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Podcast episode

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

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

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

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

Timestamps for EP269

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

Takeaways

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

Links relevant to the conversation

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

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

The previous episode with Darren:

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

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

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

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

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

Alfred Kahn’s Economics of Regulation:

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

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

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

Gene Tunny  00:00

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

Darren Brady Nelson  00:55

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

Gene Tunny  00:58

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

Darren Brady Nelson  01:08

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

Gene Tunny  01:12

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

Darren Brady Nelson  02:30

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

Gene Tunny  05:01

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

Darren Brady Nelson  06:19

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

Gene Tunny  06:23

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

Darren Brady Nelson  06:49

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

Gene Tunny  06:52

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

Darren Brady Nelson  07:16

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

Gene Tunny  07:48

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

Darren Brady Nelson  07:55

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

Gene Tunny  08:39

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

Darren Brady Nelson  09:39

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

Gene Tunny  11:11

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

Darren Brady Nelson  11:15

was the textbook, basically. And that feel,

Gene Tunny  11:19

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

Darren Brady Nelson  11:24

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

Gene Tunny  11:53

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

Darren Brady Nelson  12:26

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

Gene Tunny  12:37

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

Darren Brady Nelson  13:14

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

Gene Tunny  14:32

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

Darren Brady Nelson  14:47

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

Gene Tunny  19:01

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

Darren Brady Nelson  19:05

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

Gene Tunny  22:25

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

Darren Brady Nelson  23:03

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

Gene Tunny  24:39

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

Darren Brady Nelson  24:42

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

Gene Tunny  26:36

pints with Aquinas. Oh yes, yes. It

Darren Brady Nelson  26:38

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

Gene Tunny  28:08

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

Darren Brady Nelson  28:58

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

Gene Tunny  30:21

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

Darren Brady Nelson  32:07

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

Gene Tunny  34:43

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

Darren Brady Nelson  34:47

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

Gene Tunny  34:59

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

Darren Brady Nelson  35:11

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

Gene Tunny  35:35

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

Darren Brady Nelson  35:43

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

Gene Tunny  36:00

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

Darren Brady Nelson  36:49

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

Gene Tunny  39:27

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

Darren Brady Nelson  39:34

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

Gene Tunny  43:29

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

Darren Brady Nelson  43:48

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

Gene Tunny  43:52

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

Darren Brady Nelson  44:03

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

Gene Tunny  44:22

right. Okay, gotcha, yeah,

Darren Brady Nelson  44:26

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

Gene Tunny  44:53

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

Darren Brady Nelson  45:02

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

Gene Tunny  46:15

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

Darren Brady Nelson  46:42

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

Gene Tunny  47:57

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

Darren Brady Nelson  48:46

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

Gene Tunny  50:34

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

Darren Brady Nelson  50:56

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

Gene Tunny  51:28

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

Darren Brady Nelson  51:34

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

Gene Tunny  52:50

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

Darren Brady Nelson  52:57

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

Gene Tunny  53:48

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

Darren Brady Nelson  54:21

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

Gene Tunny  55:10

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

Darren Brady Nelson  55:15

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

Gene Tunny  55:50

for water infrastructure or electricity infrastructure, if

Darren Brady Nelson  55:55

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

Gene Tunny  56:55

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

Darren Brady Nelson  58:23

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

Gene Tunny  59:26

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

Darren Brady Nelson  59:43

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

Gene Tunny  1:00:00

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

Darren Brady Nelson  1:00:38

Thank you for having me.

Credits

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

Categories
Podcast episode

Navigating Volatile Crypto Markets & Avoiding Scams w/ Ben Simpson, Collective Shift – EP249

Ben Simpson, founder of Collective Shift, a crypto education and research company, shares valuable insights into the volatile world of cryptocurrency. Because the crypto field is filled with misinformation and scams, Ben emphasises the need for comprehensive education and reliable research before making investment decisions. He emphasises the importance of understanding the risks and potential of Bitcoin and other digital assets. He also discusses the regulatory landscape in Australia and the disruptive potential of decentralised finance (DeFi). NB This podcast episode contains general information only and should not be considered financial or investment advice.

If you have any questions, comments, or suggestions, please email us at contact@economicsexplored.com  or send a voice message via https://www.speakpipe.com/economicsexplored

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

What’s covered in EP249

  • Introduction. (0:00)
  • Crypto market volatility and how to navigate it. (1:40)
  • Bitcoin as a digital gold with potential for long-term growth. (6:54)
  • Crypto regulation, tax treatment, and education. (12:21)
  • Investing in cryptocurrency, avoiding scams, and seeking professional help. (16:44)
  • Bitcoin ETFs and investment options in Australia. (21:06)
  • Crypto market volatility, correlation with the stock market, and investment strategies. (25:20)
  • Crypto investing and decentralised finance with Ben Simpson. (31:03)

Takeaways

  1. Understanding Crypto Volatility: Cryptocurrency markets, especially Bitcoin, are highly volatile. Investors must be prepared for significant price swings and understand the underlying factors driving these fluctuations.
  2. Importance of Education: The crypto space is filled with misinformation and scams. Ben emphasises the need for comprehensive education and reliable research before making investment decisions.
  3. Regulatory Landscape: The regulatory environment for cryptocurrencies, particularly in Australia, is still evolving. While Bitcoin and Ethereum are generally considered safe from a regulatory standpoint, many other cryptocurrencies could face challenges.
  4. Decentralised Finance (DeFi): DeFi has the potential to disrupt traditional banking by offering financial services without intermediaries. This space is growing and may offer exciting opportunities for investors.
  5. Safe Investing Strategies: Ben advises new investors to start with Bitcoin and be cautious of lesser-known cryptocurrencies, many of which may lack real value and be risky investments.

Links relevant to the conversation

Collective Shift: https://collectiveshift.io/ 

Ben’s YouTube channel: https://www.youtube.com/@BenCollectiveShift 

Ben and Bergs podcast: https://open.spotify.com/show/5xir3V8fvtmHTAQy2D9dQd 

Transcript: Navigating Volatile Crypto Markets & Avoiding Scams w/ Ben Simpson, Collective Shift – EP249

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

Gene Tunny  00:00

Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello. Thanks for tuning in to the show. In this episode, we sit down with Ben Simpson, the founder of collective shift, a leading crypto education and research company in Australia, Ben shares his wealth of experience in navigating the volatile and often chaotic world of cryptocurrency investing. One of the key takeaways from our conversation is the importance of understanding the inherent volatility of the crypto market. Ben discusses the volatility of crypto markets, explaining why assets like Bitcoin can see dramatic price swings. He also touches on the regulatory landscape in Australia and the importance of having clear guidelines to protect investors. Ben emphasizes the need for comprehensive education and guidance as the crypto space is rife with misinformation and scams that can easily trap unwary investors. Finally, Ben shares his insights on the disruptive potential of decentralized finance. Defi, righto, let’s get into the episode. I hope you enjoy it. Ben Simpson from collective shift, welcome to the program.

Ben Simpson  01:39

Thanks so much, so much for having me. It’s good to be here.

Gene Tunny  01:41

Yes, it’s excellent. Ben, so you’ve been doing some fascinating things with collective shift. Could you tell us a bit about which you’re the founder of? Could you tell us a bit about collective shift, please? What is it that you’re that you’re offering?

Ben Simpson  01:55

Yes, I’ve been full time investing into the crypto space for seven or eight years, and it’s a very messy, chaotic industry, lot of misinformation, lot of bad people in the space. It’s just very difficult to get clarity on what’s going on actually when you invest in crypto. So when I first started out, I personally didn’t really know what what was going on. Took me a lot of time to figure out blockchain and Bitcoin and Ethereum and just all these terminologies and what it all meant. And I started working with someone in the education space to help people with crypto and eventually, I started my own thing about four years ago. And you know what we built now is we’re the largest independent education and research company in Australia. We have over 1000 paying clients around the world that pay us for crypto investment research and sort of advice. And then also we provide research and content to the crypto exchanges here in Australia. So those coin spot, Swift X, those are buy and sell cryptocurrency for like for retail customers, we provide them with some of their content research as well. So yeah, we’ve got a team about 10 full time now here in Australia. And yeah, we’ve been around for about four years. And my my mission is just to help people try and navigate their way through crypto the right way. Because I know I’ve been burned in the past in a space it’s very easy to lose money and be led down the wrong path. So we’re trying to just help people the right way, right?

