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Understandable Economics w/ Howard Yaruss, NYU – EP168

In his new book, Understandable Economics, Howard Yaruss from NYU argues “Understanding Our Economy Is Easier Than You Think and More Important Than You Know.” Howard is an Adjunct Instructor in economics and business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan and serves on his local community board. 

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

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Links relevant to the conversation

Where you can buy Understandable Economics:

https://amzn.to/3VCsxMV

Howard Yaruss’s website:

https://howardyaruss.com/

EP159 with Romina Boccia from the Cato Institute on the future U.S. fiscal crisis:

https://economicsexplored.com/2022/10/03/the-future-us-fiscal-crisis-and-how-to-avert-it-w-romina-boccia-cato-institute-ep159/

Transcript: Understandable Economics w/ Howard Yaruss, NYU – EP168

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

Gene Tunny  00:00

Coming up on Economics Explored.

Howard Yaruss  00:03

I saw reason survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind.

Gene Tunny  00:23

Welcome to the Economics Cxplored podcast a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny broadcasting from Brisbane, Australia. This is episode 168. It’s on a new book I’ve been reading called Understandable Economics, because understanding our economy is easier than you think and more important than you know, the author is Howard Yaruss, and he joins me to talk about his new book this episode. Howard is an adjunct instructor in economics in business at NYU. Previously, he was Executive Vice President and General Counsel of Radian Group, a mortgage insurance company. Howard lives in Manhattan, and he serves on his local community board. I’m grateful he came onto the show to share his thoughts on how a proper understanding of economics can help people argue for better public policies. Please check out the show notes, relevant links and information and the details of how you can get in touch with any questions or comments. Let me know what you think about what either Howard or I have to say in this episode. I’d love to hear from you. Right now from my conversation with Howard Yaruss on understandable economics. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Howard Yaruss, welcome to the programme.

Howard Yaruss  01:38

Thank you, Gene. It’s great to be here.

Gene Tunny  01:40

Excellent. Good to be chatting with you. Howard, I’m keen to chat with you about your new book, Understanding economics, because understanding our economy is easier than you think. And more important than you know. So how would I like to ask you? Why do you think that understanding our economy is easier than you think? Can we begin with that, please?

Howard Yaruss  02:10

Yes, I think a lot of people are intimidated by economics. Virtually anyone who’s taking a course, taking a course in economics, has been confronted with a bewildering array of formulas, graphs, jargon, those of the people who’ve taken a course the people who haven’t taken a course, understandably, don’t know much don’t know much about it at all. So I think there’s a lot of misunderstanding about economics, but what is economics about? It’s about how society allocates scarce resources. And that’s not a science, like physics or biology, you could just plug some numbers into a formula and get an answer. There are value judgments involved in how we allocate our resources. Our resources involves value judgments. And so it’s, it’s a different type of discipline than a bit different from what most people think it is. And I think what it really is how human beings interact, is easier to understand than the typical economics course, leads people to believe.

Gene Tunny  03:18

Right? What do you think is wrong with a typical economics course, Howard.

Howard Yaruss  03:22

That they begin with a whole bunch of formulas and jargon and graphs. And what we’re talking about is human behaviour. It’s like if you went to a psychiatrist, and they said, Let me plug everything into my formula. The world just doesn’t work that way. There’s, as I as I say, in the book, there’s a reason why a downturn in the economy a severe downturn in the economy, is has the same word is called by the same word as a severe downturn, a psychological downturn for human being or depression. These are psychological phenomenon, they quickly have real world consequences. But again, you can test the industrial capacity of a country right before, lets say, something we’re more accustomed to a recession rather than depression. Fortunately, we’ve had very few depressions, you can test the industrial capacity of a country right before a recession starts. And right after it’s the same, you can test the skill level of the workers right before a recession begins. And right after it’s the same, what’s changed? Outlook. It’s an infectious gloom that takes over. So I think understanding economics requires thinking about human behaviour. And it’s somewhat different from what’s often taught in economics courses.

Gene Tunny  04:43

Rod, okay, we might delve into that a bit later. The other part of your the subtitle is it’s it’s more important than you think. Why do you think that is the case are more important than, you know? Understanding economics

Howard Yaruss  05:00

I was going to rewrite that part of the title, I’d say much more important than, you know, simply because people are told all sorts of things by politicians who have self-serving motives for making certain claims. And I think, because most people don’t take a course in economics, and those who do are, again, faced with a bewildering array of graphs and formulas, so they don’t really get a sense of it. I think people can easily be misled by claims of politicians and other people who have motives to support a particular policy that they want to see enacted. I think it’s essential for people to understand how the economy works a bit better, so that they cannot be as easily fooled, and so that they would support better policies that would make our economy better and more productive.

Gene Tunny  05:53

Okay. So what do you think they’re being fooled about Howard?

Howard Yaruss  05:57

Well I can give you a few examples, this one went off the top of my head. There are a lot of politicians in the US who claimed for years that giving tax cuts to wealthy individuals would increase employment and improve the economy. And if you think about it, why does a business expand not because there are more investors with money, it’s because they’re more consumers wanting to buy their product or service. So if you put more money into the pockets of middle and lower income people, they’re going to spend on goods and services, and businesses are going to be forced to expand and hire new workers to produce those goods and services. If you merely give it to wealthy people who tend not to spend as much of their money, they have a lower propensity to consume, the businesses are not going to expand because they don’t have the additional demand for their product. So that’s an example of something that’s that’s said, by politicians that often misleads people. And it’s not something you need complicated formulas, or very, very specific kind of knowledge to figure that out. You just have to not be intimidated and use your good common sense.

Gene Tunny  07:14

Yeah. Okay. Now, you’re saying that you think there are some issues with the way economics is typically presented? Is it just not presented in in an intuitive enough fashion? Because when I read your book, I saw a lot of good economics in there. I don’t, I just want to, I just want to understand where you’re coming from with this book. Is it that you’re you’re not saying that a lot of economics is bad, it’s just not well presented? What’s your actual position here? How could I ask you that, Please?

Howard Yaruss  07:49

I think you said it very well. It’s not taught very well. First of all, let’s start at the beginning. Most people, at least in the United States, don’t learn economics, it’s not required in secondary school here. What is required is trigonometry. Which to me seems to use a technical term crazy. And I have a lot of respect for math, I was a math major. So the fact that we require something like trigonometry, and don’t require economics is shocking, to say the least, when it is taken at the college level, it there are all these assumptions made perfect information, everyone’s rational 100% of the time, and the real world doesn’t work that way. I live on the Upper West Side of Manhattan, which is a fairly affluent neighbourhood, about 40% of the retail spaces are empty. Many retail spaces have been empty for decades, that, according to economist shouldn’t, just shouldn’t be. Why why are people greedy? We always assume landlords are greedy. Why? Why are greedy landlords seeking zero income? There’s a disconnect there. And I think a lot of people are confused by this phenomenon. And the answer is that the real world doesn’t work perfectly. According to these models with all of these assumptions, I know economic the economics profession, is trying to there’s behavioural economics now. But the point is, people people, it’s people should be able to make some of these judgments on their own, they should be able to understand some of this on their own, because if they, if they don’t, they can easily be manipulated or misled by people who have ulterior motives.

Gene Tunny  09:33

Right. Okay. Now, I saw in your conclusion that originally this book was titled, economics for activists it was its focus was the people who were troubled by our economic system, yet optimistic enough to engage in activism in the belief that change was not only possible, but also that they could play a role in making it happen. Okay, what sort of activists are you talking about here? Howard, are we talking About the Occupy Wall Street? Are we talking about, I mean, who exactly is this pitch at, this book?

Howard Yaruss  10:08

oh, all activists and what and what I had in mind is people who are fed up with the current system and those include Occupy Wall Street, the Donald Trump voters, the Tea Party, and I know Australia has has their equivalent of these groups, there are a lot of people frustrated with the way our economy is going I call it the winner take all economy in the book, that the people who are doing well are doing better than ever, and the people who are not doing well are stagnating at best. And these kinds of actions is exactly what I’m talking about. What happened to Occupy Wall Street, Donald Trump, the Tea Party, they haven’t made life better for anyone. And my hope is that by understanding how the economy works, people would support more constructive policies that would make life better. What originally was he title of the book was understandable economics, because you can’t improve a system you don’t understand. If people don’t understand something, they can’t work to improve it, or if they try working to improve it, if they become an activist that their efforts may be for not. So the goal is to arm readers with the tools to understand what in fact, would improve the economy. And what on the other hand is a false medicine, is a false cure for the economic ills we are suffering.

Gene Tunny  11:30

Okay. Can I ask you about the fact that you grouped tea party with Occupy Wall Street? So is it your view that they’re both coming from the same frustration that and but they’re both got different, those two groups have different prescriptions or different recommendations. I mean, they’re both after different things, aren’t they? But are you saying they’re both motivated by the same? The same concerns?

