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Trump’s Tariffs: Art of the Deal or Economic Disaster? w/ Darren Brady Nelson – Bonus Episode

Are Trump’s tariffs a masterstroke of economic negotiation or a blunder with global consequences? Show host Gene Tunny and returning guest Darren Brady Nelson debate the rationale behind punitive tariffs, the backlash from markets, and whether this is all part of a broader deal-making strategy. They also discuss Elon Musk’s DOGE initiative and Darren’s run-in with a wild turkey on Wisconsin’s special elections campaign trail.

Please let Gene know your thoughts on Trump’s tariffs and any questions or comments regarding this episode by emailing Gene 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

  • Introduction and Market Reaction to Trump’s Tariffs (0:00)
  • Darren Brady Nelson’s Run-In with a Wild Turkey (1:45)
  • Assessment of Trump’s Tariffs (6:51)
  • Formula for Calculating Tariffs (12:26)
  • Impact on Consumers and Businesses (19:59)
  • National Security Considerations (37:06)
  • DOGE’s Role in Identifying Waste and Fraud (44:07)
  • Wisconsin Special Election and Voter ID Law (55:14)
  • Australian Election Predictions (1:00:42)
  • Final Thoughts and Closing Remarks (1:05:44)

Links relevant to the conversation

Trump’s Executive Order “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits”:

https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits

Statement by IMF Managing Director Kristalina Georgieva:

https://www.imf.org/en/News/Articles/2025/04/03/pr2587-statement-by-imf-managing-director-kristalina-georgieva

Darren’s 2018 article “Trumpʼs tariffs: free, fair or foul trade?”, in which he discusses Adam Smith and free trade: 

https://drive.google.com/file/d/1xQEt4n1bJ-W3RN2-H7_0w3q6vcI3eBCc/view?usp=sharing

Dan Mitchell’s “Six Visuals to Understand Trump’s Suicidal Tax Increase on Trade”:

https://www.imf.org/en/News/Articles/2025/04/03/pr2587-statement-by-imf-managing-director-kristalina-georgieva

CNN reporting, “This is the dubious way Trump calculated his ‘reciprocal’ tariffs”:

https://edition.cnn.com/2025/04/03/economy/reciprocal-tariff-math/index.html

Axios reporting, “Trump’s surprisingly simple tariff math”:

https://www.axios.com/2025/04/03/how-trump-calculated-tariffs-trade-deficit

CNBC reporting, “Trump open to tariff negotiations, contradicting White House aides”:

https://www.cnbc.com/2025/04/03/trump-tariffs-live-updates-stock-market-trade-war.html

Note this reporting: ‘Top Trump trade advisor Peter Navarro denied that Trump’s new tariffs are being used as a tool to negotiate better trade terms with other countries.’

Great Reset discussion with Darren from 2020:

https://economics-explained.simplecast.com/episodes/the-great-reset

DOGE’s reported savings:

https://doge.gov/savings

Lumo Coffee promotion

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

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Transcript: Trump’s Tariffs: Art of the Deal or Economic Disaster? w/ Darren Brady Nelson – Bonus Episode

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. This is a special bonus episode of economics explored to talk about, among other things, what else but the new reciprocal tariffs that President Trump announced in the Rose Garden earlier this week. We’ve seen the S and p5 100. It’s fallen around 10% ASX 200 it’s down 4% over the week. So big impacts on global markets. The IMF Managing Director has called the tariffs a significant risk to the global outlook at a time of sluggish growth. Before we get into it, I should say this episode sponsored by Lumo coffee, they’re high quality, organic coffee from the highlands of Peru. It’s jam packed full of antioxidants. So economics explore. Listeners can get 10% off. So check out the show notes for that link. Now, back to the show. We’re going to be talking about the tariffs. We’re going to be talking about Doge, and also elections that we’ve had in recent, elections in the US, in Wisconsin, the upcoming Australian election. My guest who else? It’s my good friend, Darren Brady Nelson, who’s joining me from Milwaukee, and he’s just he’s had some recent run ins with Turkey, Turkeys on the campaign trail in Wisconsin. Darren, good to have you back on the show.

Darren Brady Nelson  02:06

Great. Yeah, good to see you too. Thank you. First, you got to

Gene Tunny  02:10

tell me what happened with that Turkey. I heard you had a run in with a turkey on the campaign trail.

Darren Brady Nelson  02:15

I did. I did. Yeah, I’ve been doing sort of, you know, you know, like you, well, a little bit similar to you. I mean, you, you actually set up your own firm, and all adept at economics and all that sort of things. You You certainly taken, you know, being, if you like, a freelancer, independent, to sort of higher levels than I have, I’d kind of just go fly solo. And that’s what I do, kind of economic stuff, mainly. But sometimes I get weird stuff, like elections. So, you know, I did the, obviously, the Trump election, I think we spoke about that, you know, last year at some stage, or in the wake of last year, and then more recently, I got, you know, kind of involved in the Wisconsin Supreme Court election. So in the US, pretty much most of the courts, the judges run for office like, you know, politicians, the only exception being the US, you know, Supreme Court. So anyway, so there’s a big election for one, you know, one, one seat was up for contention in Wisconsin, and so, you know, I’ve been doing that for the past five weeks or so, you know, literally going out there and knocking on doors and speaking to people and, you know, handing out literature. So, you know, I’ve become, the past couple of years, the door knocking economist, but as you mentioned, I’ve also become the turkey fighting economist as well. So what happened is there’s a suburb called Wauwatosa in in Milwaukee County. So Milwaukee County’s got the City of Milwaukee, which is dominates, but it has a bunch of other kind of subsidiary cities or suburbs, including Wauwatosa. And just just one morning, when I meet on the second house, I went to Wauwatosa. You know, just after 9am I was walking up to go knock on the door, and I heard this hissing behind me, you know, you know, I don’t know what I was thinking, I guess. I thought maybe cat or something, I suppose. And then I turned around this really huge Turkey. I didn’t even know turkeys could get this big. Was kind of like chasing me. Essentially, I didn’t even know it was until I got up to, you know, nearly to knock on this, this person’s door. And, you know, it was a big male Turkey and all puffed up and all this sort of stuff was like, you know, like, about four feet tall. The thing was huge, you know, a meter. And obviously they puffed themselves up. So, you know, obviously it took me a little bit unawares. And, you know, I tried to shush it off and scare it off with loud noises, but it was not going down for that. And fortunately, there was like a, you know, winter is, you know, pretty much over. But, you know, they had, like a kind of a plastic shovel. Lot of Wisconsinites just keep their shovel just sitting outside. I say most people don’t just steal people’s shovels, I guess. But anyway, it was there. It was, it was, it was plastic, so it wasn’t like a big metal one. So I grabbed that ice, tried to, you know, like, you know, poke it and, you know, have it scare away. But I sat there for like, up to 10 minutes, literally fighting this turkey with a shovel, it would not it kept on coming. In fact, I hit it like several times. Usually when you hit something once it runs off, right? But this thing would not run off. And I actually got saved by just some retired lady and her rather large dog cut me going for a walk, and she sicced the dog on on the turkey, and it finally took off. So, yeah, there’s my weird story about, you know, getting attacked by a turkey, obviously, um, you know, I certainly wanted, um, you know, Brad Schimmel to win pretty badly, but I’m not sure about, you know, fighting a turkey for him, right?

Gene Tunny  05:58

Okay, so Turkey’s protected. I mean, you didn’t harm the turkey, did you? I mean, you just sort of

Darren Brady Nelson  06:05

harm that Turkey because it because they have these, these, you know, really, I mean, they’re not going to kill you, but they could, they have these spurs on their, on their, you know, their feet, so they could, you know, you know, cut you up pretty nicely. So they’re not harmless birds, right? They’re not like, you know, maybe not like an emu or something like that, which is obviously far bigger and, you know, can probably, you know, break your ribs or something if it kicks you. But they’re not, they’re not harmless. They’re not like, gonna kill you, but they’re not harmless, right? So, no, they’re not protected. In fact, while with toast, has had a problem with wild turkeys for quite some time. They need to probably call them actually,

Gene Tunny  06:45

okay, well, thanks to that old lady and a dog. So, yeah, the

Darren Brady Nelson  06:51

dog, the dog was great. So it was a really large sort of golden retriever or something. So, yeah, okay, so

Gene Tunny  06:57

you’re, you’re able to answer my questions regarding Trump’s tariffs, among among other things. So, Darren, first, what’s your assessment of the market reaction? I mean, the market reaction has been pretty bad. It’s it looks like a mark of disapproval for the tariffs. What’s your assessment of it, please?

Darren Brady Nelson  07:15

Um, yeah, that’s not, yeah, that’s a reasonable assessment. Do I think it’s going to be some sort of like even medium term thing for the markets. No, I think they’re going to bounce back fairly quickly. So, you know, my, you know, we’ll obviously get into a bit of, you know, I’ve been kind of like changing my views on tariffs in recent times, not to the point of being like pro tariffs or pro protection, or anything like that. But, you know, I mean, I think that the White House statement, the executive order, and the accompanying statement, you know, sets it out pretty well. I think, you know, the reasons for it, and the whole backdrop, I think it’s actually a and, you know, it’s actually one of the best written executive orders I’ve actually seen, you know. So I don’t know who actually wrote that, but you know it certainly, you know, doesn’t it’s not, you know. I mean, Trump talks in terms of, and sometimes he speaks and he and he trolls people talking about beautiful tariffs and, you know, that sort of stuff. And but you know, I know people have been in the Oval Office with him, and I don’t think he he is a protectionist, nor does he think tariffs actually, you know, ultimately, if that’s all you’re doing, it’s not going to, you know, really create wealth. It’ll help domestic industries, for a time, certain domestic industries, but you know, at the end of the day, it’s not going to, obviously, we’ve seen what happened to, you know, the the automobile industry in Australia, eventually, you know, tariffs and subsidies and all the right and regulations that all directed to help them, eventually they collapse and fail. But that’s what, what Trump’s trying to do is really more art of the deal, and I’ve kind of first started to get a feel for that. You know, that that’s what he was trying to do in, I guess, probably 2018 particularly talking to, you know, a a former Cato economist, who, obviously Cato is, you know, like kind of the libertarian think tank in Washington, DC. So if he was convinced that that Trump wasn’t a protectionist and was just doing it for Art of the Deal purposes. You know, that’s that’s pretty good evidence, on top of what I’ve also seen since then as well,

Gene Tunny  09:29

right? Okay. Now, who do you think drafted that order? Was it Peter Navarro? Is Peter Navarro still involved in in the White House?

Darren Brady Nelson  09:41

I understand he is, I don’t look it’s hard to say who actually, literally drafted that I’m sure was, you know, I’m sure if someone drafted it, and there was a team with input, but you know, it just like, you know, I’ve seen a lot of government stuff across multiple countries, and it just, you know, you know, particularly, I guess, you know, Trump has, you know, him. Self, obviously, what’s what the weave? You know, how? Obviously he does the weave when he’s actually speaking. You heard that term, the we, yes, yes, yes, yeah. You know, he kind of, you know, wanders around and goes kind of off on tangents and comes back and all that, you know, like, you know, I’m not sure how he writes, To be honest, I’m, you know, but I doubt he wrote that, but, so, you know that, I mean, in a nutshell, what I understand, and I remember this, you know, particularly after a g7 meeting, I think in 2018 and I wrote an article about it, which I sent to you. You know, we’re, you know, basically the the g7 leaders were complaining about, you know, some of the tariffs, obviously. And then Trump, you know, hit back with, like, you know, hey, Canada, you’re doing this, you know, these partners are doing these ones. Okay, fine, let’s all get in a room and let’s get rid of all our tariffs, or, you know, or at least significantly reduce them down to, you know, very small numbers. And of course, Trudeau and everybody else backed off from that idea, you know. So that tells me, you know, these criticisms aren’t really necessarily some big stance on principle about tariffs, and not even just simply, hey, you’re harming us with this tariff, which, of course, yes, you know, there’s, there’s that, but I think, I think there’s some broader stuff and bigger stuff going on we can get into later, but, but, you know, at a simple level, I think, again, it’s art of the deal. I think Trump’s doing this. And, you know, as Dan Mitchell, who’s, you know, and you know, essentially, I’ve seen ardent opponent of terrorists, but he’s kind of a little bit of an ardent opponent of Trump, no matter what he does. But he, you know, he says, you know, he points out rightly, these aren’t simply reciprocal at times, like, you know, not just the same level as, you know, China or Canada or the EU that’s true, as far as I understand. But they’re punitive. But they’re punitive with a point to get these people into a room, basically to do a deal, to ultimately, you know, sort of get better trade arrangements, lower tariffs, and not just tariffs, but other non tariff barriers to trade, which there’s plenty of. And because, you know, the US, you know, certainly seems like they’ve kind of allowed countries to kind of hit them harder with stuff over the years, and the US not sort of retaliating, and now they finally are, and they’re making up for lost time.

Gene Tunny  12:25

Yeah, look, Darren, I think you there’s some interesting points you made there. Now the issue about Yeah, you rightly acknowledge these tariffs aren’t genuinely reciprocal. They are. Some of them are punitive, and a lot of economists and market commentators have been shocked by the formula that was used to calculate them. So it’s it’s either 10% or it’s the if there’s any sort of restriction on any imports, then it’s a minimum of and that could be for biosecurity reasons, as in Australia. So one of the things they’re concerned about beef, and I mean, we’ve got very strict regulations on food that can be imported. And so that’s one of the points of contention. But it’s basically, what was it? It was the trade deficit with a country divided by the the exports of that country to the US. And that’s a that’s a percentage, and they divide that by two, and it’s, it’s either that or 10% whichever is greater. So an economist are just sort of scratching their head, how does this make any sense? So that’s one of the, one of the concerns. You mean, where’d you get this formula from? Well, that’s the formula. That’s how that’s basically what everyone’s what everyone’s reporting, how they figured out, how they

Darren Brady Nelson  13:39

actually I contend whether that’s actually in the executive order. But anyway,

Gene Tunny  13:43

that’s, you can work that out from the chart that, you know, the chart he held up on the, yeah, the Rose Garden. So that’s, that’s essentially how he’s come to this. There’s this bizarre formula that that no one can figure out. So that’s one of the concerns. But I think that’s good. You’ve acknowledged that these are punitive. You think this is about the the art of the deal. Now, this is what Scott Besson, the Treasury Secretary, was saying. He was trying to hint, oh, okay, this is, look, we want to have a negotiation with these countries. But then Caroline Levitt, or someone from the White House, has come out and said, Oh, no, this is final. So, I mean, what’s your so is your? Is your view that this is the start of a negotiation with different countries, and so we will have lower tariffs eventually. Or how long is this going to last? How do you see this playing out?

Darren Brady Nelson  14:32

Look, you know, it’s obviously hard to say how long, and it’ll probably be be on a country to country basis. I think some will kind of go all right, you know, like, let’s we’ll come to the table pretty quickly. I didn’t hear the comment by Levitt that you’re saying that doesn’t sound accurate. That doesn’t sound in keeping with, you know, not just Trump over, you know, his previous presidency in the start of this one, but obviously he’s famous for the art of the deal, his book. So. I don’t think Trump’s change on that that, you know, I think he’s changed in terms of the art of the deal, with dealing with Democrats and and the kind of the his ardent left opponents, I don’t think he’s given up that you can’t do a deal with them, right? But that’s not applying this. That doesn’t apply in this setting. I don’t think and, and, you know, in terms of, yes, I think you can do a deal with any country, you know, Canada, China, EU, all that, even though there’s obviously people there who you know, are reluctant to do any deal with with Trump, because they just don’t like him, right? They don’t like what he stands for. They don’t like his style, etc, etc. And then there’s kind of that long standing and growing kind of European disdain for the US anyway, that that’s a separate issue, I suppose, but so, yeah, I totally see it as art of the deal. You can find a statement or something, but that’s not I think that the weight of evidence suggests it’s art of the deal. It does get more complex, because Trump is a bit of a troller, and he and he’s, he’s loose with language. But, you know, I was thinking that too. And I was thinking, Wait a second, maybe not so much, because if you’re doing the art of the deal, if you make it explicit that, well, this is the art of the deal. I don’t actually believe in tariffs, and I don’t really want to keep them on, you know, people might balk and go, all right, we’ll just wait it out for a while, because, you know, you know, he doesn’t really believe in this, and he’ll eventually just get rid of him, right? He’ll, he’ll, he’ll bow to the, you know, the pressure, if the markets don’t recover quite the way we think they will, or, or of the political pressure, or, you know, Republicans in Congress, you know, get weak knees. So I think, you know, actually, to give him a little bit more credit, I think sometimes this trolling also does have a purpose besides the fact he may enjoy the trolling in the first place because you let your opponents note leaner, you know, or your negotiating partners, know, look, I’m not really serious about my position, then that that really undermines your art of the deal. Basically, does it not so. But I think ultimately, you know, he’s not a believer in protectionism, or, you know, like tariffs are somehow the long term path to even domestic growth of industry. So, you know, I think the way to the evidence is, you know, in that and you could certainly, you know, I, you know, I haven’t looked at their formula that you, that you suggest they’re using, and if maybe that is true, I didn’t see that in the executive order doesn’t say that it doesn’t exist, just because it’s not an executive order. But I didn’t get that impression from the executive order. And, you know, ultimately, you could certainly make a cost benefit analysis, you know, case, you know, like, obviously discounted over time, if Trump is doing an art of the deal and he gets a lot of these lower tariffs and other non tariff barriers to trade, putting side, obviously, we can talk about the defense argument too. I think you could certainly make a case, because I think that the world, the WTO and all these things, have just not been doing. They’ve been doing a very bad job, you know, over not just years, but probably decades. Actually, it just hasn’t been really particularly when it comes to non tariff barriers to trade in particular, that I think there’s a reason why Trump and some others are just starting to move to these bilateral trades, because the WTO is just kind of captured by dei and green stuff and all the rest. You know, it’s no it’s no longer devoted to free trade as such,

Gene Tunny  18:37

right? And so do you think that these the failure of the WTO, this is behind the large trade deficits that the US has with China and other countries. Is that the is that the contention definitely

Darren Brady Nelson  18:52

with China, I think, I think it’s huge. I think, I think these trade deals, you know, particularly when they’re like, 8000 pages long, etc, like the, you know, the Trans Pacific Partnership. It’s just a lot of just like, Yeah, you know, we’re gonna help my friends over here. We’ll help your friends over here. We’ll help my friends over here. Blah, blah, blah. They’re not free trade agreements. They’re not even vaguely like, free trade agreements used to be done, you know, once upon a time, I’d argue, you haven’t even had a free trade agreement. You know, maybe you could say, in the early days of these, of these multilateral, you know, gat and stuff, maybe there was some, you know, a period of time where you really were, you know, and probably were moving the in the direction, back in the direction towards free trade. And I say back, because really, since World War One onwards, you haven’t seen much in the way of actual free trade agreements, which used to be very small and didn’t have to say a whole lot, you know, as you’d expect, a free trade agreement too. You know, you’re not sitting there picking winners and losers, which is what they do now. And sadly, you know, they were so keen to get China into the WTO, they just threw all sorts of, you know. Unfair sort of advantages their way. There’s no way Communist China that could do nothing well, all Sun is this, you know, turns into this powerhouse of capitalism purely because they were really good at stuff, or even purely because they had cheap labor, because a lot of stuff that’s going over there is even capital intensive sort of manufacturing and other items, which you know, obviously, over time, China got better at this and that, no doubt, but you know, to suggest, all sudden, almost overnight, China is super awesome at all these things. I know I don’t think so well, what

Gene Tunny  20:37

are some of the unfair advantages you do? You think that China has had thrown its way that, you know, that the White House would be concerned about, what do you think? What is it specifically the Trump administration is concerned

Darren Brady Nelson  20:50

about? Well, clearly, they’ve bought off a lot of politicians. I mean, you know, over the years, you know, to get these sweet deals. They’ve been, you know, the Bidens, the Clintons, the Bucha, over the years, they’ve thrown a lot of money at these people to get kind of sweeter deals. And it’s not always, yeah, it’s not always the stuff you can just pick up the Trans Pacific Partnership and see the bias in there, although you can still see it in there too. But I think it’s, kind of, kind of, if you like, the shady stuff behind the scenes that have been done,

Gene Tunny  21:28

yeah, yeah. I mean, it’d be, I mean, I’m, no doubt there are. I mean, I’ve had guests on this show

Darren Brady Nelson  21:33

labor in Australia, too. I mean, it’s just like, there’s a lot of stuff that’s gone down that’s, you know, it’s been documented. Some people have actually been prosecuted for saying something. Some people have not. So, you know, some stuff, you know, obviously hasn’t gone to court or trial. So you could say, well, that’s just conspiratorial, yeah, yeah, maybe, maybe not. You know, the world’s not sort of, you know, there’s a lot of nefarious things that happen this world, you know, I don’t know why people seem surprised as though, like, this is, you know, everything’s above board, you know. I mean, China’s clearly set out its strategy, and it’s not, oh, we just want to be, you know, just compete in free trade agreements with the world and just be a part of the international community. They fairly well documented their grand strategy in particular, you know, China, I’ve seen particular has so they’re not, you know, they’re not, sort of like, Oh, we’re not going to do shady deals, because, you know, that’s beneath us,

Gene Tunny  22:36

right? Okay, what I would, what I’m wondering about, Darren is, what does this mean for us, consumers and businesses? Because China has become the new workshop of the world. Our mutual friend Dan Mitchell, who you mentioned before, he’s pointed out the tariffs there are tax so you can argue about to what extent the the tax is borne by by foreigners, by by exporters, who might have to cut prices to be able to keep selling to the US or to sell elsewhere. But there’s no doubt that they are a tax, and us, consumers and and importing businesses, will pay more Dan quotes, some estimates that it could cost Americans 2000 to $4,000 reduction in disposable income. What do you think will be the impacts on consumers of the Trump tariffs, please? Darren,

Darren Brady Nelson  23:34

yeah. I mean, I would say that analysis sounds fairly incomplete, because you have to take in in account the whole sort of, you know, gambit of taxes, like the ones that the people who are now paying more tariffs weren’t paying in terms of domestic taxes, you also have to take into effect, obviously, you know, Trump has a huge tax reduction package that’s that’s going to be coming up, so you have to factor that in as well. So to just suggest that it’s just purely tariffs, and there’s going to be no changes to other taxes. So Dan’s right, it is a tax, which means you have to look at the whole sort of like, what’s Trump doing on all the taxes, basically, that are obviously under his disposal at the federal level, of course, and includes, obviously international as well. So again, you could certainly make it a case. I think it’s not unreasonable to, you know, particularly if you’re going to have a trade off and you’re going to have lower income taxes, lower corporate taxes, maybe lower capital gains taxes and that sort of thing, and then you you know, I’m not going to talk about these particular punitive tariffs, but I can see, you know, you know, a sensible level, obviously much lower, once you get, hopefully, people in the room, and you start getting tariffs and non tariff barriers lowered, at least on a bilateral basis, bilateral, bilateral, bilateral, that you could end up with an actual lower tax burden on American consumers over time. Even though you putting aside, like the spike, obviously right now with tariffs. And also you have to throw in the fact the US, unlike a lot of countries, is less reliant on foreign trade than it has historically been. It’s got a huge domestic market, and there’s competition domestically now, again, like I’m saying, in principle, I don’t favor like, hey, we’ll just throw tariffs on because, you know, we want to help out industry a over industry b. Or, you know, domestic industry a versus its its foreign competitors. Like I said, I think in the context of this, I believe this is Art of the Deal. It’s not, they’re not going to keep these in place, they’re going to, you know, massively lower them when they get deals, you know, with each country, China and the EU will probably be the last to come to the table. In fact, I would argue EU will be the very last China will come to the table, much quicker than the EU will, actually, because I think China is so reliant on, you know, you know, sort of, according to the US, I think it’s, it’s, you know, G, G’s pride. At the moment, the EU is a bit different. They, like I said, there’s such a, weirdly enough, I don’t think G. And oddly enough, the Communist Chinese, even though they obviously want to ultimately be the number one power in the world that, weirdly enough, there’s not at the same time, there’s not this kind of decades grown up anti Americanism that you have the EU. So that’s kind of interesting kind of dynamic that’s going to make doing a deal with the EU probably the most difficult. I think, ultimately, weirdly enough, yeah, I know it’s weird. It’s kind of, in one sense, China should be the most difficult, because obviously they want, they want to, you know, supplant the US as the top strategic power. But then you have the EU, you know, with its long standing disdain for American culture, and particularly, obviously, for Trump and mega, Chinese probably don’t, you know, they kind of have, probably have a weird respect for Trump and mega that the EU does not. That’s interesting.

Gene Tunny  27:12

Who is it the Chinese blame for the century of humiliation? I mean, would that be primarily the British because of the Opium Wars? Probably is, I guess

Darren Brady Nelson  27:21

so, yeah, I guess so, yeah, you know. And look, let me put this all in the context of, you know, you know, I was straight up Dan liberty, Dan Mitchell, Libertarian, slash, classical liberal view of tariffs. But the thing is that what I’ve noticed is a lot of people like Dan, and he’s my friend. He’s, you know, he’s turned into a religion, as though, like, you know, like he won’t complain about other taxes so much, but tariffs are, like, sacrosanct, you know, like they’re not, they’re a tax, you know, like they’re not a super special tax, in some sense, you know. You know, they behave like a transaction tax for the most part. And as you mentioned, yes, they get shared between producers and consumers, whether they’re domestic, and in this case, obviously the producers will be the foreign ones. Whereas, you know, normal transaction tax analysis, you’re thinking in domestic context. But that’s fine. It’s, it’s, it’s pretty much the same thing. Well, it’s been on elasticities of supply and demand, obviously, you know, in particular markets, you know how much, which will depend, obviously, on competition versus, you know, how, how much of a cartel type of industry it is, etc. And what you mean, what are the substitutes and compliments, etc? But yeah, I’ve noticed this weird thing. And I think I also had this once about time, like, tariffs, oh, they’re the special tax that you can never, ever do, any ever put on for any reason whatsoever, even if you actually lower taxes elsewhere. You know. So, no, I think, I think that’s kind of ridiculous sort of stance. Well,

Gene Tunny  28:53

I think the point you make about you talked about elasticities. And I mean, if the Trump tariff formula actually had an elasticity or two in it, then you might think, oh, okay, there’s some logic to it. And there is that concept of the optimal tariff for a large country like the US, which can actually affect the terms of trade. So but, I mean, my concern is just how, just the formula that’s been applied, how wide ranging it is. It doesn’t seem I mean, I can’t understand it. I mean, I don’t think they’ll last either. I mean, I think we both agree this is, this is temporary. I have a different hypothesis to why it’s temporary. I think it’s it’s going to be temporary because the people on Wall Street, the people in Connecticut who had got the hedge funds, they’re going to be knocking on the door of the west the West week, saying you’ve got to stop this. This is, yeah, this is costly this week.

Darren Brady Nelson  29:48

Yeah. What’s the sorry, forget the name escapes the who’s the UK Prime Minister that these sort of people pushed out the door fairly? Liz truss, sorry, yeah. Let’s trust Trump is not. Liz truss. They’re not going to be able to to they can come knocking on the door as much as they like. First of all, Trump knows the game as well as they do, right? So he’s he, you know, I’m not sure Liz really understood it as much. And I’d say the US is a much bigger, more powerful country, etc. But also, Trump has almost been killed. I don’t think the hedge people are going to be able to pressure him like you know, maybe they could have in 2017, 1819, but they’re not going to be able to this time Trump. Trump’s sticking to his guns on all these things. Obviously, we’ll talk about Doge as well, but he’s sticking to his guns. I The hedge fund people in Connecticut? No, they got zero influence on Trump. Well, the

Gene Tunny  30:44

benefit, the the what Trump has in his favor is that there’s still a huge demand for US Treasuries, right? There’s still, you know, they talk about the safe asset shortage, so people want to hold US Treasury bonds, because they’re seen as safe. And even, like, if you have global turmoil, people still want to hold US Treasury bonds because they’re seen as safe. So whereas with the UK, I mean people, you know, the people in the markets, go, Oh, we’re, we’re concerned about their ability to repay all this debt, and yeah, we’ll punish them in the in the bond market. So yeah, that’s, that’s really what, what brought down Liz truss? So, yeah, I think he’s a lot in a lot firmer position than than trust. I think he can, yeah, I don’t see any threat to him. I mean, he can’t be kicked out, like Liz truss. I mean, he doesn’t have a he’s in for the next, next four years, isn’t he true?

Darren Brady Nelson  31:38

And it’s actually have said, or the, you know, like, you know, some of the stuff, you know, I mentioned, you know, the kind of the dirty deals and the that are done, you know, I never thought about these things much prior to the 2020s and I probably would have been like, you like, oh, you know, like, you know, kind of like, oh, I don’t know about that. But now here’s the other context, the West globalists. There’s a war against Trump and people like Trump. So this is also and a lot of these people are hedge managers, so there’s that. So they’re trying to make the markets look tanked and make Trump look bad as much as they can as well. So it’s not just purely, yes, there are people literally are scared and whatnot and but there’s also people because, you know, we have BlackRock. It’s not like these markets are. There’s sort of cartel elements to these markets. They’re not these purely competitive markets, and no one’s really influencing it. And this is purely just a sensible market reaction to stuff it. It’s partly that, but it’s also partly people trying to make this happen as well, the black rocks of this world as well. They who are just ardent opponents of Trump, right? And they’re opponents of Trump, they’re opponents of, you know, me lay their opponents of Orban. They’re opponents of all these, you know, these Trump like movements. I know Milo is a bit different, but he’s also, you know, he’s a strong ally of Trump as well, even though, obviously he takes kind of a more libertarian approach that Dan Mitchell would approve of in Argentina. But they’re both on board with fighting, sort of the globalists, right? The Black Rocks, the the weft and all that sort of stuff.

Gene Tunny  33:19

Darren wasn’t Wall Street, weren’t BlackRock and Ray Dalio and all the hedge funders. I mean, maybe not Dali. I can’t speak about him specifically, but my impression was that they were all in favor of Trump, and the didn’t the stock market have a bit of a boost when he got elected. So, I mean, people, people that you’re talking about, were actually excited about Trump, but now they’re not, because they see that the diet, the adverse consequences these tariffs. Did you see Jim Craver Cramer was on with Aaron Burnett on CNN the other day, just saying, What madness it is. I mean, the I just can’t understand that argument. I mean, wasn’t

Darren Brady Nelson  33:54

Wait a second. When were they on board? I don’t I never heard them release statements Well,

Gene Tunny  33:59

I mean, well, the markets were, the markets got a boost when Trump was elected, and when he and he is Trump, was actually claiming that. Well, he was claiming credit for the markets going up when they were starting to think that he could get elected. So, yeah,

Darren Brady Nelson  34:13

look, he does, you’re right. I mean, all politicians start doing that. They claim, you know, markets go up purely because of them, and then when they go down, that’s not to do anything with them. Obviously, it’s a mix of both. But no, there’s the black rocks. And people have never been on they didn’t also turn to Trump, you know, this time around, he has, you know, this is like a drop dead war to the death, almost, you know, actually, literally, maybe also death, you know, between sort of globalists and the kind of, like the nationalist sort of movements of Trump and Orban and Milo and people like that. I don’t know why you’re smirking at me. This is fairly

Gene Tunny  34:53

honestly, Darren, I don’t, I don’t understand. And I mean, most of these people just want to make money, don’t they? I mean, I don’t know about this. Whether you how you can call them. Maybe they they’re more, yeah, definitely, they’re going to be more in favor of, you know, free or globalization, than, say, the people in the current White House. But I just, I just can’t understand this well, I think deliberately crashes the market. That doesn’t make any sense to me. We’re talking

Darren Brady Nelson  35:19

about Soros did the exact same. Soros, back in the day, did the same thing, not for some market driven purposes, for his political agenda. Soros did this, you know, once upon a time. So these people, I mean, Bill Gates, is long removed from like, Oh, I’m just trying to make a profit at Microsoft. I mean, they’ve moved on from this. They have other agendas that they’re using their wealth for. This stuff’s pretty well documented, and it’s not documented on fringe websites. It’s documented fairly well, you know, maybe not on CNN, but it is documented on Fox Business and plenty of other sort of websites like that.

