Show host Gene Tunny responds to listener feedback about the private versus public sector’s role in wealth creation, particularly addressing externalities like environmental harm and whether governments should fund facilities like Men’s Sheds. He also explores the efficiency of the private sector compared to government spending, weighing the evidence on both sides.
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.
Timestamps for EP254
- Introduction (0:00)
- Externalities and Market Efficiency (4:47)
- Government’s Role in Addressing Externalities (11:30)
- Coase Theorem and Market Failures (19:43)
- Government Spending and Efficiency (26:31)
- Men’s Sheds and Government Support (32:51)
- Scott Prasser’s Critique of Government Spending (39:43)
- Balancing Government and Private Sector Roles (45:49)
Takeaways
- Externalities in Wealth Creation: Private markets can overlook externalities such as pollution or public health impacts, justifying government intervention in some cases.
- Incentives for Efficiency: Due to market competition, the private sector generally has stronger incentives for efficiency, while government projects may lack the same discipline.
- Government Spending Criticism: Many government projects, particularly those done for political reasons, are inefficient and do not consistently deliver expected benefits.
- Cost-Benefit Analysis is Crucial: Government spending should be evaluated through thorough cost-benefit analysis to avoid wasting public funds.
- Coase Theorem and Market Solutions: While private negotiation can theoretically resolve externalities (as per the Coase Theorem), it typically does not work in practice due to high transaction costs and imperfect information.
Links relevant to the conversation
Relevant previous episodes:
Government vs Private Sector in Wealth Creation:
https://economicsexplored.com/2024/07/05/government-vs-private-sector-who-generates-wealth-ep247/
White Elephant Stampede:
https://economicsexplored.com/2022/10/17/white-elephant-stampede-w-scott-prasser-ep161/
Coase theorem paper – “Does the Coase theorem hold in real markets? An application to the negotiations between waterworks and farmers in Denmark”
https://www.sciencedirect.com/science/article/pii/S0301479711003331
Urbis review of Men’s Sheds:
Beyond Blue Report on Men’s Sheds:
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Transcript: Efficiency and Externalities: A Q&A on Market Failures – EP254
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.
Scott Prasser 00:03
The governments love to, love to announce iconic projects. When I hear the word iconic, I run a mile. Okay, this is Danger, danger, or this is going to be a landmark, or they want to have a vision. I don’t want governments and visions. Thank you very much. It’s usually the wrong ones, and so it’s this thing of meeting the electoral demand to be doing something, instead of saying nothing can be done. Okay, that in some cases it’s not government’s responsibility to do it, and if we do anything, it doesn’t, doesn’t have any effect.
Gene Tunny 00:40
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 this episode. I want to respond to a question from a listener about a recent episode, government versus the private sector who generates wealth. And then I also want to respond to some feedback from another listener about a previous episode. So I really value getting your feedback and your questions. It all helps me think about what I should cover on the show and the types of guests you want to hear from so please keep it coming. You can get in touch with me via the contact details in the show notes. So yep, I’d love to hear from you before we get into it. Thanks to Lumo coffee for sponsoring this episode. This grade one organic specialty coffee from the highlands of Peru is jam packed full of healthy antioxidants. There’s a 10% discount for economics explored listeners. Details are in the show notes. Okay, the first thing I want to do is to cover a great question that came from a listener named Mark. I’ll read out the email that I received from Mark. I’m a non economist in the Queensland public service, and as such, very much. Enjoyed your recent ish episode, government versus private sector who generates wealth? One of the arguments in the podcast was that consumers demonstrate how much they value goods and services produced by the private sector in their purchasing decisions, and that these purchases are evidence that the sector is generating value for the public sector, though it was pointed out that government spending is often inefficient and can even create a net loss, for example, because of poor discipline on business cases or spending. And Mark goes on to note, this seems to be comparing the Theory of Value slash wealth creation in the private sector with the practical realities of it in the public sector, and it ignores the externalities in private markets. Is it fair to say that, in practice, the private sector can produce profits and services that create harm to society, ultra processed food, tobacco products that cause environmental harm, etc, and this needs to be factored into an evaluation of its ability to generate wealth. And Mark goes on, this is a bit of a long winded way of raising an old argument. I guess. The response is, these harms are a result only of market design, and companies are merely following the incentives placed upon them. I’d be interested in your views, including, how do you think government should