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Podcast episode

Jimmy Carter the Great Deregulator, AmFest, MAGA & Migration, and Why Competition? w/ Darren Brady Nelson  – EP269

Gene Tunny and Darren Brady Nelson discuss the economic legacy of President Jimmy Carter, highlighting his deregulation efforts, particularly in aviation, which led to increased competition and significant cost savings. They also touch on Carter’s appointment of Paul Volcker as Federal Reserve Chairman, credited with fighting inflation. The conversation shifts to the America Fest conference in Phoenix, where key speakers included Charlie Kirk, Tucker Carlson, and Glenn Beck. They discuss the tensions within the MAGA movement, particularly around immigration policies. Lastly, they explore the intersection of Christian economics and competition, emphasizing its ethical foundations and the potential for a moral case for free markets.

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.

You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.

Timestamps for EP269

  • President Jimmy Carter’s Legacy and Deregulation (0:00)
  • Carter’s Economic Policies and Personal Anecdotes (5:16)
  • America Fest Conference in Phoenix (14:36)
  • Trump’s Speech and MAGA Movement Dynamics (27:46)
  • Christian Economics and Competition (36:34)
  • Darren’s Critique of Mainstream Economics and Antitrust Regulation (51:22)
  • Regulatory Challenges and Natural Monopolies (55:55)
  • Final Thoughts and Future Directions (59:26)

Takeaways

  1. Jimmy Carter’s Deregulation Impact: Carter’s policies in aviation, trucking, and beer production revolutionized U.S. markets, creating long-lasting consumer benefits.
  2. MAGA’s Immigration Debate: Tensions exist between Bannon’s nationalist stance and Musk’s globalist vision for high-skilled immigration policies.
  3. The Role of Competition: Darren highlighted the economic and ethical importance of competition, criticizing overreach in antitrust regulations.

Links relevant to the conversation

Mises Institute article “Jimmy Carter’s Legacy Is Much More than Good Deeds Done in His Later Years”:

https://mises.org/mises-wire/jimmy-carters-legacy-much-more-good-deeds-done-his-later-years

The previous episode with Darren:

https://economicsexplored.com/2024/11/10/trump-2-0-w-top-wisconsin-door-knocker-economist-darren-brady-nelson-ep261/

Great Reset discussion with Darren from 2020:
https://economics-explained.simplecast.com/episodes/the-great-reset 

Larry Reed, President Emeritus of FEE, speaking about the Parable of the Vineyard Workers:

https://economicsexplored.com/2022/02/05/price-controls-to-fight-inflation-a-bad-idea-infrastructure-lessons-from-potus-21-ep125/

Darren’s articles in Concurrences on competition and antitrust (paywalled, alas):
https://www.concurrences.com/en/page/recherche/?recherche=darren+nelson#

Alfred Kahn’s Economics of Regulation:

https://www.amazon.com.au/Economics-Regulation-Principles-Institutions/dp/0262610523

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Transcript: Jimmy Carter the Great Deregulator, AmFest, MAGA & Migration, and Why Competition? w/ Darren Brady Nelson  – EP269

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

Gene, welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. It’s Saturday, fourth of January, 2025 here in Brisbane, Australia. However, it’s Friday, the third of January in Milwaukee, in the USA, where my guest is based, and it’s Darren Brady Nelson coming back onto the show. Darren, good to have you back on the program. Thank you.3

Darren Brady Nelson  00:55

Thank you. Am I? Am I now in first place, or is that other?

Gene Tunny  00:58

Yeah? Oh, you’re definitely in first place. I think you’ve been in first place in terms of number of appearances for a long time, so

Darren Brady Nelson  01:08

not in quality, just but quantity. I’ll take.

Gene Tunny  01:12

Very good. Wow, yes, yes. I mean, it’s all about consistency, isn’t it that? Yeah, absolutely. Okay. Very good. Well, Darren, thanks for joining me. I wanted to chat with you about a few things. I mean, first we had the news about President Jimmy Carter. He died earlier this week, lived to 100 impressive innings, and you sent me something interesting on Carter being a great deregulator. And I wanted to talk to you about that. I also want to talk about the America fest that you attended. You’re in Phoenix, Arizona. That’s a turning point USA event. And then Doge Trump 2.0 what’s going on there? And finally, there’s an article you wrote recently on why competition. So I want to, want to touch on all of those things to begin with. Can I ask you about President Carter? Now Carter’s seen as well. Often this presidency is seen as an unsuccessful presidency, the presidency of malaise, the presidency before the Reagan administration. You sent an article on Carter being a great deregulator. So there were some positives that came out of the Carter administration. Can you tell us about those, please? Darren,

Darren Brady Nelson  02:30

well, I mean, I always think of two things, and I often even I kind of forgot about, you know, one of them, you know, then the article is about the second thing, which is about deregulation, essentially that, I mean, you think of deregulation in the US, you know, around that time, you probably would have thought, you know, Reagan, obviously, rather than Carter, I guess, you know, Carter would have, you know, certainly had the reputation, and Reagan, I guess, ran on that to some extent of you know, Jimmy Carter being a big government guy. And, you know, and maybe, you know, philosophically, perhaps he ultimately was, but, but the reality is, you know, two things that he did, obviously, was he did start the deregulation process in the US, particularly in transport, I believe, rail, trucking, aviation, and those are huge things, obviously, particularly aviation, you know, that really, I mean, I mean, all of them are, obviously, but I think aviation really is something that, you know, your average american really would have saw the benefits from, you know, maybe rail would have been a little bit more indirect, you know, kind of it might have been part of because they weren’t really deregulating in terms of, like, sort of so much transport, you know, like Amtrak, it would have been more kind of to do with, with freight, and people would have saw some of those benefits. But, you know, would have been kind of a little bit more indirect, same with trucking. You know, trucking would have fed through and, you know, lower prices and better services and all that to consumers, ultimately. But the aviation thing was the thing I think that really stuck out. And, you know, which later came to Australia. And perhaps I’m not, I guess, 100% sure, but you know, Australia usually, often does look to the US to, you know, to get some of its ideas both good and bad. So and the other thing just quickly to mention was that Carter appointed Paul Volcker as the head of the Federal Reserve. And you know, for mine, at least in my lifetime, I think he is by far the best Chairman of the Federal Reserve in terms of being, you know, someone was, you know, a very responsible person of the Federal Reserve, and, you know, having to do what he had to do to, like, try to fight inflation from the 1970s and then, you know, once he did that, to not then just go back to, sort of like, easy money. So sorry, I covered kind of probably more ground in just that introduction than. Than you were looking for. But

Gene Tunny  05:01

good, that’s good. I think it’s a good point about Volcker. I think most economists would agree with you on Paul Volcker, certainly. I mean, Greenspan’s legacy, he’s been his reputation was essentially wrecked by the financial crisis. If it weren’t for that, then he would have been the maestro. I mean, that’s what people were calling him, but, but since the financial crisis, I mean, and he’s seen as the Greenspan put they talk about. And, I mean, Greenspan’s policies are seen as having helped bring about that, that crisis. So I agree with you on Paul Volcker on airlines, I think you’re right. I mean, Australia, we had a two airline policy, and that wasn’t changed until the 1980s so we had the same problems, the restrictions on competition. Now, Carter introduced, it looks like it’s the Airline Deregulation Act in 1978 so that prohibited states from regulating air carrier prices, routes and services. So I think at one time in the states there, I mean, there are rules about how many airlines could compete in a particular market, and it was seen as, oh, this is better for consumers, because then you don’t have all of this terrible competition which is undermining the viability of the airlines. I mean, that’s how they thought, right? You’ve seen, well, you know, you

Darren Brady Nelson  06:19

don’t want the consumer to have too much choice. That’s just, you know, too difficult. Well, isn’t that?

Gene Tunny  06:23

Wasn’t there that scene in The Aviator with, with Alan Alda playing the the rate was he a regulator or a senator, and Alec Baldwin was playing one trip from Pan Am, and they were basically making the case. So this is justifying the regulation of the of the airways, and because they they wanted to crush Howard Hughes, who was trying to compete with them.

Darren Brady Nelson  06:49

Oh, okay, yeah, yeah, seen that movie. Sorry, yeah. Oh, you’d

Gene Tunny  06:52

love it. It’s great film. I mean, DiCaprio is an amazing actor and, yeah, but there’s that, that little, that sort of subplot there about the airline regulation and Alan Alda playing a senator. And I’m pretty sure that’s the avian I put a link in the show notes. It was really good. It’s worth, worth seeing. And I think there are some, sorry, so

Darren Brady Nelson  07:16

I was gonna say one. I forgot to mention the deregulation this. This one might, you know, be something that bit closer to your own heart, perhaps, is, you know, that his deregulation efforts extended to the production of beer making, making the kind of, you know, the particularly the craft beers and all that sort of thing. That industry kind of really grew in the wake of that, which is something I didn’t even realize I knew about the aviation stuff, and that’s really important, obviously, but, you know, it’s interesting that it even extended to things like beer, you know. So,

Gene Tunny  07:48

yeah, well, I mean, that’s important industry for Milwaukee, isn’t it, really, I mean, are you the beer capital of the USA?

Darren Brady Nelson  07:55

Well, they might have been against it because, you know, you know, they like the big, you know, like Miller was here. Miller still is here in Milwaukee. And there were other ones that, you know, have since probably really turned into craft beers, actually, industry interestingly, off these bigger like, there were Schlitz and Old Milwaukee and Pabst and all these other ones that, once upon a time were, you know, quite large beer companies, and, you know, I think they’ve kind of shrunk to become almost, you know, mid tier, possibly even, you know, more competing with the craft beers than they are with like Miller and Budweiser, yeah, yeah. So possibly, maybe walk ins weren’t all that keen on the deregulation, yes, yeah, yeah.

Gene Tunny  08:39

Good point. Okay, well, yeah, it’s an extraordinary legacy, and I’ll put some some links in the show notes, or estimates of how much it saved in terms of air airfares. I mean, airfares, certainly here in Australia, used to be prohibitively expensive, and you’d rarely fly. I mean, it was just so expensive, even in the in the 80s and and so there’s a story that Karen Chester tells she’s a former Treasury official here about how her mother, she couldn’t go visit her, her dying father or in Perth because the of the prohibitive airfares at the time. Just tragic story. And now, in real terms, they’re much cheaper. So many, you know, many poor, many more people flying. That’s the same as in the States. So and Alfred Khan. Was it? Alfred Khan, the economist who was an advisor to Jimmy Carter, who was an important figure in that story, Darren, yeah, I

Darren Brady Nelson  09:39

believe so. And you know, when I’ve, you know, my early days as an economist, you know, out of university, I first started doing sort of competition policy at New South Wales treasury. But then my second job was at the Queensland competition authority, doing, you know, regulation of of infrastructure and all that sort of stuff. And, you know, the, the first kind of textbook. That I kind of read was Alfred Khan’s, you know, he’s got, like, a super thick two volume, you know, sort of book on on the economics of regulation. And Volume Two, I think, was largely devoted to this sort of stuff. You know, a lot of these deregulation, deregulation efforts, particularly, you know, the current administration’s deregulation efforts that. So you know that that’s where I first cut my teeth on regulatory economics and the economics of deregulation as well, sort of thing. So the Queensland competition authority was trying to do kind of both, you know, like be a part of, you know, in, you know, as their name suggests, you know that maybe you help competition and where it can be, you know, sort of introduced or helped along, if you like, that was kind of, you know, their their dual mandate. I think all the kind of Australian state regulators kind of had that, you know, and the ACCC at the federal level now, you know, now they’ve kind of not so much involved in that sort of thing anymore. They kind of straight up regulation rather than being involved in deregulation. But at the time, when I joined the QCA, they were certainly, you know, trying to do that sort of thing as well.

Gene Tunny  11:11

Yeah, yeah, yeah. I’ll put a link in the shop. It

Darren Brady Nelson  11:15

was the textbook, basically. And that feel,

Gene Tunny  11:19

yeah, yeah. And do you have any memories of the Carter administration? Were you living in the States at the

Darren Brady Nelson  11:24

time? Oh, I was a little kid. And, yeah, but not really, you know, my kind of, you know, Reagan’s. I have stronger memories of Reagan because, you know, I was getting a bit older, so thing as a kid, so starting to remember Reagan more than than Carter. But, yeah, kind of small memories, you know, but you know, as a little kid, you know, peanut farmer or something, you know, and his brother and his brother Billy and his Billy beer, right? You go look that up. Yeah,

Gene Tunny  11:53

I vaguely remember all the bad news, because I think when I was first became conscious of the the news was probably late 70s, early 80s, and the news at that time coming out of, well, I mean, worldwide was just terrible. I mean, and you know, Carter had there was high inflation, wasn’t there, particularly after the revolution in Iran, and then because of, you know, impacts on the oil market, and then the hostage crisis, which just went on with the hostages from the American Embassy in Tehran, which just went on forever. And, I mean, that was, yeah, that was probably

Darren Brady Nelson  12:26

my first memories, along with the peanut farming and the fruitless sort of stuff you know about him, you know, being, you know, from a back his brother being a redneck who liked beer, yeah,

Gene Tunny  12:37

yeah. So, yeah, you’re right, yeah. So it’s interesting. He’s got a mixed record on the economy, good on the micro, but generally people think the macro story under Carter was was was poor and but his post presidential legacy has been extraordinary. Many seems to be much loved. He’s built houses for homeless people. He when He goes on flights, he shakes everyone’s hands. Yeah, it seems just to have a really quality, decent man. So, yes, I think an extraordinary, an extraordinary life

Darren Brady Nelson  13:14

well, and it’s funny that what the article I sent to you was from, you know, the Mises Institute. There’s another one which I could share with you. Won’t be too hard to find. Is there was an article there about, basically, the author was suggesting the last, if you like, you know, intellectual or debate, was actually Carter and Reagan, you know, like, you know, good debate about issues and policy, you know, not this kind of, you know, attacking each other and attacking each other as people and, you know, all that sort of stuff. You know, there was, there was levity, obviously, at times, you know, in the debate, you know, between Reagan and Carter, I think they even had some, at least, that levity carried over into the next election, 1984 with Reagan and trying to remember the film Mondale. That’s right, Carter is vice president. So, yeah, you know, times have changed, obviously, not always for the better in terms of, like, the quality of presidential debates. So, you know. So someone’s making the case. You know, basically the, you know, that was kind of the, the, the high watermark appeal of presidential debates was Reagan and Carter and, you know, in 1980

Gene Tunny  14:32

Yeah, okay, I love to check that out. That’s, that’s probably, that’s probably true, Alrighty, now, Darren, what was America fest? You went to this America fest conference in Phoenix. Can you tell us about that? Please?

Darren Brady Nelson  14:47

Yeah, so I think we talked about it, you know, like my the last time I was on the podcast that I was, you know, the door knocking economist, you know, there’s probably not too many of us like. That I’m guessing so, so that was for, essentially for turning point Turning Point action. It was a strange marriage, and I think I may have explained at the time, you know, between Turning Point action and Elon Musk’s America pack. So, you know, Charlie Kirk runs Turning Point action and turning point USA Turning Point space, kind of using the American parlance as a c4 it’s kind of, you know, more of a think tank type of outfit, although, you know, they do a lot of, sort of, like educating on on university campuses, and now they’ve extended that to sort of high school level as well. Turning Point actions, a straight up. You know, get out the vote for the candidates you like, right? Yeah, that’s a c4 sorry, yeah, I believe that’s, am I getting this wrong? No, but is that the c3 My apologies, my I think I need to drink some more coffee or something, but it’s all right. So, you know, they’re totally different types of organizations, and so anyway. So to make a long story short, all the people who did, you know, helped out on that election were offered the opportunity for, you know, free airfares and free hotel and free admission to America fest, which is put on by, you know, Charlie Kirk’s organization. And so it’s kind of like a, you know, if you’re aware of CPAC, you obviously wear CPAC Australia. CPAC Australia is obviously trying to do what CPAC us does, you know, big conference for not just conservative, just anybody, if you like, on the, you know, the right side of politics, whatever that means, you know, center right, whatever, conservatives, libertarians, including kind of, you know, modern day populists on the right. I mean, populists are in the left and the right. You know, over time. You know, that’s kind of a nebulous description populism, but you know, so in Australia, that would include, obviously, you know, Liberal National Party, folks, but include one nation libertarians, all that. And over here, obviously it’s, it’s Trump and, you know, Reagan conservatives, you know Ron Paul libertarians, whatever. And so America fest. I mean, you know it’s not, it’s basically trying to do what I guess CPAC does. And I don’t know the whole ins and outs on why it started out, they thought they needed this. And, you know, to, I’m not sure if they’re trying to be a rival to CPAC, or just, you know, or maybe if you like the markets big enough, and they wanted just another one, the way they hold it in Phoenix, it’s got a, you know, a more blatant, you know, America First type approach, you know, which is kind of a little bit more in line with, you know, the Make America Great Again movement, mega movement, not to say CPAC, not on board with that, because, you know, they are. I guess, if CPAC is trying to, maybe trying to combine that, but keep the establishment Republicans kind of still around, maybe an America fest is, like, we don’t really care about the establishment Republicans, you know, in fact, we want to push them out the door. So they’re probably a little bit more explicitly, you know, mega Not, not, not exclusively So, but they’re certainly, you know, they’re happy, obviously, probably for libertarian types, you know, like, you know, Ted Cruz is kind of bit of a more of a libertarian type, and, and he spoke, there’s certainly, you know, they’re definitely not for the establishment types and Mitch McConnell’s and and certainly not the Liz Cheney types, right? And certainly not the neoconservative types. So anyway, so that, and they hold it in Phoenix. I’m not sure how many they’ve had, I think they’ve had several or more. So basically, I think they took what was good of CPAC and they’ve added to it. There was certainly more energy. It was actually interesting, a bigger than CPAC in Washington, DC, which is saying something, because that’s pretty big, you know, that’s I’ve ever seen, was CPAC until I saw America fest. So

Gene Tunny  19:01

how many people? You’re talking 1000s of people. Oh, boy, oh, boy.

Darren Brady Nelson  19:05

I think the main hall holds 10,000 but the whole, but the whole, you know, conference area is bigger than that. Still, you know, so still, yeah, I don’t know what the numbers are. And, you know, we could probably find a link that maybe sort of said what those numbers might actually be, and I can share that with you where the audience can look that up. But, you know, the biggest thing I ever seen was CPAC, until I saw America fest, and it kind of reinvigorated me too, because I was, I was kind of getting sick of CPAC To be honest, you know, like not to say it was bad or whatever, I just kind of was getting sick of it. And this kind of, you know, the opening night of America Fest was like, you know, pretty Wow. Okay, you know the three key speakers that, I mean, there was more than three speakers. But I mean Charlie Kirk, like, I mean, I was impressed by Charlie Kirk coming in, but, wow, I was even more impressed by Charlie Kirk seeing him speak on the night. He was kind of the opening speaker and, you know, and then one of the last speakers on the opening night was Tucker Carlson, and I’ve been a big fan of Tucker’s for quite some time. And, you know, he certainly delivered as well. And and on the very last night of the conference, Glenn Beck was also, I thought, an amazing speaker as well. And they had plenty of other amazing speakers. We can talk about some of that, including one of the breakout speakers who talked about Marxism, was was amazing, and he’s an academic, and often academics aren’t very amazing speakers, as you probably have experienced yourself. You know, it’s not an easy thing to be someone who’s like, sound on what they’re talking about well and actually interesting at the same time. And who was that? Oh, boy. I mean, it’s really bad that I forgot the fellow’s name, considering he’s from Hillsdale College. He’s got a, he’s got a, he’s originally from Lebanon, so he’s got sort of, you know, you know, maybe I’m being a bit saying he’s got an Arab sounding name, and that’s probably offensive to Lebanese ago. Wait, we’re not Arabs, you know, but, and I think they’re not Lebanese, they’re kind of like a different sort of people’s group than strictly Arabs are, and then they obviously had that interesting mix of like, you know, kind of a bit over half the country’s Christian, and then slightly under half is Muslim. But I think it was originally from Lebanon, because even after the talk, he was talking to someone from Lebanon. He was speaking, you know, in Lebanese, which I understand, is a different language from Arabic, so um, and it sounds different too. So, but anyway, the interesting thing about him is, like, even though his speech was labeled, you know, Marxism, and you know, that obviously gets people, you know, kind of in to see that it was actually more about Jean Jacques Rousseau. Then it was actually about Karl Marx. Yeah, and I knew a bit about Rousseau, but I didn’t realize the importance of Rousseau to the left and he was making, he said, All Marx did was fill in some of the gaps. Rousseau is a guy who, you know, was really leading the charge on the ideas that were, you know, if you like, stuck with today in the 2020s they’ve come to fruition. Yeah. Well,

Gene Tunny  22:25

one of will Durant’s volumes in his history of civilization, I think, is Rousseau and revolution, after the after the age of Voltaire. And so Rousseau is one of those thinkers is associated with the French Revolution. And, yeah, with I mean, yeah, certainly, the Marxists wanted to have their own revolution whereby they get rid of the bourgeoisie, didn’t they? Whereas the French Revolution was, it was against the the aristocracy at the time. Yes, yeah, interesting. Okay, I’ll have to check out his work. And Donald Trump spoke at that event, didn’t he?

Darren Brady Nelson  23:03

He did, and I was, sadly, I got distracted by a pair of Aussies and and I didn’t. And I can tell you more about that. I didn’t. So I didn’t actually get into the main hall to see, you know, the orange MAN there, and, you know, live. So I had to actually just watch them on the big TV screen. So basically, they set these up similarly in CPAC, you know, they have the big main hall, obviously, all the big there’s lots of razzmatazz and all that. Then there’s like an exhibition hall where a lot of, you know, people just, you know, commercial people offering different services, go, hey, you know, here we’re here. You know, either come buyer service or, you know, think tanks go there and say, Hey, join us, or whatever. And then there’s a media row, which is pretty exciting and interesting. So, you know, you have the TV stations and radio stations and podcasts who do their shows live from, you know, from there. So that’s very interesting, too. So you can sit there as an audience and kind of watch this. And some of them you can will interact with the audience as others, they’re not. You’re just kind of watching them. Yeah. And so, so, yeah. So basically, you know, one of the one of the in the exhibition hall was a so not all the media is actually in media rose. Some of the kind of smaller podcasts are in the exhibition area. So one of them was an Australian podcast couple, and so I kind of came across them. They had an Australian flag up so that obviously. And I’ll get you a link to their, their podcast, you know, for for your for the audience, and,

Gene Tunny  24:39

yeah, what do they cover? Do they do politics or economics? Yeah,

Darren Brady Nelson  24:42

their angle is basically doing American politics, but from an Australian perspective, right? And they, and they come over here for big events like this or, you know, and I think they’re going to stay here roaming around until the inauguration, so they’ll end up in Washington. In DC for the inauguration. And, you know, very, you know, like, very cliche Aussies, they were like, you know, just super friendly and super, you know, and I kind of got to know them, and, you know, ended up having, you know, lunches and stuff for them. And sadly, I was chatting so much that the queue to get in to see Trump, you know, it got cut off. Basically, there was, you know, obviously, once it was full, that’s it, you know, you can’t get, but there’s more people in the overall sort of conference than that can fit into the main hall. Yeah, that’s, I’ve actually been, I went to the, the Milwaukee, um, Trump rally right before the election. So, you know. So, you know, it wasn’t, I feel bad for people who actually, that was their thing. They came there Trump, you know. So I’ve seen Trump another, you know, a number of times in person. So, you know, wasn’t as disappointed sort of thing to not see him in person. But, you know, but some people paid money to get there and they’re not from Phoenix, you know, that would have been kind of a real bummer, so I felt kind of sorry for them. Yeah, and there was a few, I’ve met a few other Australians too. So, you know, that was nice. See, there’s probably a lot more Aussies there than I actually ran into. So yeah, it was, oh, actually one of the Australians I did run into. This was a good story. And I think he’s been living in the US now for quite a number of years. And I don’t know perhaps he’s actually married to an American is there’s a quite a popular Catholic podcast, podcast called

Gene Tunny  26:36

pints with Aquinas. Oh yes, yes. It

Darren Brady Nelson  26:38

runs it as Matt Fred, and he’s an Aussie. Ah, yes, yes. I wanted to the, you know, these breakout sessions on, you know, Catholics and, you know, voting and that, you know, I’m was raised a Catholic, but I’m a Protestant nowadays, but I’m still interested. I’m not an anti Catholic, and I find it interesting. And I just went in there, and I sat at the back. And lo and behold, Matt Fred’s behind me. You notice? You notice my my jewel flag? Yeah, you have that, you know. And I told him the story, you know, Brisbane, blah, blah, blah. And then we had a little bit of a chat. Then he wasn’t an official speaker. He was actually there because his son wanted to be there. He’s got a 17 year old son that’s into all this sort of stuff and but, so we had a little bit of chat then. But then later on the day I went out of the conference, I got a good coffee, because you couldn’t get the greatest coffee in the conference. And you know, at the hipster cafe that I was I was talking about, yeah, to go back in, they said no outside coffees. And I go, Okay, fine. So I went to just go drink my coffee, you know, and he was sitting there smoking a cigar, and Matt, that is, and then I said, Oh, you mind if I sit down with you, and we had a good chat for 20 minutes while I drank my coffee and he smoked his cigar. And, you know, we talked about Australia, we talked about Trump, we talked about Catholicism and Protestantism and all that sort of stuff, and and podcasting, and, yeah, it was, it seems like a good, good bloke. Very

Gene Tunny  28:08

good. Well, as I think I’ve mentioned before, you’ve you have a radar for finding the hipster cafes, Darren, whichever city you’re in, so I’ve benefited from that at times. So very good. Now. Can you tell me? Was there any policy discussion at America fest? Did you get any insight into what could happen in the second Trump administration, particularly around migration? Because it looks like there’s a civil war within Maga at the moment between Steve Bannon, the people, you could say are nationalists or Nativists, versus Elon Musk and Vivek Ramaswami, who could be perceived as globalists. Do you have any insights into what’s going to happen? There any any thought, any insights into policy you got from America first?