Gene Tunny  35:59

I think if you can send me some links to that. Darren, I’d appreciate it. Yeah, honestly, I’m, I’m skeptical. But look, it just doesn’t, it just doesn’t appear that. It just doesn’t make any sense to me that they would want to crash the market in that way. There are a lot of people who, from what my impression is that there are a lot of people on Wall Street who are mad at Trump at the moment because of what’s happened in the markets due to his tariff announcement. So these

Darren Brady Nelson  36:27

people support, you know, the COVID restrictions that I mean, this little mini crash from Trump and his tariffs is nothing compared to what happened, you know, under the very end of Trump and, you know, for another, you know, the first year or so, Biden and these people were very supportive, yet they were getting smashed in the pocketbook. Were they not? So people aren’t just motivated purely by profit, and even people in Wall Street and et cetera, aren’t just purely profit, particularly if they have kind of, you know, obviously, if they’re not in a position where, if they lose right now, they’re gone. You know, as long as they can recover and they have other purposes, and they can have other influences and and hopefully make a buck, obviously, as well as, you know, pursuing, you know, what are their sort of broader goals they have, like a Bill Gates or, or George Soros or, you know, Larry Fink, because they all have broader goals and, and, you Know, weff in particular, you know, their website sets out those goals, and they’re not just to, oh, let’s we want more free trade. That’s not their goal,

Gene Tunny  37:29

right? It’s the great reset you’re talking about. We had an episode on the the great reset a while back. People

Darren Brady Nelson  37:34

always go like, they go like, Oh, I’m skeptical. And then I immediately send them the link to their actual website that talks about the great reset. It’s like, it’s that it’s not like a crazy conspiracy theory. They set it out quite clearly. What they’re trying to do,

Gene Tunny  37:46

what I’ll do is, I’ll put a link in the show notes to our chat about the great reset, and because I think we had a good conversation about that a few years ago. So just finally, on the tariffs, Darren, you you mentioned, you know, other considerations, or other considerations, I presume you’re talking about national security. What do you see a national security aspect to these tariffs?

Darren Brady Nelson  38:12

Yeah, I think there is. I don’t think that’s the main one. Obviously, if you go through the big list, you know, there will be for China, without a doubt that that’s actually with China. It’s, that’s, that’s actually maybe the number one reason, actually with China. I think you can probably, you know the notes, you know where Adam Smith sets out the three exceptions defense is not before he tried to free trade. Yes, yeah, where he sets out the exceptions to free trade, you know, where it is legitimate to do, you know, tariffs or whatever else, right? So defense is number one, and then the next two are almost kind of the same thing, a little bit different. The second one’s the reciprocal, you know, straight up reciprocal. And the third one is the punitive one. And he sets out for a goal, though not punitive, just to be punitive, obviously punitive to then get them back to the negotiation table, and then, you know, open up both markets, if you like. Are, you know, more than just two markets, perhaps. So Adam Smith sets out the himself, sets out the reason for the punitive tariffs, right? So, you know, which we obviously spent a lot of time on previously. So you know, Adam Smith himself, who is obviously against mercantilism, if you like mercantilism, obviously thought like this was a good long term strategy, right? You know, mixed in with the concept of, like, we want lots of gold and all that sort of stuff. But that’s obviously not an issue nowadays. So, yeah, defense definitely it. You know, I’ve surprised in recent years to learn that just the amount of stuff that, you know, the US military relies on China for, you know, inputs, it’s that’s just like, No, it’s like, it’s one thing to rely on Canada or Australia, obviously, or even like countries that may not be your allies, but aren’t literally. Your rivals and could be your enemies overnight, you know, if something went, you know, you know, in Taiwan, if something happened, for instance, which, of course, the US doesn’t rely on Russia in any way, for, for, you know, defense related inputs, but it does for from China,

Gene Tunny  40:17

right? Okay, so national security. I mean, this is interesting that you think that’s, I mean, that’s part of it. But the the biggest story is you think that you agree with Trump, that you think America is getting ripped off. I mean, I’m just trying to understand what the what is it? How are they getting ripped off? I mean, what’s, what are the consequences of that, that jobs and factories have gone overseas, and the idea is to reassure those jobs and factories, is that the idea? Well, look,

Darren Brady Nelson  40:43

you know, I think it’s partly that. I mean, I’ve just purely as an, you know, you know, the evidence I’ve seen, you know, has looked like the US has done a lot of bad deals that that have, if you’ve like, skewed things in favor of Mexico, in favor of Canada, even in their, you know, their overall North American agreement. But more importantly, obviously, you know, through the WTO, things skewing towards China and other agreements. So, you know. So I think they are trying to rebalance, you know, basically, in a nutshell, to others like, you know, look, I can’t speak for Navarro. And all his views, I think you seem to know a lot more about you know him, and you know where he comes from than I do. Maybe he’s got something, a grand strategy that’s beyond just, hey, let’s kind of, you know, level the playing field, you know. I think this is ultimately just kind of aimed at that, because I don’t think you know Trump, or you know, a lot of Americans don’t feel as though they can’t compete if the fields you know more level than it has been in recent decades you know, particularly from you know, probably Clinton onwards, perhaps longer, but at least since then. So you know, that’s, that’s my take on it, that, you know, ultimately these punitive tariffs and putting again, defense to the side for the moment, defense is a different issue, and I think you’ll have to treat it separately. But of course, you know, you can get, you know, obviously the there’s a danger the military industrial complex claiming things are skewed. You know, you know that things are important to them when maybe it’s not. So there’ll be a lot of you know that obviously this will have to be looked at closely to make sure that it’s not just you end up just protect, if you like, really end up just protecting industries over a longer period of time, rather than, you know, having really good, you know, national security reasons for, for, you know, sort of like taking, you know, so making it hard for China to have an input into, you know, this or that particular, you know, crucial security or defense aspect,

Gene Tunny  42:50

yeah, okay, okay, Darren, I think we’ve chatted plenty about tariffs for the time being. Let me it is totally out of the deal. Yeah,

Darren Brady Nelson  43:04

go ahead, yeah. Look, I think this is, you know, something about this tells me I’m right when, when people get, like, just overly emotional about it, like, particularly economists. I kind of kind of not saying you but, you know, but I’ve been talking to libertarian and classical liberal economists, and they don’t even want to consider that. You know, that maybe these trade deals have not been very good and skewed. They don’t want to consider that. They don’t even want to consider that this is Art of the Deal. They don’t want to even consider that the Trump is anything but a protectionist. They don’t want to consider that tariffs, oh, yeah, their taxes. Remember, their taxes, you know. Thus, let’s look at the overall tax mix, including tariffs. They just have, like, this is like a sacred cow. You can’t ever put a tariff up for any reason or put a tariff on even if you can actually say, you know, these Adam Smith reasons, defense, reciprocal, punitive, to then recapture a more free trade arrangement. I’m surprised at the amount of people who they have such emotive responses to it. And they’re not. They don’t go, oh yeah, okay, let me consider this, you know, or you know. Okay, fine, show me some of the evidence for that, etc. No, there. It’s usually a very visceral reaction right away. Perhaps 10 years ago, I might have had the same or maybe seven years ago, I might have had the same reaction too. Well,

Gene Tunny  44:29

that’s what I’d like to see. I’d like to see what is that evidence that that is being claimed, that of these skewed trade agreements, I think it would be good for for the White House to put that out and then have more targeted. I mean, if the genuine reciprocal tariffs, or if they’ve got a beef with a specific country, then then actually, you know, provide the evidence for that, and rather than just what they’ve done. But look, if you’re saying, look, I mean, maybe it is out of the deal, well, I don’t. Know what’s going on in Trump’s head? Yeah,

Darren Brady Nelson  45:02

look, I would, I think, I think, I think you may have relied too much on reporting and what they’ve done. I think, look at that, go, go to the source, and I sent you the link to the White House, their whole, you know, the executive order, plus their whole rationale for that order. And then, you know, judge that alongside of the commentary of whoever else.

Gene Tunny  45:24

Okay, right? Oh, Darren. I think we’ve chatted plenty about tariffs before we better get on to Doge. Elon Musk is, I think he’s finishing up his what was it 130 days as a special government consultant. And I mean, what’s your assessment of how Doge has performed? It’s been controversial. There was a whole, I mean, USA ID was shut down. There are concerns about what that means for Well, for the countries that it used to support, there are concerns about what it means for us soft power around the world. What’s your assessment of how Doge has performed,

Darren Brady Nelson  46:03

they’ve actually opened my eyes. They’ve actually performed better, you know, even though they don’t, you know, it’s not like, you know, typically, you know, if they, if the White House would have asked us, you know, hey, you know, you know, let’s see. We probably would have got a team of economists or whatever. And there’s nothing wrong with that. Of course, that’s typically how it would be done. But it’s interesting in this, you know, given, yeah, it’s interesting that they’re the tech people, the tech gurus that they got, and they AI wizards, I’ve been, you know, and I’m not a, you know, I’m a skeptic of AI like, you know, and this kind of tech in general, you know, like, I’m kind of like, you know, sure, I have to use tech, and I’m not like, against AI or anything like that, but, you know, I’m skeptical. And I’ve been like, they’ve kind of opened my eyes, like, wow, the stuff they found and how quickly they found it, and how broadly they found it. And then, you know, I was also like, you know, when the first thing they went after it was us a ID, and I’m glad you pronounce it that way, because I used to go USAID, and because it gives it, it gives it a sound of because it isn’t really a foreign aid organization. That’s the thing. I thought it was too It isn’t that, you said soft power. That’s being kind, that’s being very kind to what they do, you know, the, you know, Clinton Foundation and all the other stuff that they fund. I’m not sure. You know, it’s not quite the foreign aid organization that people kind of thought it was, including me, the the amount of Basic Black Ops, political black ops that this thing funds is like that surprises me, too. I didn’t realize that’s what it largely does. You know, for every mosquito net that it may provide in Africa, it’s that’s like, that’s mini skill for what it actually really does. So it’s not just that it’s inefficient and waste, if you like, wasting taxpayers money. It’s, again, it’s far more nefarious than even I kind of thought it might be, to be honest. So now understand why they went after it first. It wasn’t purely like, yeah, you’re wasting taxpayers money on this or that, including, you know, political donations and all these things. And of course, to only one side, it’s far worse than this. So I’m impressed by that, and also things like, you know, finding even though, obviously, social security isn’t really something that you know was going to be a reform target for the Trump administration, in fact, they kind of said the opposite. And obviously, pretty much Republicans and Democrats have said this for decades. We can get onto this, and I think they should just copy the Australian reforms in the 1990s they’re not perfect, but, boy, they’re pretty darn good by comparison. But anyway,

Gene Tunny  48:53

this is, you mean, the individual retirement accounts, superannuation, superannuation, yeah, it’s not

Darren Brady Nelson  48:59

perfect, you know? And then there’s the labor unions and all the, okay, it’s not perfect, obviously, but, you know, it’s, it’s, you know, the US Social Security Systems, clearly, the worst system in the Western world, it seems, as far as I can understand, but, but, you know, Doge is just targeting the the weird stuff, like, Why do you have people on the rolls that are 160 years Old? Clearly, no one is 160 years old, right? So, you know, all that sort of stuff, you know. And as if we went in there, we probably it would have taken us forever to get to that sort of stuff, right? You know. No, no, I think you know, over time, you know, Doge, if they keep it around, I think they need to, obviously, bring in economists and you know, and hopefully they’ll work closely with OMB, which they probably are, I’m not, you know, I don’t know, in Treasury, although the US Treasury doesn’t quite have the same broad role that the Australian Treasury does. You know, it’s very much focused on tax and debt, not so much spending, which is weird. I kind of was surprised to find that the US Treasury doesn’t. Even though they dole out money, they they leave it to OMB to do that, right? So that’s kind of what OMB kind of focuses on, spending and stuff like that. Well,

Gene Tunny  50:10

yeah, I’ll have to look at the specifics. I thought, how they how Doge has been so successful, is that they actually, no, I’m saying that it’s part of Treasury.

Darren Brady Nelson  50:18

Your Treasury doesn’t focus on, they have the data, but they’re not like the way that you’ve worked in the Australian treasury, yes, and state treasuries, you know, they’re heavily involved in what gets spent, right? You know,

Gene Tunny  50:33

yeah, to an extent. I mean, you

Darren Brady Nelson  50:35

know, by agency, by agency, there’s a, there’s a negotiation process, yes, yes. They don’t do Treasury doesn’t do that. It’s they kind of leave it to OMB to kind of do that in along with the Congressional Budget Office. And, you know, it’s kind of a, it’s a, kind of a different sort of system. But yeah,

Gene Tunny  50:52

from what I saw, that they were able to tap into some Treasury system that gave them really amazing data on all of the payments going out from US government. It’s quite extraordinary, and that’s how they’ve been able to be, you know, do as much as they’ve done.

Darren Brady Nelson  51:07

Yeah, Treasury has got data, but it’s weird. It’s like they have it, but they’re not like, they don’t actively use it, and they’re not involved in the process of spending like an Australian Treasury is, or even the Queensland treasury. So, but you’re right, yeah, they, yeah, I understand, you know, I’ve seen some of their data, which is public, obviously, and obviously, Doge has got access to much deeper, and I’ve data than, than what we can get at the public level. Yeah, yeah. Okay. So I’m impressed by just, you know, just the way they get, you know, even when, when, when, you know, the the Republicans in Congress were going to go along with this ridiculous, you know, spending budget. And, you know, Doge got onto it really quickly and went, Wait a second. They found all this stuff really quickly, you know, like the speed and the depth and this, you know, scale and scope. It’s like, it’s fairly impressive. Now, ultimately, when they kind of do the report, you know, by the Fourth of July next year, maybe it’ll probably come out on the Fourth of July, I suppose, you know, it’ll be a grant, you know, kind of a ribbon cutting exercise, maybe, type of thing, you know, if they continue to carry on, or whatever, however they hand us over, maybe to OMB. Then, obviously, OMB has got plenty of economists, you know, but I’m impressed by the tech people, and I still think they should be involved and rolled into an OMB and a Treasury or whatever CBO, because, you know, they’re, you know, quite impressive. What they can do so quickly, just on going

Gene Tunny  52:43

back to us a ID, what evidence is that they is there that they are running Black Ops? Is that just a Is that for real, or is that just a talking point from the doge folk?

Darren Brady Nelson  52:53

No, they said it out. They said they put out a great detail. They give you the numbers and stuff. You know, you mentioned the Treasury data stuff. They weren’t, yeah, they’re not. Such as a talking point. Obviously, it gets turned to a talking point for both sides, you know. You know, one side who says, yeah, and then the other side goes, no, that’s not the case. No. Doge, I found that, you know, they don’t just talk they they provide data, you know. And yeah, like I said, I didn’t, you know, like, six months ago, I didn’t, you know, I didn’t have a particularly strong view one way or the other, towards USAID, to be honest, you know, you know, except for, like, just the broader argument that a lot of economists have made, how foreign aid just doesn’t really work. It’s not, you know, East Asia and other places. You know, using market reforms has done way better than Africa, South America, etc, through this, this, this foreign aid. You know, plenty of economists have documented that, you know, conceptually. So, you know, I guess I had that view of it. But, you know, I was surprised that it really wasn’t really much of a foreign aid, you know, outfit, which is why it’s officially called a ID and not actually aid. You know that lot of people are careful not to call it US aid, to make it sound like a straight up foreign aid organization, which I didn’t know really, to be honest, I was kind of surprised too, you know. So they kind of opened my eyes at the, you know, corruption, which is beyond just inefficiency and waste, you know. I think you know, when it comes to corruption, that should certainly be the number one target. Then, you know, waste, and then you know, just kind of efficiencies, if you like, third. And I kind of miss that. I missed that kind of the corruption element of things, I suppose, I guess I realize that there’ll be elements of government that are corrupt to whatever extent, and fraud too. Obviously, that’s what they’ve been highlighting at the Social Security Administration, not suggesting the Social Security, you know, the SSA are fraudulent in them. Cells, but they’re being taken for a ride at times, I think, is what Doge was suggesting, right? It might

Gene Tunny  55:08

have to come back to Doge and have do a bit of a deep dive on some of these, yeah, some of these issues. Just, just so, yeah, I better do, sounds like, I better have a closer look at some, you know, some of what it’s found, and just try and figure out what’s going on. All right, just before we go, Darren, I gotta ask you about the Wisconsin special election. So the Democrats won is the US falling out of love with Maga

Darren Brady Nelson  55:32

no Wisconsin’s kind of Wisconsin’s always weird, but it’s a purple state. It does these weird little swings. It’s not a referendum on Trump. I mean, two things, it’s certainly, I guess it’s a silly referendum on some of Trump’s supporters of Wisconsin who couldn’t be bothered to get out to vote. And I think it’s also a referendum. The weird thing, because I was involved, you know, I did the Trump sort of campaigning stuff last year, and it was all hands on deck by, you know, all sorts of organizations. It wasn’t all hands on deck this time for the Supreme Court, even though it’s very important, because it has national consequences. Basically, the Republicans could maybe lose two seats in the house because of this? Right? Yeah, right. Two seats in the house, in the House of Representatives, not talking about the state legislature. Talk about the in Washington, DC, right? So, and some other stuff too. There’s other things, important things that you know, the Wisconsin Supreme Court will decide on that that have, obviously, state significance, but they also will have, you know, some federal significance too,

Gene Tunny  56:42

because of the boundaries. Is it the electoral Yeah,

Darren Brady Nelson  56:45

you know, gerrymandering? Yeah, both parties do it, but you know, that’s Australia did the same thing. It’s not like no one’s clean on the gerrymandering thing, but so, yeah, gerrymandering, essentially,

Gene Tunny  56:59

we turned it into an art here in in Queensland, I think we were the best at it for a while. Some of those large, all of those regional like we had these huge electorates in the cities, but the these electorates in the in the regions with far fewer people, and so, yeah, there are many more regional members that are the city. It’s

Darren Brady Nelson  57:19

exactly the same thing Wisconsin. That’s the Democrats complain that that that’s the case. The Republicans are, you know, making it a bit too suburban or rural and not urban enough. And, you know, so, yeah, so, yeah. So, so, basically, so, two things, you know, the trump the mega supporters, they didn’t take the election seriously enough. They didn’t come out. And also the various groups, even the one I was involved with, we didn’t get started till the end of February. This is something that should have jumped in by the bare minimum, the beginning of January, probably really mid November, you know, like once Trump won, get stuck into it, because this was such an important election, I’m not gonna, you know, I won’t blame the Schimmel campaign, because, you know, they only have, you know, they certainly attracted a decent amount of money, you know. And obviously more money was poured into Schimmel and Crawford. These were the two opponents, Brad Schimmel and Susan Crawford. So Brad Schimmel was the Republican, Susan Crawford was the Democrat, with the weird caveat of, they don’t actually officially run as Republican and Democrat. You know, kind of how they do at, you know, like City Council like Brisbane, yeah, and in the US, they had the same convention that council level, they don’t officially run as Democrat or Republican. But you kind of figure them out fairly quickly. Although you do get at council level here, you do get some people literally aren’t either party, you know. They’re just people who’ve been in the community, like I mentioned, wabatosa. There was this guy I kept on seeing his sign up, and he was the only person I saw his sign up next to Schimmel and next to Crawford. At times it’s like, Who is this person? Like both sides, like him, you know. So he’s got to win. He was just kind of a local guy sort of thing, you know. So, so anyway, so it was combination of, yeah, they didn’t get out the vote early enough. They didn’t make, you know, an effort. They poured a lot of money into stupid TV ads. I think that everybody on both sides complained. Were just awful. You know, from both sides, everybody, like that was the feedback I was getting. It’s like, no one liked anybody’s TV commercials. They just weren’t very good. So, anyways, yeah, but, but what did get up is the voter ID constitutional referendum, the Wisconsin State Constitution. So that will be in the Wisconsin State Constitution that you will have to have voter ID. Now it’s also in the context of there already are voter ID laws here, right? Yeah, you can change laws, right? So, and the Democrats were looking to change those laws to not have voter ID. Basically, um. Which, you know, does seem weird, because, you know, even labor, I don’t think has ever suggested that you shouldn’t have voter ID, have the greens. I wonder if the Greens have ever suggested that.

Gene Tunny  1:00:10

I’m unsure. I honestly don’t know. I mean, the greens are more I mean, they’re, yeah, they’re focused on the big issues for them are obviously the environment, but also housing affordability. I mean, housing affordability is pretty dire here in Australia at the moment. And I mean, the Greens have a lot of policies on that. I don’t think they’re the right policies, but at least they’re, you know, they’re concerned about it, and they’re and they’re, you know, they’re making a lot of noise about it. So, yeah, I mean, we’re having an election that’s coming up on third of, think it’s the Third of May. It’s early May. So, yeah, I don’t know if you’re keeping an eye on that, Darren, if you have any thoughts on what we’re in for over here.

Darren Brady Nelson  1:00:50

Yeah, look, I don’t have strong thoughts on it. I have, you know, kind of fairly shallow thought because it, you know, it’s like, I mean, obviously, even in the internet age, obviously, I have access to all the same information as you do sitting in Australia as you do with the US. But it’s funny, when you’re not sitting in the country, you just, there’s kind of you just don’t soak the stuff as much. So, you know, look, I obviously listen to, you know what? You know friends like you or or mutual friend, Alex Robson has to say about, you know, what he thinks about the election and others. So I understand it’s, well, I don’t know. It’s kind of going back and forth, is it not? My feeling is Dutton will win, or, you know, Dutton, it’s not like Dutton literally wins, obviously, but the Dutton government will win. But, you know, maybe scraping it in, I guess it will be a landslide mandate sort of thing. Anyway, it’s

Gene Tunny  1:01:43

actually swung back to the government, to the Labor government, being returned, at least as a, probably as a minority government with support of TEALS, those, you know, those independents.

Darren Brady Nelson  1:01:57

I think dun will still win. That’s all I’m saying. Yeah. Okay, interesting. I think you’ll still win, because the poll, the polls, they’re always a little bit biased against conservatives. Right now, that’s on steroids in the US, right particularly when Trump’s on the ballot. You know, the polls are just like they were wrong. They were dead wrong. They were, they weren’t even close in the US right now, I’m not saying they’re like that in Australia there, but they are skewed and biased a little bit away from conservatives in Australia as they are, I believe, in UK, Canada. So I think you need to factor that in a bit. It was scomo. I mean, like scomo the other he’s got, you know, really not much of a chance. You know, now,

Gene Tunny  1:02:42

was seen as a bit of a disappointment in the end, I think so. Oh no, no,

Darren Brady Nelson  1:02:47

I agree. I mean, I’m not depending scomo How he performed, what he actually won, yeah, but he was, he was not, he was not, you know, favored in the polls very often, right in the lead up to that election.

Gene Tunny  1:02:59

Oh, not to for 2019 That’s right. He, that was a, that was a real surprise. He, he had a good campaign in 2019 but in 2022 I think

Darren Brady Nelson  1:03:08

everyone, well, I’m talking 2019 sorry, yeah, early 2019 Yeah, yeah, just Yeah. I mean, the mainstream media is left leaning. It just is, you know. And their biases, you know, come through, you know Murdoch? Yeah, Murdoch’s in the middle. He’s not right wing, he’s not left wing. He’s murdered Rupert Murdoch, that is, I’m not. His kids are left wing, lock Lachlan and all the rest. But, you know, give Rupert credit, you know, he’s a, you know, he talked about, you know, he said, Oh, Wall Street, you know, these people just want to make a profit. But that’s Rupert Murdoch, to be honest, you know, like he’s backed left and right over the years. I don’t see him as an ideologue. He owns more left wing publications than he does right wing ones, you know. And it was Roger Ailes, you know that, you know, kind of was the brainchild behind Fox News. Murdoch just saw an opportunity. Like, wait a second. I mean, he’s not blind. Freddie, you can see all the mainstream media was all left, left wing, right in the US at the time, and the new cable. Well, CNN wasn’t all that left wing back then. To be honest, they were. They kind of did actually have a decent mix back in the day CNN, but he certainly saw a market for a rate leaning cable TV, Fox News, you know. So I’m not

Gene Tunny  1:04:27

sure what left wing publications you think Murdoch owns, unless you’re claiming the Times and the Wall Street Journal are left wing. Oh,

Darren Brady Nelson  1:04:36

he owns lots of stuff around the world. He still own a lot of stuff that lean left. You know, I’m not sure if he, if he’s divested of some of that stuff over the years, the times, sorry, what did in London? Yeah, he owns the times. That’s, that’s that leans left. Yeah, definitely. And the Wall Street Journal is, at best, a neocon sort of Reg, um. Of it’s basically a combination of neocons and Neo Neo liberals. So whether you call that left or not, I don’t know, but it’s certainly there hardly free marketeers at the Wall Street Journal.

Gene Tunny  1:05:13

Certainly everything’s nothing’s like it once was Darren. I mean, it’s we live in, live in interesting times, don’t we? Right? I think we’ve, we’ve had a we’ve had a good chat of, I think it’s, it’s good to catch up with you on tariffs, and what’s been happening with with Doge, and your experience in Wisconsin, your your story about the turkey, I’ll have to look out for them. I mean, we have those little bush turkeys in here, scrub turkeys in Brisbane, you’d be aware of, but you wouldn’t get cornered by one of them for 10 minutes.

Darren Brady Nelson  1:05:49

I’ve seen, you know, my, my, my niece’s cat chases those things around. So no, you know. Do you have any, you have any views on the the Canadian election?

Gene Tunny  1:06:00

No, I think it’s extraordinary. Mark Carney was it was parachuted in. I did, didn’t see that coming. I don’t follow Canada closely enough. I know that he could get a benefit from the spat with the dispute with the US. I mean, that could actually help him out, couldn’t it? I mean, that could help the liberals in in Canada, yeah, yeah.

Darren Brady Nelson  1:06:22

Actually, the person who saw that, apparently, and probably not the only one, but, you know, some years back, was a Tucker Carlson, how’s that, right? Yeah, yeah. He saw that, yeah. He saw that, that he’d probably be parachuted in for Trudeau at some stage. Yeah. But interesting enough, it seems that the, you know, the opposition leader there is, he’s, he’s doing an uncomfortable game of, you know, trying to be, I’ve seen the conservative alternative a little bit Trump, like on certain issues, but on tariffs, not like Trump, you know. So it’s, it’s not going to be an easy balance for him to do, I imagine. Yeah, well,

Gene Tunny  1:07:00

lots of fascinating, fascinating things to always talk about with you, Darren. I really enjoyed the conversation. Anything you want to say before we wrap up, you can have the final word.

Darren Brady Nelson  1:07:11

Okay, well, look, you know, I predicted shimmel And I didn’t get that right, you know, hopefully I’ll be better on Dutton and the Canadian election. Because, you know, yeah, I hope, I hope those two governments win, but we’ll see what happens.

Gene Tunny  1:07:26

Well, I hope you’re right about the art of the deal, that’s all. I just hope this is part of his negotiated strategy.

Darren Brady Nelson  1:07:32

Well, yeah, I am too. I’m no supportive, like you have tariffs for tariffs sake. No,

Gene Tunny  1:07:38

yeah. Okay. Very good. Darren Brady Nelson, thanks for joining me. I really enjoyed the conversation. Thank you.

Credits

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

Categories
Podcast episode

Gallium, Hafnium & the Strategic Metals Shaping Our World w/ Louis O’Connor, Strategic Metals Invest – EP276

Show host Gene Tunny speaks with Louis O’Connor, CEO of Strategic Metals Invest, about the increasing demand for strategic metals like gallium, hafnium, and indium—essential for modern technology. They discuss China’s dominance in rare earth processing, the geopolitical stakes, and how supply chain vulnerabilities could impact global markets. Louis also shares insights into investing in these scarce resources.

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

  • Introduction to Strategic Metals and Geopolitical Implications (0:00)
  • Overview of Strategic Metals Invest (2:53)
  • China’s Dominance in Rare Earths (4:00)
  • Characteristics and Importance of Strategic Metals (14:55)
  • Investment in Strategic Metals (16:11)
  • Geopolitical Risks and Supply Concentration (23:33)
  • Private Investment and Market Opportunities (32:45)
  • Historical Context and Future Outlook (43:09)
  • Market Volatility and Investment Strategies (46:49)
  • Partnership Opportunities and Future Growth (49:46)

Takeaways

  1. Strategic metals are crucial – Essential for semiconductors, defence, and energy transition, these metals are essential for modern technology.
  2. China dominates rare earth processing – While reserves exist elsewhere, China leads in refining, creating supply chain risks.
  3. Investing in scarcity – Private investors can own and store strategic metals, profiting from increasing demand and limited supply.
  4. Geopolitical tensions impact prices – Trade restrictions and conflicts can drive scarcity-driven price spikes.
  5. The West is racing to catch up – The U.S., Australia, and Europe are working to develop independent supply chains, but progress is slow.

Links relevant to the conversation

Strategic Metals Invest website:

https://strategicmetalsinvest.com/

Lynas Rare Earths (Australia’s Leading Rare Earth Producer):

https://lynasrareearths.com/

US DoD article “Securing Critical Minerals Vital to National Security, Official Says”:
https://www.defense.gov/News/News-Stories/Article/Article/4026144/securing-critical-minerals-vital-to-national-security-official-says/ 

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Transcript: Gallium, Hafnium & the Strategic Metals Shaping Our World w/ Louis O’Connor, Strategic Metals Invest – EP276

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.

Louis O’Connor  00:03

This year might be the year where we see a lot of sort of strategic sort of stockpiling beginning as well. The US Department of Defense needs these raw materials. The geopolitical situation also can have an effect, like I said, China in retaliation for the US block and some of the semiconductor technology to get into China is restricting. So the West, you could say, has the technology, but Chinese have the raw materials.