Howard Yaruss  12:02

Why is it said there are some similarities between the two groups and some differences? What are the similarities, they’re frustrated with our current system, they both clearly have that in common. And at the risk of sounding cynical, they both didn’t achieve very much. I think what they were different is Occupy Wall Street had a specific flaw in that they did not recognise that it’s the political system, that effects change. That’s the system we live in. Unless there’s a revolution and there hasn’t been one. That’s the system we live in. So they were particularly ineffective in that they did not have a mechanism for getting people who had views similar to theirs into the legislature to effect change. They basically shot themselves in the foot by not doing that. On the other hand, the Tea Party was extremely successful, getting people into the legislature, the problem is just cutting the government without giving thought to what is the government what the government does is use, what useful things the government does. And what non useful things the government does is not really helpful to the average person either. The point I make in the book is how I use highways as an analogy. Cars are great for getting people from one place to another. But if there were no rules on the highway, people could drive on either whatever side they wanted, if eight year olds could drive, drunk drivers could drive, if there were no speed limits, and people could do whatever they wanted on the road, the road would not work. There have to be clear rules. Obviously, rules that are overly burdensome, shouldn’t be there. But the highway just cannot function without rules. It’s the same thing with a market economy. If there aren’t clear rules, it can function.

Gene Tunny  13:54

Yeah, yeah. Can I ask you about this, this point you made before that, to be able to affect change, and to be able to, to really participate? You need to understand how the economy works. What do you think of the key principles? Do you set this out in your book? Could you What do you think are the big things that we should understand in terms of how the economy works?

Howard Yaruss  14:23

I read a survey and it was an international survey so I’m sure it included Australia, of economic students, and they asked them where new money came from, and the majority couldn’t answer it. How could you talk about resources or equality and not know where money comes from? Again, if you want to improve a system, you have to have some understanding of it. So I think what I tried to do in the book is give some foundational knowledge about how the economy works, how trade works, how the central bank in the United States, the Federal Reserve System, affects the economy and how they create new money. So people have a basic understanding of the foundational components of the economy. And then I talk about different aspects of the economy. And I hope readers reach their own conclusion as to what makes sense, but at least they do it in an informed and intelligent way. As opposed to, we’re talking about the people who supported Donald Trump or Occupy Wall Street, they’re expressing their frustration, but they’re not pointing people in the direction of something that would improve the lives of the average life for the average person.

Gene Tunny  15:40

I think it’d be good how, if you give a just a rundown of how you explain that, or just take us through that, that where money comes from, I think that would be really useful. I’d recommend. If you’re listening in the audience, I would recommend this book, I think there’s a lot of really good stuff in there. And I really loved your chapter on trade. I loved your chapter on industry policy, your, your criticism of the bailouts, and maybe we can chat about that later. But to start with, if you can explain, Well, how do you how do you explain to people where money comes from, I think that would be really useful?

Howard Yaruss  16:20

Yes, well, I have the quote in the book, that all money, all new money is loaned into existence. And again, the average economics student didn’t know that. And in the book, I tried, I tried in the book to make it very user friendly. To write with a sort of basic style, it’s supposed to read like, readable narrative nonfiction, but how money is loaned into existence is, as you know, is not the easiest thing to explain. Basically, when a bank lends money to someone, they’re not grabbing the cash from someone’s account, this is not like, I have to make a very contemporary joke. FTX, they take people’s cryptocurrency and do with it what they want, the bank merely creates new money, it’s totally created brand new money. That’s what a licenced bank does, in virtually every country in the world. So that’s how new money is created, it’s created through bank lending. And the money can go away, when the when the loan is repaid, it disappears. So it’s how critical it is to understand that I’m not sure what people’s particular frustrations are or what their particular interests are. But to understand where money comes from and how it’s created, it’s basically important to anyone who wants to get more involved in these kinds of issues, to understand them better. And ideally, to have an impact on policy, you have to understand the basics before you can go ahead and get involved in, in assessing policy.

Gene Tunny  17:59

Right, okay. And it’s certainly important for macro economic policy we’ve had, because of how our monetary policy has pushed down borrowing costs, and then there’s been a huge explosion in credit for housing here in Australia. And that’s pushed up property prices and and that’s also help keep the boom going. We’ve had this incredible post COVID Boom, that I think will probably end.

Howard Yaruss  18:28

We’ve had this here too. I think the whole developed world is having inflation, eight, nine 10%. It’s an important issue for people understand, I also talked in the book about hyperinflation. Inflation is a problem, clearly a problem that needs to be dealt with. But it’s not a civilization ending kind of problem like hyperinflation, hyperinflation almost always results in nation collapse and death, which is fundamentally different from just eight or 9%. Inflation. It’s, it’s again, it’s not a good thing. But people have to separate the two and, and they make it very, very clear point in the book that I don’t think there’s any advanced nations, certainly not the United States or Australia, that’s risking hyperinflation, which is a whole level, a problem on a whole nother level. We do have inflation, which is a problem, but it’s you need to separate it from the kind of hyperinflation inflation that for instance, brought us nuts, Nazi Germany.

Gene Tunny  19:25

And what do you say about the Fed? How do you say anything about their quantitative easing policies that they’ve had over the last decade and a half?

Howard Yaruss  19:35

Well, we see inflation. So I think that speaks a lot more loudly than anything I can say. If, if their policies were more effective, we wouldn’t be having inflation. So the suggestion is or the inference is that they were hit the accelerator a little too heavily. Yeah, yeah. Yeah, for sure. And now they’re slamming on the brakes. A lot of people claim they may be slamming the brake too heavily, because there’s, as you know, there’s this very significant lag between them hitting the brakes and the car coming to a stop. And it’s very hard to know how hard to tap the brakes as the car slowing down, but it may not be slowing down enough. My own personal opinion is that we’re going to see a assuming, again, there’s so many assumptions here, that the war in Ukraine doesn’t doesn’t escalate, that the supply chains get sorted out that there isn’t another problem that arises on the horizon, we’ll probably see the effects of all the central banks, their attempt to rein in inflation to start having some success.

Gene Tunny  20:44

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

Female speaker  20:53

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Gene Tunny  21:22

Now back to the show. Okay, can I ask you about what you see as the false solutions? I think you suggested before that economics helps us understand how the economy works, what sound policy responses would be. And then also, what are some of the dead ends to go down or false solutions? What would some of those be?

Howard Yaruss  21:49

Well, I already mentioned one in the tax cuts for the wealthy to spur the economy. We see in England that in a period of inflation, the government proposed tax cuts for the wealthy, which is just throwing more money out there, creating more inflation. So that’s definitely a false solution. I’m not sure what the problem was. But it’s definitely a bad policy idea. That seems to be in response to I don’t know what. So that’s one example of something in the United States, we’ve had a debate about Social Security, pensions for older people. And there’s always this talk of the government running out of money, Social Security going bankrupt. And as Alan Greenspan, the former chair of the Federal Reserve System, once said, It can’t run out of money. The United States government can always create money. What it is, it’s a question of will and will not, it’s a question of politics and not economics. It’s a decision as to whether we, as a society wants to devote our resources to these things. And that takes us back to what we just discussing at the very beginning. It’s not like physics, where you plug certain variables into a formula and outcomes an answer. It’s a value judgement about how we, as a society want to use our resources. Do we want to help people in their old age and obviously tax workers to do that or not? And again, there’s no formula that will give you an objectively right answer on that. What, what we need to do is have people understand the trade off, and then make an informed decision as to what they want. And I want to give one example, I serve on my local community board here in New York City. And we talk about different projects, like a bathroom in a park, or an elevator in a subway station. And these all sound great, but then I look at the price of these things. And a bathroom in a park is $4 million to put in. To make one subway station handicap accessible, which involves in all fairness, putting in multiple elevators. Yeah, it’s $70 million. That seven, zero million. And so again, people need to be cognizant of these economic issues because it all comes down in that case to a cost benefit analysis. And all of these things are good, Social Security is good. But there is no formula that’s going to give you the right answer to that. Although I think even if there were a formula it would tell you the $4 million bathroom doesn’t make sense. But the point is, this is a value judgement. It’s something that people shouldn’t rely on economic experts because there’s no objectively right answer for that. It’s something that people have to get an understanding of how it works, and then apply their own values to that issue and make the decision for themselves.

Gene Tunny  24:55

Yeah, I think that’s, that’s right. This is one of the points I’ve been trying to make on this. show over the years as I’ve been, as I’ve been doing it is that, you know, we economists need to be honest or need to be. Yeah, we need to realise that there are in decision making value judgments come into play. And often the best thing economists can do is outline what are the trade offs and, and what we expect will happen. And then it’s up to any decision typically involves a value judgement. Yeah, I’m just saying, Yeah, essentially, I agree with you. I agree with you there with Social Security. I’ve had a guest on the show, Romina Boccia, she was at Cato I forget, I’ll put it in the show notes. I think it was Cato or Heritage. But she’s very concerned about Social Security. And look, if you project it out, and you don’t, it is going to add to the deficit. And, like, you can think about that two ways. And I guess that’s what you’re saying, it depends on your values, you could, if you, you could try and limit that spending, you could reduce the entitlement or constrain it. Or you could just raise taxes to address the deficit. And making that choice, to an extent, depends on values. But I think what economists should be saying is that if you do make the choice to fund the higher social security, then you need higher taxes, and there are efficiency costs associated with that. And I mean, that’s the way how I’d be trying to frame it. What what do you think about that, Howard?

