if you just had COVID, then then by the end of 2022, you’d have inflation at around 4.2%. So you would have ended up with some inflation as the economy bounced back after COVID. But what ended up happening, of course, is that inflation went far beyond 4.2%. In Australia, we ended up with 7.8% in Australia. And what Chris Murphy’s modelling shows is that, in his scenario, his his actual forecast scenario, he’s worked out that the excessive macro stimulus drives inflation, three percentage points higher, so three percentage points higher to a peak of 7.2%. Okay, which is in the wall ballpark of where it did get. So in his model, he can you explain it with the stimulus. Now, of course, it’s a macro model and models that we all know the problems of trying to forecast the economy and modelling the, the actual path of the economy with an econometric model with with equations. We’ve got parameters estimated, statistically or using econometric methods there. They have their limitations. But to me what, what Chris Murphy does is, is a better way to think about this sort of try and answer this question than just this basic correlation analysis that’s done, where we go, oh, well, profits are up. inflation’s up. wages aren’t up by much. It looks like it must all be inflation’s. At the same time as we’re having inflation companies are making more money. Therefore, it’s greedy, greedy corporations, I think I don’t really think that’s, that’s the right way to think about it. Having said that, I mean, it’s worth having the conversation and forces us all to think more rigorously about the causes of inflation and what we should do about it. And he thought cetera? No, I think that’s pretty much all I wanted to go over. I’ll put links in the show notes, to all these various papers and reports we talked about. The RBA has put something out on inflation drivers where they look at the different factors and they don’t seem to think much of this whole green inflation, explanation. But look, I think it’s worth covering. I know that, you know, we do have to be mindful of corporate power we have to be mindful of, of monopolies or oligopolies that exploit their market power. There’s no doubt about that. I mean, then that’s why we have things like the a triple C, the Australian Competition and Consumer Commission, or we have the we have the antitrust statutes in the US. And we have whatever the equivalent is in the UK. Did you see in the in the they’re quite muscular in the UK? Did you see the they’re blocking that? Microsoft’s acquisition of Activision Blizzard? Oh, I haven’t seen that. Oh, yeah. That’s quite interesting, because one of the things I’ve covered on this show is this issue of big tech and to what extent we should be concerned about big tech, so might have to come back to that in a in a future episode. I thought that was a really interesting development, because they’re concerned about Microsoft’s already a behemoth, right. Concerned about Microsoft getting getting even more market power in games. Okay, well, thanks so much for your time and for helping me think about this issue of greed, inflation, it’s helpful to talk about these issues with with colleagues. So I can think about really clarify how I’m thinking about it. Am I on the right track? Am I being biassed? Am I too sceptical of this hypothesis, which might actually have some merit. But yeah, I think my view is that we can probably explain inflation most, if not all of the inflation by the excessive fiscal and monetary stimulus. We don’t need this great inflation hypothesis that said, Look, if they can provide convincing evidence that it is a thing then sure let’s let’s look at it a bit more closely. So think that’s where all I’ll end up. Tomorrow. Thanks so much for your time.

Arturo Espinoza Bocangel  34:37

Thank you for having me, as well was my pleasure. Very good.

Gene Tunny  34:43

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 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.

35:30

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Podcast episode

A new Monetary Policy tool to end Inflation and avoid Recession w/ Prof. Larry Marsh, Notre Dame – EP184

In this episode of the Economics Explored podcast, host Gene Tunny interviews Professor Larry Marsh about his proposal for a new monetary policy tool that uses a central bank digital currency (CBDC) to end inflation without causing a recession. They also discuss the disconnect between the financial sector and the real economy. Larry Marsh is Professor Emeritus in the Department of Economics at the University of Notre Dame and author of the book “Optimal Money Flow.” 

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 EP184

  • What is optimal money flow according to Prof. Marsh? [1:28]
  • What is the role of government in controlling the economy? [6:24]
  • A helicopter drop of money [13:58]
  • What is the idea of a Federal Reserve/central bank digital currency (CBDC)? [18:56]
  • Fractional Reserve Banking [23:08
  • Narrow banking as a solution to the banking sector problems [24:55]
  • A good example of an all-employee owned company: Burns & McDonnell, Kansas City, MO [31:31]
  • What Larry describes as a winner-takes-all economy [34:37
  • The invisible hand of the market [37:43]
  • Gene’s wrap up: How the current monetary policy tightening is causing hardship in many economies, it may well be worth experimenting with a new monetary policy tool [43:47]

Links relevant to the conversation

Larry Marsh’s Optimal Money Flow website:

https://optimal-money-flow.website/

Where you can purchase Larry’s Optimal Money Flow book:

https://www.avila.edu/optimal-money-flow/

AEA conference session in which Larry presented his idea for the new monetary policy tool using a CBDC (presentation available for download):

https://www.aeaweb.org/conference/2023/program/1335

Australian ABC News article referring to Nicholas Gruen’s savings policy proposal mentioned by Gene in the episode:

https://www.abc.net.au/news/2023-02-12/raising-interest-rates-reserve-and-bank-and-inflation-management/101952926

Nicholas’s 1999 paper outlining the policy proposal:

https://lateraleconomics.com.au/wp-content/uploads/2014/02/AvoidingBoomandBust.pdf

Links to videos on China a listener sent me in response to EP182 with Dr Jonathan D T Ward: 

Prepare for Armageddon: China’s warning to the world | 60 Minutes Australia

Two Davids & Goliath | David Matas & David Kilgour | TEDxMünchen

America Just KILLED China’s Tech Industry 

Transcript:
A new Monetary Policy tool to end Inflation and avoid Recession w/ Prof. Larry Marsh, Notre Dame – EP184

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 Professor Larry Nash about his idea for a new monetary policy tool which uses a central bank digital currency, a cbdc. Larry argues that this new tool could end inflation without causing a recession. Larry is professor emeritus in the Department of Economics at the University of Notre Dame. In the episode, Larry and I also discussed the disconnect he sees between what’s been happening in the financial sector and in what’s often labelled as the real economy or Main Street. Okay, let’s get into the episode. I hope you enjoy my conversation with Professor Larry Marsh. Professor Larry Marsh, welcome to the programme.

Larry Marsh  01:27

Well, thank you, Gene, this is a great honour to be on your programme.

Gene Tunny  01:31

Excellent. Larry, I’m keen to chat with you about your book optimal money flow. And also a proposal that you presented at the American Economic Association meeting earlier this year. Now this is all very topical, given what’s been happening in the US and in Europe, with banks, we’ve got this age old problem of the stability of the banking system that we really haven’t resolved after many centuries. So I think, I think your book and your work looking at the role of money, the role of credit in the economy, I think that’s, I think that’s highly relevant. So to begin with, Larry, could I ask you about your book, optimal money flow? What do you mean by optimal money flow? And what’s your argument in that book, please?

Larry Marsh  02:28

Well, it’s primarily about the role of government in our economy, and that there’s, in order to have a efficiently running free market economy, government plays a critical role in certain realms where they need to be able to match the marginal cost with marginal benefits. And so you got some that are fairly obvious negative externalities, water pollution, air pollution, positive externalities, where you can talk about a vaccine for a highly contagious disease. So if it was not contagious, and it would be up to the individual to pay for the whole thing. But if it’s a contagious disease, then there’s a common property resource aspect to it. And so you have also you have public goods, and then you have things like highways and so forth. But there’s there’s a lot of areas that people have neglected and not fully recognised. Then I do get into the book into the role of the Federal Reserve, and propose a new policy tool to the bigger the fundamental problem is the the financial markets have become more and more separated from the real economy. No, my father was a Wall Street investment banker. So I learned as a little boy, how the markets worked, and how to invest the money and all of that. But the thing is that the real economy, the GDP has been growing on average, over the decades, about 3% In recent decades, whereas the stock market has been growing by 10%. There’s over three times as much. Well, how can it be that these financial markets are growing so much faster than the real economy? And part of it is the back in 1996? I believe it was that our Federal Reserve Chairman, Alan Greenspan, was talking about irrational exuberance. He said, All these people are pouring money into these financial markets and but then instead of doing something about it, he contributed to this and then other fed chairs and fed boards have contributed to pumping money into the financial markets, whatever they thought the economy was a little bit on the weak side. So part of the problem is that so much money has been diverted, from the real economy, from employees and so forth, that they can no longer afford to buy back the value of the goods and service that they’re producing. And so they go up to their eyeballs in debt they get the private debt is just mushrooms tremendously. So there was this large buildup of private debt as more and more money went into the stockpile. And then I kind of discovered this personally, when I invested in a company and kind of forgot about it, and later discovered that I got a 7,000% return on my investment. I thought, wow, I thought why deserve a decent return, but not 7,000%. You know, I thought free free markets and free enterprise is all about incentives and giving people incentives. So hard work pays off, but not for the person doing the hard work hard work, hard work pays off for the shareholder. And so you really want to see people like Steve Jobs at Apple Computer, you know, when he created Apple Computer to get rewarded strongly, all the hard working employees, the company that I had invested in was Adobe. And they were very creative, and imaginative people, but, but I was getting all this money. And what did I do all 84% of the stock market is owned by the 10% richest people. And when you get a certain amount of money, it gets to the point where you’re not quite sure what to do with it, you can only wear one pair of shoes at a time or buy one car at a time, you may have a couple of summer cottages and you know, maybe you have three or four cars. But after a while it gets to be a burden to deal with all these things. And so you basically just find that you have to invest the money somewhere. I mean, you couldn’t just take it home and stuff in your mattress. So it makes sense to reward entrepreneurs and creative people. But because the stock market has been ballooned by so much money going into it, and then Chris Leonard wrote the book, The Lords of easy money about how the Federal Reserve was pumping money. And then Karen Petroff, has written the book the engine of inequality, about how the Fed is pumped so much money into the give the money to the wealthy people through the financial markets, and then trickle down with the idea that it would trickle down to the real economy. And unfortunately, doesn’t trickle down all that well. And it just builds up and the markets just growing up, up and up without the money. And it’s gotten so bad that non financial firms have discovered that they can actually make more money investing in the stock markets and investing in their own business. So instead of creating new products, or enhancing the products already have or improving their productivity, they say, Hey, we can take this money and put it into the stock market and get a better return than just investing in your own business. And this is really hurt productivity in America and in other developed countries as well. And money flows from around the world into New York financial markets. And sometimes it’s detracts from real investment in the real economy. And so, in retrospect, I think maybe I should have bought my book distorted money flow, or money flow. You know, I was trying to say where we should be going. But I probably should have spent more time laying out where we are, and what what needs to be done than just laying out an optimal world as to what the role of government should be in that in that situation.

Gene Tunny  08:06

Okay. So Larry, in your view, what does need to be done? Well,

Larry Marsh  08:11

as far as the Federal Reserve is concerned, I think it’s very important to recognise that there’s two tools that one could use in controlling the economy. The tool that the Federal Reserve uses exclusively is the cost of borrowing tool. But there’s also a return on savings tool, which the Federal Reserve has ignored. Well, of course, part of the reason it’s ignored it because it hasn’t been authorised by Congress to make use. So I can’t really blame Jay Powell and the others in the Federal Reserve Board for not using a tool that they have been authorised to use. But I talked about this in the book, and why they need to have accounts for everyone with a social security number in the United States would get an account with the federal government. And these could be interpreted as part of a central bank, digital currency, to be a true central bank digital currency, you would have to allow anybody in the world, say somebody in India or Australia, who had US dollars, to set up an account with the US Federal Reserve Bank. And so if anybody anywhere in the world could could set up an account, and then transfer money in and out of their account that account when in fact be a digital currency. That’s the kind of the idea behind digital currencies. Now you the alternatives is have a coin based or per token type base, like Bitcoin, but then you would be supporting money laundering and a lot of legal activities. So one of the ideas I had to protect people’s privacy was to have two separate files. So transactions file, where you keep track of all the transactions that take place, and then a personal identification file. There may be a few transactions that need to go on the personal identification file because it’s becomes too obvious who the person is. But basically, you want to have a situation where government agency, government authorities can look through the transaction file all they want. If they find something that looks suspicious, that looks like criminal behaviour, then they go to a judge and get the authorization to access the Personal Identification file. So this would hopefully satisfy some conservatives that were concerned about the government having too much oversight or control over their accounts and what they were doing and so called spying on them. I personally knew that I’m happy to have the government spy on me as long as I can spy on the government, but you know, happy to have the police spy on me as I can, I can spy on the police. So I don’t have a problem with with the privacy issue, but some people do. And so I did propose that as part of this idea. The other idea is to use these accounts, so that you could intervene directly into the real economy, and not have to go through the financial economy. And so if you were able to offer say, if they have a six or 7% inflation, if you’re able to offer 10%, return the 10% savings interest rate, then this, this would target the marginal saver where you don’t know it’s only on the first say $10,000. Or you can even limit it to 5000, you want to target the marginal saver not the wealthy who are just moving their money around, not the poorest of the poor that can afford to save anything. But the marginal saver who’s probably making about 50,000 US dollars a year and could be saving more. Because the whole problem with inflation is you’ve got too much money chasing too few goods, the demand is too strong and the supply is too weak. The problem with the way the Federal Reserve does it now is when they raise the cost of borrowing. Yeah, they do raise the cost of items that require getting a loan, for example, automobiles or housing. But it doesn’t affect the items that don’t require getting a loan. So you’re really just shifting the inflation from the items that require loan to items that don’t require a loan. But where the Fed is able to be effective is through the supply side. Because there’s a lot of businesses that have to borrow. Some are retail businesses that operate in the red most of the year until they get to the holiday season, where they cover their costs and make a profit is farms that may operate some marginal fields where they have to put a lot of money in in the spring, and they don’t get any money until harvest time. So there’s all sorts of businesses that have to pay for their inputs before they ultimately work to the point where they have outputs to sell and get the money. So if you raise the cost of borrowing, this, this puts the brakes on to some degree, it means that the these businesses cut back hours layoff workers and close outlets. And this ultimately suppresses demand because the workers aren’t getting the money, and you can’t spend money you don’t have. Yeah, so ultimately, that’s what slams on the brakes, and causes us to suppress the inflation, but it does so at a great risk of having a recession. Whereas if you offered the 10% on savings, and targeted the marginal saver, and of course, prices are set on the margin, not on the average. So it’s actually the marginal saver that sets the prices and determines the inflation or not. And in times of recession, you can inject money directly into these accounts, the central bank digital currency accounts for everyone with a social security number within the United States. Now, you can offer the 10% savings on the first say $10,000, but only for those that had a social security number. So if you’re in Australia, you wouldn’t get the 10% return on the money in the accounts because you didn’t have the social security number, your social media, because the US would be targeting its own country, you know, the US in terms of inflation or recession? And then presumably, Australia would have its own central bank digital currency could do something similar. In that respect. Yeah,

Gene Tunny  13:58

that it makes the so called helicopter drop of money a bit easier what it is, that’s essentially what it is you’re injecting an additional 10% into all of these accounts in the States.

Larry Marsh  14:10

Yeah, there’ll be different ways of doing this. So if you’re trying to fight inflation, you offer 10%. But if you’re trying to stimulate the economy, you can inject money directly, and just put it in the people’s accounts say, okay, and which, which they’ve done to George W. Bush, they did, they did inject money, you know, gave people the money. So there’s certainly a more direct way of doing it, then doing it through the financial markets during trying to trying to control the real economy through the financial markets, which has not been working very well.

