Podcast episode

Iceland’s Secret: The Untold Story of the World’s Biggest Con w/ Jared Bibler – EP215

Show host Gene Tunny interviews Jared Bibler, author of the book “Iceland’s Secret: The Untold Story of the World’s Biggest Con.” Jared discusses his firsthand experience during the brutal 2008 financial crisis in Iceland, where he worked at a collapsed bank and later at the financial markets regulator. He sheds light on the dodgy behavior of bankers leading up to the crisis and the severe consequences that followed. Stay tuned to the end of the episode for Gene’s interpretation of Iceland’s secret and its relevance to economies worldwide.

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About Jared Bibler

Jared started his career as a consultant for a Wall Street giant in Boston and New York until moving to Iceland to support the Icelandic pension funds’ foreign investments. He resigned from his job at a leading Icelandic bank a weekend before the 2008 Icelandic financial crisis.

He was subsequently hired to lead a special investigation team, which referred more than 30 criminal cases to the Special Prosecutor of Iceland, including the largest stock market manipulation cases to be prosecuted globally.

Jared’s insider knowledge and unwavering persistence helped Iceland to famously become the only country to jail its bank CEOs. But the real story, deeply complex and sinister, has direct relevance today as banks once again begin to tumble.

What’s covered in EP215

  • 00:02:56 Iceland’s financial crisis was fueled by the growth of banks that became Enron-sized and collapsed, causing significant damage to the economy.
  • 00:05:49 Financial industry corruption and collapse.
  • 00:11:30 Iceland’s banking system collapsed.
  • 00:19:33 Icelandic banks manipulated stock prices.
  • 00:27:26 The financial system is vulnerable.
  • 00:34:58 Banking fraud and economic collapse.
  • 00:35:58 Currency crisis in Iceland.
  • 00:47:19 Iceland faced economic crisis and unemployment.
  • 00:50:54 Iceland’s recovery transformed into something ugly.
  • 00:57:38 Lessons from Iceland’s banking collapse.
  • 01:00:16 Incentives and regulation in finance.

Links relevant to the conversation

Amazon page for Iceland’s Secret:

Transcript: Iceland’s Secret: The Untold Story of the World’s Biggest Con w/ Jared Bibler – EP215

N.B. This is a lightly edited version of a transcript originally created using the AI application 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.

Jared Bibler  00:04

What meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to but the central bank gave away most of its FX reserves. After the first two banks collapsed, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day and then the third bank also collapsed. And they, they have never got that money back. That was that was a substantial chunk of Iceland’s FX.

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 is about Iceland’s secret, the untold story of the world’s biggest con. That’s the title of a book by my guest, Jared nibbler. Jared witnessed the brutal 2008 financial crisis in Iceland firsthand, he worked at one of the banks that eventually collapsed, and later on he worked at the financial markets regulator. His work contributed to the prosecution and conviction of several bank executives. In his book, Jared highlights the dodgy behaviour of bankers leading up to the financial crisis in Iceland and just how bad things got stay tuned until the end of the episode to hear my interpretation of Iceland’s secret, which is relevant to economies worldwide. Okay, let’s get into the episode. I hope you enjoy it. Jared Biblia Welcome to the programme. Hey,

Jared Bibler  02:03

thanks so much for having me, Gene. It’s a pleasure to be here. Oh, of course,

Gene Tunny  02:07

Jared. So yep. I’ve been reading your book with much interest, Iceland’s secret The Untold Story of the world’s biggest con. Now, I was in the treasury here in Australia during the financial crisis. And so we had our own challenges here. And I mean, not as much as other places, but that I remember seeing the news about Iceland that I just didn’t realise just how crazy things that got in, in Iceland, and it was great. Your book, really set it all out and had all your personal stories and recollections in it too. So it’s terrific. So to kick off with, could you just give us a flavour please? What was Iceland secret?

Jared Bibler  02:54

Well, I think you have to read the book to see the secret. But the the secret of the of the crash, I think was that we had these banks, which had been very sleepy institutions catering to a population of just around the time at that time in the 90s, about 250,000 people, very sleepy small savings banks, one was called the agriculture bank. One banks really financed the fisheries, and so on. But these are very small institutions. And they were able to grow a Ponzi like doubling in size every year during the during the first decade of the century, for several years, and so they they grew to each become the size of an Enron. And at that time, when they crashed, the population was still only 300. Little over 300,000 people. So we had these, we had these huge Enron sized collapses in one week, in a country with, you know, one 1000 for the size of the US. When Enron collapsed, it was a it was a big story, you know, and it was, there was a task force of 600 federal investigators, I believe, looking into Enron, and there were movies, there were five or six books, there was an Enron musical, I don’t know if you remember. And I was talking to a reader the other day, and he said, Look, this Iceland story was just so much bigger. And what why is why is your book deal now there are a few other books about it. There’s a lot of books in Icelandic about it. But there’s not that much talking about it. I didn’t really want to write this book. But I felt like after a few years, I have to tell this story. And I actually really struggled to tell the story. But first because I was trying to tell the story as an outside, outside, you know, so third person just here’s what happened in Iceland. And a very good friend of mine who helped me with the book. She said, No, you have to tell it through your own, you know, your own walk through the crisis. So that’s, that’s what we ended up doing. Yeah,

Gene Tunny  04:52

because you had experience in a bank, one of the big banks in Iceland prior to the crash, and then you ended up as a regulator, didn’t you investigating what went wrong? Could you tell us? I mean, how did that transition go? How did you go from being the banker and then leaving just before the crash and then to the, to the regulatory agency? Well,

Jared Bibler  05:16

my wife who the book is dedicated to, she had a dream. And, and a prophetic dream, as I think you see in the book, and she told me just to get out of the bank, and I had been in an asset management role, we had been managing money for mainly the pension funds in Iceland. So we had we had funds of private equity funds and hedge fund to funds was my main product. But I was really unhappy with the things I was seeing around me in the asset management department. You know, it’s the standard asset management stuff that people do, you know, if you want a big client to come in you, you price things in a way that all the existing people in the fun pay for that person that come in, and they never know it, right. So there’s a lot of that stuff. And I guess that’s pretty endemic, still in that industry. But that really bothered me. I mean, I was really, I was studying for the CFA, I was signing these ethics statements, and I was saying, so my wife knew that how upset I was, she told me to quit. So I just quit, I didn’t have a job to go to. And that was a Friday that it was my last day the all the banks collapsed, the next two of them collapsed on Monday, and one of them collapsed on Thursday of the next week. Right? Then we were just really, almost penniless. Because at the time, I mean, the crash, how it felt to live through that cannot be overstated. It was it was a horrendous experience. Because we didn’t it at some points, we couldn’t even access the money in our bank accounts. And almost everything that we had was frozen and later hair cut and discounted, we ended up losing our house in the end. And a lot of our friends did as well. So I mean, it was it was a horrendous time, the British had invoked terrorist legislation against the whole country of Iceland, declaring Iceland a terrorist organisation. And, you know, and this is what was barely reported, you know, we were sitting there being called terrorists by Gordon Brown. And that meant that all the payments into the country and foreign currencies were frozen for weeks or months. So that was a very dark winter, people were out on the streets. And the winter in Iceland is not that cold, but it’s dark. You know, it’s in Reykjavik, it’s about zero degrees, most of the time in the winter, but it’s dark. And people would be out on the street in the dark banging pots and pans and in front of the parliament building. And so I finally I didn’t have a job for the for all these months, my wife had a new job. And so we were trying to live on what she was making. And in Iceland, your mortgage payment goes up every month. So the principal balance is recalculated with the inflation of the preceding month, and then the the monthly payment is recalculated each month. So our payments went up something like 40% 50% in a very short time. So then I got very luckily, hired by the regulator, they said they wanted to hire one investigator to help them untangle the mess of the collapsed, you know, the three Enron collapses that we’d had ended up hiring to others, they hired me, another guy who had been in the banks and a woman who was a lawyer. And they just said to us, you know, go investigate the crisis. And so that was about six months after. I eventually, as you see in the book, I eventually got more people. But it took, I think it took 12 months to get my first person to add add to my team. And then eventually, we got we got a nice team together to do these investigations. So yeah,

Gene Tunny  08:48

so I’ve got sort of halfway in the book. So I apologise I haven’t read it all. And I’m still learn Iceland secret. I thought I’d died. Yeah, yeah. What What I found fascinating about the book is just because you’re American, aren’t you? You’re You’re you’ve studied in the States, and you end up in, in Iceland, and the, the culture is different. And yeah, I thought some of those recollections were terrific. And you’re talking about, you know, working with your, your fellow team members, so that that was great. So it’s worth reading for that. So yes. Can I just fix it in time? So we’re talking, we’re talking about October 2008. Is that right? That’s right. Yeah. Yeah. And Lehman Brothers had collapsed a couple of weeks before so you weren’t worried about that?

Jared Bibler  09:40

Oh, everybody was ever Yeah. So for? Well, to put a timeline on the whole on the whole episode, from 1998 was the beginning. I believe of the banks being privatised in Iceland. So the banks had been government owned, more or less. And they were still Hold off in pieces, but not in a, in a way that’s still being criticised today, and in Iceland and still hasn’t really been fully investigated today. Because basically, the powerful politicians gave bank a lot of banks out to people affiliated with those political parties. And so there wasn’t a lot of transparency, there was no, there was apparently foreign interest for lunch bunkie which was the oldest bank, but then the guest that bid was never even really considered. They just wanted to keep it in the family. Keep it keep it national, you know, Icelandic owned. And so that was 98 203 was a sort of beginning of the privatisation wave. And then in oath 203, they floated the ISK on global currency markets. So it was an exchangeable currency. And when that happened, it just things just took off. Yeah, so So the boom years was really I moved there in oh four, which was maybe one year in one, two years into the boom. And the whole thing lasted only a couple of years, really. Because by oh five, according to one, former executive, I believe oh five, he said, a quick thing, bank was already insolvent. And so the only you know, they, they weren’t doing great banking, at any, in my opinion, in any of these years, the banks were not the only way to escape the bad decisions of the year before was to double the bank in size, the next year, and they had a they had big foreign lenders just pumping money into these banks, so that it for a few years, they could borrow as much as they wanted. From European and later American lenders, there was already a mini crisis in 2006, where the currency crash stock market crashed and everything was a bit a bit, you know, up in the air, what would happen. And at that point, the banks actually started open retail savings accounts for retail customers in Europe, in order to collect the funding that they needed. And they were able to then keep the party going. So then I started in LHINs. Bucky in the Asset Management Department in early oh seven. And the subprime in the trade press, people were talking about subprime already, January Oh, seven, I was started to follow it. And things got more and more. At first, we thought this isn’t gonna, this isn’t going to touch us. Now, Icelandic banks barely invested in subprime. They weren’t doing much, they were just making bad loans to their friends, more or less. But though eight was when things were getting more and more dicey in the bank. And by the end by, I think, looking back when Lehman collapsed, the credit markets between banks in the world really froze. And those weeks and the Icelandic banks were on writing on just fumes anyway. And so that was the final straw, but they were not healthy. Now, this is not the story that I’ll tell you today. By the way, my book is not so popular in Iceland. Because Because the story now is that we had a great banking system, even though it was 11 times bigger than our GDP, but we had a great banking system. And and Lehman killed it. When otherwise it would have been fantastic. But yeah, it was Yeah. Yeah.

Gene Tunny  13:26

What I was asking was because you you quit in a period where I mean, did you? Did you ever you had a parent or your wife or her or your partner had a premonition that the bank was just going to go down and you wanted to get out? You should get out as soon as possible is that is that she

Jared Bibler  13:45

actually said? And she never talked like this. She said, Don’t let those eight holes fire you. You need to get out of there. She said, she had a dream that I was being fired and something bad had happened. And she said you need to be the one to quit to get out of there first. So as soon as she said that, I I I went, you know, I think I quit within a couple of days. So yeah.