Howard Yaruss  26:41

Well, it’s again, it’s a trade off, I think we, in a democracy, should decide how society uses resources. And we shouldn’t make the decision in that context. It’s running out of money, you need to cut it with your personal finances, you have a job, that’s an issue, it’s finite, with a nation, there are all sorts of trade offs that can be made. And people need to understand this is not a crisis situation. There’s in the United States, the $22 trillion of goods and services created every year. And if we are committed to certain programmes we have, we have the ability to support them. It’s it’s not something that there’s a finite amount of money there that can only be used, I will go back to the first President George Bush, when he was talking about education, which I think is the most important investment of society could make it to keep itself wealthy, and not only wealthy but happy and secure. Again, I’d make the point in the book, you could look at places like Congo, and Venezuela and to a large extent Russia, which have enormous resources, natural resources, and yet they’re relatively poor countries. And you could look at Germany or Switzerland or Israel, which really don’t have any or Japan or any resources, and they become quite wealthy. What’s the difference? Human capital. And so the original, the first President Bush said, with regard to education, we have the will to fund it, but not the wallet. Well, I think he had it totally backwards, we’re a very rich country. And it’s there’s the question of just allocation of resources, which is, again, something that I think people who haven’t studied economics don’t understand the concept of opportunity cost that, that you can have, if you if some, if you prioritise something enough, you can have it, but you just have to realise that you’re not going to you’re going to have less of something else.

Gene Tunny  28:38

Yeah, absolutely. I think that’s an important concept. And you talk about how what we’ve got in this in advanced economies, we have a mixed economy, and, and in different countries, they make different judgments about the scale of government versus the private sector. And, and, you know, us is one where it’s, I mean, there’s still obviously, government plays a very substantial, significant role in the economy, but not as much as say, in Scandinavian countries or in France or, or Germany. So I think that’s a good point.

Howard Yaruss  29:14

All along a spectrum. Yeah. Yeah. I think it’s easy to fall into that trap of, are you capitalist or are you socialist? We’re all basically the same. It’s just that some countries are a little further on the spectrum of government spending, and some countries are a little less on the spectrum of government spending. We all basically have free markets that are regulated by the government. It’s not a question of socialism that they throw around the word socialism in the United States all the time. The textbook definition is where the government controls the means of production. I don’t think that’s what anyone’s talking about. And I make the point in the book pretty emphatically that all these isms can sometimes warp understanding of what’s going on in the economy, the way to understand what’s going on in the economy is to actually look at what’s going on. And that get involved in all this esoteric theoretical discussion of different types of economic systems.

Gene Tunny  30:11

Yeah. A lot of people are interested in crypto currencies. What does your book say about cryptocurrencies, Howard?

Howard Yaruss  30:19

Well, I make the analogy that it actually is, in a certain way, very similar to the US dollar or the Australian currency. It’s something that’s created totally out of thin air. The big difference is who creates, I don’t know, who creates Bitcoin, or Dogecoin, for that matter, but I know exactly who creates the US dollar. It’s the Federal Reserve System. I know exactly who the people are. I know exactly what the rules they operate under. I know exactly who to turn to if there’s a problem. When it comes to cryptocurrencies, we don’t know any of that. If you have a problem, we’ve all had problems with our checking account. And we know how frustrating it is to call customer service. But could you imagine if your quote unquote bank didn’t even exist, there doesn’t have any employees and doesn’t even have a customer service number to begin with? And I think we’re going to see more problems with cryptocurrencies because it’s just something created out of thin air by people. We don’t know operating under rules they claim they have but how do we know we have them in Bitcoin suddenly doubled the number of tokens out there? Who would we sue? What recourse would anyone have?

Gene Tunny  31:30

Yeah, exactly. And I mean, you mentioned what’s happening with the news around FTX. Is it and Sam Bankman-friedand here what we’ve seen in the news recently, yeah, yeah. Yeah.

Howard Yaruss  31:45

As I’m concerned, he was supposedly FTX was supposedly a place people could use to store their cryptocurrency. Well, if it’s not there, it was stolen. It was misappropriated. So I think it’s this is something that the prosecutors need take a look at.

Gene Tunny  32:04

Yeah, it’s all very confusing. I mean, I thought the great benefit of crypto was this decentralisation. And then suddenly, people are losing all this money, because they’re involved with this exchange.

Howard Yaruss  32:19

It’s decentralised. But the question is, what we were discussing before, there need to be rules, there are literally no rules with regard to this. So it’s like going to a highway driving on a highway where there are literally no rules. People could drive at any speed on any side, and do anything they want. If eventually there’s going to be a crash. If enough people come to that highway, you guaranteed a crash.

Gene Tunny  32:44

Yeah, yeah, for sure. What I liked about your chapter on money, was that you talked about how a lot of the value or the value of the US dollar is that you can pay bills in it right? Or you can, you can, people will accept it. It’s widely accepted. And it’s a fiction that everyone believes in. So I think that was a little something along those lines, I’m trying to remember the exact words used, but that’s essentially what Milton Friedman, how he described it. I mean, all money is fiction. So I thought that was, that was good. Okay. Now, what about modern monetary theory, which is another popular topic? What are your few things to say about modern monetary theory in your book? Could you take us through that Howard?

Howard Yaruss  33:39

Well, the most amusing thing I say about it is that it’s not particularly modern. It’s not a theory. And yes, it has to do with money. So I’ll give it that. Basically, they’re saying that the government can create as much money as it wants, as long as it doesn’t create inflation. That’s, I don’t understand why that’s anything new. Everyone knows that the government has printing presses and they could create as much money as they want. What I think is interesting about what they say is that the government should not be constrained by a balanced budget, that we all know it can produce as much money as they want. The modern monetary theorists say they should be able to create as much money as they want, as long as they don’t cause inflation. And arguably, that’s right. They if they’re printing money, and it’s not causing inflation, that really is a free lunch, if if you create an extra $10 and magically, an extra sandwich appears. That’s that’s literally a free lunch. The problem is, you need some constraint. And that’s why we have the central banking system we have today. Because if politicians could just rev up the printing presses, and print money for whatever They want tax cuts for their donors, giant spending programmes, you have the catastrophic problem we discussed before hyperinflation. And yes, if politicians could show adequate constraint, restraint rather. Yeah, I guess it makes sense. I think there are lost opportunities when the Fed is a little parsimonious with the money, and the economy could be more robust. But I think the downside risk of the politicians running amok and printing too much money and having the lose, lose control over that risk is too great, because that’s, again, a nation ending kind of risk. So I agree with what they say. I just don’t agree with their conclusion that we should turn trust, trust our politicians to show proper restraint. If we gave them the right to rev up the printing presses and print whatever they needed or wanted.

Gene Tunny  35:59

Yeah. Exactly. Okay. Do you say anything about climate change in the book, Howard, the solutions to climate change, or if that’s really to worry about?

Howard Yaruss  36:13

Not really, included in the book is the fact that if we want change, if people want change, then they have to assert themselves, it doesn’t happen on its own. If, if company if there’s a company that is doing something that people don’t like they need to, to promote policies that would rein in that behaviour. And it’s the same with climate change, that people need to be clear that this is something that is important to them, and that they want, because that’s how our political system works. Again, economics is not like physics, you don’t put things into a formula and outcomes and answer, it’s, it’s, it’s what you can get people to agree to do. And the more people understand, and this is a perfect example, the more people understand the harm we’re doing to our climate, the more they’re likely to support regulations that would rein in climate change. Ignorance is a threat to good policy. And that’s the whole point of the book. It’s to get people to think about it more, to understand it more. And I make it very clear in the epilogue, I passionately believe we would have better public policy if people had a better understanding of what’s going on, not only in the economy, but in with regard to climate change as well.

Gene Tunny  37:34

Okay. In terms of better public policy, one thing I liked in your book was your analysis of bailout. So you were highly critical of the bailouts that occurred, or the all of the assistance that went to was it to airlines in the States and other companies? Airlines as an example? Yeah, yeah. You were highly critical of that during the, during the pandemic. Could you explain your logic there, please, Howard?

Howard Yaruss  38:03

Oh, certainly, we gave billions of dollars to the airlines. But what did we get for it? Were the planes going to disappear? The planes are there, they were grounded, because there was a pandemic going on. But they don’t, they wouldn’t fall into the earth. So by giving money to the airlines, we were just saving the management of the airlines and the shareholders of the airlines. What what a lot of European countries did is they actually funded the wages of workers, which would have made a lot more sense and would have been a lot cheaper. Instead, we threw enormous amounts of cash at the airlines. And I think I don’t remember the exact figure in the book, I think it came out to about $750,000 per employee, we could have saved a lot of money by just paying the wages of the employees saving the employees. And the airplanes would save themselves, they’re not disappearing. So they’d sit there on the tarmac, the shareholders would get hit very hard, which is unfortunate. But given that there are finite resources, I don’t think they’re at the front of the queue in terms of warranting a handout. And when the economy came back there, the airplanes can be put back into service. So the point I’m making in the book is bailouts help management and shareholders as opposed to what Europe did, helping individual employees or or not offering assistance at all, and the assets would stay there and be acquired presumably by another company.

Gene Tunny  39:36

Yeah, yeah. I think that’s, that’s a good point. And remember, during the pandemic, there was a Silicon Valley, one of the billionaires in Silicon Valley who was making that point on or a similar point on CNBC and I thought, you know, that’s a that’s a that’s a good way of looking at it. And yeah, I think, you know, the way you go through it in your book is great. So I’d recommend your book for that. on that issue. It’s a key issue in industry policy. So I think that’s great.

Howard Yaruss  40:09

Okay, I’m just gonna add that that’s, that’s another great example of how people are misled that the hotels are going to go away, the airplanes and the airlines are going to go away if we don’t offer them a bailout, the hotels are there. There’s bricks and mortar, if they don’t get the bail, if they don’t collapse, the planes are there. The executives, if they lose their jobs, don’t get to fly them off and take them wherever they want to take them, then there, it’s just the management and the shareholders that are the risks. Now, not the actual wealth of the country, the actual infrastructure, the hotels, the air, the aeroplanes, they’re, they’re not going to go anywhere, whether or not there’s a bailout.

