<![CDATA[Fresh Economic Thinking]]>https://www.fresheconomicthinking.comhttps://substackcdn.com/image/fetch/w_256,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb51f0756-0396-487b-83be-90fc0297645d_1112x1112.pngFresh Economic Thinkinghttps://www.fresheconomicthinking.comSubstackTue, 26 Nov 2024 13:43:57 GMT<![CDATA[High-rise apartments are BAD FOR RETIREMENT and BUILD-TO-RENT apartments will become POPULAR in Australia without new tax breaks]]>https://www.fresheconomicthinking.com/p/high-rise-apartments-are-bad-forhttps://www.fresheconomicthinking.com/p/high-rise-apartments-are-bad-forSun, 24 Nov 2024 06:00:56 GMT

Australia seems very good at building apartments.

But we aren’t as good as many think.

The past two decades have seen a major shift in the composition of new housing in Australia towards large apartment buildings, as you can see below. However, two big risks arise in large apartment buildings that limit their attractiveness to individual investors.

First, are construction risks. We have seen a wave of buildings with enormously costly defects (such as Opal and Mascot Towers) and many more with unexpected defects that have cost apartment owners tens of thousands of dollars (or more) each. These risks are ultimately held by new apartment owners despite various systems of building warranties and insurance.

Second are the management risks. Large complex buildings need reasonably sophisticated and informed management. Often management rights are separately owned, and the incentives of the owner of the management rights may not align with the interests of the owners. For example, sometimes management rights are held by building developers as a way to hide defects from owners until building warranties expire.

Apartment development in Australia today typically involves four entities that each would like to pass risks to the other, and hence have limited collective incentives to operate in the long-term interests of strata owners.

  1. Developer

  2. Builder

  3. Body corporate manager

  4. Strata owner

Four Corners has investigated both aspects of apartment owner risk in their shoddy apartment construction and strata management programs.

For strata owners, it is difficult to understand or estimate these risks upfront. Whether you have bought in a good building or a disaster can only be discovered after many years, and when you buy sellers have no incentive to inform you.

The trouble is that each entity was to push risks onto the others.

Along the development path incentives push towards buildings that are flashy and saleable off-the-plan and in the first years, but don’t push towards low ongoing maintenance costs, leaving owners with many surprises.

A rise in legal issues over building defects from the 2010s apartment boom led the New South Wales government to conduct a survey of building defects. The political fallout is likely to result in further policy changes to establish better allocation of risk and quality controls.

Build-to-rent companies take on more roles in development and management, sometimes even building the dwellings and rolling the four different groups into one entity, taking all risks and all rewards while removing conflicts where each party tries to push risk onto the other.

This approach to risk is common in other sectors of the economy. Companies that need complex and specialist capital equipment will often try and make it in-house, as there are risks from being dependent on others for supplying niche capital goods. Suppliers end up with the power to push risks and costs (such as extortionary conditions for repairs and maintenance) onto them.

These risks and the difficult incentive problems are why I argue below that:

  1. Apartments in large buildings are a bad financial choice for pensioners, and

  2. Build-to-rent apartments will be much more popular in the next property cycle.

Pensioners will want detached homes

Pensioners are the least able to deal with apartment risks relative to those of a detached home.

In a detached home, new building defect risks are typically more limited in their potential costs and they are easier to spot with a building inspection.

And even if defects arise, you can choose to live with them. In a large apartment complex, you must contribute your share of the costs even if you can live with the damage.

This is a broader point.

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]]><![CDATA[Audiobook: Rigged (Ch 10 - Myths)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-10-mythshttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-10-mythsWed, 20 Nov 2024 21:30:52 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

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<![CDATA[FET #47: Should you leave Australia? The economics of lifestyle arbitrage]]>https://www.fresheconomicthinking.com/p/fet-47-should-you-leave-australiahttps://www.fresheconomicthinking.com/p/fet-47-should-you-leave-australiaTue, 19 Nov 2024 20:30:54 GMTCameron and Jonathan discuss the trend of moving from Australia to cheaper countries abroad to beat the cost of living and the apparent inability to get ahead down under.

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Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

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<![CDATA[Are royalties just RENT CONTROL for mineral and energy resources?]]>https://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-forhttps://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-forSun, 17 Nov 2024 05:45:50 GMT

My colleague Tim Helm and I have a new report out for Prosper Australia on how to more commercially price our collectively-held rights to our mineral and energy resources.

Grab your copy below. Go on. I’ll wait.

Rent Controlled Resources Report
6.27MB ∙ PDF file
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Why are we under-charging Australia's mining tenants and how can we use royalties to more commercially price the nation's resources?
Download

I hope the report is clear enough. Here I want to explain details a little more.

The basic story is that underground resources are owned by the state. As your property title will say, such rights are reserved. Companies that extract mineral and energy resources hold a lease granted by the state to use our collective property.

So the state is the landlord and the resource company is the tenant or leaseholder.

The difference between a housing landlord-tenant relationship and a mining landlord-tenant relationship is that with mining, the tenant brings the capital, not the landlord.

So it is more akin to a caravan park, where the tenant brings their house with them and pays for it. Except that with mining, much of the capital investment can’t feasibly be towed away.

Let’s consider this question.

If you owned the property rights to the state’s minerals, how would you price those rights?

What we currently do in Australia is price those minerals at a fixed percentage of the value of the resources (the income to the leaseholder) in the form of a royalty. This is the rent paid by the leaseholder for those mineral rights.

A rent that doesn’t rise or fall with the market price, but instead only rises or falls with the tenant’s income, is a form of rent control. It’s exactly the type of rent control we use for public housing tenants.

This is not the ideal commercial arrangement for resource landlords because, as we know, rent controls favour tenants at the expense of landlords.

What resource pricing options are there?

Separately pricing the rent for the mineral and energy resources from the return on the capital invested by the mining tenant is a genuinely tricky problem.

This is why a popular approach is to avoid pricing altogether by the state becoming the mining company itself. This is how the Norwegians began with Statoil (now Equinor) and how the Gulf nations now run their oil and gas industries. Seizure or acquisition of private mining companies by the state is extremely common.

Another way is to try to tax excess profits, or super-profits as they are called. Australia has the Petroleum Resources Rent Tax (PRRT), which tries to do this for offshore oil and gas deposits. Because excess profits are an accounting construct, there are many margins to game this figure, with often hidden accounting rules that reduce taxable excess profits, such as generous allowances for escalating costs over time and including exploration costs from other projects.1

A final way to price mineral and energy resources is to use royalties. Since it is relatively easy to monitor what gets physically extracted from a mine, or put on a ship or in a pipe, just charge a rent for the resource based on production output or production revenues.

Royalties are typically set either at dollar value per unit of resource output or as a fixed percentage of the value of the resource produced up to a particular part of the production chain.

But even though the fixed percentage royalty varies with market prices of the resource, it doesn’t account for the fact that when resource prices rise the rent rises more than in proportion to the price.

To see why resource rents should rise more than in proportion to the price of the resource, let’s look at a simple housing example.

If you have a home at one location with a market price of $1 million that costs $500,000 to build, the land (resource rent) value is $500,000. If that same house was at a location where the market price was $2 million, the land value would be $1.5 million.

When the market price doubles, the land value triples.

Land is a leveraged bet on the underlying asset, as I explained in this post, and so are the rights to mineral and energy resources.

Historically, prices of mineral and energy resource markets have varied quite a lot. But royalty incomes haven’t risen and fallen more than proportionally as they should.

However, royalties can be enacted so that their rate per dollar of resource value varies with the market price. These are known as variable royalties.

How do variable royalties work?

In 2022 Queensland enacted a textbook example of variable royalties for coal by copying the structure of rising marginal rates that we use for income taxation.

The coal royalty is 7% of the market price when the coal price is below $100/tonne, but rises to 12.5% of any value above $100, 15% of any value above $150, 20% of any value above $175, 30% of any value above $225, and 40% of any value above $300.

If the coal price is $100/tonne, you pay a $7 royalty or 7% of the market price.

If the coal price is $500/tonne, you pay a $129.50 royalty or 25.9% of the market price.

This is a more commercial market-based way to price our collective resources.

In our new report, we propose a general version of the variable royalty approach whereby rates don’t need to be referenced to a series of nominal benchmarks (equivalent to tax brackets).

Instead, you take a long-term market benchmark, in our case the 10-year median market price in a relevant resource market, and you scale the current royalty percentage rate based on the deviation of the current market price from that long-term benchmark.

This way, rather than needing to update the nominal thresholds to avoid bracket creep of royalties, you let the market reveal what is abnormally high or low short-term price variation.

This variable royalty formula is:

So if we have a 7% base rate royalty for coal, we simply apply this scaling factor so that when prices rise to abnormally high levels, the rent the state charges for resources scales more than in proportion. When market prices fall to abnormally low levels, the royalty rate also falls.

In our report we apply this variable royalty approach to historical price patterns of coal, iron ore, and gas, applying a base rate equal to typical current royalty rates, to see what the counterfactual history would have been.

We find two interesting things.

First, the royalty is often lower with this variable royalty than if applying the base rate only. We explain that:

A variable royalty with base rate equal to the existing fixed royalty rate would have been lower than the latter for around 15% of the past decade for coking coal, and for around 38% of the past decade for thermal coal. For iron ore, a variable royalty would have been lower than the fixed-rate royalty for 40% of the decade, and for gas, it would have been lower for more than half of the period (58%). 

Second, because price variation above the long-term median is much larger than price variations below the median, the total revenue raised from a more commercial variable royalty is much higher on average.

Over the decade to 2023, variable royalties for coal would have raised an additional $38 billion (in 2023 dollars), which is 71% more than the $53 billion that would have been collected under a 9% fixed rate. Over the same period, variable iron ore royalties with a 7.5% base rate would have raised an additional $33 billion, or 33% more than the estimated $101 billion raised from the fixed-rate royalty.

The charts below summarise how variable royalty prices compare to fixed royalties and the effect of this on the market price (net of royalty) received by leaseholders.

So what?

Australians should charge a market price for our mineral and energy resources.

If nationalising mining companies is politically undesirable, and taxing accounting profits is difficult, then royalties can be designed more commercially to track market fluctuations in the value of the resource rent.