Gene Tunny  00:36

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 thanks for joining me. I’m really looking forward to sharing this conversation with Louis O’Connor, CEO of strategic metals, invest in this episode, we dive into the world of strategic metals, resources like gallium hafnium and rare earths that are essential for everything from smartphones and semiconductors to electric vehicles and space technologies. We discuss why China dominates global processing of these metals and what that means for international supply chains, geopolitics and the prices of our favorite gadgets, like smartphones. Louis explains how his firm helps both manufacturers and private investors navigate the complexities of buying, storing and selling strategic metals. If you’ve ever wondered about the hidden backbone of modern technology and where it all comes from, this is the episode for you. Before we get started, I want to give a quick shout out to our sponsor, Lumo coffee. This top quality organic coffee from the highlands of Peru is full of healthy antioxidants. As a listener of economics explored, you can get a 10% discount. Details are in the show notes. Now let’s jump into the conversation. I hope you enjoy it. You Louis O’Connor, CEO of strategic metals, invest. Welcome to the program. Thank you. Gene, happy to be here. Excellent. And you’re joining us from Ireland. That’s, that’s terrific. I think you might be the first guest I’ve had on from from Ireland. That’s, that’s great that that you can join us from, from Ireland. So can you tell us a bit about the company? It seems sounds like a real multinational operation. There’s quite a Yeah. Anyway, please, please tell us about the company. Please. Louis,

Louis O’Connor  02:53

sure, sure. So we had our core we’re based in Central Europe, so I’m, I am in Tipperary in Ireland. But our main office is in Frankfurt in Germany. We’ve got 3540 people there. We’ve been in business since 1999 and our main, our core business is we were a supplier of technology, metals, rare earths, to industry, to manufacturers. So we’ve probably more than 4000 clients in 7475 different countries. That’s our core business. We also have a evolved storage facility in the banking district in Frankfurt, and we also, we still, we have an inventory there, but we also allow some of our industry clients to store the metals there, and then we also invite private investors to participate in the supply chain. So strategic metals, I suppose I’ll just just explain gene it’s not an academic term. It’s more of a an umbrella term for the metals that are basically the backbone of manufacturing in the 21st century. So all modern technology, energy transition, aviation, military applications, but the ones we sort of we sell about 4045, maybe 50, to industry, and then as if we only offer about maybe 10 or 12 to private investors. And the characteristics of those ones are, you know, where does sort of supply, concentration, risk and stuff like that. But essentially, at our core, we’re supplying manufacturers all over the world with raw materials, right?

Gene Tunny  04:39

Okay, so you’re buying them from the mines, are you’re buying them from the miners, and then you, you then sell them to manufacturers that need it. Is that right?

Louis O’Connor  04:49

Correct? Yeah, we, we buy them directly from producers, suppliers. In a lot of cases, you know, there’s a supply concentration risk, like China, it’s. Funny we’re talking this week, because in the last probably two weeks, I have, I’ve never heard rare earths, which is our product, mentioned, as much in the media, or by, you know, heads of state. You know, President Trump in America is talking about rare earths in Ukraine. And of course, their interest in Finland is the same thing. Australia actually would be the second largest producer outside of China. China pretty much dominates, you know, a lot of these, not all, but a lot of you know technology, metals and rare earths, China is about a generation ahead of the rest of the world with the processing technology. So in a lot of cases, I’ll just explain, these metals sort of differ from base metals in the sense that they don’t occur naturally in the Earth’s crust, so they’re always a byproduct of another raw material. For example, gallium is a byproduct of aluminum, and halfnium is a byproduct of zirconium. So for every 50 tons of zirconium, you just get one ton of Hafnium. So it’s very, very limited in what’s available. But at the same time, hafnium is in the industry. Some people call them the spice metals, which is a good analogy to use, like if you think of the spice added to a bit of food. So although they’re used like, hafnium is like a super alloy in jet engines and rocket engines and nuclear reactors. There’s only a small amount, you know, applied or needed, but it’s critical. You couldn’t fly a jet engine won’t work without half Tim in there because of its ability to withstand extremely high temperatures. So on the one hand, they recommend a sort of a small economic they have a small economic visibility, visibility. But on the other hand, they’re critical. They’re absolutely critical. You You couldn’t swipe your phone without indium, you know, I could go on and on. But they’re, they’re, they’re basically the upstream raw materials that become trillions of dollars in in Downstream GDP, right. Okay,

Gene Tunny  07:01

now you mentioned strategic metals, and then there are rare earths. So a rare earths, rare earths are different from strategic metals. Are they?

Louis O’Connor  07:12

No, I would say the best probably description is strategic metals are an umbrella term for all all all metals, let’s say that are critical to all nations, economic prosperity and military applications. Now probably a good way to explain it would be on the in Europe and in the US, the Geological Society or association in the US, they have a list of what they deem 40 critical metals that are critical to their nations, and those would probably be the best description of what strategic metals are. They’re they’re critically needed, and in some, lot of cases, there’s a supply concentration risk, or there’s a heavy localized production, as you know, with gallium, 98% of the world’s gallium is coming from is being processed in China. That’s why, you know, President Bush and the EU and even yesterday, South Korea is maybe going to do a cooperation with Mongolia. Some countries have the resources and others have the demand, sort of because of China’s sort of domination. A lot of there’s a lot of cooperation gone on outside of China. That’s why Trump is after the wrong materials in Ukraine. That’s why Putin, actually a lot of that territory they’ve taken has these In fact, the EU President recently said that these rare earths are fast becoming, or are already more important than oil and gas. So they’re hugely important, yet they sort of have a sort of relatively small economic visibility, right?

Gene Tunny  08:54

Okay, so you, it’s, it’s President Trump, you, you’re talking about, I think you might have accidentally mentioned Bush earlier on, but you’ve been Oh, Donald Trump, yeah, President Trump, just okay, yeah, right. Oh, so you mentioned gallium, and that is, so it’s a soft, silvery white metal, similar to aluminum, and what’s it used in? Or it says it looks like it’s used in semiconductors, is that, right? Is it used in microchips? Indeed,

Louis O’Connor  09:23

it is, yeah, yeah, semiconductors. But it also has, it’s, it’s got, sort of, most of these raw materials are have multiple applications. So it’s used in semiconductors. It’s also considered, as well as an energy transition metal. So for, you know, electric cars, solar, wind, it’s using military applic or, sorry, medical applications and military applications, actually. And 98% of the world’s gallium is processed in China. And that’s, you know, a. Sort of an unusual situation to be in for Europe. Basically what happened gene was when rare earths were first discovered, or, sorry, when we first began to use them. So until the 60s and the 70s, they were really waste materials. And you could have considered them recycled materials, because, as I said, there are by galliums of byproduct of aluminum mining. So it was white. But when we went from black and white TVs to color TVs in the 60s, that’s when we began to have a use for these raw materials. Then in the 1980s in fact, the premiere of China at the time, Deng Xiaoping, who’s considered the modern the architect of modern China in 1987 you could Google this, you’ll see he made a very shrewd prediction. He was standing at a rare earth mine, and he said the Middle East has oil. China had. China has rare earths. And it looks like now that China sort of understood, maybe quickly, or before Europe and the US and the rest of the world how important these materials would be. Because, from that date, the 1980s to now, at that time, China was producing, responsible for maybe 12, 15% of the world’s rare earths. Now they completely dominate the market. So they sort of understood before everyone else, how important they would be in the you know, like China, they do. They made a very, very, you know, long term plan. Now, at the same time, during the 80s and the 90s, the US and Europe and other countries sort of allowed China to do that, because, number one, they could produce them for less money, and it’s a bit messy, it’s a bit complicated. And they said, well, we just let China make them, and we’ll buy them, you know, inexpensively from them for the cars. But, you know, it just sort of, you know, wasn’t, maybe, watched as carefully as it should be, because now all of a sudden, you know, somebody in Europe recently said, we’re in the middle of a Cold War 2.0 and it’s not a race for arms, it’s a semiconductor race. I mean, semiconductors are literally the most critical technology needed in the world today. You know, we needed steel and sort of armor in World War Two. In the Cold War, it was the atomic threat. And today, it’s precision and semiconductors that are in all these military application. So they’re hugely important and usually critical to military and to economic prosperity. Gotcha.

Gene Tunny  12:27

And so what are the top I mean, what are the top five strategic metals? Can you just give us a sense of what the major ones that you’re trading in?

Louis O’Connor  12:36

Yeah, from a because I work mostly with private investment and private investors. So which ones would be the most relevant as a physical asset? Because despite the name, like rare earths, they’re not all that rare. There’s 17 of them, but there’s only four we would we would deem relevant. Now we sell all 17 to industry. They all have in Indus industrial applications. But there might be not that rare. There might be no problem at all with with supply. So out of you know, we also so categories, architect technology, metals, and say, platinum group metals. So we offer about 4550 to industry, but to private investors at any given time, we’re never recommending more than eight or 10. And I’ll give you the eight that we currently recommend is there’s gallium, germanium, indium, rhenium. They’re all technology metals we sell in ingot form or in bar form. And then there’s the rare earths, which are the powdered or the oxidized form that be dysprosium, neodymium, for seidymium and terbium, and all of those eight, six of those are 100, were pretty much 100% dependent on China. And that’s why they’re relevant as physical assets. So gallium germanium were completely dependent on China. In fact, China is banning, well, restricting, the export of gallium and germanium to the US. At the moment, you know, they’re in a trade dispute technology, I suppose, war more than anything. So you know, that’s why they’re relevant as physical assets. China. Can they have us what you might call a smart tap, they can push, put it on and off, and at the moment, there’s restrictions the other characteristics that determine why we deem them relevant as physical assets. One I mentioned is China. There’s a high, localized concentration risk. The other one is we look at what which ones are the most, I suppose the quantitative approach, which is which ones are actually the rarest, and hafnium, it’d be a good example. There’s only 70 to 90 tons of hafnium produced every year, which you could literally fit in the back of a big truck. But hafnium is critically needed in nuclear reactors, in jet engines and space. Technology, our space exploration is becoming a fully fledged space industry. So, so hafnium is critically in demand, yet there’s only 70 to nine tons a year. And then the other thing we look at is qualitative which is just, you know, which ones are most in demand? You know, I mentioned Indium. You can swipe your phone because of indium. So the most in demand at the moment are technology metals for, you know, all semiconductors and phones and computers. You know, one smartphone has probably 12, maybe 13 semiconductors in it. It has probably 12 or 13 of these metals. And yeah, you know, we touch them and see them and feel them every day and and don’t realize, oh, we can. We can own these metals, just like gold and silver, and profit from owning them. So, so those are the main characteristics, the the supply concentration, the qualitative and the quantitative approach,

Gene Tunny  15:56

right? Okay, this is fascinating. And are you helping your investors store the strategic metals? Yes,

Louis O’Connor  16:03

we do. And that’s very, very important question. Actually, Gene because, you know, if we weren’t active in the industry, like we’re in business since 1999 and we 85% of our business activities on a daily basis are, we’re buying and selling metals. So we have a logistics and distribution platform in Frankfurt, and on any given day, I mean, we’ve over 4000 clients in 74 different countries around the world. We’re also like a tier one supplier to companies like, let’s say, Siemens in Germany. What that means is they buy metals every single month from us, and have done for the last 15 years. In exchange for that, they audit us once a year. They come in to the office and to the distribution platform. Well, they hire somebody to do it. But the reason I mentioned that is, if we weren’t active, or not only active, if we weren’t in the middle of this industry, it wouldn’t make sense. I mean, if I was, I don’t know if this was just a sales and marketing operation, there’d be red flags everywhere for investors, because, you know, one like, obviously, because we’re selling to manufacturers, we know what the industry demands. We know what Siemens need, what BMW want, what Apple wants. So we know what purity levels to buy and that we can resell. And to when a investor wants to sell, we’ll mediate a sale immediately to one of our our industry buyers. So, so that’s very, very important, is that what we call the chain of custody. If these raw materials are not in the chain of custody. They’re really useless, no and buyer will. So we’re basically inviting investors to participate in the industry. We can offer them a safe entry and a safe exit from the supply chain. Gotcha,

Gene Tunny  17:53

okay, that’s That’s fascinating. How did you get involved in the industry? Louis, are you a geologist? Did you study geology or how did you get involved? No,

Louis O’Connor  18:03

actually, I’m quite recent. I’m on board like my my sales partners are, the supplier is a German company. I just worked exclusively with them. And, you know, I was, I was actually living in Central America until about five years ago, and I was planning to come home to Europe for my kids to go to school. And I was looking for some sort of, you know, I’d lived in Germany before, for 10 years, I’d lived in in the Americas. And I was coming home and was looking for something interesting to do. And, you know, I sort of, you know, I know Germany. Understand Germany well and and I heard about this company. I was up in the US at a precious metal sort of a conference and investment conference. And somebody told me all about them, and I went to visit them. And I initially was an investor, myself, interested as an investor, this is about 2015 and then I came, when I I immediately was interested in becoming sort of involved, but it took until about 2020 to, you know, to go through the process of becoming a part of of the business Gotcha.

Gene Tunny  19:17

And what type of price growth have we seen in strategic metals? So your, you know, your investors are investing in them, then they’re obviously, you know that? Well, your tagline is, profit from scarcity and growth. So, yeah, yeah, that’s what you’re you’re aiming for. You’re aiming for all the factors these things are in, in short supply, and there’s, you know, there’s a steady demand, or a growing demand for them, and so we’re going to have price rising prices, I imagine. Can you tell us what’s been happening with the prices of these metals, please. Louis,

Louis O’Connor  19:52

yeah, that’s exactly it. Gene, we have what we call scarcity driven price increases. And then. Is also growth. I mean, I think when you look at all the applications and you know, our sort of now, first of all, when I tell you it is a speculation, prices go up or down, yeah, I if I was to say to you now, you’ll make this amount of money. You know, that would be morally wrong, and I’d be telling a lie, because we don’t know. But the truth of it is that the equation we work from is that when there’s, you know, increasing demand, supply can be limited, also subject to disruption, you’ve the potential for profit. Now, historically, we can shoot, we can prove, you know, they they do, they have gone up in value. But one thing we say to our clients is, look, we’re not financial advisors. Our poor our DNA is We buy and sell metals, and we’re inviting you to participate. But we do have an investment strategy, and we say, don’t buy unless you’re not aligned with this strategy. The strategy is simple, buy them and keep them for five years, and you’ll make money. And historically, that’s proven to be true. But what happens, for example, if you look on our website, you’ll see, on average, the metals are up about 34% a year. But I’m just going to give you two examples. If you look at terbium, you’ll see, in the last four years, it’s up 100% so it’s up about 25% a year. But that doesn’t tell the whole story. The whole story is, if you look at the price charts, you’ll see that when we went into lockdown, the terbium is used in semiconductors. When the whole world, you know, when we had COVID and the whole world went into working from home, there was a surge in demand for computers and laptops and stuff. So how a terbium went up 500% in three years, and that’s what we call a scarcity driven price increase. And the reason for that is terbium is a byproduct of another raw material. So just because demand increased for terbium doesn’t mean supply can it can’t. And that’s where we recommend, or, you know, investors can make a profit is if you know, depends what your goal is. But I honestly think if, if you’ve invested 10,000 or 25,000 euro, and it’s double in value, maybe that’s a good time to sell your initial capital, at least. So that’s what happened with turbine. Then when terbium, sort of the prices will correct themselves as well. Then, when we came out of COVID, you know, Boeing and Airbus put in all these orders for airplanes again, so hafnium went up 250% why? Because demand increase for hafnium and supply cannot be increased. So, you know, when does an increase in price? The manufacturers just absorbed the price because, you know, let’s say use Apple as an example, it will be far more catastrophic for the production of the iPhone to stop than for Apple to pay a 50% increase in Indian which is needed to swipe the phone. So anytime there’s increases like that, you know, I mean, companies and nation states do stockpile if they can and when they can. But invariably, from time to time, we have these, what we call scarcity driven price hikes, and then in terms of growth, you know, I don’t think anybody would argue, if you look at where we’re heading with electric cars, wind, solar, space exploration, or space industry, nuclear reactors, we’re going to have more nuclear energy technology. I don’t think anybody would argue that demand will not only continue, but will will probably grow absolutely

Gene Tunny  23:34

this supply concentration risk. I think that is so important. And you, I think you explain, you explain that, well, just how reliant we are on China. What do we know about alternative reserves around the world? I mean, presumably there’s a lot of exploration activity going on. What do we know about attempts to diversify, to find other sources of these strategic metals. Yeah,

Louis O’Connor  24:05

it’s, it is the hot topic at the moment. I mean, as I said, as President Trump highlighted in the last two weeks that these rare earths are, they’re very, very important to the US, and they us needs to wean its dependence off China and Europe as well. I mean, they’re that important that they might use them as leverage to end that war, you know. So there’s no question that you know Europe, the US, Australia, all of any you know nations are seeing. How can we wean our dependence off China? But it’s just, I suppose I’ll give you a good some context there the process. It’s not really mining, it’s metallurgy. And what that means is, because they’re a byproduct of another raw material, you have to first extract them, then you have to separate them, and you have to re metallize them. Yeah. So it’s a very complicated sort of specific, you know, precision driven process. China has about 28 universities that graduate degrees in metallurgy, in, you know, geology and, you know, the technology needed. So China has been graduating probably about 200 metallurgists a week, every week for the last 30 years. You know, there’s maybe 10 to 14 universities in North America that you know. The other thing is, not many of the kids in in US or Europe are interested in in geology or mining as well. So there’s very little. So even if, like, for example, there’s plenty of rare earths in Australia, they’re in North America, they’re probably, you know, they’re not that rare in a lot of cases. However, the engineering expertise does not exist in Europe or the US or Australia actually would be the second biggest, or after China would be producing the most, and probably the most technologically advanced Linus Corp in Australia. So you guys are sort of right behind China, Europe. Us. We’ve a long way to go.

Gene Tunny  26:13

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Gene Tunny  26:48

now, back to the show, right? Oh, well, that’s that’s good to know about Australia, okay, yeah, but yeah, just very concerning. I mean, is, are we just so reliant upon China now that, I mean this idea of decoupling, that we were talking about decoupling several years ago, or there was a lot of talk about that, and I’ve had guests on my program who are very concerned about China, and they’re, they’re advocating, yeah, they advocate that decoupling, or having a very strong strategic stance against China, pushing back against China. But it sounds like we’re just, we’re just so incredibly dependent economically now on on China that we need to find, we need to find some way of of dealing with with China, resolving our differences peacefully. I mean, I think that. I mean, we all want peace just because we’re just so incredibly dependent and anyway, that that’s more of a comment on my part. I’m just thinking through it all. But if you have any reflections on that, please, Louis, I’d be grateful. Yeah,

Louis O’Connor  28:00

I suppose I mean China. Its main focus is China, you know, you know, for example, let’s use the rare earth sector as an example. You know, they have China has big plans for energy transition, for for wind, for solar, for electric cars. That’s now becoming apparent. So, you know, it looks to me like now that they’ve sort of, let’s say, are the dominant market leader in technology, metals and rare earths. Now they’re going to move up the value chain. And for, you know, for to to serve China, first and foremost, but then also to export so, you know, they’ve always made, you know, helping planning, maybe, maybe further ahead. But I think we will see alternative, independent supply, because, as I said, these raw materials are not, you know, China does have about 50% of the world’s reserves. But, you know, there’s Africa and there’s South America, you know, Afghanistan, you you’ll hear a lot of countries all of a sudden going, oh, yeah, we’ve got, like, a trillion, a million tons or a trillion. But, you know, it’s just like anything else, it’s, it’s, it’s more complicated when you delve in a little bit. And for example, let’s suppose, like, even in North America, there’s about 500,000 abandoned coal mines that have what we call tailings, mine tailings, that there are rare earths there, but the technology isn’t there to to re metal, eyes them, and so I think we’ll see over The next 1015, 2025, 30 years independent more supply from from other areas, but it’s just going to take time and again. That’s why my focus is on private investment. Is there’s a window of opportunity over the next 1015, 20 years, even, where investors can own these raw materials and profit from the. Scarcity driven price, like we’re about to head into a cycle. We believe it’s already begun, but it’ll really kick in 2027 and then 29 and 30 and 32 where there won’t just be periods where there’s limited amount, there’ll be periods where there’s there’s none available, and the most important thing to have then will be inventory. And that’s our goal, is to continue to build the inventory. And we also think as well, this year might be the year where we see a lot of sort of strategic, sort of stockpiling beginning as well, the US Department of Defense needs these raw materials just depends on things. The geopolitical situation also can have an effect. Like I said, China in retaliation for the US block and some of the semiconductor technology to get into China is restricting. So the West, you could say, has the technology, but Chinese have the raw materials.

Gene Tunny  31:00

Yeah, gotcha. I mean, that stockpiling point is, is interesting. I mean, certainly. I mean, if you could corner the market, so to speak, then, yeah, you could, really, I mean, you could drive up the price quite significantly. So, yeah, if you get, if you end up being the holder of a, you know, a large quantity of this, of these strategic metals, at a time when there’s a otherwise limited supply, certainly, yeah, that could be very lucrative.

Louis O’Connor  31:33

Yeah. And it does happen, as I said, just, you know, every within every three to five year cycle, there are scarcity driven price hikes. You know, in 2012 the Japanese detained a Chinese trawl, a captain of a fishing trawler for fishing in disputed waters, and in retaliation, China blocked the export of rare earths to Japan. And, you know, right, yeah, prices went up, and things were have been relatively peaceful from about 2014 2015 until COVID. And you know that just that was just an not geopolitical, that was just, you know, this, you know, life or reality and that cause. But now what we’re seeing is this sort of Cold War, 2.0 Yeah, and also the rise in demand. I mean, nobody will argue like, you know, I think we’ll always have fossil fuels, but we’ll also have more nuclear power, and we also have more what we call green energy. I don’t know if that’s the right word, and we like to consider it green energy. But you know, electric cars, solar, wind they, you know, like the magnets in in your smartphone is, is, is similar to the magnet in in the electric car or wind turbine. So there’s raw materials are needed for this energy transition. Yeah,

Gene Tunny  32:59

absolutely. And how are your investors without naming them, obviously, I mean commercial, in confidence and all that. But are we talking? I mean, what are the types of investors? Can you just give us a description, like broad categories, please?

Louis O’Connor  33:13

Sure. Well, I mean, our minimum investment is only $10,000 or 10,000 euros. So when we initially started, it was very much organic and word of mouth, and most of our clients were in the sort of German speaking region of Europe, so Germany, Austria, Switzerland. And, to be honest, we didn’t, that’s why I was able to come on board in 2020 it was, it’s been very successful. And initially we, you know, we didn’t think that, you know, somebody, maybe in Australia or America, would buy metals and store them in Germany, because in order for it to make sense, you need to it is record. You should store them in our city. You do own them, but you store them in the custody of our facility, because that’s what keeps them extremely liquid. That’s what’s give you access to error, 4000 lines in 70 different countries. And it’s not like gold and silver, where, if you, I mean you to be honest, if somebody wants to move them, they welcome to, but they’re, I want, I don’t want to say they’d be worthless. But who’s going to buy them from somebody? Nobody. No manufacturer will buy a small amount anyway. The point I’m making is it started quite small, organically, and we, we haven’t, we don’t really do any marketing directly to private investors, because it, you know, our core business is most important. We don’t want to be seen, to be, you know, marketing to private investors. So, so we’ve just grown it very organically, and until very recently. You know, outside of the outside of Europe, you’d have to, you would have to be pretty on the ball to have found us. But I’d say most of our clients, a lot of them would would understand like there might be engineers or surgeons or people who are. Probably using these raw materials, and a little bit more about them and their capabilities than most people. And then I would say people who are sort of impressed have a curiosity for alternative investments. You know, what’s the next? Not the next big thing, but what’s the thing I don’t know about that’s going to be very important in three years from now, or in five years from now, some crypto people, people who’ve made money on crypto, are looking, you know, when they when they when, when they’ve made some money. They’re looking to diversify and cash out a little bit. So it’s still in its infancy in terms of private investment. Because, you know, somebody asked me recently, Gene What, give them a profile of what our private investor looks like, and I really couldn’t, because I’d say it’s the biggest obstacle to private investors profiting from owning these raw materials are just simply they don’t know they can. And that’s sort of changing. I mean, we’re the only supplier that invites in private investors. I’d imagine it won’t remain that way forever, but again, one has to be so careful, because the only reason we can do this is we’re in the industry. We’re we’ve turned over a billion dollars in in transactions already on the industry side. So we know we can liquidate for our clients, you know, if we, yeah, you know, and it’s not a financial instrument. I mean, we offer, we allow private investors to buy these raw materials. We offer storage in a sister facility, where it’s also a distribution platform. And then we also have a practice when somebody wants to sell that will buy them back from you, and we’ll resell them to a manufacturer. Yeah,

Gene Tunny  36:45

that’s fascinating, fascinating business. And it’s a it’s part of the market that maybe people don’t often think about. Or I think what you’re doing is, I mean, it’s, you know, it’s an important service you’re offering. Are there other companies, I mean, that are doing, that are doing similar things, or, like, where are you in the in the market? I mean, are you sort of on your own offering this, or are they you have competitors? Presumably, what’s this market situation like?

Louis O’Connor  37:18

Well, on the industry side, it’s a very competitive industry. I mean, there’s probably in Europe, 2025 companies, very similar to us, yeah, all over Europe, probably a similar amount in in North America, I’m not too sure, to be honest. And most, you know, thankfully, most of the suppliers like us. You know, stay in their lane. They focus on what they do best, which is they buy and sell metals. That’s what they’re good at. It’s what they know. Our business is. It’s 100% owner operated. It’s a family business, and there’s a little bit of an entrepreneurial flair. And I’ll tell you how what happened. Gene is about 2010 2012 the CEO Matthias route decided that it’d be a good idea to build an inventory, not to be just a middle man, not to just broker in deals. And so they looked for our premises to store metal so they could keep an inventory. And they found a place that actually was a bunker in World War Two. So it was a shelter two levels below ground in the banking district, and Frank converted it to a bank level ball. Now it has a third level above ground and offices and atrium. And at that time 2012 the idea was they begin when prices were low. They they buy inventory for themselves, and then some of their manufacturers, like, there’s one example, there’s a thermometer maker in Easton, north of Frankfurt, who have been a client since day one. They need a regular supply of gallium or germanium, whatever it is. They wanted also to buy, maybe when prices are low, when they could buy some more and have it in storage. So they began to offer the industry clients storage, and then they just said, Well, why don’t we offer it to private investors? It’s the same thing. So the idea was it wasn’t just a direct thing. It was just evolved over time. So since about 2012 they’ve been offering it, mostly in the German speaking region of Europe. But it’s, you know, again, it’s, it’s a success. I mean, people who are interested in gold and silver are interested in these metals as well.

Gene Tunny  39:30

Oh, that’s great. I mean, that’s fascinating. You’ve got an old World War Two, a German World War Two bunker. I mean, there must be some stories there. I mean, I imagine the Americans must have captured it when they rolled through in the in after, you know, D Day, yeah, so, yeah. Well,

Louis O’Connor  39:49

I mean, Frankfurt. If you look at Frankfurt, Frankfurt has always been known as the crossroads of Europe. And if you look it’s smack bang in the middle of all of Europe. So it’s always been a. A busy sort of a thoroughfare. And Frankfurt was of any city in Germany. It was leveled in World War Two. There was, if you look at photos of Frankfurt after in 1946 47 leveled, and it’s just a question as well, like somebody was saying, you know, it’s funny that, you know, even with the Japanese, if you look at America today, it’s, we’ve sort of a short memory, and history moves on very quickly. Because if you look at, you know, how many, you know, we’ve clients from the US who store the metals involved that maybe you know their their granddad was, you know, flying over not too long ago and dropping bombs on it. Or, you know, if you look at Japan and America as well, that it’s all, you know, it’s economics nowadays, the most important thing is that is the business. And, you know, everybody’s doing business together. So, yeah,

Gene Tunny  40:51

yeah, absolutely, yeah. Pass that in. What conditions do you need for that bunker, for the to store the metals are the other special atmospheric conditions that you need? Yes,

Louis O’Connor  41:04

for some of them. For precious metals, no. And for technology matters now you can store them almost indefinitely, just about anywhere they’re in that metal form. But for we have a facility has a reach certification, which is an acronym, and we’ve a lot of bureaucracy, obviously in Europe. So we were regulated. Buying and selling metals is not a regulated industry. Anybody can do it. But the storage like we sell in metal form, oxide, nitrate, even liquid form sometimes. So, so yeah, some of the rare earths that we offer to private investors do need special conditions. But you know, as I always say to my clients, is once you when they complete the purchase, they have a safe keeping receipt to show what’s stored for them, what’s, you know, an account statement, and that shows the facility is reach certified. And once you have that certification, your raw materials are extremely liquid. What that means is, any manufacturer won’t hesitate to buy them, because they were bought from a recognized supplier, and they’re stored in a recognized facility. Gotcha.

Gene Tunny  42:14

Gotcha. Okay, so finally, Louis, there’s a lot of I mean, market volatility at the moment. I mean, we’re recording this on 13th of March, 2025, and I mean just extraordinary. I mean very extraordinary time with what’s happening with tariffs and and all sorts of, all sorts of threats. And the market has, you know, reacted, and it’s, it’s down. The market’s down. Stock markets, is that affecting you at all? Are you? Do you have concerns about, about the future, about your business at all, but with what’s going on, although all the volatility that’s coming out of the United States, well,

Louis O’Connor  42:53

I mean, just purely, I’m not going to say I’m happy with what’s happening in the world. It’s, it’s, we seem to be in dark time. But from from an investment perspective for these metals. I mean, like gold, for example, metals in general have, have not faltered in three, you know, 3000 years as a store of wealth, as a physical asset and and these raw materials survive all economic cycles. I mean, there’s four economic cycles, and metals have proven always to be a good store of wealth during them. But it’s funny gene, I would say now that, you know, we’ve shared a lot of information, and you’ll probably, you know, you know, the way, once you hear about something, you’ll start to notice more. But watch what’s happening over the next few weeks and a few months. I mean, I think possibly even as early as this week, China is going to retaliate to these tariffs, and one way, because I mentioned to you earlier on, China is restricting the export of gallium or germanium in the for the last 18 months. Now. What that means is, prior to this restriction, producers of gallium could sell gallium to whoever they want it. They could export anywhere after the restriction. If you’re producing gallium, you have to apply to the Chinese government for a license to export. And what that means is the Chinese government wants to see who the consignee is. They want to see where it’s gone, and then they can say, yes, we’ll give you the license. So they’ve in the last 18 months, the Chinese have put in a system, and it’s like a tap that they can turn on and turn off of who will receive. I have a feeling, possibly as early as this week, but certainly watching the next four to six weeks, China might say they might put in an outright ban on gallium, germanium and the four rare earths I mentioned the sprosium, neodymium, for serodyne and Terbium. And if they do, you know the likelihood is we’ll see prices we go into a scarcity driven price increases. Yeah,

Gene Tunny  44:56

absolutely, absolutely, yeah. It’s fascinating learning about. About this, because this is, it’s going to become a, well, I presume it is a focus of policy now at the mean, the White House, they’re thinking about it. Our administration here in Australia is presumably concerned about the supply of these, of these strategic bills. I mean, mate, well, I mean, we’re not manifest. We’re probably not, I guess we, you, you said you’re selling some of these metals, strategic metals, to Australia, aren’t you to some of our manufacturers? Is that? Ryan,

Louis O’Connor  45:30

correct? Yeah, we, we’ve, you know, yeah, globally. We sell them globally. But yeah, like, or, sorry, Australia is probably the most advanced in terms of the processing of any country outside of China. In fact, I think Linus Corp is signed up with the US Department of Defense to build a processing facility in either Florida or Texas. Like, unbelievably, Gene Yeah, there’s one plot. There’s one mine in in North America, in California, MP raw materials, producing rare earths, but they have to sell most of their ores, most of their product, to China for processing, because they have no processing capability in the US, and that’s why, you know, it’s funny you hear politicians talk, oh yeah, you know, just because there might be raw materials in Ukraine and in Greenland doesn’t mean you’ll have them in three to five years in smartphones you’re looking at. The average time in America is 29 years from discovery to production of a mine. Not, not you know, it’s, it’s just the industry has dwindled so, so, but Australia has been on it longer than you know anybody else, and they’re sort of way ahead of Europe and the US,

Gene Tunny  46:56

right? So, I mean, this is, I know that critical minerals are part of the discussion between our government, or our and the US administration at the moment, because I don’t know if you saw the news. I mean, well, I guess you know, Trump’s put on the 25% tariff on steel and aluminum, and we thought that as a long standing ally of the US and, I mean, we thought we would get exempt from it, and we haven’t been exempt from it. We’re being accused of dumping. And I think our strategy now is to say, Well, look, we’ve got these critical minerals. We call them critical minerals over here, that that are important for for the US. And so I think I can see now how that can be part of the discussion, given, you know, the conversation we’ve had just, you know, how how critical they are, how much in shortage, how China can actually control the supply of some of these, of these strategic metals. So I can see how this all comes into the negotiations.