Gene Tunny  40:49

Yeah, yeah. Good point. Okay. I just want to go back over, go back to this winner takes all economy, you mentioned that early on, is that what you see is one of the big challenges in advanced economies at the moment? And what exactly brought this about? I think, if you could take us through that I think your book does a good job of explaining how we’ve ended up with what you call a winner takes all economy, or at least an economy where, at least in the US in, in Australia, it’s we haven’t had the same increase. And it’s a bit of an argument about whether we’ve had an increase in income inequality, certainly in wealth inequality. But could you explain what you know, what’s led to this winner takes all economy, please. And what in your view, economics suggests is a way we could get out of it. Or your logic suggests there’s a way we could get out of it.

Howard Yaruss  41:48

I teach this subject and I love one word answers. And I can give you a one word answer to that. And they’ll give you a more expensive answer the one word answer the internet, basically, the cost free platform that enables Jeff Bezos, or any of these big companies to do their business, internationally with no costs, has enabled the best providers to have economies of scale that have been able have enabled them to grow much larger than any company was able to grow before, before the internet era. For instance, in 1950, if you were selling clothing in New York, and wanted to sell clothing in somewhere in Australia, that was incredibly difficult. Just the phone calls alone wouldn’t cost a fortune. And now, it’s cost free. It’s frictionless. They’re the ultimate economies of scale. So Jeff Bezos can do his business, internationally, and basically take all so technology actually, it’s not just the internet, it’s technology in general, has facilitated this winner take all in the book, I use the example of musicals before 100 years ago, every city of any size, have a musical where people want to hear live music, and now he’s just flicking it on your computer. There are a few major international stars who provide the music. And I’ll add that not only do they provide the music, but they provide their performance in infinite number of times whenever you’re interested in hearing it, based upon one performance. That wasn’t the case 100 years ago. So yes, the best performers in New York City 100 years ago, probably or definitely earned more than the mediocre performers somewhere in Indiana. But the point is that many people earn livings in connection with that business. And now there are just a much smaller number of people. And the earnings are much more concentrated among the most popular performers.

Gene Tunny  43:52

Raw. Yeah, yeah. And what about the role of there’s obviously the role of monopolies or market power in this?

Howard Yaruss  44:01

Absolutely. Because with this, these economies of scale, we’re natural monopolies what economists would call natural monopolies develop. And you see this in ride sharing with Uber. I mentioned Amazon, information Google, social, social networking with Facebook, there are many more natural monopolies because of these economies of scale. And it’s a problem. Why is it a problem? Your Facebook’s free. Why is that a problem? Because you lose, you lose innovation when there’s a monopoly there’s no incentive to innovate. And as they really consolidate the monopoly, it’s, it’s it reduces opportunity for workers. And this is again fueling the winner take all phenomenon that the average worker has fewer options for potential places to work. Certainly entrepreneurship is foreclosed, you can’t go up against these behemoths. And so there’s a shift of resources from labour to capital, when you have these kinds, when business gains more power in this way.

Gene Tunny  45:16

Yeah, yeah. And so what in your view is the is a way to address this winner takes all economy? If you? I mean, I’m assuming you think it’s, it needs to be addressed. It’s not something that we need to spur innovation. I mean, it’s not actually I think probably most people agree that there’s a problem with big tech so far across the political spectrum. So, or across the economics profession to.

Howard Yaruss  45:45

This is a perfect example of what we were talking before about regulation. Here’s a question. I’m a lawyer that Facebook has had hate speech or a speech that motivated people to commit all sorts of crimes on its site throughout the world. Why isn’t there a potential liability there, and in the United States, they’re exempted from liability. But because they claim to be like a town square, but they’re not a town square, they prioritise certain speech over others. For instance, on Twitter, I tweet something it’s going to get, it’s going to be replicated many fewer times. And if someone else tweets something, so they are curating, they are involved in amplifying certain speech. So I don’t know why they’re exempt from free speech, from the laws governing libel and slander. So that’s one thing we were not we’re sort of asleep at the wheel in a way, we are not regulating these companies the way we need to regulate them. Every monopoly is different, or companies get monopolies for all sorts of reasons. And the government needs to look at them, it has the tools, it just needs to employ them to make sure they’re not abusing their market power. Because ultimately, if they do that, it’s not good for the economy. And it’s not good for workers.

Gene Tunny  47:09

Right? So would you break up any of these big tech companies?

Howard Yaruss  47:15

Well, there are such incredible economies of scale with a social networking site, you don’t want to go to a social networking site that only has a few people. So I think the government is going to have to look at, for instance, I talked before a moment ago about legal liability, to the extent they promote certain speech, and it causes harm, maybe they should be on the hook for that. And maybe they would be more equitable, and more fair, in running their business, if that were the case. So I think that, again, every monopoly is different. I think the government needs to look at them, and make sure we’re getting the best social benefit from them. Because again, they are natural monopolies in my opinion, if I wanted to set up a social networking site, I could set it up. But Facebook has 3 billion users, I’d have one, none’s going to it. I think, I think given that the government needs to, to impose some fair rules so that society gets the maximum benefit out of it.

Gene Tunny  48:15

Right? And what about inequality? How do you propose dealing with that? How would you see that as a substantial problem? Do you and how would you deal with it?

Howard Yaruss  48:26

 Yeah, as we have more of a winner take all economy, there’s more of a gap between the people who are doing well, and the people who are not doing well. And that’s a great failing of a society as as our economy grows, on average, most people should do better. And that’s what was so great about America and Australia for so many years, people bought into the system. And to the extent that people are alienated by the system, I saw a recent survey that the majority of young people don’t trust capitalism. That’s a catastrophe as far as I’m concerned. And I think what we need to do is give them a reason to have more faith in the system that has created more wealth than any system in the history of humankind. I make the point in the book that since roughly 1800, we evolved from a society where the vast majority of people were food insecure to a society where the average person does quite well. And so we have to keep that, that we have to continue that to make sure that people buy into the system and we continue to grow.

Gene Tunny  49:31

Right, and what measures in your view would be required to do that? Are we talking but yeah, exactly what measures would be needed?

Howard Yaruss  49:41

Well, in the United States, there was a lot of talk a few years ago about a universal basic income that we may get so efficient. John Maynard Keynes talked about this. There was a writer I think his name was Edward Bellamy in the in the late 1800s, who talked about this how’s this It got so wealthy, that people, many people just didn’t have to work. And we could just have an income and benefit from automation. And the fact that society would be so efficient, we haven’t reached that point yet, in my opinion, I don’t think we’ve reached that point in anyone’s opinion. So that’s not going to work. But what can work is, is to have a more progressive tax system. And let me be clear what I’m talking about. In the United States, hedge fund managers pay a lower tax rate than teachers and firemen. That’s ridiculous. Again, to use a technical term, that we people need a better understanding of exactly what the 10s of 1000s of pages in the tax code are doing, and try to have a more reasonable, a more equitable approach to the way we allocate society’s resources. So off the top of my head, I would say that better funding for education to give people opportunity, certainly increase the tax rate on hedge fund managers. So it’s at least as great as teachers and fire man. Warren Buffett always says that he pays a lower tax rate than his secretary, that makes no sense. So that’s one easy place I would start to have a to provide more opportunity to the average person, I would I would have higher taxes for the people who who’ve enormously benefited from this winner take all economy and provide more resources to, for instance, for education, so as to maximise the chances that children growing up today can participate in contribute to this kind of economy.

Gene Tunny  51:40

Right. Yeah, I think certainly there’s some issues with the tax code in the States, I did an episode with Steve Rosenthal, from Urban Institute, do must have been toward the end of last year, just on the rules that you’re talking about, so I think is it carried interest?

Howard Yaruss  52:03

There’s a rule of carried interest exactly the provision that allows hedge fund and venture capital executives to basically have their income taxed at capital gains rates, which rates are lower than personal income rates. But I’ll raise a bigger issue, why should investment income be taxed at a lower rate than working income? I think that’s something that should be changed. And not only is it equitable, but by having the two types of taxation, you make the whole tax code so much more complicated, you introduce all sorts of distortions that people go through, so as to re-characterise their earned income, as investment income, it throws friction into the economy. And so that’s something that I think needs to be corrected. Again, to make it more equitable and more efficient. There are companies that have meetings in Bermuda, to leave the United States, because of tax reasons, that literally makes no sense. That’s a lost opportunity for the American hospitality industry, and just a colossal waste of resources. That’s something that needs to be looked at. And, frankly, when the tax code is 10s of 1000s of pages, I think the Internal Revenue Service is going to be out manned, by the whole army of lawyers and accountants that businesses and wealthy individuals have, it has to be simplified.

Gene Tunny  53:30

Yeah, I have a lot of issues with tax. I’ll have to come back to them in a future. Just interested in your thoughts on how to deal with that. Okay. Now, how would we better start wrapping up. I’ve been really grateful for your time. I mean, this has been this has been terrific talking about your new book, which I think yeah, I certainly recommend reading it. There’s a lot of good stuff in there. I’m probably more concerned about debt, you’re suggesting in your book that, you know, the federal debts. It’s not a huge concern, I guess it depends on how you characterise it. And your point is that it’s something that you can manage over time. But I should ask you about that. I mean, what is your view on the US federal debt and the fact that the US is running, you’re running a structural budget deficit, aren’t you, which is quite substantial, you’re not? You’re not raising enough revenue to pay for the spending. Do you see that, do you see that as something that has to be fixed up? I mean, you do have to be ultimately concerned to some extent about the debt and will you want to try and stabilise the percent of GDP, what’s your exact view on the debt, please in the States?