respond to the issue? So that’s a very good question. And I thought, yep, I should respond to this in the podcast. So my my quick answer to Mark’s question is yes, it is fair to say that the private sector can produce products with harmful effects. And Mark indeed gave some examples there, and he he mentioned the important concept of externalities. So these are external costs on to others other than the parties to the transaction so things like pollution, etc, or it could be cost to the public health system. So people, you know, if they smoke too much or they drink too much, then that will end up costing not only the individual who makes the choice to do those things, but others in. The society. I’ve covered externalities in previous episodes, but I probably should have mentioned them in the government versus the private sector episode, because, yep, they are an important qualification to the presumed efficiency of market outcomes. That’s absolutely correct. What I might do is I might play the segment from the episode that Mark has asked about, just so we can, I can think about exactly what I said, and we can talk about that, and can provide some more more commentary on in response to Mark’s observations and his questions. Okay, so let me play the relevant clip now. But generally speaking, and this is the point I will often make when I’m thinking about, well, when I’m talking about these issues, the incentives for efficiency are better in the private sector, and I think there’s a lot of evidence for that that came out of when governments were reforming public enterprises in the 80s and 90s, we learned about the significant efficiency gains that can come from that when governments outsource more of activity, outsourced more activities from the public sector. Clearly, there are failures. I’m not going to deny there have been challenges. There have I mean, there have been those botched privatizations in the UK, for example, particularly in rail and it looks like water, so I’m not going to be too I’m not going to be unrealistic or just assume, Oh yes, the market is always going to do things better. But I think generally the evidence is that the private sector is going to be more well, it’s got greater incentives for efficiency, because if you’re not efficient, you go out of business, whereas governments could, you know, governments keep going, and we tend to see that well, I mean public sector unions, for example, or construction unions, which where they Have a lot of members working on government projects, they can be very, very influential and affect the efficiency, affect the costs and the efficiency of government programs and spending. I think that is something that is worth thinking about here. I should make the standard point that economists always make, that it’s important to crunch the numbers. So we always should be doing cost benefit analysis of programs and projects. In some cases, we want to do a comprehensive cost benefit analysis. In other cases, it’s maybe it’s a much smaller amount of money, and it’s more of a it’s not the full blown let’s, let’s do a comprehensive economic study where we’re trying to estimate all of the relevant costs and benefits. It might be more of a desktop exercise. A simpler type of analysis, but we should be thinking whenever we’re spending money on on government goods as government purchases of goods and services. We should be thinking about the costs and benefits, the pros and cons, and to the extent that we’re not getting that those net benefits, to the extent that we’re not getting to benefit to cost ratio above one, a return on investment, we’re effectively burning money the government is then detracting from the wealth of the community, in my view, because that money would probably would have been Better if that activity was not done if it was, if it if some other activity occurred, possibly in the private sector. And I mean, the last governments have funded many poor projects. They continue to do so, whether because of politics or they they think that there’s some social benefit that mean, or equity benefit that means that the project should go ahead. Okay, so that was a clip from my government versus the private sector episode, and that’s what Mark was was asking about. Now, even though I didn’t explicitly mention the concept of externalities, they may have been in the back of my mind when I was when I was talking there, particularly when I was talking about the need to consider all relevant costs and benefits. I’ll note that I did try. Talk about the externality, or I’ve talked about externalities, and specifically the externality relating to greenhouse gas emissions in another recent Tish episode. So episode 243, the revival of industrial policy. Should governments pick winners. So what I might do is I’ll play a clip from that episode, because I think it, it does help provide that fuller picture when we’re thinking about government versus the private sector. So I mean my presumption, and this goes back to Adam Smith, right? I mean that if you’ve got two parties engaged in in trade or in exchange, you assume it’s mutually beneficial and that it adds to the well being of the community. Now, of course, if there are third parties that are affected, then that presumption is won’t be won’t be realized. I mean, we have to think about how these the actions, how the trade, how the exchange, could affect third parties, and particularly if there’s no scope for them to