Louis O’Connor  48:01

Yeah, and Australia would definitely have some leverage there because of their how far advanced they are in terms of the metallurgical side of it, as well as the production so, yeah, yeah, that’s the thing. I mean, I don’t think most politicians wouldn’t understand Resource Economics. Or, I think President Trump is mixing up rare earth minerals with critical minerals, right?

Gene Tunny  48:28

Oh, yeah,

Louis O’Connor  48:29

not even getting sort of and it seems to be complicated. I mean, you know, we, as I said earlier, strategic metals is not an academic term. And then, like, for example, energy transition metals, defense metals, green metals are sort of, gallium is all of those three as well. But the thing to look at is, is, you know, what’s the most critical technology we have today, semiconductors, and that’s sort of, you know, if you start from there and work your way up, you’ll, you’ll figure it out, you know,

Gene Tunny  48:58

yeah, I think, I think that was really good, Louis, I think there’s really good briefing on no strategic metals, and their importance and and the supply potential, supply problems, what that means to prices. I think that’s, that’s all, all very good stuff before we wrap up any further points you think would be worth, worth us knowing, with people in the audience knowing? No,

Louis O’Connor  49:25

I might. I might just add gene. As I said, until recently, all of our sales partners were in Europe. And you know, if anybody’s listening, who’s who’s involved in precious metals or wants to maybe not. No, I’m not pitching for a customer or an investment, but that’s always welcome. But yeah, we might be interested in talk with somebody about an affiliate and a partnership, an affiliate partnership, if somebody knows a little bit about battles and is entrepreneurial and like, you know, I’m what. We’re open. Into partnerships globally. We have no problem on the industry side, but we, you know, as I said, without doing any marketing, we’ve clients all over the world, private investors, and somehow they’re finding us. But you know, it’s our business is doubling every year on the industry side, so we may as well bring in more partners to work with private investors. So there could be an opportunity there for somebody, if they want to contact me, they can go to the website strategic metals invest and leave an email, or actually, I’ll just give you my email. It’s Louis l, o, u, i s at strategic metals invest.com if anybody wants to get in touch, as I said, I’m not necessarily, I’m definitely not looking. Look. If somebody wants to explore, I’m happy to assist, but, but, yeah, you never know. Business wise, somebody might be interested,

Gene Tunny  50:52

right? Yeah, absolutely not all, all good stuff. Okay? Louis O’Connor from strategic metals, invest. Thanks so much for your time. I really found that fascinating, and I learned a lot about about the market and what that you’re in and some of the risks that we’re facing in the future. So I found that really valuable. So again, thanks so much. Thank you, Gene. Thank you, right. Oh, 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 app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You

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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.

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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

US Debt Ceiling: Why Trump is Right to Call for its Abolition & Gene’s Experience with Aussie Debt Ceiling – EP268

Show host Gene Tunny discusses the ineffectiveness of the U.S. debt ceiling, citing its frequent increases and the political grandstanding it entails. He notes that since 1960, Congress has amended the debt limit 78 times. Tunny argues that the debt ceiling does not enforce fiscal discipline and highlights the need for better fiscal rules, such as the Swiss Debt Brake or the Taxpayer Bill of Rights. He also shares his experience with Australia’s debt ceiling during the late 2000s financial crisis. Tunny concludes that Trump’s criticism of the debt ceiling is justified.

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.

You can also watch the interview on YouTube:

Timestamps for EP268

  • US Debt Ceiling Overview (0:00)
  • Historical Context and Modern Monetary Theory (4:09)
  • Ineffectiveness of the Debt Ceiling (7:07)
  • Australian Experience with the Debt Ceiling (13:00)
  • Conclusion and Alternative Fiscal Rules (24:49)

Takeaways

  1. Debt Ceilings Are Ineffective: The US debt ceiling fails to control spending or debt accumulation, as it is consistently raised to avoid financial crises.
  2. Alternative Fiscal Rules: Spending caps or frameworks like Switzerland’s debt brake are more effective at managing fiscal discipline than nominal debt ceilings.
  3. Political Grandstanding: The debt ceiling often serves as a stage for political drama rather than meaningful fiscal reform.
  4. Modern Monetary Theory Critique: Printing money to avoid debt constraints, as proposed by some MMT advocates, risks inflation and economic instability.
  5. Lessons from Australia: Australia abolished its debt ceiling a decade ago after recognizing its downsides, offering a model for US fiscal policy reform.

Links relevant to the conversation

Useful information on the US debt and deficit from the US Treasury:

https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit (discusses how many times the debt ceiling has been amended)

https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/ (contains the spending, revenue, and deficit figures that Gene mentions)

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Transcript: US Debt Ceiling: Why Trump is Right to Call for its Abolition & Gene’s Experience with Aussie Debt Ceiling – EP268

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 and welcome to the show. The incoming us. President Donald Trump has called the US debt ceiling ridiculous. In this episode, I’m asking, Is he right about that? I have some fairly strong views on the debt ceiling, having been involved in policy regarding the debt ceiling here in Australia. So we used to have a debt ceiling. So I’ll talk a bit about the Australian debt ceiling. In my experience with it back in 2008 when I was an officer in Treasury. I’ve been prompted to cover this issue because the debt ceiling is part of the ongoing debate about the US budget, which flared up in the week before Christmas, Congress had to pass a continuing resolution to continue the funding of the federal government. So the federal government agencies had sufficient funds, and part of it, part of the debate, is the debt ceiling, the amount of debt that the US government can have on its book, so the amount of money it can borrow, and the debt ceiling has been suspended for a couple of years now, and it has to be renewed next year. So this is going to be an issue for the Trump administration. The US federal debt is well beyond the debt ceiling. The current debt ceiling is, think it’s around $31 trillion it’s 31.38 and a few other digits, trillion dollars. So a trillion is 1 million million. So 31 million million dollars. It’s it’s a big number. However, the US government has significantly more debt than that. The current gross debt is around 36 trillion so when the US government, when the Congress approves an increase in the debt ceiling, which it’s, you know, almost certainly it will do it will have to do to avert a major financial crisis, then it will have to increase the ceiling to accommodate the current level of debt, plus additional debt that the US government will incur in in future years, given that the US is still running very large budget deficits. So I think there’s no doubt they will, they will increase the debt ceiling, and we end up with this. You know, with these frequent debates over what the level of the debt ceiling should be, and there’s a lot of political grand standing over it, and hence we have Donald Trump saying, well, let’s just get rid of it. Okay, so what is the rationale for the debt ceiling in the first place? The rationale for it is that it’s going to enforce fiscal discipline of some kind. It will limit the amount of debt. Now it hasn’t really done that. In fact, the US Treasury website tells us that since 1960 Congress has acted 78 so 78 separate times to permanently raise, temporarily extend or revise the definition of the debt limit, and that was 49 times under Republican presidents, 29 times under Democratic presidents. And the Treasury writes on its website, congressional leaders in both parties have wrecked. Recognized that this is necessary, indeed it is necessary, because without borrowing the additional money, the US government wouldn’t have the cash available to to actually pay the bills, to pay Social Security recipients to pay Medicare, to pay interest on the debt, all of the things governments spend money on. Now the modern monetary theory, people might say, well, the government can essentially just print money. And indeed, one of the ideas for getting around the debt ceiling is to for the US Treasury to mint a $1 trillion coin. Of course, as I’ve discussed in other episodes of of this podcast, I’m not a fan of modern monetary theory. I think that’s a very you know, that’s the wrong way to go about things, particularly because it’s going to be inflationary. So assuming we’re not going to follow modern monetary theory, the government does need to borrow money to cover deficits, and hence, if it weren’t able to do that, and then if it ended up defaulting on some of its debts, not paying bondholders interest in time, then that’s going to cause trouble in financial markets. I mean, it’s hard to imagine what a default of the US government could do to both the US economy and the global economy. It certainly would be, would be very bad. There’s no doubt about that. And the congressional leaders so they will politically grandstand, but ultimately they will, they will have to to change it. And hence, the debt limit really doesn’t seem terribly effective, in my view, because it just keeps getting lifted. It could be argued that at least it does spark a public and political debate on national debt and the spending priorities of the government, of the US government. And it’s also an opportunity to negotiate some broader fiscal reforms, such as, there was a Fiscal Responsibility Act of 2023 and that included some spending caps. So you could make an argument it does have some some benefit, but given the sizable US budget deficits we’ve talked about on this this show before, it doesn’t really seem to be having a substantial impact on the US budget, on prompting Congress to fix the budget in dealing with entitlements, which is where a lot of the spending is coming from, it doesn’t really have much of an impact on that. So if we look at the Treasury website, there’s a site fiscal data, treasury.gov.au, it will give you the the figures on on the on the deficit and for the fiscal year 2024 25 we see that there was $6.75 trillion of spending compared with $4.92 trillion of revenue for a total deficit of Well, the deficit is needed to make up the gap between revenue and spending. So to cover the shortfall in revenue, a deficit of $1.83 trillion which is, you know, another bit of evidence, in my view, supporting the notion that this debt ceiling is is rather ineffective. It it doesn’t really work to to address the underlying problems, other issues with it. Well, I mean one, one thing that is seems obvious to me is that it doesn’t really make a lot of sense to have a a debt ceiling or a fixed or set in nominal terms, in terms of current dollars, because the, well, the economy. Economy is going to get larger, there’s going to be inflation, and so hence having a debt ceiling in nominal figures, say 31 trillion. Well, what if you have inflation? Then that is lower in real terms. Or what if the economy expands and the the government could could actually tolerate if you could cope with a higher level of debt without any trouble? So having a debt ceiling in nominal terms is is a bit silly to me, so I’m not really a fan of it for that reason as well. So I would say that I think Trump is right about the debt ceiling, and it’s for those reasons the debt ceiling is ineffective, and also because, once the decisions around revenue and spending have been made by the Congress or by the Parliament here in Australia or in the United Kingdom, the amount of debt you end up with follows from those decisions. It’s not something that the government is choosing independent of those other of those other decisions. So it’s it’s the revenue and the spending decisions that are the critical decisions. That’s where the the action is. That’s where, if we are going to have rules that try to get better fiscal outcomes, that’s where they need to act the debt ceiling. All it seems to do is, once those spending and revenue decisions are made, and as we saw with those data for the US, with the with spending massively outstripping revenue, so spending on entitlements, Medicare, Social Security and also the large national defense budget, arguably you know, a necessary budget, but there is, of course, a lot of fraud, well, maybe not fraud, but a lot of waste in that budget. The Pentagon fails multiple audits. So there are concerns about that. Once those decisions are made, then the amount of debt really just follows from that, because the government needs to borrow the money to make up for the shortfall. So that’s that what that’s what needs to be fixed up. And given that, we can’t see any situation where Congress wouldn’t agree to to increase the debt limit, unless it, unless they wanted to, if, unless they were reckless in a way, or unless they they thought politically, it would make sense for them to crash financial markets so that I can’t see any any logic in that, or Political logic in it for their from their perspective, they’re going to increase it. And hence, you know, the action is going to be on revenue and expenditure. And this is where, as I’ve talked about on this show before, the Trump administration is going to face big challenges, because Trump doesn’t want to lift taxes. In fact, he wants to cut taxes. And he also doesn’t want to cut people’s entitlements, because he’s, you know, he’s a brilliant politician, really, and he knows that that sort of thing is not going to be popular. And he’s, uh, he’s going to try and find a way to control spending, which is politically beneficial or not politically costly for him, that will end up being difficult, I expect, because of the the nature of the entitlement programs and how it’s it’s hard to see saving a lot of money there without making some unpopular decision. So we’ve just got to wait and see how what happens there. Now, I mentioned earlier that I have some experience with a debt ceiling. In fact, we had a debt ceiling in Australia for several years from around 2007 at 2013 and this was set in the what’s called the Commonwealth inscribed STOCK Act. And I remember that act rather well because my team in Treasury. Three were in the debt policy unit. We had to amend that act of parliament. I mean, it was a very simple amendment. We had to change a number in in an Act of Parliament. So the bill was relatively simple, but we ended up having to do all of the paperwork associated associated with that, all the briefing, all of the analysis, I mean, the aofm, the Australian Office of Financial Management. It took care of all of the technical details and the borrowing the money. So big. Shout out to them in the treasury. We, we were looking at the budget and full, you know, based on what we knew about the state of the economy, the state of revenue, the government’s plans for a stimulus package. This is around late 2008 it was, wasn’t long before Christmas. I remember, we discovered that the revenue was much weaker than than previously forecast, and that, hence the the second stimulus package that government expected it would have to do, I suppose, or knew with a significant probability it would have to enact. It realized then that Okay, time, the time is, is right. This has to be done. And so the government suddenly has to start borrowing a lot of money. And the problem was that I can’t remember the exact figure, but at the time, we would have had between 50 to $55 billion of Australian government debt, of bonds on issue and in the Commonwealth inscribed STOCK Act, the limit was set at $75 billion now I have no idea. I wasn’t in the relevant team at the time that that limit was set, if I were, I would have advised against it, because it became clear very quickly that we were kind of sale well past at $75 billion when we had deficits of of many 10s of billions in in each year over the budget forward estimates, we had the financial crisis, and we, I think we would have had deficits of maybe 40 or something billion in one year, or I’d have to check the exact number, but we had rather large deficits, and over the forward estimates, they added up to an amount that meant that we would be approaching 200 billion. So 200,000 million dollars worth of debt. So we needed to change that number in the the Commonwealth inscribe STOCK Act to 200 to 200 billion. So we had the bill drafted, we prepared the explanatory memorandum, and we also worked on the the updated economic and fiscal outlook, essentially when we got back to Treasury after Christmas. And we did that in a, you know, very quick period in, uh, over January. And so it came out in early February, February 3, if I remember correctly, and then it just everything sort of went a bit crazy, in a way, the government announced, okay, things are much worse than we expected. We’ve got this new stimulus package. You can argue about whether that stimulus package was necessary or not. But regardless of whether or not the Rudd Government had a stimulus package, we would have, we would have had to have increased the debt limit, the debt ceiling, because revenues had collapsed, particularly in company tax receipts, because companies their revenues were down. Mining companies were making less revenue because of what had happened to commodity prices, and we were we needed to borrow more money. There was just no getting around it unless the government was going to engage in some sort of fiscal austerity, some perverse fiscal policy. And so we thought, okay with the government’s come clean about what’s going on. Everything’s okay. Now the aofm, the Australian Office of Financial Management, will be able to start borrowing money, and everything will be fine. Government won’t have to worry about whether there’s enough money in the bank, at the Reserve Bank, which you know, prior to getting that approval, or prior to having the AFM starting to borrow money again, that could have been an issue. There could have been an issue regarding whether there would have been sufficient funds. Dollars in the government’s bank account, the Reserve Bank. So we clearly needed to borrow money again. We needed to start the bond market up again, having larger bond auctions, and we needed to get that debt limit up to 200 billion. So what was a real surprise was when the then opposition leader Malcolm Turnbull announced that the gov, the opposition, at the time, wouldn’t support increasing the debt limit. And this was a huge, a huge shock politically, you can see why they do it, but it still came as a as a big shock. And when you think about it, I thought it, it didn’t make a lot of sense, given that in Australia, there’s been since the dismissal of the Whitlam government in 1975 which caused a lot of political turmoil and divided the country. Since that time, there’s been a consensus that the opposition would not block a federal budget. It would not block appropriation bills, which would, you know, which would bring a crisis of supply if they blocked those bills? That’s what happened in 1975 that’s what led to the dismissal of the Whitlam government. So there’s been a consensus that oppositions would support the budget. But here we had an opposition acting in a way which was effectively, would effectively have blocked the government’s plans with the budget or its updated budget, its mini budget, you could call it in February, 2009 and so this was a rather extraordinary situation. And I remember at the time, you know, we were scratching our heads about this, what’s going on? I mean, it did end up getting. It got passed at the end, I think, with green support in the Senate. I remember David Parker, who was acting treasury secretary at the time, and I had to go up to the Senate to explain to Bob Brown, who was the Greens leader at the time, what was going on, and provide some some background in the situation. So it was a it was a relatively tense time, and to what? Well, I guess the lesson that I took out of it is, let’s not have one of the lessons is, let’s not have really silly fiscal rules, like a debt limit of some kind, which ultimately just leads to political grandstanding, or at worst. I mean, if, if it actually did apply, then it could lead to a major, uh, financial and potentially wider economic crisis. So I’m not a supporter of a debt limit as much as I want to reduce debt as much as I believe in sound fiscal policy. I think a debt limit or a debt ceiling is the wrong way to go about it. And hence, I think President Trump, incoming, President Trump is, is on the right track there. And I think, look, perhaps he, he’s going to be the the president who will, he’ll be able to get them to to abolish it. I mean, he’s, he’s got a lot of seems to have incredible persuasive powers. So, so let’s see what happens Australia, by the way, we did away with our debt ceiling in in 2020 13. So the the new Abbott Government, it sought to increase the limit to 500 million, but 500 billion. But ultimately it decided to to abolish it, given that it now it’s inefficient, or it’s creates, you know, political risks. It’s, yeah, it’s just not terribly effective. So I think that was the right decision. And I’d also support getting rid of the budget, limit the budget, or the, sorry, the debt limit, debt ceiling in the US. And that’s not to say that they shouldn’t fix up their their budget. They need to do that. That’s an absolutely, absolute priority. But I don’t see the the debt ceiling has been as being part of that. What I would suggest, and this is something I I’ll cover in a future installment, is. What I think works better is a rule on spending. If you have some rule or some guideline regarding government spending, then that can be potentially more effective, or I think it will be more effective. And you know, arguably, may be desirable. And rules to look at include the Swiss debt break, and that requires that the the budget, the national budget in Switzerland, that’s balanced over the course of the business cycle, and that’s achieved by having a spending ceiling, so a limit on the amount of spending linked to revenue levels adjusted for economic conditions. So it’s a way of making sure that spending is is commensurate with the sort of long run revenue growth, so you’re not getting ahead of your revenue and not ending up with with permanent with structural deficits. So that’s the idea. You want a rule like that, of some kind. Another rule that is popular is the taxpayers Bill of Rights, which Dan Mitchell has called America’s fiscal gold standard, and any revenue above the growth of population plus inflation, any additional revenue that has to be returned to taxpayers, it rebated. So it’s a way of limiting the amount of of money that governments have to spend, it means that they don’t go and spend windfall gains in revenue. And that’s seen as a particularly effective way of of limiting government spending. That’s, it’s that’s possibly a bit more controversial than the debt break. I think the debt breaks arguably got more to recommend it. I have some concerns about table or just just the nature of it, and I have to you know how I want to look at that a bit more closely before I recommend it, I’d be more likely to recommend the Swiss debt break, and certainly I mean, Switzerland’s had a very good fiscal performance since it’s adopted it and over the last couple of decades, and it has low debt to GDP compared with the Eurozone average, so much lower. And the figure I’ve got in my notes is 37% of GDP, significantly lower than the Eurozone average of 97% so Swiss debt break looks like it’s a winner. Table. I’ll analyze that in more detail, in in future, in a future episode, because it’s a little bit more complicated than than the Swiss debt brake. So I’m not 100% confident in recommending that at the moment. Okay, so to conclude, I think that debt ceilings are a bad idea. The critical thing is to get control of spending relative to revenue. I mean, one option is to increase revenue, to increase taxes, but then that comes with economic consequences. I’d prefer that governments get control of their spending rather than try to close a fiscal gap, try to cover a fiscal deficit by increasing taxes. However, the critical thing is, whatever they do, they need to get control of their budget, to get their budget back into the into black, and it looks like things well, the debt ceiling, it doesn’t really help with that, because of the adverse economic consequences that would flow from a government being unable to borrow money when they need to borrow money because of the deficits that are being run. The political leaders, the Congress, they will always vote to to increase the debt limit, the debt ceiling, and so it doesn’t really have an impact on on improving the situation. Okay, so overall, I think Trump’s actually right on this one, that the US debt ceiling is ridiculous, right? I’ll be interested in your thoughts on this episode. Let me know what you think. If you have any views on fiscal rules that that could be helpful, then please get in touch. Send me a note. Contact@economicsexplored.com. Okay. Thanks for listening.

Credits

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

Categories
Podcast episode

Trump & Trade, France in Crisis, Global Capitalism’s Flaws & Job Losses from AI w/ Jean-Baptiste Wautier – EP266

This episode explores the economic implications of Trump’s re-election, France’s political deadlock under Macron, and the future of global capitalism. Jean-Baptiste Wautier, a private equity investor and World Economic Forum speaker, shares insights on trade wars and deficits. He argues that short-term profit motives undermine the global capitalist system. Jean-Baptiste also discusses AI’s transformative potential. Please note this episode was recorded on 11 December 2024, before French President Macron appointed François Bayrou as the new PM. 

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 EP266

  • Introduction (0:00)
  • Economic Implications of Trump’s Re-Election (2:55)
  • Potential Global Trade War (5:50)
  • Global Trade and Economic Interdependence (8:29)
  • Challenges Facing France and the Fifth Republic (13:55)
  • Risks to the Eurozone (20:07)
  • Flaws in Global Capitalism and Potential Solutions (27:34)
  • Examples of Enlightened Capitalism (33:01)
  • The Impact of Artificial Intelligence on Jobs (39:59)
  • Final Thoughts and Future Directions (44:50)

Takeaways

  1. Trump’s Second Term Risks: His proposed tax cuts and tariffs could reignite inflation and exacerbate the US federal deficit, leading to global economic consequences.
  2. France’s Political Instability: Macron’s government faces gridlock, which could potentially destabilize the Eurozone due to France’s growing budget deficit and political deadlock.
  3. Global Trade War Unlikely: Despite harsh rhetoric, economic interdependence makes a full-scale global trade war improbable, in Jean-Baptiste’s view.
    • Capitalism’s Short-Term Focus: Jean-Baptiste argues the current capitalist model prioritizes short-term profits over long-term sustainability, causing inefficiencies and negative externalities like mental health crises and economic inequality.

The Role of AI: AI is transforming industries at an unprecedented speed, raising concerns about job displacement and the need for economic adjustments, possibly extending to UBI (Universal Basic Income), depending on the scale of the displacement.

Links relevant to the conversation

Jean-Baptiste Wautier’s website:

EXPLAINER: Why is natural gas still flowing from Russia to Europe across Ukraine?

https://apnews.com/article/russia-ukraine-war-natural-gas-f9f00df7195d01404f8cb2a43152a8b1

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

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

Jean-Baptiste Wautier  00:03

You look at all the negative externalities that our current system produced, they just gigantic. Think in terms of health, mental health, in particular, the younger generation. If you look at inequalities, not inequalities in the sense of, you know, morally, but inefficiency, the concentration of 10s of billions or hundreds of billions in the hands of a few individual means that they’re not going to be able to spend in a productive way this this amount of money. It’s yet another inefficiency when it comes to the economy. So there’s a lot of negative externalities that our system is producing and which is not making neither the best use of the resources we have, nor having the best impact on people’s well being.

Gene Tunny  00:56

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. Today, I’m joined by Jean Baptiste wartier, private equity investor, visiting lecturer and speaker at the World Economic Forum. We cover the economic implications of Trump’s re election, the potential for a global trade war, the challenges facing France and the state of Global Capitalism. Finally, we touch on the rapid advancements and the risks of job displacement associated with AI. Special. Thanks to Lumo coffee for sponsoring this episode. This top quality organic coffee from the highlands of Peru is packed with healthy antioxidants. Economics explored. Listeners can enjoy a 10% discount. Details are in the show notes. Now let’s jump into the episode. I hope you enjoy it. John Baptiste, welcome to the program. Thank you. Thanks for having me. Gene Of course, it’s great to chat. It’s such a interesting or what’s the word, suppose it’s challenging, and I mean, maybe vexing time for the global economy. There are, there are really some big things that are that are happening that it’s unclear what, what the ultimate impacts will be. So I want to chat about some of those with you today. And I mean, in brief, the election of Donald Trump to the second term, which I think has has surprised many, and that’s going to have implications. Of course, what’s happening in France is at the end of the Fifth Republic. What does that mean? And then also your thoughts on global capitalism? Because I know that’s something you’ve commented on. So to begin with, can I ask about the election of Trump to a second term. What are your thoughts on what that means for the global economy? Well,

Jean-Baptiste Wautier  03:06

thanks, Gene. I think it’s, as you said, it’s incredibly the objective I would use is consequential, because there’s going to be it’s not only a surprise, as you said, not not so much a surprise to some, because you could tell that the way the polls were measuring the real intention of votes for Trump was sort of not completely capturing what was going on and, and I think people were surprised by the popular vote in particular, but, but in terms of its consequences, first, you’re going to have major consequences on the US economy. And I think the first one that comes to mind is inflation, because all of the planned tax cuts and tariffs all have inflationary impacts. And as you know, and as probably most know, inflation is not completely tamed, and central banks are right now hesitating as to what they should do next. And there’s been a sort of a very surprising pose by the Fed and by other central banks, because, again, they observing underlying inflationary trends, and that’s before the Trump measures. So I think the first thing to watch is going to be certainly high. Inflation can be reignited, or will be reignited by those measures. And I would say the immediate second red flag in terms of the US economy is how they’re going to manage the deficit, the federal deficit. These numbers are now staggering. If you look not only at the debt service, but also at the total debt to GDP of the US and how it’s it completely skyrocketed over the last 20 years, we now at levels that we last time so right after World War Two, and we now have. A debt service, and we say that service, but it’s actually interest. So just the interest charge on the public debt, that’s already 20% of receipts, and could go up to 30% so we’re talking about roughly a trillion of interest that need to be paid every year, which even for the US, is a huge number. It’s bigger than the total spend on the US Army and total defense budget. So I think these are incredibly powerful forces that could be unleashed. And I don’t see an easy exit. Whether there’s, you know, some some new inflation trends in the next six to eight months, whether, suddenly, you know, you have all sorts of issues with the how deficits are being tamed. These are going to be major issues that US economy will face very soon. Yeah.

Gene Tunny  05:53

Yeah, absolutely. And what do you think about the potential for a global trade war? Is that a is that a real risk. I mean, we’ve had Trump threaten tariffs on Well, I mean, you know, tariffs against China, a big tariff against China, 60% or wherever, or 100% even 20% across the board, tariffs on Mexico and Canada, unless they control immigration. What do you see as the as the potential, all the risks there of a global trade war and consequently, global slump.

Jean-Baptiste Wautier  06:28

Yeah, I think this one worries me less, despite all the rhetoric that we’ve heard. And it’s not only Trump, it’s you hear that from China. You hear that from also the European Union, who’s talking about, you know, we need to protect our internal market more. We need to tax Chinese cars and all sorts of things. I mean, there’s, there’s, there’s a lot of rhetoric out there. Certainly, the reason why I’m less concerned is even though, you know, we should acknowledge that the world have a lecture at at transport Paris, which is called Global and multipolar world. And it’s indeed a multipolar world. So we have, for sure, exited this sort of Pax Americana and an economy that’s really dominated by the US economy, and where it’s all about globalization and free trade. I think now we have more regional powers. Now we still have a very global and interdependent economy. And despite all of the the efforts from the US, from Europe to try and relocate some of the supply chain, there’s still a lot of dependency. You know, if you look at the production of semiconductors, if you look at commodities, if you look at energy, there’s a dependency on very few places in the world. And I think it’s going to be very hard to really go aggressively with tariffs, even for the US and despite still the dominance that the US has. So I think it’s being used as a tool, as a threat, as a way of negotiating hard. And probably there will be, you know, a few things here and there which are going to be more symbolic than real, real tariffs that shut down the economy. I think it’s just not attainable these days for any economy, even the US,

Gene Tunny  08:21

yeah, yeah. Well, let’s hope sanity prevails. I like that point you made about just the connectedness of the global economy and the the importance of keeping trade open for critical, you know, for those crucial materials that are sourced from, you know, various particular parts of the world. And there’s a good book by Ed Conway recently on the material world, which I loved, which I think really illustrated that quite, quite well. Can I ask you mentioned a was it a lecture or a seminar in Paris, global and multi polar world? What was that? Again? What are the specifics, please?

Jean-Baptiste Wautier  08:58

Yeah, it’s, it’s, it’s a lecture I give to first year master students in Paris. And it’s really about trying to understand the new global economy, which, again, is a combination of exactly as you summarized. It’s global. Supply chains are global. This trade is at its peak compared to global trade at its peak compared to any time in history. But at the same time, there’s dependency on certain, certain parts of the world, on, you know, think of, I don’t know, batteries for electric cars, where all of those, those rare minerals, are only produced in one or two parts in the world, right? You know, in China, in Russia, like two or three countries, think, of course, oil, oil and gas. But also think manufacturing in general. You know, if you look at things like compounds that they use for many for drugs, those. Compounds. Half of the production is in India today, sort of the primary compounds that are being so this is what this seminar is about. It’s really about understanding how this interconnectedness, as you call it, is has become incredibly prevalent, and it’s very hard to revert, at least in short order. And that’s where sovereignty has become an issue for, you know, sort of regional economies like like the ones in Europe, but even for the US, again, you see this constant debate about the importance of Taiwan and the supply of semiconductors coming from, and how strategic this is, because there aren’t that many places that provide semiconductors, and at a time where it’s all about your ability to build data centers build artificial intelligence capabilities, you know, these are incredibly critical, not only to those to those industries, but also to your sovereignty. So it’s all about understanding this level of interdependency, and how, despite all the rhetoric in the world, there’s a limit to what you can do. I love that. There’s one. It’s a tiny example, but it’s so to me, it’s so telling. Which is the supply of natural gas from Russia that goes through Ukraine and then serves Europe is still functioning. So you have sanctions on Russia. You have a war between Russia and Ukraine. Ukraine has been invaded by Russia. And despite all of that, there’s still some gas produced in Russia going through Ukraine and, and, and, and being, being, being delivered to some European countries and, and it’s just because there’s no other way, you know, there’s this so that that tells you how this sometimes is a disconnect between the rhetoric and the actual dependency of the various economies.