Howard Yaruss  54:51

This is such an important issue. It’s like the allocation of society’s resources that I tried to give people the foundational knowledge so that they in turn can reach an informed conclusion on their own. What I do in the book 20 trillion – 30 trillion. I don’t know about you, I can’t get my head around it. So what I do in the book is divide the national debt by the 330 million Americans and I come up with a national debt of roughly six to $8,000 per person with an annual interest payment of roughly $1,045 a person. And so there’s the question, Is that sustainable? Is that an existential threat to the United States? And I make the point that virtually everyone who went to medical school or started a business has bought a home for that matter has a debt hanging over their heads greater than that. The question is to just step back and offer some insight, try to offer some insight is that if the debt is growing faster than the economy, there could be a problem. Yeah, I mean, yet grow at the rate of the economy. It’s like, you owe a certain amount of money. If your income doubled, and your debt coverage doubled. It’s not a problem. It’s only when the debt is growing faster than the economy are issues raised. And yes, our debt has been growing faster than the economy, not significantly faster. The past fiscal year in the United States, the deficit was half of what it was in the preceding year. And so well, we have to watch it. But the question is, do people feel comfortable with this level of debt, I also make the point that when you say it’s a crisis, this debt is being paid, we have to pay it. But to whom is it being paid, two thirds of the payment goes to other Americans. So this is merely a transfer of money, from taxpayers to bondholders, which quite frankly, overlap enormously. Wealthy people tend to pay higher taxes, and wealthy people tend to own more bonds, poor people tend to pay lower taxes, poor people tend to own fewer bonds. So it’s really just moving most, two thirds of it is literally moving money from one pocket of the left pocket of a American to the right pocket of American, it doesn’t necessarily do any harm. A third of the interest payment, roughly 300, and some odd dollars here does go abroad. And you know, there are questions about that. But the question is, is $300 a year, per American in a $22 trillion economy? An existential nation bankrupting kind of issue? And personally, I don’t think it is, but you might reach the conclusion as that it is, and and vote and promote policies accordingly.

Gene Tunny  57:43

Right oh well, look out I think your book does, yeah, it makes a contribution. I think it’s got a place. It’s in this emerging genre of economics for everybody. I chatted with some people from the UK early this year, they had a book, what is the economy? I think it fits nicely in that, in that genre. To finish with, what do you think is different? Or what’s special about your book? Or what are the main? What do you think should be the major takeaway, or if there’s anything else, any other thoughts you’d like to make? Before we wrap up, please, that’d be great.

Howard Yaruss  58:21

I appreciate your asking that. And I think my book is, is is special, or I’ll go as far as saying it’s unique, in that it does, it tries not to have a political perspective, it tries to be fair, it tries to give the foundational knowledge to people so that they can reach their own conclusions as to what makes sense for the economy. Or there are points at which I do say something, but I make it very clear that it’s my opinion. And I make it clear why I’m saying so I think the book is accessible. It’s one of the only books on economics that has no formulas, their jargon, no graphs, it’s supposed to read like narrative nonfiction. And I hope it can reach an audience that ordinarily would would not learn about economics, but would pick up the book, read it, become more informed, more able to understand what’s going on in the economy, and hopefully, support better policies that would benefit not only their lives, but yours in mind, frankly,

Gene Tunny  59:20

That’s terrific. I just thought when you said about no equations. There’s a joke that John Kenneth Galbraith used to make in some of his books where he said that his publisher told him that every time there’s an equation in the book, it cuts sales in half. That’s what he heard you didn’t want to have any equations because it’s bad for sales. Okay. Howard Yaruss from NYU that’s been terrific. I really enjoyed the conversation. Thanks so much.

Howard Yaruss  59:51

Yeah, I really enjoyed it. Thank you.

Gene Tunny  59:55

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

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

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

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Podcast episode

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

The Cato Institute’s Romina Boccia explains why she’s concerned about a future US fiscal crisis. She explains how entitlement programs such as Social Security and Medicare are the source of the problem. 

This episode’s guest Romina Boccia is Director of Budget and Entitlement Policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform.

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.

Links relevant to the conversation

Romina’s Cato Institute profile

Romina’s first post for the Cato Institution: Joining Cato to Restrain the Federal Budget Leviathan

Council on Foreign Relations article containing deficit projections which Gene mentions: The National Debt Dilemma

U.S. News article: How Much You Will Get From Social Security

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

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,

Romina Boccia  00:04

The better solution is to realise that we are on a highly precarious fiscal trajectory even under the best circumstances. And now is the time to adjust our fiscal scenario to reduce the growth in spending.

Gene Tunny  00:21

Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist based in Brisbane, Australia, and I’m a former Australian Treasury official. This is episode 159 on the US federal budget and debt. My guest is Romina Boccia, Director of budget and entitlement policy at the Cato Institute. Romina is concerned that the US is on a path toward a fiscal crisis. We chat about why this is so and what can be done about it. Please check out the show notes, relevant links and details of how you can get in touch. You can send me an email or a voice message. Please get in touch and let me know what you think about what either Romina or I have to say in this episode, I’d love to hear from you. Right now for my conversation with Romina Boccia about the US federal budget. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. Hope you enjoy it. Romina Boccia, a director of budget and entitlement policy at the Cato Institute. Romina, great to be speaking with you today.

Romina Boccia  01:26

Thanks so much for having me on your show, Gene.

Gene Tunny  01:29

Oh, it’s, it’s excellent. So you’ve joined Cato in recent months, haven’t you Romania. And I read one of your pieces in which you are introducing yourself at Cato. And you wrote that, today I am joining the Cato Institute, to do my part to prevent a severe US fiscal crisis by restraining the federal budget Leviathan. I’ll write and speak about federal spending, the budget process, the economic implications of rising debt, and Social Security and Medicare reform. So really big topics there. To start off with, could I ask you, what do you mean by a fiscal crisis? Just how bad do you think things currently are? How bad could they get in the US?

Romina Boccia  02:26

Yes, you know, the thing with a fiscal crises is a bit like when, whether you’re entering a recession or not that you don’t quite know if you’re in it until you’re in it. And in the United States scenario, there are quite a few factors that make it even more difficult to predict if our when a fiscal crisis might occur, because the United States, of course, as you’re aware, provides the US dollar, which is a world, the primary world reserve currency, which allows the United States government to get away with a lot worse fiscal policy than another nation state might. But that doesn’t mean that lawmakers in the United States can just rest on those laurels. And think that they can spend and borrow as much as they would like in order to satisfy their constituent spending demands, without facing any consequences for that. So what I mean by fiscal crises, and we’ve seen this in various countries over the course of roughly 800 to 1000 years of history. Carmen, Kenneth Rogoff and Carmen Reinhart did an excellent book on this, that, despite a small mistake they made in a research paper, which was corrected later on, still stands in its lessons. And that was over 800 years of history of public debt, and how that affects the countries that accumulate that debt. And so, in, in the scenario of US fiscal crisis, we could potentially face a sudden and very high rise in interest rates, much higher and much more sudden than we’re currently experiencing. And that could result in disrupting productive investments severely lead us into a significant recession. And this could also potentially precede an episode of hyperinflation, which is something that other countries have lived through in the past. I’m originally from Germany, that has a history of hyperinflation after World War Two. And, and that type of rapid accelerating out of control inflation would be very, very damaging to the country, disrupting employment, markets and causing a tremendous pain for US households. And even just, you know, the recent bout of inflation, which was quite severe and not something that the US population has experienced in a long time. Even that doesn’t come close to what we might potentially face in a hyperinflationary scenario. And in the long run, if the US is fiscal standing were to change significantly if the dollar were to lose its prominent status as a world reserve currency, if markets employment investment were severely disrupted, if inflation got out of control, and the Fed wasn’t able to put this genie back in the bottle, it could also have other unforeseen ramifications affecting the security and global standing of the United States as an economic powerhouse as a foreign powerhouse. And also, its, its attractiveness as a destination for immigrants, investment, etc. My point is that lawmakers are playing with fire. And the sooner they come to reckon with that fact and start making amends, the higher the likelihood that we will be able to avert such a fiscal crisis. But it’s it’s a tough pill to swallow because the programmes that are driving us into this large and rising debt, and that could potentially precipitate a fiscal crisis in the future, who knows when those are also the most popular federal government programmes, namely, Social Security and Medicare, which is why in my work, I want to be focused on making reforms to those drivers of growing spending.

Gene Tunny  06:57

Right. Okay, so you mentioned hyperinflation, and we had a, I had a conversation in the last episode about hyperinflation and you refer to the hyperinflation. So Germany had very extreme, it had hyperinflation after the First World War, when the Weimar Republic, and, I mean, there’s a certain set of circumstances that lead to hyperinflation, I mean, a breakdown of your economic system, really your tax, the ability to raise taxes, and then the government turns on the printing press. So that’s the worst case. But short of that your, I think, uh, you’re, you’re concerned about them? Are you concerned about them having to make rapid adjustments, cutting other programmes to be able to service the interest bill or having to raise taxes? Is that the type of scenario you have in mind.