Darren Brady Nelson  28:58

Yeah, look, I mean, America first wasn’t, you know, much of a policy oriented conference. And so true CPAC isn’t either it’s a lot of you know, it’s a lot of you know, celebration if something’s happened, or getting people you know, fired up for whatever is coming up. Now, look, I don’t know enough about Steve Bannon positions. I never got the feeling it was a nativist as such, like, you know, the one thing that I know Bannon, ramasami and musk agree on is the illegal immigrations that’s got to stop, right? Yeah, not just stop, but it’s got to be reversed. Basically, we can’t have, you know, and they’ll do it in sensible tears. I believe you’re going to, I’ve seen, you know, gangs and criminals, people who are literally, since they’ve arrived the they haven’t just broken the law to get here. They’ve been breaking laws, you know, inside the country too, and particularly the courageous ones. So they’ll prioritize this, you know, obviously, murders, rapists, etc, etc. You know what? You know they. Might come to a compromise with people who’ve, you know, peace, you know, who are peaceful, and they’ve entered and, and they actually did come here with families, as opposed of just, you know, child traffickers and all that sort of stuff. So look, I understood it was over those, those visas for, like, you know, highly skilled and targeted, yeah, you know, Bannon had a problem with that, is that? Is that? Oh, yes, yes,

Gene Tunny  30:21

yeah. But he was podcast the other day, because the the progressive commentators online are, they’re they’re enjoying this. They see this as a civil war within Maga, because you had Ramaswami come out and say, we need more h 1b, visas. Yeah, they’re the ones that Silicon Valley uses, like high skill, particularly bringing in high skilled Indians to work in Silicon Valley. And he, he writes, he wrote a tweet that was probably, you know, badly. He should have thought twice about it. It didn’t go down well with with Maga, really. He said that, oh, we need all of these people on H, 1b, visas, because Americans are, you know, a lot of Americans are lazy and won’t work hard. They’re not entrepreneurial, not not well educated. And that was just, yeah, that caused a bit of a firestorm. And then Steve Bannon on his show, he said, I will, you know, I’m going to fight for control, or something of the GOP. I don’t know the exact words, but he’s essentially saying, Look, we’re going to take on mask and Ramaswamy. We were here first. Well, he in terms of the Trump, you know, being supporters of Trump, where Maga, we’re not going to let you take over Maga. So I think it’s an interesting conflict there between musk and Ramaswamy, who who have a different outlook from that of a lot of the people in Maga, a lot of the supporters of Trump who see, who wants something different from Trump than what musk and Ramaswamy want?

Darren Brady Nelson  32:07

Yeah, look, I think, in a nutshell, I don’t think there’s going to be any sort of civil war, no. And to be honest, also, Bannon influence is just not anywhere near it was in, you know, 2016 2017 I think you know Ramaswamy is gonna certainly, if he hasn’t, he should really go out there and apologize for those statements. That’s just those are, there’s not, I mean, they’re not only offensive, they’re not even, that’s not completely accurate. Anyway, you know, the US is India as the entrepreneurial hub of the world compared to the US over history. No, there’s no comparison, like a really, Johnny Come Lately, you know, to that world. And obviously there’s some good stuff, and they’ve done some good reforms in India, but this is, you know, pretty recent sort of thing. So it’s not like the country that we look to for great entrepreneurs over the past 50 years. No, so you know. So I don’t think there’ll be a civil war. I think they’ll find a compromise Trump, Trump will, you know, Trump’s a strong leader. He’s going to sort this out. They’ll find something that, you know, not necessarily, that Bannon can live with, but I think something that at least your average mega supporter, it’s probably not like up in arms over these visas. But then, you know, when Swami says what? He says, Yeah, they’re gonna be up in arms about that sort of comment. And, you know, Musk, Musk comes from, you know, kind of a, you know, originally, you know, a Democrat type background, if you like. And he’s kind of become, you know, either he’s become more conservative over time, or he can just say the Democrats have become so out of touch with their previous base. Either way, you know, must not going to, he’s not going to be leaving the camp, and Ramaswamy is not going to be leaving the camp, and even Bannon at the end of the day, even if he doesn’t get what he wants on these visas, it’s not going to be, you know, he’s not going to, sort of, you know, be a constant thorn in the side. I would think, to, you know, President Trump. I think, you know, I think things, the compromises, will be reached. And, you know, maybe this on this issue will be one that they disagree, to disagree on. Basically, there’s bigger fights to be had. I think they’re going to fight. They’ll realize that, right? There’s far bigger fights, which is why they have the musks in their camp and the Tulsi gabbards and RFK juniors and stuff. There’s a bigger enemy to be fought, right? The weft type, globalists, you know, you know, rather than, if you like the musk type, small g globalist, if you, if you, if you like,

Gene Tunny  34:43

wow, okay, yeah. Well, we’ll big difference

Darren Brady Nelson  34:47

between that, because the big G globalists are not like, Oh, I just want to have access to better workers. It’s a far more nefarious globalism than than Musk’s type of globalism,

Gene Tunny  34:59

raw. But okay, well, I think we’ve talked about the great reset in the past, and, you know, whether there’s, whether there’s a conspiracy there or not. I mean, I don’t really think there is a conspiracy of any kind there is, because

Darren Brady Nelson  35:11

you can just go on the weft website, and it actually has a black and white it’s like, it’s not like a conspiracy theory. If it’s like, literally sitting there on their website, you know, like that. It’s not even a theory. It’s this is what they want to do. You know? You can say, like, oh, they don’t really want to do what they just said they want to do. Okay, fine, that’s fine. You can have that position, but it’s literally in black and white and reports, and you can go find it today easily. Yeah, they’ve

Gene Tunny  35:35

definitely said some silly things, right? The whole thing about you will, what is it? You will own nothing, and you will be happy. I mean, that’s just,

Darren Brady Nelson  35:43

I’m talking about statements. They have reports on what their is, you know, like it sets it out, you know, like, you know, you know, when someone says what they say, you know, the default should be able to believe what they said, you know, unless some reason not to.

Gene Tunny  36:00

Yeah. Well, I’ll put a link to our conversation on the great reset. I’ll have to go listen back to that. Yes, okay, well, yeah, look. I mean, I’ve got no idea what, exactly how economic policy will play out under Trump. I mean, I think it’s, it’ll be interesting, because there is that tension there, and we have to see how, what you know, how high the tariffs go up that are imposed on China, that are imposed on other countries, whether Australia gets an exemption. I mean, presumably we will, because of our, our strong relationship with the US. But, yeah, we just have to, have to wait and see about that. Okay, Darren, can you tell us about your article? You wrote an article. Why competition for concurrences journal? Can you tell us about that? Please?

Darren Brady Nelson  36:49

Yeah. Look, concurrences is essentially kind of an anti trust, you know, well, not just a magazine. It seems to be kind of bit of an association of particularly lawyers, antitrust lawyers, but also maybe other professionals in the field. And I can’t to this day, I can’t even remember how they approached me, but I remember in 2020 they kind of approached me and asked me to write a forward for one of their, you know, sort of their magazine that comes out, and I kind of wrote about anti trust economics, and kind of did a mix of, kind of like, you know, you know, I did kind of, here’s kind of a the mainstream kind of view on on this from an economics perspective, and then here’s kind of the free market perspective. I think the free market perspective is the better one. But anyway, laid it out and and then, you know, they kind of come back to me, you know, here and there to, you know, you know, ask me to write this or that. And earlier in the year, they were planning on doing a book entitled, you know, why competition voices from the antitrust community and beyond. Just to give it a little bit more context, they’re kind of focused on North America and the European Union, but they’re obviously open to kind of, you know, others around the globe as well. And this was going to have, you know, one of these books where, you know, each chapter has, you know, different author. I mean, they can be co authored or whatever, but they’re kind of in different themes. So my, the chapter that I wrote was, you know, basically, I think I entitled it, you know, kind of competition, economics, evidence, policy and ethics. Again, I kind of try to do, you know, a combination of of, kind of, you know, kind of, what’s the mainstream sort of view, and then kind of a free market view. But interesting enough, when I kind of proposed, you know, I thought, oh, you know, like, you know, as a Christian, as I kind of mentioned, I thought, oh, you know, how about kind of, also, because I’ve increasingly become interested in, kind of Christian economics is kind of even a different thing than than you get from the mainstream and the free market kind of way of looking at things. I thought, oh, you know, maybe this is an opportunity to write a little bit also from, you know, what, what is, what is this? You know, what does competition look like, you know, from a Christian economics point of view. So to my surprise, they went, Oh, yeah, that sounds interesting. Go ahead. So, so, you know, kind of, my, my, my chapter is kind of a mix of those three things wrong. Yeah, you know Christian, yeah. Sorry. Go on, I’ve got

Gene Tunny  39:27

to ask you about that. So, how is economics any different for a Christian versus a non Christian? I

Darren Brady Nelson  39:34

mean, well, it’s a complex thing to answer, because a lot of you know, you know, Christian economics is really just economics written by a Christian, right? So, so they kind of throw in some stuff or, you know, but, but interesting enough, there actually is, if you like, an actual proper Christian economics in the sense of, it’s built up from Scripture. It’s built up. From the Bible itself. Usually, you know, the better ones are people who’ve actually also been there are trained economists, you know, either, you know, from a mainstream perspective, or maybe a free market perspective, or maybe a bit of both. So, you know that, you know, so you kind of, kind of get some interesting feedback, you know, kind of from that. So, you know, like, for instance, you know, Gary north, you know, was, was, I believe, you know, trained in the usual kind of mainstream economics. Over time, he kind of became more an Austrian School economist. But then, you know, he also then tried to build up Christian economics, you know, purely from the Bible, as well as someone who was interesting enough, a trained theologian as well. So, you know, the Bible is, just like, you know, amazingly full of economics, you know, surprisingly full of it. And not just you know, like the parables you know, like the parable of it once or something that you know, probably sorry, the parable of the what’s all right, the talents, oh, you know, yeah, give me that one, you know, like, you know, where you know, a master gives you know, three of his servants, you know, he’s going to go away for a while. And he gives you know one, like one, one talent to go and do something with. And then another two talents, another five talents, you know, you know. So that, you know, there’s not just kind of, you know, they’re ultimately not. The main point of all these things is never just purely to make an economic point. Obviously, in the Bible, it was a more obviously theological point to be made. But, you know, it’s interesting to see just how much economics is in there, you know, as a teaching tool. Because, you know, obviously people can, you know, relate to, you know, least kind of economics in their own life, not necessarily, obviously, you know, the way we as economists necessarily think of things, but obviously economics touches everybody’s life. So, you know, I just wanted, you know, I’m certainly very much a, you know, a Padawan learner and not a Jedi in this just as of yet, okay, you know, I’m kind of, but I just thought it was a good opportunity for me to, kind of, like, write something and just, you know, give me the opportunity to learn more about it myself. Because obviously, you learn you know more from doing, you know, from writing and researching, than just, kind of just reading something, right? Yeah. So, you know, it was kind of a good you know. And I thought, you know, ethics is kind of interesting, too. And ethics, particularly, I don’t know, I find kind of secular ethics, kind of wishy washy for the most part, it’s kind of a lot of just like, how do I feel about things, you know? Like, if I’m from the left, I kind of feel these things. And if I’m on the right and not a Christian, I kind of feel these things. So I think, you know, whether you think Christianity or, you know, the is real or not, you know, it’s certainly more black and white than a lot of these kind of secular ethics is right? And as a Christian, I think it’s objective, right? And I think you go off into secular ethics, it’s kind of very subjective. So I thought it was an opportunity to kind of explore bringing, you know, that there’s an ethical element to economics, at least, you know, from a Christian perspective. And there’s not a, you know, there’s not a tension between the two. They’re kind of wrapped up together. They get like property rights is a concept and not just an economic concept, you know, like, Thou shalt not steal, is both economic and ethical at the same time.

Gene Tunny  43:29

Yeah, yeah, okay, okay, I think I see where you’re coming from, just on the parables. Someone you introduced me to, if I remember correctly, was Larry Reed at Foundation for Economic Education. When he was on my show, he talked about the Parable of the Vineyard workers. The vineyard workers,

Darren Brady Nelson  43:48

oh yeah, the martial, martial value, really, isn’t it? Yes,

Gene Tunny  43:52

yeah, where he’s paying them different amounts of money. And I think Jesus says, Oh, that’s okay, if it’s a fair bargain, if they all are better off because of it?

Darren Brady Nelson  44:03

No, it was. It was basically, it wasn’t even that. It was just like, well, you agreed to it, you know, like, yeah, exactly. So it was actually, I think they were paying the same amount, but these people came in and worked nowhere near as long hours, or, you know, towards the end of the day, and these other people have been working the whole day, and they’re just getting the same pay, you know, I think that’s

Gene Tunny  44:22

right. Okay, gotcha, yeah,

Darren Brady Nelson  44:26

qualifying it by going, Oh, well, as long as it was fair, you know, like it, you know, some nebulous way, he was basically like, you know, is it not the master’s money to decide what he does with it, right? And if he wants to do this bargain, because he needs more workers to come in. And, you know, it was actually strangely in line with, you know, the whole marginal revolution, you know, right, okay, fascinating. It was kind of like a marginal value,

Gene Tunny  44:53

Okay, interesting. I’ll have to put a link to that episode. I have to go to do it actually, to make sure I know the story. It’s quite embarrassing,

Darren Brady Nelson  45:02

that stuff too. But it was something slightly different. But it was, yeah, it was interesting, because then you often, like, people, you know, go like, well, he, he flipped over the the money changers, you know, sort of thing. Therefore he’s anti, you know, markets and anti exchange. No, that that point was to do with the temple and the Pharisees. You know, Jesus didn’t have a problem with commerce. He didn’t run around knocking over exchange tables everywhere. He had a problem with the way that the Pharisees and others are running the temple and, you know, turning it into a farce, you know, sort of thing totally different. So, yeah, yeah, you know. But the thing so, you know, it just was a great opportunity to throw some, I think Christian economics, to me, actually was even surprising to myself as an economist, was like taking the best of the mainstream and taking the best of the free market and not literally building on it like that, but it actually, I found it actually even more insightful, if you like, than even Austrian economics was, yeah, or, you know, neoclassical economics, you know, it had a lot of, you know, you know, good overlap with them. But it was, you know, yeah, I thought it was really interesting. One thing

Gene Tunny  46:15

I remember from Milton Friedman might have been in freedom. It was, it may have been in free to choose, or Capitalism and Freedom. I can’t remember the exact book, but he talks about how there’s a there’s a moral case for free markets, for competition, as distinct from the, you know, the the efficiency case that economists make for free markets is that the case you’re making, you’re saying there’s actually a moral case as well as an efficiency case, correct?

Darren Brady Nelson  46:42

Yeah. And I think the, you know, the Chicago school or Austrian School eventually get down to a level where it’s, it gets a little bit Sandy, you know, like the base wanted to argue an ethical, moral reason for free markets. Eventually it just runs out at depth, right? And I think, yeah, the Bible takes it to a level, you know, that that’s on a solid foundation, that’s literally on a rock, you know, of course, obviously not everybody’s gonna agree with that, if they not a Christian or even a Jew, who can, because they can also go down to the same you know, a lot of this is in the Old Testament too. You know, the, if you like, the ethical, moral foundation for, for, you know, least, largely free markets. But also found that the Christian economics finds doesn’t have the tension between the individual and the collective like the secular Do you know, like the free markets often go into kind of hyper individualism, and then, you know, the left wing ones go into hyper collectivism, right? Christian economics finds the right balance between those two. You know, really marries the individual and the group together better than the secular economics does.

Gene Tunny  47:57

Interesting. Love to think about this some more. Darren, I mean, I’m not, I can’t see how it would affect the laws of economics or or how we would apply economics in practice, but I could see how it could affect your judgments regarding what is good economic policy. I can see that I’d have to wonder though. I mean, what is it? I mean, is there anything superior about I mean, this, I guess, is a bigger conversation. But like, we can’t leave out the Chinese or the Indians or people in other parts of the world who aren’t Christian, can we? Or aren’t predominantly Chris that aren’t Christian countries. So where are they? I mean, they’ve obviously got economists. They’ve got economics. Economics is relevant to them. How to is this just something you that augments your understanding of economics? Or do you think it’s something that’s

Darren Brady Nelson  48:46

essential? Originally, I thought it was augmenting. I think it’s ultimately essential, and it and, you know, if, if the Christian worldview is correct, as I think it is it the God of Christianity is everybody’s God, right? So, so, and the laws that were set, you know, that God created all the laws of this world, right? Sorry, the the natural laws, which say, and I believe he created the economic laws of this world, right? So, and, and there’s good evidence for that. It’s not just a, you know, just a blanket statement, trust me, like we, you know, we told you it was this. So believe us, you know that that, I mean, we’re obviously going to go into a totally different thing. But the world of, you know, Christian apologetics and evidence, which this Christian economics, kind of also kind of overlaps with, it’s not just like these statements that you know we’re right and you’re wrong. Just trust us. You know, there’s a lot of, you know, natural world evidence for this stuff. So, you know, as a Christian, I argue these laws of economics are, you know, the ones that God himself put in place. And he put them in place for a reason, and they’re not in conflict with ethical sort of. The moral laws that he also put in place, and they applied, all of humanity, and all of humanity is welcome. You know, it’s not a case of like, Hey, this is for us, and that’s for you over there. It’s a totally different story, whether you believe it, and you know, whether you’re, you know, saved and all these sorts of things. But you know, and God’s, you know, in the Old Testament is blessed many people that that weren’t Israel as well. So it was never even like only the Jews get the benefits of this. No, it was something that was meant to benefit all of humanity.

Gene Tunny  50:34

Okay, interesting perspective, Darren. I love to come back to that. I mean, I but, yeah, let’s, let’s, let’s leave that there. I want to know what’s your main argument in your article? What’s the main thesis of your of your piece on for in this wire competition volume?

Darren Brady Nelson  50:56

Yeah. I mean, what you know, basic competition is a good thing. Very good. It’s a good thing economically, like efficiency wise, but it’s also good ethically. That’s, that’s, that’s in a nutshell the argument and I, and I draw from, I think, the best of mainstream economic because I’m not in there. In my antitrust article, I was criticizing mainstream economics, and this one, I was just taking some of the good stuff that I thought, you know, it’s still not in conflict with free markets or Christian economics, and just kind of tying it all together to go, yes, competition is a good thing. Yeah,

Gene Tunny  51:28

why were you critical of mainstream economics in that antitrust article?

Darren Brady Nelson  51:34

Well, we can consider a link to it, but you know, even some of the languages that it uses, it kind of presupposes that competitions, you know, either an unattainable thing, and thus government has to intervene, or it’s, you know, using words like power, you know, like, that’s, you know, like, well, free markets aren’t about power, really. They’re about, you know, voluntary exchanges, you know, they’re not the use of power, right? You know, no one’s forcing you to do anything. So, you know, market power. Look, I can understand it, and I there’s some validity to it. I’m not saying there isn’t a beast that’s kind of like that, but to use the word power is almost kind of misleading. And obviously, you know, like using a benchmark, like perfect competition, that they, on the one hand, acknowledge can never really exist, but at the same time using that to judge actual markets, which is what they all do. The a, Triple C does it. The the Department of Justice does it. They all use the same benchmark to go to then intervene. It’s like, Well, you said that this isn’t possible, that you’re using it as a as an excuse to intervene. That’s why I’m getting and you’ll see that in my antitrust article, which is, you know, available, yeah, so

Gene Tunny  52:50

you against all economic regulation, all antitrust action. Is that the position? Um,

Darren Brady Nelson  52:57

yeah, okay, not sure enough. It’s been misused and abused so much that I think it’s not something you know, and it’s usually political, even in Australia, but it’s more so in the US. It’s usually used against people who actually, really, you know, like, even, you know, the people that they supposed like Standard Oil. Well, okay, fine, Standard Oil, at the time, dominated its market. That’s true. But guess what? Prices were going down and quality and quantities were going up. So why were you intervening? Because even under, supposedly under the anti trust laws, you know, even if you are deemed a monopoly, that’s not good enough, you have to be abusing your monopoly power, and if your prices are going down, you’re not really abusing your monopoly power, yeah, yet, yet, they intervene, right?

Gene Tunny  53:48

And I saw in your your article, you had that chart about how all of the the industries that are heavily regulated, their prices have gone up at a faster rate than general prices, than CPI inflation, I think that’s, you know, that’s, that’s certainly something that advocates for regulation need to explain. I mean, the case they’ll make, of course, is that, well, they would have gone up even further if we weren’t regulating. So, you know, what’s the counterfactual? That’s what they’ll that’s what they’ll argue, I suppose, and I

Darren Brady Nelson  54:21

but the thing is, they go up. If you got out of there and you allowed them to go up, and you weren’t getting in the way with all your regulations, they’re good. Someone’s going to come into that market. And I’ll tell you that, you know what? They won’t even do it because, you know, I forgot what that limit. I think it’s limit pricing or something like, you know, we’re monopolists. Are always on the lookout for, oh, if I raise them too much, I’m going to get an entrant, right. So, so, yeah, I don’t know. And the antitrust authorities never go after the regulations that help people monopolize or cartelize their industries. So they basically, they hurt, they make it. They create. It in one hand, not necessarily the antitrust authorities themselves. Government creates these monopolies and cartels and then no pretends to come to the rescue, you know, with the antitrust authority, right?

Gene Tunny  55:10

So you don’t believe in the whole natural monopoly argument, do you? I think we might have chatted about that in

Darren Brady Nelson  55:15

a mainstream economist like Bom will, kind of, you know, kind of heavily question that too, and I believe he’s correct. You know, like, because you know, if you got a natural monopoly, and if you’re you can really produce at a lower cost than two or more others. So what you know, you know, basically the arguments like, so what you know, like, if, but you know, if you can’t, then someone’s going to enter your market unless there’s a, you know, a government created barrier to entry. So even bolmo, you know, mainstream economists recognize that. But even

Gene Tunny  55:50

for water infrastructure or electricity infrastructure, if

Darren Brady Nelson  55:55

you’re a natural monopoly, why do you then, why do you need the regulations that make you a natural monopoly? So you’re not a natural monopoly, you’re a government created monopoly. So monopoly like 99 out of 100 times, right? So, so prove to me that you’re a natural monopoly. Take away the regulations that don’t allow anybody to compete, and then if no one’s competing, then let’s, let’s, you know, then, then the regulator maybe does his thing in that situation. But it never happens that way. They always create the monopoly, or the cartel, and then the regulator comes afterwards. That’s exactly what happened in the US. You know, there was competition in water and sewage, there’s competition in electricity, natural gas, railroads, all the rest. And then some of them couldn’t hack the competition, and they went to get franchise monopolies, and in return for that, you had to have a regulator. Okay, so history is against this concept of net, and they invented the concept decades afterwards, you know. So that’s suspicious in itself, you know. So don’t know. I don’t believe in natural at all, please. Okay,

Gene Tunny  56:55

that’s interesting. That’s good to good to explore these things and and discuss them. One thing I do like about what Lena Khan’s been doing, although she’s getting sacked. I mean, she won’t be appointed. I think Donald Trump will have a different federal trade commission chair. She’s going after the companies that lock you into Subscriptions. Okay? I think that’s a that’s a that’s a really good regulatory action, and Australia is looking at doing that too. The the fact that you sign up to something online, and it’s easy for you to sign up, you give them your and you give them your credit card, but if you want to cancel your subscription, you have to ring someone up. They just make it incredibly difficult to cancel a subscription. And what Lena Khan said is, no, it’s got to be as easy to cancel as it is to sign up. And I think Australia is going to adopt the same thing. I think that is a really good thing to do, because it’s terrible how they do that. And companies which should know better, which should have which should protect their reputation, like the Economist newspaper or magazine in London does that too. I mean, the, you know, the Murdoch papers do it, but okay, probably expect that from them, but for the economists to do it, that’s just disgraceful. So I think that’s actually a good initiative of of the regulatory state, so to speak. If

Darren Brady Nelson  58:23

I wouldn’t be surprised if there was some regulation that made it easy for them to do that in the first place, because that’s usually what happens, usually because, because the regulatory states just constantly building on itself and has all these unintended consequences. You know, just unintended consequences built on unintended consequences, etc, etc, and it’s constantly overriding the common law that would probably would have dealt with that, you know, in a more efficient manner once upon a time, but the common laws been almost just pushed out the door. You know that that would usually not be, you know that would usually break contract law because you didn’t come, you didn’t come to a contract. You know, you can’t just, like, assume I’ve subscribed to your your service, something like that. That’s not how normal contracts work, right? So I would suspect that the, you know, the regulatory states, come to the rescue after it actually created the problem the first place. But I don’t know that for a fact. I’m just those things, having worked around this sort of stuff for 30 years, it’s usually the case, but I can’t say for sure. Well,

Gene Tunny  59:26

I think it’s good to be have that suspicion that you have that as something you certainly want to investigate. I agree there that that’s worth that’s certainly worth considering. Okay, Darren Brodie Nelson, we’ll have to wrap up soon. Any final thoughts, anything you want to come back to to discuss,

Darren Brady Nelson  59:43

oh no, look, you know, appreciate the time, and it’s always fun to kind of, you know, cover, you know, quite different topics. And I imagine, I don’t mean I can’t imagine, there’s too many sort of two economists talking about the kind of variety of stuff that we tend to talk about.

