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Gigi Foster estimates COVID lockdowns cost young people 116x any benefits – EP205

Professor Gigi Foster talks about her paper “COVID’s Cohort of Losers” which argues that COVID lockdowns and other restrictions disproportionately imposed costs on young people with few offsetting benefits. Gigi is a Professor of Economics at the University of New South Wales, Sydney and was named the 2019 Young Economist of the Year by the Economic Society of Australia.
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About this episode’s guest: Gigi Foster

Gigi Foster is a Professor with the School of Economics at the University of New South Wales, having joined UNSW in 2009 after six years at the University of South Australia.  Formally educated at Yale University (BA in Ethics, Politics, and Economics) and the University of Maryland (PhD in Economics), she works in diverse fields including education, social influence, corruption, lab experiments, time use, behavioural economics, and Australian policy.  

Gigi’s research contributions regularly inform public debates and appear in both specialised and cross-disciplinary outlets (e.g., Quantitative Economics, Journal of Economic Behavior and Organization, Journal of Population Economics, Journal of Economic Psychology, Human Relations).  Her teaching, featuring strategic innovation and integration with research, was awarded a 2017 Australian Awards for University Teaching (AAUT) Citation for Outstanding Contributions to Student Learning.  

Named 2019 Young Economist of the Year by the Economic Society of Australia, Gigi has filled numerous roles of service to the profession and engages heavily on economic matters with the Australian community.  As one of Australia’s leading economics communicators, her regular media appearances include co-hosting The Economists, a national economics talk-radio program and podcast series premiered in 2018, with Peter Martin AM on ABC Radio National.

What’s covered in EP205

  • Intro to the cost and benefits of lockdowns. (3:22)
  • Quality adjusted life year (QALY) and WELLBY. (8:07)
  • Fear and the crowd. (13:47)
  • The history of the cordon sanitaire. (16:58)
  • How many lives were saved? (22:14)
  • The cost and benefits of lock-downs. (27:25)
  • The economics of the lockdown. (34:24)
  • How do we determine the severity of pandemics? (36:25)
  • The difference between the 1918 flu and COVID-19. (41:18)
  • Citizen juries. (46:35)
  • New laws about misinformation and disinformation. (49:45)
  • Health and good nutrition. (56:01)

Links relevant to the conversation

Gigi’s paper for CIS:

https://www.cis.org.au/publication/covids-cohort-of-losers-the-intergenerational-burden-of-the-governments-coronavirus-response/

Information on WELLBYs:

HM Treasury’s Wellbeing Guidance for Appraisal: Supplementary Green Book Guidance

Transcript: Gigi Foster estimates COVID lockdowns cost young people 116x any benefits – EP205

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It was then looked over by a human, Tim Hughes from Adept Economics, to pick up any clangers that otters sometimes miss in their rush to catch fish. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

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

Hello, thanks for tuning into the show. In this episode, I catch up with Gigi Foster to talk about her thought-provoking new paper “COVID’s Cohort of Losers”, in which she argues that COVID policies massively disadvantaged young people with few offsetting benefits. My occasional co-host, Tim Hughes, took part in the conversation too. Gigi is Professor of Economics at the University of New South Wales. She was named 2019 Young Economist of the Year by the Economic Society of Australia. She has an undergraduate degree from Yale, and a PhD from the University of Maryland. Okay, let’s get into it. I hope you enjoy our conversation with Gigi Foster.

Professor Gigi Foster, welcome to the programme.

Gigi Foster  01:30

Thanks so much for having me, guys. It’s a real pleasure to be here.

Gene Tunny  01:33

It’s terrific. Gigi. I’ve got Tim Hughes with me, Tim, good to have you in this conversation, too.

Tim Hughes 01:43

Yeah. Good to be here. Nice to meet you Gigi again.

Gene Tunny  01:47

Yeah. So I mean, both Tim and I saw Gigi at a event in Brisbane on First Tuesday Club when we, you presented on your book, The Great COVID Panic, Gigi so after that you’ve, well, among other things, you’ve produced a paper for a Centre for Independent Studies. So that’s an organisation I’ve got a connection with. I’m an adjunct fellow there. And you’ve written this great paper “COVID’s Cohort of Losers, the intergenerational burden of the government’s Coronavirus response”. So to start off with Gigi, I’d like to ask you about this estimate, you’ve got in your paper, you estimate that the COVID policies Australia pursued. So we’re talking about lockdowns, keeping kids home, keeping them away from school, those COVID policies have cost the nation’s youth at least 116 times the value of any benefit that they could have received from these policies. And you’re, you say that this is a conservative estimate? Could you tell us please? I mean, how do you broadly just broadly to begin with, how do you come up with a number like that 116 times the value of any benefit.

Gigi Foster  02:50

So basically, the approach I take in that CIS report, which came out a few months ago, is very similar to the approach I take in my cost benefit analysis of Australia’s Covid lockdowns, generally for the entire country, which was published by Connor Court in late 2022. That’s a book now that is co-authored with Sanjeev Sabhlok, who you may also know of through his anti-lockdown statements during the past few years, he used to be a Victorian Treasury economist. And then he parted ways with the Treasury in I think, September 2020. And fortunately, he was between jobs. So I was able to partner with him and producing this larger cost benefit analysis. And then CIS, well Matt Taylor at CIS asked me to produce a kind of focused report specifically on the cost to youth. So the mechanisms that caused damage during the COVID period, that were really the, the main ones I was worried about when we started with the lockdowns are the fact that when you lock people down you’re making them stressed and unhappy, right? So there’s that one immediate negative effect. And then also the fact that because we followed up lock downs with these large fiscal stimuli, the Jobkeeper programme in particular, that we were going to be racking up debt, we’re also creating inflationary conditions, which I mentioned at the time, but that seemed to be something nobody wanted to hear. But certainly the debt is basically signing us up to not be able to spend as much on other things in the future. And so for children or young people who are going to be around in the future, of course, that means that they’re going to have a less good life in the future, because we have accumulated this debt during this period, that three years ago, the COVID period were the two years really, which is what I’m analysing in the report and in the cost benefit analysis. So 2020 and 2021. And those two types of damage, those two mechanisms of damage are the major ones that are that are making up the large amount of costs, which is $116 billion. I believe that I estimate that the youth will have paid because of our COVID response. Now, of course, doing a cost benefit analysis, as the name suggests means that you also need to enumerate the benefits and so, of course the benefits that were touted when the lockdowns came in or that we would save people from COVID. Right? And as it turns out, and this was true in March 2020, if you actually looked at the data COVID is mostly dangerous to the elderly or people who are comorbid. So in fact, the average age of COVID death or death with COVID is basically the life expectancy in Australia right? And so, you know, really, if you’re thinking about the benefits to use of lockdowns, they’re not in the form of saving people from COVID deaths. They are actually more in the form of a few people not dying in traffic accidents or homicides who otherwise might have if we hadn’t had the lockdowns, those are benefits that were not sold as part of the marketing package for the lockdowns initially, but they are benefits. So there are fewer people go into pubs. And of course, the young people who go to pubs and sometimes get drunk and accidentally off each other. And then there were also fewer people driving cars. And so there were a few fewer deaths from that. So you know, those, those were the kinds of benefits that if you were looking for benefits to the young, it would count. Now, of course, the question then is, well, how do you compare these costs and benefits? Right? Because it sounds like you’re being more stressed when you’re sitting at home because of lockdowns is not really in the same category. It’s not in the same currency as a benefit. That means no, okay, I’m not gonna die from a homicide in a pub, right? So in order to do this, we have to choose and this is true for any cost benefit analysis that anyone has ever conducted, you have to choose a currency in which you are able to basically express or quantify the costs and the benefits of the policy or policies that you’re evaluating. And so for my cost benefit analysis of Australia, for Australia as a whole, and for the CIS report, what I choose to use is something we call the WELLBY or the well being year. And this is a new currency, reasonably new, we came on the scene in about 2018 or so it was the production of a bunch of researchers at the London School of Economics. And it’s built from a question that asks directly about life satisfaction. So there’s a there’s a question that appears on many life satisfaction surveys around the world across time that says overall, how satisfied are you with your life nowadays? Now, you know, you can argue about whether that actually captures everything that is important, right. But I think in terms of the immediate effects of the lock downs, it’s not bad, it’s probably better than alternative statistics that we have access to, like, you know, how many people were thrown out of work? Or how much is GDP expected to decline because it is really directly about human welfare, human wellbeing. And that to me, certainly as an economist, that is the most defensible maximand of government policy. It’s the maximand that I try to go for when I’m when I’m making policy recommendations. I want to recommend policy that has that is going to maximise human wellbeing, human thriving from the scarce resources that we’ve got, right? So I like the currency for particularly for that purpose for figuring out how much people suffered during lockdowns directly. And so the WELLBY is built from this question, the question’s answered on a zero to 10 scale. So zero is not at all satisfied and 10 is, you know, completely satisfied. The average answer to that question of somebody in a place like Australia when they’re feeling pretty good and healthy is about an eight. And the average answer of somebody who is kind of indifferent between life and death, because their life is so difficult and painful, is around a two, though there is some disagreement about this, some people say one I use two, which means that eight minus two being six, WELLBYs, so each increment there on that scale is one WELLBY, so six WELLBYs enjoyed for one person for one year, is equivalent to basically enjoying one year of healthy life. And one year of healthy life enjoyed by one person is also expressible, as what many of your listeners may already know, as the quality adjusted life year, the QALY, this is a currency that’s used a lot in health policy research, right? And health economics and decisions about what drugs to buy and this kind of thing. So the TGA, our drugs administrator, they use this QALY measure in order to bargain with the drug companies, when drug companies have new things to offer. The TGA says, Well, how many QALYs will I get from this drug? And if the number of QALYs is you know, let’s say 10. Then the TGA says, Okay, well, we’ll buy that drug if the cost is no more than 10 times some threshold value that they’ll pay per QALY. And that threshold value tends to be somewhere between 50 and $100,000 per QALY. So that shows you right there what the sort of social willingness to pay for a healthy life year is in Australia. And that value, by the way is higher in higher GDP per capita countries of course, then in lower GDP per capita countries. So as we increase our GDP per capita, so too, does our willingness to pay for a socially for an additional life year increase. That’s why GDP per capita is something we sometimes target in economics, right? We want to be able to afford better and more and you know, we want to be able to pay more for the good things in life including more healthy life years for our citizens. So what that means is that you can basically translate from WELBYs to QALYs to dollars that enables me then to capture other costs, like the debt, for example, in its native currency like dollars and translate back to WELBYs if I want to translate forward, and you know, there are some caveats around that translation which of course, you know, I discussed but, but that’s basically the method and that’s the method that I use in both the report and the CBA for lockdowns and I find that lockdowns were, as everybody else who has done a serious cost benefit analysis around the world is bound lockdowns were enormously more expensive than they could possibly have delivered in benefits, particularly for our youth who really had nothing to gain from them.

Gene Tunny  10:43

Yeah, I mean, certainly, during some of the lockdowns we had, if I was asked zero to 10, yeah, it wouldn’t have been eight for sure. So, yeah, yeah. So yeah, I can understand how the logic. Tim, do you have any questions for Gigi at this stage?

Tim Hughes  10:58

A lot of my interests and I find fascinating using WELBYs and QALYs and referring those to dollar value. I think that’s really interesting and a good way of quantifying responses and how we might have a better response. My main interest Gigi is in using whatever we went through to sort of determine what might be the best way to respond to something like this, if and when it happens again, because so much has been said about the response. And everyone’s got an opinion, which I fully understand. I’ve got my own opinions as well. I think the best thing that can come out of it is well what should we be doing the next time this happens, like what protocol can we put in place? And also, for instance, like to compare it to bushfire protocol, most people are quite familiar with what we would do in a bushfire, it’s going to come around more regularly than a pandemic, but is there something that we can learn from all of this that we can put into place to put in a better response, especially in the early stages?

Gigi Foster  11:58

Well, I think that’s a very, very important question. And I certainly like to think that the answer is yes, we can learn. But I would say that the the lesson is not as much in the space of quantification of benefits and costs and the technical side, it’s much more in the space of politics and psychology. Because if I were going to put the finger on what were the aspects of the, of the crisis that really drove this destructive response, they were very much in the areas of politics and psychology. And I and you know, some people will say, Well, you’re an economist so don’t talk about that, right? Well, fair enough. I mean, I studied ethics, politics and economics in university, actually. So I have a bit of a broader perspective, I suppose on the discipline and on social science, generally, than a lot of my fellow economists and my mother was a psychologist, you know, I kind of know a little bit about psych, I took psych in school, too. So for me as a broad-minded social scientist, the COVID era has been the most amazing lesson, the most amazing time to live it through, right, because I have not only sort of honed my existing theories of human behaviour and group influence, which has basically been the driving curiosity of my life, but also learned new things like for example, the power of crowd psychology in a moment of crisis to drive destruction. And we saw that, of course, we’ve seen this, you know, in the history books, right. I mean, we saw it in the witch hunts in the US, for example. We’ve seen it in 1930s, Germany, but I had never lived through something like this the creation of a cult and creation of crowd thinking, such that you literally had people whose minds had been hijacked by the crowd narrative, which in this case, you know, it’s an obsession, a crowd obsesses. That’s kind of the defining feature, it obsesses about one thing, right, and you’d have a conversation with these people who had basically had their minds taken away. And their minds were simply then in service to the defence of the crowd logic. And you would try to tell them logical things, you know, sensible things about real facts and things, you know, and they were just, they just couldn’t hear it literally couldn’t hear it. It was like talking at complete cross purposes. This is why early in the crisis, all of us who thought we saw what was really going on what the data really showed, which was certainly not that this was the black death or the Spanish flu. And, you know, we should probably protect the old people and try to figure out ways to minimise their likelihood of catching it. But basically, let everybody else keep going and develop natural immunity so that we could more quickly get to a point where we could protect the older people through natural immunity. That’s what we were all thinking, or at least many of us. But, you know, we were looking at the rest of the world and you know, these other people in our lives and thinking, wow, I just don’t seem to be able to reach this person anymore. I mean, am I going crazy? Or is this person going crazy? So that was a really interesting lesson. So all of that is to say that the answers to how do we prevent this from happening again, are really about how to control that fear so that the crowd is less likely to form, so that you don’t have that kind of obsession that drowns out out everything else that matters in normal times, right, which is why we were able to do this destruction blindly. Because we literally were blind to the destruction that we were doing. And and also how can we make the people in authority at such times more accountable to what is actually good for the people as a whole. Now, that’s a, that’s a difficult area because of course, the people were clamouring for lockdowns. In fact, that’s why they were delivered. Right. I when I gave the seminar about this yesterday in Macquarie that was, that was one of the points raised and it’s a very valid point, it’s not that the politicians came up with this whole lockdown shenanigans on their own, you know, and then we’re like, oh, you’re you have to have this everybody we’re gonna have to, you know, sorry, it’s, it’s a tough pill to swallow. No, no, no, the populations of the West became incredibly frightened. And they were demanding protection from COVID. And the politicians who were in charge at the time, read the writing on the wall, and basically thought to themselves, well, if I don’t do something big, I’m gonna lose my seat. And I’m going to potentially be blamed for, you know, not saving the country from what is perceived to be a mortal threat. And, you know, in such times that the character of a person really comes out, you know, and, and there is, it’s not like, there’s an easy way to tether actions back to the true interest of the people in that time, because so many people are caught up in this fear, right, but job one should be to reduce the fear. That should job one. And that actually happened in some countries, right. Sweden did that. So they tried to tamp down the fear. And then another thing that’s very important, of course, and then I’ll be quiet, is to try to make sure you’ve got independent voices, voices that are alternative, dissident voices about what’s going on. So you actually have kind of a, you know, some kind of a check on this mono vision that’s that’s barreling through the policy fields, which is what was happening in March and April, everybody thought the same way. And anybody who would say anything different was pilloried or or denigrated. I mean, I was called a neoliberal Trump cannot death cult warrior and Granny killer and a piece of human excrement. I mean, so many, I have a whole jar full of these epithets. And, you know, it’s like, why, all I was saying, was that what we’re doing has costs. You know, that’s all I was saying. So it’s, it’s a complicated question, what to do next. And, and I think we need to really think about that as a society, but not just in the area of technical costs and benefits.