Gene Tunny  14:38

Well, and it certainly, I mean, people are asking a lot of questions about I’ve noticed that so that, I don’t know if you saw the interview that Jon Stewart had with Larry Summers, and I mean, he absolutely ripped apart Larry Summers it was it was quite extraordinary. And it just shows the popular. Just how the Federal Reserve’s going about it. monetary policy, it’s difficult for it to explain and it’s difficult for the, for it to convey to the public why it needs to do this. And you may have seen the other exchange that was at some of the senators with Jay Powell, and he was trying, they were trying to get him to say that he was, you know, he basically wanted unemployment to go up to slow inflation. So it’s a very, it’s very difficult for the central banks to explain what they’re doing. And perhaps Yeah, this could be another tool for them. But Larry could ask about the feasibility of this, what do we know about the responsiveness of savings to interest rate changes to the returns on saving? Well, that’s

Larry Marsh  15:39

a good question. And this, I would agree that I am not very precise on this. And so we would have to do some experimenting to find out what level of interest rate may work. Now we know that when things get too extreme, people will respond. So we know for example, when inflation starts getting faster and faster, people will start spending money faster and faster. And then sometimes they’ll get their paycheck, and they need to spend it within hours in Zimbabwe or, or Venezuela, where you get this horrendous inflation. So we know that people do ultimately respond to financial incentives. It’s just a question of how extreme you have to go. And so we would experiment I’ve said 10%, right off the top of my head without any empirical evidence to support it. So I would be the first one to admit or to agree that there needs to be a great deal of econometric research to determine what the appropriate levels would be, and how effective they would be.

Gene Tunny  16:37

Yeah, yeah, I had to look at what the literature says, doesn’t mean people. consumption spending will be influenced by in savings will be influenced by the way, those interest rates to an extent, but then they’re influenced heavily by your, your level of income. So I might have a look, I might do some digging myself. It’s an interesting proposal, for sure. Can I ask you about the Postal Service? Yes. Can you tell us that story, please.

Larry Marsh  17:09

So I talked about using a central bank digital currency to influence the problem and inflation or the problem where the recession, but one could also do it through the postal bank accounts, which we used to have in the United States under the postal banking act of 1910. So for over 50 years, when I was young, over 50 years, people could go to their local any post office and cast a check or set up a savings account. And Canada also did this. And we continued until 1966, when they terminated this postal savings accounts. And Canada went for a couple more years, and they terminated theirs in 1968. But Canada now in 2022, has reinstituted the postal banking, they they’re focused somewhat on concern for the disadvantaged to get into an automobile accident or a medical emergency or the rent goes up and they go to pawn shops or payday loans, and they get exploited where they they get deep into debt and then can’t get out of debt. So there’s been some political concern for these people in the in the United States with the end in Canada, as to how you could make loans available at a reasonable interest rate small loans, and Canada has now started their their postal banking back and are making these loans available to people who are in a tight situation and don’t have much income and need need some help with the over the short term without having an exorbitant interest rates.

Gene Tunny  18:56

Rod. Okay. So with your your proposal, you’re proposing that people could have accounts, essentially with the Federal Reserve, so you have this CB DC, does that do away with the need to have a bank account or to deposit money into? I don’t know what’s what the I mean, what are the banks had put money in in the states would have been Chase Manhattan? It was at an investment bank. I’m just thinking in Australia,

Larry Marsh  19:27

Bank of America, Bank of America an example. Okay, yeah. So this is a very interesting gene, because there’s been a lot of people have been raising questions about this, and saying, well, maybe there’s a better way to do it. And I would agree that it’d be interesting to have intermediaries to access your fat account so that the referring to it as the Fed account in the central bank, digital currency, United States is the Fed account. And so you could go through your regular bank and they would be paid a fee for allowing you access to your central bank digital currency. So it might be that instead of by going directly to the Fed, you would be operating through PayPal Venmo, you know, digital wallets. And part of the idea behind that is the feeling that the private sector has a tendency more creative than to come up with other financial tools and things that are valuable to consumers. And so rather than trying to exclude the private sector, from the central bank, digital currency, we might even pay them to help carry out some of the work and, and the the access by individuals and, and how to access their account and how to use their financial situation more efficiently in this context.

Gene Tunny  20:45

Yeah, yeah, there may be some benefits in that rather than having the central bank having to manage all of that. So yeah, I can see the logic in that. Larry can ask you about the banking system. So one of the things I’ve talked about in a previous episode, is this idea of narrow banking, which has been one of the proposals to address this fundamental problem that we’ve got with banks that rely on deposits. There’s this mismatch in the the maturities of their assets and liabilities. Have you done any thinking on this? What was called the Chicago Plan, this narrow banking concept? And is that a way that some of these problems could be solved? Could it fit into your framework? Could you tell us about that, please?

Larry Marsh  21:36

Yeah, people don’t realise that. Over 90% of the money in the United States is actually not created by by the Federal Reserve is created by banking system, that that people sometimes have the mistaken belief, and it’ll be called the loanable funds theory that you put money in the bank and the bank loans that money out? Well, that’s not what’s happening. Then other people think, okay, I put $1,000 in the bank, and the bank leaves $100 And they loan out $900? Well, no, that’s not the way it works. either. You put $1,000 in the bank, let’s say you put a 10 $100 bills, okay, so that’s, that’s real money, or whatever you want to call it. And then the bank would that $1,000 can then create $9,000 out of thin air. That because then that, that 1000 is 10%, which is the wonder the quote, so called fractional reserve banking, but it really the the term fractional reserve banking is a little bit misleading. It should be called Creative creation, banking, or something like that. But so part of the problem is that you are, as you point out, if you’re allowing people or banks to create all this money out of thin air, just on the basis of deposits, especially checking deposits or deposits, that can be withdrawn almost immediately, then that makes for a very shaky situation. And not only does it make it for a shaky situation for individual bank that might get into trouble as we’ve seen. But it also creates a situation where when, when the economy is doing well, the economy starts expanding and really looking great, then these banks have a tendency to make lots and lots of loans, because they have all these excess reserves, so they can they exacerbate the situation so that the irrational exuberance carries over into the loan market. And it’s become even worse now that they can securitize these loans. So it used to be that the local banker was very careful in making loans that be pretty certain things would be, and they would know about local conditions, much better than any one out any other banks or outside the local area. And so but nowadays, they can securitize the loans, they can make a loan. And it’s a little bit shaky. Yeah, what the heck, I’ll just sell it off to the markets. And so this securitization has made it even more shaky. And then when the economy starts to slow, or when they think, for example, that the Federal Reserve is trying to slow the economy and might push us into a recession, then they say, Oh, we better cut back on our loans. So they cut back. And that makes things even worse, and especially during an inflation, the banks don’t want your money, when they think the economy is going to be slowing. Because they don’t, they’re not going to use it. And they just have to pay you some interest rate. They’d like to set the savings rate at zero at that point that would freak everyone out. So they’re not going to do that. But they really don’t have use for your money. And but you’re putting money in the bank that just causes them a liability of having to pay you on your account for money they don’t need and don’t want. So that’s why it’s necessary for the government to step in and offer say 10% on savings in order to slow inflation those times because the banks aren’t going to do it.

Gene Tunny  24:55

Okay, and I mean with this. So with narrow banking do Do you think there’s merit in that concept?

Larry Marsh  25:02

Yeah, I think there’s some merit in that, because you could limit it to a savings account. So in other words, don’t allow checking to serve as the basis, but you could use any discounts or you could use certificates of deposit, they’re even more solid. Because you can’t withdraw that is readily. So yeah, you could do narrow banking, where you focused on savings accounts and certificates of deposit and not on checking accounts. So that would certainly reduce the irrational exuberance, if you say, you know, the, the generating getting too far out on the limb for the individual banks and, and exacerbating the problems of the economy, for the the banking system as a whole contributing to problems and for the economy. And so, you know, there are definitely both individual bank problems, and the economy wide problems that come about through this fractious so called fractional reserve banking, which I which, as I said, really should be called very credit creation banking. Yeah. And then narrow banking would help reduce these problems, both for the individual banks and also economy wide. So now banking would certainly be better than what we’re doing now.

Gene Tunny  26:17

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

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Gene Tunny  26:52

Now back to the show. I wanted to ask you, how was your your presentation at the AAA meeting receive Laurie was it was a positive reception?

Larry Marsh  27:08

Well, I think so now, my discussing. You know, there’s an old joke, I don’t know if you know this, the difference between a British discussion and an American discussing the British discuss it, we will say a few nice things about your work and then proceed to tear it to shreds. The American discussion will summarise your work, and then proceed to spend the rest of the time talking about their own research. But but so my discussion did point out, which I think is perfectly legitimate to do so that if you want something to serve as as purely a medium of exchange, you shouldn’t introduce the interest rate, either positive or negative interest rate, you should just make $1 be $1. And you don’t gain anything, you don’t lose anything. It’s just like the dollar bill in your pocket. A US dollar bill in your pocket. So he felt that to be a medium of exchange, you wouldn’t. And I can say well, okay, but then we could do that through the post office as I’ve, as an alternative, instead of saying, well, your central bank, digital currency will earn you 10% interest, I can say, okay, an account with the post office loan you 10% interest, so we can do it in a separate way. So I did run into the idea that maybe there’s different objectives. And you may want to have a central bank digital currency that doesn’t get you involved in the offering the return on savings and do that through the post office instead. Now that’s a possibility.

Gene Tunny  28:41

Rod. Okay. I’ll have to check whether the discussing prepared any remarks or or a PowerPoint, just to see what they are. They’re driving it there. Right. Okay. Larry, you mentioned about the just this disconnect, or this apparent disconnect between what’s been happening in the real economy. So what’s been happening with GDP, and then what’s been happening in the stock market, and then you talked about the disproportionate returns. Do you have any thoughts on what needs to be done there? Do you have any proposals there? I mean, yes. You mentioned the Federal Reserve’s probably

Larry Marsh  29:20

there’s interesting problem in that. Right now. The way our corporate boards work, is the CEOs tend to get other CEOs on their board. So it’s basically the CEO and his golf buddies or their corporate board. And so I’m on your board and you’re on my board and I maximise your compensation, you maximise my compensation, and we’re all concerned with the short term share price. But the problem is, you want an innovative economy, you want a board that’s really knows what’s going on in the company, and the CEO basically gives the board all these reports about what a great job the CEO is doing, you know. And really, you want representation from product development, you want representation. From sales, you want representation from marketing, you want representation from distribution you want to get. So Germany has come up with an approach where they require a certain proportion of the corporate board be elected directly from the rank and file employees. And this gives representation of what’s actually going on in the company. And not some hypothetical theoretical stuff that the CEO comes up with to show the corporate boy, what a great job they’re doing. And so this problem is that the maximising of shareholder value has diverted the attention to the short term share price. And an example of this would be Apple Computer, Apple Inc, as it’s now known for Steve Jobs is a very creative, innovative guy who came up with all these great ideas and then this, and then John Sculley came along and said, You know what, Steve, you need a professional manager, you need someone that knows how to maximise the margin and get the profits up, and let’s get our share price up. And so John Sculley came along and kind of pushed Steve Jobs aside, and took over. And then after a while, they became to realise that Apple was losing his competitive advantage against his Microsoft and other companies. And they said, no, no, no, we need to get Steve Jobs back in here. Because you’ve gotten off on the wrong track, you’re no longer focused on the customer, you’re no longer focused on innovation, creativity. And so we need a system. And I found out here in Kansas City, there’s a company called Burns and McDonnell, and a former CEO of burns. McDonald just wrote a book called create amazing. And what it is burns in McDonald’s started as a small construction company in Kansas City, then it grew to a nationwide us wide construction or an engineering company. And now it’s a worldwide engineering company. Well, it turns out that Burns and McDonnell is all employee owns, when you retire, you have to sell your shares and get the money, but only the employees own the company. So you This is recognising the agency of employees, employees are not just another factor and put like steel or glass or plastic, these these people have agency. And when they work together, and they say, Okay, we benefit when the company benefits. So it’s not just that individuals are motivated, because they’re gonna benefit as an individual, but because their teammates need to do their job. So it’s like being on a football team or you know, on any sort of athletic team, that it’s not just you’re doing your job, you got to be on the case of your compatriots, your colleagues to do their job. And so this is really we’re talking about free enterprise, you talked about incentives, the proper incentive structure, and getting employees involved in the corporate operation, and getting them rewarded for their involvement in the proper operation. Instead of giving that 7,000% return to you know, that Adobe, I invested in Adobe and got that 7,000% return while I was a deadbeat, I’d forgotten that invest in the company. I was like getting this money, please creative entrepreneurs, these these employees, these hard working people that create this new software, they should get the money, not me, I should get some return on my investment, but not 7,000%. That was just too much.

Gene Tunny  33:22

Well, yes, I mean, well, Dan Mitchell, I don’t know if you know, Dan, at all, but Dan is former Cato Institute, on his on his website, he often links to, I think you can make voluntary donations to the US Treasury. But now he puts that as a bit of a joke. I don’t think anyone would like to do that. But what I would like to ask you about Larry is if there are these outsized returns, or returns that people really, you know, they may not have needed those returns to have actually inspired them or induce them to invest or to save or invest? Do you see any role for tax policy? Do you see any tax policy changes? Would they be desirable in the US?

Larry Marsh  34:05

Well, that’s a good question. I was actually inspired and reading my book by a book by George Cooper was recently called Money, bloody revolution. And later, he really issued it as sort of a second round revised edition called fixing economics. And he points out and I remember the chair of the economics department, Sherwin Rosen back in 1981, I believe was wrote an article in American Economic Review called superstars. And he’s basically pointed out and George Cooper picked up on this idea that this there tends to be a winner take all approach in our economy and you know, athletics, it’s pretty obvious entertainment is pretty obvious, but it’s also obvious. I’m trying to think about an Amazon I think the average pay was something like 33 $1,000 That year, and the new CEO, I’m trying to remember his name is now getting $214 million a year. I mean, you know, the question is, you know, is this is this the free enterprise system? But no, and the the interesting book by Steven Clifford called the CEO pay machine. Steven Clifford was on these boards. And he came to realise that this was not free market that competing to get the most capable CEO. This was a rigged system, where the CEOs maximise each other’s compensation. And so, you know, when we talk about free enterprise and incentives, we need to be realistic about what we’re talking about. And not imagine a hypothetical world, a theoretical world where there’s full information and one of the things I talked about in my book is that economics is based on rational independent decision makers. When we’re talking about rational expectations and all this rational list and rational down that on average, people should be rational. And then Dan Ariely wrote the book, predictably irrational, but not only are people irrational, but they’re predictably irrational, why is taken out now, of course, the field of behavioural economics and economics has come about to explore some of these possibilities that people are irrational and predictably irrational. But why it took economists so long to figure this out. But the people in marketing have understood this and exploited this for hundreds of years. To kind of uncivil very slow and facing the reality that we don’t have this perfect information, perfect efficiency in the markets don’t solve all of our problems, we need to be realistic about what the markets can do and what they can’t do. And they work very well, for goods and services up to a point, although in reality, Adam Smith, really there was really two invisible hands, people, people talk about the first invisible hands were businesses compete with one another, to produce better quality products at lower prices. But Adam Smith implicitly had a second invisible hand, and in his second invisible hand, is that businesses conspire with one another against the public to raise prices. So you have the second invisible hand of market power, you have the first play of a competition, but then the second invisible hand of market power, and these invisible hands are in constant struggle with each other. And it’s government it has to be has to play a role in making sure that the invisible hand of competition wins out, and that the head of market power doesn’t corrupt and undermine the system.