Gene Tunny  14:09

So it’s interesting you talking about the rock the fact that Iceland floated, visit the kroner the corona, was that in early 2000s, that late in I think it was oh two, I think oh two, right. And so probably liberalised capital flows. And, yes, so you’ve got all of these, all of this lending, what to have any idea what was in the minds of the lenders? I mean, what were they seen in Iceland? What is the story they’re telling themselves? I

Jared Bibler  14:44

have a thought experiment for you imagine if a small Caribbean nation with 300,000 people went to Deutsche Bank just to pick on them because Deutsche lay a lot of money and lost a lot on the Icelandic banks. Majan if a 300,000 person Island went to Deutsche Bank He said our main exports are fisheries and tourism. Yeah. And we’d like to have a great banking system. But they would have laughed, right? They would not have probably went into that. But because it’s this, especially in German because now we live in Switzerland, especially in the German speaking imagination, Iceland is really to lay Iceland is really the, the mythical land of of, well, well, it is. It is the mythical land of the Sagas and Vikings and so on. And so the they were happy to, to to lend into this. They said, Oh, we’re liberalising our banking system were developed Western economy. The interesting thing about No, I, I am an Icelander. So I have, you know, I have the passport. And, you know, we we have probably socially one of the very most developed countries in the world. Certainly for women’s rights, gay rights, it’s it’s, it’s, it’s, it’s leading edge. But the economy is not developed to match that. So the economy in those days was a lot of fishing, fish exports, and heavy power exports. And today, we’ve added huge and disgusting levels of tourism onto on top of that, so the cup before the pandemic, I think there were 10 tourists per year for every man, woman and child and in Iceland. And so that has become the, that has become the biggest export, I believe. Gotcha.

Gene Tunny  16:30

And can I ask you about? Yeah, that all of this lending, and where was it going? Was this going into your, into the property market in Iceland? Or what was what was being done with all the money that the banks were borrowing?

Jared Bibler  16:45

Yeah, the first thing they did is, is inflate all the bubbles they could domestically. So property bubble, they had a they had a little mini private equity boom in Iceland, maybe in? Oh, 304 I think where they, you know, did sale and lease backs of, I think who says Smithian, which is the it’s a home improvement chain in Iceland, but like a chain and Iceland maybe has only five, five locations or 10. You know, there’s really only one city in Iceland, which is Reykjavik. Yeah, most people live there. And so, so they did a sale and leaseback of these five or 10 properties, and you know, they did things like that. But then by Oh 405 They were increasingly looking to do investments abroad. And so there was a there were private equity style investment groups in Iceland that went and bought up things like European airlines. They bought a lot of high street shops in the UK, for example, they bought famously based on the really based on the historic relationship between the two countries. This was a big, this was a big win for Iceland. We bought Denmark’s Copenhagen’s most prestigious department store became Iceland owned, which was kind of a big, big faced, because Denmark had been the colonial masters for 700 years and just treat it still today that Danish tend to come to Iceland and bark orders at people on the street and so on. So to buy their department store was just seen as you know, the crown jewels, so they did a lot of very expensive deals in those years. You know, we had pretty low interest rates in those years, and there was a lot of a lot of these deals going on. But a lot of them ended up not being not being great. And so, yeah, so it was it was kind of a family family game where bankers made made loans to their colleagues in this in this connected private equity world of Iceland and they, you know, they went and did deals. The banks, the banks also bought other banks. So, they expanded hugely into Scandinavia. They bought some of the oldest London banks, singer and Friedlander inheritable and you know, they were by the time I think in oh eight, my bank lens bunkie had even opened a branch in Hong Kong, I believe, or Singapore. I mean, they were really they want it to be these globe straddling behemoths.

Gene Tunny  19:13

But a Yeah, yeah, but what happened? I mean, they, they borrowed too much from abroad. They learned domestically and in the, their, their data is they just, they couldn’t pay it back. And then the banks crash, they ran out of cash or liquidity. I mean, well, so what actually happened?

Jared Bibler  19:32

The first thing that I discovered as an investigator, which is which is how the book opens, is I get this letter from the stock exchange. Yeah. And the Stock Exchange says saying, hey, look, on the three days before these banks collapsed, they each seemed to be buying their own shares up on the exchange, and they seem to be doing it with with bank money. And I thought that’s a little bit crazy because they hadn’t announced any Any share buybacks, right. And the volumes on the last three days were huge. It was effectively, they bought the whole market. Every trade that came across the exchange was the bank’s cash on the buying side, keeping the price up. And I thought this is crazy, right. So as you saw in the book, I tried to figure out when that behaviour had begun. So I went back to the Lehman and went back a few weeks to cover Lehman because I thought, okay, probably after Lehman, they got really nervous, and they started trying to manipulate their own stock price, you know, I just wanted to put a book end on the activity, before I wrote up, you know, a criminal case to send to the prosecutor. And I had to keep going back and back and back. I went back to first I thought I was being very bold when I when I covered a six month period. And then it turned out that the activity was the same for the whole for basically the whole six months of April, oh, eight to the to the crash, more or less, they were in the market every day. And many days, they were buying more than 75% of the market for their own shares. And so I went back, we ended up going back to 2004, which is coincidentally when I had moved to Iceland, so for five years, they had been doing this behaviour. Later, when I was closing the research for the book, I came across some court documents where and we had seen indications of this. But there’s court documents where some of the traders openly talk about this behaviour going back to 1998. So from the first days of the banks being privatised by the government, they were already intervening in the market to to and so with my perspective, and of course, I’m biassed because I was the investigator who developed those cases, my perspective is without that share price manipulation, the banks could never have grown the way they did. Because they had such healthy performance on the equity market. One of them was dual listed in Stockholm and and Reykjavik. And so whenever they went to lenders, they could say, look at how great our results we will look. The markets love us, you know, look at our stock is up another 20% another 30% this year, or 100%. I mean, the markets, the Icelandic stock market in those boom years, it was going up 60% A year the whole market only Wow. Right. And, and the bat and that was that that lasted for several years, that was the broad market was 50 to 60% a year. And the banks, but the banks grew so fast, that they ended up becoming seven year 80 or 90% of the market cap because they crowded out everything else. And so when they collapsed, of course, the stock market lost 93%. In 2008, it was basically closed for equity trading after the bank collapse. And so all of our, for example, if you talk about damage to the people of Iceland, all of our pension funds had to be in the equity market. Right. And so, and basically that meant they had to be in the, in the banks. When when I was investigating the the manipulation that the banks did was looking at lists of buyers of the shares. And there were some periods in Oh 708, where the only legitimate buyers of the banking of the bank shares were the Icelandic pension funds. And all the rests were, you know, because, yeah, they were accumulating so many of their own shares each quarter that, you know, and that they were going to be in they had, you know, the big four auditors were, were their auditors. I mean, all this is all big names. You know, the Stock Exchange was called NASDAQ, oh, MX, Iceland, you have KPMG you have EY you don’t have the the big four auditors are in Iceland, they knew that when their books were audited, they couldn’t be sitting on, you know, $200 million worth of their own shares, which they had just bought on the exchange. So they did these complex and runs style machinations at the end of the quarter to offload the, the, the shares. And so they would create, I would find a shell company that British Virgin Islands that had just bought 100 million worth of shares. And so to answer your what one of your questions a few questions ago, what were they making loans to well, by the by Oh 607 their loan book was almost entirely to these bogus companies that they had just created to buy the shares from them. Yeah, so So you know, it doesn’t make any sense at all, but it was uh, I think fake wanted to keep that, that that. I call it shear laundering. I think they wanted to keep that scheme going as long as they could. Yeah. Now

Gene Tunny  24:59

is that all Iceland secret or is Iceland secret something far worse that I’ve yet to discover?

Jared Bibler  25:04

I think I’ll tell you that secret, if you want. I’ll do a spoiler alert. I don’t know. This. That is the secret is the share is certainly a big secret. Because you know, that that was never really reported. This is one of the reasons I wrote that was like, I have to tell this story. I mean, yeah, they basically deceived the whole country. And all the investing world, I mean, London, all the big markets knew about these Icelandic banks that were lending to them, they were doing business with them. And the whole time they had created, you know, an illusion of success based on this market manipulation that they were doing daily behind the scenes, you know, the guys who were doing the manipulation had to do it so much that if if there’s a famous phone call, and one of the court documents where the guy’s late for work in the summer, and the price in Sweden has already dropped a couple of percent, and his boss is calling him saying, Get in here, man, we’re losing, like, you know, if they had to be in there on every trade, to keep up this illusion, and they did this free for for a decade. So I think that’s, that’s, that’s one of the secrets of the book. Well,

Gene Tunny  26:14

I can we can leave it under wraps. Okay, because I don’t I don’t want to ruin any potential sales of your book. And I don’t want to spoil that for myself, too. But I was just wondering, because when I when I saw the title, and then I started radio, then I that must be the seagull you’re talking about. But if there’s something far worse that that really gets me interested,

Jared Bibler  26:35

there is something far worse. Okay. And I would, you know, go ahead. Well, I just want to make the point that a lot of people say, Who cares about Iceland, and I, of course, I love Iceland. So I care about it a lot. But, for example, when people here in Switzerland, read the book, or hear me talk about it, I get a lot, there’s a lot of scared faces in the crowd. Because a lot of a lot of the world’s financial markets are are subject to the same forces and incentives as we had in Iceland, which led to this incredible collapse, which devastated the country. And I think it’s really the story again, I’m biassed, of course, but I think this is really kind of the story of what we may be all facing in the next couple of decades. Because we, we haven’t managed yet. And that and I also people get offended when I say this, but in two or 300 years, I think people will look back on us and the way we structured our financial systems and laugh at the way we laugh at Dutch tulip mania, or, you know, because we have kind of no put in no incentives, or no structures to keep an Iceland from happening elsewhere. Now it’s going to be maybe the nice thing about Iceland is it’s such a small place. It’s such a small population that the scam is very easy to for me to describe to you. I think in a bigger market, it’s going to be more it’s gonna be more subtle. But But still, all the incentives are on the side of of cheating, and building in, in sustainability to our markets. And nobody is really paid good money to, to stop these things can mean you have some window dressing like you have comply. I mean, they stopped some things. But in my experience, when senior management of a bank wants a big deal to go through, that deal is gonna go through nobody’s sitting, nobody’s gonna get paid have a 5 million franc bonus to stop to stop to stop something. This is not how it works.

Gene Tunny  28:41

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

Female speaker  28:47

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Gene Tunny  29:16

Now back to the show. One of the interesting stories in the book is where you’re having to clear or run a transaction, aren’t you or make a transaction or deposit two was at a bank in Europe and trying to remember exactly yeah, it was trying to remember the details but in your manager, he initially said I Yep. Sounds fine to me. Just let it go through then. Later on. Oh, that must be it’s Jarrettsville. Sir, could you tell us about that?

Jared Bibler  29:49

Oh, yeah. So I tried to sprinkle in actually, my dream is to rereleased Iceland secrets sometime in the future with with more of the stories in there but my publishers said, you know, you’re a first time author, you only get 300 pages. Sorry, Jared, but, but I had more of more of those things have I tried to sprinkle in stories in the beginning, which are representative of the culture within the bank? And when actually when other bankers and other countries read this state, none of them says, They all say, oh, geez, yeah, that’s exactly how it is where I work, you know, none of them says, oh, Jared, this, this only happens in Iceland, they all say, Oh, yeah. So the story you’re referring to is we had a, some guys who call themselves a hedge fund. And they wanted our bank. To be basically we were the administrators of the fund, and the custodians of the funds, assets, but they were going to trade. And they had, they had got the investors, and they had, I think 120 million euros come into the fund. And they, as far as I could see, they weren’t hedging anything. They were just buying long positions and in equity, and very few companies. And I think they, I think they had some inside information, basically, on these few of these companies. But as the, as the saga went on, they did more and more crazy things. And one point they said, We’re, we’re investing in a shipping portfolio. I don’t even know what that means. And I was waiting for like the paperwork about because when you do an investment, you know, you know how it is. I mean, there’s there’s a contract, and there’s there’s there was nothing. They said just Just what please, they wrote me like, please help us wire 5 million euros to this account in Norway. Yeah. At at such and such bank, it was one of the biggest Norwegian or Scandinavian banks. So it was a reputable bank, but we didn’t count just had a person’s name. All I had was like an AI ban and a person’s name. And I went to my boss, and I said, I don’t think we should send 5 million customer money out of this fun to this account. We don’t have anything. He said, Why are you always making problems? You know, bring the solutions. And so I just decided, eventually I did it. I sent the money. I mean, I copied him on and and in an email to cover myself. And I said as as we discuss, you know, and as soon as I sent the 5 million, as soon as that went through they, they wanted another five. I mean, within within, as I remember it within a day. I mean, it was very quick. They ended up they ended up sending out 15 in cash. And the other weird thing about this was that it was such a, you know, when you’re looking for fraud, usually round numbers is a good flag, because most things don’t. There’s always a commission or you know, taxes or something, or exchange foreign exchange differences. Things never come out or rarely do they just come out to like 5,000,005. So yeah. So then the fund within a couple of weeks, got into trouble for some other things. Now, I had been trying to warn these guys about about the problems with this fund for more than a year. And they just said, you know, making problems just it’s going to be fine, you know, let it ride. And so you can see more of that in the book, but that they were going to scapegoat me then for this 15 million they went out. Because yeah, when his boss looked at it, and all the transactions that just jumped off the page, they were the biggest ones. And you know, all these zeros, they just jump off the page at you. He said, he said, What’s this? And my boss said, Oh, I don’t know, that looks like something that Jared did. That was that was the weekend. I think that happened on a Sunday. If I recall correctly that night was when my wife had the dream. And that Monday, she woke up and she said you have to get out of there. Yeah.