Gene Tunny  12:00

Rod, hang on. So there’s a there’s a pipeline that goes through Ukraine, and so the Why don’t the Ukrainians sabotage it? Because the Germans are telling them, oh, you can’t sabotage that, because we need

Jean-Baptiste Wautier  12:16

so good question. It’s even worse than you think, because, because Russia is paying Ukraine for the pipeline, right? And, and they all interdependent. Russia needs to sell its gas. Ukraine needs the royalties from having the gas going through its pipeline and its country. And then the countries in Europe need, need, need the natural gas, and, and, and it’s, it’s a bit like, I don’t know it’s, it’s like Russian oil, you know, Russian oil, and ends up being recycled through a fleet, a ghost fleet, of tankers and ghost insurance companies, and that it gets acquired by in India or China, which To refine it and then sell it back to the European countries. It’s the same. It’s the same irony. There’s the sanctions, but then there’s reality of, we need, we need gas, yeah, and Europe doesn’t produce any, yeah,

Gene Tunny  13:14

it’s extraordinary. I mean, there are, there’s a story like that, I think, from the First World War, which is similar. And Ed Conway tells that in his book, I think there’s a story about how the British had to do a deal with Germany during the First World War, that it was in a bit of conflict with, you know, millions of men dead. And it did. It was, I think it was a range through Switzerland. It was a deal for for optical glass, but that they needed for binoculars. Because, yeah, the Germans were the leaders, you know, Zeiss and all of that in in optical glass. And I forget what the British maybe they provided them rubber, because the British had the plantations in Burma or so, yeah, just extraordinary. I have to look into that. That’s it is, yeah, incredible. So you’re, you’re teaching, you do some teaching in Paris. What’s happening with France? I mean, like I remember going to the the Bastille Day celebrations here in Brisbane, at the so Patel in 2017 which is a couple of months after Macron was elected. And there was so much enthusiasm about Macron and and so much excitement about what he could do for France, and it just all seems to have disintegrated, and now there’s a risk of talking about, is this the end of the Fifth Republic? Could you tell us a bit about what’s going on there? Please? Jean Baptiste,

Jean-Baptiste Wautier  14:36

of course, yeah. And it’s, you know, the French like to make it incredibly complex as always, but it’s, it’s, it’s, indeed, an incredible turn of event, because, you enthusiasm was shared by many people when Macron was elected as someone who was, you know, very modern, pro business, balanced and could really take, take the country further. Um. He did a few things, but not that many during his first mandate, then got re elected, and unfortunately, there’s two issues at play right now. The first one is Macron got elected, but it you know, we could say the same about the UK, probably, and other other countries in Europe. Macron got elected, not as a positive vote from the majority of the French voters, but it was elected against Marine Le Pen. Who’s this? You know, very extreme right, a very nationalist Populist Party, but which has, effectively, over the years, become the leading party in France. They today, they represent anywhere between a third and 40% of the total votes you take all of the last three elections. And she, she was always around around that mark. So that’s pretty high. And the second, the second party was probably elect Marcos party back back back in 22 during the presidential election, but it was far behind, like it was 10 to 15 points behind, and the only reason why he got reelected is because all of the other parties voted against my Le Pen and therefore said I don’t like Macron. I don’t like his policy, I don’t like what he stands for. I don’t like his personality, but it’s better than Le Pen. And so it’s, it’s, you know, you start off of wrong premise here, which is, it’s not, it’s not that people think is the right guy with the right ideas and the right program. It’s like, No, we just want to avoid the populist and the extremists. And then there was a European election in 24 earlier this year that Macron again lost, but it was just a reflection of if you if you looked at the first round of the presidential election, it was already pretty much the same numbers the one I just gave you. So Le Pen came in France with a third of the votes, and then it was not even Second. Second was a coalition of the left parties, and then Macron was third. So it was really a proper defeat. And and he had a very emotional reaction, you know, couldn’t believe that he was he was such a negative vote against him, and they decided to dissolve the assembly, which the President can do once a year, according to the Fifth Republic constitution. And so when you do that, you have parliamentary election. So even though there had been parliamentary election in 22 where already he had no majority. So keep that in mind, even though he’d won the presidential election, and that’s again, because of what I explained, that he didn’t really command a majority. Anyway, he lost again this parliamentary election, but by an even bigger margin, and now no party is commanding any majority in parliament. You have may Le Pen is still the biggest, but thanks to the way the voting system works in France, they don’t have 40% of the seats. Even though they had 40% of the votes. They have like more, like 2025 then the sort of Macron coalition of, you know, center right and center left have roughly another 30% and then there’s, there’s a large coalition of the left, but from extreme left to center left, which has another third. And so you have, you have a deadlock parliament. Is that nobody commands a majority, and everybody’s taking a very extreme position, like no one wants to work with one another. And this is the other very typical French thing at play here, which is France is a lot is long on the ideology, short on pragmatism, the opposite of the Anglo Saxon world. And so all of those three, those three thirds, if you wish, are really sticking to their guns in terms of ideas and programs and what they think should be done. So Macron thought, again, he could have the upper hand because he’s so smart and he’s going to manipulate all of these people, and he’s going to get them into a rhythm. But he actually failed, because again, the Prime Minister he appointed three months ago was was voted out by the parliament. Because again, there’s no majority, and there’s still no emergence of majority. Now is it the end of the Fifth Republic? I think not yet, because it’s a very high bar to change the constitution, and if you you can’t even pass a budget, which is right now, the dynamic at play in France, it’s going to be even harder to have a new constitution unless you put it to to a referendum. So I think you’re going to end up it’s going to be a bit like, like Belgium. Him as seeing for, you know, for two years, you’re going to go from one government to the next. Macro is never going to leave. I think it’s just too that’s his personality. I think he will never want to leave, and he doesn’t have to to be fair. And I think you’re just going to see trials and errors. Trials and errors probably budget never, really, never read, adopted, and they’re going to continue to function in that sort of very transitional mode until the next presidential election, which is in 27 so it’s not going to be it’s not going to be good for the country, because nothing’s going to happen. People are going to be very unhappy. Budgets are not going to be balanced, which is also bad because France is now running the largest deficit in the eurozone and needs to get its acts together, but without any majority in parliament, it’s going to be very hard to balance. So I think it’s, you know, it’s also a real threat for the European Union and the eurozone, because dysfunctional France for another two and a half years, it’s going to be a real issue for the for the entire region. Yeah,

Gene Tunny  21:05

yeah, that’s what I was wondering about. Just what does it mean for for the stability of of the euro, and whether there are any risks of of a Eurozone breakup at some stage? Is that actually a realistic prospect, or is that just something that you don’t think will ever happen.

Jean-Baptiste Wautier  21:23

So I don’t think it’s a zero probability, because again, France right now is running a deficit which is around 6% of GDP as a total debt to GDP of 120% and given the current political dynamic that we just talked about. It’s not going to balance its books anytime soon, and so far, because France is such a foundational country for the European Union and the Euro zone, together with Germany, the commission has been incredibly lenient, and as given France three years, and then five and now seven years, not not even to balance its books, to get back to 3% of GDP for its public deficit, which is the benchmark that you’re supposed to observe. But even if it does that in seven years, the debt is still, you know, it’s still spiraling. And so I see the risk of a Greek episode or a trust episode on France like a real possibility. So not necessarily the fact that the Eurozone is going to completely implode, that I think is a low risk, but I think there’s a real risk of sovereign crisis and the cost of the French debt suddenly spiking. It has already gone up significantly when you look at the spreads with Germany, but I think it could go much, much higher. When it starts to go much higher, you’re going to have to have like, like, in the case of Greece, back in the days, an intervention of ECB or IMF or both, which are going to force reforms on France in terms of balancing its budget, reducing its spending, so that, I think as a real probability. I wouldn’t say it’s, it’s, it’s certain, because there’s been a good amount of leniency so far, but I see that as a real probability of occurring. That would save the euro, but that would be a disaster for France.

Gene Tunny  23:28

And just briefly, what is the cause of the budget deficit? I mean, obviously too much spending relative to taxation and other revenue. But is it entitlement programs? Is it a an excess a blighted public service. Do you have any thoughts on that? So,

Jean-Baptiste Wautier  23:43

yeah, yeah, absolutely. I mean, first of all, if you to put things in perspective, Mark quandry during his seven years when he took over the French, total debt, total public debt, was 2000 billion euros. He added 1000 billion euros during his seven years, which is mind boggling. So when, when you try and disaggregate where this, this came from and and also to answer to your question on, on public deficits, of course, COVID is part of this, but COVID is only a third of this 1000 billions that were added. So a lot of money has been has been spent on two fronts. One Macron tried to make companies more profitable, more competitive, make France more attractive when it comes to investment. So a lot of money has been spent on reducing tax, both for companies and for wealthy individuals. So is introduced a flat tax wait when it comes to capital gains and on the corporate side, he’s reduced the overall tax rate, and he’s introduced a lot of exemptions, and that that is 10s of 10s of billions of euros. Yes, in terms of the spending, and then on the other side, the other source of deficit, and that was a lot of very, I was going to say generous, but crazy, excuse my term, but crazy spend on, you know, helping people with inflation, helping people with energy, helping people with all sorts of subsidies and public spending on things that would never have any structural impact. So you were just helping people for the next six months. But then, you know, and then what? And so they’ve been throwing, again, 10s of billions like this over the last two years, probably also help, you know, hoping that it would appease the country and it would help with people purchasing power and all the rest, but the budget was already in deficit, so you never had that money in the first place. And then the last thing that happened over the last 12 months, which frankly, is is farcical, is they made. They made mistakes in budgeting 2425 because they were hoping that their revenues, which follow the trend of the 2122 fiscal years, whereas these years were rebound from the COVID years. So they were not sort of a normative level. So again, then they didn’t size properly the spends, because they completely overestimated their revenues, and so that’s what created that huge deficit that that we’re seeing now, that’s been widening in less than a year, right?

Gene Tunny  26:31

Okay, yeah. I mean, we’ve had the energy subsidies here in in Australia, and yeah, I guess we’ve made forecast errors in the past, but not, not quite that sounds extraordinary, if they’ve ended up with a Yeah, it is seven, 6% deficit, extraordinary. Okay, well, that’s it is. I’ll keep an eye on what’s happening in France for sure. Yeah. Okay. We’ll take a short break here for a word from our sponsor.

Female speaker  27:00

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Gene Tunny  27:29

now. Back to the show. Last thing I want to cover Jean Baptiste is this question of capitalism. So you’ve you’ve been involved in World Economic Forum, and you’ve so you’ve been a in financial markets for decades, and so you’ve been a long term observer of what we you know, our capitalist system. And you’ve got some thoughts on like, what you see is the flaws in it and how it can be improved. Could you tell us what do you see as the flaws or the problems with our current system of Global Capitalism,

Jean-Baptiste Wautier  28:05

of course. I mean, the to me, the if you start at the very macro level, and you look at all the negative externalities that our current system produced, they’re just gigantic. Whether you look, I mean, the first one that, of course, comes to mind is, is global warming and environment and all the rest. But to me, it’s, it’s far it’s far bigger than this. Because I also think in terms of health, if you look at statistics, in terms of in terms of obesity, for example, whether it’s in the US or in Europe, if you look at mental health and how social media function, and how they impacted mental health, in particular the younger generation, if you look at inequalities, not inequalities in the sense of, you know, morally, but inefficiency, the concentration of 10s of billions or hundreds of billions in the hands of a few individual means that they’re not going to be able to spend in a productive way this this amount of money. So I’m not, I’m really not approaching this, you know, with a moral aspect and just it’s, it’s yet another inefficiency when it comes to the economy. So there’s a lot of negative externalities that our system is producing and which is not making neither the best use of the resources we have, nor having the best impact on people’s well being, simple as that, and and the planet well being so so that that is, to me, the issue right now. And when I try and look at the root cause, the root cause is, over the last, I would say, 3040, 50 years, capitalism has really shifted to becoming incredibly short term and becoming solely focused on profit maximizing, short term profit. And it’s not always been like that. If you if you go back in history, and you look. At the the great industrialist in the US, you know, the great billion of the Rockefellers of this world, the carnegies, the perspective was much more medium to long term. And we’re going to build companies to solve a problem. And if we solve that problem efficiently, profit will be the consequence of solving a problem, problem efficiently for the further society, as opposed to, is going to be the objective. And if you go even further back in history, and you look, you go back to Adam Smith, that’s exactly what Smith, you know, sort of theorized. So even if you go back to the father of liberalism and capitalism, that was already the way it was, it was conceived. So I think this is, this is the issue we facing right now. We’re trying to lay a regulation, you know, in the hope that, oh, we’re going to reduce carbon emissions, we’re going to reduce the use of plastic, we’re going to reduce energy consumption at its and it’s just not working. It’s not working. Because if you look at the global energy consumption in the world, it’s going up. If you look at where it’s coming from, it’s still coming 80% from, you know, fossil fuel. If you look at all the innovations, look at the energy consumption of a Google and Microsoft, it’s the size of a country consumption. You look at, again, you look at the impact on people of all the social media, you know, it’s not, you can’t argue that there’s a lot of negative there. And you look at obesity prevalence in the US or in most developed countries in Europe, it’s going up, up, up. And, you know, it’s, it’s, it’s neither good for the people, not for the society. So all of these things are not going in the right direction and and it’s, it’s not by regulation, by regulating, because we already over regulated, especially in Europe. It’s already impossible to know all of the regulation, and you can never capture it’s too complex. You know, the these, these are too complex to monetize, to measure, to regulate. It’s just impossible. So I think the only way is two things. One, to try and be longer term in terms of how company and investors make decisions, because again, time horizon does matter here. And the second thing is in terms of, again, investors, governance, the way we incentive boards and management, and it’s all about what is the problem which you’re trying to solve, as opposed to maximizing exported profit. And as long as we don’t turn this onto its head and and sort of make profit as a consequence rather than as an objective. I think we’ll continue to, you know, go in circles and observe negative externalities more and more and never come up with a solution. It’s still, you know, it’s a very, it’s a very fundamental issue. It’s not, it’s not one that can be sold easily, but it’s, it’s, I think it’s one we should be concerned with.

Gene Tunny  33:04

Okay, so just to understand, are you arguing that? Well, there are a couple of ways you could look at this. Should, should people have this in concept of enlightened self interest, where they they see beyond the immediate, and they see, well, we’d actually be better off if we thought longer term. So that’s one thing that so there’s that possibility, or are you arguing that they should take into account these wider social or environmental impacts, even if it isn’t of benefit to them directly, because they should have a wider concept of well being than just their company could. I’m just trying to understand what your position is precisely, please. Sean Baptiste,

Jean-Baptiste Wautier  33:49

yeah, no, of course. And it’s no absolutely, and it’s actually both. It’s both changing the time horizon and focusing on on a higher purpose, as opposed to just the bottom line and the profit that you’re going to generate for the fiscal year. So time horizon? Why? And this is something I’ve observed, you know, I’ve spent more than two decades in private equity, and private equity, despite what people may think is actually quite long term, because you invest in companies for 456, years, and then you need to sell this company to someone who’s going to hold it for yet another at least five years, if not more. So when you invest in a business, you need to think the next 10 years. And when you do that, I’ll give you a stupid example. You not going to buy a an incredibly profitable company that makes disposable plastic bags, because you know that the trend is not your friend. So you might look at amazing financials, amazing cash flow generation, amazing management team, blah, blah, blah. You know, great market position, but you know that in five years time, nobody would want to buy this of you. So. So that’s what having a long time horizon brings you, is you will automatically factor in those negative externalities that instantly may not necessarily impact your everyday profit, but in the long run, will, will will no longer be able to be monetized. And the second thing I’m advocating, because I’m trying to, I’m trying to, quote, unquote, see how we can save capitalism and liberalism, because I’m still a great believer in those two capitalism, because that’s the best way we found to create wealth for all you know, collectively, by rewarding risk taking and hard work. So I think we should preserve that, because that works, that engine works and liberalism, because that’s the world I want to live in where I have agency and freedom of starting my own company and freedom of speech. So I’m trying to see, okay, how do I save that? But by getting rid of all those negative things that you know, impacting our societies, and that’s where I’m thinking. Instead of layering regulation which is already impossible to navigate, let’s do this bottom up and have companies which now not only elongate the time horizon, but also focus on what problem are we solving and what is, what is our net benefit to society, not only how good is our product, but also, you know, the well being of my employees, of my suppliers, of my and the society around me, the community. So it’s, it’s what people call stakeholder capitalism. So you really factor in all of the the impacts that you have, direct or indirect, and that’s how you you manage your business, as opposed to what’s going to be my net income, net income for next year? Yeah.

Gene Tunny  36:51

Do you have any examples of companies that you think are doing this well, or could be examples to others?

Jean-Baptiste Wautier  36:57

So there are. There are fascinating examples of companies which are owned by foundations and which have been, you know, one that makes the headlines is Novo Nordisk, which, you know, has made this ozempic product that that is concurring the world. But you have, you have more and more companies, especially in Scandinavia and in the north of Europe, that are being owned by foundations, and those foundations are the shareholders and the way they look again at their businesses. I’m not obsessed with how much dividend can be paid up next year. I’m looking at my purpose, my competencies, my 1015, 20 years horizon, and profit will come if I if I’m doing things right, and if I’m doing things that really bring value to society, I’m going to be a profitable business. And again, that’s what Adam Smith theorized, and he was right. And so you’re seeing more and more examples of this, of, you know, this small, more inclusive capitalism, or companies which are so there are examples, it’s, it’s, it’s nowhere near the majority of companies today. But you know, if you combine those owned by foundations, those owned by families, or founders, very successful founders. I don’t want to it’s a bit of a funny example I’m going to use but, but if you look at musk, there’s a lot of negative things in terms of how much wealth is now being concentrated into his hands, granted. But on the other side, the way he’s built this business. Was never obsessing over next quarter profit. You know, he’s been people were saying, Tesla is going to go bankrupt because they’d been burning cash for so many years. And then when he launched SpaceX, people were like, what i How can you make a profit? You know, sending satellites and going to Mars, there’s no business for that. And Mesa is doing it better than you. And look at where we are today. So he’s an example of an incredible entrepreneur, whether you like him or not, you know you have to look at what he’s achieved. It was never thinking, I want to, I want to be worth 300 billion in 2024, which he, incidentally, he is now. So there’s more and more example that that, that one can can find of, you know, if, if we manage to really turn this onto its head, I think, I think there’s a there’s a path. It’s not an easy one, but I think there’s a path.

Gene Tunny  39:38

Yeah, absolutely, I think, yeah, certainly worth, worth considering, I think Musk is a, he’s a good example of that Bucha nearing capitalist. I mean, is the closest thing we’ve got say to someone, you know, I guess Howard Hughes many years ago, or, yeah, you know, I guess some of the great industrialists you mentioned in Carnegie and all of that. Yeah, absolutely, yeah, absolutely, right. Oh, this has been fascinating conversation. John Baptist, anything else before we we should go anything else that’s that you’ve been thinking about and things worth, worth covering before we wrap up,

Jean-Baptiste Wautier  40:13

right? Thank you, Gene. I enjoyed it. I mean, there’s so much, as you said in your introduction. You know, it’s not just these, these tectonic shift on the geopolitical front, and we only we talked about some of the hot topics, but talk about the Middle East. We haven’t talked about Russia, we haven’t talked about China, and there’s so many things happening there. So it feels like all of these tectonic plaques are moving right now at the same time, and just as if it wasn’t enough, I think artificial intelligence is the most, is the quickest, most far reaching industrial revolution of our times. So you’re overlaying on a world that’s sort of rearranging a massive industrial revolution, which is going to change so many things in our lives. I think we live really fascinating times, and I really enjoy talking about this, because I think we should all have eyes wide open and watch and learn. Yeah, absolutely.

Gene Tunny  41:17

I think just on AI, what are you most excited about? What are there some, are there some develop? I mean, we’ve seen chat, GPT and all of the large language models, but are there certain things that are that are exciting you at the moment? So

Jean-Baptiste Wautier  41:33

I think, well, what’s exciting me is, apart from things that really needs very human emotional intelligence or human presence. There’s so many and some element of judgment, but there’s so many jobs, so many things we do in our daily lives that are a few years away of being replaced by artificial intelligence is just mind boggling. And the only thing that was, you know, sort of delaying it is progress in terms of quantum computing. And you would have seen Microsoft announcement, I mean, the So, so we’re just a few years away of doing so many things with it in everything we do, I think humans will all will be social animals. So we’ll always need, you know, we’ll always need to meet in person. We’ll always need to share motions, to share ties together. When you try and think of care, and there’s certain industries or art investment where you need a lot of judgment at times they will, they will still be pockets where you need human input. But I don’t know, more than half of the things we do can be more or less replaced by by a computer tomorrow. And so that’s that fascinates me. And you know, medicine could be so much better. There’s so many things that could be so much better, but at the same time, it’s a revolution that has very little content when it comes to jobs, employment. All the previous industrial revolution, it was the creative destruction of Schumpeter, right? So they were sort of destroying some industries, but some others were being created. And the level of wealth and productivity was was going up this one not only is going faster than the previous ones, because it’s more like 20 or 30 years as opposed to 50 or 80, but on top of that, it’s not creating jobs. You look at the ratio of market cap of the largest tech companies to the number of jobs they have. I mean, it’s ridiculous. Yeah, we’ve never seen such a bad ratio and and that’s, that’s what worries me, on the flip flip side is, what are we going to do when we can replace, you know, so many things, and it’s not only that, it’s going to be efficient, it’s going to be very low on cost, so it’s going to be a no brainer to replace man by machine in minutes. What are we going to do with all of these job that we’ve destroyed and with all these people that become an employee? That’s that’s the one that worries me. Hopefully excited.

Gene Tunny  44:12

This is why some of my guests argue in favor of UBI So, yes, I mean, I’m not necessarily advocating that, but I think you know that if that scenario, if that’s what happens, and then UBI becomes, becomes more compelling, I’d say, so, yeah, absolutely okay. Thanks so much for the conversation. I really enjoyed it. You’re right. There are so many other issues we could have, we could have covered, but then I’d probably be talking to you for two or three hours, and we might have to have another schedule, another chat, subtitles. I found this very, very enlightening. And, yeah, I think, like the idea of that, course you’re teaching the global and multi polar world. I think that’s so important. This, this whole idea that, since certainly things are. Different from what we expected after the end of the Cold War. We saw the US dominant, but now we see Yeah, just yeah, the multi polar world, as you say, or even a G zero world as Ian Bremmer, yeah, says, Absolutely. I enjoyed it. All right. Thank you. Gene Thanks. John Burt, right. Oh, 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 explored.com, or a voicemail via speak pipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

Obsidian  46:00

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Credits

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

Categories
Podcast episode

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

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

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

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

Timestamps for EP265

Links relevant to the conversation

Episodes featuring the clips:

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

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

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

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

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

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

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

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

Principle of Charity podcast episodes on degrowth:

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

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

Lumo Coffee promotion

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

Website: https://www.lumocoffee.com/10EXPLORED 

Promo code: 10EXPLORED 

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

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

Gene Tunny  00:00

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

David Stockman  03:05

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

Gene Tunny  06:20

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

David Stockman  06:51

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

Gene Tunny  08:01

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

Dan Mitchell  11:24

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

Gene Tunny  16:33

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

Leonora Risse  23:51

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

Gene Tunny  28:35

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

Marian Tupy  32:15

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

Gene Tunny  33:46

yes, yes, yeah, please.

Marian Tupy  33:48

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

Gene Tunny  34:55

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

Daniel Lawse  39:25

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

Gene Tunny  39:53

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

Daniel Lawse  40:08

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

Gene Tunny  40:42

Wow. So the fact that

Daniel Lawse  40:44

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

Gene Tunny  41:18

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

Daniel Lawse  41:49

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

Gene Tunny  44:10

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

John August  48:06

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

Gene Tunny  49:49

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

John August  50:24

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

Gene Tunny  50:49

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

John August  52:23

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

Gene Tunny  52:28

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

John August  53:37

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

Gene Tunny  55:13

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

Credits

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

Categories
Podcast episode

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

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

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

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

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

Timestamps for EP261

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

Links relevant to the conversation

Bio for Darren Brady Nelson available here:

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

Statistics on illegal immigration in the US:

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

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

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

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

Relevant previous episodes:

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

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

Lumo Coffee promotion

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

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

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

Gene Tunny  00:05

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

Darren Brady Nelson  00:38

Thank you. Good to see you again.

Gene Tunny  00:39

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

Darren Brady Nelson  01:07

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

Gene Tunny  01:11

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

Darren Brady Nelson  01:22

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

Gene Tunny  03:01

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

Darren Brady Nelson  03:08

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

Gene Tunny  04:31

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

Darren Brady Nelson  04:48

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

Gene Tunny  05:36

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

Darren Brady Nelson  06:01

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

Gene Tunny  06:20

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

Darren Brady Nelson  06:40

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

Gene Tunny  06:53

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

Darren Brady Nelson  07:37

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

Gene Tunny  11:39

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

Darren Brady Nelson  13:11

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

Gene Tunny  15:08

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

Darren Brady Nelson  15:12

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

Gene Tunny  16:54

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

Darren Brady Nelson  17:31

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

Gene Tunny  20:18

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

Darren Brady Nelson  21:19

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

Gene Tunny  24:36

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

Darren Brady Nelson  25:11

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

Gene Tunny  29:30

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

Darren Brady Nelson  30:18

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

Gene Tunny  32:36

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

Darren Brady Nelson  33:55

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

Gene Tunny  37:36

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

Darren Brady Nelson  37:40

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

Gene Tunny  38:58

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

39:06

Yeah? Well, yeah, I was absolutely

Gene Tunny  39:08

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

Darren Brady Nelson  40:35

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

Gene Tunny  43:44

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

Darren Brady Nelson  44:00

actually introduce me to Dan, to the economic society that

Gene Tunny  44:04

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

Darren Brady Nelson  45:21

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

Gene Tunny  47:32

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

Darren Brady Nelson  48:48

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

Gene Tunny  48:57

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

Darren Brady Nelson  49:02

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

Gene Tunny  53:53

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

Darren Brady Nelson  54:23

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

Gene Tunny  55:15

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

Darren Brady Nelson  57:03

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

Gene Tunny  58:05

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

58:37

Thank you. Bye.

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Podcast episode

China’s Economic Future Under Xi & the Australia-China Relationship w/ Emmanuel Daniel – EP253

Show host Gene Tunny talks with Emmanuel Daniel, founder of The Asian Banker, about China’s evolving economic policies under Xi Jinping. They explore China’s state intervention, the country’s property sector, and the global implications of Xi’s economic vision. Emmanuel also shares insights into Southeast Asia’s rise, focusing on Indonesia’s growth prospects. The conversation concludes with a discussion of Australia’s role in the region, its economic ties with China, and its alliance with the US and UK.

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

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

What’s covered in EP253

  • Introduction (0:00)
  • China’s Property Sector and Economic Challenges (6:32)
  • State’s Role in Economic Development and Social Infrastructure (15:20)
  • China’s Economic Growth and Productivity (29:15)
  • China’s Geopolitical Challenges and US Relations (35:58)
  • Southeast Asia and the Rise of the Rest (44:50)
  • Australia’s Role in the Region and Economic Ties with China (53:38)
  • Final Thoughts and Future Directions (56:07)

Takeaways

  1. China’s State Activism: The Chinese state has reasserted itself in the economy, implementing policies restricting private sector growth with the objective of promoting long-term social stability.
  2. Challenges of State-Led Development: There are limitations to what the state can achieve compared to the dynamism of private markets, especially in frontier technologies.
  3. The Socialist-Capitalist Tension: China’s current policies reflect a unique blend of socialism and capitalism (aka socialism with Chinese characteristics), with the state playing a more prominent role than in Western economies.
  4. Global Implications: China’s economic trajectory under Xi Jinping will profoundly affect global markets, particularly as the state asserts more control over private companies.
  5. Rise of Southeast Asia: Countries like Indonesia are emerging as economic powerhouses, with domestic consumption and political stability driving their growth.

Links relevant to the conversation

About this episode’s guest Emmanuel Daniel:

https://www.emmanueldaniel.com/biography-and-contact/

Economics Explored ep171 on the Enterprise China model:

https://economicsexplored.com/2022/12/26/enterprise-china-what-western-businesses-need-to-know-w-prof-allen-morrison-ep171/

Reuters report “Indonesia minister says Musk to consider offer to build EV battery plant in country”:

https://www.reuters.com/business/autos-transportation/indonesia-minister-says-musk-consider-building-ev-battery-plant-country-2024-05-20

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Transcript: From Academia to Impact: TFranchising Fitness: Lessons from the Expansion of Spartans Boxing Clubs w/ Russell Harrison, CEO – EP252

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.

Emmanuel Daniel  00:03

So the funny thing is that China, the state has become increasingly competent, and therefore became a lot more activist in the way in which the private sector is structured and the role it plays in the economy. I gene,

Gene Tunny  00:27

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 us 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. In this episode, we’re taking a close look at what’s happening in China and Southeast Asia with Emmanuel Daniel, founder of the Asian banker. Emmanuel is very well informed about the region. He’s got some interesting perspectives that have really given me something to think about. Among other things, we talk about the direction of economic policy in China under Xi Jinping. Emmanuel alerted me to the fact that the Chinese Communist Party recently had a very significant policy meeting. In the communique from that meeting, they affirmed their support for fully implementing Xi Jinping thought on socialism with Chinese characteristics for a new era. What on earth does that mean? After talking to Emmanuel, I have a much better idea of what the Chinese administration has in mind. I think it’s worth hearing from him what he has to say. Okay, thanks to Lumo coffee for sponsoring this episode. This grade one organic specialty coffee from the highlands of Peru is jam packed full of healthy antioxidants. There’s a 10% discount for economics explored listeners. Details are in the show notes. Okay, without further ado, let’s dive into the episode. I hope you enjoy it. Emmanuel, Daniel, welcome to the program.

Emmanuel Daniel  02:10

Thanks for having me on, Jim. Looking forward to this conversation, and good morning, by the way. Oh

Gene Tunny  02:15

yes, yes. It’s 8am here in Brisbane, and you’re Are you in Singapore or Beijing or somewhere? Well,

Emmanuel Daniel  02:22

today I’m in Beijing, and it’s, you know, it’s 6am I think, so, you know. So I got up for this call, and I’m looking forward to this conversation.