Gene Tunny  03:19

Okay, and you mentioned that you were concerned about some of the misinformation in the in crypto, what, what type of things we we are you thinking of? It’s just

Ben Simpson  03:29

a lot. So in cryptocurrency, there’s 1000s and 1000s of different cryptocurrencies right now. So like, if you think about the stock market, there’s basically that equivalent in crypto, but a an endless amount of cryptocurrency projects you could buy, and my opinion is 95 to 98% of them are worthless, like they’re just built on, you know, community and, you know, FOMO, and you know, they don’t have a lot of underlying real value. And a lot of people get sucked into these projects, buying them with the hope of making a lot of money because they provide these crazy marketing guarantees and returns and all these sorts of things that people get sucked into and ultimately lose money. So that’s really where we’re trying to help guide people, from an education standpoint, where to invest. And then ultimately, cryptocurrency is extremely volatile, and it can be hard for someone to stomach the risk that comes along with crypto, Bitcoin on its journey from, you know, a few $100 to today, 55, 60,000 US dollars has gone up and down hundreds of times, you know, more than 10% and sometimes it goes down 4050, 60% in a period of days or weeks, which can be very concerning for a lot of people, because you don’t get that in the stock market right. If two or 3% in a day is kind of big in crypto, you could see 1020, 30% moves in a day. So we try and just help people understand why that happens, how to have the mindset and understanding of where the market’s going and not panic and and ultimately, try and, you know, not lose money. Yeah,

Gene Tunny  05:00

gotcha. Okay, there’s a few things I wouldn’t mind following up there. Ben, so, I mean, there’s the issue of, I mean, why does this happen? Why is crypto subject to such wild swings? Why is it so volatile? For one, could we start there, please? Yeah, let’s

Ben Simpson  05:18

start there. So one common thing that some people don’t know is that cryptocurrency trades 24/7 right when the stock market opened, has opened, open and closed times at Monday to Friday, cryptocurrency trades 24/7 and what we saw, you know, in the last few days in Japan, you know, Japan saw one of his worst days since the 1980s in the stock market. Recently, I think it dropped seven or 10% in a day, they hold to trading. You they literally just withdrew the sell button. You can’t sell anymore, right? In cryptocurrency, that that’s not, that’s not a thing. You can’t just hold trading in crypto, right? This is a free market. There’s no one, there’s no intermediary to stop what you’re doing. So it’s a free market. And ultimately, people you know, have emotions they fear, and if they’re going to sell, they’re going to sell. And in cryptocurrency, because the market caps of these projects are relatively small, you get these liquidation events, and what happens is basically these cascading effects of traders get liquidated, whales get liquidated, retail investors then panic, and then you get these huge fluctuations. So there’s a lot of different variables, but ultimately, it’s a free market. No one’s manipulating it from a, you know, intermediary perspective, and if people are scared, they’re going to sell. And it happens pretty quickly, right?

Gene Tunny  06:27

Okay, now, if you’re getting into this market, I mean, if you’re interested in crypto, do you, do you provide some guiding principles, or do you identify red flags. Can you tell us a bit about what new investors should be looking out for?

Ben Simpson  06:45

Yeah, so if I have a new investor that comes to me and wants to figure out how to create an investment portfolio, I really, I really try and recommend that they start off with just Bitcoin. It’s really important to understand that Bitcoin is the biggest, most leading cryptocurrency. It’s the most well known. Then there’s 1000s of other cryptocurrencies after that, right? So it’s important to differentiate Bitcoin from cryptocurrency, because Bitcoin is a cryptocurrency, but bitcoin is its own separate thing, and that’s the way I look at it. So I usually start off by just looking at Bitcoin, and Bitcoin, ultimately, for me, should, or for others, should be looked at as a hedge against, you know, your overall investment portfolio, right? It’s not correlated to stocks or the property market or bonds. It’s ultimately a completely separate asset that is in its own area. And I would probably think even only 1% of your entire net wealth into Bitcoin, I think is a pretty good good idea, just in terms of its risk to reward ratio. So the reward being potentially, if it pulls off what it’s trying to achieve. In terms of the global monetary asset, the price returns are quite or the projections are quite large, where the risk is quite minimal, in a sense of it’s been around for 10 or 12 years. It’s now got its own ETF, which was the one of the largest ETF launches in history. It’s owned by a lot of NASDAQ listed companies. You know, it’s owned by governments on their balance sheet. So, like, the risk of Bitcoin now is far, far, far less than what it has been in the past and where we think it could go. I think everyone should consider it in terms of just, even only a little

Gene Tunny  08:21

bit. Right? Okay, so in terms of where you think it can go. I mean, you, are you thinking Bitcoin to a million? I think was that? Was that Kathy Wood, did she have that prediction? I mean, is that? Is that serious or credible?

Ben Simpson  08:35

I mean, look, you know, who knows is really the answer gene like, you know, who knows where this could go? The biggest thing that I think is the most important thing to understand with Bitcoin is it’s a limited supply asset. There’s only 21 million Bitcoin that ever be created. And the supply and demand economics, as we’ve seen recently, there’s more demand for Bitcoin that there is supply, right? And just basic supply and demand economics is showing us that if you get a lot of people wanting an asset, and there’s very few, there’s very few of it, you know, the price, you know, goes up over time. Do I think you get to a million dollars? I do think you can get there at some stage. Maybe, you know, it’s probably gonna take 1020, 30 years to get there. But for me, Bitcoin compound has been compounding at 60% year over year for the last 10 years. It’s up 75% of the last 12 months. It’s one of the best performing assets on the planet. For me, I think it’s one of the best investments you can own.

Gene Tunny  09:29

Right? Okay, and what’s your what’s your theory or like, Why do you think that there is this underlying value? Because there is a lot of skepticism about cryptocurrency, particularly from economists, and there’s all sorts of concerns about regulatory risk. I mean, you pointed to the fact that, okay, it’s been held. You know, certainly people are investing in it at the moment. But, yeah, I just wonder what’s the story regarding the actual. Use case for it? Is there a use case outside of some illegal transactions? Yeah.

Ben Simpson  10:05

And I think, I think the hardest thing for most people to wrap their head around is that, you know, you can’t touch it, you can’t feel it, you can’t smell it like it’s a completely digital asset, and it doesn’t have free cash flow, right? Warren Buffett hates it. He calls a rat poison square, right? There’s a lot of people that don’t like it, because it’s not, not similar to what’s been around in previous times. If we look at a country like, you know, Venezuela, right? Or, you know Mexico, some of these places, not, maybe not Mexico, but Venezuela, right? We look at some of these places where they’re fiat currency, Argentina, sorry, who was I was looking for their local local currency has inflated so much that it’s basically worthless, right? It just continues to inflate. Because of the government has printed more and more money. So holding something that isn’t controlled by government, something that is inherently deflationary, in a sense that it doesn’t increase its supply. In fact, the circulating supply slows down. People are looking at Bitcoin now as a new digital gold, you know, not to say it’s going to replace gold. Gold is, you know, one of the safest assets on the planet, but this is a new version of gold. I use Bitcoin to pay my employees. If I go and try and pay my overseas staff with my bank account, it gets shut down. Many phone calls from their frauds team. They want to know where it’s going, why it’s going. They take huge conversion rate fees. It takes two weeks to arrive. It’s horrendous. Where I can send bitcoin instantly to anyone in the world with no middleman, and they can receive it, you know, within seconds. And that’s being utilized more and more, from from from businesses in different countries, as well, from a payments level. But ultimately, the the use case for me is it’s a digital gold. It’s an asset that, you know, continues to perform, you know, over time. And I think the best way to look at it is, is that digital gold, you know, analogy, and we’re seeing, you know, companies like micro strategy and NASDAQ, listed company, you know, holding hundreds of 1000s of Bitcoin now in the balance sheet, because if you continue to hold cash, just the the purchasing power of your dollar is doing to devalue. Like, where do you park your cash? What? What asset can you hold that’s going to be a hedge against inflation? You know, a gold has an outbeat. Hasn’t out beaten inflation in the last five years. Like, where do you put your money? And Bitcoin starting to be seen as something that you can park your capital in,