Gene Tunny  37:43

Raw and okay, I’ll have to look back. I know that there are I know that famous passage in Adam Smith about how seldom do men have the same trade gather together? And the the conversation does not eventually get on to some conspiracy to fix prices or something like that. Exactly. That’s exactly, yeah. But did he was he? Was he suggesting that was another invisible hand? Was he did he do that explicitly? I’ll ask well, I

Larry Marsh  38:09

don’t think he did that explicitly. No, no. So I’m basically proposing that, you know, but I think others may have proposed that as well. So say there’s really two invisible hands.

Gene Tunny  38:17

Gotcha, gotcha. Because he did actually talk about the invisible hand of the market or the price mechanism. And then your suggested or and others have suggested that there could be this other invisible hand. That’s that’s an interesting concept. But yet he certainly he was, he was concerned about market power. I like that example of what was it Burns and McDonnell. City. So to look at that, it is challenging to find, I mean, I know there are examples of these of a worker cooperatives or cooperatives more generally, in the world, and either asset, some successful examples, but they’re, they’re often special circumstances, or it can be something that’s hard to get, right. But that’s it sounds like they’re doing something right. Or they’ve got a very good culture, they’re in their business that enables them to be successful, and then how to look on their website looks like they’re doing all sorts of incredible things in aerospace and in, in clean energy, etc. So I’ll put a link in the show notes to that operation. Okay. Couple more things. Larry, there was a proposal in Australia here from an economist, Dr. Nicholas grew and which, when you were talking about your, your idea of these accounts with the Fed, and then you could use, you could use this borrowing rate to encourage saving and that can pull you know, that means that there’s less money chasing those few goods and that can pull back on inflation. There was an idea from an economist to Dr. Nicholas grew and he was suggesting that in Australia, we could use the there’s a compulsory superannuation system so what you could do is If there is a inflationary time, you could require more contributions into that. So that’s another. That’s another concept. I don’t know whether you’ve seen that idea at all whether you have any reactions to that. I know I

Larry Marsh  40:14

need to understand that a little better. Okay, I’ll might I

Gene Tunny  40:17

might send on a link to the to that that idea, because probably should have given you a heads up on that.

Larry Marsh  40:25

Very interesting. I’d like to look at that. Yes, absolutely.

Gene Tunny  40:28

Yeah. So because there’s a bit of discussion about this in Australia at the moment, too, because these interest rate increases are starting to affect households. And I think unlike in the US, the large majority of you know, people who borrowed for Home Loans here in Australia, mortgage holders, they’re, they’re on variable rates. So they’re really affected when those interest rates change when they increase and so there are people who are now paying $1,000 or more a month, on their, on their home loans. And that’s really starting to affect budgets. Okay, Larry, before we wrap up any final thoughts on optimal money flow, or how we can make things better?

Larry Marsh  41:16

Well, let me first just say that if one purchases Apple mindset, or directly to Apple University Press, then all $24.95 goes to student scholarships, I pay for the production of the book and the mailing of the book. On the other hand, if you’d prefer to listen to Apple money flow for free, Bupa digital.com, is used by many public libraries. And it’s actually better in my average humble opinion than Libby or some of the other ones where they where the public library just gets a couple of copies of an e book or, or an audio book, where and then then you have to go through a hold period to wait until one becomes available. But in hoopla digital, it’s a rental system. And if 20 People suddenly want this book, big, all 20 Again, so there’s no hold period. So it’s free to listen to through your public library, or your Public Library’s paying for it, and you’re paying for it in your taxes, which is important. And that’s something I also wanted to point out was the public libraries. And public education in general is so important, because our most valuable resources are people. And too often, conservatives overlook the important role that government plays in making sure that we get or as close to equal opportunity as we can. Because they say the most important decision you make in your life is your choice of parents, you want to choose rich, well executed parents, well, you haven’t been able to do that, then the public library and our public education system is designed to give you a fighting chance. So I think that we need to recognise how important it is to make sure that all children and I like to say I think the solution to crime in the inner cities is college, get these kids out of that crime laden area and get them into college, we have a number of colleges now, because of the low birth rates and the fewer people coming to college, who are really trying to help get scholarships, funding for disadvantaged students, and get them out of those prime laden inner cities and get them into nursing, accounting, chemical engineering, anything other than shooting it out in the inner city. So, you know, I like to say the solution to crime is college.

Gene Tunny  43:41

Yeah, yeah. Yeah, absolutely. I think education is incredibly important. Okay. Yeah. First, Larry Marsh, thanks so much for your time, I really enjoyed talking about optimal money flow and learning about your proposals. So I thought that was great. And yeah, really found some of those examples. Valuable, though, particularly burns. And McDonnell, I’ll look into that a bit, a bit more. And you gave some good references there, this idea of the co pay machine, that’s something that I find I’m interested in looking at a bit more, because there’s definitely the potential for co pay to get out of proportion to what is optimal, given there is that principal agent problem in companies? So the fact that the people who run the company are acting as agents of the principals who are the shareholders and so yeah, that’s that’s certainly a problem. Yeah, very good.

Larry Marsh  44:52

If I could mention another book by Lynn stout called the shareholder value myth. And so she’s actually a I’m lawyer who has really investigated this whole concept of shareholder value, and found that there’s a lot of flaws in the way this shareholder value concept has been presented. And she really explains that well, and it’s worth looking at the shareholder value event. So I know your guests probably don’t spend all that time promoting other people’s books. But I found so many books that are so valuable. And I mentioned the Greg graves book create amazing another, which is also on hoopla digital. So it’s easy to access to your public library.

Gene Tunny  45:35

Very good. I’ll definitely put a link to to your book, Larry, and to optimal money flow and also to your AAA presentation, which I thought was was was great. Yeah, lots of lots of good illustrations in it. So well done on that. Very good. Well, Larry, I’m pleased that things are getting warmer there. For you in in Kansas City. And thanks so much for your time. Really appreciate it.

Larry Marsh  46:06

Ron Frank Eugene, you have a wonderful podcast. I was very excited when I’ve learned about it. And you’ve covered some wonderful topics. I’ve been going through your podcasts and learning a lot from your guests. So I encourage people to check out your podcasts and take advantage of all their wonderful information that you’re making available.

Gene Tunny  46:26

Excellent. Thanks. Thanks, Larry. And yeah, have a great day. And I’ll see who knows, maybe I’ll chat with you again soon. Really appreciate it.

Larry Marsh  46:35

We’re okay, great, thanks to.

Gene Tunny  46:41

Okay, have you found that informative and enjoyable? Given all the hardship that the current monetary policy tightening is causing in many economies, it may well be worth experimenting with a new monetary policy tool along the lines suggested by Larry. As I noted in my conversation with him, I’m unsure just how responsive household savings will be to the interest rates on cbdc accounts. But I’d be interested in seeing the results of a pilot study of the concept. That said, I know concerns have been expressed about CBDCs by many people, including libertarians and crypto advocates. For instance, there’s a concern that a cbdc could allow central banks and governments greater control over our lives. I probably need a full episode to explore the pros and cons of cbdc. So I’ll aim to do that in the future. I should note here that a previous guest of the podcast, Nicholas grown an Australian economist that I’ve worked with from time to time, he’s previously proposed that the RBA provides digital bank accounts for Australian so a proposal similar to what Larry is proposing for the US. He’s also offered his own interesting alternative to conventional monetary policy. And this is something that the ABC journalist Gareth Hutchins is written up in a recent story of his and I mentioned that to, to Larry, in my conversation, so I’ll put a link in the show notes to that ABC article. In a 1999 paper for the Business Council of Australia. Nicholas proposed very in the superannuation contribution rate. So that acts as a counter cyclical macro economic policy instrument. I’ll link to that paper in the show notes, and I might try to get Nicholas back onto the show to discuss the idea with me. Overall, I’m not sure about the feasibility, economic and political of various alternatives to the existing monetary policy approach to fight inflation. But given the downsides of the existing approach, I’m open to exploring and testing alternatives. Okay, I’d be interested in your thoughts on this episode. For instance, Are you positive or negative about CBDCs? What do you think? And what do you think about employee owned companies such as burns, and McDonnell and Kansas City? Can they work? Have you seen any good examples of them? Please send me an email with your thoughts, you can reach me via contact at economics explore.com. Recently, I’ve had a listener send me links to several videos on China after he listened to my recent conversation with Dr. Jonathan DT ward. Those videos included some rather troubling evidence which would support Dr. Ward’s arguments. So I’m very grateful to that listener for having sent links to those videos because they’re forcing me to think more deeply about the West’s relationship with China. I’ll include the links in the show notes. Finally, if you enjoyed what Larry had to say this episode, please consider getting a copy of his 2021 book optimal money flow, also linked to in the show notes. Thanks for listening. 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 at economics explore.com or Smile 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.

50:34

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Credits

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Podcast episode

Aussie Conference of Economists wrap-up w/ Leonora Risse & Cameron Murray – EP148

While in Hobart, Tasmania for the 2022 Australian Conference of Economists, show host Gene Tunny caught up with Dr Leonora Risse and Dr Cameron Murray to reflect on the big economic issues covered at the conference. The Conference was framed in the context of adjusting to the so-called new normal. It dealt with issues such as government wellbeing budgets, the housing affordability crisis, the pandemic, and nowcasting, among others. Hear from Gene, Leonora, and Cameron regarding conference highlights and takeaways, including the risk of unintended consequences of government policy interventions.

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

About this episode’s guests – Leonora Risse & Cameron Murray

Dr Leonora Risse is an economist who specialises in gender equality. She is a Research Fellow with the Women’s Leadership Institute Australia, and recently spent time in residence at Harvard University as a Research Fellow with the Women and Public Policy Program. Leonora is a co-founder of the Women in Economics Network (WEN) in Australia and currently serves as the WEN National Chair. Leonora earned her PhD in Economics from the University of Queensland, and previously served as a Senior Research Economist for the Australian Government Productivity Commission. She is currently appointed as a Senior Lecturer in Economics at RMIT University in Melbourne, Australia. Her Twitter handle is @leonora_risse. 

Dr Cameron Murray is Post-Doctoral Research Fellow in the Henry Halloran Trust at The University of Sydney. Cameron has taught a number of courses including UQ’s MBA economics course, macroeconomics, globalisation and economic development, and managerial economics. He writes for MacroBusiness, IDEA economics and Evonomics. Cameron has a PhD from the University of Queensland on the economics of corruption. He hosts the podcast Fresh Economic Thinking and his Twitter handle is ‎@DrCameronMurray.  

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

https://www.brookings.edu/on-the-record/understanding-beijings-motives-regarding-taiwan-and-americas-role/

Transcript: Aussie Conference of Economists wrap-up w/ Leonora Risse & Cameron Murray – EP148

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.

Leonora Risse  00:04

I think we also need to clarify that a well-being budget doesn’t mean just spending more, like spending more on feel-good items. I think there is some misinterpretation out there. I think it’s more about proper reallocation.

Gene Tunny  00:17

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 148 on the 2022 Australian Conference of Economists, or ACE as we call it. The conference was held on 11th to 13th July in Hobart, Tasmania. 

In this episode, I reflect on the highlights of ACE with my colleagues, Dr. Leonora Reese, and Dr. Cameron Murray, who I was lucky enough to catch up with at the conference. 

Leonora is the chair of the women in Economics Network, and she’s a senior lecturer at RMIT, the Royal Melbourne Institute of Technology. This is Leonora’s third appearance on the program. 

Cameron Murray, however, is appearing on the program for the first time, and I’m delighted that he agreed to share his thoughts on the conference with me. Cameron is postdoctoral research fellow in the Henry Halloran Trust at the University of Sydney. 

One of the big takeaways for me from the conference was the risk of unintended consequences from government policy interventions. And I give some examples of those in this episode. 

The show notes, you can find relevant links and details of how you can get in touch with any questions, comments, or suggestions. Please get in touch and let me know your thoughts. I’d love to hear from you. 

Right oh, now for my conversations with Leonora, who’s on first, and Cameron who’s on second on ACE 2022. 

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

Leonora, good to be chatting with you again.

Leonora Risse  02:00

Thanks, Gene for having me. 

Gene Tunny  02:02

Oh, it’s good to catch up here at the conference in Hobart. So, how have you found the conference so far?

Leonora Risse  02:10

It’s great to be back in person. This is the first Annual Conference of Economists in Australia since the pandemic. So, it’s wonderful to be surrounded by people again, seeing people face to face, hearing the latest research. In some ways, it feels like time hasn’t really passed. You know, we’re seeing everyone again. And there’s some great research that’s really timely reflecting on COVID. But also thinking about climate change, politics, immigration, the labor force, So, many highly topical issues are being covered.

Gene Tunny  02:49

Absolutely. And we just had this amazing presentation via Zoom last because he couldn’t make it by Martin Wolf, one of the editors at the Financial Times. And he was talking about a number those issues and the crisis of democratic capitalism, which I found really a fascinating presentation and gave us a lot to think about and their issues I’ve tried to cover on the program in the past. I was grateful for that presentation. Were you involved in the organization of this conference?

Leonora Risse  03:19

This year, I wasn’t. So, the way that the conference works is each state or territory branch usually takes carriage of organizing it. So, this year, a big shout out to the Tasmanian branch of the Economic Society who organized it. I’m part of the Economic Society Central Council, a representative of the Women in Economics Network. So, we were involved in organizing the wind sessions of the conference. So, I was involved in that part.

Gene Tunny  03:48

Okay, good one. So, what were those sessions, Leonora?,

Leonora Risse  03:52

Each year, since WEN was created, that’s the Women in Economics Network, that was created in 2017. So, WEN has been a part of the program, we’ve held a special session where we’ve discussed some of the issues that are confronting women in the economics profession. 

This year, we talked about what WEN had achieved in its first five years. We looked back at what action we had taken to deal with this problem of women’s under representation in economics. So, we were sharing some statistics as well as some examples of the initiatives that WEN had embarked on in that session, and it was more it was broader than just talking about gender inequality. It was talking about diversity and inclusion in the economics profession. So, we held that special session. 

We made sure that there were females amongst the keynote speakers, we had Angela Jackson, talking about the well-being budget. And Angela is a member of our WEN committee, but a very distinguished speaker in her own right and that was wonderful to make sure we had females amongst the keynotes. And tomorrow, we have a lunch for WEN members to come along and network and meet and talk about some topical issues.

Gene Tunny  05:12

Oh, good one. And So, Angela is a co-author of Yours. On a paper, I’d like to talk with you about; so, you had a look at how COVID affected the economy here in Australia and how it had differential impacts by agenda. So, would you be able to tell us about that, please, Leonora?

Leonora Risse  05:32

Thanks so much for the opportunity to share this with you, Gene. We looked at the workforce impacts of the first year of the COVID pandemic in Australia, where we had very strict lockdowns as well as the direct effects of the pandemic. And at the time, there was obviously a lot of interest from the news, from the media, from the government, what exactly were the impacts, and we knew that women were generally being more severely affected on average than men, because of the gender patterns that exist in industries of employment. So, we know that the types of industries that women are employed in, they tended to be the ones that were most affected by the direct lockdowns, particularly in the state of Victoria. But then, also women were potentially dropping out of the workforce, because they were responsible for homeschooling; schools were closed. Childcare wasn’t necessarily available through out that duration. 