Gene Tunny  02:33

Very good. Yes. So, I mean, you’re someone who has a having a close look at the global economy, and in particular the East Asia, Southeast Asia, and I’m keen to talk to you today about what’s going on there. It seems that there’s been some big news out of China recently regarding their approach to economic development that you alerted me to. Would you be able to tell us what’s going on their place. Emmanuel, well,

Emmanuel Daniel  03:01

you know, I’ve been in China, by the way, since 2000 as in, my first time visiting China was 1994 and then I started a business called the Asian banker. It’s a research publishing business and so on. And so I’ve had a very close view of developments in China, especially the economic, banking sector. And, you know, I’ve seen China make very important decisions that were, you know, like not taken seriously. You know, in the West, I guess, and I’ve seen them benefit from it, you know, like good things happen, you know, after, after a while, and you you see how it all comes together. And I guess that right now, they’re in the process of making yet another very important decision, and I’m now putting together all the elements that you know, will give me a very clear, a much clearer picture of where they’re taking this, you know. So you know, just to give you a background, like in the early 2000s 2001 was when China joined the WTO, you know. And I remember a conversation in 2003 in Washington, DC, where I was with a senator and a lobbyist, and they were saying that, you know, the US could afford a billion dollars a month, you know, to pursue the Iraq war, but that they were very concerned about the non performing loans of The Chinese banks. And I said, Okay, I put it at the back of my mind, and then 20 years later, you see which country actually had economic you know, or a banking crisis, or several banking crises, and which country kept growing quite strongly, you know. And then I look back and say. What were the elements that enabled China to grow strongly from, you know, about 2001 and it grew, you know, unabated until about 2014 you know, and then it started on to a decline. So right now, I think we all are, all of us are familiar with the fact that the party in China has come in and put lots of curbs on the private sector, you know, and and then we see that on from the surface, it looks reactionary, but when we look at the decisions that they made at the Third Plenum of the 20th Party Congress just a few weeks ago. It looks very deliberate, very well thought through and, you know, and very structured. So the one thing that I’ve come to realize about China is that whenever I say this, my my friends in the West, you know, like, like, raise eyebrows, which is that China is actually very transparent in its policies, at least in its economic policies. So it bears well to read what the decisions that have made and so on. So the third premium, they added more structure to where they want to take this economy. I think, about four years ago, the leader, you know, Xi Jinping, made this comment that houses are meant for living. And, you know, and there are three red lines that we cannot cross in terms of the property sector and so on. And at that time, even within China, the property developers thought that, you know, it was just wishful thinking on the part of the state. But as you can see, they have, you know, been very recorded in terms of the way in which they dealt with the property sector, you know. And then you’d think that, like in most countries, they would be more concerned about revitalizing economic growth and so on, but they were not in any hurry. And that’s that was the actual that was actually the feedback that lots of economists and analysts had outside of China to the decisions made in the third plenum that was just helped, which is that, hey, I thought that you’d be serious about revitalizing economic growth and so on. You know, I spend lots of time in China. I’m a friend of a number of the economists who actually contribute to national thought and, you know, to the State Council. They, you know, present papers and so on. And there are many different, you know, opinions floating around in the marketplace, but the state has taken the view that it has the resources to, you know, to take a socialist approach to creating an equitable society, you know, and it’s paying the price for it right now. And I think that for the rest of us, it bears to take a look at the decisions that they’ve made and, you know, the options that they have given themselves and what they’ve not given themselves, and see how far they can go with it. You know, I think that what they’re really trying to deal with is that blatant capitalism is not good for China. You know, that’s that’s a policy decision that the politicians have made. In fact, a couple of the economists have told me that there’s a big difference between what the economist think about, you know, spurring growth and creating a sustainable society and all that should, how that should work out, and what the politicians think. And it’s a there’s a big divide between the two. So the big question that we need to set for ourselves now is, will the politicians be able to afford the kind of economic system that they, you know, that they’re working on, you know? And you know, what will work and what will not work going forward,

Gene Tunny  09:13

right? Okay, look, there’s a lot to a lot to talk about there. Manuel, I think that’s, yeah, that’s a terrific setup for this conversation about China. A few things just to just so we establish the facts. First, you mentioned there were, was it three red lines for property, for construction, or did I miss

Emmanuel Daniel  09:40

it ago? Now, like you know that, that I forget what they are now, but one of it was that, you know, the property sector cannot borrow extensively from the banking sector and, and I can’t remember the other two. But so basically, you know, the state put out. Uh, guidelines in terms of what the property sector needed to do. The interesting thing with the property sector is that it was, until recently, the, the only, or the most important source of revenue for the provincial governments. So China operates, you know, in a centralized economy, but with a federated system, where the central government expects the, you know, the provincial government to generate their own sources of income. And so when the property sector just grew out of air, meaning, you know, it borrowed extensively from the from the banking sector, there was oversupply in some places, and property prices went up because property was basically the only asset class that most Chinese could invest in. China’s financial sector is not as broad based and as liberal as much of the rest of the world. So all these factors contributed to overheating in the property sector. And when the state put curbs on it, they did it did not give the provincial government, you know, much other options in terms of new sources of income. And so what you see now happening in China is that a number of the provincial governments have problems raising revenue and and then in turn, you know, has an effect on state owned enterprises, jobs and stuff like that right now. Gotcha.

Gene Tunny  11:38

Okay? And and, so what, what did the state do? So, you mentioned they put curbs on it, and what was going on with the property sector? I mean, we saw that there were, there was a whole bunch of development. I mean, you had ever grand, and it looked like there were, there were cities being developed, that were ghost cities, that, at least, that was the, you know, what was being talked about over here. I mean, what actually, what actually happened was it just a mania, a construction building boom. Was the state behind it? What was actually driving it? And then, how did they, how did they curb it? Well,

Emmanuel Daniel  12:14

they basically went after the biggest property developers and and curb, you know, the ability to borrow from the from the banking system, because they were very clear that if this, you know, if this sector overheats, it will have a reproduction on the banking system. But as I said, the real issue in the property sector was that property was basically the most important source of revenue for Provincial Government. So what they do, what they did was, you know, acquire land and hand it over to the developers, who then borrowed money from the banks to develop that and resold that, and that became a source of revenue for the provincial government, you know. And the thing is that you know this narrative alone, the idea that you know there were ghost cities and so on, belies the fact that there were good things that were achieved, you know, in the property sector. China today has easily 20 to 30 a grade cities, you know, relative to the rest of the world. I mean, in that it built very, very good cities in as many ghost cities that you find that were created in provinces that were either underdeveloped or, you know, where sources of income and jobs were not as well developed as the property. That’s where, you know. And then, because of rural urban migration, the concentration of population moved to the a great cities, and then leaving these other small towns emptied out. And I think that’s actually what happened. But if you look at the overall figure, the urban population of China is actually still underdeveloped relative to what you see in the West, in the US, I think in the US, I think about 80% of the population lives in urban centers. In China, it’s still about 60 something percent. So it’s still got a way to go. It’s just not well distributed, you know, and they are capable of working it through over time, you know, if this was the US, what we will be seeing is widespread bankruptcies, and you know, fallout from the from the parts of the country which economically not viable, in favor of the part of the country that where the concentration of jobs and in. Streets are so I think so it’s in my view, because I live here, I spend time here. That’s the redistribution. That’s what’s happening in China on the property front.

Gene Tunny  15:12

Gotcha, okay, can I ask about this, this new Well, what the Chinese administration is what it’s saying about economic development. It’s saying blatant. Well, this might have been the president blatant. Capitalism is not good for China. So to what extent is that? I mean, that’s self serving rhetoric in favor of the existing party, or is it? I mean, what’s the basis for that statement? Do they have any factual basis for it? I mean, capitalism, to the extent that they’ve embraced the market, hasn’t that been behind their economic development? Could you just tell us a bit more about what their what their justification for that statement is? Please. Emmanuel, the

Emmanuel Daniel  15:55

single most important justification is that the Gini Coefficient of China is almost the same as that of the US, so the rich getting richer and the poor being left behind is as much a phenomenon in China. In other words, it’s just as capitalist as the US, and they’re trying to reverse that and make it more equitable. But the way in which they’re doing it is that the state has become a much more, you know, dominant, capable force. And here’s, you know, here’s my structure by which I think through what the state wants to achieve and where it is in that evolution, you know, between 2001 and 2014 the state was putting in place very interesting policies that facilitated private sector growth. And you know, by the time you get to 2004 after China joined the WTO Goldman Sachs started to put out reports saying that, you know, the future is China. Is the future is the large populations the world, and then they come into China. And at that time, the platform players like Alibaba were just coming on on stream, and the Western, you know, capital markets funded these platform players dramatically, you know, and from the time that Goldman Sachs and Masayoshi Son, you know, the private equity the venture capitalists came in and took, You know, stock of potential winners in China. They led some of these to incredible growth. So at the height of its being listed in the US company like Alibaba, was able to be the capitalization was like $830 billion and when you’re capitalized to that extent, you visit a city like Hangzhou in Zhejiang province in China. And the, I call it the cascading effect of capital, the capital comes back into the city, and Alibaba invests in, you know, second tier startups which were, you know, which were the size of a few billion dollars, and those invested down the downstream to other startups. And you have a whole ecosystem of very good players. Now today, Alibaba is about 150 160 100 and $70 billion dollars in market cap and and that shows up in Hangzhou. Again. You go to Hangzhou today, there is widespread joblessness, and you know, and it’s very difficult to pick and choose which frontier technologies that they want to invest in and so on. And the state is saying that that’s okay, because not to worry. We will, we will fund you. We will, you know, guide you. And we will, you know, we will lead the economic growth. And there’s this huge debate whether you know how much of the next phase of economic growth in China should be led by the state, and which phase should be led by the private sector now, so between about 2001 and 2014 the state was happy with The role of facilitating some structure so that the capital markets, and especially the foreign capital markets, can, you know, can create winners out of the private sector companies like Alibaba. And after 2014 the the state started to become, I call it competent, uh. You know, the funny thing is that, and I think this phenomenon, by the way, is repeated in every other country in the world, including highly capitalized, capitalistic countries like the US. When the state becomes confident it creates gets a handle on how to manage, you know, huge infrastructure companies like Amazon and so on. It becomes intrusive. It becomes important, you know, it becomes involved in the in the structure that it’s creating. So between after 2014 the state put in place laws like, you know, data privacy rules, and then also took assertive influence in terms of where these companies go out to raise capital and so on. So the funny thing is that China, the state has become increasingly competent, and therefore became a lot more activist in the way in which the private sector is structured and the role it plays in the economy. Now the status other two other functions to play. One is to provide the social infrastructure, the, you know, the education, the healthcare and all of that. And it does that really very well, you know. And we shouldn’t undermine what China has achieved on that front. In fact, if you come visit China, you’d be, you know, you’d be very impressed with the quality of life in China. And then the second pillar, as I think, as I think about it, is the way in which the state funds or subsidizes frontier technology. So this is not the US capital market. Is the Chinese state looking out for, you know, next generation technologies and and infrastructure that it needs to invest in. And there it had. It had invested in a number of areas. So 5g for example, you know, China is one of the first, was one of the first countries that went veg. The state invested in it. But today I’m actually hearing a few speeches given by former ministers in China saying that, you know, we hurried up and built all this infrastructure for G but there are no applications, and a veg base station cost three times more to run than a base station, and if the applications can’t come on stream as quickly as they should, you know, the telcos don’t benefit from it. And, you know, the investment is way ahead of its time, you know, and and so the thing is that, when, when China, then, you know, says that, look, our EV car business is doing very well. It was the result of the state subsidizing 1000s of EV car initiatives in multiple cities. And then, you know, and that becoming affiliate, you know, a it takes up momentum, and it becomes takes a life of its own. So you can point to a few things where the subsidies have generated new technologies and new industries that didn’t exist before and become world players on top of it. But you can also point to industries that floundered and, you know, being left behind or being quiet. So now the state wants to be the, you know, most important investor in AI technology, you know. But the thing is that on the AI front, the capital that does the Chinese state can put into it, it pales in comparison to what the US is doing. So if you look at the top six AI players in the US, the capital that they are able to garner is about ten trillion I think, and that’s the entire capital market of China. So there is a limit to what the state, any state, can do. It’s not just China, but even the US is not able to fund its own frontier technologies. Is the, it’s the US capital market, which is the giant in this, in this, in this area. And then comes the role of the private sector. No, why can’t the private sector go out and raise its own capital and all of that? So that’s the lay of the land. That’s the, you know, the issues that China is facing. And the big question I’m asking myself, as I put all this together, is, will the state be able to afford the kind of economic structure that is trying to build?

Gene Tunny  24:59

Yeah. Yeah, okay, so I just want to, you know, talk a bit more about, you know, the nature of the Chinese economy. Because the just sort of, I guess I’ve reacted a bit to this statement, blatant capitalism is not good for China. I’m not sure to what extent they’ve had blatant capitalism. Because, I mean, my understanding of China, I mean, this may be wrong, but it’s, you know, it’s state directed capitalism or or it’s socialism with Chinese characteristics, as Deng Xiaoping described it, you know, many years ago. So, I mean, the state’s been heavily involved, and that brings all sorts of complications. You’ve got all these SOEs, state owned enterprises. There’s this enterprise China model that one of my guests was talking about a couple of years ago when I had him on. I’ll have to link in the show notes to that, the idea that, you know, once you get to a certain size that there’s a party official, you have to have someone on your your staff, who’s, you know, connected to the party. I mean, it just seems that the state is already very heavily involved in in business in China, and the idea that it could be getting more involved, I’m not sure that’s the that’s the recipe for for economic success, but that that’s just my my view, just That’s my reaction to that statement. So just interested in any reflections on that, or we could move on, please, up to you. Emmanuel,

Emmanuel Daniel  26:28

yeah. I mean, you know, thing is that the idea of the state becoming competent enough so that it has the confidence to involve itself in the private sector. That’s where China is today. For large state owned enterprises, they’ve always had a Communist Party official in there. The whole picture is one of the competency of the socialist state. And for the longest time, we’ve never had that, you know, the during the Cold War, the socialist state wasn’t competent. It wasn’t a good allocator of capital. You know, it didn’t motivate individuals to to be self reliant and you know, and generate capital, you know, and there, you know. It was just an inferior form of creating economics relative to patent capitalism. But when we put it alongside each other today, patent capitalism did has is destroying the US right now. You know, it’s, you know, it causes this great divergence in terms of the ability to, you know, even look after yourself. You know, the the rise of homelessness in the US and all of that, and the divergence in salaries. I mean, you got CEOs who earn hundreds of millions of dollars in salary for the same 24 hour work that that the last worker gets paid. So you get all these, you know, these courts in in capitalism, which is what China is trying to deal with, but you have a state that has come to a level of competence, that it thinks that it can pull this through. So, you know? So now I’d say we take a wait and see attitude. Now, what I say to myself is I missed the big picture in about 2003 2004 when I doubted China’s ability to generate economic growth given the non performing loans that set in the banking system. But they averted that by by hiving out all the bad, bad debt and putting it into two huge asset management companies. And as the economy grew, they were able to deal with that NPL situation. So now, with the slowing economy and geopolitics up against them, some of those options are not available anymore, so we will have to see. But however, given the fact that China has now come to about $12 trillion in GDP. It has sufficient internal momentum to keep growing, you know, but not in with the at the rate at which it was growing when it was, you know, much it was benefiting a lot from the global capital markets.

Gene Tunny  29:40

Yeah, and was the Chinese economic development story. Was a lot of it the migration of people from rural areas into the cities. I mean, it’s the old Arthur Lewis economic development story. You’ve got people underutilized or, you know, not very productive on the land. They move to the cities. You get a big bump up. Productivity is that, is that still occurring? That migration? Yes,

Emmanuel Daniel  30:03

well, the migration was a reallocation of human resources, you know. And China invested in 40,000 kilometers worth of high speed railway, you know. And and China Railway cooperation, and its, you know, related organizations about $800 billion in debt right now, but it’s a debt that they are able to absorb, because as long as the economy keeps growing, you know, it will be able to ameliorate the debt over a period of time and but as an infrastructure, it’s amazing. It’s going to stay for a long time to come, you know, but all of that did not really result in higher productivity gains, and China is the one economy that grew dramatically without a commensurate growth in productivity, and that’s interesting part of the story that it’s not very talked talked about. So, so now you have wages rising, you know, well beyond sustainable levels. And the state has come in and said, No, we can slow down a bit now, so that, you know, we spread out the wages to the rest of the economy, and bring up agriculture, for example, and revitalize the small towns this urban, rural urban migration was necessary at a time when, you know, China’s urban population was not developed enough to, you know, to take advantage of a lot of the export led, you know, industries. So they needed to create jobs in the big cities. But right now, they want to spread it out a bit more. And the cities that benefited were, you know, were not, were not universal. It wasn’t all cities that benefited, and that’s why we see the ghost towns. The there are many cities that try to become more urbanized, more industrialized, but just didn’t have the means to

Gene Tunny  32:16

so what is the Chinese economic growth story? Is it? I mean, is it foreign investment, or is it, it’s domestic investment in a supposing capital? What is it? What’s the story? So,

Emmanuel Daniel  32:31

exactly as I indicated earlier in this conversation, which is, there are three pillars of economics, okay, one is the state spending and building infrastructure. The second is the state subsidizing industries, and the third is foreign capital. And so what has drawn back now is the access to foreign capital, and the state thinks that it’s able to make up for that by, you know, by supporting private sector companies, which, as you indicated just now, have got Communist Party officials sitting in the company, you know, and second guessing the decisions that need to be made. You know, it’s this is as far as socialism has come as being a viable alternative to capitalism, you know, and they’ve taken it very far, you know, it’s a working system. It’s just that they now have the confidence to think that they can take it further. So like in the main cities, for example, in Beijing, in Shanghai, investment bankers used to be paid the same as investment bankers in the West, which is you try and second guess how much capital you’re able to raise for your client’s company, and you get paid on a success basis, and on a success basis, they paid incredible amounts of bonuses. And now the state has come in to say that investment bankers cannot be paid as they used to be, that those bonuses are illegal under, you know, Chinese style socialism and the capital market here is reverberate, reverberating from those decisions. Saying, Wow, okay, let’s see where you going to take us now. So it’s it’s work in progress, and when you look at states that eventually centralize the economy, a lot everything from Germany before World War Two to Japan in the last 30 years, the capacity of the state to to hold an economy together, especially a large state, can go a long way. You know, it won’t be the same as a, you know, a openly capitalist country, but, but it still can. Um, you know, this story can go go on for another 10 to 15 years.

Gene Tunny  35:05

Okay, what about this socialist approach to creating an equitable society? What types of measures do you think they they have in mind?

Emmanuel Daniel  35:15

It’s every facet of society, everything from the time in which they they banned, you know, educational institutions outside of this, you know, formal school structure, there were online learning systems that, you know, that were making lots of money. You know, people generally spend a lot of money on on things that they’re afraid of, healthcare, you know, education and so on. And you had this, this making, you know, a lot of money from parents, you know, fearing for the future of their kids and so on, you know. So it’s in every facet of society, the building of affordable housing, you know, access to health care. You know, China has got one of the best public sector health care system in the world, you know, and it’s, it’s getting better, Social Security, putting that into place, and ensuring that that, you know, people have income for the rest of their life, which is not pension, you know, in the like in the old days and so on. So I think that just touching on every facet of society, you know, right down to how much time a kid can should spend on on gaming, online gaming, you know? So, so then for the rest of us, looking in, we’ll think that, well, that’s a bit intrusive. And the state making lots of decisions for everyday life, which is, which is what it’s doing right now. So you know how far they’re able to take. That will remain to be seen.

Gene Tunny  37:01

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

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Gene Tunny  37:35

now. Back to the show. I’m sorry to keep talking so much about China, it’s just that it is so. I mean, it’s such a pivotal part of the global economy now, and that it’s it’s hard to talk about anything else so, and I have so many questions. I mean, I like, I agree with you. I mean, it’s been an incredible success story. I mean, it’s within our lifetimes that, I mean the predominant, like when we were young. I mean, they’ll, you know, the predominant mode of transport in China would have been bicycle, wouldn’t it? I mean, like, the amount of economic progress that they’ve had, particularly since, you know, Deng Xiaoping opened up, start open up progressively from the late 70s and the 80s is just absolutely extraordinary. So, yeah, just just incredible progress. What I want to ask is about the, you know, I have, I’ve had a few guests on my show, or maybe two, or maybe a couple, who are very concerned about, you know, the whole China, Taiwan. They’re concerned about China being aggressive militarily, and it looks like there are some very hawkish there’s a very hawkish pivot, or a tilt in the US State Department towards China. There’s more, rather than seeing, you know, 20 years ago, we had this view of cooperation, or, you know, the gains from trade and all of that. Now there’s a lot of concern about national security. Do you have any thoughts on that? I mean, how is, how do you see that as playing out over the next decade or so?

Emmanuel Daniel  39:09

You know, from about 2010 I guess I started coming across commentators who were, you know, putting China on and making it believe that it will become the next leading nation of the world, and all of that since Xiaoping’s economic direction and economic model did not include grandstanding and did not include trying to project itself as as a world power and all of that. In fact, there was a lot of work to be done in China. Was very happy to be, you know, a work in progress. In fact, one of the reasons I am in China is because they invited people who are experts in all kinds of different growth of the country. Three but after 2010 there was this growing assertiveness, and I guess the Americans reacted to that right and and China’s economic growth would not have been possible if the US didn’t allow China to join the WTO in 2001 and that that entry process itself was a long iteration before that. So you get a situation where, you know, the country that used to, you know, just provide the rest of the world with manufactured goods and so on, is asserting itself as a world power. The thing is that China is dialed back a little bit on that, on that narrative, because, from a business point of view, why would you, you know, get on the heckles of your most important client. You know, the business that China does with the US is larger than the business than that China does with any other country in the world, almost put together, right? So, so China has to figure out, you know, how to continue doing business and selling to the US. In fact, you now start hearing that there’s an effort to, you know, to soften that relationship with the US. But at the same time, there’s this thing called Xi Jinping thought which he’s promoting kids in school right up to presidents or banks have to study it, and the way in which it’s been put together is that he’s firing on all cylinders. He’s he’s working on all objectives at the same time, you know, so you get situations where he’s trying to promote regional trade and, you know, forming trade associations and trade alliances, while at the same time having border problems with, you know, all 14 of its of the of the countries on China’s borders. So you know, how will he, or how he will be able to, you know, build a sustainable narrative from, from, you know, pursuing all objectives at the same time will remain to be seen. I think that he will achieve a few of his objectives well, and some will have to, you know, he needs to stand down on them if he’s going to get any good will out of not just the US, but, you know, any of the other countries, with the Philippines, with Vietnam, with India, you know, and so on. So. So I think that he’s being incredibly ambitious. And I anyone in his shoes, will say that, yeah, we will not be able to achieve all our objectives, you know, and and some will have to go by the wayside. The thing about Taiwan is that when China sets itself up as a as Taiwan being a non negotiable, you know, item, it also sets itself up to be ridiculed by countries that want to find the soft spot of China. So, so it’s not, not surprising that the US would use Taiwan as a, you know, as a sore point that on which it could raise the heckles of China. So, you know, and by the way, don’t sell, sorry. Xi Jinping has has has given a mandate that by 2049 which is the 100 years you know of 2049 that that that that should be re reunification, so, so by giving himself a deadline, he reduces the number of options available to, you know, to make this possible. So, you know, I think that some form of military, militaristic approach is inevitable just by reducing the options given to themselves. So it’s, I’m not a, I’m not a, you know, military person, so I wouldn’t comment on how exactly that’s going to be carried out, but it’s the rhetoric that gets them there. Yeah,

Gene Tunny  44:30

yeah. I mean, it’s, it is a great concern. I mean, that certainly could be a, you know, huge Flashpoint globally. But yeah, I mean, yeah, I’ve had, had a few conversations about about Taiwan and the issues there. It’s all fascinating. Emmanuel, that’s been great on China. I really appreciate your insights. I think we’ve got a little bit more time. I’d like to ask you about the, what you call the rise of the rest. I mean. One country I’ve had a bit to do with is Indonesia. I’ve done, done courses for finance ministry officials there and for their economic development agency, I think Baba NAS, if I remember correctly, what’s happening there. At the moment, we’ve got riots. I mean, there’s a whole bunch of instability. What’s the outlook for Indonesia?

Emmanuel Daniel  45:21

I mean, Indonesia has been a success story for Southeast Asia. It’s a $1.3 trillion economy, so it brings it up to the level of the large countries in the world. But even as we spend time thinking about US China relations and the US, China, dynamics, and the rest of the world. I think what we’re seeing now is the rise of the rest, and not just in Southeast Asia, in different parts of the world, in in the Balkans, I see Serbia coming up pretty strongly in, you know, Latin America, you have Brazil, and these are what I call the middle income, the middle power countries, you know, not, not the the, you know, the Cold War belligerents, but the the second tier players. And Indonesia also has had the most successful, you know, move into a sustainable, democratic, you know, structure since the 1997 1997 Asian financial crisis, 1998 Asian financial crisis. It’s come a very long way, except that it’s now, you know, solidifying into a political structure which is sustainable now in the US, outside of the Democratic and Republican parties, there is no chance for independents to come on and and provide a different political agenda. You know, there’s no platform that makes any independent or a third party viable, despite many attempts to build that. And I think that all that is happening in Indonesia right now is that the incumbents who have become successful in, you know, in building their own political asset are now trying to, you know, centralize the assets and and to become, you know, the deterministic force in Indonesia, and this, essentially is Widodo political party and his family and his friends and the people that he wants to work with. So the as even as the new president is taking over, in fact, the in the best indicator of a very successful political process is one where you don’t remember the last six presidents. You know, in other words, the transitions have been going very well, but I think that there’s enough political assets that have been created where the political players want to solidify it by putting in place laws that that favor them. And people are going out on the streets and saying, No, we won’t let you do that, because we want to have a political system where new players can come on stream and challenge you if they wanted to. So I think that in some ways, it’s a natural evolution of stable political system, but on another level, it’s it threatens democracy because it reduces the number of players and entries into the democratic process. But at the same time, economically, Indonesia is doing profoundly Well, I think that we forget that it’s got a viable domestic consumption market, in fact, much more successful than China. And because of that, there is a desire for foreign investors to be invested directly in Indonesia. The Indonesian stock market is now bigger than that of Singapore, which is a regional finance supposed to be a regional financial center, and is, and just by the sheer size of the economy, is the most attractive economy in that part of the world, and so and in the same way, when we look at countries where populations on the increase, like like Vietnam, Philippines, Thailand, they GDP growth is being driven not by productivity gains or shifts in industries and so on. It’s just by the sheer size of the growth in the population. And as they do that, they need the political system to hold you know, the kind. Country together. So, so each of these countries have different problems that they’re facing and and they’re finding their way. And, you know, so it’s a work in progress, as it were, now. The The upshot of all of that is that some of the older developed countries in the region, Singapore, being one of them, are floundering because they are losing the role that they used to play, which is the regional, regional financial center, and they have to reinvent themselves to to be relevant to the rest of the region.

Gene Tunny  50:34

Okay, okay, yeah, that’s, yeah, that is a bit of a concern, like what you’re saying about Singapore, because it has had that reputation and, but, I mean, now it’s got a flourishing tourism sector, hasn’t it? I mean, it’s got a lot of advantages to it. And I guess there’s a domestic, you know, the services economy there. I mean, what are the prospects for Singapore and, and, I mean, other other countries in the region,

Emmanuel Daniel  51:01

it used to be the, you know, the financial center in which you raise capital, and today it’s got a capital market that’s smaller than, you know, several of its neighbors, smaller than Indonesia, smaller than Thailand, and less active than even Malaysia, which has had political problems. So what’s interesting is to see, you know, countries where the politics is unstable, but the economics is pretty good, and the economics is, you know, growing from strength to strength. And when I look at the numbers, and I try to figure out what the drivers are, on the onset, the most important driver, really is population growth, and then comes everything else. So if you’re going to be invested in Indonesia, you should be invested directly in Indonesia, and not, you know, come to use Singapore as a regional center and then get into Indonesia. So that’s where industries are right now, and everyone from Elon Musk to, you know, fund managers are directly invested in the countries that they are interested in. And so to that, Singapore has to reinvent itself. And you know, there are industries where by just being marginally better than the rest of the region, like ports, for example, or airports. It has the up effect that is, you know, you land in Singapore before you go to go off to any of the cities. But as the cities themselves improve their infrastructure, they become direct destinations themselves. So Singapore is, you know, has to work very hard to figure out its relevance. Now, having said that, it doesn’t mean that Singapore is going to be left behind. I think a rising tide, you know, raises all boats. So Singapore’s own GDP continues to grow, but not on the same elements that gave it the growth 10 years ago. You know, it just needs to be more relevant and more plugged in with to the rest of the region. Yeah,

Gene Tunny  53:09

yeah. I just pulled up of that’s an interesting point you mentioned about Elon Musk. So I’ve just noticed Musk to consider opening battery plant in Indonesia. So it looks like there’d be some deal done with the the administration, and probably some subsidy of some kind, so that, yeah, that’s interesting. I’ll put a link to that in the show notes. Okay. I mean, you’re, I think this has been terrific. I’m going to have to have you on again. I think, I mean, there’s so much to talk about, and you’re such a wealth of, wealth of knowledge and insights into the region. So I think we’ll have to wrap up for now. But any final words before we we do wrap up, and hopefully I can chat with you sometime in the future.

Emmanuel Daniel  53:49

Yeah. I mean, I’m very interested in how the world looks like from Australia looking out, you know, and Australia’s own, you know, role in the rest of the world. I think that Australia is a, you know, the largest exporter of commodities to China, and now that the relationship has been, you know, put on a more even footing, we find Australian wines back in the stores in Beijing, you know. So Australia is the middle tower, which has a very different dynamics from, you know, from the Geo, geographically centric model, which is, you know, if you are in Southeast Asia, it’s Indonesia. If you’re in the Balkans, in Serbia, if you’re in North Africa, it’s Morocco. But Australia sits outside of the of the ring of influence that it wants to play in. So, so that’s, that’s another conversation, and another day, yeah,

Gene Tunny  54:51

I think so. I mean, you’re right. I mean, we are so like, yeah, we’re such a big commodity exporter, and now our economy is so. Are tied to China’s at the moment, and, you know, it affects the the iron ore price and the coal price. It is extraordinary how connected we are and and yet, that’s why we’re having a big debate at the moment about, you know, they’re the orcas deal. Maybe we should talk about that another time. But there’s a big debate about whether us aligning so closely with the Americans and the British in this aukus nuclear submarine deal, possibly antagonizing China. Actually, I think we are antagonizing China doing that. What are the implications of that? We’ve, we’ve had a, I mean, while, I mean, I think there’s a lot of sympathy for the Americans. I mean, we’re, we have a very, very strong links with the United States, particularly because of the wartime relationship. I mean, I’m in Brisbane, here where we had Douglas MacArthur based, okay, and so we’re very grateful for for the Americans. But, yeah, at the same time, we’ve got a prime minister, Paul Keating, who was very, you know, very strongly, fervently nationalist Australian, very, and he was, he’s become very critical of that orca steel. So I think it is something to that we need to talk about some more in in this country, that’s more of a, more of a comment from me. Any any reactions to that before we close. Yeah,

Emmanuel Daniel  56:21

so it comes back to my the first point I was trying to make in this conversation was that if we take the labels off and, you know, and not deal with the desire of countries to build working economic systems and not call it, you know, capitalistic or socialist, we were able to evaluate them much more equitably and then understand the baselines from which they work. So China’s baseline is that it’s, you know, it’s the momentum that’s created for itself in the economy. It can go for a while yet, you know, despite, you know it being, you know the areas in which it’s made some mistakes, or it’s slowing down or or de prioritizing at the moment. So so let’s see where they go with that.