Pricing this way also de-risks mining leaseholders, minimising variation in the net price they receive by reducing royalty rates when market prices are low, and increasing them only when market prices are high.

Since variations in market pricing over time are asymmetric (they can rise above the median more than they can fall), this approach ultimately earns much more revenue for the resource landlords of the country, the Australian people, over the long run.

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1

For example, the 2017 review of the PRRT showed that it was declining in its ability to raise rent from off-shore oil. My submission to that review is here.

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<![CDATA[Audiobook: Rigged (Ch 9 - Banking)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-9-bankinghttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-9-bankingWed, 13 Nov 2024 21:30:12 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

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<![CDATA[FET #46: World-first kids social media ban is unworkable and silly]]>https://www.fresheconomicthinking.com/p/fet-46-world-first-kids-social-mediahttps://www.fresheconomicthinking.com/p/fet-46-world-first-kids-social-mediaTue, 12 Nov 2024 20:45:53 GMTCameron and Jonathan examine Australia’s proposed social media ban for kids aged 16 and find it hard not to be critical of it.

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Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

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Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

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<![CDATA[Is Antarctica the new Wild West of cowboy property claims?]]>https://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-propertyhttps://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-propertySun, 10 Nov 2024 05:45:44 GMT

A recent episode of the B1M show covered the new construction boom happening in Antarctica, spurred on by oil discoveries of Russian geologists.

I’m a property nerd.

I find the way we assign new property rights to be a fascinating insight into social and economic processes.

Antarctica today is in a rare situation where property rights are emerging on a new continent with little institutional baggage.

The colonisations of the British typically adopted the property rights systems of the mother country, with positions of power in the new institutions filled by those raised in the existing traditions.

The United States is an obvious case and has many interesting examples of how property rights systems emerge. One of my favourite situations is the Oklahoma land rush of 1889 when unclaimed lands were allocated to those who got their first from outside the area following a high noon starting gun.

Like most other times new property rights were established, there was intense conflict despite the attempt at order.

The invention of flight similarly tested our understanding of property and how we regulate access to the new realm of airspace.

Was flying over a farm a new form of trespass? Or did new property rights to airspace supersede them and create a vertical limit to those old rights?

Similar challenges will arise in space as orbits become more popular. Claims on the Moons and Mars must be resolved. Currently, space is regulated via a similar treaty to Antarctica, the Outer Space Treaty, which prohibits territorial claims by countries.

I don’t know how far in the future those situations will arise. Lucky for me, Antarctica looks to be a frontier where a new property rights regime is likely to emerge from scratch during my lifetime.

Will the process be intertwined with conflict like when colonial property rights took over new frontiers? Or will we take a more measured path along the lines of regulating airspace rights?

I don’t know. But it will be fascinating whichever way it goes.

With that in mind, please enjoy this article of mine from 2018. It seems especially prescient looking back from 2024 and gets to the heart of the issues around conflict, coercion, and the establishment of valuable systems of property rights.


Who really owns Antarctica?

I have often argued with libertarians (and anarchists) that the existence of property rights first requires the existence of a government with a monopoly on coercive force (ie. government requires the largest armed force). If such an entity didn’t exist, then the largest armed force would simply take control and become the government. Many voices in these debates suggested that I need only look to international treaties to show how cooperative we can be without the need for world police.

Putting aside the obvious point that the United States is the current world police, with their military budget making up 43% of the world's total military spend, and that their international military presence often conflicts with international treaties, we can examine whether libertarian views are vindicated by one of the shining examples of international cooperation—Antarctica.

Back in 1959, twelve countries active in the Antarctic signed the Antarctic Treaty (implemented in 1961), which led to further treaties and conventions to manage activities and resource use (especially fisheries) in the whole Antarctic region south of 60% latitude. Collectively these treaties are known as the Antarctic Treaty System. With the shadow of the Second World War still looming large, the top priority of the original treaty was to ensure that the area remained conflict-free by outlawing a military presence—prescribed in Article I of the treaty. Other peace-inspired provisions include Article V, prohibiting nuclear explosions and the disposal of radioactive material. Who knew that the dominant ideologies of 1960s youth originated in Antarctica?

Since that time the Montreal Protocol was adopted as part of the Antarctic Treaty System with the explicit intention of preserving the Antarctic as a natural reserve devoted to peace and science. Critically, Article 7 of the Protocol prohibited all non-scientific mineral resource activities.

The Antarctic Treaty was a bold and lasting agreement, recently celebrating its 50th year. The treaty’s anniversary gave rise to some optimistic claims

The lesson of fifty years of the Antarctic Treaty System is that the nations of the world can set aside their political and territorial aspirations to share in the management of a vast region of the planet, says Paul Berkman, chair of the International Board for the Antarctic Treaty Summit.

But I wouldn’t make such strong claims so fast.

Geopolitics was not cast aside by the free love of the original Antarctic Treaty. The United States does not recognise the territorial claims of other governments and reserves the right to assert claims. The USSR, and later Russia, made the same non-commitment to the Treaty. The success of the Antarctic treaties over the past fifty years was perhaps more the result of the low value of any commercial or strategic military operations in the Antarctic.

While the US has no current claim over territory, it has positioned its Amundsen-Scott research base at the South Pole to maintain a presence in all claimed territories (shown in the map below). The United States may very well have secured a right to claim territory that existing claimants leave unoccupied.

We also know Australia does not have the capacity to visit the inland areas of its territorial claim. This may be problematic as the original Antarctic Treaty has a provision in Article XII allowing a contracting party to call a review of the operation of the treaty after thirty years. One could expect that our absence, or lack of presence, in our claimed territory, puts us in a poor position for any future treaty negotiations that may establish new claims based on current activities.

The rise of new entrants into Antarctica is also concerning for existing territorial claimants.

Russia has seven stations in the AAT; China opened its second station last year; India will start construction on its first over summer; and South Korea is planning to set up a new station near the Easter sector by 2014.

With renewed interest from emerging global economic powers, and the ice sheets receding in some areas, mining the Antarctic is attracting a lot of attention (and here).

So it seems that the ingredients for conflict are slowly being added to the spicy Antarctic political stew (these concerns have been noted elsewhere). How one resolves these new interests in the mineral rights of Antarctica, with the interests of the existing parties to the Antarctic Treaty System, I am not sure. But let’s be clear. The United States will not lose out in any future negotiations that allow further exploitation of the Antarctic. In a hypothetical future scenario where mining becomes allowable under the treaty system, does anyone really expect the US to respect the rights established by existing territorial claims? I don’t.

In the end, current Antarctic territorial claims are only valid as long as they are not challenged. So I ask the anarchists and libertarians, exactly how does one negotiate a territorial claim (or defend their property right) with an unmatchable armed force that happens to be a necessary military ally?

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<![CDATA[Audiobook: Rigged (Ch 8 - Burning Money)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-8-burning-moneyhttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-8-burning-moneyWed, 06 Nov 2024 21:31:13 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

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<![CDATA[FET #45: Why the Aussie construction sector is defying predictions with Rob Sobyra ]]>https://www.fresheconomicthinking.com/p/fet-45-why-the-aussie-constructionhttps://www.fresheconomicthinking.com/p/fet-45-why-the-aussie-constructionTue, 05 Nov 2024 20:32:51 GMTRobert Sobyra is the research lead at BuildSkills Australia. Earlier this year Rob predicted that Australian unemployment in December would be above 4.7%. I took the other side of the bet and that now seems to be the winning side.

Hear about why that unemployment uptick was forecast and the puzzling strength of the Australian economy, especially relative to its peers in Canada and New Zealand.

Also learn about how important immigration is, or is not, when it comes to skilled construction workers.

Find Robert on LinkedIn here.

——————

Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

Please like, comment, share, and subscribe.

Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

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<![CDATA[Lost Decade economy trophy passes from Japan to Canada]]>https://www.fresheconomicthinking.com/p/oh-canada-you-have-a-joe-biden-economyhttps://www.fresheconomicthinking.com/p/oh-canada-you-have-a-joe-biden-economySun, 03 Nov 2024 07:00:55 GMT

I did my introductory economics training twenty years ago.

Back then, Japan’s Lost Decade of economic progress during the 1990s after its enormous 1980s economic bubble was a featured case study in many textbooks. Their asset price bubble collapsed and real GDP per capita grew just 7% cumulatively from 1991 to 2000, down from 47% in the 1980s.

It was a warning. Avoid whatever Japan did to cause that!

One puzzling change in the global economy since my introductory studies is that there are now many countries to choose from if you want to observe a lost decade of economic progress.

This is especially the case across Australia’s peer nations, with Canada seemingly the worst of all!

Why?

The main story told about Japan’s lost decade was that a post-bubble recession was extended by tight fiscal and monetary settings and an ageing population.

But do these stories fit the current lost decades in Canada and elsewhere that are even worse than Japan’s on per capita GDP terms?

New lost decades

As a reference point, Japan grew 7% in real GDP per capita terms in the decade after 1991. This was widely thought in the early 2000s to be the stand-out example of the sudden stagnation of a large modern economy.

Here’s some data from the World Bank up to 2023 (in local inflation-adjusted currencies) showing that not only has Japan’s growth rate increased since, but Germany and Canada have seen much lower growth in the decade up until 2023.

But it’s worse.

The past year has seen substantial per capita GDP declines, especially in Canada and New Zealand, but also in Australia and the United Kingdom.

Both Australia and the United Kingdom’s 2014-24 decade was identical to Japan’s lost decade in terms of seeing only 7% cumulative GDP per capita growth. New Zealand fared better, but Canada’s real GDP per capita in 2024 is back where it was in 2014.

That’s a decade of zero growth!

In that time the United States has grown 18% in real GDP per capita terms.

If we extend our timeline backwards, we have the astonishing situation whereby Canada’s real GDP per capita grew only 0.55% per year on average for the last twenty years, from the end of 2003 to the end of 2023.

Why?

The main stories I was told twenty years ago about Japan were these:

  1. Post-bubble recession

  2. Tight monetary or fiscal policy

  3. Ageing (and lack of immigration)

But I think there are two other potential stories here too, which are:

  1. Covid disruptions

  2. Measurement issues

Do any of these stories help explain recent decades in Canada, Australia and their peer nations? Let’s dive in.