Gene Tunny  33:53

Was very smart. And that was a Friday. So yeah, there was the Friday that.

Jared Bibler  34:00

Well, I quit. So I put me so that was a Monday in Monday. Yeah, that. Well. That was right after Lehman. I have to go back. And look, it might have even been the Lehman weekend that that happened. It was in September, then I quit when you resign in Iceland, you you resign on the on a month end. Gotcha. So I put in my resignation for 31st of October. Sorry, 35th of September. So I probably put that in within a couple of days, effective 30. September, then I would have needed to work three more months, according to my contract. So So I should have been there October, November, December. But they was that stories in the book too. They basically let me go on the Friday October 3. And then the banks collapsed on the seventh eighth and the sixth, seventh and ninth of October.

Gene Tunny  34:58

So the banks collapsed. This is a day that was at the three biggest banks in Iceland collapsed. Yes. Right. Yeah. And you talked about the the hardship before. But so what did it mean, you know, one could get people weren’t able to get cash they the economy basically stalled? Yeah, it

Jared Bibler  35:18

was. So I’ll try to walk you through it. I mean, it was, it was frightening, because for months, the currency of the currency against the euro had been depreciating. So it’s through the, through the crisis week, the currency depreciated so much that it was it had lost half of its value, since maybe five, six months before that. So everything we were used to like flying to Europe and having vacations and things, everything was now double in price in a very short time. So that had already been going on. And the politicians were just saying, well, the currency will come back. There’s, there’s nothing on the other side, it’s never come back, of course, still today, and then what happened in the crisis is that it actually just, they just stopped trading. Nobody. So outside of Iceland, during the good years, it was 60 or 70 krona to the dollar. And then the offshore rate became something like two or three or 400 to the dollar raw. So anybody offshore who had ISK, they just wanted to dump it, they didn’t care what the rate was. So you had this offshore rate of two or three or 400, whatever it was. And then onshore, we had capital controls, which lasted a decade. So in Iceland, you could buy euros for, you know, for a predetermined rate set by the central bank. And they would basically give you the euros that they had against ISK. This lasted for a long time. And but you couldn’t get them you could only get them if you were travelling. Or if you hadn’t, if you had an invoice. That’s it. Yeah, there was no way to get dollars or euros or anything else for a long time. And of course, that that begat a huge new scam industry. All the bankers who had just been laid off from the banks, not all some of them started faking invoices from foreign companies. And you know, get if they had a relative in the UK, they have the relative send an invoice which said so and so’s consulting company 50,000 British pounds, they would get the, the onshore Icelandic rate, they’d wire the pounds out to the foreign account, the foreign guy would would take the British pounds and buy some Icelandic government bonds from a British guy who didn’t want them and would take the offshore rate. And they’d send the bonds back in in one in a one or two day round trip. They could double their money or triple their money in local currency terms. So that became a whole industry, which ran for about six. Yeah, to try to profit on the capital controls and but what it was really doing was depleting. The what meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to. But the central bank gave away most of its FX reserves. After the first two banks collapse, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day. And then the third bank also collapsed. And they they have never got that money back. That was that was a substantial chunk of Iceland’s FX. Yeah.

Gene Tunny  38:56

And you mentioned the the exchange rate and prior to the crisis, and you tell a story about how I mean teachers and people you would normally expect would be going they’ll be travelling overseas for shopping trips. Yeah.

Jared Bibler  39:10

Yeah. Because I just realised I didn’t really answer your question, the last one about how to live through it, but but to come to the teachers. Yeah, I mean, for those few years after the after the FX trading was free, you know, globally available. There was a huge demand for ISK assets among investors around the world because the yield was so high, you could get an eight or 10% and it was perceived to be a safe place to invest. And so a lot of money just flooded into the country. And that meant that the exchange rate went, the ISK got 20 3040 Maybe 50% stronger in a very short time. So people felt very rich and Um, but things in Iceland are still very expensive because you have almost no competition on retail and wholesale and, you know, maybe one wholesaler for anything you might buy. And so the currency was very strong. But that doesn’t mean that domestic prices are going to go down. They should, but they’re sticky. They don’t go down, right? Yeah, but that means you can go abroad and for and for the savings that you will have on buying, like, say, a laptop computer, you go to Boston to buy it would pay for the trip, the savings would pay for the trip. So that was a calculation that many of us made, people would just go to buy. I was in Boston once and someone had bought four big tires for his SUV in Iceland, and he was putting them on the plane they were putting them on, it’s just luggage with, you know, with a tag just wrapped around the tire and putting them on the belt, he probably saved enough on that to pay for a weekend in Boston. So as if it was a calculation a lot of us made. And so yeah, we felt super rare, we felt like the world was our oyster. And when we would go, also things seemed very cheap. So I went to Boston, and I took out my mom and dad, my brother and his wife for a meal. And even with a generous tip for a meal for the five of us, it cost only a little more than a meal for one person would have cost in Reykjavik at that time. So we just felt they felt like for me, it only lasted maybe 36 months or 24 months, but we felt like kings. Yeah. And then And then yeah, the the, the loss of that was that the times were very desperate in, in especially the autumn of Oh, eight, we had no idea what what the next week was going to bring. I mean, we had the terrorist thing from the UK, which really, that meant that all the companies in Iceland, let’s say that you had a fishing exporting fisheries company that was expecting to be paid for fish that they’d already exported to the UK or to the mate or mainland Europe. The payment would be just frozen in Swift, it would just have to be blocked somewhere in the UK and not allowed to go through because the whole country was considered a terrorist organisation. So

Gene Tunny  42:16

what was going on there? Jared? Was Was there any? Was that legit? I mean, what what’s going on? What were the banks? Did they have? Did they take deposits, so facilitate transactions for some shady people? What was actually going on?

Jared Bibler  42:31

That was just to punish Iceland? There’s many there’s different explanations? I’ve never heard a great one. I mean, Iceland, in England have a long standing tension are overfishing actually, there’s something called the cod wars in the 70s. Which Iceland one. But it meant that the fishing grounds that the English had been using, were no, we’re now claimed by Iceland. So some people say that this was retribution for the cod wars. Others say that, you know, it was retribution, because there was a lot of misunderstanding around savings accounts. And, and, and more generally bank products in the UK, that the Icelandic banks had offered. And so for example, there’s something called Icesave under under EU law, a bank in one country can open a branch in another country, and not be regulated by this by the new country. So so the Icelandic banks, when they were running out of money in oh six, they decided to use this to open online savings accounts in the UK. And take money from retail depositors in the UK, pay them higher interest rates to to lower them and take the British pounds, because they needed, they needed FX they needed foreign currency to keep to keep going. And so there was a there was a big misunderstanding between the two governments on the eve of the crisis, where famously the key was the finance minister, but he was a veterinarian, and he did not speak very good English, he should have had a interpreter. And he also should have had a UK cultural interpreter. Because as you as you know, you know, when, when an Englishman says I’m very concerned, that means like, you’re dead, you know. And so Alistair Darling was on this famous phone call. He says, I’m very concerned about the status of these deposits and so on, you know, I can’t remember the exact words, but the Icelandic guy just as well, well, we’re looking into that. And, you know, dollar darling is like, look, we’re going to talk tomorrow at eight in the morning, I’m going to call you but if this isn’t done, you know, we’re going to take we’re going to take measures, and I think I can’t remember the days how they played out but it was that day or the next that, because they had after 911, they had these new terrorist powers in the UK where they could put on her majesty’s treasury, they could put like al Qaeda on there, and that would just freeze all payments. Okay. So Gordon Brown just decided to put, so they put. So it was like al Qaeda, al Qaeda in Syria, I want to say or al Qaeda in Iraq, there was a whole bunch of terrorist names. And then it said republic of Iceland, Central Bank of Iceland. Financially, they even put the Financial Supervisory as a separate separately from the Republic as its own its own line item. But that just killed us, man, because that was in the middle of it. These countries are ostensibly NATO allies, right. And that just that just devastated us. And so yeah, so those months were just super dark we. Because they’re because of the freezing payments, there wasn’t like no food being imported. So we were eating more and more just locally, and we were anyway, for price reasons, eating only locally grown stuff. We just, I mean, we stopped driving the car. I mean, just I don’t want to sound like these are not complaints compared to what people have going through in Gaza right now, for example, but I mean, our lifestyle just was cut down to just the just getting through which we lived like that for years after, after that. Because the SAT and what is also sorry, the salaries were the same, but the buying power of the of the salary was half of what it had been in real terms. And then they they also raised taxes, the government raise taxes so that the income tax was almost 50%. In the years after the crisis, so I mean, I always tell Swiss people living in Iceland is like paying Zurich prices, but getting a Lisbon salary, you know, you have a quite low salary with high taxes, but then you have one of the most expensive cities in the world. So it’s all, even in the even in the good years. It was a struggle. Sometimes. Things are just unbelievably expensive. And even Swiss people today who go to Iceland as tourists, they say, Wow, it’s so expensive there. Then I say, Yeah, imagine living there and an Icelandic salary. It’s, you know, it’s not easy. Yeah. So

Gene Tunny  47:19

yeah. So during the crisis, you had a big increase in unemployment. Didn’t y’all have to look at what the stats are. But it was a huge economic shock. And it went

Jared Bibler  47:28

up four or 500% the unemployment rate. Right. Yeah, it was a huge shock, because the banks had employed the banks for so huge. I think they employ between them 10 or 12,000 people in a country of only at the time, 300,000 or so. And then you have all the you know, the follow on effects of such a big layoff. So, yeah, the unemployment rate was just just rocketed. And we just tried to Yeah, we just somehow got through it, everyone somehow got through it. But a lot of us lost our houses and, and all the pensions, pension savings that we had thought we had was was was decimated when the stock market dropped like that.

Gene Tunny  48:14

Right. So people are still feeling the effects of it. 15 years later, I would just I mean, people

Jared Bibler  48:20

don’t talk about it. Well, actually, they do. They do talk about it. Yeah, they are. Because they were they were projects like infrastructure projects. It’s almost like it’s, it’s almost though, like if so friend of mine was in Iceland, and said she was trying to talk to people about the crisis, and that nobody would talk about it still, like, people want to forget about it. Basically. There were infrastructure projects and ideas that we desperately need, like expansions to hospitals. There’s no rail infrastructure in the country at all. And the International Airport to Reykjavik is like a, it’s like an hour drive, it should have a train link. So there, there were things that the country needs that have just never been executed. And now they’re put on the back burner for 50 more years or something, who knows. So that’s definitely an effect and they actually closed some hospitals and some birthing centres, which forces people to drive over these, you know, really dangerous mountain passes and stuff in the winter to get medical care. So there were effects like that. And a lot of people lost their family businesses and, and so on. So the biggest effect is that when when the currency lost half of its value, Iceland suddenly became a tourist, you know, hotspot and, and Iceland marketed itself as such. And so that that that began the tourist wave, which continues today, but it’s like, it’s like what’s happened in other European cities but on steroids because the city of Reykjavik, the old towns centre is really only five or six streets. I mean, it’s a very small village. And now and that had very cosy things there like, like an old cafe with doily lace doilies, where the grandmothers drank coffee. And, you know, there was some classic things of old Reykjavik that were there. And almost all of that is gone now. Because it’s all just t shirts stores, or they’re selling like stuffed animal puffins, you know, and at the end, all the neighbourhoods around the old centre, including where I used to live, have become dominated by Airbnbs. So you can even walk around and not even hear the Icelandic language in the nation. And the, the old neighbourhoods are very giving because it’s just become tourists defied. And so that was the response. So people, often I face resistance, people say, Oh, Jared, come on Iceland recovered. And I’m like, well, first of all, nobody, nobody knocked on my door and said, Here, here’s the keys back to your house. But the other thing is that it all it only recovered by transforming into something pretty ugly for my from my eyes. Yeah, yeah.