Gene Tunny  1:00:00

Well, I don’t know. I mean, maybe, maybe not, from the angles we talk about them from. I think certainly the the unexpected, the unexpected angles that that we come at things from, I think is, yeah, that that may be that may be unique. Anyway, Darren, it’s always, always a pleasure, and enjoy getting your insights and into what’s happening in the in the US particular. And yeah, well, thanks again for appearing on the show, and look forward to speaking with you in the future. Thank you.

Darren Brady Nelson  1:00:38

Thank you for having me.

Credits

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

Categories
Podcast episode

2024 Highlights: Reagan’s Budget Czar on Trump | Greedy Jobs | Super Abundance | Buffett in Omaha | Housing & Immigration

Host Gene Tunny discusses significant economic issues from the year. He features clips from interviews with experts on various topics, including the economic consequences of Donald Trump’s re-election, the U.S. budget deficit, the gender pay gap, and environmental impact. President Reagan’s budget director David Stockman criticizes Trump’s policies for being anti-capitalist, citing a $8 trillion increase in public debt. Fiscal policy wonk Dan Mitchell argues that higher taxes are not the solution to the U.S. budget deficit, as spending is the primary issue. Leonora Risse (Assoc. Prof., University of Canberra) explains the concept of “greedy jobs” contributing to the gender pay gap. Marion Tupy of the Cato Institute discusses the long-term decline in commodity prices, and Daniel Lawse of Verdis Group emphasizes the need for sustainable, long-term thinking in business and policy. Daniel also reflects on the modest lifestyle of Warren Buffett, another Omaha resident. John August discusses the impact of immigration on Australia’s housing crisis.

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.

You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.

Timestamps for EP265

Links relevant to the conversation

Episodes featuring the clips:

https://economicsexplored.com/2024/01/28/reagans-budget-boss-david-stockman-on-trumps-economic-policies-ep224/

https://economicsexplored.com/2024/04/17/is-uncle-sam-running-a-ponzi-scheme-with-the-national-debt-w-dr-dan-mitchell-ep235/

https://economicsexplored.com/2024/03/10/the-gender-pay-debate-understanding-the-factors-behind-the-gap-w-dr-leonora-risse-ep230/

https://economicsexplored.com/2024/10/16/abundance-mindset-exploring-the-super-abundance-thesis-w-marian-tupy-cato-institute-ep258/

https://economicsexplored.com/2024/06/01/helping-seattle-aquarium-others-go-to-net-zero-and-beyond-w-daniel-lawse-verdis-group-ep242/

https://economicsexplored.com/2024/04/17/housing-crisis-and-immigration-australias-tough-choices-w-john-august-ep236/

Leonora’s review of Career and Family: Women’s Century-Long Journey toward Equity, by Claudia Goldin

https://onlinelibrary.wiley.com/doi/abs/10.1111/1475-4932.12716?domain=author&token=UPATKK2WTIAEZ49UMRMV

Principle of Charity podcast episodes on degrowth:

https://podcasts.apple.com/au/podcast/can-degrowth-save-the-planet/id1571868650?i=1000674757240

https://podcasts.apple.com/au/podcast/can-degrowth-save-the-planet-pt-2-on-the-couch/id1571868650?i=1000675655623

Lumo Coffee promotion

10% of Lumo Coffee’s Seriously Healthy Organic Coffee.

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Transcript: Is DeFi the Future of Finance? Exploring VirtuSwap’s Vision w/ Prof. Evgeny Lyandres – EP262

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

Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello. Thanks for tuning in to the show. This is the 2024 highlights episode, and this episode, I want to play some clips from some of my favorite episodes of 2024 Okay, to start off, we probably should cover one of the biggest stories of the year, if not the biggest story, which was the re election or of Donald Trump as US President. So that is going to have some very profound economic consequences. And I chatted with my friend and colleague, Darren Brady Nelson about it days after the news on the show. So that was a few episodes ago. Darren is someone who is supportive of Trump on the show, I’ve had critics of Trump and one of those prominent critics in the States is somebody by the name of David Stockman, who was Ronald Reagan’s Director of Office, of management and budget. So he was a budget official for Ronald Reagan, who is the celebrated Republican president of the 1980s and Stockman is one of the never Trumpers, and I had a very interesting conversation with him early In the year, and I wanted to play a clip from that episode, because I think Stockman is someone who deserves to be listened to, and I think, personally, I think he makes some good points. So without further ado, let’s play the first clip, and this is David Stockman on Trump’s war on capitalism. You argue that he is a clear and present danger to capitalist prosperity. Could you explain, David? How do you How can we reconcile these things? I mean, Donald Trump does seem to be the exemplar of a capitalist, but yet he’s a threat to capitalism. How do we reconcile these facts?

David Stockman  03:05

Well, those are great questions. I don’t think really he’s an exemplar of capitalism, and we can get into that. I think he’s an exemplar of getting lucky when the Fed created so much inflation and asset prices and made debt so cheap that if you were a speculator in New York City Real Estate or elsewhere, you possibly made a lot of book wealth. But I don’t think it was capitalist genius behind it. That’s the first point. The second point is that his policies were really almost anti capitalist in some common sense. Notion of conservative economics. To have a healthy capitalist economy, you need three things. One, fiscal rectitude. You can’t be running up the public debt, spending like there’s no tomorrow, and having the government grow and mushroom and impinge in every direction on the economy. You can’t have easy money and a central bank that is flooding the system with cheap credit and excess liquidity. You can’t have a government that is really anti free market, which is what trade protectionism is all about, and he’s the biggest protectionist in the White House, you know, since, I don’t know, Hoover signed smooth Holly in 1931 so all of his policies were really in the wrong direction. Now, I do concede in the book that the one abiding virtue that Donald Trump has is he’s got all the right enemies. Okay? The establishment hates him, The New York Times, The Washington Post, CNN, The Washington what I call unit party establishment, the leadership and the long standing careerist of both parties can’t stand him, but basically, it’s because he’s an outsider. Because he’s unwilling to conform, and he’s pretty obnoxious and unpredictable. That’s why they’re against him. The point of the book, though, is none of his power his policies were wrong, even if he had the right enemies, and nothing that he did help the economy or addressed the huge long term problems we have of a runaway public debt, of a government that’s way too big and too costly and too intrusive, and especially at the heart of the matter a central bank that is out it’s a rogue central bank. It’s out of control, and yet Trump was constantly on their case, demanding even easier money, lower interest rates, even more, you know, of the same that got us into, you know, the huge bubbles and troubles that came from them. So the point of my book was to say he had a chance. He’s got a four year record, we can look at it as terrible. It offers nothing in terms of remediation of our great problems and putting us in a different direction for the future. So, you know, don’t waste the opportunity. And you know, that’s about where I come out,

Gene Tunny  06:20

right? Oh, okay, so you write about what you call the Donald’s reckless fiscal and monetary policy. So we might talk about fiscal first. Now, among other things, you talk about the most grotesque act of fiscal malfeasance in American history. So that was something that Trump was associated with you argue, are you talking about the the big tax cut, the Trump tax cut in 2017 is that? Is that something you see as as reckless? That’s

David Stockman  06:51

part of it. But I’m looking at the overall picture and the data, the big top line data on spending, and borrowing on the public debt. Now let’s just take it down to the core metric, which is the public debt. I mean, if you’re running huge deficits and spending far beyond your willingness or ability to tax, it comes out in the public debt. When Trump became president in wrong terms, the public debt was about 20 trillion. When he left, it was 28 that’s 8 trillion of growth, 8 trillion of debt, public debt in four years. You let me ask the question, when did when did we get the first 8 trillion of public debt, and how long did it take us to get there? The answer is, in 203, it took us 216 years, 43 presidents, to rack up 8 trillion of debt. He did it in four years. That’s kind of the bottom line. It puts it in perspective, in terms of how big the error was. If we look at other more conventional measures, you get the same picture.

Gene Tunny  08:01

Okay, so that was David Stockman, who was President Reagan’s Director of Office of Management and Budget, and he’s certainly no fan of President Trump, certainly, I mean, Trump is going to have big consequences for the economy. There’s a lot of concern about a global trade war. There’s concerns about, I mean, really, will he be able to get the the budget into shape he has Elon Musk and Vivek Ramaswamy at the Department of government efficiency. It remains to be seen how much real influence they will have and to what extent they’ll be able to to get the budget under control. One of the challenges, of course, is the the role of the entitlement program, Social Security and Medicare, which are such big parts of the budget, and just they’re on autopilot. Really, they’re, they’re demand driven. They respond to people’s needs that the entitlements are dictated by the acts of Congress, so they’re very hard to change, right? Oh, so on the the issue of getting the budget under control, I’d like to play a clip from my interview with Dan Mitchell. So I spoke to Dan in episode 235 in April, and it was about his new book, The Greatest Ponzi scheme on Earth. So it’s about us, government debt. So Dan is one of my favorite commentators. He’s got a really great blog called International liberty. If you’re not subscribed to that, definitely check it out. I mean, Dan’s coming from a libertarian perspective, someone who’s skeptical of. Of big government. So I’m generally sympathetic with with with that. So yes, I think it’s a it’s a good, good blog. So yeah, regardless of your views. So it’s definitely worth checking out because it’s Dan has a lot of good facts and talks about empirical work, empirical studies. So definitely worth, worth checking out. Even if you’re you think you’re unlikely to to agree with Dan. Okay, so let’s, let’s play a clip from my conversation with Dan, the way I set up this. This part of it was, I asked Dan about why he thinks higher taxes aren’t the solution to the US budget deficit, this large structural budget deficit they have. I made the point that, look, you’ve got these entitlement programs that the government doesn’t want to reform, so maybe the government, I mean, I was implying that maybe the there’s no choice but to increase taxes. Not that I’d necessarily recommend that. But how are they going to repair the budget? So that’s the that was the setup. So let’s hear what Dan has to say? Well, I

Dan Mitchell  11:24

guess there are two things that are important to understand. The Congressional Budget Office, every year publishes a long run forecast. And by long run that they’re looking out 30 years, they publish this long run forecast of the US economy, and in that document, the most recent one came out just last month. I think it was maybe two months ago, but it showed that revenues are above their long run average, spending is also above the long run average. And if you look at the forecast, 30 years out, the revenue burden is going to climb to record levels because, mostly because of real bracket creep. In other words, as you know, even in a sluggish growth economy, you know, people are going to sort of, their incomes are going to increase, they’re going to go into higher tax brackets. So the government winds up getting bonus tax payments with even modest levels of economic growth. So the tax burden is heading to be at an all time high, but because government spending is projected to grow much faster than the private sector, it means that that that we’re falling farther and farther behind. So just as a matter of pure math, our problem is more than 100% on the spending side of the budget. Again, revenue is climbing as a share of GDP, but because spending is climbing much, much faster. Why on earth would we want to increase taxes on the American people for a problem that is more than 100% on the spending side of the budget? But that’s just a math argument. Now let’s look at what I call the public choice, slash economic issue, which is that if you put taxes on the table. What are politicians going to do? They’re going to increase spending. And not only that, if they get the taxes through, the economy is going to suffer. Now, I’m never one to say, Oh, you raised this tax or that tax, there’s going to be a recession. I worry more about if you raise this tax or that tax, the long run, growth rate will decline, and even if it only declines a small amount, maybe two tenths of 1% a year, that has massive long run implications because of the wedge effect over time and then. And I think that even left wing economists, the honest ones, are going to admit that higher marginal tax rates and work saving and investing are not good for growth. So as GDP gets smaller and smaller over time, at least in terms of compared to some baseline projection, that means work on tax revenue, because there’s less national income to tax. So what’s the bottom line? Politicians will spend more money because of the higher taxes, and the higher taxes won’t generate as much revenue. And you don’t want to know what the most powerful evidence for this is. I think I did the data for the for the 15 countries of the old European Union. Other words, the core Western European countries that would be most analogous to the United States, or, for that matter, Australia, you know, relatively rich by world standards, Western oriented nations, and what did I show in the European Union? You go back and I did a five year average. So nobody could accuse me of cherry picking just one year that was favorable to my analysis. I did a five year average for the last half of the 1960s and I looked at government spending as a share of GDP, taxes of the share of GDP, and government debt as a share of GDP and taxes. Between the end of the 1960s and the most recent five years, the tax burden in Western Europe increased by 10 percentage points of GDP. Now politicians in Western Europe, in these various countries, Germany, France, Belgium, Netherlands, et cetera, et cetera, they. Said, Well, we have to raise taxes, because we have red ink, we have deficits in debt. So I said, Okay, taxes went up by an enormous amount as a share of GDP between the late 60s and today. What happened to government debt? Did they use this massive increase in the tax burden to lower government debt? No government debt during that period doubled as a share of GDP. In other words, politicians spent every single penny of that new revenue, plus some. So when I debate some of my left wing friends, I tell them, show me an example anywhere in the world where we’re giving politicians more money to spend has resulted in better long run fiscal performance. It just doesn’t happen. By contrast, I’ve gone through the IMS World Economic Outlook Database, and I have found not a lot, unfortunately, but I found many examples of countries that, for multi year periods, had government spending growing at 2% a year or less. And what do you find in those cases when they’re spending restraint? And we talked about this, by the way, we have an entire chapter in the book where I cite some of these good examples. When you have spending restraint, deficits go down, the burden of government spending as a share of GDP goes down. You have success. Yeah, I couldn’t. We could have had some blank pages in the book and lift and entitled that chapter success stories of higher taxes, because there wouldn’t be anything to write.

Gene Tunny  16:33

Okay, that’s good stuff from Dan Mitchell, from Center for freedom and prosperity. I think it is He? He was, once upon a time, he was at the Cato Institute. He’s a well known commentator in the US on fiscal policy issues. He’s on CNBC, Fox Business, etc. And yep, he’s a he’s a good economist, and he’s a terrific commentator. And I’m really grateful that I’ve been able to have him on the show as frequently as he’s been on the show. So I’ll put a link in the show notes to to that episode and to the others that I play clips from. So yep, if you if you liked what you heard from Dan there, then definitely, definitely check out that episode. What I liked about that? I think he made a really good point about how politicians will, they will find a way to spend any additional revenue. I think we all know that’s that’s generally true. I mean, I suppose not always. There are times when politicians act responsibly, say, in Australia, from about the late 80s through to maybe yeah, I guess the Yeah, essentially, until the late 2000s we had very responsible Treasurers and governments, and then we seem to have abandoned that since then, unfortunately, and in the US, we had the period when you had Bill Clinton and the House GOP led by Newt Gingrich, they were cooperating on the budget and managed to repair the US budget. So there are times when politicians have been, have been, have done the right thing, but I think generally, they can find ways to spend any additional tax revenue, as as Dan Mitchell is pointing out. And I mean, they all the politicians. I mean, one thing you notice is that they love going to the openings of the the movies, hanging out with Chris Hemsworth and all of the the Hollywood stars. That’s something that we see here in Australia, where there’s very substantial subsidies to the film industry. Okay, so that was Dan Mitchell, thought that was a great clip. I think I’ve played parts of that in other episodes through the year on tax and government versus the private sector. I think I may have played a bit of Dan in that, but it’s good stuff. So it’s, it’s worth, it’s worth replaying every now and then. Right? Oh, let’s move on to another clip. And this is about another issue that I come back to every now and again on the show. It’s this issue of the gender pay gap. And, you know, this is a very, you know, it’s very political this issue. And there are a lot of people who say, Oh, well, it’s, you know, this is terrible, and it’s an example of discrimination, is exploitation. Then other people say, Well, hang on, it’s, this is a multivariate, uh, phenomenon, and it’s, it’s due to the the industries that. Women work in, or the occupations that they choose, but then you get the counter argument. Well, hang on, those industries and occupations, they were imposed upon women, in some cases, or women by the, you know, the patriarchy, or gender norms, etc. So there’s a big debate about the gender pay gap that I’ve tried to cover on the show in an objective way. So just hearing all of the arguments and just thinking critically about what the data, what the evidence tell us, and one of the people that I’ve really valued talking to about the gender pay gap, is Leonora Reese, and she is a an associate professor at University of Canberra. She’s also an expert panel member for the Fair Work Commission, and that’s the federal body that regulates industrial relations in Australia, and earlier this year, in March, I interviewed Leonora about a new gender pay gap report that the federal government released, and that generated a lot of debate within Australia. And I was just alluding, well, I was just going through what some aspects of that debate are, the the question of whether you’re comparing like with like, etc. There was a criticism of the report that was very strident by the well known economics commentator for the Australian, very good economist, Judith Sloan. And that is, that was, that was how I set up this part of the conversation with Leonora. I mentioned that that article by by Judith, which was critical of that report. So that is the context for this. This part, this clip in which Leonora and I talk about this notion of greedy jobs. So greedy jobs, this is one possible explanation for part of the gender pay gap. So let’s hear from Leonora. I want to ask about Claudia golden because Claudia golden, she won the Nobel Prize for Economics last year. Judith Sloan quoted her work in so in Judas article and Judith because Judith is saying, Well, this is all nonsense, because this is just all Yes. You’re not comparing like with like. It’s it’s all just explained by difference, differences in composition, different choices people make, and she was interpreting Claudia golden. So this Judith is interpreting Claudia golden as saying that the gender pay gap, it’s mostly due to the fact that there’s this premium for long and unpredictable hours, and men are more likely to work those jobs, pursue that pursue those jobs because women are more likely to be carers and they don’t have the Yeah, they they’re more Yeah, they’re less likely to want to pursue those jobs like as males, pursue them so disproportionately. So what do you think about that as a theory. I mean, what? And because I only were chatted about Claudia Golden’s work before or since the Nobel Prize was announced. So would you be able to comment on that? Please?

Leonora Risse  23:51

Sure, absolutely. So Claudia Golden’s the concept that she’s coined here is greedy jobs to reflect these particular jobs in the workforce that demand a lot of you as a worker to work long hours, to be on call, on weekends, on late shifts, and to be rewarded for that. That’s the important part. So to be paid overtime rates, to be fast tracked your promotion, to get bonuses in reward for for being, I guess, more available to your employer. I think it’s partly a symptom of capitalist society as well. You know, to really, to really draw as much of the worker that you can out in terms of their time, their loyalty, their commitment. And so Claudia Golden’s work brings the gender dynamic into that. This concept brings the gender dynamic into that, because the way that society and policy is structured is that it forces couples, if we’re looking at a male and female couple, to make a choice. Services with as a household as to which of them are going to be that particular worker and be on call, and which of them are going to attend to caring responsibilities, to household tasks at home. So collectively, they’re maximizing or optimizing their total income and trying to balance, you know, both both spectrums. So the way that gender norms give rise is that it tends to be, on average, the male partner who will put their hand up for those greedy jobs, and females who who would opt to, you know, be on call at home, basically. And so the gender pay gap widens, even on an hourly basis, because this, there’s this premium attached with those types of jobs, and they’re rewarded, you know, it’s, it’s seen as a positive thing in workplace culture. And so the my, you know, the way that I interpret Claudia Golden’s work, and she articulates this, I think, pretty clearly in her book, career and family, is that unless you have gender equity at home, it’s very hard to achieve gender equity in the paid workforce. So as long as there’s some sort of gender division at home, you just don’t have that time availability in the paid workforce. So she’s actually advocating for for gender equality. She’s not saying this rationalizes or legitimizes the existence of the gender pay gap. She says it’s a an explanation that needs attention and that we should be looking at. How do we look for ways to reduce this culture of expecting workers to be working such extensive hours and to be on call? How can they be more substitutable with each other? So you know, if you’re not available, it doesn’t matter, because your colleague can step in, and she gives examples from the industry of pharmacy, the pharmacy industry, where that that is, is a change in cultural practice, and that allowed more women actually to advance in that industry. So her, you know, the action or the policies that emerge from that are ones that start to address that existing inequity in the system and steer us towards something that’s more equitable, and I would say, also healthier as well. Now, other people might interpret that differently, but I think that’s a very, very firm and widespread way of expressing Claudia Golden’s work. I did write a book review of her book, and it’s published in the economic records. Yeah, I’d be very pleased for people to have a read of that and see what, see what they think of the points that Claudia golden has expressed. And of course, yes, she did. She was awarded the Nobel Prize in Economics in recognition of decades and decades of work looking at women’s participation in in the workforce, and how that has changed over time from an historical perspective right up to contemporary time. So she is a big advocate and champion for working towards a more gender equitable economy.

Gene Tunny  28:35

Okay, so that really gives you something to think about, doesn’t it? Least, that’s what I thought. I thought that Leonora is explanation of the concept of greedy jobs and how you interpret that in a policy sense. So Leonora summary of what Claudia Golden’s position is. I thought that was, I thought that was very good. So I will put a link in the show notes to that episode. I’ll put a link to that, that book review of Golden’s book that Leonora wrote, and it was in the economic record. Hopefully it’s not pay wall, but it may well be which you would be disappointing. But anyway, I’ll look into that, right? Oh, we should move on the next two clips for this highlights episode, they relate to the theme of the environmental impact of economic activity, so we’re looking at environmental issues. And you know that if you’re a regular listener, you you’ll know that I speak with a wide variety of guests on the show, with a wide variety of opinions. I mean, often in stark COVID. Contrast in opposition, and this is certainly the case on environmental issues, or at least the issue of how much we should be concerned, how much we should sacrifice the economy, economic growth for protecting the environment. Of course, I think we all want to have a clean environment, and we want to protect the environment as much as we can. At the same time, we want to make sure we have a thriving, prosperous economy that keeps people employed, that provides high living standards. So there certainly is some trade off. So I’ve had, I had two really good conversations about this trade off, as I see it, this this year, at least two really good conversations. One of them was with Marion tupy, who’s a, he’s a senior fellow at the Cato Institute. So that’s a a leading economic think tank in the US. It’s, it’s on the well, you’d say it’s a libertarian or classically liberal. And Marion co wrote a very interesting book that came out last year called super abundance, and he has a very optimistic view regarding our impact on the planet. So I’m going to play a clip from my discussion with Marion earlier this year. Okay, so let’s listen to that. I’m very sympathetic to the argument about about super abundance. Can I ask? Is this a continuation of the work that Julian Simon has done is this because I see on your CV or your buyer, you’re part of something called the Simon project. Could you tell us what that is and whether this is continuing his work? Yes,

Marian Tupy  32:15

yes. Yes, absolutely. So Julian was a, obviously, a huge inspiration, but so he was actually a senior fellow at Cato before I joined the Cato Institute. He died in 1998 but he was senior fellow there, so we never met. But what I wanted to do back in 2017 is to look at his work and update it, you know, to the present and I found that his bet with with Ehrlich, he would still win. In other words, commodities continued to get cheaper, at least the ones that Julian looked at. But I was using the old methodology. I was just looking at real prices of commodities. And my co author, Gail Pooley, got in touch with me, and he says, well, let’s turn them into time prices. Let’s look, let’s look at the price of commodities relative to wages, how much more you can buy for an hour of work than your ancestors could. And then we published a paper in 2018 with this new methodology. And indeed, we found, once again, that Julian was right. And then we decided to turn into a book which goes back to 1850 and basically what we find is that commodities, relative to wages, are constantly getting cheaper. If it’s a long enough period, everything is getting cheaper, including gold. The only thing that continues to become more and more expensive over the centuries is human labor, essentially the human input, and we might as well talk about Simon and early quag, yes,

Gene Tunny  33:46

yes, yes, yeah, please.