Gene Tunny  17:25

Yeah, Gigi, what I’m wondering is if you thought, I agree with you, by the way on lockdowns, and now I see that it was, the cost far exceeded the benefits for COVID. But could it be the case that for another virus or another, say if we had, you know, if we had the plague again, I mean thankfully we don’t, that’s not really a prospect, but if it was something worse than COVID could lockdowns make sense then?

Gigi Foster  17:50

So that’s also a really great question. I’m actually at the moment writing a paper together with Sanjeev Sabhlok and Paul Frijters who I’ve both written with before as you know, about the history of quarantines. The history of quarantine policy whether quarantines, lockdowns, basically, or you know, cordon sanitaire, as they’re called in French, whether they actually have a track record of working in response to other disease threats over the ages, including the Black Death, and many other diseases as well. Now, what we are discovering, and this is really down to Sanjeev’s amazing historical work is that, in fact, in the 1800s, there was a movement that developed based on the the scant evidence that quarantines did anything positive and a huge amount of evidence that they were very destructive, there was a movement of the developed called the sanitarians movement, which aimed to basically beat quarantine as an idea out of the public health system and replace it with the idea that what we need to aim for in public health is clean water, clean streets, clean air, sanitary living conditions, basically, because in such conditions, of course, as we now know, germs are less likely to thrive, you have lower viral loads, you’d have more health for you know, individual people, it’s just more immune-supportive, if you can breathe free, you know, freely and fresh air and all this and drink clean water. So it’s really about supporting the immunity of the people and reducing the load of the infectious agents, rather than separating people according to whether you think they’ve, you know, been exposed or not, or certainly in the case of COVID, even people you don’t think have necessarily been exposed just whole healthy populations, locking them down, that that just you know that that’s not nearly as effective as the as sanitary measures. So there was a figure called Charles McLean, who was an advocate of the, in the sanitarian movement, and basically did a lot of the research showing that quarantines basically fail, and that really what they are. And this was the interesting, particularly interesting part of his work, that what they are is a tool for control that is often pressed upon populations by public health bureaucracies. So it’s much more about, here is something we can do. And we can justify our jobs by having this thing in place. Because I mean, my goodness, the bureaucracy and you know, COVIDeaucracy, that grew up during the COVID era was pretty large, you know, you had to hire more people and, you know, get them to help you enforce these various policies on the population. But in terms of actual effect on disease is pretty minimal. In my cost benefit analysis, I estimate that maybe we extended the lives of maybe 10,000, mostly elderly and comorbid people for a few years. That’s what we got out of lockdowns. And what we paid for that was way more than the roughly 6 million sorry, $6 billion, that in normal times we’d be willing to pay for that amount of of benefit, that is to save a few live years of about 10,000 people. So you know, so basically, the quarantine, so lockdowns, do not have a good track record. And that was already embodied in the pre 2020 pandemic management plans in place, not only in Australia, but around the world in the West, that said, look, locking down whole populations is just very, very costly, unlikely to be beneficial. And so we should avoid it. And we should target protection measures instead. So So basically, I like to tell people who say, Well, you know, what else were we supposed to do? You know? Well, the question is, you know that lockdowns don’t work. So what are you going to do? Right? Everybody’s scared. You need to find something to do, so that you don’t run headlong into a into a speeding truck, which is what lockdowns are. That’s what you don’t do. But of course, you have to take some action. Now, if you ask me, Is there any disease that one could potentially create or imagine in one’s head for which lockdowns might have more benefit than cost? I mean, even for the Black Death it’s questionable, compared to the other things that could be done, sanitary measures, right, compared to everything else we could do. It’s not like we have to let it rip versus lockdown. There’s a whole spectrum of possible response. And we really didn’t investigate that spectrum at all during COVID. So I think the answer is really usually it’s nuanced. It’s customised to the disease in play, it should be updated as we learn more information about that disease, and it should be targeted to the people who are truly vulnerable.

Gene Tunny  22:13

Yeah. Gigi. Can I ask you about that? Those numbers you cited regarding how many lives? Or how many years of life were potentially saved? Did you do that modelling? Or did you rely on modelling by epidemiologists? And how did you do that? Because I mean, you’re an economist rather than an epidemiologist, I don’t mean to be critical at all. But have you had pushback on that? Have people said, Oh, well, you have a model that why should we believe those estimates? I mean, because you you’re criticising this estimate from the Prime Minister, the Prime Minister Scott Morrison claimed, while campaigning before the May 2022 election, his regime of COVID policies had saved 40,000 lives, you’re, in my analysis, so your analysis shows this figure to be a significant overestimate, even being generous to lockdowns, potential deliver benefits, how confident are you in that assessment, Gigi?

Gigi Foster  23:08

I mean, I’m as confident as one could be based on the data that we used, I very expressly did not use model simulations. And by the way, that was one of the big errors of this time. In mid March, you may even recall Neil Ferguson’s ICL modelling came out saying that, you know, 60 million people around the world were going to die or something. And of course, as we know, the COVID death count, even now is, you know, an order of magnitude less than that. And, and by the way, Neil Ferguson had been wrong in the past, right? These epidemiological models that are run in a simulated environment in a computer that necessarily do not include all the real world variables that are actually relevant to whether people die or suffer from diseases are notoriously exaggerative of the bad outcomes that may occur from the new disease threat. Right, that has happened again and again and again. We’ve had SARS and the swine flu and the you know, all these different flus that have been modelled and they’ve basically always, there has been some coterie of doomsaying epidemiology people who have said “based on my model, everybody’s gonna die.” Right? That’s just a common thing it happens, right? And you know why? Because the, you know, the media loves that stuff. It’s, you know, if they get ahold of a guy like that, who will, you know, put on a bleeding headline, that’ll get eyeballs, right, and they get status, and they get to be the person who really cares about people, because if you care about people, then you know, don’t you care that they’re all going to die, or I mean, that becomes this whole narrative. And it really crowds out actual science. Actual science is based, at best on real data, real data, right? Of course, we have theories about what happens and we need to use those to structure our understanding of our world but our world is so incredibly complex and dynamic and there are endogenous factors that are happening and shocks that we can’t predict. There’s just so much going on, that all models are wrong, as somebody said in my discipline, but some are useful, that’s how you should see a model. So what I did in order to produce that estimate of how many people in a counterfactual non lockdown Australia would have succumbed to COVID is I looked with Sanjeev, we looked at the countries in the world that had low restriction levels. So obviously Sweden is one. But we also used another counterfactual, which was about six I think other countries, with populations over a million that had low restrictions, mostly in Europe, I think that oh, Taiwan might have been in there as well. And we basically took, you know, the average deaths from COVID. This is real data, real data, what they actually experienced, not something that comes out of a computer generated simulation, but actual data, because we just believe that much more. And then we of course, adjusted for population and then applied it to Australia. And we say, well, this is our best guess right? Now, even if you think that I’m under balling that low balling that, in fact, even if you think the Prime Minister’s estimate of 40,000, people who would have died is correct. If you look at the cost of lockdowns, they still weren’t worth it. Right. So even if I’m totally wrong, the Prime Minister’s right, the lockdown still shouldn’t have been pursued. Right? But I also think that the Prime Minister is using these simulation models, these SIR models or something like this, you know, from the Doherty Institute, or some other kind of, you know, institute that was supporting the narrative and coming out with these doomsday scenarios, to come up with that figure and make himself look like a saviour.

Gene Tunny  26:26

That’s fair enough. I was just just wondering what you did that seems to make sense to me. What did you find about the deaths of young people? So if we go back to the study “COVID’s cohort of losers”. How are we defining young people? And how do you recall how many young people did end up dying of COVID in Australia,

Gigi Foster  26:46

So young people are 25 and under, that’s the estimate. And look, there will have been a few that were 25 and under who died of COVID, but it’s going to be very, very small. And they they may have died of something else anyway, because these people almost to a man or to a woman or child will have been already sick with something else, you know, diabetes or a bad illness of some sort. So I think it’s very debatable whether there was any direct COVID related benefit to these younger people, from the lockdowns as I say they, you know, people in their young 20s and late teens are exactly the ones who may get into car crashes, and they get into bar fights. So really, if I’m looking for benefits from lockdowns, that’s where I’m gonna look for the on not not in terms of COVID deaths,

Gene Tunny  27:31

Right, and just wanting to just check this Gigi, you’ve got these figures in your paper somewhere, have you where, because the calculation you’ve done is this, you’ve got this 116 times the value of any benefits. So you’ve got an estimate in wellbeing of what the cost was to young people. And then you divide that by the benefits to young people to get that 116 times and that’s also in WELLBYs. So is, that’s in one of these tables is it?

Gigi Foster  28:03

So I mean, I don’t have the report up at the moment. But yeah, there’s a table of all of the costs. And then we also tabulate the benefits and then you simply take the ratio of one to the other, obviously, you want to make sure you’re using the same currency. So whether you’re using WELLBYs or dollars to get that ratio in the cost benefit analysis for Australia as a whole, I know the ratio was 68 times, as I recall, it was a bit higher. I, as I say don’t have the report open, but I think it was a bit higher for the young. But basically, the benefit just wasn’t as high. But there was some benefit. So you know that this as I say I keep saying that the traffic accidents was (inaudible)….

Gene Tunny  28:39

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

Female speaker  28:45

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Gene Tunny  29:14

Now back to the show.

Yeah, so you’ve got estimated cost to the Australian Young of the 2020/21 COVID lockdowns and you end up with an estimate in WELLBYs of looks like it’s over 7 million, over 7 million WELLBYs so that’s saying that the costs imposed on the young, so there are 7 million years of poor wellbeing for young people.

Gigi Foster  29:45

Not exactly so a WELLBY is one increment on that satisfaction scale, right? So your probably thinking of a QALY, so if you divide that number of WELLBYs by six, then you get to the QALYs and that’s the the currency you’re thinking of, which is the number of healthy years. Okay? And but you’re right in terms of that, that is that does roughly the, you know, the way to think about it is that this is the amount that was deducted from the well being of the young, okay? And that’s in terms of number of years but also the health of those years. And again as I mentioned at the start, the two main components of that are one, the direct life satisfaction damage done during lockdowns because people reported less satisfaction. And by the way, we see that in the data for Australia. So these this question about life satisfaction was asked during lockdowns by the ANUPoll survey people. So we literally use that, their findings to calibrate how much we think there was as a detriment to life satisfaction during the COVID period. And then the second big element of that cost is the debt, which will crowd out future expenditure which would have otherwise made the lives of our young people much better in the future. Now, you may ask, you know, what about the school closures? You know, wouldn’t you think that would be a big thing? And, and it is a thing, but it’s interesting, a bit of a complication here. So I was seriously disturbed at the the degree to which school closures were just immediately adopted. And everybody thought, oh, yeah, this will be fine, we’ll just have everybody working from home, you know, doing the, you know, classes from home and all this. I mean, it obviously was not the same. And it put our teachers under an enormous amount of pressure, by the way, as well. And, of course, I mean, I would have naturally expected that, in that situation, those kids who are already initially before COVID, in a disadvantaged or stress situation are going to be seriously left behind, right? Now the more advantaged kids, you know, kids of mine, for example, if I had had small kids at the time, they would have been fine. And I had young, young adult kids at the time, and they were fine. Because, you know, we have the resources to be able to support them and help to mitigate the damage that otherwise would have happened. But it’s the people already at the bottom of the food chain who suffer the most right? Which, which really makes me angry, because that’s, you know, that’s the last thing we need. Inequality is so unhelpful. And and it’s just a horrible thing, when you know, these, these people in cushy government jobs and bureaucracies, who don’t have any problem with job security are pushing this on people who then suffer and they’re, you know, they’re already suffering. So it’s just really heartless. Anyway, so you might think, well, that’s going to, of course, limit the degree to which these kids are going to be able to learn whatever it is that they’re learning, whether they’re what we call in economics, their human capital, you know, what’s in their brains from their years and years of schooling and experience will be necessarily less and that is true. But what we have to do then to figure out the the sort of cost that has been eventually imposed upon them in terms of their WELLBYs or their QALYs is work out, well, how much is that productivity loss going to be reflected in lower wages when they get to be adults, and of those wages, how much is actually likely to then be spent on things that would have otherwise made them healthier, better off, you know, more satisfied, et cetera, but that we are not going to be able to spend now because of the fact that they don’t have as high wages? Well, it’s, you know, it’s not just the full wage of those kids that you want to count. Because as it happens, when we spend privately, we’re often spending on things like status goods, you know, we’re not always but particularly in a country like Australia, we’re spending to keep up with other people. So it’s not that every extra dollar that these kids would have earned would have actually led to increases in life satisfaction, you know, you you spend in order to keep up with the Joneses that doesn’t make you more satisfied, it just keeps you at the same level sort of thing. So what really you want to count is the fraction of those extra wages, counterfactual wages that would have been accumulated by the society as a whole and spent on public goods, like more health, better education, better infrastructure, and that sort of thing. So that’s basically the tax take. So that’s what we do to estimate the negative, the damage from the loss of schooling, the disruption to schooling, in terms of WELLBYs in the future for these kids. And as it turns out, that amount tends to be you know, it turns out to be much less than it would be if we counted that whole forgone wage. And so you know, that that’s a bit of a surprise, perhaps, to some people, but it’s just because of this interesting feature of the way in which our private spending is or isn’t related to creating more life satisfaction for us.

Gene Tunny  34:24

Yeah, yeah, absolutely.

Tim Hughes 34:26

With the whole economics of it, which, of course, is what you two are trained in and experienced in. And so yeah, the figures are pretty damning for any of the responses around the world, apart from those who took a lighter, a view of it like Sweden, for instance. And I think it was really good that different responses were taken around the world so that they could be compared and whatever would come from that, like I said at the beginning, my main interest in all of these conversations, really is to see what could we do better next time, in view of what happened? And that’s still largely the case because clearly, I mean, I’m a lay person, that’s my role in this scenario, you guys are economists. Clearly, we would all listen to epidemiologists, medical people who would have their views on this too, because, for instance, in the early days of COVID-19, from the pictures that were being seen from North Italy, for instance, the, you know, the scenes from the hospitals there, it seemed extremely dire. And I didn’t feel for instance, everyone’s got a unique perspective of the lockdown and what happened. I didn’t see or feel any great fear in Australia, we were a long way from it. So geographically, we’re a long way from that kind of action. But (cough) sorry, long COVID, bad joke. So, yeah, my feeling would be that one of the first things with this, because I saw not panic or fear, especially over here in Australia, but people just complying and sort of concerned but just going along with what appeared to be the best decisions at the time. You know what can we do to protect the hospitals and the doctors, nurses from being overwhelmed was one of the driving forces, and some of the logic that a layperson, like myself might see in a lockdown. So for instance, and if that turns out to be not the best response, then I’m really open to see what would be the best response because everything done and said, What are we going to do next time when this comes around? And there seems to be at an early stage of any of these pandemics? We mentioned SARS and MERS, Ebola, for instance, they all have different CFRs, so the case fatality rate, and how likely to die are you if you contract this? And they have different R naught scores, which is something I learned about as we did some background for this, the transmissibility of it how easily transmissible is it? And so there must be at some point, an area in early days of any of these viruses where we’re not sure, we don’t know. And so the first thing would be, I would have thought to say, Okay, well, how soon can we have any kind of certainty as to what we’re dealing with? How? What was the case fatality rate? How easily transmissible is it? That would be, I would imagine one of the first things we can do, and then let it unfold from there. Like I mentioned before, like if some sort of protocol that we can have in place that we’re not, I mean, everyone, all of us now have some experience with this, from what we’ve gone through for good or bad or whatever. And I don’t think, I think it was a one trick pony, for the amount of lockdowns that happened. Even the most patient person would be less compliant if this was to happen fairly soon. And so the next one will be different straightaway, you know, so what is it we can put in place that everyone can be generally okay with, that would be a good response? But like I said, sorry, going back to an initial point, how do we determine, you know, what would be that, that first response of like, just how bad is this? What are we dealing with?