Post-bubble recession

The closest example of underperformance following a major bubble might be the United Kingdom. It saw a much larger financial crisis recession, and although there was a strong recovery period up until COVID, real GDP per capita is only 5% higher than the 2008 pre-recession peak.

That’s nearly 16 years with less cumulative per capita economic growth than Japan’s lost 10 years in the 1990s.

Recently, some groups have claimed that regulations going back to the post war period that prevent energy and housing investment are the main issue with the United Kingdom’s economic malaise.

I find that hard to believe. Here’s why.

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<![CDATA[Audiobook: Rigged (Ch 7 - Mining Games)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-7-mining-gameshttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-7-mining-gamesWed, 30 Oct 2024 21:31:02 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

Read more

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<![CDATA[Economic lessons from Freedom's Forge]]>https://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrialhttps://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrialSun, 27 Oct 2024 06:58:55 GMTOne of the big mysteries in economics is how countries become rich.

There are plenty of theories and stories out there— “it’s the magic of capitalism”, “it’s technology”, or more honestly, “it’s the unexplained residual.”

I want to share a glimpse of the economic development story in Arthur Herman's book Freedom’s Forge. This book is an extremely detailed documentation of the story of the key personalities, policies, and business decisions during the wartime economic build-up that massively increased the United States' economic capacity and wealth.

This is not a book review. I recommend reading the book yourself, but you might consider this review or this great Twitter thread by Misha Saul.

I want to connect the dots about the economics and the industrial policy options for rapid growth and trasnformation with the stories of the key businessmen and their trials and tribulations in the wartime build-up told in Freedom’s Forge.

The economic outcomes of wartime

Let’s start with the astonishing economic production outcomes.

Here’s data from Wikipedia on United States aircraft production showing an astronomical 25x increase in total aircraft production in four years.

Similarly, the impressive scaling of mass production of merchant and navy ships also happened in this period (a good overview is here), increasing the output of ships by a factor of 20x to 50x over four years (depending on the type).

These were rapid expansions of enormous parts of the whole economy. Some of the figures in the book are hard to believe on first reading, but they match a variety of other sources.

How did this expansion happen so quickly?

Could other nations adopt similar policies and increase their non-military manufacturing output by such large multiples in just a few years by copying the U.S. policy stance of this era?

Let’s take a look.

The macro story

The first important detail to remember about the WWII build-up period was the enormous underutilisation of industrial capacity across the United States. As Herman notes in the book:

In 1939 the American steel industry was at its lowest capacity in twenty years.

President Roosevelt’s New Deal projects had been ramping up throughout the 1930s, building major public works and fostering state capacity for managing and coordinating major projects. Yet even still, total industrial output did not exceed 1929 levels, as the below chart shows.

Any economic policy lessons from this period must remember the context of the momentum of post-depression expansion, following a previous macrocycle that involved enormous technological leaps in mass production.

But this doesn’t help explain a 25x increase in output of complex capital equipment like aircraft and ships in just four years, alongside the vast array of associated production inputs to them (such as steel and metal alloys, rubber, oil, and so forth).

New Deal projects already attempted spending to kick-start activity. Was it just the scale of defence spending relative to the New Deal that made a difference? Or are there other hidden but important lessons that countries trying to industrialise can observe?

State-funded, privately organised, development

The scale of public spending of course mattered. You can see just how transformational this spending was, even relative to the New Deal, with over a third of total economic activity diverted into the military build-up.

The basic model of how that spending was used productively is quite standard in non-military development—state funding of privately organised capital investment and production.

But I think the most interesting part is hidden in the details of how the spending was directed to reorganise production.

Here are the big economic lessons for growth that I saw in the stories told in Freedom’s Forge.

  1. Expertise sits within organisations that do the tasks (production knowledge is embedded in people and their organisations)

  2. Adjacent industries can be entered by people and organisations with similar expertise when there is a clear motive to do so.

  3. Economies of scale matter.

  4. Discipline over deliverables matters—something for something, not something for nothing.

Embedded knowledge

The idea of embedded knowledge shines through in the stories told by Hermans. The main characters weren’t MBAs, but proven businessmen who had previously been through the hard slog of building up mass production facilities—Bill Knudsen, who “worked his way up from the shop floor to become the president of General Motors”, and Henry Kaiser, who built up a major civil construction company during the 1930s which even built the Hoover Dam. Or as Herman describes:

Knudsen knew how to make things, especially out of metal. Kaiser know how to build.

The same lesson of capitalising on the embedded knowledge of experienced people applies to any country, state, or region looking to change its economy today.

The United States has, for example, recently subsidised domestic microchip manufacturing. The actual operations and management of these investments have been done by foreign companies and their personnel with the embedded knowledge and experience to get it done without all the costs that come from learning those lessons the first time.

Adjacent industries

Sometimes, however, the desired investment and production are new and different from what had come before. The United States built very few aircraft in general before the build-up and few of the type needed to enter the war.

No one could be called upon who had the specific embedded knowledge for this task.

To the wartime planners and engineers of the day, it seemed clear that the production methods required were similar to those in the motor vehicle industry. Hence when Bill Knudsen moved from mass-producing motor vehicles on production lines to mass-producing aircraft production lines, he could still take a lot of embedded knowledge with him as he adapted the blueprints and designs from the British and French to local mass-production techniques in which he was fully experienced.

This is a common problem for countries trying to develop today. Often there is a political desire to skip over basic manufacturing to more high-tech production. But what adjacent industries will expertise be drawn from in this case? This can only work if people and equipment are imported whole hog.

Economies of scale

Another important lesson is that the types of production being paid for with public funds in the wartime buildup were those that had large economies of scale. This was not a case of duplicating infrastructure or building more new roads and dams with ever-decreasing returns per dollar spent.

This matters long term as the construction of, and production from, these wartime facilities led to a broad build-up of expertise in mass production techniques which would become broadly applied in the post-war period.

And it is the expansion of industries with economies of scale that helps create robust growth.

Many economists note that economies of scale matter for sustained growth (https://www.researchgate.net/publication/270104427_International_Trade_and_the_Economic_Mechanisms_of_Underdevelopment)

Discipline

As you might expect, spending a third of GDP on public procurement of military hardware from private firms comes with a great deal of corruption risk.

There is a tricky balance.

To get the people and firms with the embedded knowledge of how to do the required task means offering them an economic return that exceeded what they could get elsewhere.

But how much more? And how do you ensure that they come through with the goods?

As Herman explains, previous war experience had led to tight rules to combat profiteering from public military contracts. But some of these rules were too tight for the new situation.

Starting in 1933, congressional legislation had placed sharp restrictions on how much war suppliers could make on their government contracts. During the First World War, cost-plus contracts were common, meaning that the government would pay all expenses relating to making an airplane or artillery gun, in addition to a fixed fee or percentage of cost-8 percent was fairly standard. The postwar reaction against "war profiteers" led Congress and the Treasury Department to impose sharp curbs on the profit companies could make on orders larger than $25,000. They also required an advance audit to guarantee that the company's profit would be no more than 8 percent even before the contract was signed.

In addition, every government contract for a new airplane or tank or vehicle required bidding companies to pay for the production of their prototype and the new machine tools to manufacture it. No money was ever advanced, even to the winner of the bid. As one executive from Boeing put it, "There was no sound of coin in Uncle Sam's jeans." An aircraft maker looked at an average of a half-million-dollar investment just to enter a bid -with no guarantee of winning. Even if he did and problems or delays developed, the government was not above pulling the contract, leaving the company high and dry.

The same tricky problems happen today.

This is why governments will often need to adopt contracts that share risks in situations where large capital outlays come with large risks, either in joint ventures, public-private partnerships, or other arrangements.

Back then, the trick was to change tax laws to allow capital spending to be quickly deducted. The 16-year amortization rules wouldn’t make sense, since the production facilities might get 16 years of production, with all the production happening in the first few years and hopefully the war being over.

Then there were the tax laws. Every American company's investment in new plant construction, tools, and other physical resources necessary to produce a plane or tank or aircraft, even with a contract, took sixteen years in order to be fully deducted as a business expense.

Knudsen saw at once that these amortization rules (Knudsen had to get John Biggers to explain to the president and Cabinet what amortization meant) made the short-term investment in plant, property, and equipment necessary for the defense buildup almost impossible.

"Mr. President," Knudsen said, "do you want statistics, or do you want guns?" If the latter, he explained, then amortization should be drastically shortened to five or six years. Hitler's German companies, he pointed out, worked on a seven-year rule. Companies would get their investment back quicker, and be more willing to take risks on manufacturing things that had no commercial value to them but were crucial to the defense effort.

"The government can't do it all," Knudsen told Roosevelt. "The more people we can get into this program"—in other words by offering incentives instead of threats—"the more brains we can get into it, the better chance it will have to succeed"

This came with risks of exploitation of course. Most contracts were then granted on a cost plus 8 per cent basis, and this led to much political bickering over whether value was being received from these contracts.

"Why should the agencies of government in Washington today," said CIO chief Philip Murray, "be virtually infested with wealthy men who are supposedly receiving one-dollar-a-year compensation?" Such men were only using war mobilization to pad their old companies' profits and those of their cronies, the critics said. "Patriotism plus 8 percent," they called it, while others argued that the only way to overcome the conflict of interest was to create a British-style Ministry of Supply with complete powers over all wartime production.

Much of the discipline that led to these contracts working was the personal discipline of the key characters involved, who had to maintain face amongst their communities by delivering what was promised.

Less so was the discipline arising from the limited opportunities for government agencies to redirect spending elsewhere if outputs failed to be delivered.

These days, discipline in procurement comes from the opportunity to spend elsewhere. Perform poorly on one public contract and you won’t get another one.

One problem in modern military procurement is that there is often only one company with the expertise to build a product. So a trick being used now is to foster investment in start-up firms to build their expertise and to provide that discipline alongside potentially new and different products.

For nations trying to industrialise by subsidising local industries today, a common way to maintain discipline is by linking subsidies to export targets, which ensures that companies are investing in the quality of products that can compete in world markets. If they can’t, the subsidy is removed or reduced.