So, we wanted to produce a systematic and statistical based analysis of what exactly happened in terms of labor force indicators. So, employment, unemployment, labor force participation; and break it down by gender, because I think there was a lot of talk, and there’s potentially some misinterpretation about what exactly those effects were, and generally, we saw a dive, a plunge in women’s employment, that was steeper than men’s. Then towards the end of the first year of the pandemic, women’s jobs did start to pick up again, which was a positive thing. And we were concerned that that was giving the impression that things were okay again, and even though there were huge numbers of women who dropped out of the workforce, just looking at those numbers climb again, it potentially led to people assuming that that time out of the workforce hadn’t caused any damage for women being detached those interruptions losing your job, and perhaps coming back again, but not being the same job that you had before; losing potentially, your eligibility for leave entitlements. It’s what we call scarring effects of economics.

Gene Tunny  08:05

Is this hysteresis? Is that the old term for it? Or am I thinking of something else? Was that related to it? There was that idea that if you had a period out of the workforce that reduced your; well, you lost the attachment, it can affect your marketability in the future, So, it can have these long run consequences. 

Leonora Risse  08:27

Yeah, that is a concern about people sort of, getting stuck in that state of unemployment or labor force detachment. That’s exactly right. So, we were looking at net numbers, aggregate numbers. We weren’t necessarily following the same individuals to see potentially, people who dropped out of the workforce who lost employment and didn’t reenter. But that would have been a concern behind the scenes. When I presented the paper here at the conference, there was an excellent question about long term unemployment, people would become entrenched in unemployment or drop out of the workforce and don’t reenter. So, that’s part of that concern about hysteresis as well, people getting stuck. And that skill erosion and perhaps that lack of confidence to reenter again, some of the dynamics that can explain what you’re describing there.

Gene Tunny  09:14

Right. So, I’ve got a couple of questions. You looked at the Australian data, do you know if this happened in the US and the UK as well? Was this the xi session that they talked about?

Leonora Risse  09:26

Yes. This was very much a global picture. You’re right. We were hearing this from the US, from Europe and the UK, from many other countries throughout Asia, Canada; that there were terms like it was a she-session, a play on the recession, but emphasizing the gender element of it. And the thing is that this is very different from past economic downturns. So, in our analysis, we look at what happened with job losses during the 1990s recession in Australia and during the global financial crisis around 2008. And what you see with the economic downturn, the recession that occurred as a result of COVID, women share those total job losses was a much higher proportion than what had occurred in previous economic downturns. And why that matters is because, it meant the policy responses needed to be different.

Gene Tunny  10:24

That was stunning. So, I was struck by just the proportion of the jobs lost in the early 90s recession here in Australia that were lost by men; what was it? 90% or something. I guess that makes sense because at the time, the industries that suffered were manufacturing industries or construction, because we had the colossal property boom in the 80s, and then the crash. So, they were industries dominated by men, but this time, and this is what you found, I think, isn’t it? that it was those sectors where women were disproportionately employed such as hospitality.

Leonora Risse  10:58

Yes, that’s right. So, it was the preexisting patterns of employment. For instance, at retail trade, what are the types of jobs within retail trade that women tended to be employed in things like clothing stores, Ford fronting customer service roles, waitress or waiter jobs in hospitality, whereas males tended to be employed in things like in retail, but in electronic stores, or building supply and hardware stores, which actually were all booming during the pandemic, because of all the incentives for people to stay at home or invest in these other things and things like shell fillers, or deliveries and transport behind the scenes rather than face to face customer service. 

So, these preexisting gender patterns of employment, as well as who’s doing the bulk of caring duties at home and who takes on the majority of the homeschooling responsibilities, meant that there were demand side factors as well as supply side factors, putting a lot of pressure on women’s capacity to retain their attachment to the workforce as well.

Gene Tunny  12:12

Okay. I might ask you about your highlights of the conference. I can tell you mine so far. I mean, one highlight was definitely Martin Wolf’s presentation, which made me think a lot about, how do we get that balance between having a market system which provides the goods and services we want that’s dynamic, that allows for you know, that is compatible with individual liberty, but at the same time, avoid a system where we have monopolization, where we have money getting into politics and corrupting it and inequality widening for various reasons, including monopoly, because of the big tech platforms, the big tech giants, people being able to earn money globally because of these platforms. And then if you’ve got an advantage that can be magnified by the technology, also skill biased technological change all those reasons. How do we deal with that in a way that keeps the incentive to innovate, but means we don’t have inequality that could be politically devastating? And I mean, I don’t know the answer to that. But I’m just saying that I thought that was a great presentation and Hal Varian, I mean, that was amazing. Talking about how they’re using all of the Google Trends data to Nowcast the economy, so, unemployment claims just based on people searching, where’s the local unemployment office in Michigan or wherever. So, I thought that was great. But how about you, Leonora? What were your highlights?

Leonora Risse  13:41

Oh, I haven’t been able to see everything on the program, which is frustrating when there’s so many options, you can’t see them all. The keynote speakers have been fantastic this year, because they’ve been so timely. The topics, the issues that they’ve been delving into, I thought hell variants, illustration of how we can use Google data for economic analysis, really enlightening. There’s so much capacity there. I’m looking forward to hearing Joseph Stiglitz speak tomorrow. So, we haven’t come to the end of the program. And he’s, he’s obviously an eminent voice in terms of inequality issues. I really enjoyed Angela Jackson’s keynote address at the start of the conference. And Angela talked about a well-being budget and put a lot of thought into what would be the dimensions of well-being. 

And also, she brought up some really potentially confrontational issue. She did talk about how do we handle domestic violence and family violence? And I think that was an indication that these are some hard topics that economists and policymakers and researchers need to deal with. And I mentioned that as a highlight, because I really don’t think in past conferences, we’ve been empowered or bold enough to bring up some of these confrontational topics.

Gene Tunny  15:02

I think that’s true. I want to see how this wellbeing budget is implemented in practice. I mean, as a former Treasury bureaucrat and someone who worked in Budget Policy Division, I’m just not sure what it’s going to mean. Is it just another chapter in the budget, enhance more work for Treasury analysts? Or is it a fundamental rethinking of how the budget process works and how the all of these policy measures are assessed? Will there be an explicit wellbeing score? I don’t know; we have to see exactly how the government is going to implement it. And whether it is something that really will mean that the budget is reformulated or rethought of as something that’s explicitly dedicated to improving well-being and therefore you would look at the whole range of government expenditures and activities. 

Is it that or is it just something that is just going to be another glossy budget document or something that the government of the day can sort of, wax lyrically about, but doesn’t have any real practical implications? That’s just my natural skepticism. So, I’m not knocking it. I just want to see how it’s implemented.

Leonora Risse  16:10

Yeah, I think that’s a really healthy degree of skepticism to have with any government. I sense that this government is really sincere and actually quite well informed by the research because as your listeners have known, there are very deep and comprehensive streams of research looking at measures of multi-dimensional poverty or disadvantage, which is really part of that literature on what constitutes a well-being and life satisfaction. And I think the takeaway here is when we think about a well-being budget, it’s about broadening the suite of indicators that we monitor, and we care about. So, it’s not just GDP, or inflation or wage price index. But we include a wider and fuller list of economic indicators, including measurements of inequality. So, I imagine that if you’re constructing a well-being budget, you’d want to compute a Gini coefficient, for instance. So, at least inequality is going to be on the minds of your policymakers, it becomes more salient, so that when they’re developing their policies, they’re not just thinking about how do we increase GDP, but what is the distribution of those prosperity benefits?

Gene Tunny  17:19

So, they could ask how do these particular budget measures affect inequality, affect the Gini Coefficient? Is that what you thinking?

Leonora Risse  17:26

Potentially along those lines, that’s right. So, it’s thinking about measuring success along a broader spectrum or dimensions of real world impact.

Gene Tunny  17:37

Yeah. Okay. So, every budget, as well as providing the economic outlook in terms of GDP and talking about what the budget aggregates are, you could have a reflection, the government could reflect upon what’s happening with some of these other indicators, such as inequality. Angela mentioned a whole range of things they could be interested in targeting in the interests of well-being, mental health, reducing domestic violence. 

Leonora Risse  18:04

The budget contains a lot of that already. And it’s about pointing out; actually, a lot of that contributes to GDP, which we know like, if you invest in your mental health and physical health and community inclusion in your population that are all in federal ingredients was making people or supporting people to become more productive as well. But I think it will probably find that there are a lot of government initiatives that are in place that are supportive of well-being and this is, I guess, perhaps justifying that expenditure in a broader set. 

I think we also need to clarify that a well-being budget doesn’t mean just spending more, like spending more on feel good items. I think there is some misinterpretation out there. I think it’s more about proper reallocation. So, you could say, well, let’s not go ahead with this hypothetical, say tax cuts for a higher income bracket, because that’ll have a negative effect on the Gini Coefficient. It will detract from income equality. 

So, we then have another benchmark of impact you consider some of these redistribution or reallocation decisions, it doesn’t mean spending more, it just means spinning things in different ways.

Gene Tunny  19:23

Yeah, fair point. Okay, Leonora thanks so much. Great to catch up with you here in Hobart.

Leonora Risse  19:27

Thanks, Gene. And thanks for running such a great podcast.

Gene Tunny  19:30

Thank you. 

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

Female speaker  19:38

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Gene Tunny  20:07

Now back to the show. 

Cameron Murray, good to be chatting with you.

Cameron Murray  20:13

Thanks for having me,Gene.

Gene Tunny  20:14

It’s a pleasure. We’re both finished the Conference of Economists for 2022, here in Hobart. We just had the lecture by Joseph Stiglitz. And, yes, it’s been a busy, few days. How have you found the conference, Cameron?

Cameron Murray  20:30

Yeah, pretty good. Pretty broad range. I’ve been to this conference many times, I like it because you, you will find a few people that study related topics, and you can catch up with your mates who researched your area, and then you can sit in on the random ones. Your session was called what, Miscellaneous? Which is actually pretty good. I think most people enjoyed, you know, a variety of discussions that you just don’t really get a lot of smart people in one room to chat about that often. Yeah, it was a good time.

Gene Tunny  21:01

Thanks. Yes, that was an interesting session. And we can touch on that a bit later. I thought it’d be good to chat about highlights of the conference and also what the themes of the conference have been. So, I guess on the themes, there was a big theme, it seemed to me of Economics in the New Normal; I think that was actually the designated theme of the conference, something about the new normal. And there was that speech by Martin Wolf, where he’s talking about the crisis of democratic capitalism. And then Joseph Stiglitz, today was talking about the Post-Neoliberal Order. So, there seems to be this general recognition that things need to change. I still don’t know exactly what they’re proposing. 

Cameron Murray  21:54

Yeah, I got the same impression. There’s a lot of; we’re at the end of some era, and something’s happening. And I wasn’t clear what specifically is not working? I’m not a big believer in labelling of things; oh this is proper capitalism. I’m like, well, you can have capitalism and a good welfare state and good public services and, you know, all of those functions well, together. It’s not clear that we need a new label. I think we do have a lot of things right. I found that a little bit unusual, I thought Stiglitz was right, in terms of Economics as a discipline evolving. And I can observe that I’ve been involved after the financial crisis in that rethinking economics and those groups trying to add some color and flavor to your economics education, because it can be a bit dry, like it’s straight with the neoclassical view on things. But in terms of actual policy, yeah, it’s wasn’t super clear to me where it’s going, but it was kind of unusual to get that feeling that everyone thinks there’s some change happening..

Gene Tunny  23:03

So, you’ve got a blog, haven’t you? Fresh Economic Thinking, and I found that interesting, what you were saying about the teaching of Economics and you said that you’ve tried to give it a different flavor. What sort of things have you done? What have you tried to emphasized in your teaching and your writing?

Cameron Murray  23:20

Yeah, well, maybe let me give you an example. Because Joe Stiglitz, one of the last things he talked about was, well, we use Robinson Crusoe as this example of production. And when Friday comes, we talk about specialization. And I use that to say, well, that’s one element of the coordination problem when you’ve got two people. Someone pick the coconuts and someone go fishing. That example allows us to think more broadly? Why is someone better at picking coconuts? Who taught them? Who has the fishing net? And why do they have it and not the other person? Can they be more productive if the two of them go fishing on one day using a net holding one end each, and then the two of them pick coconuts the next day by helping them climb the tree? Like these, the coordination problems are much broader than I guess the way we’re trying to think about it. And I think in Economics training, we can think more broadly as issues come up, we can maybe see where there’s these net improvements on the status quo. And that’s kind of, what my blog is; is there a different angle to this problem? Is this really a coordination problem? Is it really specialization? Is it this? Is it that?

When I look at housing, for example, I was writing about the Shared Equity proposal, I’m like, well, is this the best option? Why isn’t a 100% equity better? This is the proposal where the government will buy 30% of a house for you as an equity partner for first home buyers. 

Gene Tunny  24:46

Are they going to go ahead with that, aren’t they? Because they want government here in Australia, right. 

Cameron Murray  24:51

And someone at the conference was telling me that the details are being worked out, can’t say anymore. I think we got to think well, that’s one policy, and we can look at it. But we should be tweaking at the edges as well and going well, if 30% is good, why isn’t 40% better? And if 40% is better, why not 100%. And if we’re at 100% equity, where sort of the government owns your house, that’s public housing. Like we should be a bit more expansive in thinking about how things fit together. And that’s what I tried to do.

Gene Tunny  25:22

So, we’re reportedly having a housing crisis here in Australia. And you’ve previously commented, or you’ve recommended a Singapore model, haven’t you? Is that what you’re driving at with a 100%?

Cameron Murray  25:37

Oh, well, my example, for example, in that blog post was the Land and Housing Corporation in South Wales that owns all the public housing stock. And the value of that housing stock went from $32 billion in 2012, to $54 billion in 2019. And like, that’s a really good return on equity for government, if we consider that as an independent entity, making $20 billion in seven years in terms of the value. So, that was my example of well, you know, we’re going to start another fund over here, and it’s going to buy equity in people’s houses; we have a fund here, that’s buying equity, we’re just not conceptualizing it this way, we’re only looking at the costs, and we’re ignoring the fact that what public housing is is an equity investment. So, that’s the expansive way to think about it.

Gene Tunny  26:24

Right. Okay. I’ll put some links to your blog in the show notes, and also some of the reporting on your recommendation regarding that Singapore model.

Okay. What I found were the highlights, and I can ask you about yours. Papers that really struck me as something I wasn’t expecting, or that made me think differently, it was an analysis by this recent master’s graduate from Harvard, Nicole Kagan, not so super. And what she showed was that, that policy during the COVID period here where they let you withdraw $10,000 from your superannuation balance, and it was a lot easier than the normal requirement where you had to demonstrate hardship. And she was making the point that it could actually backfire on the government in the long term due to the fact that it’s reducing their super balance, and therefore the government would have to pay them more pension in the future. She had some calculations that illustrated how that could occur. I thought that was a good analysis, a good paper, and it just shows those unintended consequences and just how there, whenever you’re designing a policy, there’s probably or there’s possibly a lot better way to do it. And So, you should be thinking laterally about the types of policies.