Gigi Foster  37:56

Yeah, so I mean, it’s, it’s interesting to hear you talk about and having in place protocol, you know, so that we know what the steps are, everybody can agree to them. That is kind of what the pandemic management policies that we already had before COVID, which…

Tim Hughes  38:09

Which nobody had known about. And like, that didn’t seem to be any, it seemed to catch everyone by surprise.

Gigi Foster  38:14

Well, I mean, I think that people who, whose job it was to know about them knew about them, you know, the department’s of health in the various different states and the Commonwealth, I mean, that they would, of course, know about their own pandemic management policies, right? People, as all might not have known about them. But that’s because, you know, we don’t know a lot about a lot of things that go on in the back rooms of government that are just handling stuff, like, you know, do we know, how many steam rollers are purchased every year for the infrastructure projects? No, you know, I mean, there’s a lot of stuff we don’t know. And they’ve came to the fore that these pandemic management policies existed really, quite a long time after the lock downs were implemented, right? Nobody was talking at the time about, Hey, why are we doing this? Look, it says in the plan, we’re not supposed to. Nobody was saying that, right. So your your desire for a protocol, which everyone can agree, I mean, we had that and it failed. Unfortunately, that’s from my perspective. That’s why I say the key things here are politics and psychology. Those are the two things that we need to focus on if we want to get a better solution going forward. And, you know, on the point of the overcrowded hospitals and overworked nursing and Doctor staffs, I mean, yes, it is true that in times of great disease, and you know, the the influx of a new bug, hospitals sometimes become very crowded, and the workers in health care systems sometimes become very overworked. This is something that they deal with on a semi regular basis. There’s surge, capacity protocols that these hospitals have and that the staff have as well. And you know, that you can bring in more people. It’s like, if it’s like, if you have a war, you know, and you and you have to mobilise, right. There are ways we do this. And as an economist, I might make a dry observation that if you never have your hospitals overcrowded then you’ve got too many hospitals. Right? If you always have a spare bed and some spare hands hanging around, then you should redeploy the money that you’ve spent to hire those beds and that those workers to some other area that can support human wellbeing and thriving, right, because we only have so many dollars, right. And so you don’t want to have spare capacity underutilised. So there is just this natural ebb and flow of sickness and illness that and you know, and injury as well that hospitals have to manage they manage this in maternity wards, for example, right? A lot of women give birth, when it’s raining outside, you know, I’d have particular pressure or whatever causes people to go into labour. And that means that you sometimes have to, you know, basically employ a lot more people, doctors and nursing staff or whatever, at a particular moment. And then there’s less demand later. I mean, hospitals know how to handle this. So that’s, that’s point one about the hospital overcrowding. Point two, we’ve been through this exact kind of problem before the 1957 flu was very similar. We didn’t lock down whole healthy populations for that thing, right? We didn’t have the media that we have today, we didn’t have the global media spreading all of these scary stories about Italy, as you mentioned, or China, you know, people falling over in the streets or in New York City with the mass graves and all that. So we didn’t have the fear generation mechanism that we have today. But we did have a virus that was pretty similar in terms of its virulence.

Tim Hughes  41:22

I hadn’t heard of that one actually, the 1957 one, yeah okay…

Gigi Foster  41:24

Just another flu. Yeah, no another flu. And the thing about COVID, that really was different than some of the analogues that were being used was not only that it was less lethal, but it was also just not killing kids. Right? 1918 flu was scary, because it was killing everybody. Alright, kids as well, that’s really scary, right? Like, one of the worst things gonna happen to you as a human being is you lose your child, right? So that’s very bad. That was just not really happening during COVID. Except for children who are already seriously ill. And even then, you know, less likely. And even for some people, I mean, people were the exact risk baskets, they were still surviving with more than, you know, 50% likelihood but it wasn’t like it was a complete death sentence. So. So anyway, the second point on the hospitals thing is just that you’re presuming that going to the hospital is the thing that you have to do when you have COVID. That’s the only way we can treat it or the best way we can treat it. As it turned out, going to hospital was kind of a mixed bag, in a lot of cases with COVID, right. And if you put people on ventilators, Mechanical ventilators, they often have worse outcomes. Not always but frequently enough, it wasn’t a panacea by going to hospital didn’t mean that you’d be cured. In fact, it was, you know, kind of much of a muchness in a lot of cases. And sometimes so as the, as the panic wore on, and the protocols became more entrenched about, you know, how are we going to count COVID, and how much money goes to hospitals that have COVID cases, it became financially advantageous for hospitals to label somebody a COVID case, and then follow a particular protocol to treat that person which really might not have the best outcome for him or her. Right, so hospitals were a real mixed bag. And what we weren’t told was all of the other myriad things that one can do if one wants to: A, avoid getting ill, and B, if one is ill, to limit the the probability that you’re going to progress to a disease stage where you really will need to go to hospital. So there were plenty of things we could have done, you know, including all the stuff we already knew before COVID, about how to fight respiratory illnesses, you know, take lots of vitamin C, go outside, get your Vitamin D, have, you know, fresh drinking water and have lots of sleep and eat fruits and vegetables. And as it turned out, over time, we were learning about more things, the important role of zinc, and the important role of, you know, sort of other prophylactic measures, which were just suppressed. And in fact, you know, the crowning achievement of that suppression was the TGA, blocking ivermectin, which has been proven to be a useful prophylactic, and very useful in the early stages. But why did we block it? I ask you, that’s not public health. That’s not protocols. That’s politics, right there, that’s power politics. And so if we want to fix this, if you want a plan going forward, I think what we need to do is work on our political system, we need to revive the accountability of the people making decisions at times of crisis to the people as a whole and a representative bunch of people that need to be sort of responsible in some way for those who are in authority or the decisions or overseeing those decisions. So I’ve suggested a number of different avenues forward in both “The Great COVID Panic” and on some blogs that have come afterwards on Brownstone Institute sites, Brownstone is my publisher for The Great COVID Panic. So brownstone.org, you can see those blogs. One of them I’ll mention here is the citizen juries idea. So at the time of COVID, we saw a lot of bureaucrats who were unelected and completely unaccountable, who were basically driving policy. So you know, health health ministers, for example, around the around the country, right? Remember, Brett Sutton, who basically became a sex symbol. Yeah. And Brad Hazzard and a few other ones. And you know, these people were doing things and advocating for policies that never went through Parliament. They never they never got the tick expressly from the people, now the politicians will say, well, but the people were clamouring for more and more protection. And you know, that is true to a certain extent. But these guys were appointed by politicians. So there was also this element to which they were all kind of playing into each other’s game, right? Everybody was following a playbook, rather than really having anyone looking out for what was really in the long term interests of the people. So I, with my co authors, Paul Frijters and Michael Baker, we’ve proposed that instead of having those positions, like the head of the Ministry of Health, be political appointments, we have them instead be appointments by citizen juries. So we already use the jury system in the criminal justice system, right? The idea would be that everybody in Australia, every citizen gets put on a jury role and an expectation once in your life, you have to spend two to three months working with 20 to 30 of your peers. And your sole job is to appoint the next Minister of Health or Minister of the Environment, or Minister of Immigration or whatever it is right on top of the public service. And if we did this over a few years, and you know, kept replacing all of the various heads who needed to be replaced at the state level and the Commonwealth level, with people appointed by the people as a whole rather than politicians, we’d end up with a burgeoning cadre of people making, you know, in positions of authority, able to make decisions, and hopefully more responsive to what is actually good for the people, because it’s the people who would have appointed them, right, rather than the politicians. So that’s one suggestion to try to hack away at the bad politics of this whole situation. So that maybe the next time those people would feel a bit more of a duty to be responsive to what was actually good for Australia.

Gene Tunny  46:35

Yeah, very good. Gigi. I’ve had Nicholas Gruen on the show and we’ve talked about citizens juries in the past. So yeah, absolutely. Think I think they’re a great idea. Did you have a follow up Tim?

Tim Hughes  46:46

I heard that episode, that conversation you had with Nick, Nick Gruen, and yeah, the idea of citizens juries I find really interesting. It’s along the lines of what Warren Hatch, from Good Judgement is talking about with super forecasters to have skilled generalists, as opposed to experts. I mean, obviously, we need to listen to everybody. I think listening to different perspectives and different opinions is really important with all of this. And that that feeds in with the citizens juries is to have that diversity of opinion in these areas of selection. So I think that’s a really, really interesting point.

Gene Tunny  47:19

Just one more Gigi, Yeah, this is great. I’ve really enjoyed this and learning a bit, there’s, learning a lot. So particularly about your methodology, I find this whole WELLBY methodology fascinating, because it’s not something I’ve used myself. And it’s something that’s different from standard cost benefit analysis. So I’d just like to ask, I mean how has it been received worldwide, this WELLBY methodology, is it being applied for, what policy issues is it been applied to?

Gigi Foster  47:47

Yeah, it’s a really good question. And the one of the reasons I use it is because it is actually getting some traction. So right now in the UK Green Book, which is the kind of , I don’t know, guide for how to judge, how to evaluate policies or you know, what we should be going for, as a government. They talk about WELLBYs, they talk about how to produce WELLBYs through government spending. Government programmes have been evaluated against the metric of how many WELLBYs on net are we getting from this programme, and that programme can be something like, you know, mental health provision, mental health service provision, which by the way, has a very, in, at least in the UK studies I’ve seen, has a very high benefit to cost ratio. So you should do that, if you’re a government mental health support is very important thing. And you can also evaluate anything else that the government might do, like, bussing old people up to Stonehenge to have a look, you know, or taking people out, you know, disabled people out to lunch every week, or whatever the thing is that you’re hoping that that might help people. And you kind of want a measure of that, you know, are we really delivering higher quality of life to our people with this policy? So it’s being accepted, I think, more broadly as a reasonable and defensible metric, to which governments can be tethered there, they can be held accountable. There have been a number of cost benefit analyses, actually of COVID policy that have been conducted in WELLBY terms. So not only in Australia, but I think in about six other countries around the world, there have been these CBAs that have used WELLBYs, but of course, there have also been a lot of other CBAs that have US Dollars or QALYs, and we all come to the same conclusion, you know, broadly qualitatively, but it’s really lovely to see that diversity you know, as you’re saying before, you know, diversity is an incredibly important strength of our, of our modern societies, if we could only harness it, right? And what we did in COVID, of course, was we suppressed it you know, we kind of killed that that golden goose whereas another thing we really need to focus on is how to not move in the direction of suppression and censorship. So for example, these new laws about misinformation and disinformation I think these things are toxic. That’s awful, you know, because who is going to decide what is disinformation and misinformation? I mean, my gosh, it’s puerile right, and just the idea the conceit you know, the hubris, that somehow the government knows what the truth is. I mean, when has that ever been true? Right? Like nobody has has a monopoly on the truth. I don’t have a monopoly on the truth. You know, I, I would love to be proven wrong on some of these things during lockdowns, I was thinking to myself, My God, I hope I’m wrong, like God, I hope I’m wrong, right? Because if I’m not, we’re killing people, you know, these policies are killing 1000s of people. And and it’s just it’s too too horrific to imagine. So, you know, I, I would like to have more discussion of these if these issues are crossed aisles of belief and perspective and experience. So we need to relearn how to have tolerance for that, you know, this, this cancel culture dynamic we’ve got going on today, is extremely toxic. It suppresses one of the greatest strengths of our civilised post enlightenment societies. And, and it basically just means that you have a lack of innovation, right? Innovation comes from somebody in a minority, at that time, having a new idea, right? And saying, Hey, guys, why don’t we try this? That’s That’s what innovation is. And if you if you quash alternative voices, you’re quashing innovation and innovation as a source as you know, of all growth. So, right, that’s the wrong direction to go. If we want to build healthy, vibrant societies with gains in human life quality, which is what I’m going for,

Tim Hughes  51:22

Completely agree, I think, you know, healthy debate and having those guidelines around what healthy debate is, and the ability to listen to different perspectives, and avoiding the echo chambers, which I agree, I think that’s what the cancel culture encourages, is to people to go to their little sort of support groups and say their things amongst each other without any serious sort of challenges to their ideas or hearing new ideas. So I fully, I fully agree with that Gigi.

Gene Tunny  51:50

And I think, I think certainly young people, if you look at the cost versus any benefit that they obtained, yeah, it’s going to far exceed that, that benefit, I agree with that. You’ve come up with seven new, over 7 million WELLBYs as a cost, and around 60,000 WELLBYs as a benefit. Now, it’s going to be some multiple, large multiple of, of any benefits I agree with that? Have you thought about whether, you know, young people may have been willing to pay that? Because they thought they were protecting their grandparents or elderly people? Have you thought about that Gigi and how you might incorporate that in your analysis?

Gigi Foster  52:27

Yeah. So I mean, the the question there is, would the government in a counterfactual world have been able to take policies that would have readjusted people’s expectations towards the truth in the moment of crisis, because the truth was that it was not going to be protective of their grandparents to do all of this stuff. In fact, it would be more protective, if they went out, licked a lot of lamppost tried to get COVID got immunity, and then we’re on, you know, not dangerous to their grandparents anymore, right. That’s what we were doing. I mean, in my family, we were trying to get COVID every which way. And we didn’t manage to until finally last year, I got it. But you know, it was sort of the young, healthy people, you know, on paper, they just wanted to get immunity as quickly as possible. That’s what that’s what would have best protected their grandparents. So the reason why people believed that was the misinformation promulgated by the government. Right. So if you ask me, Well, you know, should we just have gone along with that? Well, no, you know, I like to think that we can have a society where the government isn’t pushing propaganda. You know, that’s, that’s, that’s not what in a democratic society, I look to the government to do, the government is our servant. It’s our servant. And it should not be stuffing our throats with, you know, wrong think., and calling it right think and calling everybody else who disagrees the people who are the wrong thinkers, right? I mean, it’s 1984. So, you know, you get no, it’s ugly, I think. And now, now, the issue of however, is that because we have now lived through this, many people have become psychologically tethered to the narrative, they have been themselves in part of the agent of a lot of this destruction, right. And in their own mind, their identity is swept up with this. And they took actions against their own family, often, that they thought at the time were protective, because of course, most people act, you know, in a way that that upholds their self image as being a good person, of course, right. But now that that’s being revealed not to have been true, we have got a massive psychological problem on our hands, massive. People are unable to talk about this in an unemotive way. They’re scarred psychologically, they are, the the actual realities are so shocking, that if they were to face them, I think many people would would just fall into a really deep hole, psychologically, and so that is, in my mind, one of the big problems that we have to deal with now, in the post COVID, you know, period, is to reconcile across the aisles. And it’s not the people like me, who were pilloried at the time, who took the most psychological damage. Like I can handle it, it’s fine, right? Whatever. I knew I was doing the right thing I sleep well at night, no problem. But for the people who were part of the damaging structure, including those who were, you know, calling each other out about the masking, you know, you don’t have enough mask on or, you know, dobbing people in for going to school when they had a sneeze and or whatever it was, you know, they were being the agents of this distruction. You know, they’ve now learned Oh, okay, the 1930s, I would have been part of the regime, right? That’s the scary realisation, and for them to really face that is just going to cause a huge psychological shock. So that, for me is is one of the big things we have to work out. How are we going to help those people going forward? And because history will eventually put this period down as one of the most tragic in history because of the mismanagement of the crisis by the government, and all the people who went right along with it, will have to, you know, read that in the history books. And that’s going to be really difficult for them. So yeah, I have a lot of compassion for those people.

Gene Tunny  55:55

Very good. Tim, your, well, we might end on your intelligent observation, assuming it is intelligent.