Marian Tupy  33:48

So Julian Simon, since we mentioned him, he was an economist at the University of Maryland, here in the United States, and he was basically looking at the data, and he was noticing that things were getting cheaper, even though population was expanding whilst over in California, at Stanford University, Paul Ehrlich, who is still alive, he’s 93 years old now, was predicting doom and gloom. He was basically saying, you know, as population increases, we are going to run out of everything, and there’s going to be mass famine. And, you know, starvation of hundreds of millions of people. And so they had a bet between 1980 and 1990 on the price of five commodities, nickel, tungsten, tin, chromium and copper. And basically they made a futures contract for $1,000 and when the period came to an end in 1990 Ehrlich had to send a check for $576 to Simon, because commodities became 36% cheaper. Had Simon implemented our methodology, he would have won even bigger. He would have won by about 40, 42% rather than 36

Gene Tunny  34:55

very good. Okay, so. I must say, always do enjoy hearing or reading about that Simon Ehrlich wager, because it’s a reminder that we should generally be skeptical about predictions of doomsday. I mean, you know, certainly it could occur. I’m not going to be naive, but generally, I think, you know, we’ve got, you know, multiple predictions of of Doomsday, and maybe we should just think more rationally about these things than we are or than we have been. So I thought that was a very good clip. So really grateful for Marion his appearance on the show. I think Darren Brady Nelson connected me with him. So thanks to Darren. And yes, I’ll put a link in the show notes for that episode too. Also, having listened to that, I was reminded, I’ve been reminded that I did a podcast episode, or I recall I was on the principle of charity podcast, which is hosted by Emile Sherman, who is a very distinguished film producer. He produced The King’s Speech and lion. And also, I was surprised to see the other day, I was watching one of my favorite new shows, which is on Apple TV, slow horses, the show about MI, five agents in in London with Gary Oldman, love that show, and Emile is one of the executive producers I was on his podcast. So Emil hosts that and also Lloyd vogelman. They have a really interesting show. They like to have guests with opposing point of views, points of view, and the idea of the principle of charities you’re supposed to, you know, steel man, the opponent’s argument, or under try to understand where they’re coming from. So have a good, you know, think that have the go into the conversation, assuming they’re acting in good faith and give them the respect that they deserve. And so look, I think it’s a, it’s a novel concept for a podcast, given how most podcasts are, so I think it’s, it’s interesting. I’ll put a link in the show notes so that that that was a conversation on degrowth. And, yeah, that was something that, yeah, that yeah, that was an interesting experience that I had earlier in the year. So I’ll put a link in the show notes to that, right? Oh, now for someone with a different take on how we’re we’re going environmentally and going to Well, the the other guest I’m going to feature in this highlights episode is Daniel vert Daniel lossy from Vertis group. And Daniel is based in Omaha, Nebraska, and that becomes highly relevant, as you will notice in this in this clip that I play, and I really enjoyed talking to Daniel, his company does a lot of very interesting work. So they work with organizations such as Seattle Aquarium, and they’re helping to make those organizations more sustainable, helping them meet their or get on the path to meet their net zero goals? So he’s someone who’s a practitioner, and I thought he had a lot of really valuable insights. Okay, so now I will play a clip from Episode 242 helping Seattle Aquarium and others go to net zero and beyond. So that’s from May this year. I hope you enjoy this clip. Before we go, I’ve got to ask given you’re in Omaha, and this is a economic show. Do you ever see Mr. Buffett around town? Have

Daniel Lawse  39:25

I seen him? Personally, I don’t think I have, but I’ve been in one of his favorite restaurants before, where he eats pretty regularly. And you know, we host the Berkshire Hathaway every single year. So see all of the the tourists who come in for that, the shareholders who come in, and my wife owns a little tea shop, so that always gets a little bit more business during those Berkshire days. But I’ve not bumped into Warren myself. Personally, that’s

Gene Tunny  39:53

okay. I just Just thought I’d ask given when, when people hear Omaha, they’ll think that, you know, that’s often the. First thing, rightly or wrongly, people, people, people think of in their minds, particularly if they’re in economics or finance. So just sort of ask,

Daniel Lawse  40:08

well, on some levels, I think Warren’s actually a pretty sustainably minded person. We can argue lots of other things, but here’s the example. I drive past his house on a regular basis, right? He does not live in a gated community mansion. He’s lived in the same house, I think, for over 50 years, and he’s done some upgrades to it and at a few additions, but it is a very what I would call a modest house in a nice neighborhood of Omaha, but like probably hundreds of 1000s of people drive past this house and would never know it’s even his.

Gene Tunny  40:42

Wow. So the fact that

Daniel Lawse  40:44

he doesn’t go and just consume and build a big house because he has the money and he could, and I don’t, I don’t believe he owns that many homes, or second homes or third homes. He owns a couple different locations. But there are some people who have a lot of wealth, who own a lot of homes that they travel and vacation to. So in that regard, he’s making a sustainable choice by living in a in a modest house that he’s had for decades, and maintaining it and regenerating it. Perhaps we might, if we want to throw that in there, instead of tearing it down and creating something new and bigger.

Gene Tunny  41:18

Oh, it’s, that’s a good story. I mean, he’s embodying the, you know, the virtues, or the the the high point, or what’s the right word to describe it. He’s in, he’s embodied. He’s embodying those, the real great values of capitalism, or where it’s about saving and investing. So, so that’s terrific. Good last. Yeah, make it last. Good on Warren Buffett, very good. Okay. Daniel Lawson, this has been a great conversation. Any final points before we close?

Daniel Lawse  41:49

I love your questions. Gene, I think it’s so important to be aware of how we think, because it really does matter. And there are four critical shifts that I see at play, and all the sustainability work that we do, and I’ve talked about, probably all of them, but shifting our mindset from a closed system to an open system, right? We’re not alone in this world, and so let’s acknowledge the impact that other organizations and communities and businesses have on us, the shift from like this mechanistic worldview to a living and dynamic world, view like Change is the only constant thing in life, and when we recognize that I’m a living being, and organizations are made up of humans, so we’re more living. We’re more like a garden that needs nurturing and tending than a business as a machine that you just take a part out and replace it, right? Let’s, let’s humanize our organizations instead of dehumanize them. The third is the shift from really feeling like and thinking like we’re separate from everybody else, and shifting more to this interconnected way of being, recognizing that my actions have impacts on you, whether intentionally or not. When we do an organizational policy, it can shift things in good ways, unknown ways and unknown ways. And then the last one is the short term thinking, the long term thinking. I’ll end with this. The seventh generation principle comes from the Iroquois nation, the first peoples of the US or of North America. I apologize, and they said the decisions that we make for our community, we need to think about, what is the impact going to be on seven generations, which, you know, it’s about 150 years. You can’t even predict that far out, but it forced them to think about, what’s the long term impact of the decisions they made at Council. And I, I challenge your listeners to imagine a world where their elected presidents, council members, representatives, didn’t think about the next election cycle and being re elected, but thought in seven generations, what would be different? Yeah, and what would be different if our business leaders weren’t thinking about quarterly profits, short term feedback loops, and instead thought forward seven generations, what? How different would our businesses look, and how different would our communities be if we had leaders who were thinking in seven generations, changes everything in, I think, pretty good ways.

Gene Tunny  44:10

Okay, so that was Daniel lossy, who is the Chief century thinker at Virtus group in Omaha, Nebraska. So they do environmental consulting work all over the US. So yep, I’ll put a link in the show notes to that episode. I think it’s definitely worth a listen. And I think Daniel has some Yeah, really interesting. And yeah, really interesting, interesting perspectives that make me think and Yeah, certainly saying things that that are challenging to economists. Okay, final clip, this episode and this. This clip is from the episode that a. According to Spotify wrapped. So Spotify wrapped is the summary that Spotify puts out every year, and it’s actually what inspired me, in a way, to do this episode. According to Spotify rap, the most listened to episode of my show in 2024 at least on Spotify, was episode 236 the housing crisis in and immigration Australia’s tough choices with John August. So it, it may well have been the most listened to episode because John’s very good at sharing and, you know, material, and he’s got a good network. John has a radio we had a radio show in Sydney on radio Skid Row in Marrickville, and he’s heavily involved in the Pirate Party. And I’ve had John on the show several times, and if you’re a regular listener, you’ll probably appreciate that he always has very interesting and well thought out things to say. So he no longer has a radio show. He’s had to step back from that and but, but he’s will still be able to hear from him. Next year, he’s going to be putting out a podcast, and I look forward to catching up with him, either on this show or on his new podcast. So once I find out more about that, I’ll, I’ll pass on the details. Right? Oh, the clip I’m going to play is, again, it’s from this episode that on housing and immigration. And these are really big issues in Australia at the moment. I mean, we had that huge surge in immigration post COVID And there’s a lot of debate about, to what extent is immigration driving the housing crisis that we’ve had? To what extent is immigration behind the the economic challenges we face? And there’s a lot of talk about the per capita recession, the decline in household living standards. So yep, if you’re in Australia, you’ll you’ll be well aware of this debate. And I suppose it’s a debate that is occurring in in many, in many economies around the world. And certainly immigration was was one of the issues that that swung the election in Trump’s favor. That was the view that Darren expressed on my show, and I’ve heard others express that too. Okay, so let’s play the final clip, and this is from my conversation with John August on housing and immigration.

John August  48:06

Well, keep in mind, I think I’ve already said this, that I do not believe that, you know, just reducing immigration is going to be a magic one. We have to, in some sense, aggressively pay catch up on our infrastructure. And another thing I’ll point out is, I don’t know what it’s like in Brisbane, but certainly in Sydney, you’ve got the issue where you’ve got the rich suburbs, and the people who are like the nurses, the fire is the police officers, the people doing cleaning, the people doing whatever. Can’t afford to live there, so they’ve got to basically travel all the way across Sydney, and they’re putting a needless load on the road network that doesn’t really need to be there. And for the rest of us that are not in that situation, we’re obviously coping with congested roads. So you know, for me, that’s a side effect of that sort of asymmetric wealth distribution. And one of the things that may be happening in Brisbane, I know some councils in Sydney are looking at getting into public housing, not in a grand sweeping way, but key worker accommodation. This is, this is accommodation that will be there for the police officers and their families, for the nurses and their families, for the fireies and their families, and perhaps for the cleaners and their families that are actually servicing that area. And, you know, you’ll basically have to say, look, either I have a job or I will be getting a job in the area, and I’m in one of these professions, so the council will then give you some subsidized place to live. And, you know, that’s interesting, that councils are even contemplating doing that. I mean, I mean, I guess this is a, this is sort of a guess. It’s a bit of an issue around infrastructure and housing. I guess a few steps from New from your original question. But never mind. Can’t help myself.

Gene Tunny  49:49

I can understand the logic of it. So I’ve seen that in in rural towns in particular. So you’ve got a visited a potato process. Facility in one of the Riverina towns, and they actually own some houses in the local town, so that they’ve got places for the I think, you know, the migrant workers who come in to work at their processing facility, so they’ve got somewhere to live when they’re when they’re in the area. So I can see the logic of that and why it might make sense for some councils to look at that awesome. Well,

John August  50:24

I know that, you know, just traveling around country towns, it’s interesting when there’s some sort of development, and all the tradies have taken all the motels or or there’s some sort of running festival or something like that. You by golly, you know, you notice it when you, when you go to a country town thinking, Oh, this is just a quiet, sleepy country town. There’ll be lots of vacancies at the motel and, well, there aren’t anyway.

Gene Tunny  50:49

That’s very true. Okay, I want to go back to those numbers. So migration program. So there are in the permanent migration program. So remember I talked about how our net migration has been running at about 550,000 Okay, the permanent Migration Program, which is what you’re talking about, which is refugees, or the family reunions and skilled migration, that’s set at 190,000 places. So that’s just a fraction of the total net overseas migration, and a big part of it are students over foreign students come in universities. And also the, you know, students who stay on, they get an extension, so they do a degree, and then they stay here for a couple of years after that. And you know, some of them will have work rights, and they’ll be, they’ll be in our labor force. So I’ll end you know, a lot of it is that, and so we’ve got this big temporary migration number. So I’ll put a link to Leith post in the show notes, because I think it’s a nice summary of all of the relevant data. We’ve got around 700,000 student visa holders in Australia, but in terms of temporary visa holders. So that could be students, their families, people who are who did a degree, and then they’re still staying here. That’s at, is it 2.2 to 2.4 million people? So depending on whether you use the so there’s a quarterly, seasonally adjusted number, that’s about 2.3 million. It looks like. And I’ll put that in the show notes. So is

John August  52:23

that that at the moment, or per quarter, or per year, or what do we what are we saying here? Yeah,

Gene Tunny  52:28

that’d be at the moment. So that’d be the stock of them, yeah, at a point in time, yeah, yeah. And so we’re well above where we were at COVID, and you could argue that we’ve actually, you know, so some of the people will say, Oh, actually, it’s just catch up and we’re just on the same trajectory. Okay, maybe so. And this is something that Leith addresses here, and his his point is that, well, okay, this, this argument. The he refers to a tweet from a bull. Is it a bull Rizvi, who was a former immigration bureaucrat, where he was saying, Oh, look, we’re just we’re actually where we would have been if we were on the same trajectory pre pandemic. And then so Leith goes risby arguments ridiculous, because the pandemic completely constipated the supply side of the housing market by sending material costs through the roof, sending builders bus so you were talking about this before John and reducing building capacity by months of lockdowns, deliberately engineering a record immigration rebound into a supply restricted market was the height of idiocy, and is why we are suffering from the worst rental crisis in living members.

John August  53:37

Well articulated position, I suppose I’d have to think about it much more carefully to say, look, is it right or is it wrong? But it sounds very reasonable on the face of it. You know, prima faci is the legal people would say. But my broad position would be, look, we were playing catch up on infrastructure before, if we’re actually going to get some breathing space, we’ve got to have a commitment to catch up on infrastructure at the same time as we limit immigration, so we can actually get ahead of the curve. Because I think a lot of this, this silly bugger games of like, here’s a development will divert some of the benefits from that to building infrastructure that’s not getting ahead of the curve. And like, look just a bit of an anecdote from like, history of Sydney is way back when our first rail lines went out of Sydney to service the farmers, okay? And that was why they were built. So if you wanted to build a settlement, you know, 10 or 20k is out of out of the city center, or what would have then been the city center, you just build a railway station on some part of the railway track, and boom, boom, there’s the start of your community, your infrastructure has led your community, rather than the infrastructure coming sometime later, based on some deferred payment schedule, you know? So you know where, where? Yeah. I mean, Lisa van Olson may well have a good point. I’m not going to disagree with it, but my position is we were paying catch up. Four, and if we’re going to be serious about playing doing actual, proper catch up, then we can’t just do business as usual like it was however many years ago. So, but, but, yeah, he may well have a good point there.

Gene Tunny  55:13

Okay, so that was John August from my episode on housing and immigration. So yep, if you liked what John or I had to say in that clip, then Yep, and you haven’t listened to that episode, then please check it out. Okay, so as you’ll as you’ll gather. I mean, we cover some fairly controversial issues on this show, and I appreciate that you know these are issues that people may well have different views from me on, and I’m happy to hear other opinions. Happy to hear your perspectives on these issues. So yep, if you’ve got any any thoughts positive or negative, or get in touch. Let me know whether you agree, whether you disagree. What do you think about these important issues that we’ve covered today, so issues or about the environment, about housing, immigration, the gender pay gap and the US budget and what the return of President Trump means for the US and for the rest of the world. Please feel free to get in touch. You can email me at contact, at economics, explored. I’d definitely love to hear from you. I want to know what you’re interested in. I want to know how I can improve the show so I can continue this go. I can continue the show. I can make it even better and make it make it a really strong show. In 2025 so we’re, we’re getting very close to the new year, right? Oh, again. Thanks for listening. I hope you enjoy it, and I hope to catch up with you in a future episode. Thanks you.

Credits

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

Categories
Podcast episode

Trump 2.0 w/ Top Wisconsin Door Knocker & Economist Darren Brady Nelson – EP261

Economist and returning guest Darren Brady Nelson shares insights from his time as the top door-knocker for the Trump campaign in the battleground state of Wisconsin. He explains why Trump’s messages on inflation, immigration, and cultural issues resonated with voters. He breaks down Trump’s economic vision for the second term, including plans for Elon Musk to lead a government reorganisation. Show host Gene Tunny and Darren discuss the prospects for repairing the US budget and the possible economic implications of Trump’s fiscal and trade policies. 

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com  or send 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 Apple Podcast and Spotify.

Here is a clip from the video recording on Elon Musk Reimagining Government:

Timestamps for EP261

  • Introduction (0:00)
  • Darren’s experience as Trump’s top doorknocker in Wisconsin (3:00)
  • Why Trump won (11:40)
  • Illegal immigration (15:05)
  • Trump and monetary policy (27:30)
  • Elon Musk and government efficiency (33:00)
  • Trump and trade (48:15)
  • Final Thoughts (57:00)

Links relevant to the conversation

Bio for Darren Brady Nelson available here:

https://economicsexplored.com/regular-guests/

Statistics on illegal immigration in the US:

https://cmsny.org/us-undocumented-population-increased-in-july-2023-warren-090624/

https://lamborn.house.gov/issues/illegal-immigration

Stanford University briefing on China’s Use of Unofficial Trade Barriers in the U.S.-China Trade War:

https://sccei.fsi.stanford.edu/china-briefs/chinas-use-unofficial-trade-barriers-us-china-trade-war

Relevant previous episodes:

Is Uncle Sam Running a Ponzi Scheme with the National Debt? w/ Dr Dan Mitchell – EP235 – https://economicsexplored.com/2024/04/17/is-uncle-sam-running-a-ponzi-scheme-with-the-national-debt-w-dr-dan-mitchell-ep235/

US infrastructure: lessons from Australia, with Darren Brady Nelson – https://dashboard.simplecast.com/accounts/a4c530a8-52a1-4290-95a3-19c00e80602c/shows/a3789cf6-a26b-464a-ab7f-551db331ee09/episodes/6134a946-eab5-4a0c-bbe3-dfae5a6bf200/ 

Lumo Coffee promotion

10% of Lumo Coffee’s Seriously Healthy Organic Coffee.

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Transcript: Trump 2.0 w/ Top Wisconsin Door Knocker & Economist Darren Brady Nelson – EP261

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  00:05

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

Darren Brady Nelson  00:38

Thank you. Good to see you again.

Gene Tunny  00:39

Good to see you again, Darren, you’ve been busy these these last few weeks, so you’ve been campaigning in Wisconsin and keen to chat with you about the result, obviously, the Trump victory. And yeah, there’s been a lot of commentary about it. Lots of people surprised. I mean, you’re someone who probably isn’t surprised. But to begin with, I’d like to ask, yeah, what

Darren Brady Nelson  01:07

was your How did you guess that I wasn’t surprised? Yeah,

Gene Tunny  01:11

with your Make America Great Again. Cab, very good. So what was the experience like for you? What was it like working for the campaign? Can you tell us about that place.

Darren Brady Nelson  01:22

Yeah, well, as as you know, you know, and I guess anybody who’s watched this show before and seen me, I’m an economist like you, so, you know, the past couple of months, though, I’ve just been, you know, just a grassroots door knocker, you know, I can tell you more about how that happened, but so that’s what I’ve been doing in Milwaukee behind me. That’s kind of what the the little sort of setting in the background is, is a view of Milwaukee. I am actually in Milwaukee. It’s not just a computer hologram in the back. And, yeah, that’s, you know, what I’ve been doing for the past two months, you know, trying to do my part and help Trump win Wisconsin. As you may or may not know, you know, whoever actually gets one more vote in the state of Wisconsin wins all the electoral votes for Wisconsin. And that’s the way it works for most states, except for, you know, I think Maine and Nebraska are almost that, but not quite that they have, you know, kind of they split up the state, their states a little bit. So, you know, no one, you know, sometimes you see this commentary where, you know, be it CNN or Fox, and they’ll, they’ll break it down by like, county or something like that. You know, that’s interesting, and that’s kind of useful information, but it’s not actually no one wins Milwaukee County or anything like that as such. So, but you know, you know, the more obviously votes you can get out for Trump in Milwaukee County, the better. Helps the state total. And that’s what I’ve been doing. And interesting enough, you know, I actually finished as the number one door knocker in Wisconsin. I knocked on more doors than anybody else in the state on behalf of Trump. I don’t, can’t speak for Kamala side, but for Trump’s side anyway. Okay,

Gene Tunny  03:01

did you have an unfair advantage because you’re in downtown Milwaukee, you’re in a high density area?

Darren Brady Nelson  03:08

No, actually, I had the opposite. I had the disadvantage because everywhere that was actually within walking distance from me was was secured apartment blocks I couldn’t get into, right? Yeah, so full of, you know, sort of high rise hipsters. So look, I got to thank, you know, some of my colleagues who, and actually some church friends too, who actually would drive me out to what they call walkbooks. And both sides kind of do a very similar approach. We have an app. We have, like, you know, 100 or 100, 150 doors to knock on that day, and the app just leads us to those doors. So both sides are trying to target our voters. We’re trying to target mainly low propensity voters. So like, you know, someone who is a republic, who’s voted at some stage right, for president or something as a Republican, but they don’t do it all the time, right? So they’re not necessarily lazy, although sometimes they can be. So we just try to get out, you know, our party’s voters, but the databases aren’t great for either parties. And you get, you get a lot from the other side. You get a lot of under, you know, at least some undecided people. So it certainly makes for an interesting, you know, time when you get out there and you you think, or you hope, you’re knocking on a Republicans door, but you get a dirt Democrat, or you get it undecided, which is kind of interesting, yeah, yeah,

Gene Tunny  04:31

okay. Like to Yeah. Before we go on to how, I’m interested in how some of those conversations when, but first we you, were you employed by a Super PAC? Was it a super PAC that employed you? I mean, I, I’m not fully familiar with the system over there. Could you tell us about that, please?

Darren Brady Nelson  04:48

Yeah, both, both parties really rely on these packs, the political action committees, so they’re under the tax law. You know they’re different from, say, a c3 which is a three. Think Tank, you know, where you get a tax exemption all that there are c4 so C threes can’t be political. I mean, there’s some wiggle room. But, you know, you don’t see the Heritage Foundation or or Cato saying, you know, vote for candidate A, you know, sort of thing c4 is, can literally do that. So, so I was working for kind of an unusual arrangement. I was working jointly for 2c fours at the same time, which was turning point action, which is ultimately run by Charlie Kirk and America pack, which is ultimately run by Elon Musk,

Gene Tunny  05:36

right. Okay, so, I mean, you know, clearly Elon Musk has had a huge influence on the campaign, and will have a huge influence on the administration, it appears, at this stage, unless he has some falling out with Trump, which isn’t beyond the realms of possibility. This is the mood, just hypothesis. We can talk about that a bit later, and what Musk has role in the administration could be but so what

Darren Brady Nelson  06:01

was, to be honest, though, the people who fell out where Trump were kind of like backstabbers and people who weren’t really Trump’s in the first place, there might have been the odd exception, but, you know, and I think there was, you know, like, Well, that’s true. I’d say 8020 was people that shouldn’t even been this administration in the first

Gene Tunny  06:20

place. Yeah, yeah, that’s probably right, if you think about what Trump’s views are, and where he comes from, and the types of like he got sort of traditional repub people you’d see in, say, the Bush administration, like, either the Bucha administrations, right? And that probably didn’t suit Trump, whereas, yeah, Musk is, yeah.

Darren Brady Nelson  06:40

Well, to be honest, people in the Bush administration, one cert, the when, you know, wouldn’t actually be go, well, in a Reagan Administration either. So put that context in there. So it wasn’t just Trump, you know, the Neo cons, those sort of, Oh yeah,

Gene Tunny  06:53

yeah, yeah, very, yeah. Good point. Okay. And what would, how did the conversations on the ground go. I mean, you mentioned that where you were in Milwaukee, or parts of Milwaukee there, you know, it’s more for one of a better term, hipster, more like inner city, you know, new farm here in Brisbane, or, yep, so how did it or fortitude Valley? How did it go? How did you how did those conversations go? Were people generally receptive? Like we get the impression over here that there’s a, you know, there’s huge conflict over politics in the States, and people are just aggressive. No one wants to talk with people from the other side. How did it how did you feel on the ground? How did it all go?