Romina Boccia  07:54

I think that in a, in a lower severity scenario, what we’ve, what we’ll see is much higher tax rates in the United States in the future, which will negatively impact growth and standards of living, and could also undermine the United States as a, as a, as an innovation powerhouse. There’s also a scenario where the debt continues to rise, lawmakers avoid tax increases, and we find ourselves in more of a Japan like stagnation where the economy barely grows, or maybe growth is even negative for some period of time. That’s another, that’s another alternative, which is also not very desirable. Or in, a in a worst scenario. You know, I don’t, I don’t see lawmakers making rapid changes to Social Security and Medicare unless they had no other options left. Yeah, because their primary interest is to get reelected. So I could see us more likely entering into a high inflation scenario in an attempt to continue to pay these benefits, despite there not being the revenue for it. And, you know, the United States can, can and does print its own money. And we’ve seen several bouts of so-called quantitative easing, which are a version of that, where that unfortunately, to me seems more likely than significant changes to entitlement programmes unless we can strike some kind of a grand bargain, which has happened in other nations before. One scenario found quite illustrative is, Sweden went through some significant budgetary reforms. Many of its means tested and other social insurance programmes. And while Sweden still has much higher tax rates than the United States, they’ve, they’ve been able to get to a place where they’re roughly balancing their budget over time. And that is certainly a more stable scenario than the rapid. And at times accelerating increase in the deficit that we’ve seen in the United States. Of course, we’re coming out of a very highly unusual period of time, with massive supplemental spending bills due to the COVID pandemic, and unprecedented deficits. And those are now declining, because we’re not spending as much as we did during the pandemic, but still, us spending as a steep upward trajectory. And most of it, most of that growth will be financed by additional borrowing, which is, which is quite troubling.

Gene Tunny  10:50

Yeah. So you’ve got deficits projected out for the next few decades, if I remember correctly, I think there was a CBO. Or actually, yeah, Office of Management and Budget, congressional and Congressional Budget Office, there’s a chart from the Council on Foreign Relations, I’ll put a link in the show notes. But it’s got the federal deficit, going from several percentage points of GDP, wherever it is now. And then over the next 30 years, it goes, this is all business as usual, if you just assume nothing changes, and I mean, hopefully something changes, they’ve got it getting up to over 13% of GDP, this is the deficit by 2050. Are these the types of projections you’re looking at Romina. And that’s what’s informing your commentary on this?

Romina Boccia  11:42

Yes, so the Congressional Budget Office is a very reliable primary source in the US Congress. It’s a nonpartisan agency that provides information to Congress. However, they are somewhat limited in how they do projections as well. And there have been some questions about some of their assumptions pertaining to fertility and growth, and at times under estimating the potential increase in higher interest rates. So there are some alternative scenarios as well that we consider as fiscal scholars. So we have a range of potential outcomes that we look at. None of them are very good. The current Congressional Budget Office projections are also in many ways, too optimistic. Because the Congressional Budget Office is, is tasked with projecting the deficit and debt and spending levels based on assumptions of current policy. Now, there are many policies, especially tax policies, but also some spending policies in the US context that have been intentionally adopted for a temporary period of time, like certain middle class tax cuts that are slated to expire that were put in place by the Trump administration by 2025. And it seems highly unlikely that Congress will allow those to expire. Because of the families and individuals, middle class families and individuals that would be affected, it would seem like that would not be very politically popular. So if we run alternative assumptions, where those tax cuts get extended, the, the debt scenario going forward looks a lot worse. We’re going from 185% of GDP and publicly held debt over the next 30 years from the current 110% level, to more than doubling to 260% of GDP, and that, again, over 30 years doesn’t take into account that there might be natural disasters, that there could be another war, or the US might get involved in a current active war more so than it has in the past. Or that there could be another pandemic. I mean, lots of things can happen over the next 30 years. And none of those are taken into account with those projections. So again, the better solution is to realise that we are on a highly precarious fiscal trajectory, even under the best circumstances, and now is the time to to adjust our fiscal scenario to reduce the growth in spending. And because that’s what’s driving it, you know, tax revenues are above their historical average level, even with the economy slowing down. And so that’s not what’s driving the growth in the debt and the deficit. It’s it’s very much on spending and primarily spending on so called entitlement programmes and their entitlement programmes, because you don’t have to be poor, you don’t have to. Yeah, you don’t have to be in grave need in order to qualify. Medicare and Social Security are primary or really old age entitlements, with some contributions made by individuals over their lifetimes, but not contributions in the sense of contributions made to say a 401 K, which is the US retirement account that individuals contribute to, they make their defined contributions, and then they own those assets in those accounts. That’s not how these programmes work. There are tax and spend programmes or pay as you go programmes where current workers have financing benefits, health care and retirement benefits for the retire generation. And, of course, lawmakers were able to make promises to these individuals without concerning themselves with how those benefits would be paid. No provision was made to pay those benefits, even social security in the United States context where for some time, there were surpluses, that the programme was accumulating, but they were spend immediately on other federal government priorities. They weren’t saved for Social Security. So now that those bills are coming due, Social Security is already running deficits. Those those those, those prior surplus funds there, they don’t they don’t exist anymore. They would just spend on other priorities. And now Congress would need to raise taxes, or in this case, they’re borrowing more to make up for, for that discrepancy and what they’ve promised current beneficiaries, current retirees, and what they’re able to collect from current workers.

Gene Tunny  17:00

Yeah, I remember reading in the 80s. Or maybe I read the book in the early 90s, that the last time people were worried about the US deficit and debt. This was before the 90s, before Clinton and Gingrich struck some sort of accommodation struck, struck some sort of deal and then managed to get the budget under control for a while. I remember there was a book by Benjamin Friedman, who was at Harvard and day of reckoning. And, and the concern there was because of the tax cuts in the 80s, and the big spending on the, the defence, all of the defence spending, which I mean, arguably lead to the demise of the Soviet Union. So big tick there, but did blow out the deficit. I think the way Friedman described it was that there was a Social Security Trust Fund and the government just took the money out of it and put IOUs in it. So is that right that? Is that roughly right there there? What the I think this is what you were talking about. There was a surplus, but then that money was spent on other purposes?

Romina Boccia  18:12

Yes, the, that’s roughly right. The Social Security trust fund is mainly it’s an accounting mechanism. But it isn’t a trust fund, like you would think about it in the economic or investment sense. Because those trust, investment trust funds would hold real economic assets, could be a portfolio of stocks and bonds. Treasury securities, cash, you name it. The Social Security trust fund is an accounting mechanism for internal governmental purposes. It’s basically is a provision in law that allows Social Security to continue to pay benefits, even when current taxes are no longer sufficient to pay for those benefits. And to find the money elsewhere, in this case, from the Treasury through borrowing by selling more US debt in, in open markets. But those Yeah, those assets, there were no assets in it ever. The way it works is when employers pay payroll taxes or self employed individuals pay their payroll taxes, they go to the Treasury just with, with their income taxes and every and all other tax revenue that the Treasury is collecting. There’s no distinction made, whether those are payroll taxes that are supposed to be designated for Social Security or income taxes or, or corporate taxes. It all gets muddled at that point. And then that money just goes out for current government spending. The US federal government doesn’t have a policy of, say, of saving. And, and so that never happened. Now, the best way in my view, to establish financial security in old age for individuals, if you’re going to have mandatory government programme to, let’s say, help individuals to save for their, for the later years, because apparently, we don’t trust individuals to be able to do that for themselves, then the best way to do it is to do it in a defined contribution way, rather than the current system, which is more akin to a defined benefit system, where you qualify for certain benefit, regardless of what you paid into the system or, or how much money is in the system to pay out those benefits. So a defined contribution system, you would actually set up a savings mechanism, you might invest those funds in the market. Now, I’m not really comfortable with the federal government getting involved in that to a great degree, I would be much more comfortable with individuals being able to own and control the funds in their own accounts. Because the government, as always is subject to special interest pressure, we’re seeing this in the United States with pension funds in the state local level right now, where you have special interest groups, especially the environmental left pushing to disinvest, from fossil fuels and, and other areas of the economy that they disagree with, where there’s more concern for pushing a political agenda through these public investments, then the primary consideration which should be gains for the beneficiaries of these accounts, and I would see a very similar risk if the US government adopted a system of private social security accounts, but actually controlled the investments in those so much better for individuals to be able to control and own their own retirement funds. Though in the big picture, I don’t even think that that is necessary anymore in a way for the federal government to get involved with. I think that the best role the government could play as just to provide a minimum level of security in old age, with the goal of protecting older individuals from falling into poverty if they run out of their own, own resources because they live longer than perhaps they were expecting, or they had low incomes all their lives, and were never really able to save a whole lot, or maybe they fell on hard times their business went went bankrupt, you name it, there’s all sorts of scenarios why individuals can find themselves in need of help. But in terms of private retirement savings, we live in an era where it is so simple to set up auto enrolment savings, to have automatic investments through Target Date retirement funds and other index funds where you don’t have to be a financial whiz to manage your own retirement investments. You can, you can do so much more easily than was the case 85 years ago, when a Social Security first originated. So I questioned the need for a forced, a government based force mechanism for individuals to provide for their own security in old age. I think a minimum poverty level benefit, combined with private individual savings that are owned and controlled by individuals themselves, make much more sense and also take those funds out of the hands of the government which of course, spent the money when it was collecting Social Security funds. They didn’t go towards social security in the end, they went to defence, they went to other social programmes. They went to subsidies and corporate welfare and all sorts of places, but not for their intended use.