Tim Hughes  56:01

Well, thanks. I shouldn’t talk it up too much. It was more of along the lines, actually of a couple of things you said earlier, Gigi, about health and good nutrition, being able to go out in the sunlight and everything which of course, was restricted at times with some of the lockdowns of course. And something that we can do straightaway, to help us through any future pandemics is to become healthier, improve our immune systems naturally, which has all these multiple benefits as well. So going along with any psychological issues that we may be facing as a result of the pandemic, then to eat well, and exercise well and sleep well would go along with that fabulously and what I was going to put forward do you guys being economists, see what you think about subsidising the cost of vegetables and whole foods, so fruit, veg and meat in their natural state, so without being processed, and put a tax on ultra processed food to be able to pay for that subsidy. So instead of Pringles being whatever they are double the price of that and use that money to subsidise. So people can be encouraged to eat more healthily.

Gigi Foster  57:12

Yeah, I mean, this is a typical kind of economist response. Right. So it’s a sin tax basically, you know, we have at the moment as you know, a GST which applies to you know, a lot of goods and services but not the food’s you know, foodstuffs of various sorts, you could you could have, you could have exclusions for you know, fresh fruit and fresh vegetables, whatever, and then have a GST in place for anything processed. There’s all sorts of things you could do, if you wished. My reading of the closest thing to that, that I’ve seen elsewhere, which is the tax on sugary drinks experiments, right, that’s been run elsewhere, is that it does collect money. Yeah, you do collect money and it does reduce the purchasing of those beverages, those sugary drinks, but it usually doesn’t actually change the underlying issue, which in those cases is obesity. Right? It doesn’t really have a measurable impact on the amount of people who are obese the fraction of people who are obese, how obese they are or whatever because what happens is people switch to other things. They may not buy the coke but they instead buy the muffins and then you know they’re getting just as bad so in the case of the the taxation on you know, different goods, I just don’t know really. Partly it’s because I think that some of the reason if not the bulk of the reason why some people are not as healthy don’t choose as healthy habits as others is psychological. Okay, it’s not just about the resources that are literally available to you like do you have enough money to buy the fruits and vegetables? It’s a bit of that perhaps and certainly in some food desert areas it will be that and there’s a cultural element of course which is you know, if your family doesn’t eat this way how can you do that but then that’s is that really going to be that affected by you know, taxes? Probably not. So my my sense I mean, obesity is a mental health problem from my perspective. And I think that low immunity is also to an extent that as well. If I think about myself for example, I have this incredible luxury of you know, being able to have a nice good job, well paying job I, mean they haven’t fired me yet thank goodness, knock on wood, for saying all the things I’ve said during this period, I love my job. I love teaching, I love doing research, I love doing these conversations. I have the luxury of being able to afford kitchen appliances which let me make beautiful smoothies every day from fresh fruits and vegetables I buy from the store. I have great sleep every night, I you know I can run, I can exercise, I got sex every day I want and all these things that are obviously promotive of immunity. But I also have something that people don’t mention a lot which is huge amount of mental resources. Why? Because I am loved. I am supported. I was, I feel accepted. I feel I’m making a contribution to my world. I’m also healthy, naturally. So you know, because I’ve been investing in my health I can use that health surfeit to put more effort into being healthier right? A lot of people who are in places of disadvantage or not looking after their health do not have those kinds of advantages. They’re in dysfunctional families. So we’ve got multiple overlapping problems, you know, substance abuse and domestic violence. They’ve got unclean, you know, living environments that you know, hail the sanitation people again. So you know, those people, are they really going to respond to having to pay 10 cents less for a, you know, a carrot, or something? I don’t know, I think the problems are bigger than that. So I’m not saying don’t try it. But I think that the problems are, again, wider than just, here’s a protocol, you know, in terms of the COVID stuff. Similarly, with being healthy, it’s not just the costs, it’s also other entrenched problems, which have to do with psychology and culture.

Tim Hughes  1:00:39

No, fair enough and, and yeah like anything, it’s not straightforward. But for most of us, it is something within our control that we can sort of focus on and do better on. So it’s certainly something I think can be emphasised by governments and whoever is looking to improve responses and everything. It’s the foundation of our natural immune systems, which isn’t impervious to all of these viruses, of course, but certainly gives us a fighting chance.

Gigi Foster  1:01:00

Yeah. Totally agree

Gene Tunny  1:01:04

Absolutely. Okay, Professor Gigi Foster. It’s been terrific. Thanks so much for your time. I really enjoyed chatting with you. And yeah, it was great and thanks for answering our questions. And yeah, I really look forward to your future work. So thanks so much, Gigi.

Gigi Foster  1:01:20

Thanks so much for having me on. It’s a, it’s a great pleasure to speak with you.

Tim Hughes  1:00:23

Thanks Gigi.

Gene Tunny  1:01:24

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via 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.

1:02:11

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Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Podcast episode

Business as Unusual: No such thing as Business as Usual anymore? w/ Rick Yvanovich – EP204

Serial entrepreneur and executive coach Rick Yvanovich talks about his new book “Business as Unusual: How to Thrive in the New Renaissance.” Rick argues that the world is continuing to undergo a massive shift and that there is no going back to normal. He shares his insights on the mindsets, habits, and skills necessary to succeed in this new era. The conversation also touches on Rick’s journey to Vietnam, where he currently resides, and what it was like living in Saigon during the pandemic. 
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 Podcasts and Spotify.

About this episode’s guest:  Rick Yvanovich

Entrepreneur, Techie, Brit, baby boomer, bean counter in: supermarkets, accounting profession, breweries, newsagents, defence manufacturing, IT, Talent, F&B, property development and BP, in the UK, China, Singapore, Switzerland and Vietnam. Posted to BP China as Finance Manager, then to BP Vietnam in 1990 making him likely the longest Brit and one of the most seasoned expats in Vietnam.

Fellow Chartered Institute of Management Accountants (CIMA), Chartered Global Management Accountant (CGMA), Fellow CPA Australia, MSc Strategic Business Management (Manchester Metropolitan University, UK), Certified Coaching and Mentoring Professional (CCMP), Certified Master Coach (CMC).

Treasurer & Board Member BritCham Vietnam, Vice-Chair AMCHAM HCMC DEC (Digital Economy) Group, Chairman Industry Advisory Committee RMIT Vietnam, founder/co-founder/investor/advisor of multiple start-ups.

Regular speaker for Talent, Coaching, Accounting, Digital Transformation, Project Management, Doing Business in Vietnam.

For further info about Rick, check out:

https://www.rickyvanovich.com/about/

What’s covered in EP204

  • [00:01:45] Rick’s career and journey to Vietnam
  • [00:08:00] Business as Unusual. 
  • [00:13:27] The great reshuffle. 
  • [00:16:29] The impact of lockdowns in Saigon. 
  • [00:25:01] Technological advancement. 
  • [00:29:19] Climate change and AI. 
  • [00:33:24] How to Thrive in the New Renaissance. 
  • [00:36:11] How AI helps you overcome the tyranny of the blank page. 
  • [00:41:06] Reflecting on life during COVID. 
  • [00:46:19] Zoom calls as a lifeline during COVID. 

Links relevant to the conversation

Rick’s book Business as Unusual:

https://www.rickyvanovich.com/books/bauu-book-series/

Article on “How AI is helping airlines mitigate the climate impact of contrails”:https://blog.google/technology/ai/ai-airlines-contrails-climate-change/

Transcript: Business as Unusual: No such thing as Business as Usual anymore? w/ Rick Yvanovich – EP204

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It was then checked over by a human being, Tim Hughes from Adept Economics, to pick up any clangers that potters… sorry, otters might have missed. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

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

Hello, thanks for tuning into the show. In this episode, I chat with entrepreneur Rick Yvanovic about his new book “Business as Unusual How to Thrive in the New Renaissance”. Rick argues that nothing is going back to normal and in Business as Unusual, he gives us his thoughts on the mindsets, habits and skills we need in a world in which there’s no more business as usual. Okay, let’s get into it. I hope you enjoy my conversation with Rick Yvanovich.

Rick Yvanovich, welcome to the programme.

Rick Yvanovich  01:17

Thanks for having me, Gene.

Gene Tunny  01:19

That’s terrific. Rick, keen to chat with you about your new book. “Business as Unusual, How to Thrive in the New Renaissance”. So very interested in that. To start off with I understand you’re coming to us from Vietnam. Could you tell us a bit about your journey to Vietnam, please, Rick, how did you end up there? In terms of your career trajectory?

Rick Yvanovich  01:47

Oh, great question. Gene. Yes, I am calling in today from Vietnam from Saigon or Ho Chi Minh City, as it’s known as today, you might be detecting from my accent that it’s from Britain. So I’m a Brit, although people do accuse me of having an Australian twang, but maybe your listeners would dispute that. How do I get here? How do I how do I get from where I actually started off with which was in a supermarket in the UK, I used to work in as a as a as a management trainee in a supermarket chain. When I left school and didn’t quite make the grades to go to university. And having worked in a supermarket for some months, after about six months, I realised I sort of felt brain dead. As in, I wasn’t applying my brain. Because I’m a numbers person. And, you know, I was a good student at school apart from when it came to those last exams. And for some reason, I suddenly decided, you know, work in a supermarket wasn’t for me, working with people wasn’t for me. I want to become an accountant. Okay, I don’t know where that came from. Maybe the numbers, or maybe it was a careers advisor at school who told me Oh, you’re a numbers guy, Rick you should become an accountant. So I went back to accounting school, became an accountant, joined an audit accounting firm, which I really didn’t like. So switch to management accounting and worked for a brewery, which was far more exciting. I think it’s the only company I’ve ever worked with where they, they gave you free beer and wine at lunch, and encouraged you to drink it. And then that led me on to other things. You know, I moved to defence, manufacturing, defence electronics, and then Facilities Management, or an IT Bureau, which is today known as cloud and cloud computing. And then I moved to real estate. And then I moved to oil. And when I was working for that oil company, they moved me to China. And then they moved me to Vietnam. So that was all the way back in 1990. So I’ve been here for a while. It’s been a it’s been a long and and unusual journey.

Gene Tunny  04:21

Right. Yeah. So you’ve worked across a diverse range of industries and you were in oil, but you no longer in in oil. You’ve been doing your own thing or running your own business. Is that right? And that’s what you’re doing now?

Rick Yvanovich  04:33

Yeah, that’s right. I mean, back in. In 94, I was gonna get shipped back to London, oil price was running at about $15 which was ridiculously low compared to today, and it was going even lower. So that obviously changed all the economics of those companies. And having been in Vietnam for some years, I hadn’t met my previous five bosses. So it would be very dangerous to step onto that plane and step off the plane in London and walk into the office because that will be a very short journey, I think. So I found out about a voluntary redundancy package and I retired. So I actually retired back in 1994. I am a workaholic, though. So that lasted for about five seconds. And I started up an IT company. And we’re still doing what we started literally 30 years ago or 29 years ago, so 30 years next year, which is to implement accounting systems, I’m an accountant, implement accounting systems, seems a bit obvious. And we do it in about 80 different countries around the world today.

Gene Tunny  05:39

Very good. Okay. As an economist, yes, I could, I’m very supportive of my cousins, or my fellow people in the accounting profession, and I understand the value of it. So that’s, that’s good stuff. Righto, well Rick I’d better ask you about your new book Business as Unusual. So with the title Business as Unusual, what are you driving at there? What is the, the genesis of that title? Could you explain that, please?

Rick Yvanovich  06:09

Well the genesis of of that was, you know, the book was birthed, as it were, in about 2020. I’ve always had this, you know, on my life goals list, you know, might be or could, may have been a life fantasy list, you know, go write a book. And it’s been that for years. But if we go back, you know, some years if we can all remember, not pretty sure if everybody listening can remember, 2020 is when we had that COVID pandemic sort of sprung upon us by surprise. And it was during that that period, that I actually, because I had time on my hands, funnily enough, I started writing a book, and got it actually published earlier this year. But you know, as, as we were locked down, and I know in Australia, you know, you locked down the country for some years. And here in Vietnam, we effectively locked down the country for some years as well. So as an expat here, as a foreigner, I could leave, but I couldn’t come back, necessarily. So that was not a good idea to leave. And so therefore, I actually worked out from the start of the pandemic, when they started the lock downs, which is tail end of the first quarter of 2020, I didn’t move more than about 10 or 15 kilometres away from where I live for two years, literally for two years. As this is was all happening. And as things started falling apart, and all the wheels fell off everything people kept saying, when this is over, when we you know, go back into the offices, and it goes back to business as usual, when you know, this is just the new normal, you know, we’ll get over this and everything can just go back to the way it was before. And this just sort of annoyed me more than anything else, but there’s nothing remotely normal about any of this, there is no business as usual. And especially here in Vietnam, you know, where the clamp downs were pretty tough, you know, confined to apartment, you know, you need a permit to literally walk out your front door and go down to go down to the shop once a week or twice. So we really, really, really tightly controlled and it was open, close, open, close, open, close. And this went on for a while. And each time people thought it’s over, and we can go back to the office. Something else happened, oh, we got another lockdown or another another. And I said, there is nothing usual about this. This is all unusual. And that’s where the where the title came from business as unusual. Because shock after shock or surprise after surprise kept hitting us whether it is another lockdown, or, you know, other things we’ve experienced. There’s a bit of a war going on and you know, in Europe isn’t there. You know, we have the economic turmoil that’s hitting some countries, we’ve had the great resignation or great insert word that you want. All these things are happening and have been happening. And, and it’s not over yet. This is just unusual.

Gene Tunny  09:34

Yeah, yeah. Yeah. Certainly since 2020. I fully agree with you. I’ve got a couple of questions and a few things I want to explore. So Rick, you said you know things aren’t going back to normal? I mean, what have you noticed what things have you noticed haven’t really settled down in in say, the way we work or the way we live? So the economy society, what have you really noticed that hasn’t gone back to normal?