negotiate, for the third party to come into the negotiation, whether because of, well, there’s a lack of knowledge or there’s transaction costs involved. So what I’m alluding to there is the Coase theorem, which I might talk about after I play this clip. Now, what government should be doing is, to the extent that there is this externality from greenhouse gas emissions, we should put a price on that externality, which is the idea of a carbon price. And you know, you can do that in various Well, a couple two main ways. You can have an emissions trading scheme. You can, you can create a market, and then you have a carbon price that falls out of that. Or you can have a carbon tax. And those are alternative ways of of putting a price on carbon dioxide emissions, or and CO two equivalent emissions. Now you know that most economists would say that is the best way to do it if you’re going to do something about it. And you know that’s sending the signal to the market that there’s a cost to the environment of of this pollution. And you know, you leave it up to the industry to sort out the most cost effective way to reduce those emissions. You don’t go and, you know, actively promote particular solutions and and in Australia, there’s a there’s a growing concern that maybe we’ve been pushing too hard on renewables policy measures and subsidies, etc, have favored renewables, and we had, we’ve had too fast a pace of development, and that’s creating issues for the reliability of the electricity grid. Okay, so I was using a carbon price as an illustration of one way that governments can address externalities, and that is through corrective taxation. That’s that’s one way the the carbon tax, or it could be setting up a market based mechanism, such as an emissions trading scheme, which would impose, and you’d have a carbon price drop out of that. And there’s a debate about, you know, which is, which is the better mechanism, but both sort of pretty much get you to the same outcome. We won’t go into the into the specifics of that debate there, but the idea is to have the the cost of the externality internalized, to bring it into the decision making of the firms and the households in the economy. So that’s, that’s the idea. And I mean, climate change is one obvious example. I know there’s a controversy about, you know exactly how we should respond, how we the pace at which we respond. I was just using that as I recognize that controversy. I’m just using it as an example. And you can think of various other examples. There’s a debate about whether we should impose a specific junk food tax, so a tax on sugary drinks, and, you know, other items of junk food to help prevent or to reduce the incidence of overweight and obesity, diabetes, etc. And that can be viewed as a. Corrective tax, of course, you might have to think about any equity issues there, particularly if poorer households are more likely to consume those those products that have been taxed then richer households. But the idea is that a corrective tax might make sense there and correct the well, the the outcome, the sub optimal outcome that comes from private decision making. On the other hand, you could think of, or you could think of some activities that would be under supplied by the market naturally, and that there could be a case for governments to promote so that’s the other side, or the other possibility, that there could be a case for a subsidy of some kind to subsidize activities that are that are considered beneficial. Now, I think this is, you know, this can be problematic because I think often subsidies come about because of lobbying. So there’s political considerations. I think the case for subsidies can often be weak. Some people, maybe some people, argue that the EV subsidies are justifiable from an efficiency point of view. Maybe they argue, or they possibly do argue that, because there’s such a well you need a critical mass of EV users, so electric vehicles to support the all the charging infrastructure, maybe there’s a case to subsidize the purchases of Ev. So you’ll find at different times various various people in the policy debate making an argument on efficiency grounds for subsidies, and that’s that comes out of that same framework of of market failure that the externalities are part of. You can think of like, typically we talk about negative externalities, such as pollution, but you can also think of positive externalities, so I might have to have another episode where I go into some examples of of that. The key point is that, yep, Mark is correct. I agree with him that the the existence of these externalities is an important qualification on the efficiency of market outcomes. One example of a positive externality that has just occurred to me is the so called Knowledge spillover. So there’s recognition that the knowledge generated by businesses, the R and D that they undertake, that can spill over to other businesses, and you know that’s that’s beneficial to society, and hence that can justify subsidies or favorable tax treatment for research and development expenses. And you do find that in various countries. So, I mean, if we think about the or the development of, you know, various products, there’s R and D that that goes into them, and the whole community ends up benefiting from that, because not everything can be patented, not everything can be protected. I mean the idea of the smartphone, for example, that that Apple invented with the iPhone, while