Gene Tunny  12:19

right? Okay. And what do you see is that, are there regulatory risks with Bitcoin and other cryptocurrencies? Central banks are looking at CBDCs, the central bank digital currencies. Is there a risk that there could be a regulatory crackdown on Bitcoin and other cryptocurrencies? Yeah, I

Ben Simpson  12:41

definitely think there’s a risk for some cryptocurrencies. You know, again, important to differentiate Bitcoin different to other cryptocurrencies. The SEC in the US has clearly defined Bitcoin as a commodity, and now they have their own Bitcoin spot ETF, now the Ethereum spot ETF. So the government has approved, and the SEC has approved these financial instruments to buy bitcoin and Ethereum in the US and Australia tends to follow. There’s a Bitcoin ETF in Australia, so it’s from a regulatory framework. Bitcoin and Ethereum really is in a safe category now, but there is a lot of other crypto assets that could, could potentially look like securities, and that sort of plays a bit into some of these exchanges not being able to sell it. But no, the direction we’re going in and what, what we’re seeing now from the US and Australia is that, you know, even Donald Trump, right? Donald Trump, the other day, spoke at the Bitcoin 2024 conference, and wants us to be the hub of crypto. He wants the US to be the center of, you know, cryptocurrency sort of development in the world. So, yeah, I think it’s actually moving towards politically pandering or not politically a good thing for these, these candidates, to be pro crypto, because the reality is, a lot of people own it,

Gene Tunny  13:58

right? Okay, and what’s, what’s the regulatory environment like here in Australia, been seeing some of Senator Andrew Bragg’s commentary, and like he he’s been grilling Treasury public servants at estimates hearings, and it looks like that they’ve been rather slow in in setting up a regulatory environment, would you know what the issues are there? I mean, is what needs to happen with regulation in Australia for crypto? Yeah, I

Ben Simpson  14:29

think that then we’re actually asking for more regulation. Really like, because there’s really not much clarity. Like, and as an educator and someone that wants to help consumers, there is very little regulation. It’s very much in a gray area. You go and talk to lawyers and they give they give you a roundabout answer, but you know, I think the reality is gene that this asset class is so new and so few people truly understand it, that the existing regulation of securities and stocks and assets just doesn’t fit well with crypto, because it’s so unique and it’s so different. But. Many loopholes and so many unknowns and variables. I know there was a paper drawn up about recommendations recently, but, you know, these things move relatively slowly, and it goes through a lot of hands, so I’d love more regulatory clarity. You know, we saw some pretty poor things that happened in the US over the last few years, like FTX, you know, Celsius, these crypto exchanges that were doing nefarious things, you know, ultimately, that had nothing to do with the underlying asset. That wasn’t bitcoins fault, that was people running these exchanges that wanted to defraud customers. That was their fault. And if we had better regulation and overview, perhaps that wouldn’t have happened. So we’re welcoming that. It’s just yeah, these things take time with the politics and government. Unfortunately, yeah. And

Gene Tunny  15:41

what does it mean for the the tax treatment of crypto? So if you make a gain or a profit on your or a capital gain on your crypto, you’re liable for for tax for that. Are you?

Ben Simpson  15:51

Yeah, yeah, just like normal capital gains, like, if you sell Telstra shares for BHB shares, it’s a taxable event. Um, you pay your capital gains. You know, some investors may think that they can get away with it, but reality is, cryptocurrencies are built on a blockchain, and a blockchain is an immutable ledger that anyone can see, yeah, and we’ve seen the ATO now develop software to actually go and track these, these accounts that aren’t paying their tax. All the Australian exchanges have to report on all their users, so, you know, they’re having a real crackdown on that. And as they should, people thinking they get away with it is not, it’s not the right way to think about it. You know, people are paying their capital gains. And, yeah, there’s, there’s a lot of oversight now in that tax space as well. So, yeah, very much similar to the stock stocks. How would you how you pay your tax?

Gene Tunny  16:36

Yeah, gotcha. Okay, interesting with the just going back to the crypto education. I mean, I think that’s so important. Because the concern I have is that the, you know, everyone thinks crypto is a the next big thing. And, I mean, you know, possibly it is and yet, but you have a lot of dumb money go in, and you’ve got or a lot of people who probably shouldn’t be putting all their hard earned savings into into a speculative asset. I mean, maybe, I mean, you’re steering people toward the more established ones, but they’re also, you know, there are 1000s of other crypto currencies out there. So, yeah, if you did, if you did come across a proposal or a new what is it? Is it an ICR initial coin offering? Or, if you’re looking at investing in crypto, what are the sort of things that you should be that that would be a red flag that would set off alarm bells that, because I know I’ve heard this term rug pull. How would you how would you know if you could be a victim of that look?

Ben Simpson  17:40

Unfortunately, it’s very common in the cryptocurrency space. You know, I tend to direct people in only investing into older coins that have been around for a little while, like these. ICOs, initial coin offerings were a big thing back in the day, and unfortunately, a lot of people get sucked into these because they promise return, like anything that promises returns, guarantees percentage returns over a period of time. Has crazy lock up periods where you have to basically give your cryptocurrency and lock it up for a period of time to earn rewards, anything that pays you to bring on other people, like a Ponzi scheme, anything that has crazy marketing on social media. None of these good projects do any of that. And ultimately, a lot of those are probably scams, if any of the projects you’ve invested in does that. So ultimately, focus in the top assets. You know, the top 10, top 20, Bitcoin, Ethereum. Solana, start there before working your way down. The further down the market capitalist you go, the more risky the investments are. And unless you really tapped in to know what you’re doing, it can be very difficult to navigate. You know those investments and rug pulls are common the further you go down. Rug pulls are basically, you know, if you think of standing on a rug and someone pulls a rug underneath you, that’s just really when the founder or the owner, or there’s a there’s a hack of the project, and you lose all your money. So you really do need to be careful.

Gene Tunny  18:56

Gotcha. So if someone comes to you, so would they go to the collective shift side? And then there’s a online course you can do,

Ben Simpson  19:04

yeah. So we there’s basically two tiers. So one is, we just have our platform where you sign up, you log in, you can see all of our token ratings. So we do, you know, token things like morning staff for crypto, that’s what we’re trying to build, token ratings research community. We do live group sessions. They can jump on a live session with me, and I go through the market and how I’m investing. And then we have a higher tier. For those that are a bit more have a bit more capital at play. Usually they’re wanting to invest a quarter of a million plus, or they already have that invest in crypto. That’s where you can work one on one with me. We have private events. We do online sessions, you know, private sort of WhatsApp group, where we can kind of help you out and deliver you more support. And that’s really where we have our team of analysts by your side to give you independent information. And that’s really what people pay us for, because you can go online, you can listen to YouTubers, you can try and figure it all out yourself, but it’s going to take you a heap of time. You won’t know who to trust. Most likely, the person is giving you an information doesn’t really know what they’re talking about, and you can lose a lot of money if you’re not sure what you’re doing. So that’s really where we can come and help.

Gene Tunny  20:10

Yeah. So what takes a heap of time doing the research or getting set up or getting the wallet? I mean, what? What actually takes the time probably

Ben Simpson  20:20

initially, just even researching the space, what coins to buy, when to buy, when to sell, how to store it? Where do you store it? How do you you know? How do you not stuff it up? What are the scams look like this like? As you go further down the rabbit hole, there just becomes this infinite amount of information, and you Google crypto, and you just get a million different opinions and a million different people saying different things. And I think really where the time gets sucked in is the information overload. Did you start reading it like this? Says something? This is something else. Everyone has their own opinions, which right or wrong is, Can? Can just send you down a path of confusion? Yeah, and that’s why we work with a lot of people that come to me and go, Ben, I’ve done this, or I made this mistake. Or, you know, I just need help. I don’t know what to do. Can you help me? That’s kind of where we sort of step in. And can guide you. Okay?