Whichever way it goes in practice, the point is that the private organisations you want to be involved in public investment need higher returns than elsewhere to undertake those projects, but to keep those projects they must be disciplined to ensure they deliver.

So what?

Freedom’s Forge to my eyes reads like an industrial policy economics textbook. It is amazing to see how these now well-established lessons of industrial played out and the sheer scale of the transformation that took place in the war years.

On the whole, you come to appreciate both the political pragmatism of the times and the deference to technical expertise, which ended up fitting with the current lessons of how the industrial transformation of economies comes about.

If you enjoyed this article you will probably also enjoy this conversation on the topic of industrial policy.

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<![CDATA[Audiobook: Rigged (Ch 6 - Mates)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-6-mateshttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-6-matesWed, 23 Oct 2024 21:30:55 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

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<![CDATA[FET #44: Why bicycle helmet laws are BAD and other violations of Aussie "common sense"]]>https://www.fresheconomicthinking.com/p/fet-44-why-bicycle-helmet-laws-arehttps://www.fresheconomicthinking.com/p/fet-44-why-bicycle-helmet-laws-areTue, 22 Oct 2024 21:31:01 GMTRobert is an insightful Aussie commentator who has written at Fresh Economic Thinking before about the puzzle of the Labor party refusing to move left politically.

Hear Robert’s thoughts on bicycle helmets, superannuation, school lunches and public transport fares and see if you are convinced by the arguments.

Find Robert on X here.

——————

Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

Please like, comment, share, and subscribe.

Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

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<![CDATA[William Baumol's insights into the construction productivity puzzle explain why my old house would not be built the same way today]]>https://www.fresheconomicthinking.com/p/how-william-baumol-solved-the-constructionhttps://www.fresheconomicthinking.com/p/how-william-baumol-solved-the-constructionSun, 20 Oct 2024 07:00:34 GMT

The above photo is of my house in Brisbane. It was built in the early 1880s.

The original portion of the home is 46 square meters (460 square feet) internally, with a small front and rear verandah. It sat on twenty timber posts dug into the earth and secured by ramming in the dirt around them. It had four doors (two external, two internal) and eight windows. It did not have a single electrical wire, light, or power plug. It had only water piped into external taps and an outside toilet.1

Now?

This same home has six lockable doors and twelve windows with flyscreens, and sits on steel posts on a concrete slab, with earthworks undertaken and retaining walls built to manage stormwater. It has a complete internal kitchen and bathroom, insulation, electric wiring, lights and air-conditioning, a driveway, a garden with edging, a laundry, and a fibre-optic connection. The home has also grown to double its original size due to various renovations over the years.

What’s my point?

A house today is not the same as a house historically. We made our houses better because we are richer now and housing is a great thing to invest in with extra wealth and income.

These radical changes in the very idea of what constitutes a house are a key issue when it comes to the concept of construction productivity, which seems to worry so many.

Don’t get me wrong. I want more productivity in every sector, not less. But I think we are being tricked by the way we interpret some of the data and we miss the fact that the construction sector, even the residential sector, is so vast as to be its own macroeconomy. It hence contains the same economic compositional effects as we see in the macroeconomy more broadly—changes that William Baumol explained size decades ago.

Let me explain.

Troubling construction productivity declines

It’s not impossible to get worse at producing something. History is littered with examples of societies forgetting how to make things. We still debate today how ancient mega structures were built because we collectively forgot. Knowledge only persists if it is used and embedded in our activities.

But as anyone who watches the terrific B1M YouTube channel can attest, we seem to be building more and more seemingly impossible construction projects all the time.

So what is it that concerns us?

Measured construction productivity has remained flat while other sectors have grown, or outright declined, in Australia, the United States, Canada and elsewhere over the past four decades.

It is a worry for many. After all, it sure sounds bad!

So what exactly are we dealing with here?

Construction productivity is simply a metric that comes from dividing two numbers—a measure of construction sector outputs and a measure of construction sector inputs.

Typically output is measured by value, so if a construction contract to build a home is worth $400,000, that is the output measure. It doesn’t care about WHAT is in that $400,000—whether a garden shed or a luxury apartment—just that it is a measure of the market value of the output.

The inputs are what exactly?

Well, they can’t be a value. If they are a value of inputs of labour time and materials, then productivity change is just a measure of the change in margins and declining productivity would indicate an increasingly cost-competitive construction sector.

For example, if decades ago your $400,000 construction contract required $300,000 of inputs, providing a 33% margin on cost, but it now requires $350,000 of inputs, then margins have compressed to 14%. But that doesn’t tell us about productivity.

We need to divide a quantity by a quantity, not a price by a price, to get something more meaningful.

The most common construction productivity metric, called labour productivity, gets us halfway there. It asks “How many on-site work hours did it take to produce $400,000 of construction value?”

It still uses value as an output metric, but a quantity of the important labour input as the input metric.

But please note that some analysis of construction productivity relies on a metric called total-factor (or multi-factor) productivity which merely adds to the measurement issues at play by trying to count the input quantity of labour and every other input such as capital (equipment usage) and materials. The layers of measurement issues make this total-factor productivity metric a very bad way to understand construction.2

Sometimes in housing debates people will measure dwelling production per worker, or total dwelling square meters built per worker, focussing more narrowly on housing and on quantities or output and inputs.

So keep an eye out for what exactly is being talked about when you read about declining construction productivity.

The puzzle for many is that labour productivity in manufacturing and many other sectors keeps increasing—we get more cars per car factory worker, more bottles of soft drink per Coca-Cola worker, and more agricultural produce per farm worker—but in construction, we get the same output value per on-site construction worker.

Why?

I want to focus on two things in this article—1) measurement issues and 2) the economics that helps us interpret those measurements.


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Measurement: Inputs and outputs

The measurement of productivity faces some challenges. The table below shows the breakdown of construction costs for a typical detached home in the United States in 2022.

My question is this.

Are these itemised components the same as the components of a typical new detached home before the decline in measured construction productivity in the 1960s?

Read more

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<![CDATA[Audiobook: Rigged (Ch 5- Superannuation)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-5-superannuationhttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-5-superannuationWed, 16 Oct 2024 23:00:50 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

Read more

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<![CDATA[FET #43: Australia's burnout economy with Tarric Brooker]]>https://www.fresheconomicthinking.com/p/fet-43-australias-burnout-economyhttps://www.fresheconomicthinking.com/p/fet-43-australias-burnout-economyTue, 15 Oct 2024 23:01:08 GMTToday we talk about the ongoing mystery of how to get sustained economic growth in Australia and peer nations and some of the political challenges we face trying to break out of this stagnation.

Australian journalist and economic commentator Tarric Brooker coined the term “Burnout Economics” and writes regular analysis at burnouteconomics.com.

Find Tarric on X here.

——————

Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

Please like, comment, share, and subscribe.

Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

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<![CDATA[Australia's gambling mates cost us billions ]]>https://www.fresheconomicthinking.com/p/australias-gambling-mates-craftedhttps://www.fresheconomicthinking.com/p/australias-gambling-mates-craftedSun, 13 Oct 2024 07:00:59 GMT

Imagine you are trying to craft a sensible gambling policy for the nation. You don’t want to outright ban all forms of gambling, but you want to minimise overall losses and understand that some people will find the risk-taking somewhat addictive, leading to bad outcomes for them and their families.

What do you do?

If I were tasked with this problem I would consider each type of gambling in terms of its effort-to-loss ratio, whether casinos and their various games, lotteries, poker machines, or sports betting.

Low-effort gambling games with a risk of high losses would be more tightly regulated and relatively inaccessible. On the flip side, high-effort types of gambling with lower risks of high losses would be more loosely regulated and accessible.

Australia seems to have it backwards.

Low-effort poker machines are widely available and accessible throughout our cities and towns. High-effort card games, like online poker, are banned. And in between we have casinos, sports betting, and racing, all widely available.

The result is that Australians have the highest gambling losses in the world, with the best estimates of around $20 billion lost in 2019.

For perspective, South Australia’s total state budget in 2019-20 was $20 billion!

The distribution of gambling losses is enormously skewed, meaning there is a small cohort of adults losing thousands per year in poker machines alone.

How can we make sense of this situation?

The bizarre politics of gambling

Consider current political conversations.

We are looking to ban children from accessing social media because their toxic algorithms are “like pokies for kids”.

Source: https://x.com/JasonClareMP/status/1833283744637325487

We are also considering banning or limiting gambling advertising.

That sounds like we care about the social problem of widespread gambling, right?

Yet at the same time, prime real estate in our capital cities is devoted to casinos that only stay in business because their main product is laundering dirty money from across Asia. The New South Wales and Queensland governments both orchestrated real estate deals to get major casinos on their most prime city waterfront real estate and exempted them from lock-out laws.

There is now a weird sideshow of an inquiry in New South Wales about the “suitability” of Star Casino to operate. But surely it is no secret that any company running a casino will end up laundering money at the edges of regulatory oversight. Perhaps these companies themselves are the product of laundered money—they certainly seem incapable of running what should be a lucrative business.

A constant battle with casino operators was what state governments signed up for when they orchestrated the development of these casinos. Let’s not kids ourselves.

Worse than the few casinos on prime real estate is that Australian suburbs are filled with over 190,000 poker machines costing us billions per year in gambling losses, or nearly $500 per adult lost on poker machines alone.

Then there are Australian sports.

Easy mobile access is available to bet on all sorts of sports, and betting agencies now sponsor major sports codes. But hey, don’t forget to “gamble responsibly”!

Each Australian state has a Minister for Racing and Gambling (though the word “gambling” is now often replaced by “gaming” in a stroke of genius propaganda) to ensure the continued operation of the horse and dog racing industry.

I’m not against racing horses, dogs, ostriches, humans, or any other animal. I’m not against people betting on these races.

Yet here we are, banning playing poker online, considering banning gambling advertising and even social media for children, but promoting the addictive gambling activities in casinos and allowing poker machines in clubs across our suburbs, while protecting the ongoing existence of horse and dog-racing industries.

How can we explain what looks like a completely inconsistent policy where we seem to worry furiously about gambling yet fundamentally support it with policy and spending decisions?


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The social logic of gambling policy

Many parts of Australia’s political apparatus are captured by mates.