Gene Tunny  57:13

Very good Absolutely. Manuel, Daniel, thanks so much for the conversation. I found it really informative, and yeah, love your insights. Certainly want to chat with you some more. And yeah, keep up the great work. So thanks again for coming on the show.

Emmanuel Daniel  57:28

Thanks gene for having me on. And great conversation,

Gene Tunny  57:33

righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact 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 app lets you, then please write a review and leave a writing. Thanks for listening. I hope you can join me again next week.

Obsidian  58:20

Thank you for listening. We hope you enjoyed the episode. For more content like this, or to begin your own podcasting journey, head on over to obsidian-productions.com you.

Credits

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

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Reagan, Supply-side Economics, and Trump w/ Ed Oswald – EP238

This episode explores the profound influence of Reaganomics and its enduring legacy in American economic policy with tax expert and former US Treasury attorney Ed Oswald. He is the author of a new book, “From Ronald to Donald: How the Myth of Reagan Became the Cult of Trump”. Oswald discusses the transition from Reagan’s tax reforms to Trump’s tax policies, highlighting the continuity in supply-side economics and its implications for fiscal policy and the national debt.

Please contact us 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 Podcast and Spotify.

About this episode’s guest: Edwin G. Oswald

Edwin G. Oswald is a partner with the law firm of Orrick, Herrington & Sutcliffe LLP, resident in Washington D.C. He served as an attorney-advisor in the United States Treasury’s Office of Tax Legislative Counsel during the Clinton Administration. He is a Fellow of the American College of Tax Counsel and a frequent lecturer on financing State and local infrastructure and the federal taxation of municipal debt. The book is a personal project of Mr. Oswald’s and the views and opinions expressed herein are those of the co-authors and do not represent the views and opinions of Orrick.

What’s covered in EP238

  • Reagan’s economic policies and their impact on the US deficit. (0:00)
  • Supply-side economics and its impact on US deficits. (6:55)
  • Reaganomics and its impact, and the impact of Clinton administration policies (e.g. NAFTA, repeal of Glass-Steagall). (16:14)
  • Reagan and Trump similarities, tax cuts, and budget. (26:24)
  • Tax policy and its impact on the economy. (33:22)

Takeaways

  1. Reagan’s economic policies, particularly his tax cuts, have had a lasting influence on American politics, setting a precedent followed by later administrations including Trump’s.
  2. Ed Oswald argues that supply-side economic policies from Reagan to Trump show a consistent belief in tax cuts for the wealthy as a means to stimulate economic growth, despite debates about their effectiveness and impact on the national debt.
  3. Addressing the US debt will likely require a balanced approach of both tax increases and spending cuts, in Ed’s view.

Links relevant to the conversation

Ed’s book: https://www.amazon.com.au/Ronald-Donald-Reagan-Became-Trump/dp/1476690324 

Ed’s bio: https://www.edwingoswald.com/ 

Recent episode with Dan Mitchell on US debt:

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

Transcript: The Tax Guru the WSJ says has Wall Street’s “Strangest Hustle”: w/ Andy Lee, Parallaxes Capital – EP237

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.

Ed Oswald  00:00

I think in many ways some of that seed corn was was laid down by Ronald Reagan in terms of, you know, disrespect for government and in frankly, the proper role of government. Although, again, I agree with your point that certainly, you know, Reagan’s cabinet was filled with adults was filled with, you know, many competent people. But still the broadcast far and wide was, government is the problem.

Gene Tunny  00:39

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. Today we’re joined by Edie Oswald, a prominent taxation expert and lawyer based in Washington DC. He’s a former attorney advisor to the US Treasury Department. And he’s the co author of a new book, from Ronald to Donald how the myth of Reagan became the cult of Trump. In our conversation, we delve into the profound influence that the Reagan administration had on American and global economic policy. We also explore Trump’s relationship with Reagan’s legacy and the potential implications of a second Trump presidency. Okay, I’d love to hear your thoughts on my discussion today with it. Also, please let me know your ideas on how I can improve the show. My contact details are in the show notes. Without further ado, let’s dive into the episode. Enjoy it Oswald is great to be speaking with you about your new book.

Ed Oswald  02:08

Thank you, Jane. Pleasure to be here.

Gene Tunny  02:10

Very good. Yes. From Ronald to Donald I, I learned quite a fair bit about Reagan that I didn’t know. So I enjoyed reading it for that reason. In particular, as someone with Irish ancestry myself, I was, I was surprised to learn, I didn’t realise and I mean, as you point out, or your you and your co author point out, it’s obvious once you realise, you think about his last name, that he had that Irish ancestry and he and for political reasons, it was something he didn’t reveal in the campaign, which I found fascinating and the story about his the origin of his nickname, Dutch, his, his underprivileged background, it’s a rather extraordinary story to to begin with, what did you find most fascinating in your, when researching the life of Reagan for this book? Well,

Ed Oswald  03:06

thank you, Jean. You know, what I found most interesting is, is really subtle, although he didn’t say much about it. Though his relationship with his father. His father was basically a shoe salesman. His father was an alcoholic, that always had a battle with the bottle. I think how Reagan tried to grapple with that somewhat, both in terms of acknowledging it, and then somebody denying it. But I think that did have an impact on his view of the world and how he carried himself. Right.

Gene Tunny  03:43

Yeah, yeah, indeed. That’s interesting, too, because they, you know, Trump has an interesting relationship with with alcohol too, because he, I think his brother was an alcoholic and died of alcoholism or, or an illness related to it. I can’t remember. Exactly. And so Trump himself doesn’t drink. So that’s, uh, yeah, that’s that’s, that’s interesting after that, to go revisit that part of Reagan’s story. To get into the, you know, what most interests me about the book? Is these economic issues, because Reagan’s obviously a pivotal figure in economic history of the 20th century. Would you be able to take us through what was so different or revolutionary even about Reagan’s economic policies for his head?

Ed Oswald  04:34

Yeah, thank you. So, you know, you have to remember the political scene in the United States in the late 70s, where you had, you know, Jimmy Carter was president. We were going through a high inflationary period, we were dealing with the remnants of a gas crisis and energy crisis. We were dealing with the Iranian hostage crisis, it was really quite a dire time and America. And I guess really to mirror what Joe Biden has been saying lately in terms of him wanting the wealthy to pay their fair share. US tax policy, historically had high tax marginal, high, high marginal tax rates, effectively, from the beginning of really World War Two, the wealthy pay their fair share Republican tax rates on the rise in how or the highest marginal rate was, you know, 90 or above, with Nixon, it was 70 or above. So in terms of, you know, the the spectrum of the US taxes, when Reagan came in with, with the notion of something called supply side economics, which is basically the notion that the tax rates in the country are too high. And if we cut tax rates and tax rates significantly, which Reagan did, we can talk more about, primarily towards the wealthy. The economic benefits will trickle down to the lower rungs of the economic spec, that being the wealthy, the wealthy, the well to do, the industrialists will have more capital, they’ll have more money to spend. And therefore, that we’ll juice the economy and move us forward. Move us if you will, out of the Jimmy Carter era. You know, and what, what we can talk more about really the consequences of that. But you know, what that really led to was a ballooning of the US deficit. And a lot of really negative effects that way try to illustrate the highlight in the book.

Gene Tunny  06:54

Yeah, gotcha. So this is the supply side doctrine. And this was based on the Laffer curve is that concept of the Laffer curve? So one of the advisors to Reagan was art laffer. And, I mean, I guess how economists think about it nowadays is that, you know, there’s obviously some efficiency loss associated with taxes and, and that efficiency loss or the cost of taxation, the deadweight loss, so to speak, that increases disproportionately or at a faster rate than the increase in the tax rate. So essentially, I think there’s some there’s some truth to this, that there is an adverse impact. But the the issue is, is where you are on that Laffer curve. And, you know, there’s so they may have got some there may have been some offset from increased economic activity, but there wasn’t enough to to actually compensate for the loss of income from the cut in the rates. So that’s what you’re you’re talking about, isn’t it? So this is actually something that contributed to future deficits. Is that right? Yeah,

Ed Oswald  08:04

I think that’s well said that, you know, I think a well designed tax cut, you know, can lead to, you know, economic growth. And as you say, it’s a struggle a little bit for what that sweet spot is. But really, where supply side economics have gone within the GOP or GOP doctrine or conservative doctrine is that basically, you know, tax cuts, if you will pay for themselves. That’s really that’s really the slogan. That’s not true. Every tax cut does, you know, result in a loss of revenue, and no tax cut will pay for itself. We do state in the book that in that time, 1980 1981, with the highest marginal rate being 70%. It was probably a good time for a tax cut. It was probably a good time to deregulate the economy. But what what we kind of highlight in the book is that, you know, Reagan’s policies really live on some 40 years later, we’re still living with supply side economics within the United States. The notion that tax cuts do not pay for themselves have led to a really a ballooning of the national debt. The national debt when Reagan came into office was slightly less than one tray and and when he left off his office, it was close to 3 trillion. So although Reagan really did rail against the deficit, and the balanced budget, the US deficit increased 171% under Reagan, which, you know, is a bit shocking in terms of his paradigm and the Reagan missed in terms of a budget hawk. Gotcha.

Gene Tunny  10:00

Now these the tax cuts or the supply side economics that was controversial at the time, wasn’t it? As you point out, so George Bush Senior HW Bush, I mean, I think he was a Yale economics major, wasn’t he? I mean, he had, you know, he was a yeah, yes. Yes. And he, as you point out, he famously called it voodoo economic policy. And you also mentioned, David Stockman, what can you remind us? What was Stockmans critique? Was it was he concerned about supply side economics and the logic of it all? Well,

Ed Oswald  10:36

yeah, so David Stockman was the Reagan’s first head of OMB, the Office of Management and Budget, and really his his wing man, if you will, in terms of tax policy, implementing the significant tax cuts, you know, just to give the listeners a sense of perspective, when Reagan came into office in 1980, again, it became president in 81, the highest marginal tax rate in the US was 70%. And when he left in 1988, the highest marginal rate was 28%. So really a dramatic dramatic reduction and the highest marginal rate within the US. So stock when was really he was a former congressman from Michigan, really rate, you know, the point man for the budget, budget policy, tax policy, what the significant tax cuts have on spending and so forth. And I believe that, you know, initially, Stockman was really a disciple. He believed in supply side economics. He believed that the tax cuts would move the economy forward. But the other end of a revolution, and I think he says this, in terms of the Reagan Revolution, is not only do you need a revolution in tax rates, but you need a revolution in terms of spending. And if you’re looking at, if you’re looking at the significant spending on the US side, it’s a big part of his social security, that big targeted because Medicare, big part of it is the US defence budget. And I think that Stockman became more and more alarmed. And he read, he really wrote extensively about this, that this revolution was only one side, it was really a revolution on the revenue side, not the spending side. And ultimately realised, politically, although Reagan ran on this revolution, it was kind of a revolution to name only. And he became more and more alarmed as he got signals from the point persons and within budget, that Reagan is not going to take on significant domestic spending. Hence, I think his chagrin down the road, and also the blurring of the US national debt there. Yeah,

Gene Tunny  13:10

yeah. I think the best case that can be made for and I’m not necessarily advocating for this, but I think the best case that can be made for cutting taxes in advance of spending cuts is that there’s that starve the beast idea, isn’t there? I think that’s the that’s the concept that eventually this will force Congress to make the hard decisions. But I mean, so far that that really hasn’t happened yet. And so you trace this, this policy or this, you see this supply side economics as being influential in future administrations? Can you talk about that, please, Edwin? I mean, what what administration’s or what policies has it influenced? Post Reagan?

Ed Oswald  13:54

Yeah, I’d be happy to. So it’s clearly influenced. George W. Bush, Herbert Walker, his son, who initiated significant supply side tax cuts in 2001. Perhaps more sun are bringing in son of Bush, if you will, in terms of the least, tax policy outlook, he didn’t see the Voodoo that his father did. And then in 2017, really, frankly, Trump’s only Trump’s real signature domestic legislation was the 2017 tax cuts and Jobs Act, which is which was not quite as significant tax cuts as the 2001 George W. Bush, but still quite significant in terms of supply side economics and having, you know, tax cuts weighted towards the wealthy. I would say Jean, you know, one one general observation I would make just in terms of you US policy, US domestic policy, which is, I think, hamstrung the Democratic Party somewhat, is if you if you have one major political party believing that tax cuts pay for themselves, you know, tax cuts are the major elixir that moves the economy forward. And then you have another party that believes in math, or math and science, and they will get into that, too, is very hard for the Democratic Party to say, you know, look, folks, we have large national debt, tax cuts don’t pay for themselves, and therefore we want to raise taxes not lower than, again, if one party believes in math and the other party doesn’t, it really does handicap the Democratic Party, that being Barack Obama, or Bill Clinton, people who were elected later than Ronald Reagan, to really raise rates significantly, because it’s not politically popular. In other words, to get cutting taxes as easy, raising taxes is difficult. It’s kind of like when your mother says eat your vegetables. The first reaction is no, I’d rather have

Gene Tunny  16:14

candy. Yeah, yeah. So yeah, this is an interesting point to explore. So we might go through this. I had Dan Mitchell on the show the other week, he’s got his new book out, the greatest Ponzi scheme on Earth with with Rubin, you know, you know, Dan, if you’ve heard of damage, I’ve heard about the book. Yes, yes. Yes. And I mean, Dan’s argument is that well, actually, I mean, it’s not the taxes is the issue with suspending as the out of control entitlements. So yeah, I guess you can I mean, there is going to be that political debate about what’s the best way to, to, to deal with this with this debt? And I mean, one options, definitely tax increases, which put them in that’s politically unpopular. I mean. Yeah. I mean, maybe that’s the through the mean, your argument is that that’s due to this, this myth of Reagan, the supply side economics, the view that taxes are good for growth and can help pay for themselves? I mean, that’s, that’s a hypothesis that that’s fair enough. But yeah, but I mean, it is, I guess there is a legitimate debate about what the best way to fix the the debt is, and whether in Dan’s argument is that, well, if you just let them raise more taxes, they’ll just find more things to spend it on, and you’re not really going to solve the problem. So how would you like to respond to that at all that otherwise, we’re gonna move on to something else? I just thought I’d make that observation. Because I thought that was an interesting argument from Dan. Yeah,

Ed Oswald  17:44

I mean, briefly, I really think at this point, you know, with an ageing US population, with significant national debt, racked up over 40 years of largely peace and prosperity, I frankly, think there has to be, you know, a balanced approach, there’s got to be, you know, a level of mature adult discussion about both raising taxes. And also, I think, looking at entitlements and looking at spending, looking at the fact that, you know, people are living longer, and it just really needs to be a balanced approach. And I think, a sober discussion, that, you know, there’s no free lunch. Ultimately, this has to be paid for, right now a payment for borrowing from future generations. And, you know, there needs to be a reckoning, if you will.

Gene Tunny  18:39

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

Female speaker  18:45

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Gene Tunny  19:14

Now back to the show. So one thing I want to explore. So you I mean, this is a really damning critique of Reagan and Ngop administration’s. I mean, you’re essentially blaming them for all Well, I mean, maybe this is a mischaracterization, but it’s very strong critique of Reagan, and then how how that has influenced GOP policy in the future. And so you’re right. It was Reagan who said America on a course of hyper capitalism and wholesale industry deregulation. The legacy of Reaganism is all around us heedless consumption. Reduction in the progressivity of the tax code, weaken environmental laws, a war against expertise, and government legitimising structural budget deficits and widening economic Inequality. What I’d like to ask and I’d like you to reflect on is I mean, to what extent is the Democratic Party? Part of the problem here? Right? Because? I mean, I mean, and as an economist, I think the mean, I’m not necessarily criticising some of these policy decisions, because I was probably support would have been supportive of them at the time. But the didn’t do regulation begin under Carter, with the airlines. And then I mean, Reagan, then took on the unions and, you know, did further deregulation, Clinton, the Clinton administration had the NAFTA agreement, which Ross Perot said, created this great, great sucking sound out of the data centre in New Mexico. Glass Steagall was repealed by the Clinton administration, with Rubin and summers. So what’s the Democratic Party’s role in all of this as well, please, Edwin?

Ed Oswald  20:56

Yeah, fair, quite fair question. And I think that, you know, in the wake in the wake of Reagan, in the wake of George Herbert Walker Bush, there was certainly I think, a reset, you know, within the Democratic Party, in terms of thinking about the New Deal, thinking about the the Great Society of Lyndon Johnson, recognising that Americans after 12 years of having a Republican in the White House, that they became accustom and conditioned to lower tax rates. So I think there frankly, had to be, you know, an accommodation, if you want to be a successful political party, saying, at least at that point, we need more government and higher taxes is not going to get you elected, it’s not going to get you elected, you know, post Reagan, the great communicator, the man who really, I think, conditioned Americans to think about our society in tax policy and other things in in very convincing and very convincing ways. So I think there Yeah, I think there were compromises. And I think, though, though, although, you know, Bill Clinton did raise taxes, he did raise the highest marginal tax rate, up to 39.6. If you look at that, by historical standards, it’s you know, it’s way wider the mark. So I think that was kind of an April mentalism post Reagan to move to shift the ball back in a somewhat progressive nature. But it was a compromise given, I think, one Reagan’s presidency and to the way that, you know, US society had to evolve at that point. Yeah.

Gene Tunny  22:56

Yeah. And I think one point, the important point about the Clinton administration, and to its credit, it did work with the Congress to, to rein in the budget. And I think you ran some budget surpluses in the late 90s. Yeah, yeah. So that was that was to its credit. Okay. One of the things I found interesting and I want to ask you about this specifically for among those that are the charges against Reaganism, you’re talking about a war against expertise and government now, is this just about supply side economics? Or is it more general? Because I mean, to me, I mean, looking at the like that Reagan had a very impressive cabinet lineup. And then you had people like James Baker, George Shultz, Weinberger, it seemed to be a fairly strong cabinet of people with expertise. So what’s your critique? There, please, Edwin, what is that war against expertise and government that you see

Ed Oswald  23:58

here? So let me just maybe give you a little bit of a a backdrop. I think one thing we tried to make it clear in the book is certainly that the character of Reagan and Trump, I think, is quite different. And we try to make this frankly, in chapter one, we try to make that distinction that you know, Reagan, you know, had Reagan was a moral person. You know, Reagan had shame. Reagan had true, you know, legit government bonafide, he was a two term governor of California. So he come he came to the table, both as a man and with experience very different than what Donald Trump came with. So we’re not saying the character of Trump and Reagan is similar. We in fact, say it’s this song. But the one to your point. You know, one of the things that I think start is down the road would have, perhaps dismissing expertise was very famously in his inauguration speech and the January 2019 81. Reagan said at the present time, government is not the solution to our problem. government is the problem that’s been somewhat mythologized by the GOP over the year in terms of shorthand that government is the problem. Yeah, I think I think implicit is that is contempt frankly, contempt for government contempt for bureaucrats. You see aspects of that really bubbling up in the GOP in terms of global warming. You know, in terms of respect to science, and the poor until the house scientists become politicised over the last few decades. And I really think in many ways, some of that seed corn was was laid down by Ronald Reagan in terms of, you know, disrespect for government and in frankly, the proper role of government. Although, again, I agree with your point that certainly, you know, Reagan’s cabinet was filled with adults was filled with many competent people. But still the broadcast far and wide was government is the problem. Yeah,

Gene Tunny  26:23

yeah. I mean, I learned I didn’t know that there was that qualification, or how he began that famous statement. So I learned something from that as well. And yeah, it makes more sense. And it sounds more, it sounds more sensible. And it sounds more like something you would say at that inauguration without being where you’re not familiar. It was an otherwise it’s a very ideological statement, a very broad brush statement. But with that qualification, it does make more sense. So I think it was good for me to to learn that. So I really appreciate that. That was a good part of the book. Okay. Yeah. Right. Oh, so I guess what I want to ask now it is, I mean, what’s the link with with Trump? I mean, where are how many years? Is it? 35 or 36 years since Reagan was in the White House? I mean, how is this? How is this relevant to? I mean, I guess we’re talking about the the tax cuts and the belief in their, their ability to pay for themselves. Okay, that’s an argument you can make. But what about Trump? Is Trump at any one in in any way influenced by the Reagan legacy? Or is he a he’s a man with his own views? I mean, he’s a, he’s his own force of the universe, really, rather than inspired by Reagan. I mean, how do you see the connection between Trump and Reagan?

Ed Oswald  27:47

Yeah. So, you know, as we, as we wrote the book, and certainly part of the book was written when during the Trump presidency, although it’s a book primarily on Reagan, we couldn’t help but not see the connection somewhat between, you know, Reagan and Trump and let me give you kind of desensitise. You know, for So for starters, you know, Reagan really was the first, you know, Magog president, if you will, if you recall, Reagan’s slogan back in 1980. Was let’s make America great again. Trump shorthand did that by one word, make America great again. So they both really ran on the same slogan just in terms of commonality. And what if you will, what Trump took from Reagan, to I think, gene that the DNA of the campaigns were quite similar. There was contempt for government, I think, contempt for expertise, both pro tax cut, both somewhat based in nationalism. And I think also, more importantly, both based on some aspects of nostalgia, hence, America Great Again, you know, they were both democrats are certainly portions of their lives. You know, Reagan was, ironically, a new dealer, until the 60s and Reagan and Trump was a Democrat. For a large portion of their lives. They didn’t have his life. They were both divorced. Neither one was really a student of government. Neither one was deep and expertise. No one really took on a political career, took on politics as a political career. And I think they’re also, frankly, both you know, mythmakers, and I think they both played a long, perhaps a weakness in the American psyche to believe mediated mythology, as opposed to one meeting reality. You know, Reagan was the Marlboro Man, the man on the books, Reagan was you know, Morning in America, Trump was the man with the Midas touch the entrepreneur, the character you see from, from the apprentice. So they both played upon those myths, which was a strong suit for for both of them in terms of dealing with the media.

Gene Tunny  30:18

Yeah, gotcha. Okay. And I mean, what are your thoughts on what? What we could see in terms of economic policy? If there is a another Trump administration? I mean, I, I mean, being in Australia, it’s hard for me to make an assessment of, of what’s going on, sometimes I hear, I’ll look at, it’s easily going to be Trump, it’s going to be a Wipeout. And then other times I hear I’ll hang on not so don’t be so sure about that. There’s a way for, for, for Biden to hang on. So I’ve got a really got no idea who’s going to win the election. I mean, my suspicion is it will be Trump and that, therefore we should start thinking about what, whether there’ll be economic policy changes. Do you have any thoughts on that? Edwin? What’s the Do you have any? Can you look into the crystal ball for us, please? Yeah,

Ed Oswald  31:10

so it’s certainly going to be a tight race. I would say just on the political front, you know, you know, Donald Trump now is in the middle of a criminal trial in New York City, taking him off the campaign trail, and perhaps people are taking a second look at some of the facts and circumstances there. But I would say, Jane, in terms of, you know, economic policy tax policy, if Trump is reelected, you know, an important element of that is whether the House and Senate also turned Republican. That’s an important fact there. If Trump is reelected, and they and the GOP wins the House and Senate, then I think you’ll see, you know, more tax cuts, at least one thing to highlight is many aspects of Trump’s 2017 Tax Act, expire at the end of 2025. So you’ll do so I think you’ll see a lot of energy, about renewing those tax cuts, and perhaps even further tax cuts above and beyond what Trump did in 2017. You know, if Trump is reelected, but doesn’t take the House and Senate, well, then you’re probably looking for some type of compromise, you know, along perhaps party or various lines there. It’ll be much more difficult, I think, for Trump to press on in a significant way and material way in terms of tax cuts, if he doesn’t have both underlying houses as well.

Gene Tunny  32:55

Yeah, yeah. I mean, given the state of the, the budget of it, it’d be good, be courageous to try and get additional tax cuts. I mean, whether, you know, you might you know, for some of us who are more on the, you know, classical classically liberal side of things, we might say, well, it’s, you know, it’d be good to have a smaller government and have, you know, tax cuts. But yeah, if you don’t cut spending, then that’s problematic. And it’s adding to the, the data. And you’ve already got a problem there. And I think one of the one of the important messages of your book, which I liked is that you’ve got to have, you’ve got to have this respect for the numbers. And to some extent, some of these policies that have been advanced, they seem to not have a, you know, the advocates may not understand the actual arithmetic. So I think that’s a, that’s a fair point. And it is such a change. And I might sort of start to wrap up, but you quote JFK, JFK to Yale University’s Class of 1962. And I mean, this just highlights the change that we’ve had that, like, JFK said that the differences today are usually a matter of degree what is at stake today is not some grand warfare of rival ideologies, which will sweep the country with passion. But the practical management of a modern economy, the unravelling of America’s post war governing consensus began with the election of Ronald Wilson Reagan. Okay. So very, very strong charge there. Before we wrap up, Edwin, anything else? Before we should conclude anything else you’d like to add?

Ed Oswald  34:31

Well, just maybe just reflect upon that passage you quoted is? You know, I liked that passage. Well, one, you know, I quote, JFK, as you know, a number of times in the book, just in terms of, although, you know, a Democratic president, I think he was very eloquent and staining the states and the times of his presidency. A and going really back perhaps to where we started that, you know, in terms of tax policy, historically, at least up to 1980, you did not have really a dramatic difference in tax rates between the GOP and the Democratic Party. As we started earlier, you had tax rates, the wealthy really did pay their fair share, regardless of who is elect building, because, you know, deficits mattered, the Balanced Budget Narrative, paying our bills matters. And all that really did change in 1981. Were really there was a revisiting of what JFK said about managing managing a modern economy. And looking at things really with very different prism in stark contrast, in terms of governing philosophy. Hence, here we are 40 years later, still in the middle of that, in many ways, still dealing with, you know, Reagan’s tax policies. In the wake of the deficit here.

Gene Tunny  36:13

Rock Gotcha. Okay. Yep. I mean, it’s a, it’s a well argued book. And there’s a lot of really interesting stories in there a lot of things I learned. So I’ll definitely recommend it. I’ll put a link in the show notes, I suppose, where, and I might have to come back to this in a future episode, what I’d like to explore, and it’s to what extent I mean, can we just say it’s, is it because of the tax rates? Or is it also because of, you know, there was the China shock that David Autor talks about, there’s the, you know, the NAFTA, and those, you know, both of those developments, they had implications for the middle America, so to speak, a lot of towns in, in the Midwest and in, in rural America were were badly affected by by those shocks. And you’ve also got the skill biassed technological change. We’ve got the internet and all of that, which is led to increased inequality. So that’s one thing I’d like to explore a bit more I know, it’s, you would have had the, you know, your your book had a slightly different focus. But as an economist, I’d probably want to explore the the empirics around that. What are the relative contributions a bit more? I don’t know if you’ve had any, before we wrap up any reflections on that? Or any if you’ve done any investigations yourself on that, Edwin?

Ed Oswald  37:34

Well, I would just say, you know, those are all those are all fair points. And I And you’re right, my my book as a kind of singularity of focus, which is really, you know, more on tax policy, and tax cuts. But I would say that what really influenced me was there was been a London School of Economics study that came out in 2020. You know, a 50 year of study, you know, based on cutting tax cuts for the wealthy looking at, you know, 18 OECD countries. Which really, you know, did, I think, empirically link, the notion of, you know, tax cuts for the wealthy lead to a largest share of the national income going to the wealthy. And I would say that, despite the events, you say, some of which we could control and some of the some of it, we can, it’s just the, you know, the macro economic situation. You know, Congress in the executive branch can control tax policy and tax rates and something within our control. And I think if we want to deal with the growing deficit with the growing income divide and wealth divide, at least tax policy is something within our control. It’s something to be more considered, if you will. Very

Gene Tunny  39:01

good. Okay. Edwin hospital. Thanks so much for your time. I really enjoyed reading your book and well done on the book. Yes, I’ll definitely recommend that and put a link in the show notes. very much enjoyed the conversation. Look forward to speaking sometime in the future.

Ed Oswald  39:19

Here was my pleasure. Thank you very much for having me on.

Gene Tunny  39:23

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.

40:10

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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.

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Podcast episode

Is Uncle Sam Running a Ponzi Scheme with the National Debt? w/ Dr Dan Mitchell – EP235

In this episode, show host Gene Tunny engages with Dr Dan Mitchell in a frank discussion about the US’s looming debt crisis. The conversation covers Dan’s new book, co-authored with Les Rubin, The Greatest Ponzi Scheme on Earth: How the US Can Avoid Economic Collapse. In the episode, Dan talks about the unsustainable trajectory of federal debt, the consequences of government overspending, and the tough choices needed to avert economic disaster. Hear how Dan reacts to the Modern Monetary Theory view that debt and deficits aren’t a problem.

Please contact us 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 Podcast and Spotify.

About this episode’s guest: Dr Dan Mitchell

Daniel J. Mitchell is a top expert on fiscal policy issues such as tax reform, the economic impact of government spending, and supply-side tax policy. Mitchell is a former senior fellow with The Cato Institute and The Heritage Foundation and served as an economist for Senator Bob Packwood and the Senate Finance Committee. His articles can be found in such publications as the Wall Street Journal, New York Times, Investor’s Business Daily, and Washington Times. He is a frequent guest on radio and television and a popular speaker on the lecture circuit. Mitchell holds bachelor’s and master’s degrees in economics from the University of Georgia and a Ph.D. in economics from George Mason University. 

What’s covered in EP235

  • Introduction. (0:00)
  • US government debt and entitlement programs. (4:48)
  • Government spending and its impact on the economy. (9:05)
  • US government spending, Social Security, and fiscal policy. (14:06)
  • US retirement systems and entitlement programs. (18:32)
  • Medicare reform and the federal budget. (24:05)
  • US budget deficits and entitlement programs. (27:59)
  • Taxes, spending, and economic growth. (33:01)
  • Kyle Kulinksi clip. (38:11)
  • Dan responds to Monetary Monetary Theory (41:00).  
  • Entitlement programs and government spending. (44:40)

Takeaways

  1. The US federal debt is soaring, with projections showing a large increase in the debt-to-GDP ratio in the coming decades.
  2. Government spending, particularly on entitlement programs, is the primary driver of fiscal imbalance.
  3. Addressing the debt crisis requires significant policy changes, including reforming entitlement programs like Social Security and, to a lesser extent, Medicare and Medicaid.
  4. Reforming Social Security through personal retirement accounts could save trillions over the long run.  
  5. Lessons from other countries show that fiscal discipline and restructuring can improve economic stability.