Gene Tunny  21:06

And so this, what would this be? Why a Bitcoin ETF is a is an attractive proposition relative to actually owning Bitcoin yourself. Or,

Ben Simpson  21:17

yeah,

Gene Tunny  21:18

am I thinking, how is that right or yeah,

Ben Simpson  21:21

there’s your two options, right? If you want to go, Yeah, Ben, I want to go buy bitcoin tomorrow. What are my options? Well, number one is, you go, you sign up to a cryptocurrency exchange, you buy bitcoin, so you deposit Australian dollars, you buy bitcoin, and then you need to store it somewhere. You either store it with the cryptocurrency Exchange, or you get a wallet and you store it yourself, right? Yeah, that’s what I do. That’s what I recommend most people do. But that is, ultimately, you have to have some sort of knowledge, right? The other option is, you go to your brokerage account and you go and buy a Bitcoin ETF, and that’s what’s been so big in the US recently. You know, there’s a about 9% of the entire Bitcoin supply is now owned by ETFs. And basically the ETF is where you buy a share and that sits in your portfolio, and then the ETF provider is buying that Bitcoin and storing it on your behalf. So you have to worry about all the storage and custody. Yeah, gotcha.

Gene Tunny  22:13

And did you say there was a there’s a Bitcoin ETF here in Australia,

Ben Simpson  22:17

there is, there is, there’s a couple. I’m not actually sure what the ticker is. I’ll have to maybe send that to you later. Gene, that’s okay, just interested, yeah, but there is one launch recently in Australia. I think it might be ebtc. I don’t know. I have to double check, but, yeah, mono, actually, monochrome. Ibtc, monochrome is one of the first Bitcoin ETF, so you should be able to get that in your brokerage account. Yeah,

Gene Tunny  22:44

but the people you’re who come to you, it sounds like you’re helping them get set up on their own. And it sounds like you’ve got, I mean, you’ve got people who are really, you know, keen to learn, keen to keen to get into crypto. What’s the demographic? I mean, can you Yeah, for

Ben Simpson  23:03

sure, it’s really two types of customers we work with. One is, you know, 50 to 65 that maybe are investing in their SMSF, or they have a large amount of funds that they’ve invested into crypto, and they really want to, wanting to set themselves up for retirement. They need some help just figuring out how to do it. And the other demographic is, you know, 3540 years old, have have a have a family, have a business, have large amounts of investments elsewhere, and they might have 500,000 a million dollars. You know, we’ve got guys right up to 25 million in crypto that have their own businesses and stuff going on, and they need our help and our research and our frameworks to help guide them through the market. Think about exit strategy, risk profile, storage, you know, asset selection, you know, it’s like in it’s your own investment. You know, family office for some people, so they need some independent guidance to help Sure. You know, they don’t stuff it up,

Gene Tunny  24:01

right? And are you, as part of that? Are you providing advice on other investments, on their whole investment portfolio?

Ben Simpson  24:10

No, no, just, just, just cryptocurrency. So we give, we give sort of general frameworks and insights and research and data to help them make they still need to make the decision themselves. You know, we’re again, back to the regulatory piece. You know, we’re going to be first in line to get a cryptocurrency financial license when we can that. That doesn’t exist right now, because crypto isn’t, it isn’t seen as a financial product in Australia. You know, well, commodities aren’t. So, you know, once that becomes available, you know, we’re going to be first in line to get that, but for now, we just give general sort of information, and then people make up their mind from

Gene Tunny  24:46

there. Okay, and so do you have the what is it? The Australian Financial Services licensed, AFSL,

Ben Simpson  24:54

yeah, yeah, that’s what. I mean, we actually can’t get one for crypto, right? Okay, yeah, because it doesn’t fall. Like, cryptocurrencies don’t fall under that framework. So we had a, we had a meeting with, you know, ASIC, a private ruling, you know, while back, and it was just, unfortunately, they can’t provide one, because cryptocurrencies don’t fall under that and that’s where that regulatory discussion is going on. At some stage it should fall under something, yeah, and they will be able to be able to go and get that, yeah,

Gene Tunny  25:20

yeah. Well, it just looks like a real dereliction of duty on the part of our regulators, because you’ve got a lot of people interested in it and investing a lot of money, it sounds like it in it. I mean, if you’ve got people with what was it? 25 million in crypto? Yeah,

Ben Simpson  25:38

wow. And, and, and we, you know, from our business model, Gene, like we, we’re purely independent, right? We charge subscription fees for our information, and that’s it, right? You’ve got others that are charging fees, taking commission on investments, selling investments, getting paid to promote tokens. Like it is the Wild West, what some of these people are doing, right? And that’s completely just unregulated. People just go and do what they want. We don’t do any of that because we’re genuinely trying to help people. But yeah, we’re wanting this to come to the space so people can, you know, be, be more trusting in the information that’s out there? Yeah,

Gene Tunny  26:14

yeah, absolutely. I think that’s, that’s a good, a good strategy. And, yeah, I mean, it sounds like you need some type of license like that. That’d be good if they can develop that, and then, particularly if advice can be provided to people about how this sits within the whole portfolio and what other investment opportunities there are out there for people. Yeah, very good. I’d like to go on before we wrap up, just to you know what’s happened. What’s the state of the market recently? So you mentioned, well, there’s no, I mean, you said there’s no correlation between crypto and other assets. I’d like to talk about that and just understand what you mean there. I mean, because big there was a bit of a sell off, wasn’t there when we had the recent sell off in, you know, the S, P and all that, yep. So, like, how do you think about that? That correlation,

Ben Simpson  27:11

declare, to clarify the price is, is definitely still correlated right now, like, in terms of, like, when the stock market sell offs. You know, there’s definitely correlation with Bitcoin. To clarify in terms of, like, where I think it’ll be in five or 10 years time, I definitely see Bitcoin as a as not being correlated with the stock market. But yeah, what we saw over the last few days with, you know, the recession fears, and then Japan selling off and you know that that that carry trade idea that’s been going on, where people are borrowing money in Japan for zero interest, and, you know, buying assets in the in in in the States, and then Japan increase the interest rates, and all of a sudden everyone gets sort of margin called that found its way into crypto. And then, you know, one of the, one of the fascinating things gene is what happened on the weekend was that if you’ve got a margin call on a weekend where you can’t go and just withdraw hundreds of 1000s of dollars from your account. It takes 123, days from your banking. Yeah, you know, just position, right? Crypto is liquid. 24/7, so people need money, and they’ve got liquidity in crypto. You can go, just pull that out tomorrow, right? You need ten million tomorrow. You can get that within a second, right? If you have those that those assets, if you want to withdraw 10 million out of your brokerage account, oh my goodness, right, you gotta call someone out. They’re going to want to know where it’s going. Why is, why are you doing that? It’s going to take multiple days to to get approval. So what we saw was, people need liquidity. They go to crypto. Crypto sold off. There’s a lot of margin calls. Then what happens is the long, the long, traders in crypto got liquidated. The price just dumped. And then that was on our Monday, and by Tuesday, Japan had sort of in the futures market had corrected. Looks like they’re starting to get the money printers going again. And then crypto sort of bounced. I think bitcoins up 10 or 12% Ethereum is up six or 7% you know, overnight. So it was one of those real technical sell off events. Fundamentally, you know, nothing, nothing wrong with the asset class. But that’s, that’s what I mean with the volatility of crypto, things can happen. You know, you’re down 20% one day and up 10% the next day. Like, it’s pretty, pretty wild.