Gene Tunny  51:19

Yeah, yeah. Yeah, it’s. Yeah, I mean, it really was a huge shock. And I mean, I didn’t appreciate like we we sort of sailed through it. Reasonably. Okay. Here in Australia, there was a little bit of a slowdown, but then we were insulated from a lot of it partly because of mining. Right? Yeah, it was extraordinary to see just how bad things were there. So I’d recommend the book on that count, for sure. Just a couple more things before we wrap up. What happened to the perpetrators? Were some of the people do jail time. Is that correct? That’s,

Jared Bibler  51:51

that’s part of the secret at the end. Yeah, they some of them actually did a few months here and there. We, because the headline of Iceland was it was the only country that prosecuted bankers after 2008. Yes, and that is true. And the cases that you read about in the book are the reason the main reason behind the big prosecutions, but in the end, so in many European, I’m not a lawyer, so this surprised me. But in many European legal codes, you can’t get charged for multiple counts of the same crime. So if you if you did market manipulation, but you did it every day, for 1000 days in a row, which is what they did, when I and the max penalty, if you read the way the law is written, which is a European legal code that Iceland imported. But clearly, the spirit of the law is for someone who did a manipulation, maybe for a day or two or a week or like a single event. And then in Iceland, its maximum of six years in prison for that. So I was naively thinking, Oh my God, these poor guys, like they did it every day for 1000 days. It was gonna be, yeah, up to 6000 years in prison. And people said, No, charity, don’t be silly. Like it’s market manipulation. That’s one thing. And so the sentences that the so we were able to show that a lot with emails and internal documents, we’re able to show that, of course, the knowledge of this multibillion dollar manipulation went all the way to the CEOs of the of the banks, and even higher into the boards, and the ownership. But we were able to show that that went up in the biggest bank to the executive chairman of the board that he was getting daily reports on the manipulation directly from the traders. So they were they were writing these things, and I’m paraphrasing here, but Hey, boss, you know, we bought another XYZ number of shares today, the price is up 1.2%. You know, so that was a daily update to the chairman.

Gene Tunny  54:10

And did they not just not appreciate what they were doing was? I mean, I presume this I mean, this is illegal in Yeah, it sounds it sounds healthy, go. Did they just not appreciate it or they?

Jared Bibler  54:23

That’s what I think the book is, of course, I’m biassed again, but I think the books super important because it gets into a little bit. And you see this now with Sam Backman freed and the FTX trial and so on. The behaviour of white collar scammers, part of their shtick is that they can’t even admit to themselves that they’re doing criminal things. They, even after they’re charged, convicted and they serve jail time. My experience with the Icelandic situation would would lead me to believe that Sambac been freed for example, will probably never have a moment of clarity He, where he says I did some bad stuff. I mean, he should because it would help his soul it would help him like karmically to, to release that right. But he, I hope he does, but he probably will not. Because So, for the very top people who are masterminding the scheme, their justification is always like, Well, we were doing great things with the bank. So whatever it took to keep the bank alive is good. And then the people lower down in the scheme are just following orders. You know, like, like the guards that Auschwitz or something, you know that, and, and many of them are naive. So, some of them knew it, but some of them in my experience actually didn’t even think about. Because Iceland can also sometimes be very hierarchical culture where if your boss tells you, hey, buy all the shares on the market today, you’ll do in, it’s like, oh, my boss told me, you know, I’ll do that. So I think this is kind of a good template story for how these frauds go on. And, and I don’t know if I say this in the book, but the entire business of the of these banks, by the end, was perpetuating, perpetuating the buying of shares in the hiding of shares offshore. And they involved every department. And so, a lot of those people, I think, just just were just doing their job.

Gene Tunny  56:34

That’s how they see it. And so this was an important or this was an essential part of making the banks look much better than they were, and attracting the letting them borrow more from overseas, and then they lend that onto their, their friends or cronies. Okay, that’s

Jared Bibler  56:52

right. That’s yeah.

Gene Tunny  56:55

Yeah. Yeah. So the untold story of the world’s biggest con so. Yeah, I mean, that’s a big call world’s biggest con, but you, you’re confident it is. So you think

Jared Bibler  57:05

maybe it’s maybe it’s been outpaced now by crypto or, you know, but but certainly in the sense of a con that takes down a whole country. I think that scale definitely is still the biggest.

Gene Tunny  57:18

Yeah, yeah. It’s pretty extraordinary. Yeah. Okay, so, Jared, this terrific. It’s really, this conversation has really motivated me to finish the book and make sure I understand all the details as best I can. I think it’s yeah, it’s just extraordinary. What happened, I guess, to end on what do you think the lessons are for the rest of the world? I mean, we talked about how the, you know, you mentioned there could be a certain type of person who’s a white collar criminal, and there’s the quite brazen, I guess, you’ve got to look out for those people. I don’t know how you do that. I mean, you obviously need some sort of regulation. It sounds like the regulator in in Islan, Mae, it probably wasn’t doing the job it should have been doing beforehand. I mean, you discovered that you could actually go and visit these banks and force them hand over documents, which are was very good. So yeah, what are the lessons for the rest of us? Now for the rest of the world?

Jared Bibler  58:15

I think we need to. So this pattern keeps repeating. And my point with the book is that if you let this thing get out of control, it can take down your whole country, because our financial system is not just a playground of of, you know, Sam Backman, freetds and billionaires. But it’s also how we pay for things. It’s also how we save money. And we rely on it to it’s, you know, we take it for granted. But it’s kind of like the air we breathe in our daily lives to get to get groceries to, you know, buy a car or house, whatever. And so those two things, unfortunately, are connected. And the incentives for for having a system that that works well, and is not subject to gaming and collapse, I think are not. We have we have plenty of we have too many regulations probably, you know, we have a lot of people who spend their days checking boxes and things like that, both at regulators and within these institutions. But we haven’t really yet thought about what structure do we want the market? The markets to have? Markets are always created by us, you know, they’re not we, you know, people say, oh, you know, that let the market sorted out. But markets always have rules. You know, I used to work at the Swiss stock market here you have an opening time and closing time you have a cloud closing auction, how that works. I mean, you have the whole thing is rules. And we need to think more about as citizens I think we need to think more about what do we want our banking system to do, what are the outcomes we want? And then how can we best get those incentives, incentivized and I think and again, I’m biassed, but And this is very controversial, but I would like to see someone try this, I would like to see what happens in a country where the country’s regulator regulators would be incentivized to bring in the biggest cases they could, or prosecutors, right? Imagine, imagine if the incentives that bankers get, because if you do a $10 million, or $100 million deal, you get a piece of that as a as a bank employee, if you bring in that business, if I bring in which in Iceland, I brought in three, I don’t know, you can measure the cases different ways. But let’s just say conservatively, three $4 billion frauds. Each of the banks, for example, if you just take the last year, each of them spent about a billion US dollars or more just buying up their own shares on this tiny Icelandic stock market that you’d never heard of. Right. So but my team doesn’t get any, we don’t get any team dinners or anything for that, we just get a salary. So there’s actually, it’s even worse in most regulators. If you are someone like me, who’s a bit of a maverick, who wants to go after things, you don’t last, you won’t have a job, because that’s not the personality that anybody is looking for in those in those institutions, unfortunately. So we need to incentivize that we need to have the same type of risk taking and so on, on the regulation side that we have on the banking side, because otherwise you have a and the same thing with salaries. I mean, if you’re a great regulator, you know, you can always walk across the street to a bank and double your salary. So, so what’s going to make you you know, go after people at that bank or or look too deeply into anything you don’t. So the whole system is kind of really tilted. One one way. I don’t have all the answers to this, but I would really like to have this be in the conversation. And I suspect that after the next financial crisis, which I think is coming, I think it I hope, my hope with writing the book was to get this out there so that we could start to have that conversation. Because since 2008, we haven’t changed enough to keep that from happening again.

Gene Tunny  1:02:10

Yeah, absolutely. Fully agree with you there. Have been talking about this on my show from time to time, so absolutely, fully agree there. Okay, Jared, is there another book coming out anytime soon? I

Jared Bibler  1:02:23

have one but I’m, I’m not sure what I’m gonna do with it. But I’m working on one.

Gene Tunny  1:02:26

Okay. Okay, so

Jared Bibler  1:02:28

you keep that under? Yeah, under under wraps. It’s another secret, it might have secret in the title.

Gene Tunny  1:02:35

If they’re sick if they’re if I still don’t know, Iceland’s secret, I’ll put a segment at the end of this episode just for those who want to know, but I’ll encourage people to read the book. Because I think it’s an enjoyable read. And I love the all the stories and just how you learned about the issues in Iceland’s before the time before you saw teachers going by on buying trips overseas, people were importing BMWs and Mercedes while you are importing your rav4. Stories. Thank you, Jared. That’s, that’s great. Right. Any any final thoughts for wrap up?

Jared Bibler  1:03:13

No, I just really appreciate the time to talk to you. And that was it was lovely to be on your show. Very

Gene Tunny  1:03:20

good. Thanks, Jared. Thanks. Okay, I hope you enjoyed my chat with Jared. Thanks got pretty messed up in Iceland didn’t that. According to Jared, things aren’t much better today. Jared left his job at the regulator in late 2011. After there was a reduction in the resources he had to investigate the misdeeds of the bankers. Unfortunately, the response to Iceland’s financial crisis ended up being inadequate. Several wrongdoers were punished, but they received relatively light sentences and many bankers got away with it. In Jarrods opinion, the regulator’s still don’t have enough power in Iceland. Politicians were unwilling to make tough decisions and apply the level of oversight and enforcement that is required in Jarrods view. That’s possibly because of the close relationships between politicians and bankers and business people in Iceland. Iceland is still experiencing financial scandals. For example, in October 2023 Bjarni Bennett Dixon, a former Iceland Prime Minister, he had to resign as finance minister, there was an irregularity with the privatisation of one of the banks that was taken over by the government during the financial crisis. It turns out is a company owned by his father was one of the purchasers of shares in the bank that was, that was privatised, so that raised a few eyebrows. Okay, Mr. Bennett Dixon, he has a reputation for being a Teflon politician. Though and only a few days after resigning he was appointed as Iceland’s foreign minister. That’s an impressive comeback for sure. From what I can tell what Jared thinks is Iceland’s big secret is this ongoing permissiveness regarding dubious financial dealings. It could be a big secret in in many other countries too. So for those of us in Australia, the US, UK and elsewhere, we need to be vigilant and watch for any signs of financial shenanigans in our countries. Finally, I’d encourage you to pick up a copy of Gerrard’s book, Iceland secret. There’s a lot of fascinating and intricate detail about the various financial shenanigans that occurred in the lead up to Iceland’s financial crisis. Jared did a great job with his book, and I’m very grateful to have had him on the show. 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 at economics 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 outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Advertising & surveillance capitalism w/ John August – EP144

What does economics have to say about the huge amount of advertising directed at us everyday, much of it specifically targeted in this age of surveillance capitalism? Is it informative, manipulative, or something else? Should governments do anything about it and regulate advertisers and surveillance capitalists such as Google, Facebook, and other big tech companies? EP144 of Economics Explored features a frank and fearless conversation on advertising touching on surveillance capitalism with John August, Treasurer of the Pirate Party Australia. 

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 – John August

John August is the Treasurer of the Pirate Party Australia. John does computer support work in retail and shareholder communication. He is passionate about justice and ethics in our world, particularly as it plays out in law generally and intellectual property in particular. He has stood on behalf of the Pirate Party in the Federal seat of Bennelong and also as a Councillor for Ryde City Council.

Along with technology and law John is also interested in spoken word and poetry. He broadcasts on community radio and hosts the program “Roving Spotlight” on Tuesdays from noon-2pm on Radio Skid Row Marrickville Sydney, and writes about his ideas on the website You can keep up to date with what John is up to via his Facebook page

Links relevant to the conversation

Kyle Bagwell’s superb monograph on the economics of advertising:

Talk on the Age of Distraction John mentions:

Bureau of Meteorology Online Advertising Policy

New search engine which doesn’t serve you ads or track you:

EconTalk episode Gene mentions:

Sridhar Ramaswamy on Google, Search, and Neeva – Econlib

• Facebook ad revenue 2009-2020 | Statista

Chicago-School-type perspective on advertising:

Drop the opposition: Advertising benefits us all

Originator of the term positional goods:

Fred Hirsch – Social Limits to Growth

Thorsten Veblen’s classic of economics:

The Theory of the Leisure Class – Wikipedia

Episode 22 of the show on hipster antitrust: 

Antitrust & “Hipster Trustbusters” with Danielle Wood from Grattan (NB The show name has been change since then to avoid a clash with a popular YouTube channel)

Episode 21 of the show on surveillance capitalism:

Surveillance Capitalism with Darren Brady Nelson

Deloitte report for advertising industry body mentioned by Gene:

Advertising Pays | Deloitte Australia | Deloitte Access Economics, TMT, Communications

Hotelling’s paradox (or law) mentioned by John: 

Hotelling’s law – Wikipedia
“Hotelling’s law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible. This is also referred to as the principle of minimum differentiation as well as Hotelling’s linear city model.”