Rick Yvanovich  10:03

There are a few things. So when we look at normal, and what do we really mean by that? So you could say that’s linked to a bit business as usual. So that business as usual doesn’t have to be in a work context. It can just be an a non-work or a life context. And I think this is all very much linked to this, this great resignation or reshuffle or whatever you want to want to call it. Pre-pandemic, pre all of this happening. Normal, one could argue, was the, you know, we get up, we go the office, we sit in our cube, you know, we go home, we get on with life. So married with our job, married to our job, maybe married to our mortgage, got bills to pay, right? Kids in school, all that kind of stuff. And I feel that there was a as an acceptance that we might be a bit bit like that hamster on a wheel at work, and we’re in a cube, we’re in a cage and we’re not going anywhere. COVID comes along, and they took the office away, they threw the cube away, and they threw that wheel away, you know, are we any better off? Well, we don’t even have a wheel to run around. And you know, we’re not even in that cube anymore. We’re just somewhere else which might be your home, or whatever you ended up being. Because at the end of the day, when the lock downs happen, it’s like musical chairs, isn’t it. And I know people who were on a business trip, and they couldn’t get back into Vietnam. They also couldn’t get back into their country of origin either. And they were just stuck wherever they were stuck. And you know, it’s crazy. I know some people who are stuck literally for six months or 10 months in a third country where they didn’t want to be in in the first place, but they couldn’t move. Anyway. So I liken it to they’ve, you know, we’re no longer that hamster or whatever, running in circles in a wheel going nowhere. I feel that people feel that they’re not too sure what direction to go in anymore. And so it’s more like, we’re still that hamster, or any other animal you want to call yourself. But we’re trapped in a maze. You know, there are lots of different directions we can go in. But they’re not necessarily leading anywhere. And it’s a bit like the, the Cheshire Cat in you know, Alice in Wonderland. And Alice comes to the crossroads and sees the cat and says, you know, which way should I go? And the cat’s sort of saying, well, it really depends where you want to go. And Alice is replying well, I really don’t know, the cat’s saying, well, it really doesn’t matter where you’re gonna go? Because you’re not going to go anywhere. And I feel that’s what the great resignation is all about. You know, some people have been forced to resign because their industry has collapsed, or the company they’re working for has gone bankrupt, and it’s collapsed. Or they didn’t like how they’re being treated when all this was happening, and so they’ve been, they’ve had to resign, or they were terminated, or they walked with their feet, because the grass is always greener. The only problem is, is people have found that the grass isn’t greener. And they’re still moving around. And so the ripple effects of the Great reshuffle as it’s, you know, as it morphed into, a still happening and is, you know, it’s happening across the world. So the way that we look at work has changed. And we can see this by the yo yo that we had, maybe it’s less this year, but especially last year, when companies opened up again, hey, you can come back to the office. Yeah but we’ve been working remotely for a year and I like working remotely, and I don’t want to come back to the office. So you know, if your company allows you to work 100% remotely and you like it, you know, you’re quids in right? But no worries. However, what happens if you know, you’re forced to come back to the office and you’re told you must come back to the office? Or you must be in the office for X days, when you want to not be in the office? Conversely, what are those? What about those people who really, really miss the office, they missed all that collaboration, all their friends and they want to go back to the office, okay, but they’re told no, no, we got rid of the offices we worked out we can save loads of money by having no offices, go work from home or wherever you want. So the whole way of working is changing and some companies are enforcing it. Some people are sitting on the fence, you know, and that’s really confusing. Okay, it’s really, really confusing. And so not only does that affect each one of our citizens as an individual, Hey, what is our company doing in which we may agree or disagree with? Working within that? Okay? Because I’m I’m seeing that more and more or I don’t know what the percentage is, but I feel it’s very high, very high percentage of companies have some form of remote work now or hybrid work. And the way that you work in a hybrid situation is new to a lot of us, okay? Like, hey, we went to the office and like we sit around the watercooler, we go out for lunch, we have a coffee, we go for a beer or whatever. That’s how it works. But how do you do that when half the people aren’t there? So how do we communicate? And today we’re on we’re on a zoom call, which maybe two years ago, and we weren’t that expert zoom. Whereas today, well come on it’s a basic skill to be expert on Zoom and Teams and all the other video conferencing platforms, it’s just a new tool the you absolutely must know. So all how do we work? Well, that’s a tricky one. What’s the best practice for companies? Oh, that’s a tricky one as well. How can there be a best practice when we’re still trying to work it out? And that’s just work. Now, if we look at, but from another point of view, how about our lives, okay, in the year or so, depending on what country you are in, and whatever restrictions that you experience, you know, if your work, the way you work has changed. How has the way you live changed? You know in a lot of countries is especially what I found here in Vietnam, having been locked down for so much. There’s some really basic things that I started missing. You know, I’m not a tree hugger. Okay. However, once them doors were open, you could actually go outside. Hello, gosh, there’s a tree. Let me touch it. I haven’t seen haven’t touched one of these for literally months. Okay, and then you know, what, when things are taken away, maybe we, we start appreciating, and we start noticing things that that we actually missed, going for a walk in the woods, silly thing like that. Or, you know, walking on the grass in bare feet or going down the beach, you know, strike going down the beach and striking up a Barbie. You know, all of these things were taken away.

Gene Tunny  17:35

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

Female speaker  17:41

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

Gene Tunny  18:10

Now back to the show.

As a matter of interest Rick, can I ask you about Saigon? Because I don’t know a lot about it. I mean, other than I mean, it’s a large city. So if it’s like other Southeast Asian cities, then it could be very difficult to go outside and just walk around and go on a nice relaxing walk. But what is it like? I mean, is it? Are there places you can go? Are there parks? If you do get outside? Or do you have to travel further afield.

Rick Yvanovich  18:39

Ho Chi Minh city, officially then 9 million people, okay 10 million people in a place with 10 million people. There’s one thing you’re guaranteed. They’re always people about? Ok? And the weird thing during COVID was the the city turned into arguably a ghost town. Okay, because like any other sort of urbanised city, where are the people really from? Are they native to the city? Or do they come from outside the city? So the big challenge that that I feel the Ho Chi Minh city face and its impact on people, was that yes, it’s you know, the bustling, the biggest Metropolis there is in the country. And it’s also the employer of an awful lot of people in in in the whole province of Ho Chi Minh city because the city itself is a province is so big. There are multiple industrial zones, and there are hundreds of 1000s if not millions of workers there. Those are not native to the province. They come from elsewhere. So when the pandemic hit, and they say stay at home. And if you’re a factory worker, and a home is the room that you’re sharing that you happen to live in, because you work in a factory. Okay, home is miles away. And as as they tighten down restrictions. And you know, we had things like tent cities emerge as an Yeah, if your company can provide you a place of sleeping a tent, literally, which could be set up in a factory or even in your office, then you can stay there, you don’t actually have to leave that office or building. And that happened for a while. But what what happens if you employ 50,000 people? It’s been tricky, right? So there was mass migration, when they shut it down. And hundreds of 1000s of people were fleeing the city. Okay, so the city sort of shrunk because a lot of people left. And it was literally a ghost city. And whereas on a normal day, you have to look both ways very, very carefully to cross the road. And, and if you go into the busy streets, you might even learned, need to learn how to cross the road, because there’s so much traffic, at this ghost home, you can do what I used to do back in the early 90s when I first arrived here, you could lie down in the middle of the street, and nothing would happen because there was nobody there. So it’s weird. So for me, it was like Oh nostalgia. There’s no one around this is wonderful. There’s an I can’t hear anything. There. No, no, guys, there’s no toot toot there. No, no, there’s no noise control here, either. And so there’s constant noise all the time. And it was like, it was wonderful. I loved it. So it also remind me what I miss what I missed what I’ve been missing.

Gene Tunny  22:00

I mean, it’s good that we’re out of lockdown and restrictions and even if we’re not getting back to normal, even if we’re in this business as unusual. I think it’s still preferable to, to what we had during the pandemic with all the restrictions. Right. Can I ask Rick about a are you arguing or your you think that we’re in a phase now we’ve we’ve left the pre COVID world, and we’ve just got to get used to this unusual, you know, unusual things happen? Or maybe we were deluding ourselves pre COVID. And we forgot that things unusual things can happen. What’s your take on that? Should that just be our basic operating principle, you should be careful assuming things are going to be business as usual. There’s a debate about whether in the past we ever it ever made sense to do that. We should expect volatility, we should expect shocks, so to speak. What’s your take on that, Rick?

Rick Yvanovich  22:57

Yeah, I agree with you. It’s the VUCA mindset, isn’t it? Which was penned a long time ago? Yeah, the VUCA as in volatile, uncertain, complex and ambiguous, so that VUCA mindset. Now, if we had a VUCA mindset with COVID, you know, we’d be highly resilient and agile to it and like whatever, we’d be able to cope with it. But not many of us knew that mindset. And therefore, like, you know, somebody moved all the goalposts. And you know, what do you mean, I can’t go in or out of the country? What do you mean, I can’t walk down the road? Can’t walk my dog or whatever? I mean, this is ridiculous. Yeah. So all of those personal freedoms that we have taken for granted. I think we have got a rude awakening that will okay, this is an unusual situation with we’re taking them away. And there’s huge backlash to that. So anyway, I believe that there is no going back to normal. Okay. That’s why I call it business as unusual. I think we need to embrace the unusual no matter what anybody says COVID is overall whatever you want to class it. Look at what’s happened just this year with a generative AI. Yeah, you know, that took people by surprise. Like, where did this come from? Well, okay, it’s been brewing for more than a decade, guys. But you know, it that that has hit the world by storm. So that’s yet another you could say it’s another shock. Okay. It’s another huge shock on top of all the other shocks that we’ve had. So do you want to call it a shock? Do we want to talk call it technological advancement, okay, because that’s what it is, is just some bright sparks dreaming up some more great, innovative ideas, and it’s called generative AI and the world is embracing it in fits and starts. Okay, so some people are advocating oh this is terrible legislate against it. And other people are, you know, the first movers are embracing it and racing ahead. That’s just version one you could say of generative AI, what’s next? It’s going to keep on coming and coming at us. So how we live, okay? And how we work needs to be adaptive to that. Because we’re either going to get steamrollered and squashed by it, or we are going to be resilient to it, we’re going to be agile to it. And we’re going to embrace it and use it to keep moving forward.

Gene Tunny  25:43

Yeah, well, the take up of it is, is extraordinary. And I mean, all sorts of people are finding uses for it. And I mean, I find, I find it’s helpful, you have to bear in mind that it’s a not very good intern, I think, as Kevin Kelly described it, so you do have to be careful what it gives you, and it says that all you look at it, it doesn’t necessarily give you factual information, if it’s if we’re talking about Chat GPT. And sometimes the images that things is it mid journey, the the generative AI, image creator, but whatever it is, they can do quirky things like creative, you know, give people extra fingers and things like that. So you have to be careful with that as a first start on things. It’s just extraordinary. And I mean, the risk is if you know, we, AI guess you know, if it’s, if it makes it easier for people to commit scams to hack to and then you know, if you think of all of these nefarious or these worst case scenarios where the AI becomes what did Skynet become in Terminator 2 become sentient or became conscious. Takes over a bit. I think that’s probably a bit outlandish. But yeah, I agree with you AI is one of the things we need to that’s a huge, huge development. And yeah, we’ll have we’ll have to see how it all develops. And I mean, potentially, we will need some regulation around it. Anyway, that’s just a comment rather than a question, Rick, but if you did want to respond in any way,

Rick Yvanovich  27:15

It’s true. At the end of the day, AI is a tool. And like any tool, it can be used for different things, you can use it use it for good. And you can use it for not so good. And then unfortunately, there will always be not so good folks around doing not so good things. But we shouldn’t let that overshadow all the wonderful things that AI can actually do. I mean, there’s so many positive applications to it today. And I think as people become more aware of it, and it becomes more readily available and more cheaply available, not just for individuals, but for organisations as well. It can really, really, really help. And at the end of the day, you know, I like your comment that I agree, it’s like a not a very good intern, I would reframe that, I think it’s good to treat it like an intern in that doesn’t know what to do. Okay. So it’s not going to proactively do something until you prompt it. So it really is linked to how good are we in asking it to do what we want it to do? And I think that’s how most people are using the typical AIs that the moment? The next level is already? How do you teach it? And this is even Chat GPT? How do you teach it to respond better? So again, take that intern analogy. How would we teach it to do things better? And if you know how to do that, then it will.

Gene Tunny  29:02

Yeah, absolutely. I mean, we’re, it’s just early days. And already, I mean, it’s helpful. I use it to generate the first drafts of shownotes. episode titles and episode descriptions. And yeah, it gives you somewhere to start. So it’s terrific in that regard. Righto, Rick, what about some other things that could be coming at us? Or that could make things unusual? Have you thought about anything? What other possibilities? There are? I mean, climate change. I mean, if you think about some of the extreme scenarios around that, is that something that concerns you anything else?

Rick Yvanovich  29:39

Oh, yes, climate change should concern all of us. And maybe this is something where AI can actually help us. You know, arguably AI is collective wisdom, isn’t it? It’s all our knowledge. We just have to ask it in the right way. So again, it’s it’s a tool and how we use the tool. So for climate change, there are a couple of things. I read an article the other day about what Google is doing with AI and the airlines, one of the biggest contributors to climate change is air travel. And one of the things that causes a negative climate effect is the vapour trails that an aeroplane creates when it’s flying. Okay? And that contributes, I can’t remember the number but it’s some horrendously high number 30 40% of the pollution that it’s creating. So the challenge was, can we use AI to do something about the aeroplanes trajectory to minimise that, okay? Because it’s the aeroplane going through the different, going through the air, and what you know, what type of air is it, you know, how saturated that air is, how warm it is, how cool it is, and it can cause more or less vapour traps. Keep a long story short anyway, they worked it out, okay? And are trialling getting the air, when when they’re flying the plane is to do some minor adjustments to go a little bit higher or a little bit lower to reduce the vapour trail. And in trials, they reduced it by even as much as 50%. And that’s just a little tweak. You know, that’s not very much. Now other things as well. I mean, we know with the Earth getting a lot hotter. Yes, we all want to whack up that aircon and we’re whacking up the aircon to make our environment cooler. But we’re making our environment cooler because it’s hot. Okay, so there’s other tech out there already to try and reduce the heat. Okay, that a building has. And again, using some AI in their analysis of this. So it’s a bit like the paints that they have created. All right, which will help reflect the right type of rays. Okay, the sunlight, which will, they’ve actually worked out that if they use these panels that they’ve created, which reflects the sun, okay, but only certain wavelengths, it actually cools, it’s cooling. Okay, but it doesn’t block out the sun. It’s only certain rays. And again, AI is being used for for things like this. So there’s an awful lot of good that we can use AI but AI sensibly, and obviously, you know, certain industries like the health industry. And I would expect to see huge, huge inroads in that. Things will carry on changing. And I think with advanced tools like AI coming in and becoming more mainstream, I think the pace of especially technological change is going to accelerate. Yeah, now, going back to the business as unusual. And so without that, that’s unusual. You know, technology is all very well and good. And we all have our attitudes on whether technology is for good or not so good. The second part of the book, or the second part of the title, and our business as unusual how to thrive in the new renaissance. Yes, thank you, you have got a book. And in this business, that’s unusual. Well, you got one, and I still have yet to actually physically touch one. That was another usual thing. But the second half of the, you know, the subtitle, how to thrive in the new renaissance? What’s the renaissance got to do with it? Well, I already touched on technology, in the original Renaissance technology was the printing press, arguably today the new renaissance is technology advancement is Yeah, around the internet, the power of that all the apps we have and now generative AI, you know, the original Renaissance was all about exploration, you know, finding new countries, new lands, these days, it’s find the other things. It’s like going deep inside humans and seeing more inside the brain or whatever is going on inside us. Going into the depths of the oceans, but it’s going beyond the Earth, you know, going to the stars. The other thing, the other Biggie was the challenging of authority. So back on the original Renaissance that was the challenging of the church and the power of the church, in today’s Renaissance is the challenging of political structures and countries and how countries are governed. Okay, Okay. And finally, I think this is the most important thing. And but I left it to last even though I should have said at first, the original Renaissance was about humanism, it was about humanism. And the new Renaissance is all still about humans. And it’s about human potential in the light of all these technological advancements that we have. So that’s why I really believe that the human side is super important. And AI is not a human. And there are quirks about humans that make us human that the AI doesn’t have. So I see AI and other technologies it’s a way to augment our potential, we can do a lot more using AI, for example, you yourself said, Hey, you use AI. And it can dream up a couple of topics for you. That’s wonderful. Yeah. Okay. And it saves you a load of time. Yeah. Which makes you more productive, and you have more time to do some other stuff. That’s wonderful.

Gene Tunny  36:01

It takes you away from what do they call the tyranny of the blank page? Which which can make you procrastinate, so it’s good in that regard. I want to ask you a couple of things about what you said there Rick that, that was all, all fascinating. So one of the things you you talked about was government and so that we’re in this new Renaissance , what are you thinking about with with government? I mean, clearly, there are all sorts of people seem to be more unhappy with government than ever before, there are concerns about? Yeah, I mean, the US in particular is, you know, really problematic. And just looking at it from the outside. It doesn’t look good. What’s going on there. Looks like it’s, it’s cooked. It’s very volatile. I mean, what are you thinking with, with government? I mean, do you see changes in the way we we govern ourselves? Is technology part of that story? What are you thinking? What are you thinking there Rick?