Gene Tunny  29:15

Yeah, yeah. So you’ve got to be prepared for that, and that’s part of what your your education is. So it’s the Yeah. I should note, we’re recording this on the seventh of August in Australia. And yeah, I’m always loath to talk. I’m always reluctant to talk too much about, you know, what’s happening in the market at the moment, because things can, things can change, and by the time you put about the podcast episode out, things can be completely different. But I thought I’d ask you about that. Yeah, that sounds like, it sounds like you’ve got a good, little, good little business there, and you’re, you’re helping people, because there’s certainly a an interest in in crypto, and I think you’re, it sounds like you’re coming from the you. Right place. Is there anything else? I mean, what sort of what are you focused on at the moment in the crypto market? What, what exciting things are you seeing? Ben,

Ben Simpson  30:10

yeah, that’s good question. Gene, I mean, I primarily focus on just building my portfolio of those, those more blue, blue chip, quote, unquote, Bluetooth assets, Bitcoin, Ethereum. I’m a very big believer in decentralized finance, or Defy. You know the idea where you can take out loans, earn interest on your money without the need of a bank, and then you can buy those underlying tokens that that that support that project, and you can earn the fees and interest from the lenders and the people putting up their capital. So defi is a big place for me. I’m pretty heavily invested into that. A lot of that defi activity is built on Ethereum. I’m a very big believer in Ethereum. And then you’ve got other, you know, different things going on, whether it be web three, gaming, whether it be, you know, different blockchains. There’s a lot going on in the crypto space. Yeah, sometimes I think that, you know, and I talk about this a lot, there’s, there’s a million solutions fighting for about five problems that you know, that actually need to be sold. And I think for a lot of people, you know that follow my content online, it’s a bit of a breath of fresh air, because you listen to a lot of crypto people, and it’s just, you it’s just, it’s up only right? It’s never going down. Everything’s amazing. Well, reality is it’s not. And there’s a lot of crap in the crypto space, and I’m really pretty honest about that and calling it out. So yeah, lots going on. But for me, Bitcoin is just Bitcoin and property. For me, the two assets that really I think are going to be the best performers over the next few

Gene Tunny  31:44

years. You’re talking in Australia or Yeah, but I mean Bitcoin internationally. Oh, sorry,

Ben Simpson  31:49

yeah, Australia for property and then Bitcoin internationally. Yeah, gotcha.

Gene Tunny  31:53

Okay. So where can people follow you? Is the best place to follow you? On YouTube?

Ben Simpson  32:00

Yeah, YouTube, if you like video content, just go to Ben Simpson on YouTube. If you’re on Instagram, I put up in like, shorter form content. I put content up on Instagram. I always have my own crypto podcast called called Ben and Berg’s. If you like podcast, yeah. And then we also do a newsletter as well. So if you like email, you can head over to collective shift. There’s a newsletter button at the top, and we send, like, a weekly, weekly digest of what’s going on. So depending on the medium I’m pretty much on all them, I better

Gene Tunny  32:25

make sure I’ve subscribed to that. I don’t think I have. Sorry about that. That’s it. That sounds like the sort of sort of thing I should subscribe to. And was it Ben and Berg? Did you say Ben and

Ben Simpson  32:35

Berg’s? Yeah, B, E, R, G, s, okay. So we do two episodes a week on crypto and again, it’s really no, no nonsense, no no, no bullshit. Is we’d like to call it just sort of giving you what you need

Gene Tunny  32:49

to know. Oh, that’s good. I like that. Your final question that just occurred to me with this defy with the decentralized finance, how disruptive could that be to the traditional banks. So the big four banks in Australia here, for example. I mean, is this something that they should be they should be concerned about?

Ben Simpson  33:08

Yeah, I don’t think it will ever take over the bank stream like I think the reality is that, you know, you look at the big four banks that are probably the biggest companies in Australia, right? You know, I don’t think a lot of people are going to turn away from this, because you need some level of of skill set with defi, but I believe it’s a it’s a better model where you’re not paying the middle person. You know, look how much money Comm, bank and ANZ are making. Like it’s obscene, right? They make all these fees, and it goes to shareholders. And, you know, I understand business as business, but, you know, with a decentralized model, there is no middleman. You don’t have to pay some person in the middle just because they were there. All that money and value can stay within, you know, a peer to peer environment. And, you know, those things already existing. I can take out a loan tomorrow. I can basically take my bitcoin, and I can go and take a collateralized loan out. So I can go and put up, let’s say, $10,000 a Bitcoin, and I can, I can lend out against that Bitcoin as a collateralized loan, so I don’t have to sell my bitcoin, and I can cash flow it without selling it. And that idea, I think, is only going to continue to grow, where people can stay within the crypto ecosystem and not have to go to banks, to go and to finance different activities, you know, loans, mortgages, whatever it might be. So, yeah, I think it’s very disruptive. How long is it going to take to disrupt? Who knows? But yeah, I like that space

Gene Tunny  34:27

right? And now there’s some good companies here in Australia, or are they mainly in the US doing this? There’s

Ben Simpson  34:33

one or two in Australia. We work with a company called Block earner. They’re not purely defi. They’re more of just a lending company, a pure defi company that I’m invested in, that’s in from Australia, is called maple, Maple finance. Oh, yeah, M, A, P, L, E, and yeah. They’re probably one of the largest defi providers in the space, founded out of Sydney. So yeah, a pretty cool project. And go check out as well.

Gene Tunny  34:59

Good one. Okay. Hey, Ben, it’s been terrific. Anything else before we wrap up? No, that’s it, mate. Thanks

Ben Simpson  35:03

so much for having me. Gene and yeah, if anyone wants some some help, we also do some free, like, just a free 30 minute call. If you’re thinking about getting into crypto or you need some help, you can jump on a call with one of our team, and we can help you out. Just head over to our website, which is just Google collective shift. And yeah, we’ll see what,

Gene Tunny  35:19

how we can help. Yeah, that’s terrific. I mean it, it sounds like, yeah, you’re coming from the right place. And my, my next door neighbor at what? So in in Brisbane, Thomas, he’s well aware of you. So he’s, he gives you the big tick of approval. So, well, I’ll put links in the show notes to you all the to your to your website and to your podcast and YouTube. Ben has been terrific. I’ve really enjoyed the conversation. Thanks,

Ben Simpson  35:46

Gene, thanks for having me. Man, bye.

Credits

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

Categories
Podcast episode

From the Vault: Antitrust with Danielle Wood, now Australian Productivity Commission Chair

In this installment of “From the Vault”, we revisit a compelling 2019 episode on antitrust featuring a conversation with Danielle Wood. At the time of the interview, Wood was a director at the Grattan Institute, a leading Australian public policy think tank. Since then, she has ascended to the influential role of Australian Productivity Commission Chair, marking a significant journey in her career dedicated to economic reform and policy innovation. You can listen to the interview wherever you listen to your podcasts (e.g. Spotify) or via the embedded player below.

This episode dives into the intricate world of antitrust laws, fueled by a renewed interest in scrutinizing the massive market power wielded by big tech companies such as Google, Facebook, and Amazon. Danielle Wood, with her expertise as a former principal economist and mergers director at the Australian Competition and Consumer Commission (ACCC), offers invaluable insights into the evolution of antitrust laws from their inception in the United States in the 1890s to their critical role in today’s digital economy.

The conversation illuminates the historical roots of antitrust laws, born out of a desire to combat the influence and economic power of “trusts” in sectors like railroads, energy, and steel. This backdrop sets the stage for a deeper exploration of the challenges and complexities facing contemporary antitrust enforcement, especially in an era dominated by digital platforms and the unique economic dynamics they present.

Wood’s analysis provides a nuanced perspective on the “hipster antitrust” movement, which advocates for a broader interpretation of antitrust enforcement, beyond traditional economic harms such as price gouging, to include considerations of impacts on innovation, privacy, and political power. This movement, symbolized by figures like Lina Khan and Tim Wu, underscores a growing concern over the adequacy of current antitrust frameworks to address the multifaceted influence of tech giants.

Reflecting on Australia’s own regulatory environment, Wood highlights the work of the Grattan Institute in assessing market concentration and the effectiveness of competition law. Despite not identifying a systemic market power issue, Wood acknowledges sector-specific concerns, particularly in technology, where the enforcement of existing laws, rather than the introduction of new ones, might be key to addressing competitive imbalances.

This episode serves as a timely reminder of the ongoing debates surrounding market power, competition, and the role of policy in ensuring a competitive, dynamic, innovative, and fair economy. As we continue to navigate the complexities of the digital age, revisiting conversations like these provides valuable context and guidance for future economic explorations.

Transcript of Episode 22: Antitrust with Danielle Wood

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

Gene Tunny  0:08  

The Economist magazine published an article last October titled dismembering big tech. The massive market power of the big tech companies such as Google, Facebook, and Amazon has prompted a renewed interest in antitrust laws. To help us understand antitrust, I’ve invited Danielle Wood from the Grattan Institute onto the programme. The Grattan Institute is a leading Australian public policy think tank based in Melbourne. Danielle is the budget policy and institutional reform programme director at Grattan. Later this year, she will take up the CEO role at the Institute. Danielle is well qualified to talk about antitrust, as she once worked as principal economist and mergers director at the ACCC, the Australian Competition and Consumer Commission. I hope you enjoy our conversation.