it can protect its own proprietary technology, the the fundamental idea of, or the concept of having, of having a smartphone, of demonstrating that that is indeed possible, that has provided benefits to to other businesses, to the community, because we end up with with competitors copying that concept. So there are these, these external benefits as well. And I think we might come back to this issue of externalities in a in another episode, because there are some really juicy issues to cover. And I’d like to give some really well thought out examples there. The other thing it would be good to talk about in a in a future episode is this concept of the Coase theorem that comes from Ronald Coase, who’s a Nobel Laureate, who was a British economist, but ended up, you know, spending most of his working life in the. The US. I’ve previously done an episode on Coase regarding his theory of the firm, but he’s famous for another theory which is received the name of the Coase theorem. And what that theorem tells us is that in certain circumstances, the private sector agents that are affected by an externality can actually negotiate and reach a an optimal solution, and that optimal solution doesn’t in any way depend on the allocation of property rights, whether it doesn’t depend on whether a particular party has has a right to pollute or a right to to be able to extract A resource free of pollution. So it’s quite a powerful fear, and this idea that you may not need government to impose corrective taxation or a subsidy or regulation, you can have private sector actors figure this out for themselves, and that it doesn’t actually matter who, what the allocation of property rights is. It’s a very powerful concept, and it’s it’s very much consistent with the Chicago School view. So if you’re regular listener, or you study economics, you know there’s this thing called the Chicago school, people like Milton Friedman, George Stigler, which is associated with very pro market or laissez faire thinking, and the Coase theorem fits rather, you know, it’s compatible with that. And indeed, Ronald Coase was a professor of economics at the University of Chicago Law School. So he’s definitely part of that, that Chicago school so very powerful fear, and we might cover this in another episode. I mean, the challenge with it is that, I mean, it’s very elegant, it’s a great theory. It’d be extraordinary if, if it really did work out, it’d solve a lot of our a lot of our problems. But I guess the general consensus among economists is that while you you can see some examples of this happening in practice, and you can see these negotiations, they’re not necessarily widespread. This is not a general solution. This is not a reason. We should just say, oh, let’s leave everything to the market, because the conditions for the Coase theorem are very stringent, so they’re very tough conditions. And there’s a paper that I’ll link to in the show notes. It’s a 2012 paper from the Journal of Environmental Management. Does the coast theorem hold in real markets an application to the negotiations between water works and farmers in Denmark. So the water works are the the businesses or the utilities that are providing water to the town, and the farmers will there. They’re doing things on their farm that can affect the quality of the water through the use of pesticides and and fertilizers. And so there’s a an externality there. And so what this study looks at in Denmark is to what extent private negotiations between the water works and the farmers can help resolve the the externality can can lead to what you’d say is an efficient outcome, and what it concludes Is that okay, so it considers the results of Danish Water Works attempts to establish voluntary cultivation agreements with Danish farmers. A survey of these negotiations, I’m reading from the abstract of the paper, a survey of these negotiations show that the Coase theorem is not robust in the presence of imperfect information, non maximizing behavior and transaction costs. Thus negotiations between Danish water works and farmers may not be a suitable mechanism to achieve efficiency in the protection of groundwater quality due to violations of the assumptions of the Coase theorem, the use of standard schemes or government intervention, eg, expropriation May, under some conditions, be a more effective and cost efficient approach for the protection of vulnerable groundwater resources in Denmark, right. Oh, okay, so, yeah. That’s a that’s a bit of a negative finding about the Coase theorem. I mean, it’s incredibly elegant, and I think it’s an important concept to learn as an economist, but in practice, it, it doesn’t really seem to to help us out a lot. But let me come back to that in a future episode. I think it probably does warrant a whole episode on its own. And yeah, that’s something you want to hear, hear about, or if you’ve got any views on the Coase theorem, or if you know of any, any studies or examples that you know show the a better result for the Coase theorem, then, then let me know. I’d love to I’d love to hear them, and I’d love to hear from you. Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 26:20