Gene Tunny  24:03

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

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Gene Tunny  24:37

Now back to the show. Can I ask about Social Security? So your ,Are you suggesting that the level of social security in the US it’s too generous and that those benefits should be cut? Is that what you’re suggesting? So and that would encourage people to, to save in their own way retirement accounts.

Romina Boccia  25:02

Yes, I’m very much suggesting this. And the benefits are too generous in a number of ways, one of which is that the eligibility age for Social Security has barely budged in light of significant increases in life expectancy. That means that the number of years that have been that individuals are eligible to collect social security benefits has risen significantly. While the number of years that they have to, they’re required to work to qualify for those benefits has not. And so you get an imbalance there, where when Social Security was first launched, the eligibility age was actually above the life expectancy of, of that age, such that very few individuals were expected to ever claim that benefit, it was primarily set aside for those lucky or poor souls who outlive their peers. But today, the Social Security aged early claiming ages is still 62. Right? And, and individuals now live to be roughly 78, which is the current roughly the current life expectancy in the United States. And so there’s many, many more years that individuals can claim those benefits, but they don’t have to work any longer. So that has made the programme more generous over time. And also more unaffordable. Another factor is that the highest income earners receive the highest benefits from Social Security. And they need those benefits the lease. Yeah, so one way to fix the financial picture and also focus benefits on those individuals who need the most. If that was the original intent of old age income support programme, would be to Means test those benefits. Now, I think a fairer way to do this would be by adjusting the benefit formula. So the Means Test doesn’t apply once individuals are in retirement, especially if they’ve done the right thing. They, they work their, their whole lives, they set aside their own funds, so they could enjoy a comfortable retirement. We don’t want to penalise those individuals for doing the right thing for saving for their own needs. But there are ways of making the benefit formula more progressive, that acts as a means test as well. Except it considers lifetime earnings rather than just income in retirement.

Gene Tunny  27:48

Yeah, I think that’s a really good point. Romina. It didn’t occur to me that was the case that the more you earn, the more the government pays you in Social Security after when you retire. So I was just looking on the web. And I’ll put links in the show notes regarding this. So the average social, social security benefit is $1,657 per month, that was in January 2022. So conceivably, there are people getting more than that from the federal government each month as in Social Security. And, yeah, I can see the logic in, in changing that formula.

Romina Boccia  28:31

You’re correct about the average Social Security benefit, but there are some higher income earners can collect up closer to $3,300 per month in Social Security benefits. And that doesn’t account for if you’re looking at a married couple, an additional spousal benefit, that, that would bring their security benefit more than 4500 to $5,000 per month range.

Gene Tunny  29:02

Yeah. And some of these households probably don’t need it because they’ve got other assets, they own their own home, they’ve got investments, etc. Okay. Now, that’s, that’s Social Security. Is that the big? That’s the big programme driving the future deficits, is it or to what to what extent is it Medicare and Medicaid? Do they play a role too?

Romina Boccia  29:25

Yes, Medicare is actually the elephant in the room. Because with Social Security, you’re primarily looking at a fairly predictable benefit formula where you consider demographic factors like fertility rates, the number of new workers in the United States, including immigrants, and then when do, when do people reach the eligibility age roughly in their mid 60s, and what is their life expectancy? And so right now we’re going through a big growth spurt in Social Security as the baby boomers started retiring at, at significant rates, I want to say it was 11,000 per day. 10,000 per day, I think it was 10,000 per day starting in 2011. And over a 20 year period of time, we’re moving through this big bubble of baby boomers entering the Social Security and Medicare systems. Once we’re through that baby boom, bubble, there’s a decline in fertility after that baby boom. And so Social Security roughly levels out at 6% of GDP. And then, you know, fluctuates around around there. But with Medicare, because you’re looking at a health insurance programme, and health care costs are rising steeply, and don’t seem to be slowing down. And what we also know is that health care is a luxury good, where as societies become wealthier, they desire to consume more health care. So wealthier societies tend to increase the portion of their budgets that they spend on health care, not all of which is is very well spend, we also know that much of healthcare expenditures are going towards the signalling or showing that you care, and paying for medical treatments for conditions that that don’t respond well to those treatments for a number of incentives. And that were spending the most during individuals final years of their lives, where perhaps that additional dollar of healthcare spending isn’t doing that much good anymore. But all of those factors are driving up the growth in health care spending. And that seems to be just going up with that with none of that leaving and inside, if you will, for where it will taper off, we can’t we don’t know when or if it will taper off. And so Medicare is the big elephant in the room. And there too, you have very similar issues where, again, the eligibility age is roughly 65 hasn’t gone up, as individuals are living longer. So increasing the retirement age and then indexing the age of eligibility to increases in life expectancy is a very common sense, change that would help alleviate some of the cost drivers. And the other one, again, is that you should consider how much of a health care subsidy you should be giving, if any, to to high income earners. Those individuals who are capable of paying for their own health care, and retirement should pay for a larger share of it. So that you can focus benefits on those individuals who need them to most means testing is one very, very common sense way of adjusting how much you know, the programme spends and who would spend that money on and to get more in line with what incoming revenues and not to drive up the deficit too much. But in the big picture, I think we we’ve come to over rely on a third party payment system where there’s a lot of treatments and even administrative costs are skyrocketing. Because there’s very little consumer interaction in this marketplace. So much is paid. The vast majority of health care expenditures are paid through insurance systems, I think the best use of an insurance system is to pay for catastrophic health care to pay for very expensive chronic conditions to pay for, you know, a big accidents that, that incur large medical costs for individuals, but not for routine healthcare needs. And that’s that’s where we’ve ended up over over several decades of shifting towards a system of third party payment. And, and one of the big reasons in the United States for that is after World War Two, the health care tax exclusion for employer provided health care has really driven up the cost of health care in the United States. And we should have fairer treatment for individuals who are self employed or who choose not to use their employer’s health care to be able to at least get the same tax treatment as their employer. Better yet. My colleague Michael Tanner at Cato has put forth a proposal where instead of employers buying health insurance for their employees, they could provide the funds that they would spend on their employees health insurance through a health savings account, and then the employees themselves could decide how much of that they want to allocate towards health insurance and how much of that they might want to keep in those health savings accounts to pay for out of pocket costs, such as getting A high deductible health insurance plan that’s primarily focused on those catastrophic expenses, while paying for routine health care needs, out of their health savings accounts, that would bring more consumer involvement into this marketplace, which would also help with price transparency, as consumers become more educated as healthcare consumers, and especially for routine treatments start shopping around. Of course, it’s not possible if you are being picked up in an ambulance because you just suffered from an emergency. But there are, there are other scenarios where becoming a more cost conscious patient and healthcare consumer makes a lot of sense and can help to reduce costs.

Gene Tunny  35:47

Hmm, I’ll have to look at Michael’s work. So Michael Tanner, you mentioned his work. Yeah. But I’ll have to, I’ll have to come back to health in a future episode, because I know it’s a very complicated area to look at. On Medicare Romina, do you have any figures on that? I mean, you mentioned it was at US Social Security will get up to about 6% of GDP. Did I hear that right? And do you have any comparable figures for Medicare?

Romina Boccia  36:17

I’m not going to top of my head, but the Congressional Budget Office provides those in their budget and economic outlook. I’m more focused on Social Security, because as you just mentioned, Medicare has its own complex bag of a variety of different policies. So we have a scholar solely dedicated to that.

Gene Tunny  36:41

Yeah, yeah. Fair enough. And I mean, my understanding is that the Social Security’s that’s the, that’s the big one. But then you’re saying that yeah, Medicare is a, it’s an important issue.

Romina Boccia  36:52

It’s approaching, yeah, the size of Social Security. So between Medicare and Social Security, more than half of the federal government’s budget goes towards these two programmes. Okay, gotcha. So they make up the vast majority of federal spending now, and they’re projected to grow significantly.

Gene Tunny  37:10

Right, do you have any concerns about defence spending at all? I mean, often one thing that’s often pointed out as well, I mean, the US spends much more than any other country on defence, of course, you’ve got an important role in the, the world economic or the world geopolitical order, or however you’d like to describe it. So have you looked at that? And do you have any thoughts on defence?