Links re. permission marketing:

Transcript of EP144: Advertising and surveillance capitalism w/ John August

N.B. This is a lightly edited version of a transcript originally created using the AI application 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…

John August  00:04

I’m thinking your Facebook running around saying, oh, you know, we want our customers to be happy and I’m thinking, no, we just cannot take their word for it. They have form; you just cannot take their word for it.

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 144, on Advertising and Surveillance Capitalism.

My guest this episode is John August, Treasurer of the Pirate Party Australia. This is John’s second appearance on the show. And you may recall he was on last month. I wouldn’t normally have someone on the show again so soon. But John was passing through Brisbane, and we both thought it would be great to catch up for a conversation.

In this episode, you’ll learn what Economics has to say about advertising. Alas, we can’t say that all advertising is informative. Some of it is informative for sure, and it is good for consumers. Some of it is complimentary, in that it augments products that we consume with social prestige, which is fair enough if you’re after that sort of thing. But some advertising is purely persuasive or manipulative, and arguably wasteful or have dubious social value.

What does this all mean for public policy? John and I discussed this in this episode. In the show notes, you can find relevant links, any clarifications, and you’ll also find details of how you can get in touch with any comments or suggestions. If there are topics you’d like me to cover on the show, then please get in touch and let me know. I’d really love to hear from you.

One clarification I need to make relates to the Chicago School view of Advertising. Chicago school economists historically were associated with the informative view, as I noted in the episode, but there were some Chicago economists, such as Gary Becker, who could be considered to have had the complimentary view. There’s a large economic literature on advertising. And in the show notes, you’ll find a link to a monograph by Stanford professor, Carl Bagwell, which brilliantly summarizes all of that literature. So, please check that out.

Right oh! Now for my conversation with John August on Advertising and Surveillance Capitalism. Thanks to my audio engineer, Josh Crotts, for his assistance in producing this episode. I hope you enjoy it.

John August, welcome back on to the programme.

John August  02:31

Yes, thank you, Gene. I’m actually live, rather than on the phone or zoom or whatever this time. So, there you go. I was passing through Brisbane and thought I would say hello. And here I am.

Gene Tunny  02:43

Yes, of course. It’s good to have you in my ad hoc studio here in Spring Hill, in Brisbane. I’m keen to chat about some of the issues that we’ve chatted about after and in before; various conversations.

I spoke with you on this show several weeks ago about the Pirate party’s economic policy platform. And then, we had a conversation on your radio show, Skid Row radio; Skid Row?

John August 

That’s correct.

Gene Tunny 

At Merryville in Sydney. One of the things you mentioned was that you’ve got some views on advertising. I thought this would be a good conversation to have, because I’m reasonably well; I have been familiar with the literature on advertising in the past, and it was good for the economic literature. And I was good to sort of, look back over that because there’s a big debate in Economics about just whether advertising is useful, or is it wasteful? To what extent is it? Is it socially beneficial? So, I’d like to have that conversation with you.

Would you be able to begin please, John. Just going through what your thoughts are on advertising? I mean, what’s your perspective on this? You appear to have some strong views on advertising?

John August  04:08

First off, I will say, there are some parts of advertising might be labelled as good, but I guess, in the world in which we live, it’s sort of dominated by, I guess, the bad end of advertising. And also, there’s some promises of advertising, which I guess don’t make sense when you look at it more carefully in terms of advertising being more emotionally manipulative, rather than it being informational.

But you know, with the Pirate Party, we celebrate the sovereignty of the individual. And you know, worry about people who are violating that sovereignty. So, the Pirate Party is also socially progressive in its way. I don’t think we’re like you know, the guy sitting on the veranda with a shotgun and the alligators in the moat, you know, that sort of thing. But we certainly sort of say, what is interfering with our ability to live out our everyday lives?

Now, there was a US gentleman, I think, who gave a talk, called the Age of Distraction; it was broadcasted on ABC Radio, national. I think was the Royal Society for the arts. And he was talking about just how many parts of our lives, there are now signs, you know, they’re signs that you go to the airport, there’re signs on your shopping trolley. Even in the US, there are schools that have report cards, and they’re putting advertising on the report cards.

Gene Tunny 


John August 

Yeah. This is a sort of thing that happens; obviously, let’s just say in the US, we all imagine, and it’s perhaps true that there are some excesses that happened in the US that wouldn’t happen elsewhere. But, you know, the comment this guy was making is that there used to be, the two classes; the wealthy who had a lot of freedom, and the less wealthy who didn’t. And now you have a situation where us plebs will go to the airport, and we’ll have all this advertising. But if you’re wealthy, you go to the Executive Lounge, where the luxury of the executive lounge is, you can sit there, you can make your choices, and not be advertised to.

And, you know, one of my fellows in the Pirate Party, he says that, compared to previous generations, we are one of the generations that have been shouted at the most, of any generation. And there’s a; I guess, the thing about the enclosures enclosing the land in the UK, and saying that the commons are being basically grabbed away from us, and claimed by corporations, because there’s the public square and certain, I guess, social understandings about us going out in the public square and being respectful, and that advertisers are not being respectful.

Now, I suppose I’m sort of thinking that there are; I will talk about what you might call the good advertising, which is actually a tiny part of the total advertising that we are subjected to. And people might say, oh, you know, this is exotic aberrant stuff. But I think, you know, your junk mail, your spam. I mean, that is the world in which we live in, it’s very artificial to partition that often say, Oh, well, that’s not the real economy, that’s people doing stupid things.

So, that is part of it. The fact that people are yelling at us, the fact that so much of our space has been taken over. Now, when I talk about the good end of advertising, classifieds, in the ideal, they are close to information, not manipulation. And that’s what you might call the good end of advertising. And the thing about what you might call good advertising is, it’s initiated by the consumer.

Now, let’s say, who knows? maybe there’s a local rag that’s pushed into your letterbox without your permission. So, there’s a very first step where something is pushed at you. But after that, if you engage with this material, you as a consumer are taking the initiative, and checking these things out as a personal choice. Now, 90% of advertising, I think of what we might loosely call the advertising is someone trying to get into your space, get in your face without your permission, right?

I agree that at one end, you do have advertising as the ideal of information, information that helps us make our choices. Classified, sort of, do that, to some degree when we go out on the internet. And I won’t mention any names. But let’s say websites by which you can sell stuff and you have made that choice, I want to buy something, I’m going to go to a website where you can buy stuff. You know, again, that’s the element of personal choice.

Now, some of these websites, do have relative monopoly power, right? So, they’re perhaps, abusing this situation in terms of being a monopoly. But they’re not abusing their situation in terms of getting into your face without your permission, or endorsement. So, there’s something going on there. But then, at the other end of the scale with advertising, it’s very emotionally manipulative.

The thing is, Mark Givens, one of my colleagues in the Pirate Party, he talks about, that a lot of advertising is trying to say that you are deficient in some way. And this thing that we’re selling will help you.

Now notice, if you are engaging with advertising, I mean, if you’re engaging with classifieds, you think I need this thing for my own reasons. I’m going to go out and find out how I might realize that, that’s cool. But, you know, Mark is saying, that we go out in the outside world, and it’s like, everyone’s taking a cheap shot at you. They’re trying to say how you are deficient and this product will help you.

There’s also in marketing, the idea that that’s the fear of missing out, they don’t say, look, maybe you have a problem, here’s what we have, maybe this will help. It’s a lot more doggedly, emotionally manipulative than that. And it’s trying to say, you know, if you don’t do these bad things will happen; you know, the fear of missing out. That’s more of the emotional leverage that is applied. Or maybe they’re saying that you’re deficient in some way, not sufficiently attractive, but, you know, consume this product and you will be attractive, you will be popular, you will be this.

You know, even some of the things that are a little bit less narky, like, go on, you deserve it. You know,  at least, that’s not trying to say that you’re negative or whatever. But you know, one of the amazing things is like, you can go through advertising and be sold messages that you’re in control. And yet, you’re not in control of the fact that you’re being exposed to the advertising that is being pressed on you.

But then, I think it was Galbraith, who was saying there are some fundamental contradictions with advertising and that the ideal of advertising is that, we have our desires, we go out into the marketplace, we’re exposed to advertising which informs us of our options for realizing our desires. But in fact, he says that a lot of advertising is actually about shaping our desires, not informing us of our possibilities for our desires.

Encapsulating the world in which we live, people are shouting as we never were before. Now, certainly, there’s some abuse of monopoly power, there’s weird stuff going on in the internet, attention becoming a contested commodity. And those are sort, of turning into perverse outcomes, because, okay, this is going one step removed from advertising as such, but people talk about clickbait. Okay, clickbait it’s a thing, but turn back the clock, two or three decades, and they were the page one headlines on the tabloids. And in a sense, what we’re experienced now with clickbait, it really has a precursor going back a few decades with the page one tabloid headlines to try to draw you in.

So, what we’re experiencing now with a technological version of the page, one tabloid headlines. So, also, I suppose, that’s advertising broadly speaking, there’s spam, there’s junk mail. And I think in Victoria, I think you can actually put up a ‘No Junk Mail’ sign in the letterbox and actually mean something in New South Wales that doesn’t have any legal teeth. And I do think a lot of government policy is a result of lobbying by vested interests. But yeah, my understanding is in Victoria, those signs mean something in New South Wales, they do not; I don’t know if this situation is in Queensland, but having control of yourself.

So, what I guess I’m trying to say is, there’s a little bit of advertising that might be legitimately said to be positive, but it is overwhelmed by the stuff that is outright dodgy, junk mail and spam, or emotionally manipulative, or basically getting in your face and yelling at you, where, you know, we’re being denied, I guess, that the public space is no longer a place where you can walk along and think and contemplate and reflect on life. It’s being polluted and tainted by all these impacts.

And, you know, the economy, in its regular under things, doesn’t respect these things, doesn’t value these things, doesn’t value sovereignty. Hopefully, eventually I’ll finish my sort of sentiment, but there are things where like, the bus shelters where I’m at; the council has made a contract with someone to maintain the bus shelters so that the bus shelters are advertising. And I personally would rather pay higher rates and have a better-quality environment around me. But again, one might say the councils are under financial pressure, and there’s all this crazy stuff going on.

Some people even say that your state governments push responsibility on the councils; people get used to it, then they withdraw the funding and the councils are left in a difficult situation. So, there’s all this whirlpool of things going on there. But also, the Bureau of Meteorology website; I mean, there’s all these tertiary websites, but I believe in going right to the Bureau of Meteorology and saying what do they think the weather is going to be? And strange to say for me, that is almost a spiritual experience. It is consulting an oracle, what is the future going to be? And I do actually say our Bureau of Meteorology, they get it right there; they’re not doing too badly. You know, I suppose politically, for one or two days, they’re not doing too badly. And it’s a spiritual experience, but they have advertising on their website. And again, I would rather pay more taxes and have my relationship with official government entities like the Bureau of Meteorology have that untainted.

Gene Tunny 

It doesn’t have advertising, does it?

John August

The Bureau of Meteorology website with weather does actually have advertising. I believe it certainly did a few years ago. I wonder if they got rid of it. But yeah, it got the Bureau of Meteorology; goodness me, now that I think about it. All right. I may be corrected there. I know, they did have advertising a few years ago. That, I can say without reservation. Maybe they’ve sort of, reformed themselves in the meantime because of public pressure. But certainly, they used to have.

Gene Tunny  15:39

That’s okay, yeah. But I generally agree with you. I mean, yeah, it’s probably good to go to the BLM website. And it’s good to be undistracted by that advertising. I just want to pick up on a few of those things that you talked about; the bus shelters, I don’t have a problem with advertising at bus shelters, I can tune that out.