Darren Brady Nelson  07:37

Look, that’s actually largely correct, sadly. But put it into other contexts. I was going throughout Milwaukee County, which is, you know, more than just walkie city. And even within Milwaukee city, the hipster areas don’t account for most of the city. So there’s, there’s heaps of, you know, working class and middle class sort of areas where you’re, you know, the more working class it got, the more trumpet got, right, and the more middle class, but then starting to get away from the city, also, the more trumpet got. But what surprise, you know, that wasn’t obviously surprising, although it’s still kind of to some extent surprised me, particularly amongst migrant groups. Boy, they were just like, even, on average, more Trumpy, you know, than than you know, like a white suburbanite would be, or, you know, I didn’t really go in the rural areas, so you know, that would probably be even more sort of Trump again. But what all you know, what surprised me was, you know, even some of these hipster neighborhoods, or these, you know, quite avant garde sort of suburbs, you know, you mentioned, kind of like fortitude Valley. But I guess you could have mentioned a new farm, but you could have mentioned, oh, what’s the place we went to dinner in? What’s that, you know, in South Yeah, West End. You know, there’s kind of West End type suburbs here, obviously, in Milwaukee as well. So there you wouldn’t, obviously get a lot of Trump, but then you would, but there would be some, you know, like there was, you know, to me, I went in thinking, I’m not going to meet one person, you know, that’s going to be going for Trump in a suburb like that. And you’d actually see the huge Trump signs here and there, and those sort of sub suburbs, which surprised me. And so the conversations, you know, there was certainly, you know, look, overall, the Democrats I came across, you know, were at least somewhat polite, which to say that there was somewhat polite. So my stick was basically, you know, we were getting out the vote for Trump. So we weren’t even getting out the vote for Republican Senate, Senate candidates or Congress candidates, much less state level stuff, right? So we were very laser focused on Trump. That was all our mandate was. There are other groups who are doing something broader. Sure. So my shtick was basically, you know, I knock on a door. Someone answers, you know, I smile. I politely say, Hello, I’m getting out the vote for Trump. Are you considering voting for Trump? That’s it. That was my whole shtick. And usually, even before I got to the end of that, I could almost see in their eyes. They were like, you know, kind of light up, like happy, or whether, you know, sort of staying, or anger was it was in their eyes, I usually got from the Democrats, kind of, at least a kind of semi polite disdain. They would often say, Absolutely not. They make they may have some pleasantries at the end, like goodbye, or they might just simply slam the door, right, yeah. But sadly, I got some, like, really mean Democrats who just would basically swear at me, yell at me, tell me getting off their property just in the wake of my point stick right? And I had like, a little badge, you know, with Trump, blah, blah, blah, and, you know, speaking to, you know, people out there who are Trump supporters in Milwaukee, it doesn’t actually go both ways. It doesn’t actually go both ways. You know, like at least 8020 when a Democrat comes up to Trump’s house, they don’t get that sort of level of hate and vitriol and return, they might kind of laugh at them, like, really? Kamala, you serious? You think? You know, there might be maybe an impolite sort of, like ribbing of them, or something like that, but it doesn’t actually go both ways. So the division shouldn’t be portrayed as though it’s equal 5050, it’s not rod

Gene Tunny  11:39

Okay, okay, I’d like to ask you about why you think Trump won, because it’s come as a great Well, I mean, it wasn’t a surprise to you, a surprise to me, and I think to many around the world, because, I mean, we got the impression that he’s upset so many constituencies as concerns about reproductive rights or access to abortion there. There are concerns about what he means for, you know, various different different groups in the community. There are concerns about just his, you know, perceived, you know, instability, I suppose, concerns he’s the fact he’s been convicted, the fact that he allegedly launched a insurgency on January 6. So you know, all of these concerns about about Trump. And so a lot of people are thinking, how on earth could he get reelected? But he was. And so the the hypotheses that have been advanced, that I’ve seen are the major issues are inflation, incumbency, the fact that the Democrats have been in and things haven’t been you know, people perceive that things haven’t been going well. I mean, there’s, there’s clearly a lot of signs of that, and then also concerns over cultural issues, about this concern about wokeness and dei What’s your take on what were the issues that really changed the situation and really meant that Trump had quite an emphatic victory after all?

Darren Brady Nelson  13:11

Look, yeah, those concerns have been basically trumped up on one side. Basically, there’s plenty of evidence to suggest all those issues you mentioned are at best, exaggerated and exaggerated, obviously for political purposes. As you know, the media is not neutral. You know, you know, be something different if there this was a world of neutral truth seeking media. And then, you know, if those, if the media was talking about those as, Oh, these are my concerns, that would probably have more weight. But as we saw it, over the course of the, you know, the the first Trump administration, I think the whole sort of, you know, the whole elitist Industrial Complex has been exposed. I think for what they are, they’re not neutral, they’re not truth seekers. They have an agenda. This guy is a big threat to them. So to get back to your kind of more tangible points, yeah, I think, you know, look, a lot of you know, sort of Trump supporters don’t buy any of that stuff you just mentioned, right? And the people in the middle are focusing on those kind of, like, bread and butter issues, you know, like, yeah, inflation has been terrible under the Biden administration, and Harris has been there the entire time, so she’s in a comment, so I’m, you know, running on as though, like, you’re going to be some change. How do you how do you do that? Like, she goes, like, you know, as you know, that famous, you know, line of hers where, you know, what would you change? And she couldn’t think of anything. So what? Okay, so you support everything Biden did, but then you’re a change so that, you know, that doesn’t add up, obviously, for people who are kind of on the fence, and interesting enough, I was surprised how many people were on the fence. You know, it just in my campaigning. It’s like, I kind of figured there’d be next to no one on the fence, either you kind of loved Trump or you hated him. And sure that. That was also my experience as well. So you’re right, cost of living, you didn’t mention illegal immigration.

Gene Tunny  15:08

That’s right, yeah, yeah, yeah, that’s the one I forgot it correct, yep,

Darren Brady Nelson  15:12

big, big issue, just for law and order, but also for things like housing prices and all that sort of stuff, too, and jobs and, you know, sort of coming in and undercutting what Americans could actually legally do, you know, like they can’t even work for those the rates that some of the legals were working for so and, you know, law and order more broadly, and the whole sort of cultural issues, but, but also how the cultural issues actually tangibly impact, you know, the people’s ability to have jobs, you know, the DEI stuff, you know you’re not meritocracy flies out the window sort of thing. And you know, so that those are all but huge issues. And the wars you know, like, you know under the Democrats, that you know, there’s just they’re either fueling the Ukraine, Russia war, which I think, or at best, they’re just not, they’re very incompetent at doing anything to, you know, what’s resolved this somehow, you know. And you know, the Hamas stuff and Hezbollah stuff took took off under their regime, in part because, you know, Iran was on its knees, you know, at the end of the Trump administration. And they just basically threw a bunch of money at them to revival, you know. So revive them for, you know, around the you know, cause trouble, not just in Israel, but, you know, as you probably well know, the Arab states are not very happy with with that, either. So you know, which is, you know, why, obviously, at the end of the end of the Trump administration was able to get the Abraham accords. You know, even if the Arabs are in love with Israel, they were, at least, you know, realizing, if nothing else, there’s a bigger threat from Iran, and from their perspective, yeah,

Gene Tunny  16:54

gotcha Okay. On immigration, I’ve heard some, some incredible numbers. I don’t know whether they’re even plausible, but are they saying there’s something like here, Trump was claiming this up to 20 million illegal immigrants in the US and and there’s going to be he’s aiming to deport a lot of the illegal immigrants. Do you think that’s even plausible, that sort of level of immigrants? Do you know, I mean, how, like, you’re mentioning that that was an issue. How do you see it on the ground? What are the impacts of it? Do you what sort of level of illegal immigration do you think is, is credible?

Darren Brady Nelson  17:31

Um, look, you know, I don’t, I don’t know for sure, the numbers, they are big though, you know, they’re that. They’re, you know, it’s not like on a level that hasn’t been seen in the US ever, you know, and it was intentional. It’s not as simple, like, oh, Kamala just dropped the ball. So anyway, putting, you know, they’ve lost their out, whether it was intentional or unintentional, the numbers are huge and they has tangible effects. I mean, our friend Tim one off has seen it personally in Denver, because that’s one of the places where, you know, if you like, sanctuary cities, where they’ve, you know, and it’s caused all sorts of law and order, sort of chaos, you know, also the drugs that come come in with it, as well, heaps of child trafficking, and then again, just the tangible stuff, like, Well, you know, you know. So we have all the these governments that make it very difficult, you know, for new housing to be built, just like in Australia. Yeah, they know. You have new people, okay, let’s say they were all fine citizens. We still have, we’re going to stick them all right. So you have all sorts of problems. And, you know, look, I, you know, from what I heard, like, I went to Trump’s rally in Milwaukee, you know, I think it was, yeah, last Friday or Saturday, I can’t remember. And the focus for deportations is going to first and foremost be the people who’ve been committing crimes in the country. And that’s very tangible to do something about that. Yeah, the numbers are big. But, you know, ice is actually quite big. They just haven’t been allowed to do their job, right? So and so they have a lot of intelligence on who these people are, where they are. I think Trump will soften his stance on the law abiding people the company. I don’t think they’re gonna give them immunity and just let them stay. But they might be come up with some arrangement, you know, that’s not like actual full on deportation, you know, they might be able to get, you know, you know, maybe there is some solution where they can maybe physically stay in the country, but, you know, but they’ll have to be a process, you know, behind it, you know, before they can actually be allowed to legally stay, maybe they could do a deal with Mexico. Because, you know, Mexico has been, you know, basically part of the problem. They’re not Mexicans coming in, but they’re the ones who’ve actually allowed them to all kind of come into the southern border. So, you know, Mexico has really got to, they’ll be under pressure to at least come up with an arrangement. You know, be it Australian Christmas Island type of arrangement or whatnot. So I think there’ll be a, certainly, a softer stance on, you know, basically law abiding illegal immigrants, but with the ones who’ve committed crimes, it’s going to be harsh, and it should be, yes, yeah,

Gene Tunny  20:18

I’ve just looked up some some stats. And yeah, it looks like it is a large number. So there’s a a report or a on the the web page of Congressman Doug lamborn from Fifth Congressional District. He’s quite quieting a figure of 17 million illegal immigrants in the US. There was a something from the Center for migration studies of New York, that it had 11.7 so a lower figure. But I mean, yeah, it’s clearly, yeah, it’s over. Looks like it’s over 10,000,010 to 20 million is probably a reasonable estimate. So yeah, really, yeah, obviously, very significant. And what does that mean for the the economic impact of it? Is it the case that the American economy does rely to a significant extent on, I mean, immigrants and illegal immigrants, people working in in agriculture or in domestic service? Do you have any thoughts on that? Darren,

Darren Brady Nelson  21:19

look, well, that, you know, that’s kind of the allegation, if you like, that, that, you know, one of the reasons, you know, the corporates, if you like, go woke, is to cover their their love of having as cheap a labor as they can kind of get a hold of, you know, inside the country, or through deals with China, where, you know, obviously in China, There’s some people who are literally slave labor there. So look, you know, that’s kind of not my area of expertise as such. But, yeah, I mean, you have those sort of numbers coming in, you know, and that’s going to sort of like, certainly put some downward pressure on at least certain categories of wages that may have not been pushed down if they didn’t come in. And, you know, which is obviously, of concern, obviously, if there’s jobs that could have been had, because the Biden administration is not, has not been a, you know, if you like, a pro market sort of government, right? So, you know, sure they’re happy to help their their corporate buddies out, but they’re not so sort of people like open up the economy to more competition and economic growth in general. So, you know, so there’s, you know, people are competing for, you know, less jobs than there would be, I suppose, if then we saw, for instance, you know, under the Trump administration, where things really did take off and people didn’t have jobs before. You know, who you know, for instance, like African Americans, who may have normally had, you know, been on welfare also, and had these jobs, you know. So I think that’s going to return as well. You know, you mentioned some of these concerns, as though, like, you know that just, it’s just completely false, as though, like, you know, Trump supporters are just a whole bunch of angry white men. That’s not at all. And I see the statistics now make it blatantly clear, you know, he really, unlike the Democrats, he really did have, if you like, a multi racial, multi cultural, multi background, multi income coalition, more, far more than the Democrats. The Democrats taking out Joe Biden is like a party on the decline. You know, they’re increasingly, you know, just some rich white ladies and and some welfare blacks, basically, and even. And they’re losing the welfare blacks, thankfully. You know, as we we’ve saw, you know, Hispanics are totally moving in the direction of Trump, as are all you know, most migrant groups, be it Indians and and Muslims too. You know, we saw that. Obviously, you know, Trump went to Michigan and spoke to Muslims. You know, the Harris campaign didn’t, and I saw that in my travels around Milwaukee when I went into these, you know, migrant neighborhoods of you know, particularly Hispanics, Indians and Muslims. Also throw in the Eastern Europeans to as you would guess, if they came from former communist countries, they were like the most rabid Trump supporters that I met along my sort of campaign trail. So it was interesting to see, you know, what kind of what I thought, you know, as an economist and a policy person, you know, dovetailing pretty well with what I saw on the ground, and actually on the ground, actually reinforcing things, if you like, even more so than I thought,

Gene Tunny  24:36

just on I want to get to Trump’s economic policies. You mentioned that you didn’t think the Biden administration was doing enough on competition policy or something along those lines. But what about Lena Khan at the FTC? Isn’t there a concern about is there a concern about her future under under the Trump administration? Because if anyone’s do it seems to be. Doing positive things in the Biden administration as her, she seems to be going after big tech. She seems to have an agenda to promote competition. Do you have any thoughts on that? Darren,

Darren Brady Nelson  25:11

none her specifically, I must admit, I haven’t really been following her. I guess I mentioned competition in the context of, you know, like the discussions we’ve had in the past on national competition policy Australia. So not like, you know, using, using the sort of, like the American equivalent of the ACCC with a big stick. I personally don’t think that’s a you know, that really makes no great difference in terms of actual, you know, like, broad sense competition in the economy. It’s basically getting government out of the way. And I think, you know, Trump doesn’t have like, a, like a, literally, a policy on competition, you know, look, I would love to, obviously, you know, get a job administration and maybe do something on that front, because I think there’s a lot of stuff, but, but it’s, it’s, it’s mainly like, you know, back in the 1990s to the early 2000s it’s government getting out of the way. It’s not government going in with a big stick to target this company or that company. I mean, okay, fine, I guess you got those laws. What’s at least use them in a more because in the US, they tend to be just politically driven. You know, they tend to go after a company that’s kind of lost political favor more so than under some legitimate, you know, sort of like anti trust reasons. So look, I don’t have any particular strong feelings on that person, and you know what should happen under the Trump administration. So I think brought more broadly, as you know, Trump may not have as an explicit a policy to get government out of the way, as like Reagan did, for instance, or even, you know, maybe even Bill Clinton eventually, you know, with his sort of joint partnership at times with Newt Gingrich, were doing that sort of stuff, even if, you know, Bill maybe wasn’t necessarily fully on board with the philosophy he certainly, you know, helped put in place those sort of policies in the in the 90s, as Reagan did in the 80s. But there’ll be some quite good people with Trump, I think, who will be looking to do that? Obviously, you know, trying to cut government spending, hopefully with Elon Musk, and, you know, an efficiency commission or efficiency department, certainly lowering taxes of various sorts. And they certainly recognize, you know, sometimes, you know, Trump’s kind of like, not as clear sometimes on, you know what monetary policy is, but, but I think you know, certainly he recognizes, you know, the Feds printed a lot of money, you know, since, in particular, since 2020, and actually, unlike, say, some of the other central banks haven’t ratcheted back as much as some of the other Western countries have. You know, they’ve done it some, but not as you know, you know, particularly m zero, for instance, they, you know, they’ve, you know, ratchet that back some, to some extent. You mean the money, do you Yeah, sorry, sorry, yeah, money supply, m zero in particular, which is kind of the, you know, the more very central bank oriented calculation, as you know, you know, whereas you start bringing in, yet, the banks and stuff, you start going to, you know, M, 123, so, you know. But if you look at what they’ve unwound compared to, like what Volcker had to do in the 80s, it’s, you know. Whoa, you know, you know. So in the meantime, they better get some pretty growth, pro growth, greater private sector policies, which can, you know, that can also offset a lot of that. And thus, you know, I guess there might be less reason or need to unwind some that money supply, although they will have to deal with to some extent. And you know, there’ll be a fight, I think, you know, because Trump definitely wants a new head of the Federal Reserve, and the current person said he’s not going to resign. So, yeah, that should be an interesting battle. I don’t really, don’t know how that’s going to play out exactly. I mean, that’s not very good. I mean, you know, if the new president because that the chairman is definitely a political appointee, everybody knows that. So, you know that’s, that’s, it’s not good, you know, it’s pretty bad form, or worse. You know, for the chairman to say, blatantly, I’m not gonna, I’m not gonna leave, even though the new president doesn’t want me.

Gene Tunny  29:30

So it’s interesting what you’re saying. I mean, yeah, clearly they have to unwind. I mean, you know, keep shrinking the the Fed balance sheet. Now that is a quantitative tightening, so to speak. That’s what I think, how they’re describing it. Now, I thought the impression I got is that the concerns are that Trump would want to interfere. He’d want to interfere with the Federal Reserve and and more likely. And then under Trump, we would have easier monetary policy, wouldn’t we, because Trump would want to keep interest rates low, to keep the you know, to promote economic growth. So isn’t the concern under Trump that we would end up with higher inflation and hence higher interest rates?

Darren Brady Nelson  30:18

Um, but look, that concern, to some extent, is, I think, legitimate, because, you know, Trump hasn’t been, you know, he’s not Ron Paul, right? He’s taking, like, a pretty clear stance on on money printing and sound money and all that. He’s sometimes kind of been there, and other times he’s kind of easy money. But look, you know, it depends on what the demand for money is. So if the economy takes off, you can kind of, to some extent, not have to unwind the money supply to the same extent or tighten things up. You know, I would dismiss every President has a big influence on on money, a bigger influence on monetary policy then, you know, people really quite realize all the you know, they’re like I said they’re the chairs are political appointees. Yellen was not going to be doing something vastly different from what the presidents that she were was under wanted, right? I mean, you know, they’re nominally independent, but they’re, it’s semi independent, right? So I don’t think Trump’s any different from from Biden or Obama or anybody else. He’s not going to come in and be something, oh, wow. That’s different. You know, he’s going to try to influence the Federal Reserve they all have, right? They’ve all had done that wrong. But I think with, you know, I think you know the big difference, you know whether he’s kind of not going to be, if he’s going to be not that different on monetary policy from from the Biden administration, he’s going to be vastly different on, on his his pro growth policy, he’s going to, he’s, obviously, he’s gonna be expecting the private sector to be the one who drives growth, where the Biden administration explains the government to grow, and okay, you can kind of get away with that in the GDP statistics, because government’s such a huge chunk of those statistics. But it’s smoke and mirrors. You know, government doesn’t create its own wealth. You know. So, whereas, you know, and also, if you want to say, inflation, will see what happened in the first administration with Trump, you know, CPI didn’t grow very much at all. So I expect that to be the case under Trump as well. Yeah,

Gene Tunny  32:36

look, I agree with you that if, if the economy is, if your measured GDP is only growing because you’re, you’re undertaking activities in the public sector that are, you know, are inefficient or really of low value, then that’s not good for your living standards. I agree with that, and not good for your the productivity or economy. I think that’s a that’s a fair point. Can I ask about fiscal policy. I’d like to move on to that, because you made the good point about how you know Elon Musk is going to be involved in some sort of efficiency commission. I mean, I think this is one of the, this is one of the positive things that could come out of the Trump administration, if Elon Musk can reimagine what government looks like, right? I mean, this is quite incredible, right? Like to have someone who’s who doesn’t have that sort of standard model of what government does, or what the political constraints are that say I have because of an ex Treasury man in Australia, so I’ve got an idea of what’s achievable, what’s not how the government works. He’s just gonna, he could come in and just completely, you know, reimagine things. I mean, it could be the biggest reorganization of the US government since FDR, I mean, in the other direction. But so what are your thoughts on what Musk could do and what he should do?

Darren Brady Nelson  33:55

Yeah, look, I totally agree with you. You know, basically, you know, the way you set this up, you know, like, that’s, that’s, you know, in some ways, that is the most exciting prospect, you know, to bring in, you know, I guess a guy who’s considered a business genius. We know, business and government are not exactly the same thing, but there’s, there’s overlaps, there’s things that can be learned, obviously. I mean, Trump’s a business person, obviously. And, you know, I think overall, his first first term, except for, you know, when COVID and BLM and all that hit, it was a great success, you know, up until then, certainly economically, you know, putting aside, you know, you know, the other stuff. So that is very exciting. I would love to, you know, be a part of that, if I can somehow be a part of that. You know, obviously you work to me on, you know, when we first did that CPI minus x for the state of Maine, and then I kind of took that idea and applied it to the federal government on behalf of the Heartland Institute. So, you know, there’s a report or a plan, there’s really something. You know, if, if I can somehow get that in front of an Elon Musk or Trump’s people, doesn’t mean that’s the way you have to do it. But, you know, that’s just, you know, at least part of the toolbox. You know, I’m happy if, like, you know, Elon’s got an even better idea, or if he’s maybe comes in, like the president of Argentina almost, although, you know, maybe even maybe that’s a bit, you know, sort of a bridge too far, perhaps for a Western country, if you like, or for the US. But I think you know if anything big is going to happen, as you said, you know, like something huge, like, sadly, FDR, did in the opposite direction, because most of the federal government of right now, was set up under FDR, yeah. And, you know, including all the agencies that even the federal government doesn’t know exist, you know, because that was the big surprise when I did my Heartland reports. Like the Treasury, the US Treasury, doesn’t know all the agencies. Like, how can they not know how many agencies there are? Yeah, and who they I mean, we obviously know the big ones, like the top 20 or something like that, yes, but there’s all these. And when was facing that’s most of the the budget, obviously, is, is the ones they do know, obviously. But there are all these other little ones too, you know, which is just a little bit of a worry. Now, you know they’re not going to be, for the most part material. It’s not like you’re going to find, well, 50% of the federal government’s in this agency I’ve never heard of. You know that? You know, it’s not that bad, but, yeah, but you know, at least the Australian Government knows the agencies they have, you know. So that’s kind of a good start. So Elon, you know, someone like me or whoever can at least be a help to Elon going like, you know, I’m not going to slow you down. I want to cut the government like you do, but be aware that even the Treasury doesn’t necessarily know all the agencies are there. So you kind of know you need to know that as part of the process. So, you know, there’s going to be some hurdles putting aside, you know, all the weird sort of processes and protocols in the Senate and stuff, you know, on budget but, but now they control, you know, the Republicans control the House, they’re on board with the Trump agenda. They control the Senate. They’re going to have to push out Mitch McConnell, basically, and then get someone in the Senate who’s going to also facilitate what, you know, Elon might want to do, yeah. I mean, there’s obviously, you know, in the US, you know, there’s obviously, there literally, is a separation of powers, you know, obviously, you know, in Australia, the Prime Minister is the head of the executive. He’s also the head of the legislature at the exact same time. Yeah. So things, whereas you know that, you know, the Congress is in charge of the purse strings.

Gene Tunny  37:36

So the G the GOP has got control of the Congress, has it? Is that correct?

Darren Brady Nelson  37:40

Yeah, you know. And they got, they really got, not just in charge of the Senate, they, you know, they really did way better than I guess a lot of people expected. So they’ve, they’re totally in control of the Senate. They’re still in control. I think they’ve that. I could be wrong, but I think they increase their lead in the house as well. So they’re, yeah, it’s definitely in control of both houses, you know, they’ll need to, you know, push McConnell out the door gracefully, or not so gracefully, and then, you know, Congress needs to work, obviously, very closely with the Trump administration. Hopefully, you know, Elon Musk will be in charge of, you know, I think he wants to call it the Department of government efficiency for whatever reason, because he had that doggy. I’m not sure if it’s doggy or Doge, but so look, I’m sure he’s not gonna, like literally be running stuff on a day, but although maybe I could be wrong, maybe he will take time off to literally, you know, put his energy into this, you know, whether you know, I end up working for him or not. I hope he gets a good team, you know, can help him out. And certainly no one who’s going to try to get in the way and constantly say, You can’t do this. I can’t do that.

Gene Tunny  38:58

Yeah, well, you can send him a note and say that you’re is you were his number one door knocker in Wisconsin, weren’t you?

39:06

Yeah? Well, yeah, I was absolutely

Gene Tunny  39:08

and you got a lot of good, well, you got some, yeah, you got, you got some good ideas in terms of forcing them to make efficiency gains each year. So I mean that we can have a discussion. We had another discussion, another time about exactly how you’d make that work. I mean, there’s a, and you mentioned that, you know not, you don’t necessarily. I mean, your models one, there are other models that the idea is to have some type of, yeah, it gets some type of mechanism. Or that just works against the general tendency of government to keep expanding, right? To just keep growing with population and inflation. So I think that’s a that’s worth considering. I want to ask about before we wrap up, there are a couple of things I want to ask you about the deficit, and then we should just chat about trade and what Trump means for trade. How likely is it that Trump’s going to get the budget under control? Because. A the budget, the US budget, is currently in a structural deficit. Is it? I mean, is it a trillion dollar deficit? I don’t know the exact figure, but it’s massive. And you know, one of the figures Niall Ferguson is talking about. Now, I saw him at the ARC conference here in Sydney, and he was talking about how interest expenses on US debt are projected to exceed defense spending, right? And Trump’s want to he’s going to have a big tax cut. How? What are the prospects for him actually getting this under control the budget and limiting the growth of debt? Do you have any thoughts

Darren Brady Nelson  40:35

on that? I mean, you know, besides breaking my CPI minus x, which actually eventually takes debt down to zero and and gives, you know, over, this is over the course of 12 years, by the way, so that was like, it’s be assuming that Trump’s in for four years, and then Vance can actually be in for eight, you know. You know, obviously, that’s maybe stretching things a bit, but, but, you know, and then allows people, you know, he could get the just using my CPI minus x, and I think Elon Scott probably, I’m guessing, something even more heroic than what you know, I was doing with a CPI minus x, but simply under CPI minus x, which is focused on spending. Obviously, you know, I’m going to circle back eventually, but that would get rid of all debt. And, you know, some economists obviously go, Look, you should have some debt, and that’s fine, but you just like, theoretically, you could get rid of all the debt and also get back every average taxpayer every year, 19 grand. So that’s not bad. So you could do both at the same time. And I think so whatever happens on that front again, I’ll come back to really, you know what your question was, but you’ll need to, as you go along, not be obsessed with just getting debt and like, give no relief to taxpayers. You need to combine the two together somehow. But of course, now to get back to your question, it’s going to be what say Elon Musk or someone could do, because spending is the problem. Spending no problem. So if you can get spending under control in a big way, not just kind of play around at the edges, like they have often done over the years, like, Oh, we’ve slightly reduced the growth of spending. No, no, you got to. Can’t just reduce the growth of spending. You got to reduce the actual spending, right? And defense isn’t the problem. Really. Defense is like 10% of the budget, right? You know, we start adding up. You know, both social and corporate welfare. That’s where the biggest problems are. And then you throw in as as Trump called it many times, the green scam. That’s also a huge pile of money as well. So that’s, that’s where the work needs to be done. And and then just throwing the fact that, you know governments, in particular, it seems federal or national governments tends towards a lot of waste, right? Just a lot of a lot of fat, a lot of unnecessary, even if they’re doing something that you think is a core thing they should do, they often do it really badly and inefficiently, right? So there’s that too. So, so it’s basically spending, spending, spending, spending, and then also, you know, particularly in the 2020s but maybe also, to some extent, since 2008 that’s, that’s really what the Central Banks has been printing a lot more money for, really, is to for government at the end of the day, going through the the kind of, I think, somewhat pretend process of, you know, bond markets and whatever else fine, but ultimately, they’re just printing money for government, right? So, and particularly, you know, since 2020, onwards, and like I said, the the US Federal Government hasn’t ratcheted back that that kind of printing as much as some of the other Western governments have, right.