Cameron Murray  27:58

I thought hers was very good as well, because she didn’t just say, this is the result of this policy. She said, oh, here’s another policy of an interest free loan. And what was the other; that she had a third one as well and said, here’s something else. And now I’m going to compare all three of them. And I feel like that’s a really fundamental economic approach of saying, well, this is a good policy I showed you, it’s like, no, what are all the alternatives? And we should be picking the best one, because if we can beat this, we should. Right. So, I thought that was very good. And that was my comment to her as well, there was another. And it might be related to your presentation as well, that the government could have let you take your super or it could have bought your assets from your super and given you the cash and held those assets in its own fund and got their compound growth or whatever. And, therefore, the government would have had those future assets to pay you back when you got the pension, if you know what I mean. So, you could sort of draw a little circle around the super early release program, and take that forward through time by the government owning those assets in its own federal treasury super account, and then paying the extra pensions to you in the future out of that account if it wanted to. So, you know, that’s just another alternative. And she evaluated three and I really liked that approach and was enthusiastic to look at more.

Gene Tunny  29:25

Yeah, I thought it was good. The other papers I liked; Stephanie Schurer who won Young Economist of the Year Award, she looked at a paper, while her paper looked at these anti interventions of various measures in the Northern Territory to a world to reduce alcoholism or to reduce domestic violence and sexual abuse in the indigenous population there. She had this, I think it was some differences model share this methodology to identify what happened in Alice Springs when they introduced a minimum price of alcohol to try to reduce the drinking and the cost of wine. It didn’t have the effect that they necessarily expected. When they looked at what did it mean for babies with the birth way of babies? And what seems to have happened is, well, there was some substitute; they did stop drinking cask wine. There was a big drop in the consumption of that. But then, there was an increase in consumption of beer and other alcohol, to an extent. So, there’s sort of substitution there. But also smoking, smoking increased.

Cameron Murray  30:43

Yeah, it did. That was pretty clear and one of the main results, wasn’t it? 

I think that’s actually a result I’ve seen elsewhere of trying to change behavior with the sort of syntax approach where you tax the behaviour you don’t want to get. And I think we get that in cigarettes and marijuana and things like that, if there are substitute ways to get the broader consumption good. Then you’ll find them.

Gene Tunny  31:12

Yeah. I thought that was a good illustration of the possibility of unintended consequences that you can get with policy and as was Nicole’s paper, too. Okay. The other one I thought was great was Warwick McKibbin’s paper on COVID. So, he went over some modelling results of his early in the pandemic. And I mean, Warwick was claiming, I think he’s probably right about this, that he got reasonably; I mean, his estimates were probably better than any ones in terms of the ultimate economic impact. And a lot of it came from voluntary, people voluntarily withdrawing from the labor market.

Cameron Murray  31:58

I wasn’t in that one. Can you? What did he predict? And why?

Gene Tunny  32:03

This was a paper he released in February of 2020. He saw that COVID was spreading in China. And it was going to come to the end; I think it was in Italy at the time. And he used his, what is it, the McKibbin Sachs Global model – MSG model he’s got some global economic model originally built with Jeffrey Sachs at Harvard. And he’s sold it; to all of these finance ministries, I think Treasury had a copy when I was there. How would you describe it? Well, it’s a general equilibrium macro-economic model of the global economy. And he was projecting; he calls them simulations, he’s not calling them forecasts. He made a joke today about how he doesn’t like doing forecasts, because you’re only ever going to be wrong, you never forecast know precisely.

Cameron Murray  33:10

I think that’s very wise. 

Gene Tunny  33:12

So, I think that’s very clever of Warwick to do that. And he was showing what GDP deviations he was getting from his assumptions around how COVID would spread. Then he had endogenous policy responses, or actually, they may not have been endogenous, he must have assumed what policy responses would be in terms of fiscal policy, and then monetary policy. He knew that governments would respond and that would help the economy recover. And he was showing that he had the big GDP losses to begin with, but then the V-shaped recovery or the rapid recovery. So, Warwick was claiming that; and it’s probably right.

Cameron Murray  33:56

Did you get the inflation element as well as it’s sort of second half of last year and this year? Because the V-shape recovery; remember, there was a big debate, V-shaped recovery, W-shaped recovery. There was a lot of chatter, and I think obviously he was right on that. But what about the inflation part?

Gene Tunny  34:19

I think he was. He may not have got it to the; he may not have predicted as much as it has occurred, but I’ll have to check that. I think he did say something about that. I just can’t remember off the top of my head. I’ll put links in the show notes to that paper. I found that fascinating. 

One thing he didn’t predict and he was surprised by; he was really surprised by just how badly the United States did. But he was modelling the COVID infections and mortality, the COVID deaths, and his prediction for the US was too low. And because in his model he was basing the health response. So, he had the epidemiological development of the disease, the infections and the deaths. He had that related in part to the public health system or the public health response. And because the US, because of the CDC, it came out high in terms of public health effectiveness. So, in his model, US had high public health effectiveness. So, that was reducing his estimate of what would happen in the States. We all know that it just didn’t work. I mean, they may have had the CDC, but for some reason or another, something didn’t work.

Cameron Murray  35:49

Well, you know, the assumptions matter don’t they? One of the standout presentations for me was Hal Varian, the Chief Economist at Google. And I think, simply because he’s got the inside run on all the data, he had a great method of augmenting your traditional time series forecasts that have seasonality and trends with an additional regression that selects for the most useful search terms out of Google Trends, and then uses them as predictors in the regression part of the overall model. And was pretty good at predicting a lot of economic outcomes from Google trends search data, which I thought was pretty impressive, but I guess we kind of, accept that that happens. But what impressed me more is they have a Google survey tool that you can put as like an ad on the news item. And people get credit on Google Play or something if they fill in surveys. So, you can do these really rapid surveys, and it will distribute them to readers of news that meet certain criteria. And it replicates really well, these well-done official surveys that sample representatively across society based on census records of types of people and where they live, it replicates a lot of findings by being completely non representative, and just flooding the internet, essentially, with the survey. 

So, the message here is sort of saying is we don’t know if representativeness is that important, but you can find out cheaply and quickly by just doing a Google survey to augment your official survey where you’ve got representative samples from different parts of the country, in different age groups and so forth. 

We’re obsessed about sampling and he’s now saying, well, as long as we throw it out to the internet, sometimes it doesn’t really matter. 

Gene Tunny  37:54

It’s good enough, the results are good enough. It may not be as precise as a random survey, or a survey done by Roy Morgan or Gallup but it’s got to be good enough for what most people need it for.

Cameron Murray  38:07

Especially picking the trends, right? Is this declining in interest or rising interests, you’ll get that sort of stuff very quickly and cheaply. So, I immediately went back to my computer after that session and looked at housing markets and predictions and tried to catch up with the state of the literature on that, and it’s booming right now. So, I think that’s going to be something we’ll hear more about. And I expect, for example, in the next five years, we’ll probably have a new house price index that is informed by daily Google search trends. Like a live modelled index from this type of stuff, that would be my expectation, given that people are already trying to do that.

Gene Tunny  38:46

Yeah, because CoreLogic put out a daily House Price Index, I think, don’t they? 

Cameron Murray  38:52

They do put out a daily index but there’s a lot of assumptions because you don’t know sales data until the settlement and the price was 30 or 60 days beforehand. Over a longer term, it works well. And it seems to pick turning points well. But I think if you’re in the market for producing high frequency index like that, and you can augment that with Google Trends, I think you would dominate that market because people would put more stock in yours, you’d get more press coverage, you’d become very; So, I’d be very interested in if CoreLogic has got people looking at this. They obviously have a lot of data nerds. You might see live daily trackers of many things; could be an interesting new world at the next conference.

Gene Tunny  39:40

Yeah, absolutely. That was great, that nowcasting session and I chatted about that with Leonora. I’ll put a link in the show notes regarding that, too. 

So, on housing, Cameron, you presented a paper on housing, didn’t you? Would you be able to tell us about that, please?

Cameron Murray  39:56

Yeah. So, it’s pretty straightforward. There was a lot of very detailed statistical modelling at this conference and mine was the exact opposite. Mine was just, here’s the data on the rate of production of housing from new major subdivisions in Australia. Because the argument that we have at the moment, are planning regulations, stopping supply and keeping the price of housing up. And my question was, how are planning regulations stopping supply? Because we can observe in practice, all these major approvals with three to 20,000, approved housing lots, and we can observe how quickly they supply after the approval. And what you find is that during an economic boom, these property developers will sell at a rate that’s 30 to 50 times faster than when it’s not a boom. 

So, they’ll sell five a month, and then they’ll sell eight a month for a few months when there’s a boom. So, if you look at land sales in major subdivisions around Melbourne, when there was that 2015 to 17, boom, you can see, not only did the price rocket, but the sales rocket, and then when the price is up, typically, supply and demand say, well, at higher prices, you sell more, but then it stops once price gets up. So, as prices start rolling over, they stopped selling again. 

The main point of that is, there seems to be a built-in speed limit. And then in addition to that, I looked at aggregate company data for listed companies across states where they had eight to 12 different projects. And the question there as well, is that variation I’m observing; does it average out across different areas, if we diversify? And it does, but only to a small degree. And then I looked at council level data for the different councils in Queensland and showed that actually, the variation, even at a whole council level is much the same. So, the point of all that is that there’s some kind of built in speed limit that the market will supply, regardless of planning restrictions. So, if you want to talk about the effective planning regulations, it has to go via this market absorption rate, this optimal rate per period that you would produce new housing. 

Gene Tunny  42:20

Yeah, I see what you’re arguing there. So, at any point in time, there is going to be a speed limit. I think that’s fair enough. It’s like with the sale of government bonds, for example. So, they don’t just go and auction off the whole years in one day.

Cameron Murray  42:42

Yeah. The market has a finite depth, right? Especially in property, your local market has a very; it’s very competitive. But in your local area, if there’s only a few buyers rocking up each week, you can’t really sell faster than that. And if you did want to, you’d have to reduce the price dramatically. And that itself might not even work, because who wants to buy something that’s falling in price? Right? You’ve just showed me this is a terrible property asset to buy, because you keep decreasing the price on me. Right? I think property markets function like other asset markets, property developers aren’t in the business of panicking, and to reduce price and selling very quickly. So, if we want to talk about cheap and affordable housing options or systems, we’ve got to acknowledge that limit. 

We can’t go around saying oh up zone, and it’ll all be fine, because we’ve got a property boom in the whole world, regardless of local planning conditions. There’s almost no city you can name right now, Regardless of whether they’ve got very generous planning, whether they’ve got height limits, where they’ve got no height limits. Auckland, famous in 2016 up zone the whole city, and then had the biggest boom, I think just about in the world between 2016 and 2021.

So, that was mine. Yours was one of the last sessions of the day, that was just before Joe Stiglitz. I actually really liked your topic because, I have a strong interest in privatizing public assets and accounting trickery.

Gene Tunny  44:26

Yeah. Well, what I thought was bizarre about what Queensland Government did. This is the state government, where Cameron and I both reside; it’s the state government where Brisbane is the capital. What I found odd about what they did was they actually didn’t privatize it, they pretended they privatize it. They said if we did privatize it, we could sell it for $8 billion, and therefore, even though it’s still doing the same thing it did yesterday, we’re now going to treat it as a well; we’re creating this private company, we’re converting a government.

Cameron Murray  45:08

This was the property title’s office, right where you change, when you sell a house, you register the change in ownership. It’s the Torrens title.

Gene Tunny  45:16

Yeah, that’s right. Sorry, I should have mentioned that. Well, this is actually a private company, and we own shares in it. So therefore, we’re going to take it out of the general government sector. And we’re going to recognize this $8 billion asset on our balance sheet and use it to offset our $40 billion worth of debt or whatever it was, and that reduces our net debt.

Cameron Murray  45:47

That’s an accounting trick. I did think it was very interesting that we’re going to privatize, we’re not going to change the ownership. We’re just going to say that it’s; and I guess my point to you was; The other point you were saying is that Queensland has a future fund that does investments in private companies. And they were saying that we’re not putting it in that fund is that?

Gene Tunny  46:14

I know they did. So, it is in that future fund? Yeah. It is in there – the debt retirement fund they’ve got. 

Cameron Murray  46:22

Well, and I think one of the questions in your comments was that New South Wales got a lot of flak last year for doing the same thing. And they created this thing called the transport asset holding entity. Did you follow that news? 

Gene Tunny  46:38

Yeah, I’ve got to look more into it.

Cameron Murray  46:4

The basic gist was the same thing. They said, well, this is the Department of Rail or whatever it’s called. But actually, we’re going to corporatize it and say it’s a private company. So, when we subsidize it, that’s an equity injection. So, that’s actually an investment, not a cost. So, there was this great big accounting trick to get around there other standard measures of government spending and standard ways that they produce the budget. They’re like, well, no, that’s not a cost, that’s an equity injection, which of course, you could do for anything.

Gene Tunny  47:19

I have to have a closer look at that. I guess the point I was trying to make is that I thought this was a good example of just the financial or the public accounting trickery that can go on. And I think as economists, we need to be mindful of that.

Cameron Murray  47:40

I think your point; you said at the beginning that we’re meant to be sort of, reporting in a standardized way. And you’re comparing governments between countries and budgets and debts. How much does this accounting trick matter? And we’re comparing Queensland and Western Australia or Australia to New Zealand to Canada.

Gene Tunny  48:01

Yeah. It’s difficult to know. And while any one of them, you might think in the greater scheme of things, okay, maybe that’s not the biggest deal but they just all add up and you just don’t know. 

I remember what I was saying about what was going into the future fund. What I was trying to say is that originally, they were going to put in liquid assets. So, the original idea was, we would have, I think it was 4 billion or whatever it was, from the defined benefit. The funds set aside to meet the defined benefit superannuation liability, and they were going to take that out, because they were saying, well,  we’ve got excess there, we don’t need that much to pay the pensions. We’ll put that into this future fund, but they would have been liquid financial assets. So, cash or shares or whatever. But then, they didn’t have as much as they expected. So, they couldn’t actually put in liquid assets. What they then did was said, well, oh, we’ve got these $8 billion titles registry, let’s stick that in the future fund. And is not the same thing, because it’s not actual ready money. It’s not a liquid asset.

Cameron Murray  49:13

No, it’s definitely not. Although, we did later discuss before we recorded that, a cynic might say that the government is wedged right now in not privatizing any public assets. And they’re literally setting this up. So, when they’re out of power, they get the result they want because the next government, it makes it easier for them to then privatize and sell this off, because the structure is already changed.

Gene Tunny  49:42

It certainly does do that.

Cameron Murray  49:45

It depends how much you think these political games are being played behind the scenes.

Gene Tunny  49:50

Yeah, I’ll put a I’ll put a link to both of our papers in the show notes. I’ve got to think more about your housing article because I think that’s a fair point about the speed limit at a point in time. And I’ve had Peter Tulip on the show before. Peter is someone that you’ve debated or you have a lot of interactions on Twitter and

Cameron Murray  50:15

and in person every time. Yeah.

Gene Tunny  50:19

So, Peter was here at the conference too. And I think Peter’s point is that; I think he acknowledges that, like, you’re not going to solve the housing supply shortfall overnight by relaxing restrictions, because there’s just so much construction or so much building that would have to occur. I mean, have to occur over many years. And I think his point is that, well, the problem is we’ve had these restrictions in place for decades. So, there’s been a whole lot of under building. 