I wrote a book about this phenomenon called Rigged: How networks of powerful mates rip off everyday Australians (originally Game of Mates). The audiobook is being released here with a new chapter delivered each week to paid FET subscribers.

The only consistency I find with Australian gambling policy is that vested interests and their political mates always seem well looked after.

If you want to bet on future gambling policy changes, keep this in mind.1

Here’s why.

Australia’s $20 billion per year in gambling losses are the incomes of owners of gambling establishments.

For the racing and gambling industry to succeed, for example, requires more punters to lose money gambling. The less we lose, the more the industry suffers.

The important part is that only selected mates are allowed to profit from gambling losses. Sometimes those mates are casino owners, sometimes they are pubs and clubs. But they aren’t other online poker players or international online poker operators, nor are they international social media companies.

You can glimpse the social game at play via the rotation of personnel and political donations. As I explain in my book Rigged, donations are used as a costly signal of social loyalties, while revolving doors provide opportunities for back-scratching within a group.

In terms of state-level political donations, hotels, clubs and gambling firms have been major contributors, far exceeding even property developers. They are trying to burn money to give a costly signal that politicians and groups that look after their interests will be rewarded in the future. They want to show their credit is good and participate in the hidden favour exchange game.

The revolving door tells us more, and we can observe senators and senior party officials rotating into positions in the gambling industry with great regularity. These jobs provide a glimpse into the favour exchange game, as they often are a way to reward people with what looks like legitimate employment income.

We catch a glimpse when we see major gambling firms entrenching themselves in political activities:

Betting giant Sportsbet has paid for a $110,000-a-year "platinum" membership that gives it access to Labor's fundraising forum, whose major gathering, which started on Wednesday night and finishes on Friday, is attended by the prime minister and his cabinet.

There is also a strong economic alliance between usual gambling suspects of clubs, casinos, and sports betting, with the media itself. After all, selling advertising for gambling activities is a lucrative business, and any attempt to ban or limit gambling advertising will cut off that revenue stream.

Gambling and the state

This state’s interests add complexity to the social logic of gambling policy.

Lotteries have long been a way for governments to raise money, ever since their successful introduction by famous Italian playboy Giacomo Casanova as a funding source for the French Treasury in the 1750s.

In Queensland, Golden Casket lotteries and scratchies funded health services for returned soldiers, and after the state took over the lottery in the 1920s, it raised the money to build to Royal Brisbane Women’s Hospital. Profits from scratchies still fund many medical services and research today. Charities, schools, and all sorts of organisations also use gambling in the form of raffles as a source of revenue.

Today, states impose special taxes on poker machines and casinos, raising over $9 billion in 2022-23 (a jump from the 2015-19 level of around $6 billion per year). About a quarter of gambling losses end up in public hands via various special taxes.

What changes would be positive?

Before I consider how change might come about, I want to make sure you are convinced that change is desirable.

Imagine that private gambling was banned but a public agency operated poker machines and casinos that raised $20 billion per year in revenue.

This would seem unscrupulous and unfair. A tax on stupidity you might say.

If you agree, then it makes sense to apply that logic to private gambling operators too.

But banning all gambling seems likely to fail. Few nations ban all gambling and generally do so for religious reasons and hence have the backing of religious institutions to foster a culture that avoids gambling.

On the flip side, allowing gambling to occur completely unregulated seems likely to have poor social and economic outcomes on the whole.

Is there a way to navigate the interests of states and mates in gambling in Australia to get substantial change that would reduce gambling losses by $10 billion per year to get us closer to global norms?

We do see small wins occasionally, such as carded play. That’s positive. But check out the effect of this policy change.

The introduction of mandatory carded gaming at Star’s casinos in response to money-laundering concerns also was expected to hit the company’s bottom line. With carded play, punters set gambling limits they can’t change for 24 hours and get an email each month stating how much they have lost.

“Carded play is having a bigger impact than expected,” Mr Hewitt said. “Since its limited introduction in Sydney on August 19, daily average revenue is down 11 per cent for mandatory carded play and $5000 cash limits compared with the four weeks prior.

The economic reality is that limiting losses for gamblers means limiting profits for casinos.

Maybe we can look abroad. The United States shows the range of different approaches that states can take when it comes to gambling.

Many U.S. states do not allow casinos or many forms of gambling at all (usually a state lottery is allowed). Some allow casinos on Indian reservations, which is another form of revenue raising for the government apparatus of these communities.

National laws in 1992 effectively banned sport-betting in many states, but a 2018 Supreme Court decision overruled this and led to an explosion in online sports betting in many states (this is why the 2016 data in the above chart showed very little betting losses in the United States).2

Maybe Australian states could experiment a little?

Banning gambling advertising seems sensible to reduce the take up of sports betting. Ensuring that horse and dog racing pays for itself and is not supported by real estate deals makes sense too.

A cap and trade licensing system could limit poker machines. Rather than 190,000 of them, we could cap it at 50,000 (a quarter of the current number) and require those who want to operate a machine to bid for a state license to operate.

Any way to limit daily spending at all venues seems sensible, though I expect some experimentation is needed.

Like every country today that allows gambling, we will muddle through.

What we must be fully aware of is that effective gambling policy change in Australia to get us closer to global norms means about $10 billion in revenue forgone from gambling companies, who are politically entrenched mates, and about $3 billion in lost public revenue from special taxes on gambling. It means that the gambling industry will shrink by half, knocking out many existing businesses. Lobbyists will cry about job losses.

Change will occur only when there is a strong electoral risk to not acting on gambling policy.


I’m interested in reader thoughts on this topic. Please leave a comment and share this article to keep the conversation going.

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1

Don’t forget to gamble responsibly! (Am I doing this right?)

2

One recent study has used timing differences in the phase-in of sports betting between US States to estimate the effect of sports betting on intimate partner violence, showing that unexpected team losses after sports were legalised were associated with higher rates of domestic violence. Whether that result will replicate, I don’t know, but the long history of studies on how gambling losses result in detrimental household outcomes seems quite clear.

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<![CDATA[Audiobook: Rigged (Ch 4- Grey gifts)]]>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-4-grey-giftshttps://www.fresheconomicthinking.com/p/audiobook-rigged-ch-4-grey-giftsWed, 09 Oct 2024 22:30:26 GMTPaid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

Read more

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<![CDATA[Can money TIME TRAVEL to pay for our retirement? Pension bonds reveal the trick that makes many economists believe so]]>https://www.fresheconomicthinking.com/p/can-money-time-travel-to-pay-forhttps://www.fresheconomicthinking.com/p/can-money-time-travel-to-pay-forSun, 06 Oct 2024 06:31:11 GMT

The logic of pre-saving for our collective retirement—whether with superannuation, 401K accounts, or social insurance funds—is that we are transporting money from the present into the future.

But money can’t time travel.

All money can do is be swapped for other things today (or not).

This is extremely important for understanding the potential social value of various national approaches to retirement funding, which unfortunately most economists and major economic institutions get wrong.1

I want to demonstrate how these mandatory saving funds make it look like money is time travelling, when in reality they are shuffling the financial deck of cards without adding to our ability to pay for collective future retirements.

The way to make this clear is with an idea I have mentioned a couple of times before (here and here): Pension Bonds.

I don’t think I have fully and deeply explained how this idea shows that pre-funded accounts have nothing special in them that helps pay for future retirements.

All that is in these funds are claims over future income that we mark up at a price based on the last trade of similar claims. But an age pension is also a claim over future income that could have a price today if it was traded.

Let’s see how that works.

What is an asset?

Anything that creates a legal claim on future economic value is an asset. Collectibles can be assets. Treasury bonds, which are the debts issued by state and federal governments, are assets to their owner. Company shares (stocks) and bonds are assets as they represent a legal claim to the residual incomes of the company.

These assets are all tradeable.

Sometimes assets are not. Your own business might be very difficult to trade, even though your ownership of it represents a claim on the future income of the business. Incorporating a company can help to create a legal entity where part or full ownership of your business can be more easily traded. When it is traded, the value of that legal claim to owning the business will be priced by that trade.

However, some legal claims on future economic value are not tradeable.

My children were born with a legal claim on the future value of a free school education in Australia. We sometimes call legal claims of this type a right.

But rights can also be priced if we change the institutional setup to allow them to be traded.

The conversation about school vouchers shows there is a way to do this. By changing the institutional setup of the right to public school to be one of a right to funding for a school, vouchers create the opportunity to trade (choose to allocate) that right to different schools within the jurisdiction.

It is not much of a leap to imagine that it would also be possible to allow school vouchers to be traded between people—one parent might want to sell their child’s school voucher that year to another parent because they want cash instead, and the buying parent is choosing a school that costs much more than their single voucher provides and is now using two vouchers to pay for that school.

Let’s say that a school voucher provides $10,000 per year to the school the child attends. In this example of the trade to another parent of a single year’s voucher, that would likely happen at a price a touch below $10,000.

You can see how modifying the institutional setup to allow more trades—both choosing which school to spend the voucher on, and which parent owns a voucher—starts to allow more pricing opportunities of what was initially just an abstract right.