The point about advertising being emotionally manipulative, yes, there is a large amount of advertising like that. And we’ve had that for decades, we’ve had that all along. I remember when I was in high school, Clearasil was a big advertiser. And the message there was, well, if you don’t use Clearasil, you’ll get acne and you’ll never get a girlfriend. There’ll be a loser. So that seems to that’s very emotionally manipulative advertising addressed at teenagers. So, you won’t get a girlfriend, you won’t get a boyfriend or whatever. You’re very emotionally manipulated.

What I think is, what’s really very concerning in the last decade or so is the rise of surveillance capitalism. Do you have any thoughts on that, John? Because they’re just following us all around the web, and they know what we’re looking at. And then they can direct targeted ads. And it’s really disconcerting to many people like that poor woman, who didn’t she get marketed some baby products, they guess that she was pregnant before, or target sent her a letter, and then a dad read the letter and thought, What’s going on here? Are you pregnant? Target guess she was pregnant based on the search history.

John August  17:15

Now, yes, I do remember some stories of people who are pregnant, and the web managed to figure that out before they were able to, based on the changes in their behavior. So certainly, that is something that is disconcerting. And one might argue that targeted advertising is more stuff that you might be interested in. So, I guess the advertisers will try to say, look, this is the positive aspect of it is that you’re being presented with stuff you might be interested in. But equally remember the thing I was saying about choice, if you want something and you go out there, that’s; I guess, maybe it’s not even advertising, but it’s a positive mode of interaction, I guess you would say.

And yes, you’re talking about, surveillance capitalism, about people knowing stuff about us. And sometimes we’re disconcerted by it, you know, when you’ve been doing some search history here and there, and then suddenly, there’s advertisements pop up for this and you say, Hang on, you know, you have been watching what I’ve been up to, haven’t you. And you know, it is disconcerting, and the fact that people are sort of tracking us. And invariably, you go to a website, and it says, you know, click on OK to get X Y, Z. And I guess you sort of feel obliged to click on that, but you’re leaving a digital footprint, people are sort of figuring out your identity. And I mean, there are creepy things like, you know, shades of Philip K Dick and, and those sorts of weird science fiction stories where they say, if they have 400, Facebook likes, they can predict your behavior better than you can. And, that’s getting really creepy when you contemplate those sorts of things. Because look, this is getting into weird shit psychology. But maybe we are just a bundle of drives that sort of, lurch in certain directions. And maybe that is the reality, but for advertisers to I guess, grab ahold of that and do something with it. That’s even worse than that being true, you know. So, that’s certainly bad surveillance capitalism.

The thing is, this has grown without us realizing it. I guess there are some people who are saying, look, people can gather data without cost. And you know, the permission is very low. And I suppose in a sense, yes, if we were more concerned about this, and pushed back against all this internet stuff that is monitoring us, that would be a better outcome. At least, you know, I can talk about it, you can talk about it, we can try to draw attention to it. But I think it’s the old cliche of the boiled frog phenomenon. And even I think some scientists have actually said that it’s a myth that the whole boiled frog thing, but certainly things have happened. So gradually, I think the thing is, corporations have got, let’s say, a lot more intellectual, willpower, or whatever you might say, more willpower than us to like coordinate a situation and sort of figure out how can we actually prompt people to do stuff to surrender their information so that we can do something with it. While we’re just individuals as it were wandering through life almost with our eyes shut sort of thing. And, you know, we’re facing these corporations that are incredibly well resourced compared to us as individuals. And there’s a very strong power disparity there in terms of being able to process and make use of information.

Anyway, to try to answer your question, it is a concern. If only more people were more concerned about it, that will be better. At some level, governments do occasionally push back against this sort of thing. Now, advertising, surveillance capitalism is part of it. But you know, the thing that I guess has been more controversial is, are the social media companies, basically damaging people psychologically, in pursuit of more eyeball’s hours? That’s been more of a concern at government level rather than surveillance capitalism and advertising. And that sort of, related thing to what we’re talking about here.

Gene Tunny  21:22

Well, some of the companies are doing this to get advertising out, though. So, Facebook, for example, I mean, Facebook earns, what is it? I mean, $115 Billion US in advertising each year. And it’s attracting people or it’s getting the eyeballs through emotional manipulation. Because it does better when people are, are agro or they’re emotionally; what was the word, aroused.

John August  21:50

There is an old maxim angry people click more?

Gene Tunny  21:54

Yeah, I can believe it.

John August  21:56

Or you might say, emotionally aroused, people click more. And I mean, it’s sad to say it’s become a blur. But I do remember seeing these interviews with high people in social media saying, yes, our algorithms were designed to basically increase emotional response so that people would be more engaged with the site and would be there more. And you know, it’s one of those things like, I guess, social media, Facebook communication can be a useful thing. But it’s easy to become addicted to it and become lost in it to the point where rather than you engaging with it on your own terms, it has started to control you and it is sort of basically, you know, you’re the puppet and they’re the puppeteer sort of thing.

Gene Tunny  22:41

Yeah. Right. So, I want to go back to some of the other points you raised. You raised quite a lot of things to pick up on. But now might be a good time to ask about whether there’s any regulatory response that’s required, you referred to the government, how it’s looking at whether there are impacts on mental health of social media, which I think is an important thing to investigate.

Would you propose any regulations for advertising given? You mentioned, you’re concerned about individual sovereignty, you’re thinking some of this advertising is compromising that. Is there a need for regulation in your view of advertising?

John August  23:28

Well, I suppose as far as; I will try to answer that. That’s sort of, a bit of a long-winded answer. But my ideal answer would be a citizenry that is more engaged with this. Not so much regulation of advertising, but an obligation for social media firms to be transparent in terms of the algorithms, how they work, and to provide obligatory access to academics who are researching these sorts of phenomena, and basically have a decent amount of energy in scrutinizing these social media firms and having some outputs that are tractable, transparent and can be found.

Now, let’s say one of the things with Brexit; I suppose this is part of the whole advertising thing, is that there were targeted advertising, going to people, you know, with Maxim’s like, immigration without assimilation is invasion; or these sorts of things. Those were some of the things that were posted to people on Facebook, funded by the pro Brexit groups, and it wasn’t transparent. Nobody knew about it, because if at least, there’s an offensive advertising in the newspaper, the newspapers probably ended up in the archive at the National Library or something. In a sense, yes, you can put out offensive advertising. And there’s, you know, advertising standards and whether you can get away with it, but assuming it goes out there, at least it’s on public record. And a lot of this social media manipulation that can actually be paid for is like, can go fly totally under the radar.

I suppose my first gut reaction is, let’s have things transparent, and hope that the citizenry react to that information. And the ability of social media to manipulate undermine mental health, at least is on the table, and is clear, because I’m thinking of Facebook running around saying, oh, you know, we want our customers to be happy. And I’m thinking, no, we just cannot take their word for it, they have form, you just cannot take their word for it.

As far as regulation of advertising goes, I’m not sure we should regulate advertising. Now put it this way, everybody loves to overload the school curriculum. And I suppose my own thing is, we shouldn’t regulate advertising. But maybe there would be a point to some government department, you know, making it known that there are problems and say, whether it’s ASIC or the ACCC, they do run around sort of saying, look, there’s a bubble here, investors beware.

Now, they don’t regulate things to the point where people can’t buy and sell things. But they will run an active PR campaign saying, look, X Y, Z is unhealthy, watch out, right? And so if you had something along the same lines coming out of government, not so much a hard regulation, but more a commentary on what’s going on, that is considered well resourced, by government, and he’s coming out there to sort of like compensate for the dodgy stuff going on in advertising. I guess that would be my ideal.

And also, I suppose it is a thing of having the information to encourage the public to be more aware and more concerned about these things, and it is interesting. I mean, here’s just one of the contradictions of advertising and manipulation, is that if somebody says, look, these people are saying falsehoods, in advertising, or the internet, or whatever, and it’s affecting us, and it’s horrible. And you sort of say, well, what about all the other lies being told about other people on the internet, but you’re only worried about the lies being told about you? You know, there’s a certain narrowness in that, you’re only offended by lies talked about you, you couldn’t give a toss about lies talked about other people. And there’s a perverse narrowness going on there.

I suppose I’m meandering a bit. There was a time I remember when the government was talking about consumer loyalty programs, at shopping centers and stuff like that. And saying, oh, you know, well, maybe you should actually look at prices all around. And who knows, maybe these are not the deal that you think they are. And the corporations by golly, they were pushing back against Ron, then the Consumer Affairs people were just making a casual observation.

But that is a strange thing; I do know, some people say, oh, whenever government makes a pronouncement, oh, you’ve got to be paranoid about them. Oh, they’ve got a vested interest. Oh, there’s so there’s this. But the other side of things is sometimes when government makes a pronouncement, it has authority to it. And people go oh, if they said that, Oh, that’s interesting. And how things play through is a complicated thing, which I haven’t understood yet.

But yeah, government pronouncements can be seized upon as being manipulative, or they can be endorsed. I mean, let’s say in Australia, I think it took the government decades, but, you know, they got people to wear seatbelts. They got people to put on a hat and put on sunscreen.

I do seem to remember there has been statistics done saying, we have actually reduced the amount of skin cancer in Australia as a result of those campaigns from decades ago. So, you can see some positives coming out of government information, I guess.

I think I’ve meandered quite a lot there. I’m not sure if I really answered your question.

Gene Tunny  29:31

I was just interested in whether you were proposing any regulation of advertising. I just don’t know how it would work. I mean, I’m generally a free market sort of guy. So, I wouldn’t be proposing anything. heavy handed. I was just interested if you at the Pirate Party had a position on it?

John August  29:51

I think sort of sentiments about truth in advertising. Maybe that would be a helpful thing to give some more energy to that; I’m willing to put some more energy to that. But notice, that’s not my first line of defense. It’s more a supplement to the other things I am talking about.

Gene Tunny  30:08

So, our Competition and Consumer Commission will go after companies if they are misleading the public, which is a good thing.

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

Female speaker  30:24

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Gene Tunny  30:53

Now back to the show.

Okay, so I want to go back to what you said about Galbraith and then just so I’ll remember, then I want to get on to what Economics has discovered or what the view of academic economists who are expert in this area is.

I might go to Galbraith, first. You mentioned Galbraith, so John Kenneth Galbraith, who was a very famous American economist; actually might have been Canadian. Yes, Canadian American economist, in the 20th century. He worked for FDR, he ran an agency on price administration during the war. He was a professor at Harvard. He was John Kennedy’s Ambassador to India, you know, did so many amazing things and had an incredible career. And he wrote a very influential and popular and well written, highly readable books. One of the few economists who could write for a popular audience; wrote that affluent society, 1958 or 59, basically contrasting how people were driving these impressive, beautiful Cadillacs on potholed roads.

John August  32:12

Yes, that’s private affluence, public squalor gated communities. You know, there was a whole thing?

Gene Tunny  32:19

Now, it was a very influential book. Galbraith, of course, is a liberal, he was an unashamed liberal and he was very closely associated with the Democratic Party. He wrote speeches for Jack Kennedy and also Lyndon Johnson, I think,

John August  32:39

Liberal by that US usage of the term anyway.

Gene Tunny  32:43

He wrote Lyndon Johnson’s Great Society speech, if I remember correctly.

Where am I going with that? Oh, Galbraith’s other book; that was, he considered his major work was the New Industrial state. Galbraith had this view that the era of what economists called perfect competition or traditional market competition, that was over and now you had the economy dominated by these giant corporations, and they were managing demand through advertising. So, just by buying ads on the TV, on the latest sitcom, or whatever it was, they could create demand for their products. So, he was arguing that the era of tooth and claw capitalism, that was over and we’re in this new industrial state, and companies were taken over by their managers.

The age of the entrepreneur and the capitalist of the past, the Vanderbilts, the Rockefellers, the Carnegie’s; that was over in his view. We’re in this new industrial state and advertising was part of managing demand.

He saw advertising in that role. Now, at the time, in Galbraith’s theories, I think he was perhaps writing about a particular period in history. I don’t think his views are very; they’re a good characterization of what’s going on today. To some extent, you can shape demand, and certainly companies are trying to do that. One of the categories of advertising that we’ll talk about later is, its persuasive. It is trying to manipulate demand, by trying to not necessarily informative but essentially, prey on your emotions. There’s no doubt about that.

I remember the time that there was a; well, I’ve read the debate later. Friedman was very critical of Galbraith’s views. He had that Chicago school that view that advertising is largely informative and that what Galbraith was saying wasn’t correct. In terms of the facts, because there were products that were launched, which were very heavily advertised, which failed.

The Edsel car from Ford being an example of that. So that’s what I remember about Galbraith’s view of advertising. Is that the same as what you remember, John?