Cameron Murray  50:51

We had a good conversation last night with Peter. I think there’s a hidden mental model that we both have that I can’t quite articulate with both tried. One of the components of that is this competitive element in the property market, like how fast would we supply? What’s the real counterfactual? Because his argument, and it’s a common argument, is that we’ve had supply constraints for a long time, therefore, we don’t have enough houses. If we didn’t have a supply constraint, we would have more dwellings per person and more space than ever before. And yet, that’s actually what we have. 

Although prices are high. Part of that’s the interest rate, right? Rents compared to income in the private market are 20%. They were 20% in 1996. So, we’re talking, what’s that 26 years ago, quarter of a century. So, not only are rents the same proportion of income, and we’d probably expect people to spend roughly the same proportion of income on housing as they do, you know, there’s a fixed budget share results in the Cobb Douglas function as your income grows. But we have bigger houses, we have more bedrooms and more area and fewer people. And we actually saw that in the recent Census. Census was interesting, because last year, the week that we filled it out in August 2021, I predicted that the homeownership rate in the census would go up. Because it was 65.4%, in the 2016 census. And when the data came out a month ago, it was 66.0. So, a 0.6% increase. So, we got more homeownership. And we saw that the number of people per dwelling fell quite a lot as well, partly because of COVID. People sort of spread out a little bit more. Yeah. And we had a bit of a building boom as well, in that period. And So, we’ve got bigger houses, fewer people in them. So, the question is, why isn’t this the market outcome? Like, surely, you’ve got to tell me why the market outcome is something of even bigger houses and fewer people than what we have. And why would that be the case? That’s where we still disagree. Myself and Peter Tulip as the most active housing supply debaters on Australian social media.

Gene Tunny  53:27

Absolutely. Love to have you both thoughts for a chat in the future. But anyway, we’ll have to leave it there. Because we’ll wrap up soon, because we’ve got the State of Origin game between Queensland and New South Wales coming up. 

Yeah, I thought that’s been a great discussion. I just thought of something with Nicole Kagan’s paper.. So, you’ve got that idea that the government could have bought the shares off or it could have basically bought the super assets…

Cameron Murray  54:05

From people if they want to cash out their super, then the Superfund says, okay, we’ll give you cash but the government’s got to give us the cash to take a claim on their same assets.

Gene Tunny  54:15

Yeah. So, the government would have to borrow to buy or to let them cash out. But your argument would be they would be earning more, the government would be earning more from those assets than the cost of the borrowing, giving borrowed and was so cheap.

Cameron Murray  54:31

Yeah. And also, that whatever they earn on those assets is exactly what the people who took the money out of super would have earned. So, if you’re thinking about a cost to the age pension in the future, well, the government now got those assets, exactly the same amount of assets that it can use to spend on your age pension. Do you know what I’m saying? Because you don’t have the super, the government has it. And if you need the age pension, they’ve got exactly the same amount of money that they can give back to you if you qualify for the age pension.

Gene Tunny  55:00

I’ll just have to think that through because I’ll also have the debt one day to a border. Although you could think about the Reserve Bank doing it, perhaps. I mean, that’s one thing that could have;

Cameron Murray  55:14

I mean, it’s a balance sheet expansion for the government. And it’s a contraction for the person who took the cash and doesn’t have that other asset. I might write a blog on this; 

Gene Tunny  55:25

I think would be good. I’d love to see.

Cameron Murray  55:27

Nicole was the author of the paper? I’ll reach out because I thought she had the right idea of testing all these scenarios. There you go. That’s what conferences are for; meeting people and sharing ideas.

Gene Tunny  55:41

Absolutely, very good. Cameron Murray, from University of Sydney. Thanks so much for your time. It’s been really great chatting. And it’s been amazing catching up with you at this conference. It’s been great.

Cameron Murray  55:52

Yeah, I know, it has been great to hang out, Gene. 

Gene Tunny  55:57

Thanks, Cameron.

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 this episode’s guests Leonora and Cameron for the great conversations, and 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.

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Podcast episode

Risk, CBA, & the Enlightenment w/ Prof. Deb Brown – EP128

In Episode 128 of Economics Explored, Philosophy Professor Deb Brown helps us explore some big questions around risk, cost-benefit analysis (CBA), and public policy, particularly relating to the pandemic. Deb also explains what was so important about the Enlightenment. 

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

About this episode’s guest – Prof. Deb Brown

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

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

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

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

Abbreviations

QALY Quality-Adjusted Life Year

Transcript of EP128 – Risk, Cost-benefit analysis, and the Enlightenment w/ Prof. Deb Brown

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.

Deb Brown 00:04

What is the Enlightenment is that the movement is about promoting intellectual autonomy, not just relying on what others or testimony or what authority tells you.

Gene Tunny 00:17

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 128, on philosophy, risk, cost-benefit analysis and the Enlightenment. This is part two of a conversation that my occasional cohost Tim Hughes and I had in January 2022, with University of Queensland philosophy professor Deb Brown. Part one of their conversation was broadcast in Episode 123, in which we chatted with Deb about truth and critical thinking. In part two, which is in this episode, we consider some big questions around risk and public policy, particularly relating to the pandemic.

Assessing government policy measures during the pandemic has been very challenging. In my view, there aren’t easy answers. Basic Facts are disputed and people are making different subjective assessments of what restrictions on our liberty are justifiable, for public health reasons. I found this conversation with Deb really helpful in clarifying some of the important issues for me. And I’ll aim to come back to the pandemic in a future episode soon with some further thoughts.

Deb also helped me understand just what is meant by that critically important period in our history known as the Enlightenment. Part of the way forward out of the mess that we’re in globally at the moment, in my view, surely has to be a greater appreciation and a recommitment to the values of the Enlightenment. Okay, please check out the show notes for links to materials mentioned in this episode, and for any clarifications and abbreviations, such as QALY, Q-A-L-Y, which stands for quality adjusted life year, that’s one of the abbreviations that Deb uses in our conversation. You can find the show notes via your podcasting app, or at our website, economicsexplored.com. If you sign up as an email subscriber, you can download my new e-book, Top 10 Insights From Economics. So please consider getting on the mailing list. If you have any questions, comments, or suggestions, then please either record them in a message via SpeakPipe, see the link in the show notes, or email me via contact@economicsexplored.com.

Righto, now for our conversation with Professor Dave Brown on philosophy, risk, cost-benefit analysis and the Enlightenment. Thanks to my audio engineer, Josh Crotts, for his assistance in producing the episode, I hope you enjoy it.

One thing that I’m always conscious of is that as economists, we do cost-benefit analysis studies. And we try to put everything in dollar terms. And we do this over the lifecycle of a project or over X number of years, 30 years. And we come to conclusions such as, well, the present value of benefits exceed the present value of costs, and therefore this is a good thing to do. But we’ve always got to bear in mind that there are some big philosophical assumptions we’re making when we’re doing a cost-benefit analysis. And in some cases, those assumptions are fine. Or if we’re doing a cost-benefit analysis of a bridge or a new raw railway tunnel or a road, okay, well, then, maybe that’s okay to put everything in dollar terms. But it’s difficult in the context of the pandemic, because we’re dealing with people’s lives and you’ve got –  there are all the issues of like, can you quantify that in dollar terms? And then even if you did a cost-benefit analysis, there’s a utilitarian assumption underlying cost-benefit analysis in economics is Benthamism, this Benthamied approach. And I think if you understand that, as an economist, that helps you in understanding how much you should take out of any particular bit of analysis you do. You need to be honest about what it is and you need to have an understanding of this – I think it’s  David Hume, his problem.

I find I’ve been thinking a lot about that during the pandemic and I’ve been tried to be less dogmatic or less – maybe it’s making me less confident in saying that if you’ve got a particular cost-benefit analysis result and that’s the right thing. That’s a bit of a ramble. Sorry, Deb, but do you have any thoughts on that or in response?

Deb Brown 05:01

Yeah. First of all  cost-benefit analyses have their place. Sometimes I wish there were more of them driving decision making because sometimes I look at decisions and think that that isn’t even valid from a cost-benefit analysis. The fact the matter is, is that there are other considerations as well. There are considerations of ethics and equity and morality and so on. And I actually sort of do hold the view that morality has its  advantages, and that we only get those advantages if we aim at morality, not if we aim at something else. And I think the problem with utilitarianism is that because it focuses on the consequences and maximising what’s perceived as utility, that other factors can be obscured in the process. So the pandemic is a good example.

I was part of a webinar series with the Chinese University of Hong Kong, which included virologists from UQ, and people in the medical faculty, and as well as people who worked in biomedical ethics, which is not a specialisation of mine, so bit out of my league there. But, I was looking at these quality based arguments against lockdowns and, I actually think that… There, the argument was that you should only lock down if the quality0adjusted life years of doing so from a cost-benefit perspective outweigh not locking down. This was back in 2020, and at the time, it was relatively older people who were dying. So the quality0adjusted life years saved by locking down compared to the $11 billion a week it was costing during lockdown looked like it wasn’t justifying locking down in terms of pure monetary value. But the problem with this is that quality0based analyses and decision making, they make sense in certain contexts. So, here’s where I think that cost-benefit analyses do have a point.

So if you’re a hospital, and you’re trying to decide whether to invest in in one medical technology over another, and you’ve got information about how much QALYs each one will save, then you should go for the one that has the highest return on investment, in terms of QALYs. But the thing is, there’s an implied ceteris paribus clause there. All else being equal, if you’re choosing between A and B, and A gives you the biggest return on investment, in terms of QALY, then B should go for A.

But what was happening in the pandemic is that it wasn’t the case that all things were equal. So there were certain communities who were more durable than others. So not just the elderly, but also migrant communities in the United States. It was African American communities and indigenous communities who are being adversely affected by COVID. Often, because they’re frontline workers they’re often living in more crowded housing, and all of these different reasons contributing to them being a more vulnerable group, than say whites, or in the US, Asians. Here in Australia we were seeing that we’re certainly affecting low SES communities more, and in the UK, same deal. And also in the UK we’ve seen recently that disabled people are more adversely affected by COVID than other communities as well. And so things are not equal. So in those kinds of circumstances, you can’t just rely on the cost-benefit analysis, you have to take into account these fundamental issues of equity.

Gene Tunny 09:31

Yeah, there are all sorts of issues to take into account. Equity is important. So I’m trying to think how Gigi Foster, who is someone who came out and she was against the lockdowns because of she thought it wasn’t justified. You couldn’t justify it with a cost-benefit analysis for the reasons you were just describing before. And I think that Gigi is associated with that view. She would probably counter that, well, we could take that into account in our cost-benefit analysis with weights. We could, we could weight the loss of life for particular groups, we would provide more of a weight to that or that there’d be some way you could adjust it, I’m sure she’d say.

The problem is, what I think is incredibly difficult in analysing policy during the pandemic is we just don’t know. Early on, we just didn’t know how bad this would be. And now, the pandemic keeps surprising us with Omicron. And it’s just incredibly difficult to know what the right policy is. And we’re going to have to assess this in future decades. Well, what made sense, what didn’t?

I think we also need to take into account issues of civil liberties. And I think one of the problems with lockdown as a policy, even if you did think that in a cost-benefit sense it maybe it did make sense, o if you took into account the effects on different groups in the community, maybe you could argue it made sense. But even if it did, there are people who value those individual rights, the civil liberties, and you could argue that well, this was a breach of that this is something that really – I don’t think anyone contemplated government would do what they did during the pandemic. I think it’s quite extraordinary measures. I never thought governments would impose those lockdowns and stay at home orders that they did implement. And they saw what happened in China. That’s one view, argument, that we imported this policy of lockdown from China, which is an authoritarian regime. So depending on what your values are, you could argue against lockdown, because you think this is such a breach of our individual liberty. Am I on the right track there, Deb? Is that an important value to consider too?

Deb Brown 11:52

Well, certainly liberty is an important value, but the concept of liberty and the , associated concept of a right is not unqualified or unconditional. So from the earliest discussions of rights, take for example, John Stuart Mill back in the 19th century, so, you only have a right, if the exercise of that right does not interfere with the liberty or rights of others. Okay, so this is often referred to as Mill’s harm principle. So I don’t have a right, I don’t have a right to drive on whatever side of the road I like, because that will deprive you of your freedom of movement and your right to life. So that’s always been a constraint on the notion of freedom and the notion of freedoms and rights is that you just do not have a right to something, if that right is going to deprive somebody else of their rights and their liberties.

The interesting thing to me about this whole discussion around lockdowns is that we accept all sorts of curtailments of our freedom big so as to avoid harming others, right. I don’t remember this kind of stink about not allowing people to smoke in public places. Right? So we ban smoking in bars and clubs and public places and buildings and so on. And we’ve all just sat that out, because, and the argument was, is that people are exercising their right to smoke whenever they like actually causes harm through secondhand smoking to others. And so it can interfere with the exercise of their rights, their right to health and life and so on. And the kind of mask mandates lockdowns whatever might be our infringement on what you might think of as our freedoms, but we don’t have the liberty to harm others. And that’s the justification for those kind of mandates.

Now, it doesn’t mean when you when you curtail somebody’s freedom or their rights, it doesn’t mean that you are you are not respecting the concept of a right or a freedom. Right. But as I say, right, it has to be measured against what are the foreseeable harms here. I think that’s very different from embracing authoritarianism and I think we need to keep a distinction there. Not every curtailment of our freedom means that we’re subject to authoritarian control, right.

But it was interesting. I don’t know whether either of you saw this this wonderful publication pre 2020 by the Rockefeller Institute. They do this scenario kind of planning. And, and one of the scenarios that that they discussed is called Lockstep and they anticipate a global pandemic, and, and what sort of behaviours it will drive. And one of the things that that they envisage there is that in some countries, it will drive authority an acceptance of authoritarian control, and it predicts that those countries will do better in terms of managing the managing the pandemic, but at considerable costs to the liberty of citizens or subjects in those countries. Right. And that that may have long term consequences that are not justified by the authoritarian control. It also predicted that there would be anti-authoritarian movements. So, you can read this document and think, oh, my gosh, they were reading the tea leaves on the pandemic, because all of those sort of anti-authoritarian anti Vax movements are also predicted as well where people , do feel that they are suddenly being thrust under authoritarian control. And that’s why it’s very important to distinguish between authoritarianism to not sort of operate with extremes, to not just think because we have to wear masks in public spaces we’re heading in the direction of an authoritarian regime. No, it’s more subtle and complicated than that.

Gene Tunny 16:38

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

Female speaker 16:44

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Gene Tunny 17:13

Now back to the show. Did you have any thoughts, Tim?

Tim Hughes 17:18

Actually there’s so much involved in this whole in this whole talk. Could go on for hours. I’m cool with that. For instance, with the authoritarian lockdowns, etc. it is a very effective way of treating with contagious diseases and everything. So it’s been around for centuries that that whole thing. It’s an authoritarian measure, but it’s still very effective in locking down or containing contagious diseases.

Gene Tunny 17:52

I think quarantine or cordoning off particular areas.

Tim Hughes 17:56

Yeah, isolation.

Gene Tunny 17:57

Where there is infection. Yeah.

Tim Hughes 17:58

As far as measures go, it was a predictable measure that was going to come in. But I understand and agree. There’s this lively debate around how long and if it was the right thing to do, etc. I just hope that we get good modelling from this for whatever comes next, because who knows what may come in the future, but hopefully, we’ll be better prepared for it for what we’ve gone through with this.