now back to the show. Okay, so talked about externalities before we go on to the the other part of this episode, I want to go back to this point about there being this presumption that the the private sector will be more likely to be efficient and to provide what people want than the government. I guess I’m a little bit biased. I think that is true, and partly this goes back to, you know, when I first started learning about economics and studying economics. It must have been when I was in high school, and I remember my mother picked up a copy of Milton Friedman’s Free to Choose at a flea market somewhere. I think it was. And I remember reading that and just being struck by the incredible logic that that Milton and Rose Friedman advanced in that. And there’s a, there’s a great quote from Friedman. I found this on the net. I’m not sure whether this one was in free to choose, but something very similar would have been, and that this, certainly this concept is, is in Free To Choose. And Friedman’s other books, like tyranny, the status quo, and this concept, or this, this quote, which I think you know very much, summarized very well, summarizes his thinking, if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government, okay, so he’s talking about spending other people’s money on other people. And that’s the, that’s the situation where the people doing the spending have probably take the least care. Okay, so we’re, we’re going to be most careful and make the best decisions where we’re spending our own money on ourselves. So in the case that that Friedman’s talking about, there’s little incentive to economize or control costs, to ensure the money spent effectively, to maximize the value for for the recipients. I mean, I guess there is some, there is some pressure, because governments, they do have to, ultimately, there is a budget constraint, so they have to, I suppose they have some concern about the effectiveness of the spending, but it’s not as great as it would be if you’re spending your own money on yourself. I think that that’s fairly intuitive, so what we end up with is that we just end up with, you know, quite a significant amount of of wasteful, inefficient spending, spending that’s done for political reasons to get a political win for the government. I think we all can concede or accept that that is that something that happens. Okay? And then I’m just thinking you might if you think about that as a quadrant, so you’re either or a matrix, and you think of the different quadrants in the matrix, there are four different possibilities. You’re spending your own money on yourself, where you’ve got the most care and concern. You’re spending other people’s money on other people where you’re you’ve got the least concern or care. And then there are situations where you’re spending other people’s money on yourself. So if there’s a gift that someone will gives you money, say at Christmas, and then, therefore. I mean, I guess you do try and maximize your well being, but maybe you’re not as careful with your spending decisions. Maybe you see psychologically, even though this is not economically rational, maybe you see it as, Oh well, it’s a gift. It’s free money in a way, and I can afford to splurge, or I might buy something that I wouldn’t if it were my own, you know, if I had to work to to get the money. I mean, I certainly know that when I get gifts of gift cards for for books, I’m possibly more willing to experiment and buy a book that I I wouldn’t normally do, or I’ll just buy more books than I would when I go into the bookstore at one time rather than save that up for another time. So perhaps I am less discerning or less careful, but I’m still not completely careless. And then the other quadrant, there’s the quadrant of when you’re spending your own money on other people, so you’re giving a donation, or you’re, you’re, you’re engaging in some charitable activity, and sure, I guess you want to, you do want To make sure that you’re not wasting the money, but perhaps you’re not as careful as you would be if you had to spend it on yourself. You might, you might think, Oh, well, this, this will do. This is enough for I’ll make the judgment as to what’s best for the people. I’m, I’m, you know, buying this, this item for these clothes for, you know, maybe, oh yeah, they’ll, they’ll be happy with the socks I get them for Christmas. Yeah. I mean, I think we can all think of examples of where we we spend money on, on other people, and maybe, maybe we don’t put the time or attention into it that we’d put into it, we’d put into the decision if we if we were spending the money on ourselves. So I think, I mean, that’s going to differ for different people, of course, and maybe I’m over generalizing, but I do think that Friedman’s way of of thinking about it is useful, and I certainly agree with him about how I think we spend our own money on ourselves with much more care than the government spends other people’s money on other people, right? Oh, okay, well, that was, yeah, that was actually, there’s quite a lot to think about with, with Mark’s comment and his his questions. So Mark, thanks for that. Please continue listening, and please write in with with future comments. And indeed, if you have any reactions to what I’ve what I said today, I’d love to hear them. I’ll go on now to some feedback from another regular listener, John. I mean, John provided me with a heap of comments, and unfortunately, I don’t have time to cover them all in this episode, particularly since I spent so long talking about what Mark what he commented on. So sorry, John, but I will, I will respond to one of your specific comments, and John is, John’s pushing back or on some of the more free market or more libertarian guests and views