John August  35:22

Well, I would, broadly speaking, agree with what you’re saying there. The qualifiers I will make is that neither of those two gentlemen were distinguishing between the classified mode of interaction as compared to stuff that’s getting into your face without permission. And, you know, the fact that there’s signs everywhere today in a way that was not the case decades ago. You know, I think that’s a sort of change. And I suppose, goodness me, I think you were saying Friedman, is that correct? Yes. For him to say that most of advertising is informative. I just shake my head at that.

I would certainly agree. Yes, some advertising is informative. But the pushback I will say is when we talk about the way, I guess, attention on the internet is contested. Now, look, the internet advertising is not the only game in town. And if I go down to the greengrocer and look at an apple and I buy it, well, there’s a lot of our guest consumer life that is totally separate to advertising. I’m not buying that Apple because I’ve been advertised to. There are so many things I purchase that I’ve not been advertised to and it really is an internal thing where I’m making this choice. Now when I’m at the supermarket, I might be scanning through the shelves, my mind is neutral. And I’ll be susceptible to you know, sign saying X Y Z is on special or this is this or this is this or this is that. So okay, so there’s elements where I’m susceptible to manipulation

The thing about advertising on the Internet, when I say it’s contested, there’s a lot of money. There’s a lot of smart people applying themselves to this. There are high paid jobs managing internet-based advertising. So yes, you know, there’s the local green grocer, and that part of the economy just rolls along. But what I’m trying to say is, there’s parts of the economy, which have a lot of money going through them, a lot of smart people applying their brains very actively. And that’s an indication there’s something going on here. Attention is becoming a contested commodity in some fields, and people spend a lot of money, time and energy, trying to attract that attention, trying to manage that attention. And so for me, that’s a more recent change that we have. But you know, yeah, sure, some advertising is informative. But, for Friedman to say most of it is informative, I just shake my head at that.

Yeah, that just seems so totally wrong to me. But look, you can probably tell some stories about certain advertising in certain contexts that is informative, I will agree. It’s not to say that there’s no informative advertising out there, it’s just saying that where a lot of the energy and action is, is in the manipulative advertising.

Gene Tunny  38:32

Oh, exactly. And I think it’s difficult to divide it up, to say, this percentage of advertising is manipulative, or what economic literature is called persuasive.

John August  38:44

Okay, sorry. Whatever on the persuasive, informative dichotomy, but there is spam and junk mail and so on, which obviously sits in its own category, it’s not so much manipulative is invasive, I guess you would say.

Gene Tunny  38:59

Oh, yeah. There’s quite a bit of that. The way economists have divided it up; I was looking at a monograph from Carl Bagwell, who’s a professor of Economics at Stanford, I think he was at Columbia, when he wrote this monograph on the Economics of Advertising. It’s very good, I’ll put a link in the show notes.

He talks about three different views of advertising that have distinct, positive versus normative implications. So, they have different implications for what actually goes on and what’s socially desirable, whether it’s socially desirable or not.

The first category is persuasive. And he writes; that was the dominant view in the first half of the 20th century. So advertising is creating spurious product differentiation is trying to create brand loyalty to alter people’s tastes. And so that’s one category and we might think of that as that manipulative category.

John August 

That Galbraith was perhaps talking about, yeah?

Gene Tunny 

Yeah, that’s right. So, let’s create a new consumer product and advertise it on the Brady Bunch or whatever. And we’ll just get in millions of American households to go and buy it, they’ll just automatically buy it because it’s been advertised. Even, you know, regardless of what the merits of the product, I want to come back to that in a minute, because I’ve got some thoughts on this concept because I think that that model of mass marketing advertising, I don’t think that’s as effective as it once was. And this is the point Seth Godin makes in his work. So, I want to come back to that.

The second category was informative, that’s the Chicago School view, I think Friedman held that view. I remember reading years ago, a monograph that Friedman wrote for the Institute of Economic Affairs, the Thatcherite, think tank in Britain on advertising; it was Friedman who wrote that.

I’ll see if I can find something that I can put in the show notes. But certainly, that that was the Chicago School view that advertising is pro-competitive. And, you know, it’s good for consumers.

There is a third category of; a third type of view of advertising, which is some advertising is complimentary. Now, with advertising, what you’re doing, it’s helping you purchase social prestige with your product, so some advertising is there so that not just you but everyone else in the world knows that. Okay, if you buy a Jaguar car or something, or if you buy a Cartier watch, then you have social prestige and so you’re buying those positional goods; I think yeah. That’s one way of thinking about it. I think that was Hirsh. I’m trying to remember who; There was also Veblen too. Oh, Veblen of course. Yes, I have to refresh my understanding of that.

John August  42:06

Nobody talked about vicarious consumption. And anyway, the Veblen; yeah, he had some really cute ideas.

Gene Tunny  42:11

That’s right; Theory of the Leisure Class.

John August  42:13

That’s right, yes. Theory of the Leisure Class. That’s a book that I’ve read. So, it’s quite a convoluted, tortured piece of work anyway.

Gene Tunny  42:20

I’ll try and put some links in the show notes to useful resources on Veblen and positional goods. I’m just struggling to remember the name of the economist to define those goods. Yes. So that’s complementary goods. And what Bagwell; what he writes, is that the evidence is strongly suggested no single view of advertising is valid in all settings. So, we’ve got this mixture of advertising.

John August  42:48

Notice, I’ve already said classified mode of information, initiated by the consumer good, and varying degrees of dubiousness sliding away from that. That is the duality that I’ve sort of identified.

Gene Tunny  43:04

But you know, what can we do really? I mean, we sort of have to accept that this is going to occur, because we’ve got a free market economy. And the alternative is worse if we don’t allow firms to innovate and to produce products and to try to sell them off. And, you know, advertising the best way they choose. I mean, there’s that old saying; I forget who it was. It was a CEO of some major corporation in the US that I know that 50% of my advertising doesn’t work. I just don’t know which 50%.

John August  43:38

Okay, all right. Now, you’ve actually got me thinking. I think, Sir Apolo, they actually banned billboards for some period of time. Where I would regulate advertising is to say, let’s keep it out of certain public domains. You can’t have signs in, let’s say, airports, you can’t have signs in train terminals or bus terminals. But you can have advertising in the internet, you can have advertising in newspapers, you can advertise in radio and TV. So, we’re not saying there’s no advertising, but we’re making sure there is a public space that is not susceptible to sensory overcrowding.

So, maybe that would be the regulation that I would endorse. We at least, see some spaces are advertising free. Not that there is no advertising, all the advertising that does exist is controlled and regulated. So, that would be a regulation I would be willing to do. In other words, to regulate to maintain the integrity of the public square.

Gene Tunny  44:52


John August  44:53

I think I’d be willing to endorse that sort of regulation.

Gene Tunny  44:57

So, you just have to make sure that you are able to make up the lost revenue somehow. Because I mean, a lot of these little train stations, I mean, the rail businesses, the government owned rail businesses, say Queensland Rail here in Brisbane, it will be using that advertising revenue to help deliver its services; to help pay for the rail services.

John August  45:20

Notice, I’ve actually said I would much rather pay higher rates and not have the advertising on the bus shelters. Admittedly, on the one hand, you might say this is a matter of personal taste, but it’s sort of like saying, we’ve got to start somewhere. And we’ve got to draw the line and say, look, this is where it stops.

But, you know, you guys can play in the sandpit over there, that’s not a problem, just not here. That’s the sort of delineation working. But equally, when you’re saying, look, the train stations need this revenue to get by on, maybe that’s telling us that there’s something out of balance with the economy that they need to do that. And I just look at just how much waste goes on in our economy that is just endemic. And its sort of like, people are very selective when they point out waste, I suppose.

Okay, going off on a bit of a tangent, we were talking about Georgism; the last discussion we had, and who knows, maybe we’ll build up on that. But let me tell you a little story. And I may have actually told you this the last time it was on the podcast, I’m not sure. But if the government does something that affects your property values, people will queue up to the government say, oh, how dare you? You’re damaging my property values. But if the government sets up a railway station moderately close to where you are, your property value skyrockets. I’ve yet to see a queue of guilt-ridden people at the tax office saying; ah, you’ve boosted my property values so much. Gosh, I feel so guilty. Here’s some of that. Right? So, somehow, that reminds me of that story.

Gene Tunny  47:12

Yeah. And that’s what motivates the Georgia’s to argue for greater use of land taxation. Exactly.

John August  47:20

And again, they call it user rent, because they think that tax is a dirty word. And oh my gosh, you know, some of these words just get so twisted and abused, but I call it land value taxation, and just say stuff it call it that.

Gene Tunny  47:35

Yeah. Okay. What I was talking about before, was just that, obviously, companies and, well, individuals or small businesses that are advertising, find value and if they’re spending the money, I know that Facebook advertising, or Google ads; that is really, super beneficial for people who are running some small businesses or bigger businesses.

I know, people in eCommerce who rely upon running huge amounts of Facebook ads for their eCommerce business, and you can work out, like, what’s your cost per click and what’s your cost per acquisition and work out the Economics of it. And if you’re making enough of a margin on your product, to pay for their Facebook ad, you just buy as many Facebook ads as you can. So, it can be very beneficial for many businesses.

John August  48:34

Paradoxically, notice; I want the public square to be pristine. I have less issue with Facebook doing advertising, as long as things are transparent, and they’re being held to account for any incidental psychological harm they do along the way. But notice, I don’t have any principle objection to Facebook or Google doing advertising. The other vague concern I have is maybe these guys are abusing monopoly power. Right? Now, the thing is, that’s, you might say, an accidental monopoly. It’s not that they’ve done anything dodgy along the way, they just got into the ground floor, and it’s just sort of, being an avalanche from that point.

So, they’ve got a relative monopoly not from being dodgy, but from just from getting in on the ground floor. And I’m a bit anxious about the fact that these guys have gotten monopoly power. Now, if there were some way just like you have land value taxation, some way of living in Google or Facebook, a special tax decreases your monopoly where you would identify the monopoly privilege and say, we’re going to charge you guys because you got the monopoly privilege. That might go a little bit of the way towards that.

As long as Facebook are being held to account for site incidental psychological harm, they can advertise as they like. The concern is there abuse of monopoly power; maybe there are things you can do about that. But notice, I’ve actually endorsed that advertising in that context because Facebook are providing that platform. It’s fair enough that they do that.

Gene Tunny  50:13

Yeah. Well, okay, so I’m unsure how governments will be able to hold Facebook accountable for the psychological harm. I don’t think they’re doing that. At the moment. I mean, I’ve got big concerns about well, Instagram in particular, and what that means for teenage girls. Now, with the monopoly power, you could liken it or compare it to a natural monopoly, so a public utility. Now, these companies, Google and Facebook, they’ve got; they will argue that competition is just a click away. But they’ve got all of these users who, well, they’re just so familiar with the platform. And Google’s got relationships with the browser’s; it’s got its own browser, Chrome. And if you go into the search bar, it’s automatic to Google search.

John August  51:00

I will just shake my head and say, that’s a totally nebulous claim that Facebook and Google are subject to competition. I just shake

Gene Tunny  51:07

Oh, yeah. But that’s what they will argue. And this is a point that was made on the latest episode of Econ talk. Ross Roberts show; he had SRIDHAR RAMASWAMY, who was a former Google Exec. He’s on Roberts latest episode, and he set up his own search engine, which is, is it Nera or Neva? I’ve written it down, but I can’t read my own writing in the notes. I’ll put the correct title in the show notes. But that’s supposed to be a search engine you can use without them tracking you.

John August 

I think DuckDuckGo is also in that category.

Gene Tunny 

It’s a search engine where they don’t track you or serve up targeted ads. But the problem that he said, that he’s got, and if you’re listening in the audience, and you’re interested in these issues, and absolutely, please check out the latest episode at Econ talk, I listened to it this morning. It’s really good. He was saying that the problem is that if you go into your browser and you open up a new tab, you will automatically do a Google search. You can’t program that browser, or at least Chrome or Safari. I think he was saying to have it automatically do a DuckDuckGo or, or on his search engine. So, he said there’s that barrier. And you know, there’s the fact that if you’re on Facebook, or your friends are on Facebook, or you’re signed up to all of these community groups on Facebook; how are you going to leave? Right, you almost locked in?

John August  52:40

Well, I’ve noticed, be it Facebook or particularly Twitter; you know, Facebook is forever saying, you know, don’t you want to be a member of this group, or have this friend or whatever. And I guess Twitter is doing the same thing. And I look at these suggestions saying, How do I remember have enough groups already? I can barely deal with a number I have, and you’re trying to get me to join more?