Read more

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<itunes:author>
<![CDATA[ Cameron Murray ]]>
</itunes:author>
<googleplay:owner>
<![CDATA[ fresheconomicthinking@substack.com ]]>
</googleplay:owner>
<googleplay:email>
<![CDATA[ fresheconomicthinking@substack.com ]]>
</googleplay:email>
<googleplay:author>
<![CDATA[ Cameron Murray ]]>
</googleplay:author>
<item>
<title>
<![CDATA[ High-rise apartments are BAD FOR RETIREMENT and BUILD-TO-RENT apartments will become POPULAR in Australia without new tax breaks ]]>
</title>
<description>
<![CDATA[ Incentives and risk allocation are why ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/high-rise-apartments-are-bad-for</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/high-rise-apartments-are-bad-for</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 24 Nov 2024 06:00:56 GMT</pubDate>
<enclosure url="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg" length="0" type="image/jpeg"/>
<content:encoded>
<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg" width="1024" height="768" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/a2a64099-f669-4040-a682-135be511a665_1024x768.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:768,&quot;width&quot;:1024,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:284439,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa2a64099-f669-4040-a682-135be511a665_1024x768.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Australia seems very good at building apartments. </p><p>But we aren&#8217;t as good as many think. </p><p>The past two decades have seen a major shift in the composition of new housing in Australia towards large apartment buildings, as you can see below. However, two big risks arise in large apartment buildings that limit their attractiveness to individual investors. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png" width="1386" height="1204" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1204,&quot;width&quot;:1386,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:426409,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4fbf7237-2501-4312-a509-715be3bde05a_1386x1204.png 1456w" sizes="100vw"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>First, are construction risks. We have seen a wave of buildings with enormously costly defects (such as Opal and Mascot Towers) and many more with unexpected defects that have cost apartment owners tens of thousands of dollars (or more) each. These risks are ultimately held by new apartment owners despite various systems of building warranties and insurance. </p><p>Second are the management risks. Large complex buildings need reasonably sophisticated and informed management. Often management rights are separately owned, and the incentives of the owner of the management rights may not align with the interests of the owners. For example, sometimes management rights are held by building developers as a way to hide defects from owners until building warranties expire.</p><p>Apartment development in Australia today typically involves four entities that each would like to pass risks to the other, and hence have limited collective incentives to operate in the long-term interests of strata owners. </p><ol><li><p>Developer</p></li><li><p>Builder </p></li><li><p>Body corporate manager</p></li><li><p>Strata owner</p></li></ol><p>Four Corners has investigated both aspects of apartment owner risk in their <a href="https://youtu.be/NYzwIrybSjU">shoddy apartment construction</a> and <a href="https://youtu.be/n_txq4lTxOc">strata management</a> programs. </p><p>For strata owners, it is difficult to understand or estimate these risks upfront. Whether you have bought in a good building or a disaster can only be discovered after many years, and when you buy sellers have no incentive to inform you.</p><p>The trouble is that each entity was to push risks onto the others.</p><p>Along the development path incentives push towards buildings that are flashy and saleable off-the-plan and in the first years, but don&#8217;t push towards low ongoing maintenance costs, leaving owners with many surprises. </p><p>A <a href="https://www.abc.net.au/news/2024-01-19/consumer-rights-defects-sydney-apartments-off-the-plan/103362884">rise in legal issues over building defects from the 2010s </a>apartment boom led the New South Wales government to conduct a <a href="https://nsw.strata.community/2023-strata-defects-survey/">survey of building defects</a>. The political fallout is likely to result in further policy changes to establish better allocation of risk and quality controls.</p><p>Build-to-rent companies take on more roles in development and management, sometimes even building the dwellings and rolling the four different groups into one entity, taking all risks and all rewards while removing conflicts where each party tries to push risk onto the other. </p><p>This approach to risk is common in other sectors of the economy. Companies that need complex and specialist capital equipment will often try and make it in-house, as there are risks from being dependent on others for supplying niche capital goods. Suppliers end up with the power to push risks and costs (such as extortionary conditions for repairs and maintenance) onto them. </p><p>These risks and the difficult incentive problems are why I argue below that:</p><ol><li><p>Apartments in large buildings are a bad financial choice for pensioners, and </p></li><li><p>Build-to-rent apartments will be much more popular in the next property cycle. </p></li></ol><h2>Pensioners will want detached homes</h2><p>Pensioners are the least able to deal with apartment risks relative to those of a detached home. </p><p>In a detached home, new building defect risks are typically more limited in their potential costs and they are easier to spot with a building inspection. </p><p>And even if defects arise, you can choose to live with them. In a large apartment complex, you must contribute your share of the costs even if you can live with the damage.</p><p>This is a broader point. </p> <p> <a href="https://www.fresheconomicthinking.com/p/high-rise-apartments-are-bad-for"> Read more </a> </p> ]]>
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<title>
<![CDATA[ Audiobook: Rigged (Ch 10 - Myths) ]]>
</title>
<description>
<![CDATA[ Chapter 10: A Cloak of Myths ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-10-myths</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-10-myths</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 20 Nov 2024 21:30:52 GMT</pubDate>
<enclosure url="https://api.substack.com/feed/podcast/150650473/519bd174cac8aab6b381f0672371d3d2.mp3" length="0" type="audio/mpeg"/>
<content:encoded>
<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-10-myths"> Read more </a> </p> ]]>
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<title>
<![CDATA[ FET #47: Should you leave Australia? The economics of lifestyle arbitrage ]]>
</title>
<description>
<![CDATA[ Cameron and Jonathan discuss the trend of moving from Australia to cheaper countries abroad to beat the cost of living and the apparent inability to get ahead down under. ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/fet-47-should-you-leave-australia</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/fet-47-should-you-leave-australia</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Tue, 19 Nov 2024 20:30:54 GMT</pubDate>
<enclosure url="https://api.substack.com/feed/podcast/151477510/93fd55f097c8e44a061b9573df22932c.mp3" length="0" type="audio/mpeg"/>
<content:encoded>
<![CDATA[ <p>Cameron and Jonathan discuss the trend of moving from Australia to cheaper countries abroad to beat the cost of living and the apparent inability to get ahead down under. </p><p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;</p><p>Follow&nbsp;<a href="https://twitter.com/DrCameronMurray">Cameron</a>&nbsp;and&nbsp;<a href="https://twitter.com/JonoLooseCannon">Jonathan</a>&nbsp;on X/Twitter. Buy The Great Housing Hijack <a href="https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&amp;keywords=the+great+housing+hijack&amp;qid=1700341270&amp;sprefix=the+great+housing+hijack%2Caps%2C254&amp;sr=8-1">here</a>.</p><p>Please like, comment, share, and subscribe.</p><p>Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0</p> ]]>
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<title>
<![CDATA[ Are royalties just RENT CONTROL for mineral and energy resources? ]]>
</title>
<description>
<![CDATA[ And are there ways to more commercially price our resources? ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-for</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-for</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 17 Nov 2024 05:45:50 GMT</pubDate>
<enclosure url="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg" length="0" type="image/jpeg"/>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg" width="1024" height="768" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:768,&quot;width&quot;:1024,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:422465,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F97f476ae-e200-404b-8844-17bb04bc77fb_1024x768.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>My colleague Tim Helm and I have a new report out for <a href="https://www.fresheconomicthinking.com/p/f734734c-ccfb-416d-820b-a2aa17322546?postPreview=free&amp;updated=2024-11-07T03%3A16%3A53.991Z&amp;audience=only_paid&amp;free_preview=true&amp;freemail=true">Prosper Australia</a> on how to more commercially price our collectively-held rights to our mineral and energy resources. </p><p>Grab your copy below. Go on. I&#8217;ll wait. </p><div class="file-embed-wrapper" data-component-name="FileToDOM"><div class="file-embed-container-reader"><div class="file-embed-container-top"><image class="file-embed-thumbnail-default" src="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack.com%2Fimg%2Fattachment_icon.svg"></image><div class="file-embed-details"><div class="file-embed-details-h1">Rent Controlled Resources Report</div><div class="file-embed-details-h2">6.27MB &#8729; PDF file</div></div><a class="file-embed-button wide" href="https://www.fresheconomicthinking.com/api/v1/file/7d4ece68-a681-4876-8a3e-214d17dfb220.pdf"><span class="file-embed-button-text">Download</span></a></div><div class="file-embed-description">Why are we under-charging Australia's mining tenants and how can we use royalties to more commercially price the nation's resources?</div><a class="file-embed-button narrow" href="https://www.fresheconomicthinking.com/api/v1/file/7d4ece68-a681-4876-8a3e-214d17dfb220.pdf"><span class="file-embed-button-text">Download</span></a></div></div><p>I hope the report is clear enough. Here I want to explain details a little more. </p><p>The basic story is that underground resources are owned by the state. As your property title will say, such rights are <em>reserved</em>. Companies that extract mineral and energy resources hold a lease granted by the state to use our collective property. </p><p>So the state is the landlord and the resource company is the tenant or leaseholder. </p><p>The difference between a housing landlord-tenant relationship and a mining landlord-tenant relationship is that with mining, the tenant brings the capital, not the landlord. </p><p>So it is more akin to a caravan park, where the tenant brings their house with them and pays for it. Except that with mining, much of the capital investment can&#8217;t feasibly be towed away. </p><p>Let&#8217;s consider this question. </p><p>If you owned the property rights to the state&#8217;s minerals, how would you price those rights?</p><p>What we currently do in Australia is price those minerals at a fixed percentage of the value of the resources (the income to the leaseholder) in the form of a royalty. This is the rent paid by the leaseholder for those mineral rights. </p><p>A rent that doesn&#8217;t rise or fall with the market price, but instead only rises or falls with the tenant&#8217;s income, is a form of rent control. It&#8217;s exactly the type of rent control we use for public housing tenants.</p><p>This is not the ideal commercial arrangement for resource landlords because, as we know, rent controls favour tenants at the expense of landlords. </p><h2>What resource pricing options are there?</h2><p>Separately pricing the rent for the mineral and energy resources from the return on the capital invested by the mining tenant is a genuinely tricky problem. </p><p>This is why a popular approach is to avoid pricing altogether by the state becoming the mining company itself. This is how the Norwegians began with Statoil (now Equinor) and how the Gulf nations now run their oil and gas industries. Seizure or acquisition of private mining companies by the state is extremely common. </p><p>Another way is to try to tax excess profits, or super-profits as they are called. Australia has the Petroleum Resources Rent Tax (PRRT), which tries to do this for offshore oil and gas deposits. Because excess profits are an accounting construct, there are many margins to game this figure, with often hidden accounting rules that reduce taxable excess profits, such as generous allowances for escalating costs over time and including exploration costs from other projects.