Danielle Wood from the Grattan Institute, welcome to the podcast.

Danielle Wood  1:17  

Thanks for having me, Gene.

Gene Tunny  1:18  

Excellent. Danielle, today, we’re going to be talking about antitrust. And this is a topic that has had a resurgence of interest, particularly due to the market power of the big tech companies such as Google and Facebook. Could we begin with you explaining what is this concept of antitrust? And where does it come from, please, Danielle?

Danielle Wood  1:47  

Yes, sure. Well, this is a concept that’s been around a very long time, even though as you say, it’s recently had a resurgence, which is always very nice when something you’re interested in, finally comes to prominence in the debate. But people have been worried about the impacts of market power and concentration of big firms going back a long time. So the first antitrust laws were introduced in the United States in 1890. And at that time, there were a number of big firms known as trusts, they dominated particular sectors: railroads, energy, steel, and sugar. And people were worried about the power they had, their economic power. So because they were in a dominant position they were able to price high. 

They were worried about the impact that had on societies, and on groups like farmers who were suppliers, on inequality, and on the political power that those firms had. So, in response to that, they introduced some antitrust laws. And during the 20th, the early 20th century under Theodore Roosevelt, they started to be quite strongly enforced. So the government actually use the powers that were there in the laws in order to break up those trusts in a number of cases. 

So, from there, many other countries got on board. And now almost every major developed country, and most developing countries have some form of law that controls the actions of firms. So normally, there’s some component that says they can’t get together with their competitors and do things like fixed prices. And then there’s rules around firms with market power, how they behave. So essentially [there are] regulations to stop them misusing their market power.

Gene Tunny  3:25  

Okay. And the big concern back in the late 19th century and early 20th century in the US…you mentioned a number of industries, but particularly, big oil, is that correct? With Standard Oil? 

Danielle Wood  3:40  

That’s right. So the railroads and the oil companies were really a couple of the really big trusts. And they had almost entirely monopoly positions. There was particular concern. Theodore Roosevelt was very worried about the amount of political influence they held. And so breaking up those trusts was really one of the defining features of his presidency. He was referred to as a Trust Buster, and also an octopus hunter, which I love–the idea of these kinds of firms having their tentacles in all sorts of different markets and being being reined in by the exercise of these powers.

Gene Tunny  4:19  

Yes, yes. That’s a really good metaphor, isn’t it? And I think Standard Oil was broken up, wasn’t it? That was broken up into, I think, was it Exxon? Esso?

Danielle Wood  4:35  

Many of the companies that we still know today, were broken up from the original trust of Standard Oil.

Gene Tunny  4:42  

You mentioned an act in the US. I think it’s the Sherman Act. Is that correct?

Danielle Wood  4:51  

That’s right. So, the Sherman Act went through in 1890, and then it sort of sat there unenforced for more than a decade. And it’s one of those laws that could have just withered on the vine if someone didn’t pick it up and use it. But Theodore Roosevelt, who I mentioned before, was particularly concerned about the amount of political power that these firms were exercising. So he took, I think his first case was against JP Morgan and the railroad trust, but then went on to take on Standard Oil and a number of others. And I think he filed more than 40 cases, during histerm as president, so he really enlivened that law by using it very actively. And that, you know, really sort of set the precedent for future administrations.

Gene Tunny  5:40  

Right. Okay. Now, why I approached you on this topic, Danielle, was that you wrote an article on hipster trust busters last year, which I thought was very good. And I’d just like you to explain, if you could, who the hipster trustbusters are and what they’re concerned about, please.

Danielle Wood  6:07  

It’s one of those terms that really catches the imagination, but it was originally used, actually, as a pejorative. And it was simply directed at a group of young scholars that are the ones that have really led this push to revive antitrust laws. So there’s a group of them, Lina Khan is probably the best known. She wrote a very well known paper on Amazon and why she believed it was misusing its market power, while she was still at law school, and she got a huge amount of prominence for that. Tim Wu, who’s recently written a book called The Curse of Bigness, is another one that sort of gets lumped in as a hipster. 

And really, the main contention is that antitrust laws have not been enforced to their full capacity. They are particularly worried about the dominance of the big tech companies, as you mentioned in your introduction, and they would like to see a return almost to those early days of the Sherman Act. We were just talking about it. In those days, really, the laws were enforced quite strongly. And they were enforced, not just with reference to potential economic harm through market power, so that the normal things we think about there: no firms are in a dominant position, so they might be able to up their prices, somewhat. 

They say no, no, that’s certainly not the only harm we should be worried about. It doesn’t even make sense to talk about that kind of harm, particularly for products like Google and Facebook, where it’s free. You know, we should be thinking more broadly about the harm that these firms do to the competitive process. And even things like their sort of dominant political position, their impact on inequality. So they have a very broad ranging set of complaints about how the economy is functioning. And they would like to see a stronger antitrust policy help deal with those.

Gene Tunny  8:00  

Okay, so they think that we don’t have strong enough laws already. Do they give any examples? Are they able to point to cases where governments haven’t had the powers that they’ve needed?

Danielle Wood  8:19  

It’s less about that the laws aren’t there. And certainly, the antitrust laws are cast quite broadly. it’s more a critique of the way in which they’ve been enforced. So it’s a view that, in recent decades, that people have taken too narrow a view on what sort of harm antitrust law should be concerned with. And certainly the case they put, if you go back to the early case law, there was a lot more going on than concern just about price increases. So they say, you know, the law is fine, but it’s how we enforce it that needs to change.

Lina Khan, who writes a lot about Amazon, says we have this firm that we have allowed to become really dominant in terms of online and retail. Yes, it’s priced at a low [price] but if you look at things like its price-earnings ratio, it’s pretty clear that it’s buying market share and at some point in the future, people are expecting it to start upping its prices to take advantage of its dominant position. We’ve let it vertically integrate so now that it’s both a platform where people buy products, as well as a supplier of those same products, and this has all sorts of implications for how retail markets function. So the thesis there is we should have first of all stopped it taking over other competitors, we should have intervened early to limit its behaviour, or we should get involved at this point to try and break it up in some way just like happened with Standard Oil as well as a lot of the other big trusts back in the day.

Gene Tunny  10:04  

What did you mention with Amazon? Would that be an example of predatory pricing? Is that what you’d call that, that they’re charging a price that’s lower than the cost just to gain market share, just to try to crush their competitors? 

Danielle Wood  10:22  

I’ll say this is the challenge. So I mean, how does the behaviour fit into the normal economic models? And what the hipsters are saying is the normal economic models are broken. So if I was normally thinking about predatory pricing, it’s quite a specific conduct, which is really the firm setting the price below cost. It is making losses in the short term in order to drive out competitors in order to later up the price and it would recoup those losses. So normally, that’s the kind of framework that we think about something like predatory pricing in. 

Here, it’s difficult to say that it would meet that technical definition of predatory pricing. They are probably pricing close to costs, certainly not being a company that’s posted a lot of profits. But they’re not necessarily making losses. But they have clearly been aggressively chasing share. And clearly the market does expect some kind of recoupment at some point. But the sort of time horizons we’re talking about are pretty incredible. And it’s been doing this for more than a decade. Normally predatory pricing models expect a short drop in price, and a year or two later prices jump up again. It looks very different. And I think partly what they’re picking up there is the standard economic models have struggled to cope with quite a different paradigm.

Gene Tunny  11:48  

It would be good to talk about what economists have traditionally thought about antitrust. What have been the different schools of thought on it? Because opinion amongst economists has changed over the decades. Is it fair to say that there have been times when economists have been more in favour than less in favour, and maybe economists are more in favour again? Are you able to tell that story, Danielle, please?

Danielle Wood  12:16  

Yeah, sure. Look, so really, the resurgence of economics, really the point at which antitrust became a very economic discipline. And I’ve always said to people, I really think of it as where Economics and Law meet, was in the 1970s, with the emergence of the Chicago school. So the Chicago School, in an antitrust sense, was really almost a single person at the University of Chicago, Aaron Director who went on to lecture a lot of people that became prominent antitrust scholars in their own right, like Richard Posner, and Robert Bork. And the idea they introduced was that this was an economic law. So we shouldn’t be worried about all those other considerations I was talking about around political power, or the impact of market power on inequality, or other types of concerns. We should be sort of narrow, really looking at this question of market power through the lens of consumer welfare. So the only question we need to answer when we’re looking at conduct is does it enhance consumer welfare? Or is it hurting consumer welfare? And so that was very much an economic approach to bring. 