that, that that I’ve had on the show. And this is, I think this is an interesting comment, and yeah, I’ve got some thoughts on it, so I want to read it out. I’ll read out the comment first, and then I’ll play the audio that that John’s responding to. One of the bits of audio John wrote, government does not necessarily mean centralized. There’s the Men’s Shed, which is a counterpoint to the criticism your co host on the ATA. So that’s the Australian taxpayers Alliance podcast made. I can’t remember who that was. It would have been John Humphries or Saxon Davidson, I imagine, but I’ll I couldn’t find the bits of audio that John was talking about. But anyway, I can imagine that’s that’s the sort of thing they would have would have said. And John goes on some central money, but also real dispersion of decision making and autonomy. Equally, your guest on the white elephant stampede episode. So he’s talking about Scott prasser there. So equally, your guest on another podcast criticize the Men’s Shed. Now, if there’s a credible cost benefit analysis that said that says the Men’s Shed is not useful, well, fair enough, but I’d be really surprised. The Men’s Shed supports a local repair. FA I’m involved with and maybe you’ve seen their things around made for the community. John concludes, while we’ve while we have personal freedom, the government has a legitimate role in helping us make better decisions. I understand we have lower rates of skin cancer from the slip slop slap campaign and a lower road toll resulting from government initiatives over drink driving and seat belts. Yes, I think that’s a fair points from John. That’s that’s absolutely, absolutely correct, and definitely the data supports that. I’m just thinking of an example in my state, in Queensland and Australia, there was a lot of controversy, gee, maybe it was in the 70s or the the 80s, about the introduction of making a compulsory for people to wear seat belts. And, you know, people had could rationalize not wearing seat belts in all sorts of ways. Oh, that, you know, cost us a lot of time, or it’s a distraction and it’s or won’t help us, because if you’re in a crash, then you’re actually better off being thrown out of the car. I mean, all sorts of odd rationalizations for not wanting to wear a seatbelt. And there was a there was a famous study, I’m pretty sure it was by Alan Layton. Yeah, Alan Layton was one of the authors a famous study on the effectiveness of seat belt legislation on the Queensland road toll. And this was an Australian case study in intervention analysis. So this is a paper that was published in 1979 in the Journal of the American Statistical Association. Alan Leighton was one of the co authors. He was at University of Queensland at the time. He went on to have a distinguished career as an econometrician, a great guy and what they did was that they found so they used some time clever time series analytical techniques. I’ll put a link in the show notes to this paper. It’s it’s a great bit of work. They showed that the long run legislative effect was quantified at a specific level of the explanatory variable to be a 46% reduction in deaths. Okay, so the seat belt legislation did have a significant impact, and it resulted in a major reduction in fatalities. And I think you’d be I think that’s probably a case where some type of government paternalism is is justifiable. So look, if you’re a regular listener of the show, you probably figured out I’m not an extreme libertarian or anarcho capitalist. I would describe myself as a classical liberal. I do believe in in liberalism and freedom, but I do accept that in some cases, there could be a role for some paternalistic policy measures. And I think John is is on the right track there regarding Men’s Sheds, I must say, I forgot that the Men’s Shed came up in in one of my podcast episodes. So, I mean, they seem reasonable to me. I have a couple of friends who are involved with Men’s Sheds. So the idea is that men generally of a certain age, I think it tends to be mature age, and senior men, they may have had some issues in their lives, and they get together, and they will do all sorts of, you know, manual, manual work. They’ll do some gardening, or they’ll do some woodwork or some metal shop, and it seems to be something that really helps them out with their mental health. And, you know, men need friends, and I think there’s a concern that just with developments in society, that men don’t have the traditional networks or support that they once did, and particularly with the rise in divorce so so many men, their social life is essentially organized by their wives, and so if they have a divorce, then they’re in all sorts of trouble. They lose their network, their their social support. So look, there could certainly be a case for the Men’s Sheds. What I might do now just go back to the the bit of the episode that John’s reacted to, so I can understand his feedback more fully and also understand what what Scott said in that episode. Now, Scott’s a great guy. He’s a former academic. He’s a former ministerial advisor. He’s. And he’s one of the editors of the 2022, book from Connor court, titled white elephant stampede case studies in policy and project management failures. And we talked about all sorts of big projects that turned out to be white elephants, like desalination plants, etc. I forgot he mentioned Men’s Shed. So let’s, let’s go back to that, and I’ll offer some thoughts after I play the clip.