Romina Boccia  37:34

No, not just the fence. But so the way that the budget is, is allocated in the US context is that there’s a so called discretionary spending, which makes up roughly 1/3. And then there’s the so called mandatory or autopilot spending and the key differences that discretionary spending has to be voted on each and every year. For example, this week, the US Congress is voting on defence and non defence discretionary spending to avert a government shutdown because we’re at the end of the fiscal year. That is not the case for programmes like Medicare and Social Security and even Medicaid, which which which have authorizations, which have spending allocations that don’t expire, so they can just continue spending even when the resources aren’t there. But both non defence and defence discretionary spending has seen a large increases, especially during the pandemic, there’s been large increases in in nondefense discretionary spending for varieties of things including support for state and local government to weather the pandemic. Various handouts for special interest groups. We just recently saw the chips act pass for the semiconductor industry in the United States. And then the inflation Reduction Act, which had a lot of green New Deal policies to subsidise green energy and electric vehicles, etc. So there’s been a while that spending, it doesn’t get projected out over the extended periods, 30 years 50 or 75 years in the case of Social Security, Medicare, because Congress, allocates, appropriates it every single year. We are seeing a rise in discretionary spending also in the area of emergency and disaster relief with no budget or notional account to control that spending. So it’s often used as a as a loophole to fund other priorities without going through the regular budget process. And, yes, overall, I’m concerned about most aspects of the federal government being on a growth trajectory and defence and non defence discretionary spending very much in that in that sphere. are as well. One of one solution there is to adopt us spending caps and the US has adopted those, with some success in the past, with little less success in the recent past. But discretionary spending caps that set a goal or a level that then lawmakers have to fight over or the public can hold them to account for can be very helpful. We don’t have any discretionary spending caps right now. And I think it sets up a good discussion when you have those to say, Okay, if you truly believe that, that is not sufficient, you need to spend more, what can we cut instead. And then in more likely scenario, lawmakers are not going to want to cut anything. So instead, we get some discussion over offsetting spending cuts elsewhere, say in the mandatory portion of the budget. Or if they increase, it agreed to a spending increase, at least now we have something we can hold them to. So I do think it sets up a productive debate around the purpose of spending limits priorities for the federal government, what are true priorities and what they’re just want to have spore favourite lobbying groups, so that the public can do a better job also of holding their lawmakers accountable. And there is an opportunity for the US Congress, the new Congress in the next year to impose more spending restraint. The debt limit will approach again likely next summer and the summer of 2023. And the debt limit is often a very effective action forcing mechanism for fiscal restraint. Basically, lawmakers can make demands that they won’t increase the debt limit, unless there are offsetting spending cuts or a budget plan is put in place. And I think a spending caps over the entire federal budget would be, would be best so that Congress can budget within so called Unified budget, consider all priorities and needs within context and and make those necessary trade offs. But one, one good start and those are easy to implement would be discretionary spending caps on defence and non defence.

Gene Tunny  42:16

Right. Okay, I’ll have to look back and see some, look for some examples of those spending caps in the past that sounds really interesting.

Romina Boccia  42:28

So yes, we had the, the Budget Control Act of 2011, that imposed spending caps for a period of roughly 10 years, but they were, they were circumvented several times. But there were also some offsetting spending cuts to allow for those increases in defence and non defence. The other thing that has become sort of gimmicky in the US context, under President Obama and the Democrats are continuing to try and push this, this this idea of parity that the defence account and the non defence, domestic discretionary accounts should be getting the same amount of money, which is just a goal that they have set as if it this was some kind of a political game without any consideration for real needs, either in the domestic economy or on the defence side, the threats that the United States face, it’s just an arbitrary target, we just want to get as much money as the other guys. And that just doesn’t make any sense at all. And I think I think the public should, should call lawmakers out for that apparently doesn’t make any sense we should not be allocating any more spending than is, is necessary. And it should also be within the within the bounds of the US Constitution. Because that document has a has a purpose, which is to restrain the government and protect the rights of the, of the individual. And so that should be our guidance for what to spend money on and how much to spend not some arbitrary goal of we just want parody because it’s political.

Gene Tunny  44:06

Yeah, yeah. Okay, final question. Romina. Have you looked at what we do here in Australia or what’s done in New Zealand with retirement savings? Have you looked at our we have a compulsory.

Romina Boccia  44:18

A little bit? Yeah, I was reading up recently on, on the superannuation, I think it’s called. Yeah, I mean, I like the defined contribution aspect, but I also recognise that there’s a push to increase the amount that employers have to pay for their employees superannuation and, and that can create distortionary incentives for how many individuals to employ because you’re driving up the cost of labour, I would see, I would think that that would be an issue, but what are your thoughts on how how the system’s working?

Gene Tunny  44:53

Oh, well, I think overall, it’s, it’s better to have it than not have it. So we did have the problem that people were too reliant on the aged pension here. So you’re, well, what our Social Security programme for the elderly, although there are differences in the, in the the rate and it doesn’t. It’s not, it doesn’t increase if you contribute more over your, your lifetime. So if you have higher earnings over your lifetime, so it’s different in that regard. And yeah, so I think it’s, it’s good that we’ve got a system that takes some of the pressure off the age pension, but we’ve still got rising age pension costs, it hasn’t removed that problem entirely, the future imposed on the budget of our age pension is a lot lower than your Social Security system from what I can just from my quick, the quick look, I’ve had the figures. Yep. So I think it’s good in that regard. But yeah, you’re right, there is that issue of the fact that in the short run the can hit employers, so we’ve had an increase in the contribution rate, it was 9%. And they’ve been increasing it, I think half a percent every couple of years. And now it’s up at 10 and a half percent, if I remember correctly. And so initially, the employer has to pay more each quarter to the Australian Tax Office, I’m an employer. So this is something I’m very conscious of. So I’ve had to increase the superannuation contributions. But over the long term, I think what the expectation is that it will come out of wages of the employees, so the employees will end up paying for it, because it is a form of compensation. That’s how it was initially sold in the 90s, when it was introduced. So it was a trade off. The treasurer at the time, Paul Keating, who was on, he was part of the Labour Party, he was on the, on the left of politics, but it was a very sensible, very moderate government, and highly praised around the world for economic reforms. And the way that he sold it was that you will get this super so you’re getting the super, but it means you have to have wage restraint at the same time. So that trade off was explicitly recognised. So yeah, but in the short run, there’s a, there’s certainly an impact on employers. But there’s a recognition that over the longer term, it really is the employees who will be paying for it. Look, there are a couple of issues with the, the design of, of super, there’s a concern that these industry super funds control, they have too much control or they’re controlling too much money and they’re too dominated by unions. There are people who are concerned about that. There are other people that are arguing that oh, look, it’d be better if people had access to this money. So they could buy a house, there’s a big debate about whether people should be able to withdraw from Super to buy a house. What else? Yeah, and clearly, some people might be better off if they were able to use that money while they, were while they were young. And when we had COVID. During the COVID period, the government did allow people to withdraw from their super accounts. And we saw a lot of people take that up. And I think they pulled 10 or $20,000 out, if I remember correctly, that was very popular. So yeah, overall, I think it’s a good thing, even though, as a someone who’s very sympathetic to classical, liberal views, I think, Oh, well, it’s not good that the government saying you’ve got to do this, but on the other hand, I recognise that for a lot of people, they might not be saving enough for retirement, and therefore in that case, the government would have to pay for it. So look on balance, I think it’s good. We’ve got it there and are some issues with it. Sure. Yep. So that’s my general, Yeah, that all make sense or any questions.

Romina Boccia  49:17

It’s, it’s certainly an improvement over the US Social Security system where it’s the government handling the entire thing, even though there are contributions by workers and their employers. I did read that individuals who pulled funds from their super accounts during COVID on average, spend longer unemployed than individuals who didn’t choose to tap their super accounts. So it indicates just like in the US, we saw that extended unemployment benefits tend to incentivize people to stay home longer and go back to work later. Even in the context of super, that seems to have had a similar effect.

Gene Tunny  50:07

Yeah, I think that’s that’s probably true. We’ll have to look up that, that evidence of that sounds right to me. Right. Oh, well, remember, this has been fantastic. I think that’s been a great overview of the fiscal challenges facing the US. I hope that you’re, they’re inviting you to appear before Congress at some time to testify to get your views because I think they’re really well informed and important views. So that’s terrific. So yeah, if there’s any final points, anything else to add?

Romina Boccia  50:42

Thank you. I just wanted to just looked up Medicare as a percentage of GDP and it’s roughly 4% right now. Going up.

Gene Tunny  50:49

Okay, gotcha. Right. So that is a big deal. Okay Romina Boccia from the Cato Institute. Thanks so much for your time. I really appreciate your insights and really enjoyed the conversation.

Romina Boccia  51:02

Yeah, so fun chatting with you, Gene. Thanks so much for inviting me on your show.

Gene Tunny  51:06

Okay, thanks Romina. 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 Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

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Podcast episode

EP68 – COVID and Wartime: Comparison of economic impacts

Economics Explored episode 68 COVID and Wartime features a conversation on whether COVID can be compared to wartime, which considers the different scales and scopes of the shocks, and what it all means for prospects for economic recovery. Economics Explored host Gene Tunny, an Australian professional economist and former Treasury official, speaks with businessman Tim Hughes, also based in Brisbane, Australia.

Gene and Tim conclude that a comparison of COVID to wartime isn’t valid. One reason is that World War II required a complete reorganisation of the economy to maximise production for the war effort, while COVID has involved restrictions that have reduced economic activity. 

Links relevant to the conversation include:

Comparing COVID-19 to past world war efforts is premature — and presumptuous

US Council on Foreign Relations Backgrounder on The National Debt Dilemma

Brookings on What’s the Fed doing in response to the COVID-19 crisis? What more could it do?

Australia’s Boldest Experiment (excellent book on Australia’s wartime economy)

Robert Gordon’s The Rise and Fall of American Growth (outstanding book by a leading US economist containing a great discussion of America’s wartime economy)

Aussies over-confident after being over-compensated by Gov’t for COVID-recession

Mint security lapse amazes judge (story about theft from the Australian Mint in early-to-mid 2000s)

Finally, the word Gene got stuck on at 6:55, irredentist, means, “a person advocating the restoration to their country of any territory formerly belonging to it”, according to Oxford Languages.

If you’d like to ask a question for Gene to answer in a future episode or if you’d like to make a comment or suggestion, please get in touch via the website. Thanks for listening.