From my perspective, I think that was a good thing to introduce more of a structure and certainly put economic considerations foremost in the enforcement of the law. I think it’s arguable that in the decades prior to that, there was a lot of inconsistency in cases. And there were certainly some cases that by today’s standards would be viewed as very unusual, intervening in mergers where firms were going to reach 2%, market share and things like that. So they said, let’s focus on this, will there be consumer harm? 

The criticism of that approach is that, perhaps it was a little too narrow. So, in defining consumer harm, there was a lot of focus on price as an indicator of harm. What we know, of course, is that in markets where firms have market power, they may choose to exploit that through monopoly pricing, but there can be all sorts of other detriments as well and maybe poor quality. It may be that they are asking us to accept terms and conditions that we might not otherwise accept. So, for example, diminishing privacy would be an example. Or it can just be that they’re enjoying the quiet life. So they’re not pushing to find ways to cut costs or to innovate their product in a way that firms in competitive markets do. So there’s a whole lot of harms that I think are rightly considered economic harms that were perhaps not really emphasised by that narrower Chicago school approach. So I think the Chicago School was good at taking the discipline forward and putting economics front and centre. But at the same time, the criticisms that it’s too narrow in approach do have some validity.

Gene Tunny  15:22  

Okay. So you mentioned the risks of monopoly power. There’s also risks from oligopolies. When you have just a small number of companies in an industry, there are risks of the oligopoly companies coordinating their prices and effectively having some sort of cartel and conspiring to raise prices and rip off consumers. There’s that risk. Now, can I ask you about the view that came in the early 80s or late 70s, early 80s, from William Baumol, that contestable markets view. Was that influential in how we thought about monopoly power and antitrust?

Danielle Wood  16:07  

Yes, it absolutely was. So, previously, perhaps people were very keen to look at indicators of market concentration. So how many firms are there in the market? If there’s not very many, well, then we should assume that there’s a market power problem. So the idea of contestable markets is that, so long as there is a threat of entry, that could be sufficient to constrain the behaviour of the firms in the market. So even in a market where you might have only two or three players, if barriers to entry are low enough, if they tried to either get together, or they found a sort of non-cooperative way to increase prices, then they know that someone’s going to come in and compete those margins.So that kind of keeps prices down. 

So, when when economists are talking about market power, they always have an eye to that question of barriers to entry. 

But I think, perhaps we’ve, in a lot of cases assumed that barriers are lower than what they’ve turned out to be in practice. So often, I think it can be harder than people might expect for firms to enter the market. So if we look at the big tech firms as an example, what’s the entry barrier there? It turns out to be a lot about the data that they already have, and the fact that they’ve collected such deep profiles on all of us, it’s just simply harder for someone to come in and build an equivalently good product.

Gene Tunny  17:46  

Absolutely. And there’s that strong network effect, too, isn’t there, the fact that I mean, Facebook has 2 billion people on the platform already. So it’d be very difficult to set up a social media platform in competition with Facebook.

Danielle Wood  18:05  

Right. So, for some of the platforms, network effects really matter. And Facebook is definitely the most obvious example of that. So, network effects, really, that I get more benefit from being on that platform when other people are already there. So when I’m on social media, and I want to see what my friends are doing, the fact that they’re there on Facebook already adds value to my experience going on Facebook. The same arguments don’t necessarily apply in the same way on something like Google. You can imagine a new search engine coming in. The fact that there’s not a whole lot of other consumers or advertisers, that might not bother me if I’m just there for organic search. But we do know that people prove to be a lot more sticky than we might expect. So even something like changing your search engine, which is a pretty low cost thing to do, there’s literally zero price, you just need to go to a different website to what you’re used to. Even then people prove to be very kind of path-dependent in their behaviour, and they’ll tend to just keep going back to the one that they know.

Gene Tunny  19:15  

Okay, Danielle, I know that Grattan has done some interesting research on market power, the concentration in different markets. Would you be able to give an overview of that research, please? What you found in Australia in the US, I mean, what what industries are the most concentrated overall, how much concentration is there? And is it something we should worry about? So if you could just give us a flavour of what Grattan’s found, please, that would be great.

Danielle Wood  19:49  

Sure. So this is actually work done by my former colleague Jim Minifie and another former colleague Cameron Chisholm. And so they were sort of I’m interested in this claim that markets had got more concentrated over time. So they went to have a look at the data for Australia. And the picture is a bit more nuanced than I think a lot of people might expect. So, you know, they found that there were a lot of concentrated markets in Australia. And perhaps if you think about, supermarkets or insurance or a lot of manufacturing, that’s probably not going to be a surprise to people. 

When they compared market concentration in Australia by market to overseas, they found that we didn’t actually look that bad by international standard, although there were some markets in Australia that were particularly concentrated. So things like supermarkets, mobile phone networks and life insurance,were three that looked particularly more concentrated in Australia than elsewhere. 

In terms of concentration over time, there was no clear pattern. So some industries, like banks have become more concentrated over the past 15 to 20 years. In others, like supermarkets, its concentration has actually fallen. And nor could they really find evidence that profitability, had substantially increased over the last two decades. So sometimes, when you’re trying to measure market power, you look more at profit margins than market concentration, because of some of the limitations with market concentration as an indicator we were talking about before. 

The one thing that they did find, though, that I think perhaps suggests that all is not well is that, in more concentrated sectors, profit margins were higher, and that those profits tended to endure. So if you looked at the 20% of most profitable firms, a decade later, about a third of those were still in the top 20%. So, if you think that markets are contestable, you would expect to see these sorts of excess profits eaten away over time, by new people coming into the market. We seem to have a segment of markets where that didn’t occur over as long as a decade, and they were able to maintain high profit margins. So it suggests there might be parts of the economy where competition isn’t working as well as it should be.

Gene Tunny  22:20  

Yes. And in Australia, that’s probably in banking, is that fair to say? The big four banks have a privileged position in the marketplace, for, well, a variety of reasons. One of which might be the government of the day appears to favour the big four banks and gives them special deals. Remember, during the last financial crisis, for the big four banks, it was much cheaper for them to access the government borrowing guarantee, than second-tier banks. So is that an issue, that we have regulations that favour particular market players? Is that one of the things that’s driving concentration in some sectors?

Danielle Wood  23:14  

It certainly can be. So, we certainly found that firms in heavier, more regulated industries tend to have higher returns than those in less regulated industries. It can be a bit hard to unscramble that observation, because, of course, we tend to regulate more in concentrated industries. So natural monopoly industry is a good example. The reason governments are in their regulating is because it is, by definition concentrated, and it’s trying to sort of mimic competitive market outcomes. But there are certainly examples, and the banks might be a good one, of where the regulation itself can create an entry barrier, and are an advantage for a particular group of firms, which can increase returns. 

So high-regulation firms definitely stood out as tending to be more concentrated and having higher returns, as did innovative firms. This is a pretty consistent finding across the world. So a lot of the work in different countries has suggested that returns have gone up over time, but they’ve gone up only for a segment of the market. And that’s tended to be the firms that are heavily exposed to innovation. So tech firms, platforms, and pharmaceutical companies, tend to be the ones that have been making higher returns over time.

Gene Tunny  24:39  

Could that be a good thing, Danielle?The fact that these firms are being rewarded for innovation, that’s probably what we’d want to see, isn’t it? It might be necessary to have those higher awards to provide the incentives to undertake that innovation. What do you think about that? 

Danielle Wood  25:03  

Sure. I would say that this is the idea really that our law is based on. So, under Australian law, it is not illegal to have market power. And the reason it’s not illegal to have market power is you want market power there as an incentive. So if a firm has got there by competing on its merits, so it’s designed something better than its competitors, or it’s just done something, it’s played hard, or whatever it is, if it’s got there on its merits, and then it stays there on its merits, then it has done absolutely nothing wrong. And that is really the fruits of that work, and what creates the incentive for firms to innovate in that way. What the law says is that’s fine. 