Scott Prasser 40:27
Government is involved in too many areas. Okay, the government tries to do too much, yeah, and the government is seen as the savior of so many things. So if government could not be involved in so many things and just focus on it, on the core business, what should be, you know, good infrastructure, good roads. And what sort of thing so government is, is often called upon to be doing things now, politicians reaction to that is, something’s got to be done. This is something we can do, right, okay? And they have no concept of of financial limitations. So governments often, we saw that during the covid thing, where governments were running around doing all sorts of things. Sorts of things which were completely against the evidence. Just remember, in Queensland, we were formed by the Chief Health Officer. We and it was mandated we should wear a mask in our car. Just think about this. And we should wear a mask walking around a park. Just think about this. Now, I didn’t do that. I refuse to follow the law. So that’s an example where governments have got to ratchet up activities, to do things. Also, governments love to love to announce iconic projects. When I hear the word iconic, I run a mile. Okay, this is Danger, danger, or this is going to be a landmark, or they want to have a vision. I don’t want government visions. Thank you very much. It’s usually the wrong ones. And so it’s this thing of meeting the electoral demand to be doing something instead of saying nothing can be done. Okay, that’s, in some cases it’s not government’s responsibility to do it. And if we do anything, it doesn’t, it doesn’t have any effect. So, you know, it’s like, you know, why does the Commonwealth government spend $5 million on men’s work sheds? I mean, what has that got to do with the Commonwealth Government? There’s like, a little mini, a mini white elephant, because they want to be seen to be giving out money for some minority group calls or something. So it’s politics. It’s politics. The other factor is that all the organizational things inside organizations, group think happens, yeah, okay. Now, if you worked in the public bureaucracy like me, it’s sometimes very hard if you if you want to be the lone person that says, I think that’s a dumb idea. Yes, right? Yeah, it doesn’t go well with the rest of the team and the hierarchy, which so you’ve got to have in the bureaucracy someone willing to say no. Right now, our public services have become politicized. That is, people are on short term contracts. They give the government what they want, not what they need. So this sort of Once Upon a Time, treasuries would have said, and that’s why, under Joe, we had permanent public servants. Okay? Job Peterson, Premier, there were permanent public servants. Queensland didn’t have a zoo. Queensland didn’t own a bank. Okay? Queensland didn’t do all the crazy things that Joe won’t do, because the treasurer Leo hilcher and crowd will say, No, Joe, you’re not going to have it right now. I don’t think that happens anymore, because all the senior public servants are on five year contracts. They want to get their contract. We knew they will give in to the political will all the time. So that’s one of the one of the issues that helps help throughout, why we’re getting more of these things, and why Frank and fearless advice is no longer being given. I don’t want to sound too precious, but it is. It is very hard in the bureaucracy. If you’re in the hierarchy and you want to get a promotion in the future and you write a memo to the premier. This is a really dumb idea, and I have done this myself, and I have saved the taxpayer money, I can tell you right here, and that’s because I had a very good director general in the Premier’s department. But it’s hard all those organizational factors, the political factors and government and all the interest group pressures now, interest group pressures on wanting to get something from government. Australia has always looked more to government than other countries. You know, we’ve always we founded by government. Australia was founded by, you know, sending out convicts. Here it was a government, yeah, thing in America. America was founded by people trying to get away from government. They want a religious freedom. Okay? So there’s a difference, yeah, sort of context. So all those factors have driving that. Plus, I think economic theory, more, you know, modern monetary theory, so it says, oh, spend as much as you want. It doesn’t matter. It’s all right. You know, there’s no, there’s no limitation on what government. Can spend. So the idea of balanced budgets, being careful and frugal, has sort of gone by the by, if you like. So all those factors, to me, are contributing to this sort of galloping syndrome of white elephants.