Gene Tunny 18:26

Oh, absolutely. Let’s hope. We certainly will be. We’ll be talking about this and analysing this for decades. Deb, I was just thinking, this point about how we, you’re right, we don’t have a right to harm others, that’s right. The issue is what level of harm or risk or probability of harm, what’s the threshold, because every time we go out into the community, there’s a risk that we could be involved in a traffic accident, say, and we could harm someone else so there’s a level of risk that’s assumed, but this may be too big a question to deal with. This is where I think this whole issue of the lockdowns, that’s what annoys people. Some libertarians are thinking well, okay, well, what’s really the risk? I guess that the argument is that each person, anyone breaking the rules could actually start off a cluster and then that could grow in numbers. This is not relevant now in Australia, because it’s gotten out of control and it’s out there so that we’re not going to have any more lockdowns so there’s probably no point. But in the early days, the argument was that anyone doing the wrong thing could actually start off a cluster and so therefore, yeah, that could affect everyone else. Maybe I can see the logic there but that’s what I’ve been struggling with, what’s that level of risk to others in the community that would justify a restriction on liberties. And I don’t think we’ve got an answer to that. Has anyone been doing any thinking on that?

Deb Brown 20:07

I don’t know, although I think you’re exactly right, that we really need to, we really need to think about risks here, because you’re right, that there’s all sorts of things that we do. We assume normal risks, because the benefits of taking those risks warrant the risk. As you say, every time we get in the car there’s a risk that we could lose our lives, or suffer serious bodily harm. But overall, people agree to those risks, because driving has benefits, let’s say. Maybe less so as climate as climate change takes off. But for a long time, that’s what really justified people in assuming a level in that level of risks. And so then the question there’s been a lot of discussion.

I think, actually, Robert Nozick had something to say about this, and there were economists that he was drawing on as well, about the difference between a normal risk and an abnormal risk. Right. So we allow certain levels of normal risk in a society but we don’t allow, for example, people to play Russian roulette, right not for any amount of money, not for any benefit, right. And we regard that as, as an abnormal risk, it’s not justified and so on. And so the question is, like, where at various stages of the panic of the pandemic,  … Panic pandemic, that’s interesting. Where at various stages of the pandemic, what kinds of risks are we actually facing here? And I think I think that underlying a lot of the policy changes that we’re seeing recently is just the assumption that we are moving more into that normal risk space. And because I’ve sort of gotten tired of hearing about sheer numbers of people with COVID. The relevant data is numbers of hospitalizations, numbers of deaths. Deaths and hospitalizations, per capita, those are the relevant figures. If it’s true, I think it’s probably too early to say, but if, if we are moving more with the kind of vaccination regime into to having fewer hospitalizations, per capita from the pandemic, then that will sort of shift the balance. And lockdowns won’t be as justified as they were when the risks were much higher, when it was a bit like playing Russian roulette in terms of number of people dying from the from the pandemic. So I’m not myself a risk analyst. And you in your field you’re kind of masters of risk analysis. So I would have to learn from you here. But conceptually, it seems to me that’s the sort of space we need to be in.

Gene Tunny 23:10

Absolutely. I haven’t seen an authoritative analysis along those lines yet, for the pandemic. Hopefully. I’m sure economists will be turning their minds to that. There have been some. Judy Foster’s done a cost-benefit analysis of a sort for Victoria. She presented that to the Victorian Parliamentary inquiry. Gigi and some of her colleagues have written a book on the great panic. You could consider it polemical, in a way, but we do need to have some sort of authoritative analysis along those lines, because these are big questions about just how do we manage these things and what regulations are acceptable, what level of risk are we willing to bear. I’m going to have to look up that, that work by Nozick. It seems to ring a bell, but I’ll look it up, the normal risk versus abnormal risk. That looks like it could be highly relevant.

Deb Brown 24:14

Yeah. It’s a chapter in Anarchy, State and Utopia. as I as I recall, though it’s been a while since I looked at it.

Gene Tunny 24:24

Okay, I’ll I’ll look that up.

Deb Brown 24:28

I’m trying to remember the name of the economist, whether it was French or something beginning with F. I’m not sure. Yeah, there was an economist on whom he was, I think drawing in terms of that risk. He was sort of particularly interested in compensation, so when is compensation warranted for risky behaviour? And of course, being very interested in… He’s a libertarian right. So he’s sort of interested in in when is it ever justified to restrict people’s freedom to take certain kinds of risks, and when is compensation warranted and so on. That’s what I recall from that.

Gene Tunny 25:07

Okay. Oh, yeah, I’ll look it up. But that may be of interest. I may try and cover that on the podcast in the future. We’ll probably have to wrap up soon, given how much of your time we’ve taken, Deb. Sorry.

Deb Brown 25:18

No, I’m having a ball.

Gene Tunny 25:19

Oh, very good. Okay. Oh, well,

Deb Brown 25:21

I was just going to talk about the media literacy issue because I think in terms of the critical thinking project, that’s, that’s a massive area. And I’ve been shocked learning from colleagues at Queensland University of Technology, and University of Western Sydney, and particularly Tanya Notley there is a specialist on youth media literacy. I’m kind of shocked at the data coming out about not just the general public, but also sort of academics capabilities, in terms of fact checking and checking the sources of media articles and being able to do lateral searches, and so on to see what different sites say about the same the same article. Then I’m also shocked that the youth, right, get most of their news entirely from social media, there’s very little engagement with mainstream media, very little engagement with credible news and media. So I think this this is another kind of – the lack of media literacy is another kind of pandemic, and it really does contribute substantially to that culture of, of confusion and mistrust.

Tim Hughes 26:45

I love you’ve said that because that was what I was going to come back to because way back and, we’ve touched on it with intention and trust. And I think it’s such a big area, and you’ve gone straight to it, which is great. And how do we trust the new sources? And this isn’t a present day problem. This has always been a thing for everyone throughout the ages. How do you how do you trust your source of any kind of news, whether it be from a person or from an agency, or whatever it may be. And so with that also comes a limited amount of time that we may have as individuals to make our minds up on these different things that come up to us where we form an opinion, and any opinion is only as good as the information it’s based on. So if we’ve got good information, we’re going to have a reasonably good opinion, the more varied information, again, better opinion. So all of these things, and like you’re touching on, for instance, people getting their information, information from just one source is going to be biased, or maybe not a full picture. There are all these different ethical sort of problems with … We form our opinions. And we find our trusted news sources. And of course, there are more and more coming out all the time. Where does this sit in with critical thinking and to try and do this in a in a reasonably quick period of time, knowing that most people only have  a certain amount of time in their day to give towards forming an opinion on something in the new cycle? How can we do this better?

Deb Brown 28:31

I mentioned earlier we have this collaboration with the Impact Centre, which works with office forces and critical thinking to school students. And last year, one of my colleagues, who was the UNESCO Professor of Journalism at the University of Queensland, Peter, Greste – do you know Peter Greste, the foreign correspondent with that awful experience in in Egypt? So he approached me and he said, “I really want to work with schools to try and get a kind of journalism media literacy course going with schools. And I know you have all these collaborations with the Department of Education.” And, and he and I together, and other colleagues as well, and colleagues and the collaborators in the Impact Centre, put together this course on media literacy in journalism, and it’s offered to senior secondary students. And effectively what they’re doing is they’re learning about media literacy, but they’re also learning it in conjunction with critical thinking.

So often, when you look at the media literacy courses, they often concern tips and tricks for checking sources, right, finding out who the sponsor is of a page, doing lateral searches, but adding a layer of critical thinking over that. What you get is you get students thinking about how their thinking is framed, within, within an article. So what gets to be in the headline? The headline shapes how you’ll think about the rest of the article. How’s the information presented? What’s up front? Right? Is there an argument developed? Is there an analysis? Right? What justification is there for the things that are said in the article, so getting students to interrogate an argument, look within those practices of justification.

Then in conjunction with that media literacy course – and then there are teachers at the Impact Centre, particularly Dr. Luke Zaphir and, and Dave Thornton, who put together a fantastic course for school students, developing all those critical thinking and media literacy skills. It’s just amazing. In conjunction with that, the students also develop their own article. Sorry, they work with journalists from In Queensland, which is an independent news service in Queensland, and has a commitment to public service journalism. Journalists from In Queensland work with students in the, in the Media Academy to basically construct articles for publication in In Queensland. So if you look at the In Queensland website, they’ve got a Media Academy tab, and those are all the articles that were written by students in school. Fantastic opportunity for students to learn how journalism works, how it’s actually produced, and to think critically about the way in which information is presented in an article.

And I think , another big problem within media is that if you haven’t got a kind of blatantly biased media outlet, right, on the right, or on the left, whatever it might be, you’ve got this kind of bizarre assumption that all you need to do is to provide a balance of opinions. Right, and you’ve done your duty in critical analysis. First of all, there’s very little analysis. Often it’s just kind of putting together these polarised opinions and this assumption that as a journalist, you have to stay neutral. Neutrality will come through, if you actually do a critical analysis, right. I think that sort of presenting balanced opinions just contributes to the confusion out there, right. People think well, there’s this opinion and that opinion, and everybody has got a different opinion. So I can believe whatever I like. No.

Tim Hughes 32:52

Actually, one of the things with this, because we seem to, which isn’t a bad thing, but we look for certainty where we can. We’re always looking for definitives and absolutes. We like to know this is this is correct, and that’s wrong, etc, whereas, of course, the reality is, there’s a spectrum of likelihood or possibilities with so many things that we look at. And I love that in the article, the ABC article, you mentioned that one of the keys was being comfortable with doubt and uncertainty, and feeling free to change position if evidence or new information required it, which we touched on earlier. But it’s just such a great statement, I think, in allowing people to be okay being not so sure, this is the best yet, at the moment, this is the best information that’s out there is going to change and being open to that change and to changing opinions when things evolve now, so I think that’s a really … When we talk about polarisation, quite often, that’s because people have found a certainty maybe too soon or without researching it very much, whatever the issue may be, and, and then being sort of loyal to that certainty, regardless of what other information comes through, which of course, is a problem.

Deb Brown 34:17

I think being able to divest one’s ego from the argument of work is very, very important, but it’s very difficult for people to do because their identity is so much bound up with what they think and what they believe.

Tim Hughes 34:30

That’s right. And so to change their mind would be affecting… It’s a decision then to change their identity, or tribe, even. It can be part of the group that you’re in or the environment that you’re in, which you identify with. And so the incentive to change opinion or to change mind or to hear different views, of course, is not a welcome one.

Deb Brown 34:53

Yeah. It’s interesting that in collaborative reasoning environments, if they’re run effectively, you do see that behaviour shift, because the focus of the group is on the on the pointed issue, on the topic. And if you sort of don’t allow people to just make assertions, but to actually back that up with reasons very soon you start to see them giving and taking reasons where – not just giving out reasons, but taking them standing corrected. In children, you see that behaviour shift remarkably quickly. And then something happens to us, and we end up terrified to change our minds. Where did it all go wrong?

Tim Hughes 35:39

With this, with the critical thinking project, teachers and students, is it also open to anybody who might want to get in touch and learn from this? You might have mentioned this before, so apologies if you’ve mentioned it. But this is open to everybody? Is there something there for everyone? Because everyone I think could benefit from it.

Deb Brown 35:58

Oh do I get to do some product placement here?

Tim Hughes 36:02

 You do. Well, you are God after all today.

Deb Brown 36:05

[unclear 36:05]. Of course, working with the Department of Education, that’s restricted to government schools. But we also, we also have contracts with other schools. Peter and I have both done corporate training, for example, in critical thinking. I had a wonderful time in India with fin tech capital of the Tata Group, Tata’s biggest company in India. Had a wonderful session doing critical thinking with them. It was it was really fun. Like I said, we’ve got contracts and done work with Singapore, and UCLA, University of California, Los Angeles. They actually included the media literacy and journalism course in their critical thinking summer programme last year. And it was a huge hit. And I think so I think that that course could easily be made available to anyone. And I think it should. This is not just for kids. We all need this.

Tim Hughes 36:18

Yeah, for sure.

Deb Brown 36:19

The other issue that the other issue that’s driving along misinformation is just the unavailability of peer-reviewed publication sites. So the more open source publishing, open access publishing we can do – I would love it if university libraries we’re open to the public again, not just coming onto campus, but actually the online edition, but there’s all sorts of issues there around publishing as an industry as well, right? So that’s what sort of impedes that. But the more information we can make accessible, and quality information, we can make this accessible, the better off we’d all be.

Gene Tunny 38:03

Yeah, you’ve got those big journal companies, such as Elsevier and – is it Springer, I’m trying to remember – but they make millions or hundreds of millions or whatever out of university libraries paying for subscriptions to journals. It’s, it’s a bit of a racket, arguably.

Deb Brown 38:25

It’s very strange. We do all the work, the writing, reviewing. We do all the hard yards, and then [unclear 38:33] business model that one.

Gene Tunny 38:35

Yeah, that’s true. Okay, I think we’re gonna have to wrap up at a minute. This has been great. I did have one question. We’re hearing a lot about the need for these Enlightenment values. More people are talking about the Enlightenment and the Age of Reason, because there’s this recognition that we’ve, maybe we’ve lost touch with that. And then I know you’re an expert on Descartes. And he’s associated with rationalism. Is rationalism, like, how does that fit in with the Enlightenment and the Age of Reasons. Is the Age of Reason the same as the Enlightenment? Is rationalism – is that a very specific part of the Age of Reason? Is that just a hyper or a total reliance on reason, or is the Enlightenment something broader? Is there a way for us to understand this, Deborah, or is it just such a big question that it’s not really answerable in this context in this podcast?

Deb Brown 39:29

No, it’s a great question. And I’m all for a renaissance in the Age of Reason. So I think those terms are often used interchangeably, Age of Reason and Enlightenment. And a lot of people trace the Enlightenment as beginning really with Descartes, the publication in 1637 of his Discourse on Method, which really was sort of that introduction to the new method of relying on reason and needing yourself to be intellectually autonomous, as opposed to intellectually heteronomous, where you’re relying on authority.

The Enlightenment was connected up with this metaphor of light that permeates discussions in the, the 17th and 18th century. So Descartes appeals to the natural light, and distinguishes that from the teachings of nature, right? Nature might teach you that things are hot and cold. But if you examine them from a scientific point of view, it’s more likely that that heat is certain motion of molecules, and cold is nothing at all.

So the light of reason will revise what nature teaches you, if you like, and one should be guided by the light of reason, not by what seems to want to be true on the basis of sensory apprehension. The light metaphor was common. So you get lumiere in French, and you get aufklaren, which means sort of clarity or light in German, as being in opposition to Aristotelian scholastic philosophy, which dominated philosophy, particularly in the schools and universities, up to the end of the 16th century. And it was perceived as being doctrinaire and authoritarian so, even though a lot of original work went on in the Middle Ages, there was always this deference to authorities as Aristotle said, as Augustine said, and so on. And with the advent of the scientific revolution, that begins in the late 16th century, with people like Copernicus, and Kepler, and Galileo sort of developing a heliocentric view of the universe and really starting to develop this new mechanical, scientific theory and doing a lot more sort of experimental work and observational work using telescopes and so on. That all sort of doctrinaire, the categories of Aristotelian scholastic philosophy were thought to be mysterious, occult and didn’t fit with the new science.

Also coming into the 17th century, you’ve got] the European humanist tradition, right, this reclamation of ancient texts, particularly the Stoics, but also the sceptics as well. And both Latin and Greek texts, and that revival of kind of classical as opposed to Scholastic philosophy. All that sort of feeds into the 17th century.