And the same goes with Twitter. Of course, Twitter’s getting quite obnoxious in that, you might have these people you’re following. And then Twitter hits you with all this stuff from people you’re not following.

Gene Tunny  53:17

I was just trying to make the point about these companies that if you think of them as almost as natural monopolies; I think this is where the hipster antitrust people are going. I had a chat with Danielle Wood from Grattan Institute, about this whole idea of hipster antitrust, a couple of years ago now, I’ll put a link in the show notes. But you could think about economic regulation of these companies.

I mean, I’m not necessarily advocating for that now, but I think it’s worth investigating and think thinking about that you could regulate the rate of return that they can earn. Now, Google and Facebook are just earning huge amounts of advertising revenue.

John August 

My suggestion would be okay, they have the regular tax on their profits, which is just like any other corporation, but they also have a special levy because they’re a monopoly and how we actually figure out how large that monopoly levy would be, I wouldn’t know but you’re kind of a smart man to figure it out. But you understand the conception of saying we accept these guys, we accept them monopoly. I don’t think you can meaningfully break it up or regulate with a forced fist as it were, but you could at least, identify the nature of that monopoly and what its consequences are and have an additional levy based on that.,

Gene Tunny  54:53

Yeah. So, in utility regulation, what typically gets done is that, they’re allowed to recover their costs that are prudent; their prudent costs, and they’re then allowed to earn a return on their capital invested. So a weighted average cost of capital. I don’t know how you do that with Google or Facebook. But, look, I mean, I think given that the market power that they have, there is certainly legitimate debate about, what should be done with regards to these big companies that are involved in surveillance capitalism.

I’ve had a chat with Darren Nelson, a frequent guest on this podcast about that in the past. I’ll put a link in the show notes.

I’ll probably have to start wrapping up, just a couple more things.

On the benefits or the purported benefits of advertising. I mentioned that big companies and smaller companies, smaller businesses are spending huge amounts of money on advertising. So presumably, some of it is effective. There’s that question of effectiveness to them versus, how valuable it is for the wider community. Of course, we’ve talked about that. Some advertising can be wasteful or manipulative.

But Deloitte Access Economics, which is an Australian economic consulting firm; it did some work for the advertising industry body, back in 2016. Advertising Pays was the report, I’ll put a link in the show notes. They only published the executive summary; you can only get that online. I haven’t been able to interrogate their methodology just to get a sense of how robust these numbers are. But they claimed that they estimated $40 billion of benefits from advertising. So, there was $13 billion of total spending, 2014 on advertising in Australia, they argue that it promotes competition and lower prices for consumers. That’s a Chicago School view really, that it increases innovation and market efficiency, it supports jobs, it employs 56,000 people directly; this is in the in Australia. You’d probably 10x that or more, for the US. And then for every person directly employed, you’ve got another person indirectly employed in the supply chain. And that’s upstream of advertising.

But then you’ve got downstream in the industries that advertising is advertising for. You’ve got another 100,000. So, Deloitte did this piece, where they’re saying how wonderful advertising is, I think it should have had that broader analysis because when I read the literature, my reading of the economic literature is I’d be a bit more careful in describing the benefits of it.

John August  57:47

Okay, well. Have you heard of Hoteling’s Paradox? There’s also a story that, in the US; first off, I don’t particularly endorse tobacco smoking or whatever, apart from it being I guess, an element of personal freedom, if you’re not affecting anybody else and have private health insurance, yeah. But park that to one side.

The story is in the US, when the US government said there will be no cigarette advertising. The actual profits of the cigarette companies went up, because they were advertising. And they were basically vigorously competing over market share. They were not either informing the consumers or to some degree, getting new smokers on board. Clearly, if they have no new smokers on board, you might have downstream effects as fewer people are smoking sort of thing. But in the short term, the profitability and revenue; I guess revenue wouldn’t have gone up. But certainly, the profitability of those cigarette companies went up because a lot of their advertising was just squabbling over market share, rather than doing any of the things that are normally attributed to advertising.

And we can also say the same perhaps of advertising around electricity, utilities, or mobile phone plans, or whatever. But a certain amount of that advertising is basically squabbling over market share. I could do some game theory calculations and figure out what the equilibrium is, I’d like to think I keep my head around that mathematics. But the thing is, that particular study didn’t identify what you might call the wasteful advertising, which is just related to squabbling over market share, right? Look, some advertising may well give us information, may inform our choices and so on. But I still say, why can’t we rely on the consumer to act off on their own initiative and initiate the certs themselves and figure out what’s going on? How much of advertising is like basically, pushing stuff on to the consumer, or, as it were the consumer presses about, and they get the advertising coming at them. And I know you’re talking about Seth; what’s his last name? Seth Godin, who was talking about permission marketing in the sense that, you only pursue the person if they have reciprocated. And then you give them more information.

So, in its own way, you might say that slightly more ethical, but the initial contact may well be someone getting into your face without your permission. Still, I guess, in its own way, a slightly more ethical way of relating to the concept.

Gene Tunny  1:00:35

Yeah, I think Seth Godin’s main point is that you want them coming to you, you need to ask for permission. You need to earn their trust, and then, that people will receive your messages.

The approach he takes is a good example, because he has his blog; he’s got his daily blog, and I’ve been reading it for years. And so, you’re getting all this quality information from him; quality content, he’s got a podcast. And then, every now and then he will say, well, if you’re interested in learning more about marketing or about podcasting, do my course on his akimbo platform. And that’s actually how I got into podcasting, because I did Seth Godin’s, podcasting course.

Seth was only a small part of that; I think he recorded a few lessons, and then he’d occasionally be on the chat. And he’d respond to some people’s messages. But it was run by one of his colleagues, Alex DiPalma really great course.

I think he is a great example of how that permission marketing works. It’s, it’s earning trust, it’s enrolling people as he describes it.

John August  1:01:53

Well, I guess I wouldn’t, broadly speaking, I’d endorse that sentiment. I worry about how the initial contact is made. It’s sort of like saying, if someone gets in touch with you have their own accord, how do you deal with that strategically? That’s legitimate, okay?

I guess yes, I’d endorse that element of marketing. But I guess that’s a few steps removed from the issues that we’re debating here.

Gene Tunny  1:02:22

Yeah, okay. So, final point, you made the point about the competition for market share, which is a very good point. And the empirical evidence supports that. So, Kyle Bagwell, in his monograph on advertising that I’ll link to in the show notes, he talks about a major study in the 70s in the US, which essentially show that look, advertising does increase sales and market share. But it does for particular businesses and advertise, but it doesn’t appear to increase title sales for that product group or so, it just reallocates.

John August  1:03:07

Well, in that case, you can say that if all you’re doing is increasing market share, that’s not a social good to the economy as a whole. It’s just shuffling deck chairs on the Titanic as it were.

Gene Tunny  1:03:18

Yeah. So, to the extent that that was persuasive advertising rather than informative advertising. If it was informative, and you were informing consumers that, our product is subtly different, or it has this feature that that other product doesn’t. And that’s why market share shifts, and that could be socially beneficial, because people do get a better product.

John August  1:03:41

Except that if they’re, let’s say, significant, real points of difference that you’re drawing attention to. All right, fair enough. I’ll go along with that.

Gene Tunny  1:03:50

Yeah. And so the conclusion was from that study, I think this is how Bagwell described it is that advertising is combative. So yeah, I think there’s a lot of truth to that idea that much of advertising is just about companies competing over market share. And to the extent that they get the market share for spurious reasons, then that could be wasteful.

John August  1:04:13

Oh yes. Well, the other thing is, this is a few steps removed from advertising. But, you know, with customer plans around utilities, it’s possible that rather than competing over service, they’re competing over their ability to befuddle customers and make them think that they’ve got a good deal when the plan is just so complicated, that they’d never make sense of it, unless they, you know, did a very detailed spreadsheet and work things through bit by bit. So yeah, I think there’s also competition to the befuddle the consumer rather than actually deliver something useful.

There’re many things that are rattling around in my head. I only just want;

Gene Tunny  1:04:51

That’s okay. I might conclude with what Kyle Bagwell concluded in his study, essentially saying, we can categorize different types of advertising. So, we know some of its wasteful, we know some of its useful. But beyond that, it’s hard to say, you know, how much is, is useful, how much is wasteful. He concluded that; well, much has been learned, the economic implications of advertising are subtle and controversial. And many of the most important questions remain unresolved. So that was in 2005, he wrote that and I think it’s still the case. And yeah, we still got all the manipulative advertising, we’ve now got surveillance capitalism, and we’ve got Google and Facebook earning a huge chunk of the total advertising spend just because of their near or, well, I wouldn’t say that the I mean, potentially, there could be a competitor that comes along and challenges them. But I think they’re close enough. They’re very close to being a monopoly in in their areas at the moment. And they’re just earning a huge amount of that revenue. And that’s something that arguably should be addressed.

John August, any final thoughts?

John August  1:06:17

Okay, well, the final thought, I guess, that I have been boiling away and inside of me that I guess has been hinted at a lot of what I’ve said is that, if we’re talking about respecting our integrity, the sovereignty of the human being, that’s something that I think does sit outside of our calculations of costs and benefits and so on, you know, fundamentally, we want to respect the sovereignty of the human being, once we’ve ticked that box, then we worry about where to go from there. And we may have good advertising or bad advertising or whatever. But I think respect for the individual sits to some degree outside of all this economic argument.

Gene Tunny  1:06:59

Yes, I think that’s right. That’s a normative issue. So, yes. I should point out that; this is a different concept. There is a concept in Economics, called consumer sovereignty. I don’t know if you’re aware of that concept. The idea is that consumers are sovereign, and they’re rational, and they choose what’s in their best interest. And in a way, the power of advertising, the manipulative power of advertising, the fact that we all ended up being persuaded to buy a product that we ended up having buyer’s remorse, we made border for the wrong reason. And you could argue that whole assumption of consumer sovereignty, isn’t that solid.

John August  1:07:47

Okay, well, hopefully this doesn’t take us down another rabbit hole. But do we say that someone becomes addicted to heroin through their informed engagement with the market? I think the answer is no. What if we’re struggling to lose weight, and we want to lose weight, but we’re advertised all the sweets and things where we succumb to them on a day-by-day basis.

So, my endorsement of the sovereignty of the individual is a little bit complicated. I acknowledge our faults and our failings, but emphasize that if advertisers are strategically taking advantage of our psychological thoughts, that’s even worse than us having them in the first place.

Gene Tunny  1:08:32

Yeah, okay. I think that’s a fair point to end on. John August, thanks so much for dropping by my ad-hoc podcasting studio on your road trip. It’s been a great pleasure. I really value your insights and having a frank and fearless conversation about these important economic and social issues. So, thanks so much.

John August  1:09:00

Oh, thank you. It’s developed my own thinking too. So, I wonder if we should put the energy into making policy changes here when there’s so many other fish to fry, but hey, it’s interesting to think about.

Gene Tunny  1:09:12

Very good. Okay. Thank you, John. Okay, thanks, Gene.

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 and we’ll aim to address them in a future episode. Thanks for listening, till next week, goodbye.


Big thanks to EP144 guest John August and to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Podcast episode

EP65 – Behavioural Finance with Dr Tracey West

The latest episode of my Economics Explored podcast considers the emerging field of behavioural finance, which is basically the application of behavioural economics to finance. It considers lessons from this field for households, investors, and governments. The episode features an interview I conducted earlier this week with Dr Tracey West of the Griffith Business School.

Tracey teaches behavioural finance to undergraduates and postgraduates at Griffith’s Gold Coast (Queensland, Australia) campus. She’s also an active commentator on economic policy issues. For instance, last year, Tracey wrote an excellent Conversation article on 3 lessons from behavioural economics Bill Shorten’s Labor Party forgot about, three lessons which Tracey and I consider in our conversation. Those lessons are:

1. People are loss averse

2. Limited decision-making

3. Now is worth more than later (and much more so than economists would typically assume using typical discount rates).

Tracey and I had a great discussion about behavioural finance theory and practice, including the need for regulation of financial markets and investments. The Storm Financial collapse, which wrecked the finances of many North Queenslanders, was given as an example illustrating the need for regulation of financial investments. I hope you enjoy our conversation. A transcript is available via my business website.

Links relevant to the conversation include:

Tracey’s LinkedIn profile

Tracey’s academic publications via Google Scholar

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