Gene Tunny  43:44

So just on the I think you make a good point about spending being the issue. And I’ve chatted with Dan Mitchell, who you know we both know. You know Dan. Well, you introduced me to Dan, I think, and Dan worked on that thing for me, you had

Darren Brady Nelson  44:00

actually introduce me to Dan, to the economic society that

Gene Tunny  44:04

may be the case. Oh, when John Humphries brought Dan over for the Oh, Wow, incredible. Oh, very good. Well, anyhow, what I remember Dan telling me once on one of the interviews I did, that there was a situation where, if you look in Europe, they increase, they brought in the value added taxes. And you’d think that having the all this additional tax would improve their fiscal situation, but 20 years after they introduced it, they’ve actually got more debt or something like that. Or maybe, you know, decades after they’ve introduced it, it didn’t improve their fiscal situation one bit. So I thought that was a fair point. So yeah, it’s definitely, you’ve got to keep the spending under control. I mean, you make the point about the social security, corporate welfare, etc. Now, the issue with the the entitlement program, so to speak, is that, I mean, they’re, they’re legislated, okay, people have entitlements. So it’s, I’m struggling to see how you apply. Your CP, CPI minus x, whereas you’re essentially saying government agencies have to apply this percentage reduction in in spending each year, which would be great if they could do it however, that it comes up against the issue that a lot of this stuff is legislated, so you need to have Congress make changes, don’t you to achieve what you’re after?

Darren Brady Nelson  45:21

Yeah, you’re right. And I think, like, Social Security in particular will just have to be tackled separately, right? And I’m not sure if we ever talked about this, but I think, I think Australia has got a great model, you know, like, what, what they did in the night. I mean, it’s not perfect, the superannuation system, but it’s like, light years better than the US Social Security system, right? So, yeah, I think there’s, you know, I think Australia is, like, an ideal model, at least, you know, a jumping off point to where you could reform Social Security and maybe that. I think that might have to be something different, you know, that might have to work hand in hand with, you know, Elon Musk’s outfit, but it should be something separate. And there’s some, I can’t remember the fellow’s name, but there’s a guy at the American Enterprise Institute in the US who’s also a big fan the Australian superannuation system. And by the way, Dan Mitchell, who you mentioned, yeah, did his PhD on Australian superannuation and how that could be, yeah, you know. So, you know, be awesome to bring Dan, you know, and maybe the guy from AI to kind of tackle superannuation separately, tackle social security separately. There’s a lot of other entitlements too in the US federal government system, but Social Security will have to be tackled separately, and obviously in a more sensitive manner, and in a way where you obviously grandfather people in who you know you can’t, it’s too late for them to you got to make it so no one’s worse off. You know, whatever there is, over time, it’ll probably take, you know, a more gradual reform than than you know you could with sort of other government related expenditures. So that had to be just tackled separately, I think. But I think Australia offers a great model for that, as I think it also does. It wasn’t much of a campaign thing for either side. But, you know, infrastructure, I think Australia also, particularly, you know, under national competition policy was a great model as well. And I wrote a Heartland paper on that in 2020 you know how that could work in the US? You know us being a federal system as well, you could put something similar as Australia did,

Gene Tunny  47:32

yeah, yeah. I’ll put a link in the show notes to that chat. We had a chat on infrastructure, but also spoke with Dan about his book, The Greatest Ponzi scheme on Earth, where we had a chat about superannuation as well. And you’re right, our system in Australia is not perfect. There are lots of debates over how we can improve it, and whether tax concessions for Super are too generous, whether people should be allowed to access their super for housing. I think they should. But there are other people who think that, Oh no, it’s the best thing is to leave it into it, let people leave their like, lock it up until they retire. I’m not sure about that. So there’s a big debate about some of the parameters of it. Right before we go, Darren, I should ask you about trade, because this is one area where there could be some big changes. I mean, Trump’s been threatening. Is it a 60% tariff on China, 10% increase in tariffs across the board, or something like that? Was it 20% what’s the potential for, I mean, this to be to have an adverse impact on us consumers. What’s the potential for a global trade war. How do you think about what Trump’s impact on the economy via trade policy is going to be?

Darren Brady Nelson  48:48

Yeah, look, that’s, that’s gonna be, that’s gonna be a tricky one, you know? So I’ll start out with, I’m not sure if you ended up having him on your show. Did you have Mark Calabria on your show? Not

Gene Tunny  48:57

yet. I haven’t managed to line him up. Yep, yep, yeah. Okay. Well, look,

Darren Brady Nelson  49:02

you know, if you do, I’m just going to kind of, hopefully I’m not giving away trade secrets. Hopefully he’ll talk about this too, if you can get him on. Is he, you know, he was the chief economist for Mike Pence during the first Trump administration. Then it towards the end, you know, he was appointed as, you know, headed, I can’t remember, because there’s multiple financial regulators of various sort. He’s one of the financial regulators, but, but the point was, he had been a number of meetings in the oval of office over the course of the four years. And, you know, unlike, say, Dan Mitchell, who, you know he he thinks Trump is, like, you know, philosophically a protectionist, right Mark, who also was a colleague from Cato with Dan, had the opposite view. He goes, Look, Trump’s not philosophically a protectionist. And I think bears it out like when that one time when he challenged when the g7 were upset with him about his tariffs. He goes. Right? Let’s all get together. Let’s lower, or even get rid of all our tariffs, you know, between us. You know, the in the g7 um, because there’s lots of terrorists that are, you know, allies are putting on each other, right? So it’s not just China, places like that. So I think for I understand Trump, it’s a strategic sort of approach to eventually get, if you like, less tariffs, but also not just tariffs, but, you know, just kind of overall, if you like, you know, trade agreements that aren’t slanted and massively so towards one partner, like, you know, like the ones that seem to be slanted towards China, and that would include all regulatory barriers and all the other stuff. And you know, the Chinese, even more so than the Japanese, once upon a time, are like masters of non tariff barriers to trade, right? So, you know, to sort of attack that sort of stuff. And I think if you kind of take, like a cost benefit or discounted cash flow approach, it can make sense, because it’s not like we’re in a world where there’s no tariffs, and also Trump throws these tariffs on, right? Not in that world. You know, we’re, sadly, in a world with with, not only plenty of tariffs, way too many sort of, if you like, non tariff barriers, as well. So I think, you know, I understand Trump. It’s a strategic way of getting a better deal out of a China or Europe or even Canada, you know, like I, you know, as a free market oriented economist, yeah, my natural instinct is, obviously, I don’t love tariffs or other barriers to trade, but at the same time, you know, I’m kind of skeptical of, you know, you need to at least take, you know, Ricardo model of comparative advantage with a grain of salt in a sense of the logic is sound, except for the fact that nations are not equivalent to individuals or businesses or even industries. You know, they’re not exact. They’re political entities. That what? That’s what makes them very different from comparing them to these other entities. So the model has a certain amount of usefulness, but you can take it too far if you forget that nation states are political entities, and they’re not they’re not like you know, businesses are humans freely trading with each other. They’re just different. They’re just different. They have different incentive structures. And you can take the traction a bit too far. So I’m very given, you know, how badly I think the WTO etc has performed compared to maybe their earlier years under, you know, GATT and all that sort of stuff there. I’m very open to bilateral trade agreements, because I think a lot of these trade agreements were terrible, you know, I’ve looked at the the Trans Pacific Partnership. It’s, you know, 8000 pages of, not so great, right? You know, first of all, why is it 8000 pages, you know, like, that’s just, yeah, yeah. That’s what a free trade agreement, you know, used to look like once upon a time. You know, they used to, it’s too much given favors your buddies, basically. So that, to me, they’re just putting in place a lot of, you know, barriers to trade. I mean, for every one they take out, they may be putting in two new ones. So, so look, I’m kind of, you know, more optimistic. I suppose you know, I’m wary of tariffs. But you know, if ultimately, we can then get, you know, to a point where we get China, or whoever, even Canada at the trading table, to like, hey, all right, let’s, let’s, let’s start to sensibly and in a more equitable way, lower tariffs, lower non tariff barriers to trade over whatever sort of time frame, then I think you might have to use that because, you know, China does not play fair at all. When you’re dealing with with businesses in China, you’re always dealing with the government. Yeah,

Gene Tunny  53:53

yeah. I’ve chatted with some people on my show about that, that enterprise China model, or China Inc, yeah, absolutely, with the non tariff barriers, you’re talking about things like, uh, quotas or inspections or, you know, just require, difficult requirements, difficult regulatory hurdles to get over to, to get into the market. There’s a, I found a briefing on Stanford Center on China’s economy institutions that I’ll, I’ll put a link to in the show notes, just for listeners who are interested in learning more about

Darren Brady Nelson  54:23

dei and climate stuff alone. The West, you know, China’s not doing it. China’s not doing it. Brazil’s not going to do it. Obviously, we’re not really having a whole lot of trade with Russia at the moment, but they wouldn’t be doing it. India. The BRICS, obviously, the BRICS nations, you know, having all these onerous regulations that you know only kind of you know, certain corporate elites in the West can meet, but no one else can. You know that you know, particularly small and medium sized businesses who aren’t benefiting from this stuff are often hurt by these things. So I think you know that’s going to. Of massively changed too, in the US is, you know, the DEI stuff is going to be it, you know, if it doesn’t like, literally, be go away completely. It’s, it’s going to be hugely de emphasized as our, you know, climate things as well. All right,

Gene Tunny  55:15

okay. Tara, this has been a fascinating conversation. Yeah, it’s good to catch up and, yeah, get your perspectives. I mean, again, like I said, I was, I was surprised. I mean, I guess I always thought there could be a possibility of Trump winning, but I didn’t think that was the most likely scenario, and now that he has won, yeah, we have to think about what those implications are for us. Economy, global economy. There are some pessimistic projections, forecasts out there from various economists like Warwick, McKibben. Warwick’s done some modeling of what the adverse impacts are on US consumers, on the US economy, on global growth. But then, at the moment, it looks like the markets aren’t seeing that. The markets have responded rather favorably to Trump with increases in the various stock market indices. And, I mean, we’ve got Bitcoin going up, I think I saw so I think actually, crypto is one thing we didn’t chat about. But I think there are a lot of people are excited about what Trump could mean for crypto. I don’t know. I’ll have to talk to I’ll have to try and cover that on another episode. So yeah, it looks like the market is is relatively positive. And one theory I heard is that might have been on Bloomberg or or CNBC, that Goldman Sachs has a view that, like it is just a negotiating position that the whole threat of the 60% tariff will it won’t quite be that at the most it end up being 20% or something, so would have a lesser, a smaller impact. So I think that’s their their view there. They seem less concerned about what the the possibility of a trade war than than others might be.

Darren Brady Nelson  57:03

But anyway, I would, before you finish, I would add, you know, let’s not forget, everybody’s got a world view. So, you know, Mckibben has got a very strong worldview, which is like, in the opposite direction from Trump. And you know, economists are never value free. Never had been. Sadly, they’re just, you know, they’re even further away from value free nowadays. So it’s easy to put together, you know, a paper with 100 you know, economists and Nobel Prize winners who say Trump is horrible and he’ll destroy the world, you know, I think that’s just, you know, it’s just nonsense. You know, he’s going to be the economy is going to be far stronger under Trump than you know, would have been, you know, under Harris, by far. And I think that’ll be good for Australia too, because, you know, Australia, obviously, a lot of times, just writes the coattails of the US, whether even if labor is in power and not being all that business friendly in the first place. So I think things can be, you know, happy days are here again.

Gene Tunny  58:05

Okay. Well, you’ve made a strong prediction there. Darren Brady Nelson, so I’ll have you back on at the end of the extra administration. See how the prediction, yeah, see how it goes. Yeah. Well, I think yeah, absolutely right. Everybody. Nelson, thanks so much for your time. I’ve really enjoyed the conversation and learning your perspectives. It’s Yeah, huge week of news, and you’re someone who’s been on the ground, and you’ve had some you’ve got some valuable insights for us. So thanks so much.

58:37

Thank you. Bye.

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Credits

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Categories
Podcast episode

Immigration & Australia’s housing crisis w/ Alan Kohler – EP191

This episode delves into the pressing issues of housing and immigration in Australia, featuring a conversation with renowned financial journalist, Alan Kohler. The discussion revolves around the impact of high immigration rates on housing demand and affordability, emphasizing the need for coordination between immigration and housing policies. The episode also highlights the supply-side factors contributing to the housing crisis, such as restrictions on housing development and protections for character housing and heritage. The host Gene Tunny suggests the need for a national debate and parliamentary inquiry into Australia’s immigration rate and population growth to weigh the benefits of immigration against the challenges of housing and infrastructure. 

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

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

What’s covered in EP191

  • [00:01:58] Australia’s housing crisis. 
  • [00:06:47] The need to coordinate immigration and housing. 
  • [00:08:00] Short-term vs long-term rental – the impact of AirBnB, etc. 
  • [00:13:05] Local governments and the housing shortage. 
  • [00:18:30] Drop in average housing size. 
  • [00:22:32] Increasing housing supply as a solution. 
  • [00:24:17] Immigration and housing affordability. 
  • [00:28:07] The pandemic response and the housing crisis.

Links relevant to the conversation

Alan Kohler’s articles:

Labor immigration and housing policies are an explosive mix

Alan Kohler: Population growth equals economic growth, but for whom? 

RBA research on average household size:

A New Measure of Average Household Size | Bulletin – March 2023 | RBA

Previous Economics Explored episodes on housing:

Odd way to fix housing crisis proposed by Aus. Gov’t: invest in stocks first w/ Dr Cameron Murray, Sydney Uni. – Economics Explored

The high cost of housing and what to do about it w/ Peter Tulip, CIS – EP134 – Economics Explored

Missing Middle Housing podcast chat with Natalie Rayment of Wolter Consulting | Queensland Economy Watch    

Australian Financial Review articles on housing:

Housing supply crisis: How Auckland took on the NIMBYs and won 

1.3 million missing homes blamed on councils and NIMBYs 

Transcript:
Immigration & Australia’s housing crisis w/ Alan Kohler – EP191

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

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, I chat with renowned Australian financial journalist Alan Koehler about housing immigration in Australia. These are related highly topical issues in this country at the moment. You’re in Australia, you’ll probably know Alan from his nightly finance report on ABC News. Alan was usually popular in Treasury when I was there, because he’d always feature an interesting chart and his finance report, and would often talk about it the next day. In addition to being a finance reporter, and presenter at the ABC, Alan was the founder of the Eureka report and business spectator now owned by News Corp. Many thanks to Darren Brady Nelson for connecting me with Alan, please make sure you stick around after the end of the interview, because I’ll have a few words to say to wrap up. Okay, let’s get into the episode. I hope you enjoy my conversation with Alan cola. Alan cola. Thanks for joining me.

Alan Kohler  01:43

Not at all.

Gene Tunny  01:45

Alan, you’ve written some really great commentary on what’s been happening with housing and immigration here in Australia really frank and fearless commentary. And I’m glad to have you on the show to chat about that. In October last year, you wrote, If the Labour government doesn’t start coordinating immigration and housing, the mixture will be explosive, because Australia’s housing crisis is going to be horrific next year. I’d like to ask to start with Have there been any developments since you wrote that article that makes you more or less optimistic,

Alan Kohler  02:20

I suppose less optimistic in the sense that the increase in immigration this year has confirmed it’s 400,000. It’s it’s mainly catch up. But it’s clear that we’re back into higher levels of immigration. And the rental vacancy rate has not really moved. It’s gone from 1.1%, nationally to 1.2%. So that column II referred to was really just investigating job vacancies, and rental vacancies in various places around the country as well as nationally. So what I did was I went around to various places in the country, both cities and country towns, and looked at the number of jobs that were advertised on seek and compare that with the number of rental properties available on RPA. And just found that the number of job applications of job heads were vastly in excess of the number of places to live, if it was available. So you know, you’re wondering what’s going to happen. And when all these businesses needing staff advertising for staff in places like Warren ball or the Sydney Hills district or Cannes or Calgary? I mean, I looked at all these places, and there was a vast difference in the number of job vacancies and job ads and the number of places to rent.

Gene Tunny  03:50

Yeah, yeah, absolutely. And you, you suggested that it could be horrific next year. Do you think it’s horrific at the moment?

Alan Kohler  03:57

Well, it’s certainly not getting any better. For sure. I mean, the government’s plan is to is to have a housing. Future Fund, as it’s called, was $10 billion in which and the earnings from that fund will be used to build houses, and they’re proposing to build 30,000 over five years. But really, that’ll scratch the surface. I mean, the number of places that are needed is vastly in excess of that.

Gene Tunny  04:23

Do you have any thoughts on the structure of that Future Fund? There’s been some criticism of it by various commentators such as John Corrigan, and Cameron, Mary and the greens are that they think it’s a bit futile. Do you have any thoughts on that yourself? I mean, I know you just said that. You think it’s just scratches the surface, but any thoughts on the structure of it what they’re trying to do there?

Alan Kohler  04:44

Well, the only thought I have is that it’s better than nothing. It seems to be quite complicated. The way they’ve got the money is going to be given to the the actual Future Fund Manager and then there’s kind of various places that the earnings go to some some of the states Some of the Commonwealth I mean, I look at this kind of bureaucratic structure and feel like the money will disappear before it gets anywhere. Because, you know, bureaucracies tend to make money disappear.

Gene Tunny  05:15

Yes. And the fund managers or, you know, they’ll they’ll earn some fees off it, too. Of course, I think that’s one of the points that that Cameron mentioned. Can I ask, what do you have in mind by starting to coordinate immigration and housing? What what sort of things do you have in mind there? Alan, have you thought about how they could do that?

Alan Kohler  05:37

Well, I think the main thing they need to do is actually have a hard look at how many houses are required, given the immigration policy that they have initiated. So they, they make a decision about immigration, they decide how many people are going to come to the country, right. And then they, they also have data on how many houses are available. And therefore they can know what housing is required to house, the people who are being invited to come to Australia, and also the people who are here and what the sort of current demand is. And then I need to find a way to create to make that housing available. Because otherwise, what you end up with is a soaring in rent, which is what’s occurred, there’s been huge increases in rent over the last couple of years. And also you get huge increases in house prices, because of the demand. And there’s just simply a lack of supply. So what I suppose what I’m talking about is, you know, actually doing something at the government level to create the housing. Now the question is, what will it be because, you know, there’s not enough, it takes too long to build houses, even if they even if the housing Future Fund had enough money in it to build enough housing, it will take you know, a couple of years to build the houses. So it’s not as if that’s going to be a quick solution. But one of the things I’ve been I’ve also been investigating is the question of short term rentals and Airbnb. And I did another column in which I kind of observed that the number of rental properties available in Australia, at the time, I think was a month or two ago, the number of rental properties on raa that were available in Australia was 51,000. And the number of properties on Airbnb and other short term rental sites was 300,000. Right? So there’s a huge difference. And also, I looked into the difference in rent that you get, for the same property as a as a lease on our a and on Airbnb and the differences about three times I think that there needs to be a difference because putting it on Airbnb is risky, because you might get a party or you might rent it at all. So there is a need for a risk premium. But the question is how much of a risk premium and I think it’s self evident that the risk premium currently, that’s available on Airbnb is too high, because not too many people are putting their properties on Airbnb rather than putting it on REO for lease, which is leading to a bit of a shortfall. The question is, how do you how do you redress that imbalance? How do you get, say 100,000 properties off Airbnb? And onto the long term lease rental market? I think there’s some way that the government needs to find to to achieve that. What I suggested was some some use of the Kevin Rudd rental subsidy scheme for the introduced I can’t remember the name of it now. But there was a rental subsidy scheme that was abolished by the coalition that was introduced by Kevin Rudd that was aimed at low income earners. And maybe there’s a way of modifying that in some way that could, in a sense, redress the imbalance in rent between short term and long term rental. But look, you know, I don’t have all the answers. I’m just saying that there needs to be some thought put into, not just into, into getting people into the country, which we clearly need. I mean, we need the immigration, it’s not I think the answer is to not have the immigration because the staff shortage is everywhere. Businesses are screaming for staff. And, you know, and also the care, the care industry, the care sector, healthcare, aged care, childcare, you know, we’re all struggling for staff so we need the immigration and also baby boomers and they’re retiring so there’s needs to at a higher level in general of immigration, to deal with baby boomer retirement, what I’m saying is that they need to combine some sort of housing policy with immigration policy and think about what they’re doing.

Gene Tunny  10:16

Yeah, yeah. I’m just trying to remember it was the Kevin Rudd policy, it may have been the National Rental Affordability Scheme. Was it N RAS? I can correct? Yeah. Yeah, it might put a link in the show notes or a few N RAS properties. out near Bowen Hills, I’m in Brisbane. So I think I think there are n RAS on with immigration and housing. So you mentioned I mean, we do need immigration. But we’ve suddenly got this 400,000 per year of immigration. Would there be scope for adjusting that from year to year, depending on labour market conditions of housing? Is that something that they should be actively considering? And more broadly, do we need a national? Would you say we need a national housing and population policy? And we need to have that debate about what’s the optimal rate of immigration given these other circumstances? Well,

Alan Kohler  11:13

it’s not 400,000 per year, it’s just 400,000. This year as a catch up for the pandemic when there was no immigration. So, you know, I think the what we’re heading back towards, as a long term rate of immigration is somewhere between 202 130,000, demographers are struggling to say there’s more likely to be 200,000, the Treasury forecast in the budget was 230,000. Long term. You know, I don’t know what it is. But it’ll be something around about 200,000, I guess. And that seems to be what’s needed, you know, to replace the baby boomers and to, you know, just to keep the place ticking over. So I think if what you’re talking about is some sort of adjustment separately to immigration to, you know, meet the housing that’s available. I think that to be the other way around that, really, the immigration needs to be the starting point. And they need to do something about the housing, short term in a hurry, and not just muck around with long term solutions.

Gene Tunny  12:21

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

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Gene Tunny  12:56

Now back to the show. To what extent you see the housing shortage as a result of restrictions at the local government level. Is it due to zoning? Is it due to character protection of character housing of heritage?

Alan Kohler  13:14

Oh, yeah, no doubt about it. I mean, I had a coffee the other day with a bloke who’s running a campaign in Melbourne, called EMB. Yes, in my backyard it stands for and it was started in San Francisco, which is got to Herrera to horrendous NIMBY problem in San Francisco. There’s there’s also a chapter in Canberra and one in Sydney, one in Brisbane. So there’s, they’re starting up here. They’re all young people, and they’re trying to get medium density housing built in the suburbs. You know, I really admire them going on, I think that that’s what’s required. That’s one of the problems in Australia is that we have a high density housing in and near the city with high rise. And then we have large blocks. We don’t have anything much in between we don’t have we don’t have the sort of four storey buildings that other countries do through the suburbs to allow people to allow a lot more people to live close to the CBD. I mean, one of the problems we have in Australia is that we have each city has one CBD. And so the further out you get, the more inconvenient it is, and so that that really puts a premium on housing, that’s, you know, within half an hour or an hour of the CBD. And because of councils zoning, there’s a limit on the amount of housing that’s, that’s being built in those, you know, within the hour commute from the CBD. And so, you know, that’s, that’s what’s required really, I mean, the characters the these people in in the MB movement going on and what they’re doing is they Going to the council meetings. So they’re not just putting out press releases, they’re going to the council meetings and speaking in favour of in favour of developments, housing, you know, apartment developments in those suburbs, because the one of the points they make is that when councils consider these proposal development proposals for, say, a five to 10 Storey, housing apartment block, the only people who bother turning up at the council to talk about it are those who are against it. And there’s never anybody who’s speaking in favour of it apart from the developer, which I think is an interesting point. You know, so the council’s really aren’t a hiding to nothing. I mean, they’re elected by the local constituents in, in their wards. And, you know, the constituents are all against anything being built. So, you know, they’re more or less on a hiding to nothing, you know, and I think so, there’s a bloke called Simon Kirsten maca, who’s a demographer in Melbourne, who I talked to a bit than his solution is for the federal government to give councils a quota of dwellings that they need to approve each year. And if they fail to meet the quota, they lose funding. And if they fail to meet the quota for the second year running, the administer administrators put in they they sacked, which is a pretty tough kind of solution. But he you know, he makes the valid point that this is a real crisis. Yes, we’re just not building enough housing. And we’re not building enough medium density housing, in places where it’s convenient to live. I mean, speaking in Melbourne, I’m not sure where love the place to be speaking about Melbourne, there’s a lot of fear a bit of housing being built in places like where are we in tan Eaton, you know, far our suburbs. But they’re incredibly inconvenient. I mean, the infrastructure is no good, you can’t get out of the place. People are spending an hour in the car, just to get their kids to school. You know, I just think that, you know, there’s there’s a real mismatch, there’s a real problem with where the housing is being built, and the amount of housing that’s being built in places that are convenient.