And then you get Descartes who thinks that we can’t just keep going with philosophy has to kind of catch up with these revolutions in science and also in engineering as well. And it needs a nice new face, and it needs a new message, right? And it needs to be grounded in reason, because only that will sort of, in a way fit the kind of mechanical mathematical science that that is really taking over the whole scientific space. And Descartes, of course, is also motivated to ground that new science in a system of philosophy that’s not antithetical to religion, but is really basing his connection to religion on reason, right? And I think when people talk about the Age of Reason, this is what they mean is they mean a sort of rational foundation for religion as opposed to faith, right.

And that goes all the way through to Thomas Paine’s book, The Age of Reason, which is really like a rationalist kind of attempt to sort of ground religion on reason, as well. But yeah, so the Enlightenment is sort of set in opposition to the so-called Dark Ages, which is a term that seems to be coined by Petrarch, who’s one of these European humanists in the 14th century, even though he’s embedded in that mediaeval context, but he’s sort of arguing against this kind of authoritarian aspect of philosophy in that period.

And so when you get to the 17th and 18th century, you’ve got a new method, you’ve got this method of doubt, you’ve got scepticism being taken seriously again, and that scepticism becomes part of the message. Again, that’s just subjecting what you believe to doubt and upholding the highest standards of reasoning and evidence. It wasn’t as if it was all rationalist. I don’t actually like the division between rationalism and empiricism myself because the so-called rationalists like Descartes and Spinoza and the Leibniz, Newton, these are often [unclear 45:06] people are doing experimental philosophy, and often the empiricists so the people like Barclay and Locke and Hume and so on, are often relying on philosophical reasoning as well, not just sort of observation and induction. And, of course, Hume famously problematizes the very inductive method of science anyway, so those kind of binary categories are not really helpful.

But I think in a way, Kant kind of encapsulates in his essay what is the Enlightenment, is that the movement is about promoting intellectual autonomy, right? Not just relying on what others or testimony or what authority tells you, but applying the the methods of reasoning and analysis, so that your own beliefs on the securest foundation they can possibly be.

Gene Tunny 45:57

Yeah, yeah, that’s, that’s a great explanation of that, Deb, I was just thinking, not trusting, don’t necessarily trust authority. And this is where we’re getting into problems nowadays, because we’ve got people who are thinking, oh, well, I’m doing my own research. Fauci says this, but I’m doing my own research, but often it’s on the internet. It’s on the net, and the source might not be that accurate. And you could argue that maybe they haven’t thought enough about the reliability of what they’re looking at, to justify their dismissal of what the certain authorities such as the CDC, or in our country, what different state chief health officers are saying.

I guess this is where it’s challenging, because there is value in being sceptical. And this is an important part of, of scientific method is being sceptical. Then the challenge is, sometimes there is something valid being said by some of these authorities, and you can take that scepticism too far. Particularly if you’re not relying on , good information, if you’re not, if you’re not fully embracing that critical thinking and you’re thinking critically about the information you’re getting and the points of view you’re putting across. So that that just occurred to me, then when you talked about the importance of being sceptical and not necessarily deferring to authority.  I thought that was a really good point.

Deb Brown 47:36

Yes, it’s interesting. My husband and I spend each morning looking at World Metre. That’s what passes for fun nowadays. Let’s have a cup of tea and see how the virus is doing, darling. In general, I’m a little frustrated, just that you often can’t get the data. I think there’s an issue that maybe a lot of people are not going to be able to even interpret the data. And that’s certainly a problem. And that’s why everybody needs some training and statistics and critical thinking. But there’s a lot of data that you just can’t get like this data, I want to know, hospitalizations, I want to know deaths. Then there’s also this issue about how much of this is being reported. Make more data, make more information available. That’s sort of one thing.

And then there is also this question of trust. So who can you trust in this in this context? And one of the I guess the most important questions to ask is who has a vested interest in a certain kind of outcome being reported? I’m happy to trust Fauci because I don’t think that he has any vested interest in this. I’m less inclined to trust somebody who I think is spinning a yarn, because they’re only interested in being reelected or making their political party look good. Right. That’s an important question to always ask about any source. Then you do have to do those lateral searches, right, how is this being reported by these different organisations, what are their interests, who’s sponsoring this page and so on. You’re right, it’s a minefield, and the more information that there is out there that is just sort of polarised and politicised and all that, it just noise that interferes with being able to give an accurate assessment of the situation.

Gene Tunny 49:52

Absolutely. Okay. Deb, that’s been great. I think we’ve got to wrap up there. We’ve taken so much of your time. I’ve got so much tape here. I’ll have to think about whether release it as a whole episode or Imight have to split it up in two.

Tim Hughes 50:08

Six parts. Six-part series.

Deb Brown 50:12

I’m sorry.

Gene Tunny 50:14

Not at all.

Deb Brown 50:15

I’m just not getting out enough. This constitutes as getting out. I’m just so excited, I got a bit carried away.

Tim Hughes 50:21

Not at all.

Gene Tunny 50:22

That’s great.

Tim Hughes 50:23

We could completely carry on because it is fascinating. And they are very big topics. So really appreciate the care you’ve put into the responses there, Deb.

Gene Tunny 50:34

Yeah, thanks so much. Deb, really enjoyed chatting with you. And I’ll put links to as much of the material that you mentioned in the show notes so people can find that. Really valued your perspectives and your great knowledge of philosophy, which it’s given us a lot, given me a lot to think about, and a lot for Tim and me. I’m sure we’ll be chatting about this a lot in the future, these issues that came up today.

Tim Hughes 51:06

That’s the thing. They’re big issues that remain big no matter where you are in history, and important questions.

Deb Brown 51:18

Thank you. I really enjoyed your questions, and it was such a great conversation. Thanks for having me.

Gene Tunny 51:24

It’s a pleasure. Professor Deb Brown from University of Queensland. Thanks so much.

Tim Hughes 51:29

Thanks, Deb.

Deb Brown 51:28

Thank you. Bye-bye.

Tim Hughes 51:29

Bye-bye.

Gene Tunny 51:31

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.

Credits

Thanks to Deb Brown and Tim Hughes for their great conversation and insights, 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.

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Podcast episode

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

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

Transcript of EP125 w/ Larry Reed, FEE

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

Gene Tunny 00:01

Coming up on Economics Explored.

Larry Reed 00:04

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

Gene Tunny 00:25

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

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

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

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

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

Larry Reed 02:45

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

Gene Tunny 02:47

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

Larry Reed 03:16

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

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

Gene Tunny 04:31

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

Larry Reed 04:37

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

Gene Tunny 04:45

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

Larry Reed 05:23

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

Gene Tunny 05:44

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

Larry Reed 06:07

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

Gene Tunny 06:33

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

Larry Reed 06:40

Yes.

Gene Tunny 06:42

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

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

Larry Reed 07:51

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

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

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

Gene Tunny 10:22

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

Larry Reed 11:21

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

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

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

Gene Tunny 12:55

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

Larry Reed 13:33

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

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

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

Gene Tunny 15:21

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

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

Larry Reed 16:21

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

Gene Tunny 16:26

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

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

Larry Reed 17:29

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

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

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

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

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

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

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

Gene Tunny 20:47

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

Larry Reed 21:12

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

Gene Tunny 21:25

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

Larry Reed 21:51

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

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

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

Gene Tunny 23:33

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

Larry Reed 24:07

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

Gene Tunny 24:24

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

Female speaker 24:33

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 25:03

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

Larry Reed 25:34

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

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

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

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

Gene Tunny 27:46

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

Larry Reed 28:19

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

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

Gene Tunny 29:52

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

Larry Reed 30:43

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

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

Gene Tunny 32:06

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

Larry Reed 32:46

Yes.

Gene Tunny 32:48

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

Larry Reed 33:13

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

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

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

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

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

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

Gene Tunny 36:37

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

Larry Reed 36:52

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

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

Gene Tunny 38:06

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

Larry Reed 39:06

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

Gene Tunny 39:38

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

Larry Reed 39:48

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

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

Gene Tunny 40:50

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

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

Larry Reed 42:12

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

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

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

Gene Tunny 43:51

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

Larry Reed 44:20

My pleasure. Thank you, Gene.

Gene Tunny 44:22

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

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

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Podcast episode

120. Inflation, Covid, China & Crypto

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

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

Crazy Crypto charts Gene refers to in the episode

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

Covid: Dutch go into Christmas lockdown over Omicron wave

 WHO forecasts coronavirus pandemic will end in 2022

China struggles to shrug off weak consumer spending and property woes 

China Evergrande reports progress in resuming home deliveries

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

EP115 – The Opioid Crisis and the War on Drugs

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

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

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Podcast episode

EP119: What Tony Makin taught us about macroeconomics

The late Professor Tony Makin was a leading Australian economist who made major contributions to the economic policy debate in Australia on the balance of payments and the effectiveness of fiscal stimulus, of which Tony was highly sceptical. In Economics Explored EP119, Former Ambassador to the OECD for Australia Dr Alex Robson, now an Associate Partner at EY, reflects on Tony’s contributions to open economy macroeconomics and the policy debate.  

About this episode’s guest – Dr Alex Robson

Dr Alex Robson is Associate Partner at EY. He has previously been Professor of Economics at Griffith University, Australian Ambassador to the OECD, Chief Economist for the Australian Prime Minister, a lecturer at ANU, and Director at Deloitte Access Economics. He is the author of Law and Markets, and has consulted to ASX 200 companies, Australian and NZ Government Departments and the OECD. Alex has a PhD and Masters in Economics from University of California, Irvine, USA.

Celebrating the Life of Anthony John Makin

Gene’s Economics Explored conversation with Tony: A Fiscal Vaccine for COVID-19 with Tony Makin – new podcast episode

Tony’s critique of the 2008-09 Australian Government fiscal stimulus: Did Australia’s Fiscal Stimulus Counter Recession?: Evidence from the National Accounts

Tony’s paper for the Minerals Council of Australia which prompted a critical response from the Australian Treasury: Australia’s Competitiveness: Reversing the Slide

Australian Treasury’s 2014 Response to Professor Tony Makin’s Minerals Council of Australia Monograph – ‘Australia’s Competitiveness: Reversing the Slide’

Tony’s 2016 paper prepared for the Treasury reiterating the arguments he previously made about the ineffectiveness of fiscal stimulus: The Effectiveness of Federal Fiscal Policy: A Review 

Alex’s papers with Tony (NB full articles behind paywalls): Missing money found causing Australia’s inflation, The Welfare Costs of Capital Immobility and Capital Controls 

Gene’s paper with Tony: The MMT Hoax

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

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

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Podcast episode

EP116 – The Great Resignation

What’s going on with the Great Resignation, the record numbers of people leaving jobs in the US and the UK? Will we see it in other countries such as Australia? What can employers do to hold on to staff? In Episode 116, Economics Explored host Gene Tunny talks about the Great Resignation with his serviced office neighbours Anthony Bersz and Louise Gibson from Remedy Resourcing, a Brisbane-headquartered recruitment firm.

Here’s a video recording of the conversation via YouTube:

About this episode’s guests – Anthony Bersz and Louise Gibson, Remedy Resourcing

Anthony Bersz is Managing Director of Remedy Resourcing and Director of Remedy Information Technology. Anthony’s recruitment career started in 2010 working for one of the world’s leading recruitment agencies based in the UK. After a number of years supporting his candidates and clients throughout the North West of England, Anthony made the move to Brisbane, Australia. On arrival to Brisbane, Anthony continued his career within the same global brand supporting IT companies and professionals with their recruitment and career needs. After listening to the candidate and client frustrations of working with a large global agency, Anthony decided to create Remedy Resourcing to provide a more tailored and flexible approach.

Email anthony@remedyresourcing.com

Louise Gibson is Director of Remedy Legal. Louise’s recruitment career began in 2001 (whilst living in the United Kingdom) and for the next several years, she recruited for one of the largest recruitment agencies in the world, before obtaining a Directorship in the North West’s leading taxation and legal search and selection firms.  During this decade, Louise sourced both tax accountants and tax lawyers for Big 4 Accounting, magic circle law firms and other private practice and FTSE 100 companies.

Louise moved to Brisbane in 2012 and returned to the same international agency for several years where she took responsibility for managing the legal, professional services and finance team for their Brisbane office. It was here in 2015 that she was awarded the Queensland state record for the highest fees billed in a single period since records began. At the end of 2015, Louise joined Remedy to head up and develop the Legal recruitment arm of the business.

Email louise@remedyresourcing.com

Great Resignation charts Gene refers to in conversation

Who Is Driving the Great Resignation? HBR article

Top reasons for quitting jobs in the Great Resignation: health fears, burnout, and bad managers Washington Post article

The  Great Resignation Is Accelerating Atlantic Monthly article

Australia’s ‘great resignation’ is a myth — we are changing jobs less than ever before article by Mark Wooden showing Great Resignation hasn’t come to Australia yet

Escape to the country: how Covid is driving an exodus from Britain’s cities (September 2020 Guardian article)

Can Employers Lawfully ask Job Applicants if they have had the COVID-19 Vaccine? article mentioned by Louise in the conversation

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

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

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Economics Explored Live

Livestream featuring US jobless claims, Aussie GDP + farewell to Tony Makin

I did a livestream earlier today (Friday 3 December 2021) with my regular co-host Tim Hughes on the latest economic news of the week, including the latest US initial jobless claims confirming a strong US economy, the impact of the omicron COVID-variant on equity markets, and the September quarter Australian GDP figures which revealed the adverse impacts of NSW and Victorian lockdowns. You can click on and watch the video on YouTube below. You can also download the slides I showed.  

In the livestream, from around 22:05, I reflected on the late Professor Tony Makin’s contributions to the Australian economic policy debate, particularly on whether we should worry about the current account deficit in the late 80s/early 90s and on the effectiveness of the Rudd Government’s fiscal stimulus. On the current account deficit, Tony’s articles, along with the contributions of John Pitchford, clearly led to a change in the policy consensus on the current account, so it was no longer something that would be a macroeconomic policy target. Sadly, Tony died unexpectedly earlier this week. This came as a huge shock to so many of us, and it’s obvious from all the conversations I’ve had about Tony over the last few days just how much respect and admiration his colleagues and former students had for him. Tony’s funeral is on Monday on the Gold Coast (see notice below). 

Funeral notice for the late Griffith University Economics Professor Tony Makin, who will be greatly missed by his family, friends, colleagues, and former students.

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 PodcastsGoogle Podcast, and other podcasting platforms.

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Economics Explored Live

Aussie reopening, Kiwi inflation, oil and petrol prices, and Bitcoin news – livestream from 22 October 2021

Economics Explored host Gene Tunny’s latest Friday livestream for 22 October 2021 covered:

  • accelerating NZ inflation and the implications for interest rates of accelerating inflation in advanced economies more broadly;
  • the great Australian reopening and booming job vacancies (i.e. as noted by the National Skills Commission “Nationally job advertisements are up by 36.2% (or 60,800 job advertisements) compared to levels observed prior to the pandemic”); and
  • the extraordinary Bitcoin narrative which is being reinforced by the introduction of Bitcoin-exposed Exchange Traded Funds.

You can download Michael Knox’s excellent note on the oil price which was mentioned in the livestream here:

Biden’s oil and gas lease pause

Also, check out this great note (also quoted in the livestream and which was likely written by Pete Wargent) in the BuyersBuyers newsletter from yesterday:

Yields creeping higher

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