Links relevant to the conversation

Lumo Coffee promotion

Lumo Coffee Discount: Visit Lumo Coffee (lumocoffee.com) and use code EXPLORED20 for a 20% discount until April 30, 2024.

Transcript: Is Uncle Sam Running a Ponzi Scheme with the National Debt? w/ Dr Dan Mitchell – EP235

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.

Dan Mitchell  00:04

We had this wonderful opportunity back when we had a much stronger fiscal situation and we blew it. And it could very well be in 30 years. As you know, once we’ve hit that iceberg with our fiscal Titanic’s, you know, sort of the, on the tombstone of the American economy will be. It’s a shame that we had the Monica Lewinsky Bill Clinton scandal because it ruined our chance of saving the country.

Gene Tunny  00:37

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. A lot of thanks for tuning into the show. In this episode, I’m delighted to speak once again with one of my favourite economics commentators Dr. Dan Mitchell, co founder and chairman of the Centre for freedom and prosperity. Dan was previously a senior fellow at the Cato Institute. And earlier in his career, he worked as an economist for a US senator and for the Senate Finance Committee. This episode I’m speaking with Dan about his new book, co authored with entrepreneurs Rubin titled The greatest Ponzi scheme on Earth, how the US can avoid economic collapse. It’s about a rapidly growing US federal debt. The US federal debt is over 120% of GDP currently, and according to the Congressional Budget Office, it will reach 181% of GDP in 2053. In this episode, Dan explains the difficult policy choices that will need to be made for the US to get its debt under control. This episode of economics explored is brought to you by Lumo coffee, which has three times the healthy antioxidants of regular coffee. It seriously healthy organic coffee Lumo offers a 20% discount for economics, explore listeners until the 30th of April 2024. Check out the show notes for details. As always, I’d be interested in what you think about what we discussed this episode. Are you concerned about the ever growing US federal debt? Also, please let me know any ideas you have for how I can improve the show. You can find my contact details in the show notes. Right? Oh, we’d better get into it. I hope you enjoy the episode. Dr. Dan Mitchell, welcome back on to the programme.

02:42

Glad to be with you, Jane.

Gene Tunny  02:44

Yes, it’s excellent. Dan, I’ve enjoyed reading your new book with your co author, Liz Rubin, the greatest Ponzi scheme on Earth,

02:55

how the US can avoid economic collapse. To start off with, could

Gene Tunny  03:02

you explain why do you compare the fiscal situation in the US to a Ponzi scheme, please? Well,

Dan Mitchell  03:09

a Ponzi scheme as your listeners and viewers may know or not know, is when you, in fact, get the sucker people into a game where they pay money. And they’re promised that they’ll get their money back because new people will always come into the game. So if you get the game early, you can wind up winning, but all Ponzi schemes ultimately fall apart. Because they’re your pyramid schemes where however you want to describe them, there just aren’t enough new suckers that join the game to keep it going. So the early people get out, and they make a profit. But the vast majority of people wind up losing their money. And when you look at the budgets, by the way, not just in the United States, but in many Western nations with demographics of ageing populations, and poorly designed entitlement programmes. When the US budget and the budget of a lot of other countries, we’re heading toward disaster because government is growing faster than the private sector. And when government grows faster than the private sector sooner or later, that’s going to lead to massive debt increases massive tax increases massive money printing to finance government spending is just a recipe in the long run for some sort of disaster, and then the United States. We’re like the Titanic sailing toward the iceberg. Except we can see the iceberg. We know what’s going to happen. We know it’s going to be bad news, but politicians, they don’t think past the next election cycle, or at least they don’t act like they do. And as a result, it gets worse every year because they keep adding more spending on top of all the spending already in the pipeline.

Gene Tunny  04:48

Yeah. Can we talk about that, please? Dan, is it true that the US it’s running it’s got a baked in budget deficit, hasn’t it? It’s got a structural budget deficit of several percentage points of GDP. And so that means your debt to GDP ratio is going up by several percentage points of GDP every year. And I’m not sure the exact figure, but are you at something like 100? And is it 130% of GDP or something of that order of magnitude at the moment in terms of debt to GDP, we

Dan Mitchell  05:18

have two measures. And this, this confuses a lot of people, we have gross debt as a share of GDP. And then we have public debt as a share of GDP. The public debt as a share of GDP, I think is the more relevant number, because that’s the calculation of how much money the government has borrowed from the private sector. The gross debt includes the money the government owes itself because we have with programmes like our social security system, which is our pension system in the US. When the government was collecting excess payroll tax revenues, the Social Security system would give those payroll tax revenues to the Treasury, the Treasury would issue government bonds, a special type of government bond and the Social Security system, but it was the government taking money out of one pocket and putting an IOU in the other pocket. It’s only a bookkeeping entry. So so a lot of people when they cite that higher number in the range of 130% of GDP, that’s the gross public debt, which is the real public debt, ie the debt held by the public, plus the the amount of money the government owes itself for these phoney trust funds.

Gene Tunny  06:29

Right, so So what is it roughly I mean, you have, I think, what’s good about your book as you you’re careful to you talk about the actual liabilities, there are some there are the ones that are owed to the bondholders. And then there are also these unfunded liabilities. So you talk about this broader range of liabilities as well, I like that, can you? Can you give us a picture of where the US is now and where it’s heading?

Dan Mitchell  06:55

Well, it’ll be a depressing story. As I already said, the most important thing to worry about is that government spending is growing faster than the private sector. And as long as those trend lines are upside down, where government is growing faster than private sector, that ultimately is a recipe, as I said, for massive tax increases, massive debt increases, and government printing money to finance its budget, Allah, Argentina, at least pre President Malay down there. Now, what accounts for our trouble? Why is government growing faster than their private sector? The main thing is the entitlements. And since we were just talking about public debt, government debt, let me try to explain three different calculations. That held by the public, as we already discussed, is the amount that governments borrowed from the private sector to gross public debt includes the money the government owes itself for the phoney trust funds and Social Security and things like that. But then the really scary number are the unfunded liabilities. And that’s just a measure of how much money the government has committed to pay for various entitlement programmes Social Security, Medicare, Medicaid, and since those programmes are the ones growing the fastest, and says the revenues, even though revenues are growing over time, you know, not only a nominal dollar, not only in inflation adjusted dollars, but even as a percentage GDP, the tax take in the United States is scheduled and projected to increase over the next several decades. The problem is government is projected to grow at a much, much faster rate. And these unfunded liabilities. And as you probably know, Jean, you know, a lot depends on what your projections are interest rates, discount rates, all these other things. But we’re talking potentially several 100 trillion dollars, depending again, what what assumptions you have in your model. And what it really boils down to is massive, long run fiscal imbalance in the United States, because government is simply growing much too fast and, and reuse my metaphor, we are heading for that iceberg. We’re in the Titanic. And it’s very frustrating that we have such short sighted politicians in both parties, by the way, where they just say, Oh, who cares? That’s, that’s a problem for someone in the future. Yeah.

Gene Tunny  09:17

And you talk about this concept of a doom loop. Are we is the US in that doom loop already? Or is that something that could happen in the future? If you

Dan Mitchell  09:27

were to ask me to make a guess? I would be on the pessimistic side. I just don’t think that our current political class has enough responsibility. My former George Mason University professor, the Nobel Prize winner, James Buchanan, we came up with the whole public choice school of economics, analysing what are the incentives facing politicians and bureaucrats, things like that. He and other public choice scholars will sometimes talk about the unwritten constitution And for a long time in the United States, there was this sort of expectation, even among politicians, well, we can’t really mess things up too badly. We have to sort of keep government under control. We can’t let debt spiral out of control. We can have massive, massive money printing or excessive taxation. And so that sort of kept things within check. Unfortunately, I just don’t think those constraints exist anymore. In some cases, I think it’s just pure shallow politics. I don’t care about the future. I’m going to buy votes today, try to accumulate power, make my committee more important, whatever their the incentives are, the politicians have. And in some cases, I think you have genuinely deluded people, especially on the left, who think, Oh, well, bigger government is good for the economy. You know, maybe they’re Keynesians, maybe they’re hardcore socialists, but I’m sure some of them are, are sincere in their beliefs, however diluted they are. But I think the main problem is, is that the politicians simply are so short sighted. They care more about their political careers than they do about the best interests of the country. Yeah,

Gene Tunny  11:07

I think I think you’re right there. Unfortunately, it seems to me, my impression is, is that politicians were more, there was more of a bipartisan consensus. I mean, now you don’t have either party that seems to be concerned about it. But back in the 90s, it seemed to be that there was more of a concerted effort by Congress on both sides of the aisle to get things under control. And then that helped Bill Clinton run some budget surpluses in the 90s. So yeah, even Joe Biden’s as a senator was, was very much in involved in these efforts. Am I reading that correctly? Dan?

Dan Mitchell  11:44

I think you’re basically Correct. You had, especially once the Republicans took over Congress in 1994. You know what sometimes it was called the Gingrich revolution, after being in the minority in Congress for What deal 40 years, the Republicans took the house, they took the Senate, it was a massive landslide win. And to give Bill Clinton credit, he didn’t try to fight it, he gave that famous State of the Union address where he said the era of big government is over, there’s over. And it wasn’t just rhetoric, going for a four year period, following the Republican takeover of Congress, government grew by an average in nominal terms of only 2.9% a year. And that was when we went from these massive $200 billion plus deficits. Now, of course, that seems small when we’re talking about reading today. But back then everyone was worried that was some threshold and you’ve crossed over it, you were being very irresponsible. Well, those big deficits turned into budget surpluses within a very short period of time, why government road grew at an average of 2.9% a year. And nominal GDP, of course, was growing much faster than that. And since revenue tends to track nominal GDP, that meant revenue was growing faster. So we had a bigger and bigger private sector, and relatively speaking, a smaller and smaller burden of government spending. Now, we got the budget surplus, but you know, when I think mattered, even more government spending as a share of GDP declined, because as Milton Friedman informed us many decades ago, the burden of government is not how much in taxes, it’s how much it spends. Because whether you you finance that government spending with borrowing with printing money, or with taxing, you’re diverting resources from the productive sector of the economy, so a lot of people in the US are very fixated on reading deficits, and that, Oh, that’s terrible. Well, they are bad. But government spending is the real problem. That’s what we need to get under control. And if we get government under control, make sure that the private sector is growing faster than the government, you’re gonna get rid of reading, you’re maybe not in one year, maybe not two years. And given the magnitude of the problem we face today, it might even take five years or 10 years. But so long as government spending is constrained, you’re eventually going to solve your problems of reading. And but the key thing to understand is government spending is the underlying problem. Red ink is simply a symptom of the problem.

Gene Tunny  14:14

Yeah, one of the strong points you make in the book is that the US Treasury itself, it’s issued warnings about this, hasn’t it? That this current fiscal path is unsustainable. So is this Janet Yellen is treasury. Does that mean that Janet Yellen, the Treasury Secretary knows this problem? And presumably she’s, I mean, you hope she’s telling, you know, Biden, and you know, the people in the West Wing about this. So where does the what’s going wrong? Is it in Congress? Is it the fact that it’s all just politically too hard that you’ve got these entitlements baked into the system? Well, what’s going on? What’s going wrong?

Dan Mitchell  14:52

I don’t know what Janet Yellen, the Treasury Secretary tells Joe Biden or for that matter, the Director of the Office of Management Budget, theoretically in charge of the spending side of budget, but whatever they’re telling him, Joe Biden’s budgets are terrible. He does have massive tax increases. And some people say, Oh, look, he’s serious about the deficit. He wants to raise taxes. But he’s always proposing massive spending increases. And of course, what do we know about tax increases, they never generate as much revenue as the politicians think because people change their behaviour. But also, whenever there’s an expectation of higher revenue in Washington, politicians can’t resist increasing spending. So Biden’s budgets were ever enacted. I would bet dollars to donuts that we would have more brand A we would have higher deficits, for those two reasons. So I don’t think you and again, is it Biden’s fault? Is it is it his appointees fault? Who knows who cares? The the key thing to understand is, he has terrible fiscal policy. He seems to be captured by sort of the Bernie Sanders Elizabeth Warren wing of the Democratic Party. And frankly, there really isn’t a bill clinton wing of the Democratic Party anymore. That’s that’s the problem. So, you know, Joe Biden, when he was a senator went along with Bill Clinton’s more free market economic agenda in the 1990s. But now, Joe Biden is doing the Elizabeth Warren Bernie Sanders agenda. And unfortunately, you know, Republicans have sort of lost that that old Tea Party zeal for fiscal responsibility and spending restraint. And that makes it very depressing for people like me, who work on fiscal policy in Washington.

Gene Tunny  16:35

Yes, yes. In terms of what can be done about it. So I had a guest on a couple of weeks ago, Michael Johnston is a in the in the finance industry. And he’s and he’s had a look at it. And you know, he’s we talked about the retirement age, we talked about the contributions, changes to the payroll tax contributions. We talked about, you know, different options for reforming Social Security. And you cover those in your book, many, I think, similar ones, but you’ve got a transition plan, which I think is really interesting, because there’s this recognition that the trust fund is exhausted to the or what happens is that when they run out of those IOUs, that the Treasury put in there, I mean, the cash went a long time ago. But when you get to a certain point, and then they have to cut benefits, don’t they? There’s a there’s a point in 2033, or whatever it is, but you’ve got a plan for improving that or getting out of that situation fixing up social security over I think it’s a 20 year period. Can you explain that plan, please, Dan,

Dan Mitchell  17:46

the problem we have with Social Security is that the spending and the programme is growing much faster than the revenues going into the programme. And as a result, this mythical trust fund is being depleted, the IOUs are being cashed in, which simply means the Treasury’s borrowing more money. But the trust fund, you know, as funny as it is, it’s still an important bookkeeping entry. And that’s going to run out in the early half of the first half of next decade. And then, technically, under the law, there’ll be an automatic cut and benefits for senior citizens of more than 20%. Now, will politicians allow that to happen? Probably not, you know, they could pass a lot tomorrow and add five zeros to every IOU in the trust fund. And on paper, that would solve the problem. But of course, it would only solved the problems by having Uncle Sam just issue hundreds and hundreds and hundreds of billions of dollars, and eventually trillions and trillions of dollars of new debt. So given the ageing of our population, and given the fact that Social Security is so poorly designed, in the book, less Reuben and I proposed to, in effect, do something similar to what you guys have in Australia, have a system of personal retirement accounts based on real savings. Now, you guys sort of just adopted it out of nothing. We have this giant unfunded liability and poorly designed Social Security system. And so our challenge is going to be entirely different. Because if we allow younger workers to start, in effect, shifting their payroll taxes into personal retirement accounts, how are we going to pay the benefits to current retirees, or to workers who are too old to benefit from a new system? And that’s what’s called the transition cost. And the transition costs, frankly, will be enormous. You’re talking 10s of trillions of dollars over the next 20 years. And some people say, Oh, my God, we can’t do that. 10s of trillions of dollars when we already have this giant amount of government debt. Well, here’s the here’s the most important thing to understand the unfunded liability. The cash flow deficit of The Social Security system over the next 75 years, and inflation adjusted dollars is more than $60 trillion. So here’s the choice, we have in the US two choices, to keep the current system going with a giant $60 trillion plus cash flow deficit, or transition to a system of personal retirement accounts, which $20 trillion or more of transition costs. Now, I don’t like having to make that choice. But if I’m going to have to make a choice, I’d rather have a $20 trillion problem to deal with than a $60 trillion problem to deal with. And then at the end of the day, wouldn’t it be great to have a retirement system based on private savings, rather than a government retirement system that’s untrustworthy, that’s based on taxes and debt. So I think Australia, not just Australia, Switzerland, Netherlands, Sweden, Chile, you know, there are several dozen countries around the world that now have much stronger and retirement systems that are better for national economies, but retirement systems that also are better for individual workers. So that’s a giant challenge for the United States. We almost did it, by the way, during the Clinton years. And that’s what’s so tragic. rebill Clinton was on board, he understood the issue, Republicans and Congress understood the issue. But then we got that whole impeachment thing, and Bill Clinton had to move to the left to shore up the Democratic base. And as a result, we had this wonderful opportunity back when we had a much stronger fiscal situation, and we blew it. And it could very well be in 30 years. As you know, once we’ve hit that iceberg with our fiscal Titanic’s sort of the, the tombstone of the American economy will be it’s a shame that we had the Monica Lewinsky Bill Clinton scandal because it ruined our chance of saving the country. Right? Yeah, yeah. Yeah, that’s

Gene Tunny  22:02

a that’s a good political observation there. Dan. I think that a lot of the maybe a lot of the craziness does date from from that episode. That was an extraordinary of a so now, what about Medicare? I mean, one of the other issues is Medicare and Medicaid, do you have recommendations for those programmes to

Dan Mitchell  22:25

the good news about Medicare and Medicaid is that those problems are much easier to deal with and Social Security. With Medicaid. That’s the easiest one of all because, and that, by the way, for your your listeners and viewers outside of the United States, Medicaid is the federal government’s programme, to provide health care to poor people. And what we should do to that programme is what we did under Bill Clinton with welfare reform in the 1990s. Simply take the programme, block, grant it and turn it over to the states. And then the states would then have full flexibility to innovate and experiment, figure out the best way and most cost efficient way of providing health care to low income people, and that work fantastically with welfare reform. We reduce poverty, we reduce child poverty, we increase labour force participation among low income people. So let’s learn from that success and fix the Medicaid programme. Wonderful, simple choice. We actually almost did it during the Trump years. I mean, Trump was very irresponsible in many areas on government spending. But Congress came within one vote in the Senate from making that reform is another one of these tragic things of history, that, that we didn’t take that opportunity. But maybe it can happen in the next four years, because that’s an issue where we’re, I think Trump is open to doing the right thing. Now let’s shift to Medicare. Now, Joe Biden has said no changes to Medicare, that’s irresponsible. Donald Trump has said no changes to Medicare, that’s fiscally irresponsible. So it’s very hard for me to be optimistic about anything happening on this programme in the next few years. But let’s explain what should be done. And again, for your overseas listeners and viewers. Medicare is the federal government’s programme to provide health care for old people, Medicaid, health care for poor people, Medicare, health care for old people. I’m on Medicare, because I’m 65. So you have to sign up. So I know I’m part of the problem now. But the simple way to solve that, and by the way, Republicans back during the Tea Party era, in the early part of last decade, they had budgets, the Paul Ryan budgets that fix both Medicare and Medicaid and what they did with Medicare at the end of that they looked at the Health Care programme for federal government workers for the Federal Employees Health Benefits programme. And in effect, what it does is it tells federal bureaucrats, here are your choices and health plans. You pick the one that that best serves you the federal gov reds can provide a certain amount of support to premium support. So we subsidise the plans, but you pick the plan that you want. Well, let’s do the same thing with senior citizens. Give everyone this sort of voucher if you want to call it that, and then let them pick from from a range of approved plans. And then of course, if you limit how fast the premium support grows, you could wind up saving trillions and trillions of dollars over time. Just like with the Medicaid block grant, you can save trillions and trillions of dollars over time, so long as you keep the growth of either the block grant or the premium support from growing slower than the private sector. So fixing Medicare and Medicaid shouldn’t be that difficult, not nearly as big of a fiscal challenge as fixing Social Security. But of course, it will be a political challenge, because we saw back when Paul Ryan was trying to fix these programmes. last decade, you had you had folks on the left running campaign commercials of a Paul Ryan look like pushing a grandmother off a cliff. It gives you an idea of the kind of silly demagoguery we get in US elections. But the good news is Republicans several years in a row during the Tea Party era, they were passing budgets that presumed Medicaid and Medicare reform. Now, Bill Clinton was in the White House, obviously, these programmes died in Congress because they couldn’t get any farther than that. But if Republicans can sort of rediscovered that Ronald Reagan, Tea Party type spirit of fiscal responsibility, I think there is a chance maybe not with Trump in the White House. But at some point, you know, I think there’ll be a Reagan type conservative in the White House. And those programmes can and should and must be fixed. We discuss that in the book we explain, you know, we don’t go into great details, we don’t want to bore just the average reader. The whole purpose of the book is to explain and common sense language with lots of facts, but not bearing people with jargon and stuff like that. Here is our problem. Here’s the direction we’re going that direction is going to be a disaster. But if we make these reforms, we can we can make America much more prosperous.

Gene Tunny  27:19

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

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Gene Tunny  27:53

Now back to the show. Okay, and what about defence, Stan? So there’s a you know, reasonably widespread view that I mean, the Pentagon waste money? I mean, I think that’s undeniable. It’s failed six or seven audits. There are concerns about unnecessary, costly military adventures abroad. 7 trillion or whatever. There’s all of these astronomical estimates for what the, you know, Iraq, Afghanistan, Syria has cost the US and will continue to cost in the future. Is there anything that should be done about defence in your view?

Dan Mitchell  28:34

I’m sure there must be hundreds of billions of dollars of waste, and the Pentagon, but we focused in the book, what are the long term drivers of our fiscal problems, and it’s, it’s not the defence budget, the defence budget has, has keeps coming down as a percentage of the budget over time. Or if you measure the defence budget as a share of GDP, it’s come down. Obviously, we don’t want to waste money anywhere, even if it’s not the driving force and driving problem in the budget. But defence is not the issue. Now. That doesn’t mean we should do costly nation building exercises in the Middle East. But on the other hand, I’m not enough defence foreign policy expert. But given what Russia is doing, and given China’s sabre rattling in the South China Sea and stuff like that, I’m not sure I would want to radically slashed the defence budget, I would probably want to reorganise it. So we’re more focused on being able to protect America’s national interest. But but that’s separate from I guess, a fiscal debate. Again, fiscal fiscally speaking, the defence budget is is just a tiny fraction of our problem. And that’s even part of the problem at all.

Gene Tunny  29:47

Right? Because it’s these, these entitlement programmes where you’ve got that fundamental problem of the spending ghetto, getting away from any revenue that’s coming into town, you know, to fund them. So yeah. And take that point. Right, and why isn’t higher? I mean, I think you make a good a good case for why this is a spending problem. It’s not a just a low tax problem. Can you explain why you wouldn’t want? The government has to address this fiscal gap through higher taxes? Please, Dan?

Dan Mitchell  30:22

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

Gene Tunny  35:32

Very good. And you saw it studies by OECD and IMF, I think that do establish that empirical link between taxes and growth and negative link. If you have a higher tax to GDP, you have a lower economic growth rate. If I’m if I remember correctly, you cite some of those studies. So I can put links in there.

Dan Mitchell  35:53

It is remarkable that the OECD and then the IMF, by and large are sort of, I don’t know whether you’d call them left leaning bureaucracies, but drug pushers controlled by government bureaucrats who respond to their political paymasters in Washington and Berlin and Brussels and Paris. And so you get a lot of bad advice from the IMF and the OECD. But both of those international bureaucracies have economics departments that do working papers and studies. And even though these studies don’t get a lot of attention, I look at them. And it’s remarkable how often those studies point to the fact that spending restraint, and low tax rates are good for growth, while at the same time to political appointees at the IMF and the OECD. They go around the world saying government should raise taxes and increase spending. So I’m not a fan of international bureaucracies. He has the leadership of the International bureaucracies. They respond to pressure from national capitals around the world. And unfortunately, when you have Joe Biden, and the US and your Sunak, in the United Kingdom, might as well be a Labour Party, Prime Minister, and then of course, he macarons No, good. Schultz. I mean, we just have so many bad left wing governments and the major countries of the world that you wind up with the OECD and the IMF responding to their pressure to give bad advice, even though many of the economists that work at those bureaucracies, publish papers that have findings that that good economists would agree with.

Gene Tunny  37:22

Yeah, yeah. Yeah, they’re not motivated by the politics. They just want to do the the analysis, crunch the numbers and come up with credible findings. So absolutely. Dan, before we wrap up, I’d like to play you a clip, which I think is it’s representative of all the the opposite view to yours. And, and in a way, it’s almost like when I listened to it yesterday, I thought is this Kyle Kolinsky actually talking about Dan, but I think he’s just thinking generally about other, you know, economists and what economists are not and what I think mainstream economists think about the dead. I don’t think this is necessarily a libertarian economist view. So I want to play this and then get your reactions to it because it’s, it’s quite a quite a fascinating clip.

Kyle Kulinski  38:11

Your line of attack against both Trump and Biden is the debt. That’s the first thing you list the existential issue of the debt. Okay, let’s be clear, guys, that is simply a right wing argument. That’s like the libertarian economics types, the Austrian economics types. The idea that, you know, the nation’s debt is you should conceptualise it the same as household debt. Like if you have household debt, you only have a choice, you kind of have to pay it off. Like you have to. It appears like RFK has no idea how the national debt functions, especially when you have a sovereign currency. He should read up not only on Keynesianism, but on modern monetary theory, because all this debt and deficit fear mongering, I just need to understand this. It’s the dumbest shit of all time. It’s just the dumbest shit of all time. Just just to give one example, Japan has had a lot of debt for a long time. And even their debt to GDP ratio was kind of out of whack. And a lot of like, right wing wall street types have been predicting forever, a debt crisis that’s going to hit Japan. And it never comes. They’ve been saying it since like the 1990s. That that’s gonna happen. It never comes. Why? Because they fundamentally misunderstand what the national debt is, what it means to run a deficit, how that impacts the economy. Here’s a fact that a lot of people don’t know. Did you know that public debts lead to private growth? Right. So from that perspective, you might even say in many instances, public debt is a good it’s just a good thing. Not it’s a bad thing. We got to fear it. You know, this is bad and wrong, and we need to reverse it and we need to Make sure we cut it. No. In some instances, it’s a good thing. Like there are very positive outcomes that come from public debt. And again, I don’t, I don’t think he understands it, that public debt means private surpluses. That is like, that’s the lifeblood, certainly of a capitalist economic system.

Gene Tunny  40:21

Right. So that was Carl Kolinsky, who’s a very prominent progressive commentator in the, the US and he was responding to something RFK Jr. said, he told Erin Burnett on CNN, regarding how he sees the dead as an accident, an existential threat to the US. And he’s worried that neither Biden nor Trump are actually that concerned about it, or will will do anything about it. So Dan, do you have any thoughts on I mean, that particular viewpoint, I’d be interested in your reactions to that because it is it does seem to be a common view among, among many people out there.

Dan Mitchell  41:00

But I never thought I would agree with RFK, Jr. on something, but he is right about Trump and Biden. They don’t care about that. But I would change the focus. My concern with Trump and Biden is that they don’t care about the growth of government. And as we’ve already talked about, Jean, that growth of government is the problem. The growth of debt is a symptom of the problem. Now, there’s no question that, that a lot of people who do fixate on the debt, have pointed to Japan and said, Oh, this, this is not going to end well. And, and I think those people are right, but it’s always a danger to imply that crisis will happen overnight. Now, having said that, let’s Ruben and I, at the start of our book, we give a little story. We say imagine that you’re Greek, and that you’re living in Greece in the mid 2000s. And everything seems great. You’re now part of the euro, your interest rates have come down, your economy is growing 4% a year. And sure there are some people complaining, well, wait, our demographics aren’t friendly, and our government debt is too high and government’s growing too fast. But you don’t care as a great citizen, because the government’s giving you lots of benefits. And it seems like the economy is just fine. And you think, oh, this person is just, you know, crying wolf. Well, guess what, within five years, your economies and one of the most massive, severe economic downturns that we’ve seen in the modern history of the Western world, and then, you know, their living standards dropped by 25%. In Greece, it was a horrible wrenching experience, because they got to the point where what happened were investors didn’t trust the Greek government. Now, we’re used to that with third world countries or developing countries, I guess we don’t use third world anymore. Why? Why has Argentina defaulted so many times because at least before President Malay, they’ve had all these Coronas governments that would spend money, borrow money, print, print money to finance their budgets. And then they got to a point where international investors said, I’m not gonna buy any bonds from that, from that government. That’s when you have a fiscal crisis, when investors no longer trust your government to pay back the bonds when they borrow money. Now, is Japan going to hit that? That that that crisis point? I think at some point, they probably will, because their demographics are really challenging. They have the entitlement problems, and government debt is more than 20% of GDP. And now, yes, they got the Japanese government has certain regulations, that sort of forces, a lot of private savings into buying government bonds. But at some point, you have to wonder they’re gonna run out of time. And I think the same thing will happen to the United States if we don’t get control of government spending. So I disagree with the gentleman whose clip that you played. I think that government debt is a troubling symptom of a bigger problem of government growing too fast. And I think Greece isn’t is a real world. Not that far ago, example of how that won’t end well. And yes, the US is the world’s reserve currency. We can print a bunch of money. But the mere fact that that guy was citing modern, modern monetary theory, the biggest crank theory that you could possibly imagine that you can sum up print your way to prosperity if that was true. Why isn’t Venezuela the most prosperous country on the planet? So I don’t know what that guy was smoking but that must be really fun.

Gene Tunny  44:40

Yeah, but look, it is. It is actually a an increasingly common view among particularly younger younger people. So I think it’s it’s interesting, he’s very influential on in those progressive circles in the state so that I get your reaction from that. Okay to that Okay, Dan, this has been terrific go. Yeah, I really enjoyed your book, I’m really gonna recommend it. I’ll put a link in the show notes. I learned a lot I learned about, you know, exactly what’s happening with Social Security in this days for the trust fund. That’s fascinating how it’s full of IOUs, how there’s going to be this, this critical point in in 2032, or 33. And I chatted about that with Michael Johnston as well, that will, hopefully for some type of action is not just some sort of, you know, putting in a couple of zeros, as you suggest that they could do, they could just say, Oh, look, all is good. We’ll just give you some, you know, pretend you’ve got more money in that trust fund. Let’s say they actually do something about that. And also liked you cite Switzerland as an exemplar of a of a, of a country that appears to be doing things really well. And in federal, the federalism there, the Federation could help because there’s the cantons compete with each other. They don’t want to have high taxes, they want to attract people. So I think that’s a good example. So yeah, definitely learned a lot from the book. Is there anything you’d like to say before we wrap this up, please, Dan?

Dan Mitchell  46:09

Well, of course, I recommend that people buy the book. I suspect, given that it’s a wonky topic, we’ll never sell enough that we get any royalties to speak of. So I want people to buy the book, not to not to put money in my pockets. But to understand what our problem is. Government is growing too fast. We have so many real world examples of countries that have done good things and bad things in the book. We have very accessible, easy to understand explanations of what’s wrong with our entitlement programmes, to solutions to fix those problems. And all I know is that I don’t want to be that Greek citizen in 2005, who 10 years later, was suffering through a deep, deep economic downturn because my politicians never got spending under control.

Gene Tunny  46:58

Yeah, yeah. Very good point. Okay, Dan Mitchell. This has been great. Thanks so much for appearing on the show. I’ve really enjoyed it.

Dan Mitchell  47:05

Well, thanks, Lucky. Thanks for having me on.

Gene Tunny  47:09

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 app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

47:56

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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.