Gene Tunny  17:29

Yeah, I agree regarding the mismatch. So in Brisbane, here, the only places in the inner city where we’ve really seen an expansion of suppliers in former light industrial commercial areas where they’ve been able to redevelop such as at West End, or Milton and a new state, and we’ve got a lot of high density there. But yeah, we’re missing that, that more medium density, which I think would be really desirable. And I liked that idea of the financial penalties for council. I think that’s, that’s terrific. Another thing I’d like to ask Alan is about the there was a huge drop in the average housing size, and that’s associated Well, there are various factors. But during the pandemic we had, we had cheap money, we had people moving out of home earlier or leaving group houses. And we’ve got also a greater desire for space due to people working from home. And this has been people argued, some commentators or analysts are arguing that this is the big problem. Now it was this unexpected drop in that average housing size. And that’s what’s causing all the problems we’re seeing now. What I’d like to ask is, do you think that was, was that something that should have? I mean, is that something that’s unforeseeable and therefore, well, this is a, you know, this is a problem, obviously, but it was something that you really couldn’t do much about, and therefore, we just have to let it sort of play itself out. I mean, there’s, there’s not time for panic. I’m trying to think of the best way to ask this well, where I’m going with that. But that’s that’s one of the first things we’ve seen, is this drop in the average housing size? Do you have any thoughts on what’s happened there?

Alan Kohler  19:02

Well, the average house size, the average, the average number of people per house has definitely declined. It’s, I think it’s down to two and a half. I can’t remember what it is. But it’s certainly down from four to two and a half, something like that over over a decade. And I certainly when I was a kid, all the children that shared bedrooms, I mean, our I’ve got three sisters, there’s four of us. And it was a three bedroom house. But these days, all kids have to have their own bedroom, right? I mean, start the houses have to be bigger, to have the children, but also there are a lot of shared housing, that no longer exists. Look, you know, the number of people per house has definitely declined, but it’s not an act of God, but it’s certainly something has to be taken as a given. It’s not something the government can do anything about. You know, it’s not going to be able to say to we need to have more people that are housing, you know, let’s sort of cram in more on it’s not going to that’s not something government can do so it needs to happen. needs to be taken as a given that that’s the way it is. I mean, I think it’s starting to rise again now is because of the cost of rent, which is driving, particularly young people back into more shared housing. So I think I think the number of people who are house metric is on the rise again. But I don’t think it’s gonna get back to the where to where it was.

Gene Tunny  20:21

Right. Yeah. I think there was some RBI analysis that showed that prior to the pandemic, it was was over 2.55 or something like that. And then it dropped down to 2.4. A, and they’re saying that this meant that there was demand for an additional 120,000 houses or something. So that’s part of the problem. We’ve got it. At the moment. It was this. That’s one of the shocks that’s been experienced. And but I mean, so there’s this debate currently between or is it just that due to that shock, or is it due to the long term problem with building enough housing? I mean, I tend to lean toward the the fact that, you know, we haven’t built enough to because of restrictions in the past, or the restrictions, we’re still got. But yet, we’ve also got this shock that’s occurred. So it’s a combination of factors, what we’re seeing now,

Alan Kohler  21:11

certainly not one factor. I mean, there’s a number of factors. Yeah. Supply being restricted, declining household size, immigration increased in 2006, from 170 to 260,000. And kind of more or less stayed there. So, so that was a huge increase in the number of people coming into the country. And that’s kind of has continued and will continue. So there’s so there’s been a step up in immigration at the same time as house, household size falls and suppliers restricted. And also, don’t forget negative gearing and the capital gains tax discount, which is encouraging demand from investors. And also, the other thing that’s been driving prices up is all of the first homebuyer grants, which tend to just go on to the price.

Gene Tunny  22:03

Okay, Alan, Carl, or any final remarks on immigration and housing. I’ve really enjoyed this conversation. Just anything you’d like to add before we finish up?

Alan Kohler  22:13

No, I think we’ve pretty well covered it and I’ve enjoyed the conversation. Two.

Gene Tunny  22:17

Very good. Thank you, Alan. Really enjoyed it. Thank you. Okay, I hope you found that informative and enjoyable. The main takeaway that I took from my conversation with Alan is that he sees the way to tackle the housing affordability problem is by increasing housing supply. He’s highly conscious of the demand for foreign workers by Australian industry, so he wouldn’t want to tighten up visa requirements to reduce the rate of immigration. Alan is absolutely right about the need to increase housing supply. I must say, however, that I’d be more willing than Alan to adjust immigration policy settings, given how difficult it is to increase housing supply in the short run. Certainly the Australian government’s proposed housing Australia Future Fund wouldn’t do much as I discussed with Cameron Murray in a bonus episode in late March. In my view, we need to have a national debate, possibly even a parliamentary inquiry into Australia’s rate of immigration. And we need to work out an optimal rate of immigration and indeed, of population growth. There are many benefits from immigration, of course, but they need to be weighed up against the short run challenge of housing so many new people and ensuring that we have sufficient infrastructure. In my view, we should possibly consider population decentralisation strategies. For example, we could relocate some administrative functions of governments to regional areas and hence we’d relocate the public servants. There are several regional cities out there will many regional cities out there that could could be good destinations such as Townsville, for example in North Queensland. We should also ask, why do we need to rely so heavily on immigration to boost our workforce? In the case of skilled labour? Why aren’t we training enough Australians to meet the needs of business? Furthermore, I’d note that students are a big part of the Margaret intake into Australia. And it’s difficult to argue that they’re mostly filling skilled jobs. The impact of our high rated immigration on housing demand and hence rents and house prices is probably large enough that we should ask whether the benefits to industry are sufficient to offset any adverse impacts on the broader community. Of course, as I discussed with Alan, housing affordability is a multi dimensional challenge. There are demand side factors such as immigration and the reduction in average household size, but there are also supply side factors. One of the supply side issues is definitely the restrictions on housing developments in our Cities, there are too many rules which are constraining the supply of housing and making it more expensive. We have various protections of character housing of heritage, and it makes it much more difficult to develop the housing stock that we need. If you’re a regular listener, you may recall that I spoke with Natalie Raymond from the Brisbane yimby group a couple of years ago. As Alan mentioned, yimby stands for yes, in my backyard. It’s a fantastic movement. I’ll put a link in the show notes to my conversation with Natalie, so you can listen to that episode if you haven’t yet. Again, if you’re a regular listener, you may recall that I also chatted with Peter tulip last year about the high cost of housing. Peter is a former Reserve Bank of Australia economist. He’s now chief economist at the Centre for independent studies where I’m an adjunct fellow. Peters estimated that for detached houses, planning restrictions are estimated to raise house prices 73% in Sydney, 69% in Melbourne, 42% in Brisbane and 54% in Perth. I’ll link to my conversation with Peter in the show notes too. I think it’s a great one. And Pete has done some really rigorous research on how these planning restrictions impact housing, so I recommend checking that out. Another former RBA economist Tony Richards, he’s just published some analysis of the impact of planning restrictions on housing supply, and it’s received some great coverage from my old Treasury colleague, John Keogh, who’s now at the Financial Review. John has summarised this research by Tony Richards as follows. Australia could have built an extra 1.3 million homes over the past 20 years. But costly zoning planning and building red tape imposed by local councils is chiefly to blame for a huge housing under supply. That sounds plausible to me. Indeed, I’ve been on the news here locally because I’ve gone up to the site of a of a redevelopment or proposed redevelopment up in Paddington on the corner of Latrobe and given terrorists with a page of workers club is and they wanted to redevelop that as a mixed use development with residential and commercial. But it was opposed by local residents. And yep, there’s no development there. And I mean, we really need to develop prime sites like that that are well located and think about the interest the greater community interest rather than just the the interest of people within the neighbourhood. We need to think about the greater good. Okay. I should note that there’s some evidence out of Auckland in New Zealand regarding the impact of up zoning on housing affordability, so up zoning is allowing redevelopment or high density uses of land that’s zoned for low density residential use. After up zoning began in Auckland and 2016, there was a building boom. And since 2016, rents in Auckland have only increased 10 to 20%. Compared with 40% in Wellington, it looks like there’s an even starker difference for house prices. So they’ve gone up only 20% in Auckland compared with 70% outside Auckland. So I took those figures from a recent financial review article, which I’ll link to in the show notes. So check out the show notes for any links to any studies or reports I mentioned also for any clarifications in case I miss remembered something or I’ve got something wrong. Okay, I might come back to the Auckland experiment in a future episode to have a closer look at the evidence. As always, we need to make sure we understand all the facts, we need to be conscious that correlation doesn’t necessarily mean causation. And just because something follows something else. That doesn’t mean that they’re related, or there’s a causal relationship. That said the evidence from Auckland does look promising, and it makes sense from a theoretical perspective. Finally, I should note that the housing crisis we’re having in Australia is probably partly due to the pandemic policy response, including Ultra loose monetary policy, cheap money, and the lock downs. These policies stimulated demand for larger houses for those who could afford them. People demanded more space. They demanded studies so they could work from home and the international border closure for nearly two years, followed by its reopening in late 2021. That’s led to a huge amount of catch up immigration. As Alan noted in our conversation, all these new people need places to live in a rental market that is already extremely tight. So in different parts of the country. We’ve had vacancy rates for rental properties of around 1% In some cases under 1% Good paid with around three to 4% Normally, increasingly, we’re learning about the adverse unintended consequences of our pandemic response. Next time, our political leaders should think much more carefully about adopting such extreme policies, given the negative After Effects we’re now seeing, not to mention the adverse impacts including the restrictions on civil liberties that we saw at the time. We need to do much better next time if there’s another pandemic in the future. Okay, that’s about it for me, please let me know what you think about either Alan or I had to say about housing and immigration in this episode, you can email me via contact at economics explored.com. I’d love to hear from you. Thanks for listening. rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

31:33

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Credits

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Categories
Podcast episode

China’s falling population & global population update   – EP174

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

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

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

What’s covered in EP174

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

Links relevant to the conversation

UN World Population Prospects 2022 data

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

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

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

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

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

China’s old-age dependency ratio

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

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

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

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

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

Gene Tunny  00:07

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

Tim Hughes  02:01

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

Gene Tunny  02:15

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

Tim Hughes  02:46

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

Gene Tunny  03:01

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

Tim Hughes  03:56

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

Gene Tunny  03:59

Yeah, around then I think. Yeah.

Tim Hughes  04:03

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

Gene Tunny  04:24

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

Tim Hughes  05:56

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

Gene Tunny  06:33

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

Tim Hughes  07:24

No,

Gene Tunny  07:25

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

Tim Hughes  07:43

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

Gene Tunny  08:19

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

Tim Hughes  08:33

Those German chemists, yes.

Gene Tunny  08:34

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

Tim Hughes  09:42

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

Gene Tunny  09:58

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

Tim Hughes  10:08

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

Gene Tunny  10:49

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

Tim Hughes  11:12

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

Gene Tunny  11:15

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

Tim Hughes  11:30

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

Gene Tunny  11:39

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

Tim Hughes  11:52

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

Gene Tunny  11:58

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

Tim Hughes  12:53

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

Gene Tunny  14:09

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

Tim Hughes  14:47

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

Gene Tunny  15:00

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

Tim Hughes  16:14

So was the baby boom, in 1950, yeah?

Gene Tunny  16:18

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

Tim Hughes  17:01

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

Gene Tunny  17:11

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

Tim Hughes  17:33

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

Gene Tunny  17:42

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

Tim Hughes  17:59

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

Gene Tunny  18:08

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

Tim Hughes  19:27

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

Gene Tunny  19:37

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

Tim Hughes  20:16

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

Gene Tunny  20:19

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

Tim Hughes  20:25

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

Gene Tunny  21:18

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

Female speaker  22:57

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Gene Tunny  23:27

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

Tim Hughes  23:35

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

Gene Tunny  23:41

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

Tim Hughes  23:48

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

Gene Tunny  24:45

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

Tim Hughes  24:47

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

Gene Tunny  24:57

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

Tim Hughes  25:20

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

Gene Tunny  25:38

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

Tim Hughes  26:02

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

Gene Tunny  27:07

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

Tim Hughes  27:36

I haven’t heard that.

Gene Tunny  27:39

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

Tim Hughes  28:34

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

Gene Tunny  29:15

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

Tim Hughes  30:09

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

Gene Tunny  30:21

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

Tim Hughes  30:36

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

Gene Tunny  30:42

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

Tim Hughes  31:37

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

Gene Tunny  32:16

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

Tim Hughes  32:21

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

Gene Tunny  32:42

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

Tim Hughes  32:58

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

Gene Tunny  33:01

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

Tim Hughes  34:18

I still get my fusion and fission mixed up. So

Gene Tunny  34:21

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

Tim Hughes  34:26

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

Gene Tunny  35:22

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

Tim Hughes  35:48

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

Gene Tunny  36:30

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

Tim Hughes  36:48

You’re still hurt about that one.

Gene Tunny  36:51

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

Tim Hughes  38:37

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

Gene Tunny  38:42

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

Tim Hughes  39:42

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

Gene Tunny  40:36

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

Tim Hughes  41:27

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

Gene Tunny  42:07

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

Tim Hughes  45:21

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

Gene Tunny  45:24

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

Tim Hughes  47:25

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

Gene Tunny  47:32

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

Tim Hughes  47:39

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

Gene Tunny  48:25

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

Tim Hughes  49:00

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

Gene Tunny  49:16

67 in Australia now.

Tim Hughes  49:19

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

Gene Tunny  50:04

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

Tim Hughes  50:13

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

Gene Tunny  50:57

Podcasting.

Tim Hughes  50:58

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

Gene Tunny  51:05

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

Tim Hughes  51:13

Maybe that’s the way we merge the two.

Gene Tunny  51:17

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

Tim Hughes  53:44

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

Gene Tunny  53:47

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

Tim Hughes  53:52

Someone, somewhere will be making those calls.

Gene Tunny  53:54

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

Tim Hughes  54:14

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

Gene Tunny  54:57

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

Tim Hughes  55:15

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

Gene Tunny  55:22

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

Tim Hughes  55:27

So they say?

Gene Tunny  55:31

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

Tim Hughes  55:45

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

Gene Tunny  56:39

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

Tim Hughes  56:49

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

Gene Tunny  57:09

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

Tim Hughes  57:22

Thanks, Gene. You’re welcome.

Gene Tunny  57:25

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

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Podcast episode

The high cost of housing and what to do about it w/ Peter Tulip, CIS – EP134

Property prices have been surging across major cities in advanced economies. In Australia, a parliamentary inquiry has recently investigated housing affordability, and it handed down a report with some compelling policy recommendations in March 2022. Our guest in Economics Explored episode 134 provided an influential submission to that inquiry. His name is Peter Tulip, and he’s the Chief Economist at the Centre for Independent Studies, a leading Australian think tank. Peter explains how town planning and zoning rules can substantially increase the cost of housing.  

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

About this episode’s guest – Peter Tulip

Peter Tulip is the Chief Economist at the Centre for Independent Studies, a leading Australian think tank. Peter has previously worked in the Research Department of the Reserve Bank of Australia and, before that, at the US Federal Reserve Board of Governors. He has a PhD from the University of Pennsylvania.

Links relevant to the conversation

Inquiry into housing affordability and supply in Australia

CIS Submission to the Inquiry into Housing Affordability and Supply in Australia

Gene’s article Untangling the Debate over Negative Gearing

Missing Middle Housing podcast chat with Natalie Rayment of Wolter Consulting

A Model of the Australian Housing Market by Trent Saunders and Peter Tulip

Transcript of EP134 – The high cost of housing and what to do about it w/ Peter Tulip, CIS

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,

Peter Tulip  00:04

We know that zoning creates a huge barrier to supply. And it’s not clear that there are any other barriers that can account for distortions of this magnitude.

Gene Tunny  00:17

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist based in Brisbane, Australia and I’m a former Australian Treasury official. This is Episode 134 on the high cost of housing. Property prices have been surging across major cities in developed economies. In Australia, a parliamentary inquiry has recently investigated housing affordability, and had handed down a report with some interesting policy recommendations in March 2022. My guest this episode provided an influential submission to that inquiry. His name is Peter Tulip. And he’s the chief economist at the Centre for Independent Studies, a leading Australian think tank, which I’ve had a little bit to do with myself, over the years. Peter has previously worked in the research department of the Reserve Bank of Australia, and before that, at the US Federal Reserve Board of Governors. He has a PhD from the University of Pennsylvania.

Incidentally, here in Australia, we had a federal government budget handed down in late March 2022. But it didn’t take up any of the proposals in the housing inquiry report that Peter and I discuss this episode. The budget extended an existing housing guarantee scheme, which helps a limited number of first-time buyers avoid mortgage insurance. But the budget didn’t really do anything substantial to improve housing affordability. So we are still waiting for improved policy settings here in Australia, which would make housing more affordable. In my view, such policy settings would not include some more radical ideas that have been injected into the policy debate, such as the government itself becoming a large-scale property developer. That would be too interventionist and too costly policy for me to support. In contrast, what Peter is suggesting in this episode is a very sensible and well thought out set of measures that deserves serious consideration from decision makers.

Okay, please check out the show notes for links to materials mentioned in this episode, and for any clarifications. Also, check out our website, economicsexplored.com. If you sign up as an email subscriber, you can download my e-book, Top 10 Insights from Economics, so please consider getting on the mailing list. If you have any thoughts on what Peter or I have to say about housing affordability in this episode, then please let me know. You can either record a voice message via SpeakPipe, see the link in the show notes, or you can email me via contact@economicsexplored.com. I’d love to hear from you. Righto, now for my conversation with Peter Tulip on the high cost of housing. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Dr. Peter Tulip, chief economist at the Centre for Independent Studies, welcome to the programme.

Peter Tulip  03:10

Hi, Gene. Glad to be here.

Gene Tunny  03:12

Excellent, Peter. Peter, I’m pleased to have you on the programme. So earlier this month, an Australian parliamentary inquiry chaired by one of the MPs, one of the members of parliament, Jason Falinski, released a report on housing in Australia. And it quoted you among other economists, and I was very pleased that you actually referred to a paper that I wrote a few years ago on a housing issue here in Australia. And that was in your submission. And yes, you got quite a few mentions in this report, which was titled The Australian Dream: Inquiring into Housing Affordability and Supply in Australia. Now, Peter, would you be able to tell us why is this such an important inquiry, please, and what motivated you to make a submission to the inquiry, please?

Peter Tulip  04:20

Sure. So the report’s huge. It’s 200 pages long. They had hearings for several months. And I think about 200 people or more made submissions to the inquiry. So there’s an enormous amount of information. And it’s motivated by these huge increases in house prices, that the cost of housing has gone up 20% this year, on the back of similar increases in previous years. So you go back a decade or two and the price of housing has tripled. And that’s having all sorts of huge effects throughout Australian society. It’s making housing unaffordable. And that’s reflected in homeowners can’t get into the market, because deposits are incredibly high, renters suffering a lot of stress. There’s an increase in homelessness. Because housing is one of the largest components of spending, the huge increase in housing costs is having a huge effect on household budgets, changing the way we live. 30-year-olds are living with their parents. Tenants are living with flat mates they don’t like. People are having to suffer three-hour commutes to work. Housing affordability is a real problem in Australia.

Oh, sorry. The other huge issue is that inequality dimension is enormous. So society is increasingly divided up into wealthy homeowners who are having very comfortable lives, and renters and future homeowners who are really struggling. And that’s becoming hereditary, because it’s very difficult to get into homeownership without parental assistance. The Bank of Mum and Dad, it’s often called. And so it’s the children of the wealthy that get a ticket, these enormous capital gains. And people without and less privileged, they’re really suffering.

Gene Tunny  06:38

Yeah. Now, you mentioned the big increases in house prices we’ve had in Australia so over 20%, or whatever, since the recovery for the –

Peter Tulip  06:48

Just this year.

Gene Tunny  06:49

Yes, yes. But we’ve seen big increases around the world and in capital cities around the Western world, from what I’ve seen. The Financial Times had a good report on that last year. Was it the case that our house prices were high relative to benchmark? If you look at things like house prices relevant relative to median income, they were high prior to the pandemic. There’s been this big surge since the pandemic with all the monetary policy response. Is that the case that they were already high and they’ve got worse?

Peter Tulip  07:28

Yeah. And there are a lot of different benchmarks. And the benchmark partly depends on the question you’re asking. But Australian house prices are high in international standards. So for example, one think tank, Demographia, put out a league table of housing affordability. And they looked at, what is it, something like, it’s 100 or 200 big international cities around the world. And Australian capital cities have 5 of the top 25 cities in terms of expense, in terms of price-to-income ratios. So that’s one of many possible benchmarks you can use. And by that benchmark, Australian cities have very expensive housing.

Gene Tunny  08:24

Yeah, yeah, exactly. Okay. Now I just want to talk about the inquiry and how it went about its job. I found the preface to it or the foreword written by, I think it was must have been by Jason Falinski, quite fascinating. He talked about two different tribes of people in the housing policy arena in Australia. The first tribe consists mainly of planners and academics who believe that the problem is the tax system, which has turned housing into a speculative asset, thereby leading to price increases. Okay. And then he talks about how the second tribe believes that planning, the administration of the planning system, and government intervention have materially damaged homeownership in Australia. I think I know the answer to this, Peter, but it’d be good if you could tell us which tribe do you fall into? Do you feel fall neatly into one of those tribes?

Peter Tulip  09:30

Yes, I’m in the second tribe, and as in fact, are almost all economists. I mean, this is one of those issues where you get a real division of opinion between economists and non-economists. And a lot of the most vocal of those non-economists are probably town planners. So there have been a lot of economic studies of the effect of planning restrictions on housing prices. And they find very big effects using a whole lot of different approaches. And that’s a result that’s been replicated in city after city around the world there, and dozens and dozens of papers, economics papers showing planning restrictions are a very big factor, explaining why housing is so unaffordable. And town planners don’t like that and complain and they don’t believe that supply and demand is relevant for prices. They will say that in varying degrees of explicitness. The general public doesn’t like to admit that result. They don’t take part in the academic debates.

Gene Tunny  11:04

So we’re talking about restrictions on what you can build in particular areas. So in Brisbane, for example, where I am, we have restrictions on to what extent you can redevelop these old character houses. A lot of these old character houses, these old Queenslanders, the tin and timber houses, they’re protected in the inner-city neighbourhoods. In other state capitals, you have similar restrictions for different types of properties. And so it ends up distorting the development that you see. In Brisbane, we end up with these horrible, tall apartment towers in just small pockets of where there’s some activity allowed because it was formally allied industrial or commercial area. But yeah, it seems logical to me that we are restricting the supply, because if we had fewer restrictions, presumably we’d see more medium density development, or at least that’s what I think. It doesn’t seem controversial to me that supply restrictions would lead to an increase in prices.

Peter Tulip  12:17

Oh, well Gene, now you’re sounding like an economist.

Gene Tunny  12:20

Well, I mean, I read Ed Glaeser’s recent – I think it’s Ed Glaeser.

Peter Tulip  12:25

He’s done a lot of stuff on the issue. In fact, he may be the leading expert in the world on this topic.

Gene Tunny  12:31

Yeah, yeah. He’s very confident in this impact. Now, you’ve done research on this, haven’t you, Peter? You did research at the Reserve Bank.

Peter Tulip  12:43

Before we get to that, Gene, just a comment on what you just said. There are lots of planning restrictions. They come in dozens of different variations. But there are two of them that are especially important, one of which is zoning as it’s strictly and conventionally defined, which is separation of different uses. Most of Australia’s cities, as in fact is the case for a lot of cities around the world, most of our cities are reserved for low-density housing. That’s single-family detached houses. And in most of Australia’s cities, as cities around the world, apartments, townhouses, terraces are prohibited. Where medium or higher density housing is permitted, there are height limits. And so even if flats and apartments were permitted at your local train station, there’ll be a limit on how high that building can go. Brisbane actually, what you mentioned, is not a very bad offender in this, and so particularly around the river in Brisbane, there’s been a lot of tall apartment buildings, and partly reflecting that, apartment prices in Brisbane are pretty moderate. But in Sydney and Melbourne, the height restrictions are really severe. And so as a result, apartment prices are much, much higher.

Gene Tunny  14:28

Yeah, yeah, absolutely. Okay, so you did research a few years ago, didn’t you, when you were at the Reserve Bank, on the magnitude of the impacts? Now these impacts could be even larger now, given prices have increased so much, but do you recall what sort of magnitudes of impacts you were getting, Peter, from these types of restrictions?