Rick Yvanovich  37:05

That’s a big question. Yeah, I’ll put a caveat around that I’m not political in the slightest. Don’t like talking about politics. It’s always going to upset people. But if we go around the world, and we just look at COVID, I guess the jury’s still out, we can say, on which countries handled it better than others. Okay. And who’s making that opinion, anyway, is that us as individuals? I feel that it really doesn’t matter where we were on the planet during COVID. Each of us experienced, whatever we experienced. And the question is, is, were we expecting some kind of benevolent government to know better, and help and support us? Or should we be more independent, and be able to look after ourselves? That’s a big questions and a loaded question as well. My feeling, my feeling is, a lot of people feel that they need to look after themselves better. Because if no one was looking after them during that period, what are they going to do when it happens again? Because at the end of the day, if we go back to the earlier days of the pandemic, there’s some people saying, well, we knew this was going to happen. Okay, it was inevitable. Yeah, the some kind of pandemic of this scale would happen. All right. And maybe the voices have gone silent, or they’ve been drowned in the noise of everything else that is going on in the world. That, okay, we told you so, we told you, it could happen. And it can also happen again, because we’ve really proven that it can happen. So how prepared are we, for the shock? Or the the new challenge of something similar but different happens again? Yeah, you know, how’s that, you know, how are we going to cope with it? So, going back to the business as unusual, so, how is business as unusual, which is the first in a trilogy is written from an owner an owner leader perspective of an organisation. So how can you make your your organisation more resilient to this kind of shock? You know if you were in the hospitality business, tourism business, you got pretty well beaten up during during COVID. There are certain industries which got absolutely flattened. So how can you be more resilient to that in the future? Now the other two books just so you know, that are in the series? The next one I’m I’m writing is the life as unusual, so I’m looking at the individual, you know how that that needs to change, how we view life needs to change. And it’s all of this, the next two books it’s all already in there in the first book, we’re just going into into more detail and taking a different perspective. Okay? Because on the life one, because you know people used to talk about work life balance, and too many hours at work your’e a workaholic, not spending enough time at home. And some people say it’s not a work life balance it’s a life work balance. I argue it’s neither. Balance is balance, balance is balance, you know, who said life and work are the two sides of the balance there, many aspects of the balance that need to be considered. And this is, I think, the the awakening that I sense has happened during the last few years, is people are reflecting on because they had nothing else better to do maybe, or they were forced to do it on what are they doing with their life? Yeah, so the fact that maybe you couldn’t go out, you couldn’t go for your walk, you couldn’t go down the beach, you couldn’t travel, you couldn’t do the things that you wanted to do. And that was taken away for you for a period of time. How important are those things to you? Some of them, you may realise that, oh, it was irrelevant. Others like ah, I really actually need that. Okay, now as those realisations happen, whether it’s what you do, when you’re not working, the past times, and the hobbies that you have, because you might have had to change them to something that is restricted to where you live, the four walls of where you live, rather than being able to go outside, if he had to go outside to do it. I think we’re having to reevaluate it, what the importance of these things are, because that’s for us as individuals. The other thing that happen, that is, is really acute, I find over the pandemic is relationships. Okay, so how was it? You know, I think what, I can’t remember what the statistic was in the US, but I think the number of divorces went through the roof. Okay, because you’re actually stuck with your partner or your family for a prolonged period of time in a restricted space. So in a lot of cases, it didn’t go so well. And in other cases, it went wonderfully. Okay. But another scenario could be, well, what if you were separated from your family? There are many people who have moved, they might have siblings, they might have parents, they may have their own kids in other countries, and they didn’t see them for a long period of time. Now, what does that do to the relationship? I mean, during COVID, I lost my wife for 10 months. You know some people might be going “Yeah, lucky you!” But she was medivacced in early sort of around March 2020. And then they close the borders in Vietnam, so she couldn’t return. Okay, so I had medivacced her to to a third country, which was Singapore. And she was on rehab, because it was a back operation, they were teaching her how to walk again. And, and so she was in the hotel across the road and just had to go in for to see the doctors and all of that to teach her stuff. And then, as things tightened in Singapore, they commandeered the hotel as a quarantine location and kicked her out of the hotel, to another hotel that happened three times. Also, since to learn how to walk again, they used to take her out outside to walk. They had to stop doing that she wasn’t allowed to go into the hospital because she, she’s an outpatient, she’s not allowed to do that. So she was stuck there for about four months before I managed to move her to her country of origin, which happens to be Switzerland. So she managed to get in there. So for it took me several months to get the right permits when they allow people with the right permits to return to Vietnam. So it took me 10 months to get her back. And my daughter was at University at the time, and yet another country. So for for a long period of time, I had my daughter and my wife in two other countries and I was here with my with my son. And by the time I connected my son and my daughter again, we’ve got got us all back in the same country. They hadn’t seen each other for two years. That’s pretty unusual. And I guess in that case, well, our whole idea of the relationship changes the whole idea. I mean, this Zoom. I remember we had a bunch of interns, because we’re big on internships. And our interns come from overseas. So we brought them over from overseas, and they will work in Ho Chi Minh City. And we used to take interns with a big cohort from Denmark. So we had about anything from about 10 to 15 of them at any point in time. And their government recalled them all. You know, they gave them advice, hey, come back home, come back to Denmark, okay. And they were arranging, like other governments, Australia did the same. You know, they’re arranging flights to bring their country people back home. And we did have some went and some didn’t. But going back to the, to the interns, in this period of time, where some of them moved back, and some of them didn’t, there were there were some quarantines as well, because some of them happened to have got COVID. So they’re put into quarantine. And, and we started doing these zoom calls, to check in on people on a regular basis. And the thing that really hammered it home into me is one day, one session we were having, an intern, turned around and said, these calls are my lifeline, do you realise you were the first people outside of quarantine, that I’ve spoken to this week. You know, it’s, you know, things that we can’t imagine, things that we might get from the history books, or, you know, our great great great grandma parents or whatever, who tell us them old stories of the hardships when they were young, things that that we would think would never ever happen to anyone we would ever know, in this day and age, especially in the more developed worlds that we live in, can actually happen to us.

Gene Tunny  46:57

Very true. Very true.

Rick Yvanovich  46:59

Things will remain unusual.

Gene Tunny  47:01

Yes, Rick. So that was the second book. So you said so your first is business as unusual, then life as unusual. What’s the third one going to be?

Rick Yvanovich  47:09

Work as unusual.

Gene Tunny  47:11

Work as unusual? Got it.

Rick Yvanovich  47:12

I’m leaving that to last because the jury’s out and I’m not really too sure where the dust will settle? Because it hasn’t settled yet. It really hasn’t settled yet.

Gene Tunny  47:21

Yeah, I agree with you on that. Now, before we wrap up, I’d just like to ask, What do you think of the key takeaways for organisations or for CEOs or, you know, managers reading business as unusual? What are you think of the major takeaways for them? Top two or three. Are you able to summarise it in that way, however many you think are the most important.

Rick Yvanovich  47:51

Yeah, I think it’s really around a core belief that I hold really dear, is, I believe that every one of us has the potential to be the architect of change. Now, we live by all these weird technological, and non technological transformations that are happening. And our task, our challenge is not just to keep up and exist, but to actively shape the path forward. Okay. And every single day, our actions, whether they’re big or small, shape our future, because our action is a choice we choose to do, or choose to not do. And therefore each one of us needs to remember, we are our own brand. And every single one of these choices, every single one of these decisions we make is part of the unique story that makes us human, that makes us us, or makes me me and makes youyou, okay, how we react, how we adapt, and how we innovate in the face of change will define not only your story, but your legacy. So that’s, that’s the background to it. So to reflect on the takeaways that I believe that are in the book, because the book is it gives you a framework. So you can shape your life in any way that you wish. But I give you a framework. And within that framework, you know, the framework uses the metaphor of a castle. And within the framework, I’m just hitting you with a shedload of tools. These are all the tools that I use myself. But a lot of the tools that I use are a synthesis and multiple other tools. So I just say here all the tools are a bunch of tools, you know, yeah, five tools, try them all and find out which one resonates. So going back to your original question, you know, I want people to remember that we’re not just a participant in today’s ever changing world, we’re the architect. And as architects, we are shaping the course of our own lives, our own careers, and the world around us. So I encourage all of us as individuals. And if you, you know, if you have more impact, like you’re the business owner or a business leader, I encourage you all to embrace the change, but define it, rather than just adapt to it. So be that catalyst in this in your own business as unusual world.

Gene Tunny  50:39

Yeah, absolutely. And, yeah, expect the unusual, I think I mean, that’s what I would be. I would be saying, Yeah, you’ve got to get across the new technology, so you don’t get left behind. You’ve got to stay as alert and as healthy and fit as possible to be able to make sure you’re, you can play the game as best you can. Yeah. Because I think you’re right. I mean, I think we are in this business as unusual world, just the extraordinary amount of change we’ve been seeing. It’s absolutely. Rick this has been great. Any final thoughts before we conclude?

Rick Yvanovich  51:18

Yeah, I, I, of course, encourage the people to go out, go out and get the book.

Gene Tunny  51:27

Absolutely I’ll put a link in the show notes. Yeah.

Rick Yvanovich  51:30

And, but more important to that is, you know, change transformation starts with each of us. As individuals, it’s, it’s ourselves that has to decide to change, or not, okay. And as we change, we transform because that’s what transformation is, that’s change, you can’t go back after you’ve changed and once the, once the caterpillar is a butterfly, it can’t become a caterpillar again, it has transformed, okay. And this is really important. And I think the journey is only beginning. So I’m really, really curious to hear about your journeys. So as as your listeners embrace this, they try it out. I really encourage them to, you know let Gene know, let me know, reach out to us. And tell us about your journey, because I’m sure they’re going to be absolutely fascinating.

Gene Tunny  52:21

Yeah, that’s, that’s good. That’s a good point recommend. I’d be interested. If you’re listening, and you’ve got thoughts on or how things have become unusual for you and how you’re responding that would be that would be very useful and yeah to the extent that you are that you have adjusted, you’re adapting then. Yes. And some thoughts on that would be great. So yeah, Rick, I think that’s a really good spot to conclude. And I’d like to thank you for, for your time for your, your thoughts on business as unusual. And for the book, which does Yeah, it. I think you’re onto something here with business as unusual. And you’ve got some good, good tips and good tricks, good bits of advice in that that book. So good work on that. And I think yeah, I think the idea of doing a trilogy is terrific. And yeah, I learned a lot from the conversation, learned about your experience in Vietnam, during the pandemic, and just how disruptive that was. And also, that’s the info about Google and AI with the flights and reducing the greenhouse gas emissions. I’ll find that online and I’ll put a link in the show notes below. That was really, really neat. So, again, Rick Yvanovich, thanks so much for your time. I really enjoyed the conversation.

Rick Yvanovich  53:42

Gene thank you, too. I’d like to express my gratitude for for allowing me on your podcast today. It’s it’s been a fascinating conversation, some great questions. I hope our listeners have enjoyed it as much as I have. And to all your listeners, all our listeners, I really appreciate your time and attention. And just like Gene, I look forward to hearing from some of you from learning from your experience, and perhaps giving us the opportunity to share more in depth future discussions. Thank you again, Gene, and to all our listeners for this wonderful exchange. Until next time, goodbye

Gene Tunny  54:22

Righto thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via 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.

55:09

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

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

The ESG puppet show & taking Liberty seriously w/ Nicholas Gruen – EP199

Nicholas Gruen, CEO of Lateral Economics, and host Gene Tunny discuss the topics of ESG (Environmental, Social, and Governance) mandates and Liberty. They explore how ESG mandates can create confusion among executives and investors, and delve into Nicholas’ perspective on Liberty, how to take it seriously and the best way to think about it. Nicholas tells a story from the early 1980s about how he tried to change Australia’s laws which allow Parliament to lock people up for contempt of Parliament. The conversation also touches on Nicholas’ concept of citizens’ juries, which is gaining support internationally, including from Martin Wolf at the Financial Times.
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 EP199

[00:01:32] Citizens’ juries and economic policy. 

[00:02:41] Does divestment from emissions intensive firms reduce emissions?

[00:06:47] Investing in fossil fuel companies to help them transition.[00:11:58] Carbon pricing.

[00:17:54] Australian consumers and carbon pricing.

[00:23:26] A different mode of governance.

[00:26:14] Liberty during the COVID pandemic.

[00:30:46] House of Commons Privileges Committee.

[00:34:32] Safeguards and legitimacy in governance.

[00:40:25] Rushed legislation during a pandemic.

[00:43:33] High level political discussion.

[00:50:06] Managing a crisis.

Links relevant to the conversation

Nicholas’s YouTube channel:

https://www.youtube.com/@NicholasGruen
Videos of conversations featured this episode:
Why ESG is a puppet show and what to do about it
Liberty: Safety from tyranny or doing what you like?
Club Troppo posts:
https://clubtroppo.com.au/2023/07/11/why-esg-is-a-puppet-show-and-what-to-do-about-it/
https://clubtroppo.com.au/2021/08/22/lockdowns-and-liberty/
Regarding the journalists locked up the Australian Parliament in the 1950s:
https://clubtroppo.com.au/2021/08/22/lockdowns-and-liberty/
Freakonomics episode on ESG that Nicholas mentions:

https://freakonomics.com/podcast/are-e-s-g-investors-actually-helping-the-environment/

Transcript:
The ESG puppet show & taking Liberty seriously w/ Nicholas Gruen – EP199

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It has also been looked over by a human, Tim Hughes from Adept Economics, to pick out the bits that otters might miss due to their tiny ears and loud splashing. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

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

Hello, thanks for tuning into the show. This episode features some recent conversations on ESG and liberty that I’ve had with my colleague Nicholas Gruen from Lateral Economics. They’re from our occasional joint podcast Policy Provocations, which is available via Nicholas’s YouTube Channel. In the first part of this episode, we talk about how ESG mandates can be a puppet show, and can create confusion among executives and investors. In the second part, we talk about liberty, and what Nicholas means by taking liberty seriously, and what he thinks is the best way to think about liberty. The title of the YouTube video of the conversation is Liberty, safety from tyranny, or doing what you like. Nicholas is one of the best lateral thinkers in economic policy out there for sure. One of the things I enjoyed about this conversation was the discussion of how his big idea of citizen’s juries can be applied in a variety of different applications. This concept of a citizen’s jury, which Nicholas didn’t invent, but which he’s been the biggest advocate of, in recent years, it was picked up by Financial Times columnist Martin Wolf in Martin Wolf’s latest book, The Crisis of Democratic Capitalism, which quotes Nicholas approvingly it’s great that Nicholas’s ideas are getting greater exposure internationally, and I’m very glad to have the occasional podcast chat with him and to feature them here on Economics Explored. Okay, let’s get into the episode. I hope you enjoy my conversation with Nicholas Gruen.

Hello, Nicholas, and hello if you’re watching, good to be doing back doing Policy Provocations. Nicholas, you’ve recently given a talk to some investors haven’t you on ESG. And you had some thoughts on this whole concept of ESG and how it’s applied. Would you be able to take us through that please?


Nicholas Gruen  02:40

Sure. So if you listen to one of the most recent episodes of Freakonomics, you will find a an episode which follows the work of two US academics, and they ask the question, Does divestment from emissions-intensive firms reduce emissions? Now, you might think it would. But their analysis leads you to believe that it doesn’t. Now, I think both you and I, Gene would have been pretty quick to say that just passing the parcel so that we don’t fund that thing, but the next capitalist to come along to invest in it will fund it. It doesn’t give us as economists a lot of faith that we’re achieving very much. It looks according to their work that it’s worse than that. Because if you starve in the, to the extent that you’re successful at all, you’re successful by raising the cost of capital to highly emissions-intensive firms and emissions-intensive firms are 282 times as emissions-intensive, as the bottom quintile the most emissions-intensive emit 292 times as much carbon as the top quintile into whom we’re going to invest. And if you ask the question, you know, how are we going to get those emissions down if they’re making aluminium or steel or something like that, then one of the obvious things we need them to do is we need them to invest in new technology in inventing it or in applying it. And if we raise the cost of capital to those firms, they won’t invest in new technology. And so these authors find that that is in fact the case and that raising the cost of capital to these firms actually increases their emissions. Now, I was giving a talk to the Centre for Institutional Investors and these are and it was on the subject of ESG. ESG stands for environment, social, and governance, a kind of an institutionalisation of of an old concept like the triple bottom line that firms should think about their environmental impact, their social impact, and the and the way they are governed. So these people, and this is on behalf of super funds, now what we know is that about half of investors in super funds, say that they do want the super funds to be ethical. Of course, it’s easy, that’s an easy thing to say, in their investments, and another 25%, sort of kind of agree, but they’re a little that they feel a little less strongly. So they feel this as a need. They feel this is something they want to provide their, their members. So they try to ask themselves, Well, how could we invest, to be simpatico with what most people think is a good idea, which is to lower emissions. And many of them end up in these positions where they run what’s called a negative filter. And they say, Well, if you’re emitting a large amount of money, sorry a large amount of emissions, we won’t invest in you. Now, another problem with that is you end up investing in banks and companies and consultants and companies that aren’t necessarily doing great things. They’re just doing them with white collars on. So they’re caught in a dilemma because one of the most plausible things you can say to your members is we’re not investing in high emissions firms. And yet, maybe if we want to lower emissions, that’s what we should be doing. And we should be another strategy, for instance, is the strategy of an organisation called Engine Number One, which invested in Exxon Mobil with a view to raiding basically to turning up their annual general meeting and replacing board members for Exxon Mobil. And they managed to do this and really not because of their own shareholding, but because their own quite measly $15 million shareholding in Exxon Mobil, gave them a stake and then going to talk to BlackRock and some really big institutional investors. And they made a big difference to Exxon Mobil, and Exxon Mobil is now less of a climate denier than it was and more interested in trying to make money out of the climate transition. Now, the ESG managers, the easiest thing for them to do is to just say, we’re not investing in emissions-intensive firms and that in fact, it you know, if you think about the divestment campaigns, for university endowments, and things like investments in university endowments, they’re all based on this kind of logic. So I put to them that they’re caught in a kind of a cascade of, of accountability, if you like, or pretend accountability. They’re trying to persuade their members that they’re doing the right thing. And what I said to these ESG people is, I think you should get a sample of your members and pay them to, so, so you might have 100,000 members, you randomly select 25 of them, you pay them to give you a day a month on the weekend, to get briefed on this stuff to talk among themselves, and to tell you how they would handle these dilemmas. And that means that you escaped from this theatricality, that you escaped from this way in which plausible ideas get embraced, and then we pretend that they then you become part of the propaganda effort to tell people that this is all working out well. And it’s not working out well, you’re actually papering over the problems. So I it’s a long explanation. But that’s, that’s the presentation. That’s what I was saying.