Gene Tunny 45:17
Okay, so I think Scott made a lot of a lot of very great points there. And I think that observation he makes about the differences between Australia and the United States and how they were they were founded, I think that’s, that’s rather that’s rather clever. That’s a really good insight there. And perhaps that does explain some of the reasons for differences in in policy choices. Who knows? I’m not a political scientist, but I thought that was a rather. There was a there were a lot of insightful things that that Scott said there regarding Men’s Sheds. Look, I honestly don’t know whether it makes sense for government to to to subsidize them or not, or to provide funding to them. I mean, my my bias, would be to say, Well, look, this government really doesn’t have a role here. I mean, if men want to get together and have Men’s Sheds, then then fair enough go for it. Does the government need to provide some support? Well, look, I mean, there could be a case. I wouldn’t rule it out completely, but you would need to have a it’d be good to see a cost benefit analysis of subcard. Does it make sense to provide funding for the Men’s Shed? Does this help improve mental health outcomes so much or sufficiently that it justifies the government chipping in some money? Look, it’s possible. Maybe it does. Maybe it improves well being. It avoids health costs in some way, it prevents suicides, it it prevents alcoholism, which leads to all sorts of problems. Who knows it? They could have some positive outcomes. And it looks like there have been, there has been a little bit of of research, but that’s not, it’s not no comprehensive studies, or CBAS, from cost benefit analysis studies, from what I can see, I’ll link to a couple of those in the show notes. I think there’s definitely a rationale for the Men’s Shed in how they address social isolation and help improve men’s health by getting them working together, collaborating on woodworking, metalworking, gardening, community projects, etc. So I think they’ll provide some benefits, and I’ll link to some studies that I’ve found. So there’s a report that was prepared for Beyond Blue back in 2013 and what that shows, or what that finds, is that there are clear health benefits associated with Men’s Sheds, Particularly when compared with less socially active men and they have some some data here. So it looks like it’s it’s from a survey shows that the shed members scored significantly higher physical functioning, physical roles, general health, vitality and mental health in non shed members, as measured by this, this survey instrument, it looks like that they use. So there’s some, some evidence looks like it has a, yeah, I mean, they may well be statistically significant. I’d have to think about the the sampling error around the reported stats. But I’ll put a link in the show notes there. You can check that out. There’s that you know that would be of interest. If this is a report by there’s another report by Urbis review of support for the Men’s Shed movement, current state report. And, yeah, generally, it reports on how well it argues that these Men’s Sheds are valuable spaces for men to get together, reducing socialized isolation, improving well being. They have the men the Shedders, so that’s what they call the people who go to the Men’s Shed. They have increased engagement with and across communities, and they recognize that the shed, the Men’s Shed, as a social amenity available to the whole community, thereby increasing social capital within communities. Okay, so some benefits, but these are things that are, you know, could be a bit they are intangible in a way. They’re difficult to measure, but I’ll put a link to this day. Be in the show notes as well. And yeah, thanks John for your comments. And yeah, if you want to, I’m willing to have a chat about Men’s Shed sometime in the future and all of the issues around them. It’s interesting. Yeah, I’d never thought there’d be a big controversy about Men’s Sheds. But yes, I guess it’s a it’s something that government has been contributing a little bit of funding to. It doesn’t look like it’s a huge amount. And yep, as with all government spending, we should be thinking about whether that is a good use of public funds or not. And there can be legitimate debates about what we’re spending money on, and whether that money should be spent on something else, or indeed return to taxpayers. Because, I mean, the the tax burden is seems to be ever increasing, and we have to think about whether spending by governments is is essential for the community. Well being Righto, thanks to Mark and to John for their comments, for their questions. Really appreciate them listening. If you’re listening, you have your own thoughts on either the episodes I talked about today or other episodes. Please get in touch. I’d love to hear from you. Love to reflect on your feedback and to help clarify concepts, provide examples. So yes, please do get in touch. You can find my details in the show notes. Okay, I’ll wrap it up there, and I’ll talk to you next week. Thank you, righto. Thanks for listening to this episode of economics explored if you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. 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Obsidian 52:20
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Credits
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