Peter Tulip  14:49

Yes, so the effects are huge. The way we looked at it was to compare the price of housing relative to the cost of supply. And in a well-functioning market, the price will equal the cost of supply. But planning operates as a supply restriction, sort of just in the same way as a quota or a licence to supply will. A lot of cities have taxi licences, and it’s the same thing, that you have a restriction on output, so the price goes much higher than the cost of supply.

And we found when you look at detached houses, the effects are huge in Australia’s big capital cities, I think 70%. Around 70% in Sydney, about 60% in Melbourne, was also very large in Brisbane and Perth. I can get into the details of how we actually estimate that. The more important figure for policy is for apartments, because that’s where the real demand for extra housing is. That’s where the big policy debates are. If we do want more dense housing, it will have to come in the form of urban infill. And again, we find very big effects there, especially for Sydney. I think the effect was about 60%, or a bit higher, it raises the cost of housing. In Melbourne, it was moderate, about 20%. And in Brisbane, actually, we didn’t find much of an effect. It was fairly small, just a few percentage points. But as you say, prices have risen very substantially in the, what is it, four years since our data was put together. So those effects will presumably be bigger.

Gene Tunny  16:52

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

Female speaker  16:57

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Gene Tunny  17:26

Now back to the show. Okay, so we’ve talked about the views of one of the tribes, the tribe that you’re a member of. There’s another tribe, which it’s arguing, oh, it’s all to do with tax policy settings. And, look, we’ve got some quirky tax rules here in Australia. Well, to an extent they’re logical, and which is one of the arguments I made, but they’re different from what happens in some other countries. We’ve got this thing called negative gearing whereby if you lose money on your rental property, taking into account your interest costs and depreciation and the whole range of expenses that are eligible, then you can use that to reduce your taxable income. That reduces the amount of tax you have to pay. And that’s outraged many people in the… There are a lot of people who don’t like that as a policy and think that’s a big problem and leading to higher prices. And there’s also rules around capital gains, concessional taxation of capital gains.

Peter Tulip  18:48

So the whole tax of housing is one of the more controversial parts of this. So can we talk about that?

Gene Tunny  18:55

Yeah, go ahead. Yeah. I’m interested in your thoughts. Yeah.

Peter Tulip  18:59

In fact, you’re the expert on this. In fact, as you mentioned earlier, a lot of what I’ve learned on this topic comes from a paper you wrote in 2018, which was published by the Centre for Independent Studies. It might be easier if you give a quick rundown on what the key issues are. Actually, before that your professional background is probably really relevant here. So in the interest of disclosure, do you want to tell the listeners where you learned about all of this and your experience?

Gene Tunny  19:35

I was in the Treasury, so tax was one of the issues we looked at, but the main research I did on this issue, on the issue of negative gearing and capital gains tax, came from a consulting project I did for a financial advisory firm here in Brisbane, Walshs. Walshs, they clients who are – they have investment properties. And so they were very interested in what the potential impacts of the federal opposition’s policies regarding negative gearing, so changes to that. So basically limiting it and not only allowing it on new houses, if I remember correctly, newly bought properties. And they were concerned about what that would mean for their clients and then what it would mean for the market.

So certainly, negative gearing does make investing in a rental property more attractive. It does two things. So it does lead to more rental properties, and it does push down rents. And it also increases the price of houses to an extent because it does increase that demand. So look, there’s no doubt that it is impacting on prices, but it doesn’t seem to be a huge effect. I got something like 4%. Grattan when they looked at it got 2%. Some other market commentators, I think SQM Research, Louis Christopher thinks it could be 10 to 15%. It’s hard to know, It’s not a huge impact. So you’re not going to solve housing affordability by getting rid of negative gearing. At the same time, there are logical reasons why you’d have it.

Peter Tulip  21:43

Can I just butt in there, Gene? You’re underselling your research. What you said is all right. Everything there is correct. But, in fact, since your study, there have been a whole bunch of further empirical studies and academic studies on the effect of negative gearing, and, and they essentially get the same result as you, that these effects are tiny. So there was a bunch of Melbourne University academics. There was a study by Deloitte and a few others. They use actually different approaches. So the Melbourne Uni study is the big structural model micro-founded in assumptions about preferences and technology. And so we now have a range of different studies, all using different approaches. And they’re all finding the results, the effect on housing prices comes in between about 1% and 4%. So I think we can be more confident than you were suggesting about this result. It’s a big important controversial issue. So we need to talk about it. Listeners need to be aware that it just doesn’t actually matter for anything.

Gene Tunny  23:15

Yeah. So I think one of the main points that’s important, I think, in that whole negative gearing debate is that it is quite a logical feature of the tax system, and as the Treasury explained in one of their white papers, on tax issues, it’s important for having the same treatment of debt and equity if you’re buying an investment property. So I thought that made sense. So there’s some logic to it, and it certainly does improve the rental market. Now, look, there was a huge debate. It was all very political. I thought, well, certainly it would impact house prices. And then that ended up becoming a big story. And there was a lot of discussion about that and just what could the impact on the market be.

Peter Tulip  24:15

Is the problem negative gearing or the discount for capital gains tax? Because they interact.

Gene Tunny  24:21

Yeah, I think that’s part of it. But I think there is a logical reason to have concessional treatment of capital gains, particularly if –

Peter Tulip  24:33

Concessional taxation of real capital gains?

Gene Tunny  24:37

We don’t adjust them for inflation.

Peter Tulip  24:41

We do it both ways. My sense is you can argue that there is distortion, that an investor can put, I don’t know, $10,000 into a property improvement and write that off against tax with depreciation. But then that will increase the value of the property, presumably by about $10,000. And though they get the full deduction, they only have to pay tax on half the benefit. So there is an incentive towards excessive investment in housing for that reason.

Gene Tunny  25:30

Look, potentially, I think you could argue about those capital gains tax settings. Yeah, certainly, I think that was one of the things I acknowledged in the report, if I remember correctly. So yeah, I guess the overall conclusion is that I didn’t think negative gearing was the villain that it was being portrayed as, and if you did make changes to it along the lines suggested you could end up having some adverse impacts. If you look at what estimate I made of the potential impact on house prices, and you look at how much house prices have increased in recent years, you think, well, who cares?

Peter Tulip  26:15

It’s one week’s increase. I think you’re exactly right. And while I say I think there is an argument that it creates distortions, if you fix that up, you then create distortions elsewhere, as you said, between debt and equity, and there are distortions between investors and owner occupiers. And given that so many different aspects of housing are taxed differently, it’s impossible to remove all the distortions. You remove them somewhere, then create them somewhere else. And the bottom line is that this doesn’t really matter, the housing affordability. The effects on prices are small and positive. And there are offsetting effects on renters, which I think are often neglected. Negative gearing promotes investment in housing and is good for landlords. And because it’s a competitive market, the free entry, that gets passed on in lower rents.

Gene Tunny  27:21

Yeah, yeah, exactly. So I’ll put a link to that paper in the show notes. So if you’re listening in the audience, and you’d like to check that out, you can read it. Bear in mind it’s now over. It’s four years since I wrote that, and probably six years since I did that report for Walshs. I think the logic is all correct. And I think the analysis still makes sense because it was a static model in a way. Yes. It was a static model. I was just looking at how much does a change in tax policy settings affect the rate of return for an investment property? So you could argue it’s still relevant in that regard. But the whole political sort of imperative, it’s not as big, it doesn’t figure as much in the political debate now, of course, because the opposition has dropped it as a policy, because I think they’ve recognised that, look, it is unpopular, because there are a lot of people – there have been in the past – fewer people now with low interest rates, but there have been a lot of people in the past who have been negative gearing. So I think they accept that it’s probably not a policy that is popular with the public.

Peter Tulip  28:35

But also, it’s just a non-issue. It wasn’t going to deliver benefits in terms of housing affordability. So I think one of the reasons I dropped it, or at least the reason I would have told them to drop it, was it was just a red herring.

Gene Tunny  28:50

Yeah, yeah, I think that’s correct. That’s how I would how I would see it. Okay, we might go back to the Falinski report. I know it does deal with this issue in the… It is part of the conversation for sure. Where did the Falinski report come down on deciding which of these two tribes is correct? Did it make a judgement on that or did it –

Peter Tulip  29:17

It’s strongly on the side of economists, of those who argue that planning restrictions have large effects on house prices. The commission discussed it in a lot of detail. It’s all of Chapter Three, I think of the report. It’s the first substantive policy-oriented chapter of the report. It’s some of their lead recommendations. And they note that there were… I think they described it as the most controversial issue they dealt with, with very lengthy submissions on both sides.

Their assessment was that the weight of evidence is not balanced. It’s overwhelmingly on the side of those who think planning restrictions have big effects on prices. In fact, they cited our submission, which said there have been a lot of literature surveys of this research. I think we cite six of them by different authors, a lot of them very big names in the policy world. And all of those surveys conclude that planning restrictions have big effects on prices. And the commission recognise that even though it’s hard to tell in the noise on social media, if you look at the serious research, the weight of evidence very clearly goes one way.

Gene Tunny  31:01

Okay. What does that evidence consist of, Peter? You’ve done your own study. Was your study similar to what others have done around the world? And broadly, what type of empirical technique do you use?

Peter Tulip  31:17

So in fact, there have been dozens and dozens or more years of studies on this question, both in Australia and in other countries. The approach we used is… The reason we used it was we thought it was the best and most prominent approach to answer these questions. And it’s been successfully used with essentially the same results in a lot of cities in the United States, some focusing particularly on coastal cities, some on California, some on Florida. There’s a big study for the United Kingdom and a lot of European cities, another study in Zurich in Switzerland, studies in New Zealand, all using essentially our approach of comparing prices with the cost of supply. And they all come up similar results.

Other people have looked at planning restrictions more directly. So for example, we know that planning restrictions are very tight in California and very loose in a lot of Southern and Midwestern cities in the United States. And there, you get a very strong correlation with prices. California is incredibly expensive. Houston, Atlanta, places with relaxed zoning are relatively inexpensive.

Gene Tunny  32:46

So is there a regression model, where you’re relating the price of housing to cost of supply, and then you’ve got some… Do you have an indicator variable or a dummy variable in for planning restrictions? Is that what you do?

Peter Tulip  33:05

So there are lots of different ways of doing it. Yes, people have constructed indexes of the severity of planning restrictions. That’s one way of doing it. The most famous of these is what’s called a Wharton Index, put together by researchers at the University of Pennsylvania, in fact, my old alma mater. Our approach doesn’t actually – and this is a criticism that some people make of it – it doesn’t actually use direct estimates of zoning restrictions, because they’re just very difficult to measure. But when you have prices substantially exceeding costs, you need to find some barrier to entry. And just as a process of elimination, we know that zoning creates a huge barrier to supply. And it’s not clear that there are any other barriers that can account for distortions of this magnitude.

Gene Tunny  34:10

Right, okay. I better have another look at your study, Peter, because I’m just trying to figure out how did you work out what’s the cost of supply? You looked at what an area of land would cost, where it is readily available, say on the outskirts of a city, and then you looked at what it would cost to build a unit on that or a house on that site?

Peter Tulip  34:38

So where it’s simplest is for apartments, because there you don’t need to worry about land costs, and which is a big, complicated issue. But you can supply apartments just by going up. And so we have estimates of construction costs from the Bureau statistics, to which we add on a return on investment, interest charges, a few tax charges, developer charges, marketing costs. There are various estimates of those other things around, and they tend not to be that important. And the difficult thing is getting an estimate of the cost of going up, because as you increase building height, average costs increase. You need stronger foundations, better materials, extra safety requirements, like sprinklers and so on. You need more lift space. So a lot of it involves a discussion of the engineering literature in housing, where we can get estimates of things like that. And they exist both in Australia and in other countries, where the other people that did that. And that’s how we get our estimate of the supply cost.

Gene Tunny  35:59

Okay. That makes sense now.

Peter Tulip  36:03

That’s one way of doing it. There are other ways of doing it. So you can assume that’s the cost of going up. We can also do the cost of apartments by going out. And there you just make an assumption that it’s the average cost of land in that suburb or on that street or in that city, is the land cost. And then you get a cost of going out, which in some cases is a bit higher, some cases a bit lower.

Gene Tunny  36:33

Yeah, yeah. Okay. That makes sense to me. Can I ask you about the recommendations of the Falinski report? It looks like it’s come down. It supports the view that, yep, supply is a big issue. And also, there’s this issue of now we’ve got this issue of young people having this deposit gap, haven’t we, that it’s difficult to save up for a deposit? So that’s another issue. And I think it’s made recommendations that may help with that. I don’t know. But would you be able to tell us what you think the most interesting and the most important recommendations are of that inquiry, please, Peter?

Peter Tulip  37:13

So I think the most important recommendations go to the issues we were just talking about, the planning restrictions. A difficulty with that is that this was a federal government inquiry. But responsibility for planning regulations rests in state and local governments. And so there’s not a lot that the Commonwealth government can do, other than shine a very big spotlight on the issue, which I think it has done. It’s helped clarify a lot of the issues. And it’s putting more pressure on state and local governments to liberalise their restrictions. But I think the most important recommendations is it wants to couple that with financial grants, and in particular, provide grants to state and local governments in proportion to their building activity, so that neighbourhoods that are building a lot of housing get more support from the Commonwealth Government than neighbourhoods that are refusing to build anything at all.

his should help allay some of the local opposition. We get to housing developments, that a lot of neighbours and local residents understandably complain if new housing is going in, in their neighbourhood, without extra infrastructure, without transport, parks, sewerage, and so on. And what the Falinski report says is we’ll help with that, that we don’t want local neighbourhoods to bear the burden of increased population growth, it’s a national responsibility, and so the Commonwealth will help. So I think that will be the most important recommendation, that should improve incentives to local and state governments to improve housing. Want to go to some of the other recommendations that I think are interesting?

Gene Tunny  39:34

Yeah, I was just thinking about that one. They obviously haven’t put a cost estimate in the inquiry report. So they’ve just said, oh, this could be a good idea. But then we’d have to think about what this ultimately would end up costing.

Peter Tulip  39:47

So our submission put dollar figures on it, even though Jason Falinsky didn’t want to sign on to actual numbers. These conditional grants in terms of housing, good housing policies, could be in place of current Commonwealth programmes that are of less value. And one that’s just been in the news a lot the last few weeks is, I think it’s called the Urban Congestion Fund, which is essentially something like a slush fund that the government uses to channel money towards marginal seats. That’s about $5 billion the Commonwealth uses at the moment.

We could remove that invitation to corruption, and at the same time, solve some of our housing problems by instead, by making that conditional on housing approvals. And if you use that $5 billion, divide that by the, what is it, 200,000 building dwellings that get built in Australia every year, that works out at something like $25,000 per new dwelling. A grant like that will provide a lot of local infrastructure. It’ll give you a new bus route, it’ll give you a new park, it’ll give you some new shops. It’ll fix up the local traffic roundabout, and so on. You could do even more than that, if you start looking at state grants and other grants that are currently on an unconditional basis.

Gene Tunny  41:38

Right. So was the origin of this recommendation, was it from your submission, was it, Peter, the CIS submission?

Peter Tulip  41:44

In fact, a lot of people have been recommending a policy, something like this. We talked about it maybe a bit more detail. But the Property Council of Australia actually wrote a paper on this a few years ago, sorry, commissioned a paper by Deloitte, which discusses some of these issues. But in fact, it’s been proposed in a lot of other countries around the world. And so the original Build Back Better proposal from the Biden administration had substantial grants from the US government to local governments along these lines, and that’s been cut back a little bit in their negotiations. They’re still talking about substantial grants from the federal government, to local counties that are improving their housing policies.

Gene Tunny  42:43

Right. Okay. That’s fascinating. Now, I have to have a closer look at that. Yeah. On its face, it sounds yep, that could be a good idea. As the ex-Treasury man, I’d be concerned about the cost of it to the federal government, but you’re saying we’ve wasted all this money on various pork barreling projects anyway, we could redirect that to something more valuable.

Peter Tulip  43:13

And if you want to talk about really big money, you could change grant commission procedures, so that if housing were regarded as a disability, in the formula for dividing up, the GST, the fiscal equalisation payments with the states, then states that are growing quickly and providing a lot of housing should be able to claim money for the extra infrastructure charges that requires. I think that’s consistent with the logic of the Grants Commission processes. And they currently already do this, but something like this to transport. So there is a precedent, and that would substantially improve incentives for state governments to encourage extra housing.

Gene Tunny  44:08

Yeah, yeah. Okay. Just with the supplier restrictions, am I right, did they make a recommendation along the lines that local councils and state governments, they should look at existing restrictions with a view to easing those restrictions? Did they say something along those lines?

Peter Tulip  44:26

It’s not a formal recommendation, but that’s emphasised in several places in the report, and I think it might be… I can’t remember the exact wording. Recommendation one certainly discusses that issue.

Gene Tunny  44:43

Right. Okay. I should be able to pull that up pretty quickly.

Peter Tulip  44:49

It’s not something the Commonwealth can do something directing it. So the wording is a bit vague. That’s clearly the thrust of the report. Yes.

Gene Tunny  45:03

Right. Yep. So the committee recommends that state and local governments should increase urban density in appropriate locations, using an empowered community framework as currently being trialled in Europe. I’m gonna have to look at what an empowered power community framework is sometimes. I haven’t heard that before. I had Natalie Raymond on. She’s a planner here in Brisbane. And she got an organisation called YIMB, Yes In My Backyard. So I’ve chatted with her about some of these issues before, but I can’t remember hearing about this empowered community framework. Have you come across that concept at all, Peter?

Peter Tulip  45:45

It’s something that the report is very vague about.

Gene Tunny  45:50

Okay.

Peter Tulip  45:52

No, I’m not sure what that means either.

Gene Tunny  45:55

I’ll have to look it up.

Peter Tulip  45:57

Should we talk about some of the other recommendations?

Gene Tunny  45:59

Oh yes, please. Yeah, keen to chat, particularly about this idea of tapping into, well, they didn’t recommend allowing people to withdraw money for housing, for a deposit for a house. But they made some recommendation around superannuation. Would you be able to explain what that is, please, Peter?

Peter Tulip  46:19

This, I think, is one of the most interesting recommendations. And it wasn’t explicitly discussed in detail in any submissions they received. But it’s something that I and the CIS have been talking about in the past, so we were delighted to see it get up.

The argument is that people should be able to use their superannuation balances. But people outside Australia, that would be equivalent to something like a 401K or Social Security in the United States, or Social Security contributions in several European countries. People should be able to use those balances as security or collateral for the deposit for their house. And so lenders would reduce deposits, presumably by the amount of the collateral, by the amount of the superannuation balance.

The committee argued that the main obstacle towards homeownership in Australia is getting the deposit together. And this recommendation is directly aimed at making that easier, and it does it in a way that doesn’t cost the taxpayer anything. And it doesn’t jeopardise the retirement income objectives that superannuation is set up to solve.

So there have in the past been proposals that people should withdraw their money from their superannuation to pay their deposit. And the objection to that is that will just undermine retirement income objectives. And in particular, the compulsory superannuation system is set up on the assumption that people are short-sighted and will tend to fritter away their assets if they’re made too liquid. This objective, allowing withdrawals from superannuation is directly applicable to that argument.

But using superannuation as collateral doesn’t is not subject to that argument, that the superannuation balance will only be touched in the very rare and the unexpected event of foreclosure. Historically, that’s a fraction of a percent houses ever go into foreclosure. So it would be extremely unlikely to affect retirement incomes. But at the same time, people have saved this money, it’s their asset. So they should be allowed to use it in ways they want, that don’t jeopardise their retirement income. And using it as security helps in that.

Gene Tunny  49:35

Yeah. Do you have any sense of how the banks will react to this, how lenders will actually react to this? Is this something that will be attractive to them? Has anyone made any announcements along those lines?

Peter Tulip  49:51

Not that I’ve seen. You would hope and expect that if the policy is put together well, that deposits would be reduced by something like the order of the superannuation balance. And it could be a bit more or a bit less. It may be a bit less because the superannuation balances are risky. It may be a bit more because they’ll be growing over time with. We don’t know exactly how those things will factor in. You would hope and expect that deposits would be reduced by about the amount of the superannuation balance.

Gene Tunny  50:34

An interesting recommendation. I was wondering just how much of an impact it could have. But then the way you explained it, I think it makes it a bit clearer to me how this could potentially have some benefit. Yeah.

Peter Tulip  50:54

It’s not huge. The people that most want this are going to be young, first home buyers having difficulty. People having difficulty getting a deposit tend not to have huge superannuation balances. And there are a few numbers floating around. The average super balance of say, a 30-year-old tends to be, I think there was one estimate I saw, it’s about a quarter of the average deposit on a house for a first home buyer. So it doesn’t get you all the way there. It does get you a sizable bit of the way there so that instead of it taking eight years to save for a house, it’ll only take six years. And you use the super for those other two years. That doesn’t solve the problem. But I’m sure there are lots of first home buyers that will appreciate getting into their home two years earlier than would have otherwise been the case.

Maybe the other point to make in this is that I think superannuation is unpopular, particularly amongst young people, because it is an obstacle to homeownership, that people would like to be saving, but instead 10% of their income has gone off to this account that they wont see for 50 years.

Gene Tunny  52:22

Do we think they would be saving, Peter? I wonder. That was the reason we introduced the super system in the first place.

Peter Tulip  52:28

Exactly. Well, there are some people that would like to be saving for a house. Yeah, superannuation definitely makes that harder. And as a result, superannuation is unpopular. The effect of this policy is it changed it from being an obstacle to being a vehicle towards homeownership. And so I think it makes the superannuation policy more popular.

Gene Tunny  52:51

Yeah, yeah, absolutely. Okay, so I’ve got in my notes, and I must confess, I’ve forgotten what your paper… You wrote a paper with Trent Saunders in 2019. What was that about, Peter?

Peter Tulip  53:06

So that’s a big one in the housing area. We did a lot of empirical modelling of the Australian housing market, and trying to put together how the prices and interest rates affect housing construction, nd then how does housing construction feed back under prices and quantities. So there have been a lot of studies of individual relationships in the housing market. But there’s feedback between construction and other variables. So it was always difficult seeing what the full effect was, without allowing for that feedback. And the big result from that paper that got all the headlines was on the importance of interest rates. So partly interest rates are very important for construction. But even more surprisingly, they’re very important for housing prices. And in particular, the big decline in real mortgage rates that we’ve seen over the past 30 years or so, accounts for a very large part of the run-up in house prices over that period.

Gene Tunny  54:20

So with the cash rate, the RBA policy interest rate, it’s expected to go up, and then borrowing rates will go up. And there are some economists and market commentators speculating this could lead to falls in house prices, some double-digit falls, if I remember correctly, in some capital cities. So there’s that issue. I’m keen for your thoughts on that. Also immigration. If we reopen Australia as we are and we have net overseas migration running at 250 to 300,000 or whatever it was before we had COVID, what will that do for house prices?

Peter Tulip  55:09

Our paper tries to estimate. In fact, a big point of the paper is exactly to answer and quantify those questions. House prices are an interaction between supply and demand. And in the short run, the bigger effect on demand is interest rates. And that, for example, is why, we talked earlier, house prices have risen over 20% just in this past year. That was essentially a response to the record low interest rates that the RBA implemented just prior to the prices taking off. And you’re right, our model suggests that that’s going to go into reverse over the next few years as interest rates increase. Interest rates go up and down. And in the long run, you would expect them not to trend so they don’t explain trend changes in prices. The big trend increase in demand in Australia has been immigration. Our population doubles or so every generation or two. And so that creates an ever increasing demand for housing that we need to supply.

I don’t know if you’re about to ask this, but I’ll ask the question. How does this relate to our earlier stuff on zoning? Essentially, they’re asking different questions. Zoning is asking the question, how do we change process in future, how do we adjust policy? The previous paper is empirical. Policy is given, and asks, what explains changes in the past? And they’re slightly different questions. The effect of zoning is to make supply inelastic, like just a vertical supply curve. I’m sorry, I’m waving my arms around, and people listening on a podcast aren’t going to know what I’m doing. But the changes in interest rates and immigration increase the demand curve, shift the demand curve out to the right. And so it’s the interaction of supply and demand that drives house prices. So it’s a combination of rising demand and inelastic supply.

If we fixed up, if we had a better planning regime, that instead of being inelastic, the supply curve would be flatter, would be closer to horizontal. And then these big increases from immigration and low interest rates would result in extra construction instead of extra prices.

Gene Tunny  58:05

Yeah, yeah. Okay. So I’ll put a link to that paper in the show notes. I just realised Trent Saunders, he’s in Queensland now.

Peter Tulip 58:10

He’s at QTC.

Gene Tunny 58:11

Queensland Treasury Corporation, yep. He’s been doing some good stuff. So that’s terrific. Okay. Peter Tulip, chief economist at the Centre for Independent Studies. Thanks so much for the for your time today. That was great. I think we went over a lot of the economics. I’ll put plenty of links in the show notes for people because some of these studies, they’re fascinating studies and also, it’d be good to just… You may be interested in the empirical techniques and in more of the details. So Peter, again, really appreciate your time. Thanks so much.

Peter Tulip  58:56

Thanks, Gene. It was great to talk.

Gene Tunny  58:59

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

Credits

Big thanks to EP134 guest Peter Tulip and to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

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