Gene Tunny  09:12

That study you mentioned, that’s fascinating. So it could actually be worse. I mean, I was thinking, well, it might not achieve anything, because there are going to be other people who will invest in these mining companies, the ones that are mining coal or whatever. And, and look, the reality is, if you weren’t invested in energy and commodities in coal, or oil and gas last year, you missed a huge amount of gains. Right. So you did your members a disservice. Right? So if you’re a super fund…


Nicholas Gruen  09:40

That’s right. Yeah. And then your members, I guess, are supposed to say yes, we know it did us a disservice. But that was what we were signing up for when we wanted you to be ethical. And the real kicker is that you weren’t being ethical. You were pretending.


Gene Tunny  09:55

So you’re talking about funds where it’s got an explicit investment mandate that they have to…


Nicholas Gruen  10:03

I’m also Yeah, I’m talking about them. But it turns out I sort of this was a bit new to me. You know, this is a much bigger craze than just the ethical investment folks, it’s pretty much taken over the world. Now, exactly how they apply their those mandates is, is not that they’re not applying the mandates as strongly as a fund that markets itself as in as ethical investment. But, but most mainstream funds, take this ESG business seriously. There are standards for reporting on ESG. And in a way, you know, as I thought more about this, one of the things, one of my friends said a bit of an I told you so moment, we there are many problems in the world for which we don’t have near perfect policy solutions. But greenhouse isn’t one of them. Because greenhouse we have carbon taxes, we have carbon pricing, and carbon pricing solves these problems, because it basically says, If you want to emit, it’s going to cost you more, and then you see the colour of people’s money, then ExxonMobil has you don’t have to, then the normal incentives of minimising cost drive this whole thing. Now what’s happened is that because it is so easy to weaponize carbon pricing politically, again, this is all about how easy it is to bamboozle the public in many ways. Because it’s so easy to run a negative campaign against carbon pricing, partly because it’s makes the costs transparent. The world has now built its entire strategy for reducing carbon emissions on guess what? Nice sounding statements and statements that are made by people holding offices who will not hold those offices when those statements are not, don’t come true. You couldn’t kind of make this up.
Gene Tunny  12:18

Yeah, who are you talking about specifically there because you’re talking? Are you talking about people in corporations or in super funds or are we talking about politicians, because one of them,
Nicholas Gruen  12:28

All of them. And they all have a different, they all have a different set of behavioural characteristics. But none of them are perfect. The relationship between what people say and what they do? Well, gee, that’s a bit of a problem for human beings all around. That’s one of the arguments for saying, let’s price things because you know that the people who save on emissions will also save money and people will admire them for it, and they will want to do more of it. And the whole thing is, as economists say, incentive compatible, but to take you, so firstly you’ve got the politicians. Now politicians say one thing and do the opposite. Within weeks, if they want to make it more respectable within a few years. Paul Keating tells us that the GST and I’m not being moralistic about this, Paul Keating tells us that the GST is necessary if we’re to escape being a banana republic. And then he describes it as a giant new tax that will come and monster everyone in Australia. Tony Abbott tells us that if he was getting if he was trying to reduce carbon emissions, he wouldn’t be pussyfooting around with silly regulation and, and renewable subsidies. He’d be introducing carbon pricing until he’s opposing carbon pricing, and so on it goes and Donald Trump will say different things in the morning in the afternoon. So that’s the politicians, the managers will, managers are a kind of politician or they’re, you know, they’re in a bureaucracy. There are lots you’ve worked in a public bureaucracy and managers are, you know, private or a public bureaucracy and they put a large amount of store in reassuring people having the fear you know, giving people are feeling that the adults are in the room, everything’s under control. Nothing could be further from the truth, the the transition to zero carbon, even the transition to about less than 40% of what we’re emitting now has got lots of gets more and more magic asterisks. As you go on magic bits of technology. We’re going to invest we’re going to invent. Well, I’m not I’m not being critical of anyone because that’s the best we can do. Given that we’ve have ditched carbon pricing, although that will come back. Then at the bottom of all this you’ve got people who are voters, and they won’t accept that it’s their responsibility who they vote for. They love the idea that they’re getting ripped off by these politicians who lie to them. But they don’t ask themselves. Why did the politicians lie to them? Because if they don’t lie to them, they won’t vote for them. If the politicians come out and say, well, actually, we all know that carbon pricing is the way to reduce emissions, then they won’t vote for those people. They’ll vote for the people who say, Oh, no, I’ll do it all without carbon pricing. So it’s a big house of cards. It’s not, it’s the wrong metaphor, because it won’t totally collapse. But there is something about it that lacks integrity, and will end in tears to a substantial extent.


Gene Tunny  15:53

Yeah, look, okay, I think I understand what your argument is with ESG. And you want to get more input from the members to really understand their you know, where they’re coming from what they’d like to see their understanding of the trade offs. Just on carbon pricing. I think we might have to have that discussion another time or because there’s, there’s a whole debate about carbon pricing. I agree if we are going to do something about climate change, then definitely carbon pricing is the best way to do it.

Nicholas Gruen  16:25

Yeah it’s a major part of the solution, its not the whole solution. But if that’s what we’re trying to do, it’s a major part of the solution.


Gene Tunny  16:33

The one reservation I’d have in, for Australia, like if you think about Australia, is it optimal for us to adopt it, if other countries don’t adopt it?


Nicholas Gruen  16:45

Yeah, sure, sure that’s right. But we can then adopt a domestic carbon price. So that’s a design, I look at that as a design feature. So Australian consumers should pay a carbon price, whether the exporters of Australian energy should plan to pay a carbon price is something we can we can defer to the design stage. If you like, I agree that that’s an issue. Yeah. But you would agree, wouldn’t you that Australian consumers should pay a carbon price?

Gene Tunny 17:02

If we cut taxes elsewhere?

Nicholas Gruen 17:05

But that’s you’re imposing a, an ideological or, yeah, an ideological preference. I mean, I’m just trying to impress carbon prices, yes I suppose I am. So I, you know, I’ve got my preferences. I’d like to use the money to do X, Y, and Zed, but I’m not going to say, Oh, well, I don’t want to do it. If you can’t, I can’t use the money in the way that I want.


Gene Tunny  17:40

Yeah, but conceptually, I agree that the the best way to tackle climate change is via a carbon price, I wouldn’t want to impose it and and make our industries worse off, and you’re arguing that? Yeah, the the way to stop that or that leakage, whatever they call it, when the industries go to other countries is by having an exemption of some kind. So there’s some design issues, they


Nicholas Gruen  18:06

just don’t want to that is a genuine issue that needs to be sorted out by the international community, if you can make a pretty reasonable attempt to do so at the at the unilateral level, if you have to, it’s not as good as a multilateral solution. But that’s a separate issue.


Gene Tunny  18:23

Okay. I didn’t mean to distract us from the discussion of ESG. Because I’m interested in what this mechanism is, you’re talking about? What is it a group or a sample or a


Nicholas Gruen  18:37

think of it, think of a jury, and you sample from your membership in such a way that it is representative of the membership. So you look at the age profiles, some demographics, and then you try and produce some replication of that in this otherwise random sample. Now, I think that the what that group can do is it can become aware on behalf of the members of these dilemmas, and they’re very deep dilemmas because you really get a governance problem. Any mug can say, Oh, we’re investing in all these high emissions companies in which every time we turn up to the AGM, and we say they should lower their emissions. But that’s not serious. So, if you want to go in this more bonafide direction, you, it raises important governance questions, it raises questions about communicating to your members that you really are doing your best. So that’s one way to involve the members. I also think that at the moment, what we have is we have a thing called the sole purpose test, which it makes a lot of sense, which is to say, you get various concessions to invest in Super and even if you don’t we force you to invest in these pension funds or superannuation funds so we don’t want you to invest in a holiday home, where you will get some benefit from this in your investment fund, it has to be for the sole purpose of your retirement. But a lot of people don’t mind the idea of, they like, in fact, I’ll go further, they like the idea that they will be investing in their community, they’ll be investing in things that will be good for their kids, and so on. So one thing that a fund might do in this model, according to me, and it would actually require some change in the legislation. But one thing that a fund might do is you might the ESG folks might take to this council, they might the ESG. Governance, the people running the ESG might say, Look, this is really very hard. And we’re not sure if this is achieving much. But we do think that there are a whole lot of ways we can spend money. And it may not be it may not get us commercial returns. But we’re prepared to put 1% of your portfolio into some funds that will improve the community for your children and your grandchildren. Our calculations are this won’t reduce your returns by more than this amount. But it needs to be something that you want to do. I think that’d be very healthy. And it would introduce a different kind of collective institution and collective decision making into our world and, and our use of capital.


Gene Tunny  21:38

Yeah, I think that’s, that sounds like a reasonable idea. And what was the reception like at that conference?


Nicholas Gruen  21:44

I’ve been invited to I mean, I didn’t go to that last point. But I’ve been been invited back to talk to CEOs about it, these were just so there was a lot of enthusiasm, because a lot of these in fact, I don’t think there were any, there’s virtually no managers of ESG who aren’t sitting around, really quite perturbed by the fact that they’re sort of putting on a show for the public. And when they, when they read the literature, and they think about what they’re doing. They’re not at all sure that this is a great idea. And it’s growing bureaucracy in all directions. There are standard international standards of what you report. It’s hard graft to connect up profit-seeking with community development. It’s a worthwhile objective, and we don’t understand it very well conceptually, but what’s happening is it’s being driven politically. And that’s kind of just turning into a for at least from my observation into into a pretty unhelpful set of bureaucratic instincts set up by standards, bodies, accounting bodies, everyone’s producing these reports. And I think the agenda is I’m not pooh poohing it, it’d be easy to take the fairly standard sort of public choice, critique of this and say, it’s all rubbish. I think it’s clear that there are good things about it. But then we have to take it seriously. And it should at least take the public choice, criticism of it seriously enough to do the best job of this, that it can.


Gene Tunny  23:25

Okay, and it’s about introducing some economic logic into the ESG discussion?


Nicholas Gruen  23:29

No, not necessarily. No. Well, I would say it’s about a different mode of governance instead of a mode of governance which has a bunch of consumers, and then a bunch of people who are managing a system and marketing to the consumers. You actually say to the consumers, these are difficult questions. We want to invest in a random sample of you guys to help us run this agenda. Because that’s A, going to be useful. B, it’s going to give what we do real legitimacy. We won’t be putting on a show for you. We will be trying to do what it is that you want us to do. And all of our systems default back to what I call the puppet show, and I showed them I don’t know whether you’ve seen many people have seen the film, The Sound of Music in which Julie Andrews and the kids put on a puppet show for Captain von Trapp and his girlfriend at the time. And I say the public out here Captain von Trapp and the and your members are out here. ESG is the puppet show and you’re up here, Julie Andrews and the kids putting on a show and you actually know that there’s a fair bit of unreality to this show. Get the get the audience behind, show them what you’re doing and ask them what they want.


Gene Tunny  24:56

Yeah, yeah, I love it. Very good. The Baroness was his girlfriend at the time if I remember or was it…


Nicholas Gruen  25:05

the Baroness gets gets shafted. It wouldn’t be a nice role to have as the Baroness because the Baroness has to be kind of creepy, gold-digging, vacuous, easily dispatched by the the sweet, innocent Julie Andrews. Maria von Trapp, who the real Maria von Trapp looks extraordinarily like my aunt, I can tell you who was Viennese as well. So that is a remarkable fact for you.


Gene Tunny  25:36

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


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Gene Tunny  26:11

Now back to the show.

Nicholas, you wrote a post during the pandemic, didn’t you on your thoughts on liberty? And there was a whole debate about lockdowns and masks and you had a rather interesting perspective on it. So would you be able to just take us through that, please? Then we might talk about what it all means for policy.


Nicholas Gruen  26:35

Yeah, so during the COVID period, everybody got themselves very worked up about compulsions of impositions by government, and they were lockdowns, vaccine mandates, mask mandates. And it’s entirely appropriate that people talk about those things and debate those things and have different views about those things, and also have passionately different views about those things. That’s, that’s just fine and dandy. But imagine that we were in London during the Blitz, and we had those debates about whether the government should impose a blackout so that the Luftwaffe couldn’t bomb us, we would all understand that it was consistent with our liberty to impose those constraints. And likewise, if there is absolute chaos, that it is consistent with restoring liberty and actually to getting some liberty to impose martial law, for instance. So everything is a matter of context. Now, is that me not caring about people’s liberties under these particular measures? Well, as I wrote in the blog post, I’m the only person I know who’s got a record going back 40 years of actually taking this subject seriously. But I took it seriously in a rather different way. I didn’t say oh I’m on the side of I’m always going to be sort of leaning towards Liberty rather than coercion. What I said was, what are the things about our constitution that are most would be most would be the first things that an authoritarian trying to take control of government, or deny basic democratic values? What are the first things? Where were they hid? What are the weaknesses in our Constitution, that would help them out. And so when John Button who I worked for Senator John Button in 1981, he was in opposition. And I wrote out with the help of the Clerk of the Senate, Harry Evans, I wrote out a bill, a private member’s bill on the subject of parliamentary privilege, because at the time then, and it is still the case now, the members of either house, either our house of representatives or our Senate, can meet as a Privileges Committee, and they can decide according to whatever procedures they wish to adopt, to put someone in jail for contempt of Parliament, including one of their own members, as two journalists were put in jail in Australia in the 1950s. And so this private member’s bill actually picked up some old work of, from memory, Owen Dixon who was, who became the chief justice, but I think this was when he was attorney general. If he was attorney general, I think he was and it started with a private member’s bill he wrote, and we went over it and and made it to our own satisfaction. And so all that Parliament could do was to hold initial hearings and then to present the case to a magistrate to an independent magistrate saying, This person is guilty of contempt of Parliament. And over to you. Now, that is a much safer way to deal with this matter and a way that is consistent with our liberties taken seriously. And it’s quite a topical thing because as you may recall, the House of Commons Privileges Committee has just met and considered the routinely egregious behaviour of its former prime minister, Boris Johnson and decided that he would be suspended for 90 days. Now, I think suspending Boris Johnson from the House of Commons for 90 days, I happen to think that’s a great idea, I might make it longer. But it’s not it’s a disastrous idea that it should be their decision, because they’re politicians. And it’s very easy to imagine a situation where that, in fact, it’s hard to imagine an institution more ripe, to be abused, when people without any respect for the traditions, and the conventions within which those systems operate whenever they come along. So So that’s an introduction to this idea of liberty as being fundamentally about the legitimacy of government. And then secondarily about these particular decisions that get made.