<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-1" href="#footnote-1" target="_self">1</a></p><p>A final way to price mineral and energy resources is to use royalties. Since it is relatively easy to monitor what gets physically extracted from a mine, or put on a ship or in a pipe, just charge a rent for the resource based on production output or production revenues. </p><p>Royalties are typically set either at dollar value per unit of resource output or as a fixed percentage of the value of the resource produced up to a particular part of the production chain. </p><p>But even though the fixed percentage royalty varies with market prices of the resource, it doesn&#8217;t account for the fact that when resource prices rise the rent rises <em>more than in proportion</em> to the price. </p><p>To see why resource rents should rise <em>more</em> than in proportion to the price of the resource, let&#8217;s look at a simple housing example. </p><p>If you have a home at one location with a market price of $1 million that costs $500,000 to build, the land (resource rent) value is $500,000. If that same house was at a location where the market price was $2 million, the land value would be $1.5 million. </p><p>When the market price doubles, the land value triples.</p><p>Land is a <em>leveraged bet on the underlying asset, </em>as I explained in this post, and so are the rights to mineral and energy resources.</p><div class="digest-post-embed" data-attrs="{&quot;nodeId&quot;:&quot;afe8ac86-b0fe-42b9-acb8-dd7a896a0fed&quot;,&quot;caption&quot;:&quot;Consider this scene from the The Big Short. Here&#8217;s a quote I want you to remember.&quot;,&quot;size&quot;:&quot;sm&quot;,&quot;isEditorNode&quot;:true,&quot;title&quot;:&quot;Why upzoning has a value&quot;,&quot;publishedBylines&quot;:[{&quot;id&quot;:8540605,&quot;name&quot;:&quot;Cameron Murray&quot;,&quot;bio&quot;:&quot;Economist. Corruption and property market specialist. Blogger. Independent thinker. Reckons economics could be better. \nBook: https://t.co/5JxjX5n2al&quot;,&quot;photo_url&quot;:&quot;https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/64657b55-0d7d-446d-87b7-8bccd0c1c457_1873x1333.jpeg&quot;,&quot;is_guest&quot;:false,&quot;bestseller_tier&quot;:100}],&quot;post_date&quot;:&quot;2024-04-14T07:30:44.324Z&quot;,&quot;cover_image&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F3bd7e87f-9a57-41ac-8c17-0a5d4b92b0d9_1456x1353.png&quot;,&quot;cover_image_alt&quot;:null,&quot;canonical_url&quot;:&quot;https://www.fresheconomicthinking.com/p/why-upzoning-has-a-value&quot;,&quot;section_name&quot;:null,&quot;id&quot;:141688631,&quot;type&quot;:&quot;newsletter&quot;,&quot;reaction_count&quot;:7,&quot;comment_count&quot;:7,&quot;publication_name&quot;:&quot;Fresh Economic Thinking&quot;,&quot;publication_logo_url&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb51f0756-0396-487b-83be-90fc0297645d_1112x1112.png&quot;,&quot;belowTheFold&quot;:true}"></div><p>Historically, prices of mineral and energy resource markets have varied quite a lot. But royalty incomes haven&#8217;t risen and fallen <em>more </em>than proportionally as they should.</p><p>However, royalties can be enacted so that their rate per dollar of resource value varies with the market price. These are known as <em>variable royalties.</em></p><h2>How do variable royalties work?</h2><p>In 2022 Queensland enacted a textbook example of variable royalties for coal by copying the structure of rising marginal rates that we use for income taxation. </p><p>The coal royalty is 7% of the market price when the coal price is below $100/tonne, but rises to 12.5% of any value above $100, 15% of any value above $150, 20% of any value above $175, 30% of any value above $225, and 40% of any value above $300. </p><p>If the coal price is $100/tonne, you pay a $7 royalty or 7% of the market price. </p><p>If the coal price is $500/tonne, you pay a $129.50 royalty or 25.9% of the market price.</p><p>This is a more commercial market-based way to price our collective resources. </p><p>In our new report, we propose a general version of the variable royalty approach whereby rates don&#8217;t need to be referenced to a series of nominal benchmarks (equivalent to tax brackets). </p><p>Instead, you take a long-term market benchmark, in our case the 10-year median market price in a relevant resource market, and you scale the current royalty percentage rate based on the deviation of the current market price from that long-term benchmark. </p><p>This way, rather than needing to update the nominal thresholds to avoid <em>bracket creep</em> of royalties, you let the market reveal what is abnormally high or low short-term price variation. </p><p>This variable royalty formula is:</p><div class="latex-rendered" data-attrs="{&quot;persistentExpression&quot;:&quot;\\text{Royalty rate (%)}= \\frac{\\text{Current market price}}{\\text{Ten year median price}} \\times \\text{Base rate}&quot;,&quot;id&quot;:&quot;RXGHGVJOFF&quot;}" data-component-name="LatexBlockToDOM"></div><p>So if we have a 7% base rate royalty for coal, we simply apply this scaling factor so that when prices rise to abnormally high levels, the rent the state charges for resources scales more than in proportion. When market prices fall to abnormally low levels, the royalty rate also falls. </p><p>In our report we apply this <em>variable royalty</em> approach to historical price patterns of coal, iron ore, and gas, applying a base rate equal to typical current royalty rates, to see what the counterfactual history would have been. </p><p>We find two interesting things. </p><p>First, the royalty is often lower with this variable royalty than if applying the base rate only. We explain that:</p><blockquote><p>A variable royalty with base rate equal to the existing fixed royalty rate would have been lower than the latter for around 15% of the past decade for coking coal, and for around 38% of the past decade for thermal coal. For iron ore, a variable royalty would have been lower than the fixed-rate royalty for 40% of the decade, and for gas, it would have been lower for more than half of the period (58%).&nbsp;</p></blockquote><p>Second, because price variation above the long-term median is much larger than price variations below the median, the total revenue raised from a more commercial <em>variable royalty</em> is much higher on average. </p><blockquote><p>Over the decade to 2023, variable royalties for coal would have raised an additional $38 billion (in 2023 dollars), which is 71% more than the $53 billion that would have been collected under a 9% fixed rate. Over the same period, variable iron ore royalties with a 7.5% base rate would have raised an additional $33 billion, or 33% more than the estimated $101 billion raised from the fixed-rate royalty. </p></blockquote><p>The charts below summarise how variable royalty prices compare to fixed royalties and the effect of this on the market price (net of royalty) received by leaseholders. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png" width="1456" height="1360" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/b21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1360,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:1772096,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb21911c8-9f43-4e53-9ca1-1495118dcbdc_6709x6267.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><h2>So what?</h2><p>Australians should charge a market price for our mineral and energy resources. </p><p>If nationalising mining companies is politically undesirable, and taxing accounting profits is difficult, then royalties can be designed more commercially to track market fluctuations in the value of the resource rent.</p><p>Pricing this way also de-risks mining leaseholders, minimising variation in the net price they receive by reducing royalty rates when market prices are low, and increasing them only when market prices are high. </p><p>Since variations in market pricing over time are asymmetric (they can rise above the median more than they can fall), this approach ultimately earns much more revenue for the resource landlords of the country, the Australian people, over the long run. </p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/subscribe?&quot;,&quot;text&quot;:&quot;Subscribe now&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/subscribe?"><span>Subscribe now</span></a></p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-for?utm_source=substack&utm_medium=email&utm_content=share&action=share&quot;,&quot;text&quot;:&quot;Share&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/p/are-royalties-just-rent-control-for?utm_source=substack&utm_medium=email&utm_content=share&action=share"><span>Share</span></a></p><p></p><div class="footnote" data-component-name="FootnoteToDOM"><a id="footnote-1" href="#footnote-anchor-1" class="footnote-number" contenteditable="false" target="_self">1</a><div class="footnote-content"><p>For example, the 2017 review of the PRRT showed that it was declining in its ability to raise rent from off-shore oil. My submission to that review is <a href="https://www.prosper.org.au/wp-content/uploads/2019/05/R2016-001_Prosper-Australia_PRRT_submission.pdf">here</a>.</p></div></div> ]]>
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<![CDATA[ Audiobook: Rigged (Ch 9 - Banking) ]]>
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<description>
<![CDATA[ Chapter 9: The Great Banking Game ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-9-banking</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-9-banking</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 13 Nov 2024 21:30:12 GMT</pubDate>
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<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-9-banking"> Read more </a> </p> ]]>
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<![CDATA[ FET #46: World-first kids social media ban is unworkable and silly ]]>
</title>
<description>
<![CDATA[ Yet it polls well in Australia and has bi-partisan support ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/fet-46-world-first-kids-social-media</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/fet-46-world-first-kids-social-media</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Tue, 12 Nov 2024 20:45:53 GMT</pubDate>
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<![CDATA[ <p>Cameron and Jonathan examine Australia&#8217;s proposed social media ban for kids aged 16 and find it hard not to be critical of it.</p><p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;</p><p>Follow&nbsp;<a href="https://twitter.com/DrCameronMurray">Cameron</a>&nbsp;and&nbsp;<a href="https://twitter.com/JonoLooseCannon">Jonathan</a>&nbsp;on X/Twitter. Buy The Great Housing Hijack <a href="https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&amp;keywords=the+great+housing+hijack&amp;qid=1700341270&amp;sprefix=the+great+housing+hijack%2Caps%2C254&amp;sr=8-1">here</a>.</p><p>Please like, comment, share, and subscribe.</p><p>Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0</p> ]]>
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<![CDATA[ Is Antarctica the new Wild West of cowboy property claims? ]]>
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<description>