But you can’t misuse that market power when you’re there to maintain your market position. So, if you are doing things like predatory pricing, or bundling your monopoly product with another product to leverage into another market, there’ll be certain circumstances in which those things are being used in order to maintain or grow a dominant market position. That’s when you’ve got a problem, not with the market power, per se.

Gene Tunny  26:16  

Absolutely. You just reminded me with that example of using your product, bundling it with something else. You’ve got a monopoly in one area, and then you bundle it with something else to try and get into another market. That reminded me of what happened with Microsoft in the 90s. And that’s why the US Department of Justice went after Microsoft, over the Internet Explorer browser, if I remember that correctly.

Danielle Wood  26:42  

Exactly. Right. So I mean, it’s interesting, another tech example. And probably the last time the Department of Justice went in really hard on a big company and a big tech company. And the browser was free. So it wasn’t an issue of price. But it was a question of leverage. Were they using their dominance in the PC market in order to get a dominant position? And what they saw was the next big thing, which was the browser market, and that really drove their major competitor at the time who were getting out of the browser market at the time, because everyone ended up using the Microsoft browser that came with the computer.

Gene Tunny  27:26  

Yes, I think it was Netscape if I remember. 

Danielle Wood  27:29  

I was trying to remember whether Netscape was Microsoft’s or the competitor. That’s right. Yes.

Gene Tunny  27:33  

Because I remember the first time I ever saw the internet, it would have been second or third year uni. And we were taken to the library and shown this wonderful new tool. And Netscape was the browser of choice at the time.

Danielle Wood  27:49  

It’s so funny to think back to those days as well. It was it was high school for me. And there was one computer in the library that you could access the internet from. And your librarian had to sit with you and supervise. And I always thought, Gosh, why would anyone want to use the internet when we’ve got this perfectly good library here? All these books. Goodness me!

Gene Tunny  28:07  

Absolutely, Danielle. Before I ask the last question, could I just ask you to tell us where we can find out about your work on the internet, please?

Danielle Wood  28:17  

Yes. So if you go to the Grattan website, and you’re interested in our work on market concentration, there’s a report called Competition in Australia: Too Little of a Good Thing? That’s the place to look. If you’re interested in the article that I wrote on the hipster trustbusters and how things are changing, that’s an article on the Inside Story website called The Hipster Trustbusters.

Gene Tunny  28:45  

Very good. Now, to wrap it up, Danielle, I’d like to ask how concerned are you overall about market power? And what do you think needs to be done? Do we need specific measures to rein in these big tech companies?

Danielle Wood  29:06  

Look, so as an overall proposition, I think it’s not clear to me that there is systemic market power issue, but I think there are clearly concerns in particular sectors, and Tech is one of those. Do we need special measures is an interesting question. And you know, the ACCC has just spent more than a year doing an inquiry on the power of the digital platforms. And my reading of their findings there is, really, that they’re not looking for new powers. They believe that existing powers will generally be enough perhaps with some tweaks. 

I mean, I think if we reflect back on how we got here, in terms of the tech companies, there may have been some decisions around mergers. that you would have hoped would go a different way. So if we look back, we know that Facebook bought Instagram, it bought WhatsApp, Google bought YouTube. I think there is a fair contention that perhaps the major US regulators were too relaxed about those acquisitions. And what looks to be, you know, acquisitions in different markets have actually helped enhance their power in the core markets in which they operate because of the sort of data advantages that we’re talking about. So I think we could be stronger. And this is largely for the US regulators, because obviously Australian regulators can’t control those types of mergers or future acquisitions. 

The ACCC has pretty clearly signalled that it will be looking very closely at all sorts of behaviour by the tech companies under existing laws. So things like trying to leverage power into other markets. So Google, using its search results to favour its phone product, and it’s already been taken on by the European competition authorities over that sort of behaviour. All of that can be done under existing laws. 

And probably the next question is should we see a break up? Again, that’s not a proposition for Australian regulators and Australian regulators do not have the same divestiture powers that they have in the US. Could you envisage a world where at least they reverse the impact of the mergers? A breakup only makes sense if you can kind of find units, self sufficient units to break these companies into, but I could certainly see an argument that you could go back and reverse some of those problematic mergers which occurred in the past. And I think that’s a really interesting proposition, whether a future US government and the US regulators will have the appetite to do that. And that’s certainly come up as a big issue during the Democratic primary race. Candidates are really expected to have a position on whether or not the big tech companies should be broken up, which I think is a pretty interesting development.

Gene Tunny  32:19  

Right, absolutely. Okay. I’ll have to go back and have a look at what some of those candidates have said. I know there have been a lot of debates on health care and on tax. Now that you have mentioned it, I am recalling some of that discussion. So I might go back and look at that. Thanks, Danielle. 

Danielle Wood  32:39  

Elizabeth Warren, in particular, as she has a very long history of advocacy around antitrust law. So she’s got very well-thought-out positions, but certainly, others have thrown their views into the races. 

Gene Tunny  32:54  

And before we conclude, Danielle, are there any other points you’d like to make? Is there anything you think we might have missed in our discussion, our broad overview of antitrust?

Danielle Wood  33:06  

Look, I would just say that I think even though this hipster antitrust movement has been very critical of both the courts and regulators in the US, it’s not clear to me that the problem is anywhere near as acute in Australia. I think we have a real history and a record of pretty robust antitrust enforcement. There’s a reason why the chair of the ACCC tends to be a household name in this country. They’re out there and pretty heavily using the law. The thing I think we should look out for in Australia is what further powers they might seek. 

So the ACCC has been pretty successful in campaigning for law changes where they don’t think they have enough power. And the kind of beefed-up misuse of market power provisions that came out of the Harper review is an example of that. At the moment, they are saying that perhaps the mergers laws aren’t sufficient to block anti-competitive mergers. So I think it’s ‘watch this space’ on whether we actually do get some further beefing up of our laws, but not necessarily to do with the tech companies, but to deal with the fact that the ACCC’s struggled to win mergers cases in courts.

Gene Tunny  34:26  

Okay. So it sounds like the ACCC, the Australian Competition and Consumer Commission, has been doing some great work, but you mentioned it has struggled to win in the courts. So I guess the big corporations can hire the top QC’s; perhaps that’s the issue. 

Danielle Wood  34:49  

Well, look, I think that’s probably partly true, although the ACCC’s got some pretty good QCs on the payroll as well. I think there is a particular problem with mergers cases that courts struggle with because it’s prospective, trying to work out what might happen in the future with and without a merger. It’s quite a different exercise to the normal exercise the courts are going through, which is trying to establish something that’s happened in the past. So I think there’s inherent difficulties in that prospective nature of the mergers tests, which has made it really hard for the ACCC to win. And I think the stat is that they haven’t actually won a mergers case in court in 20 years.

Gene Tunny  35:30  

Oh, no. Okay. Well, we might have to come back to that topic. I haven’t, haven’t looked at mergers for a while, but that doesn’t sound good. And that sounds like something we should look at in the future. 

Danielle Wood  35:43  

Yes, so the agency took one to court, the Vodafone Hutchinson one to court last year, and I think if they lose that, we’ll be hearing a lot more on the topic.

Gene Tunny  35:54  

Yep, absolutely. Okay. Danielle Wood from the Grattan Institute. That’s been terrific. I’ve really enjoyed our conversation, and I’ve learned a lot. So thanks again for coming on to the programme.

Danielle Wood  36:06  

Thanks for having me, Gene. 

Categories
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.

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

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple Podcasts and Spotify.

About 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:

https://www.amazon.com.au/Icelands-Secret-Untold-Worlds-Biggest/dp/0857198998

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 otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

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.

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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 explore.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

1:06:43

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Credits

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

Categories
Podcast episode

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 www.johnaugust.com.au. 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:

https://academiccommons.columbia.edu/doi/10.7916/D8TB1K1S/download

Talk on the Age of Distraction John mentions:

https://www.abc.net.au/radionational/programs/bigideas/age-of-distraction/6535850

Bureau of Meteorology Online Advertising Policy

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

https://neeva.com/

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: 

https://www.akimbo.com/

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 otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Coming up on Economics Explored…

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 

Seriously?

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

Right.

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

Credits

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 contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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Podcast episode

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