Gene Tunny  31:36

Right, just before we go on Nicholas, which jurisdiction were those? Did you say two journalists were jailed by…


Nicholas Gruen  31:44

Commonwealth, Commonwealth, Commonwealth 1956, thereabouts, maybe 1954, the House of Representatives took umbrage at these journalists, you can look it up, I can’t remember the exact details. But the journalist reported a private discussion or something, it was just the sort of thing that’s pretty pretty standard practice now, off they went cooled their heels in Goulburn jail for a week or so. And they could be detained indefinitely. There’s nothing in our constitution or in the rules of the House of Representatives that prevents the House of Representatives from locking up anyone for any length of time in jail, now, we now have a more activist High Court that would probably get itself involved and say, This is not consistent with the spirit of the Australian Constitution, but that’s what happened. And nobody, yeah, and then, and then what happened is, Button released this thing to the public hadn’t, was a bit of a disaster, because he hadn’t read it very carefully. And I’ve tried to take him through it, but he was kind of busy or tired or something. And Michelle Grattan started asking him quite detailed questions about the bill. And he didn’t know what was in it, which was a little embarrassing. Then his party turned on him and people walked past him in the corridors saying, what has got into you? Why would you want to do this? And he wasn’t too sure himself. It was really all my idea. And it, you know, another idea of mine, and no-one knows who had it, you know?


Gene Tunny  33:20

Yeah. So I just want to understand what you’re, you’re arguing, you’re arguing that well, okay, so liberty, yeah you’re taking this seriously, you’re interested in the constitutional framework, or the all the all the rules we have in place that can affect Liberty before we get into one of these situations, like the pandemic, and I’m just trying to understand what you what you’re arguing, you want to make sure that we’ve got the right mechanisms or the right infrastructure in place so that we make the right decisions, or what are you? What are you arguing exactly?


Nicholas Gruen  33:54

Well, I’m arguing that if you’re serious about liberty, that you accept a few things, you accept that governments need in the final analysis to have quite Draconian powers if we’re at war, and so on. So that puts the focus on safeguards. And it also puts the focus on the importance of legitimacy in the in the post that I did during COVID. I said, I would have thought that it would be a good idea during COVID, if you want to introduce these emergency measures have us, and we talk about this a lot. Now, it’s one of my, one of the things I go on about which is you could have a jury body of randomly selected citizens who are there who are paid to turn up every week and to look at what’s going on and the government can’t do things that it objects to. I think that would have protected a lot of governments and would have protected us from a lot of the culture war that we saw, because these kinds of things need to reflect a sense of legitimacy. And they need to reflect the confidence of people that they’re doing what they think is the right things, and for the right reasons. And there was a great, you know, the the activism against mask mandates, for instance, was, because I regard mask mandates as the least intrusive kind of intervention you could have. And I would be perfectly I think it would be good if we had mask mandates on public transport, properly enforced even now. And again, that’s a, you know, a virus is a public is a public good is an externality, these are, these are difficult questions. And so you want to find a way to navigate them with proper community involvement. If we simply have governments and the usual sort of activism against those governments, it becomes very easy to turn it into a kind of standard issue culture war, which is what we saw more in the United States than here, but certainly it’s become that way here to a substantial extent.


Gene Tunny  36:11

Yeah, okay. So there are a few things I want to comment on there. So you’re right about government. I mean, it needs the the ability to, to at times do things that do constrain liberties, there’s no doubt about that government has a monopoly on violence, as they say, I agree with you there. Now, this point about getting the citizens involved, the citizens jury, it would have been good to have done it before we got into the pandemic, because the problem is because of all of the fear, then the citizens jury might end up just supporting a lot of these the policies? Well, I mean, I mean, the concern I would have is that a lot of these policies were driven by fear. And, you know, and which, to us, to an extent, I mean, to some extent, was rational. And some people for sure, I mean, it was certainly a serious virus. But the governments they would argue that they were polling people like they were like Dan Andrews and Anastacia Palaszczuk, they were relying on opinion polling, and that was driving a lot of their policymaking. So they would argue they had that legit legitimacy. I…


Nicholas Gruen  37:21

Well, I make a distinction, as I think you might know, between the opinion of the people for which I don’t have a high regard and the considered opinion, which for which I do have a high regard. So and certainly the considered opinion of the people, I think the considered opinion of the people would have looked very like the opinion of the people early on. But if it was really fairly clear that a lot of this was the product of project fear, then there would be people in a citizen jury, that would, you know, the citizen jury would have powers to ask questions, to call witnesses, all that kind of stuff. And that’s, we spoke about this in the previous podcast we did on a different subject. The structure we have is a government that is constantly performing for the satisfaction of its consumers, ie the voters, this is what corporations do. And what we need to do is to find mechanisms for bringing ordinary people, these people who we accept are the legitimate source of democratic government, to bring them into the process and to inform them as best we can, and then ask them to deliberate and then give the considered opinion of the people an important role in this. And it isn’t just that I think it would lead to better decisions, it would lead to a grea…, it does lead when you see it being done, to a tremendously less hostile, fearful environment. The situation we’re in, we had to make decisions. I don’t even want to defend lockdowns. I don’t want to attack them either. They were difficult decisions, you could see that the pie could see and one might, you know, you might have seen something different and we’ll never know who’s right. But I think I could see politicians doing their best. That’s an, a very important thing to cultivate during a crisis and this sort of mechanism does that.


Gene Tunny  39:24

Yeah look I’m not going to criticise them for a minute. I think they did. They took it seriously. I think they were trying to do their best. I agree there. I just think there’s a good case to be made that there was an overreaction, and it was because of the the amount of fear and they were making policy based on the fear at the time. Now, pre pandemic hadn’t didn’t we have all of these plans for what we would do during a pandemic and it didn’t involve half of the things that that we ended up doing? So when we were looking at it rationally and we had a different idea of what we were could do, but then because of the, maybe there aren’t enough checks and balances or constraints, there’s not enough, there wasn’t enough time to to actually properly consider these, these policies like what we had in Queensland here, we had the government, it had a Public Health Act, and it introduced in 2005. And you know, it was, it was thinking oh we may need something like this in case there is an emergency, a pandemic. But then when we get to the actual pandemic, they they’re starting to worry about it all. And they’re thinking, Oh, my God, we actually may not have all the powers we need to deal with this. And, and so they rushed through this bill to give Jeannette Young, the Chief Health Officer at the time, all of these extra powers so she can direct individual citizens to isolate and impose lockdowns, etc. And I mean, one of the problems we’ve got here in Queensland and this is in, this is why I’m attracted to your idea of looking at the the institutions, the whatever you want to call it, the policy architecture. I like that as a concept, because one of the problems we’ve got here in Queensland is we don’t have an an Upper House, which would provide some friction. Maybe it’s not enough, because other states have Upper Houses and that didn’t stop…

Nicholas Gruen 40:11

It wouldn’t do a lot.

Gene Tunny 40:13

Policies. Yeah. But yeah, and one thing I found is that their mechanisms weren’t working, there wasn’t enough scrutiny. I mean, I spoke at a parliamentary committee here in Queensland in early 2021. And I was trying to make the case that I thought that some of the restrictions are excessive, and we should look at this as in a cost benefit framework. But the only politician who actually was sympathetic was the One Nation MP, that both Labour and the Coalition or the LNP up here. Well, they were sort of, you know, not not wanting to question anything, there was sort of a consensus view. And I mean, I don’t mind if they come to that, legitimately, but I just thought there should have been more questioning in the in the parliament, but everyone just sort of said, Oh, we’re just going to, yeah, the normal mechanisms, or what we would hope would occur in a democracy, just didn’t work. There wasn’t enough contestability, or there wasn’t enough considered development of policy.


Nicholas Gruen  42:14

Well, I completely agree with you. But I think, I don’t think it’s particularly easy to bring that about now. Because if you look at the life of a politician, certainly a politician in a major party, the major parties are kind of like battleships, manoeuvring around getting a position on a thing, circulating their talking points, and then enforcing rigid party discipline. And when an important issue comes along, that people are very emotional about, the press is doing the same thing. The press is trying to maximise clicks, report excitement, if you get up in the House and you make you make a speech, which isn’t entirely in support of your own party and call for, you know, when you discuss the issues, well, you’re not going to get any benefits in your own party for that. The press will go through it and pick out bits of your what you’ve just said, to amp them up, and then they’ll stick a microphone in front of the party leaders face and say, Well, do you agree with what your backbencher said about what’s going on in Logan? This is just a disastrous environment in which to get high level discussion. And that’s again why, I’m arguing that actually people still like discussion, not on our airwaves, but in the right forums. You bring them together, and they speak to each other civilly. And they try to see each other’s point of view. And they tried to compromise and, and explore their way to a common view. Now, that’s almost totally absent from our politics. I think it’s terrific that the TEALS have done as well as they have in federal parliament because it has set the clock back a bit. I know we’re supposed to think of setting the clock back as a bad thing. But the way the TEALS do electoral politics is a bit more like the way, but I was saying this to a team the other day, one of the members of parliament that’s a bit more like backbenchers were 35 years ago, you know, they can talk about their own situation, their own concerns, they’re not completely preoccupied with the talking points of their party and so on. But if we want really proper deliberation, we, we better try and think about how we, I was gonna say route around parliament. Well, Parliament has the power but it’s not going to, the way we, the way our society runs at the moment, there’s nothing much you can do to make that discussion a search for the truth. It’s a search for advantage. And so we have to try to think, how do we build institutions that cover for that, that allow discussion to take place, allows these processes to take place without imagining that that’s going to happen in Parliament?


Gene Tunny  45:20

I was just going to ask, I mean, like you mentioned the TEALS and, yeah, I mean, they’ve really shaken things up, that’s for sure. Do we need more, you know, more representation from different groups? Could proportional representation help with that? Something like…


Nicholas Gruen  45:35

Yeah it might be able to help with that, I think it may have helped in something a bit like proportional representation in New Zealand. I think the, I mean the worst, the most toxic politics I know of, is in our two historical great and powerful friends, Great Britain and the United States. Both have first past the post voting, I was gonna say both have two major parties. Well, that is true in the United Kingdom, but they also have an outrider, the Liberal Democrats, but those have provided very toxic political environments. And the extent to which we’ve injected other elements, I think, has been good. And in fact, you may recall, you will recall what I call the randos in the Senate, people like Ricky Muir, who got into the Senate. And you could imagine it almost like a randomising process, you just throw in four or five random people who happen to get the benefit of tiny little preference margins. Well, I thought that was actually a very good illustration of it. Like it didn’t make much sense on paper. But the people who ended up in the Senate, listened to the debate and tried to come up with the right answer. Now, that would never do inside a political party, you’re not in Parliament to try and work out who’s winning the debate and where the answers are, you’re there to add one, one vote to your party. And that’s all decided by the party structures, completely disastrous.


Gene Tunny  47:08

Yeah I think the Senate does it’s structure in the way that yeah, because it’s got it’s not just, you know, it’s dominated by one party, that leads to arguably better outcomes and I think that Housing Australia Future Fund, I think that getting held up, I think that was a good idea, because that didn’t doesn’t seem to make much sense as a policy, I know the Greens are getting bashed over the head over that but I think their stance was perfectly acceptable.


Nicholas Gruen  47:34

I don’t think you’d be as keen on their proposal for rent control


Gene Tunny  47:37

No not keen on their proposal, but I think them actually teaming up in the so called Axis of Evil with the Coalition was very good. So the reasons they opposed it was sensible, I don’t agree with what they’re proposing instead. But I was just saying, that’s a good illustration of the Senate federally working.

Nicholas Gruen 47:54

Yes I agree

Gene Tunny 47:56

I like your, how the way you’re thinking about this, we’ve got to get the right frameworks in place, so when we get into the, the crisis, we’re not just, yeah, we’ve got a proper way to deal with it. What I was wondering is whether we decide before a crisis. So outside of a pandemic, these are the thresholds if we exceed this threshold of this virus looks like it’s of this seriousness, we’re willing to accept these restrictions, like we decide all of that prior to the pandemic, so when we get into it, we’re not panicking. And we’re not imposing restrictions that arguably aren’t justifiable. So I’m wondering if we should work all of that out, and then sort of have the debate there and you could have your citizens jury, you could have a more considered process rather than it just being decided all in a panic.


Nicholas Gruen  48:48

You know, there’s, there’s a case for trying to show what foresight you can but remember, all of our plans were predicated, I mean, this was an extraordinary thing, that all of our plans were predicated on the idea that this pandemic would be a flu, and it wasn’t a flu. And yet, all of our our entire official medical establishment, that is the people like Brendan Murphy, Paul Kelly, these are the official, Commonwealth medical officers and state medical officers. They didn’t bat an eyelid. They didn’t say, right, we need to rethink this. That happened actually, the first, because I believe the first medical establishment, and by medical establishment, I don’t mean doctors, I mean general, in general, I mean the offices of the government that are there to provide the government with medical advice. The first country that did this was the New Zealand medical establishment and they did a pretty good job, for after a couple of months they said hang on, this is not a flu, we need to rethink this and that’s what they did. That we, we were incredibly inflexible, not adaptive, not, and a lot of these guys were thinking of their role as making rules for the community rather than helping the community think through the problems. So I would put more effort into that. But we’re still drifting into this question of how do you manage a crisis. And what I’m saying is that crises will be well or badly managed, and that it’s an important thing to think about. But every time I suppose you are doing something, which I’m kind of arguing we should do, which is that every time this sort of thing happens, we should be asking ourselves questions on two levels. What do we do now? And what sorts of institutions should we have to do this thing well? And there we probably should wrap up because we’ve gone on for a fair while but one of the things that just gobsmacks me is in the United States, 51 people, all the governors and the President have a pardon power. Now, maybe some of the States have done to the pardon power, what I wanted to do to parliamentary privilege and to contempt of Parliament. But by and large, the President simply decides, as Boris Johnson decided regarding various knighthoods and so on, that it’s simply an exercise of executive power to give someone a pardon. And so much so that there is serious discussion about whether Donald Trump can pardon himself in jail, because there’s certainly a precedent for him campaigning in jail that was done in World War One when Mr. Dobbs was in jail and picked up something like 3% of the vote from jail, he was in jail for breach of the Espionage Act, the same act that Julian Assange is arraigned under or being pursued under. Now. I don’t know. I am unaware of a single Democratic politician who says By the way, we’ve got to get rid of the presidential pardon power, or if you don’t want to get rid of it, we have to subject it to proper due process. We are no longer in the 18th century. But nobody does this. And I find that completely extraordinary. So there you are. I won’t say another word about it in protest.


Gene Tunny  52:33

Okay, okay. Well, Nicholas, thanks again, for a fantastic Policy Provocation. That one was particularly provoking. So, yes, gave me a lot to think about and yeah reflecting on that period we’ve, we’ve been through and yes, lots to think about for policy. So thanks again. Really enjoyed that one.

Nicholas Gruen  52:52

Thanks Gene.

Gene Tunny  52:55

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via 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.


53:44

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Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

The 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.

Female speaker  20:34

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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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Categories
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.

Female speaker  26:23

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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.

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Gene Tunny 25:03

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

Larry Reed 25:34

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

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

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

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

Gene Tunny 27:46

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

Larry Reed 28:19

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

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

Gene Tunny 29:52

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

Larry Reed 30:43

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

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

Gene Tunny 32:06

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

Larry Reed 32:46

Yes.

Gene Tunny 32:48

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

Larry Reed 33:13

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

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

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

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

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

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

Gene Tunny 36:37

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

Larry Reed 36:52

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

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

Gene Tunny 38:06

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

Larry Reed 39:06

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

Gene Tunny 39:38

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

Larry Reed 39:48

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

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

Gene Tunny 40:50

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

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

Larry Reed 42:12

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

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

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

Gene Tunny 43:51

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

Larry Reed 44:20

My pleasure. Thank you, Gene.

Gene Tunny 44:22

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

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