<![CDATA[ Why property rights there are going to really matter very soon ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-property</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-property</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 10 Nov 2024 05:45:44 GMT</pubDate>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg" width="1024" height="768" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/c9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:768,&quot;width&quot;:1024,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:298193,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc9168d14-be91-45a0-91c8-46299d32b906_1024x768.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>A recent episode of the B1M show covered the new construction boom happening in Antarctica, spurred on by oil discoveries of Russian geologists. </p><div id="youtube2-j3MPhl7HcGw" class="youtube-wrap" data-attrs="{&quot;videoId&quot;:&quot;j3MPhl7HcGw&quot;,&quot;startTime&quot;:null,&quot;endTime&quot;:null}" data-component-name="Youtube2ToDOM"><div class="youtube-inner"><iframe src="https://www.youtube-nocookie.com/embed/j3MPhl7HcGw?rel=0&amp;autoplay=0&amp;showinfo=0&amp;enablejsapi=0" frameborder="0" loading="lazy" gesture="media" allow="autoplay; fullscreen" allowautoplay="true" allowfullscreen="true" width="728" height="409"></iframe></div></div><p>I&#8217;m a property nerd. </p><p>I find the way we assign new property rights to be a fascinating insight into social and economic processes. </p><p>Antarctica today is in a rare situation where property rights are emerging on a new continent with little institutional baggage. </p><p>The colonisations of the British typically adopted the property rights systems of the mother country, with positions of power in the new institutions filled by those raised in the existing traditions. </p><p>The United States is an obvious case and has many interesting examples of how property rights systems emerge. One of my favourite situations is the <a href="https://www.historynet.com/when-the-bugle-sounded-stampede-for-oklahomas-unassigned-lands/">Oklahoma land rush of 1889</a> when unclaimed lands were allocated to those who got their first from outside the area following a high noon starting gun. </p><p>Like most other times new property rights were established, there was intense conflict despite the attempt at order.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg" width="1456" height="1065" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1065,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:3067691,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8b0158f7-70aa-4072-b142-19479e85e0c6_5747x4203.jpeg 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>The invention of flight similarly tested our understanding of property and how we regulate access to the new realm of airspace. </p><p>Was flying over a farm a new form of trespass? Or did new property rights to airspace supersede them and create a vertical limit to those old rights? </p><p>Similar challenges will arise in space as orbits become more popular. Claims on the Moons and Mars must be resolved. Currently, space is regulated via a similar treaty to Antarctica, the <a href="https://www.unoosa.org/pdf/publications/STSPACE11E.pdf">Outer Space Treaty</a>, which prohibits territorial claims by countries.</p><p>I don&#8217;t know how far in the future those situations will arise. Lucky for me, Antarctica looks to be a frontier where a new property rights regime is likely to emerge from scratch during my lifetime. </p><p>Will the process be intertwined with conflict like when colonial property rights took over new frontiers? Or will we take a more measured path along the lines of regulating airspace rights?</p><p>I don&#8217;t know. But it will be fascinating whichever way it goes. </p><p>With that in mind, please enjoy this article of mine from 2018. It seems especially prescient looking back from 2024 and gets to the heart of the issues around conflict, coercion, and the establishment of valuable systems of property rights.</p><div><hr></div><h2>Who really owns Antarctica?</h2><p>I have often argued with libertarians (and anarchists) that the existence of property rights first requires the existence of a government with a monopoly on coercive force (ie. government requires the largest armed force). If such an entity didn&#8217;t exist, then the largest armed force would simply take control and become the government. Many voices in these debates suggested that I need only look to international treaties to show how cooperative we can be without the need for&nbsp;<a href="http://www.imdb.com/title/tt0372588/">world police</a>.<br><br>Putting aside the obvious point that the United States is the&nbsp;<a href="http://www.macrobusiness.com.au/2011/09/chart-of-the-day-war-stimulus/">current world police</a>, with their military budget making up 43% of the world's total military spend, and that their international military presence often conflicts with international treaties, we can examine whether libertarian views are vindicated by one of the shining examples of international cooperation&#8212;Antarctica.<br><br>Back in 1959, twelve countries active in the Antarctic signed the&nbsp;<a href="http://www.ats.aq/documents/ats/treaty_original.pdf">Antarctic Treaty</a>&nbsp;(implemented in 1961), which led to further treaties and conventions to manage activities and resource use (especially fisheries) in the whole Antarctic region south of 60% latitude. Collectively these treaties are known as the Antarctic Treaty System. With the shadow of the Second World War still looming large, the top priority of the original treaty was to ensure that the area remained conflict-free by outlawing a military presence&#8212;prescribed in Article I of the treaty. Other peace-inspired provisions include Article V, prohibiting nuclear explosions and the disposal of radioactive material. Who knew that the dominant ideologies of 1960s youth originated in Antarctica?<br><br>Since that time the&nbsp;<a href="http://www.ats.aq/documents/recatt/Att006_e.pdf">Montreal Protocol</a>&nbsp;was adopted as part of the Antarctic Treaty System with the explicit intention of preserving the Antarctic as a natural reserve devoted to peace and science. Critically, Article 7 of the Protocol prohibited all non-scientific mineral resource activities.<br><br>The Antarctic Treaty was a bold and lasting agreement, recently celebrating its 50th year. The treaty&#8217;s anniversary gave rise to some&nbsp;<a href="http://newswatch.nationalgeographic.com/2009/10/28/antarctic_treaty_forever_declaration/">optimistic claims</a></p><blockquote><p>The lesson of fifty years of the Antarctic Treaty System is that the nations of the world can set aside their political and territorial aspirations to share in the management of a vast region of the planet, says Paul Berkman, chair of the International Board for the Antarctic Treaty Summit.</p></blockquote><p>But I wouldn&#8217;t make such strong claims so fast.<br><br>Geopolitics was not cast aside by the free love of the original Antarctic Treaty. The United States <a href="http://www.state.gov/t/isn/4700.htm">does not recognise the territorial claims</a>&nbsp;of other governments and reserves the right to assert claims. The USSR, and later Russia, made the same non-commitment to the Treaty. The success of the Antarctic treaties over the past fifty years was perhaps more the result of the low value of any commercial or strategic military operations in the Antarctic.<br><br>While the US has no current claim over territory, it has positioned its Amundsen-Scott research base at the South Pole to maintain a presence in all claimed territories (shown in the&nbsp;<a href="http://www.ga.gov.au/education/geoscience-basics/dimensions/remote-offshore-territories/australian-antarctic-territory.html">map below</a>). The United States may very well have secured a right to claim territory that existing claimants leave unoccupied.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png" width="1298" height="1600" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1600,&quot;width&quot;:1298,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:null,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:null,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F8057ddcb-7a9e-477d-9244-df0ccb92d8be_1298x1600.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>We also know Australia does not have the capacity to visit the inland areas of its territorial claim. This may be problematic as the original Antarctic Treaty has a provision in Article XII allowing a contracting party to call a review of the operation of the treaty after thirty years. One could expect that our absence, or lack of presence, in our claimed territory, puts us in a poor position for any future treaty negotiations that may establish new claims based on current activities.<br><br>The rise of new entrants into Antarctica is also <a href="http://www.theaustralian.com.au/national-affairs/pm-told-to-defend-antarctic-territory/story-fn59niix-1225974139407">concerning</a> for existing territorial claimants.</p><blockquote><p>Russia has seven stations in the AAT; China opened its second station last year; India will start construction on its first over summer; and South Korea is planning to set up a new station near the Easter sector by 2014.</p></blockquote><p>With renewed interest from emerging global economic powers, and the ice sheets receding in some areas, mining the Antarctic is attracting a lot of <a href="http://www.miningaustralia.com.au/news/mining-in-the-arctic-on-thin-ice">attention</a> (and <a href="http://www.abc.net.au/news/2011-08-12/australia-urged-to-firm-stake-in-antartica/2837234/?site=sydney">here</a>).<br><br>So it seems that the ingredients for conflict are slowly being added to the spicy Antarctic political stew (these concerns have been noted <a href="http://www.aspi.org.au/publications/publication_details.aspx?ContentID=120">elsewhere</a>). How one resolves these new interests in the mineral rights of Antarctica, with the interests of the existing parties to the Antarctic Treaty System, I am not sure. But let&#8217;s be clear. The United States will not lose out in any future negotiations that allow further exploitation of the Antarctic. In a hypothetical future scenario where mining becomes allowable under the treaty system, does anyone really expect the US to respect the rights established by existing territorial claims? I don&#8217;t.<br><br>In the end, current Antarctic territorial claims are only valid as long as they are not challenged. So I ask the anarchists and libertarians, exactly how does one negotiate a territorial claim (or defend their property right) with an unmatchable armed force that happens to be a necessary military ally?</p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/subscribe?&quot;,&quot;text&quot;:&quot;Subscribe now&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/subscribe?"><span>Subscribe now</span></a></p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-property?utm_source=substack&utm_medium=email&utm_content=share&action=share&quot;,&quot;text&quot;:&quot;Share&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/p/will-antarctica-see-cowboy-property?utm_source=substack&utm_medium=email&utm_content=share&action=share"><span>Share</span></a></p> ]]>
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<title>
<![CDATA[ Audiobook: Rigged (Ch 8 - Burning Money) ]]>
</title>
<description>
<![CDATA[ Chapter 8: Burning Money ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-8-burning-money</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-8-burning-money</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 06 Nov 2024 21:31:13 GMT</pubDate>
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<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-8-burning-money"> Read more </a> </p> ]]>
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<title>
<![CDATA[ FET #45: Why the Aussie construction sector is defying predictions with Rob Sobyra ]]>
</title>
<description>
<![CDATA[ Robert Sobyra is the research lead at BuildSkills Australia. ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/fet-45-why-the-aussie-construction</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/fet-45-why-the-aussie-construction</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Tue, 05 Nov 2024 20:32:51 GMT</pubDate>
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<![CDATA[ <p>Robert Sobyra is the research lead at BuildSkills Australia. Earlier this year Rob predicted that Australian unemployment in December would be above 4.7%. I took the other side of the bet and that now seems to be the winning side. </p><p>Hear about why that unemployment uptick was forecast and the puzzling strength of the Australian economy, especially relative to its peers in Canada and New Zealand. </p><p>Also learn about how important immigration is, or is not, when it comes to skilled construction workers.</p><p>Find Robert on LinkedIn <a href="https://www.linkedin.com/in/robert-sobyra/">here</a>.</p><p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;</p><p>Follow&nbsp;<a href="https://twitter.com/DrCameronMurray">Cameron</a>&nbsp;and&nbsp;<a href="https://twitter.com/JonoLooseCannon">Jonathan</a>&nbsp;on X/Twitter. Buy The Great Housing Hijack <a href="https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&amp;keywords=the+great+housing+hijack&amp;qid=1700341270&amp;sprefix=the+great+housing+hijack%2Caps%2C254&amp;sr=8-1">here</a>.</p><p>Please like, comment, share, and subscribe.</p><p>Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0</p> ]]>
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<title>
<![CDATA[ Lost Decade economy trophy passes from Japan to Canada ]]>
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<description>
<![CDATA[ What stories did we tell about Japan's lost decade and do they fit the new lost decades in Canada, the United Kingdom, and elsewhere? ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/oh-canada-you-have-a-joe-biden-economy</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/oh-canada-you-have-a-joe-biden-economy</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 03 Nov 2024 07:00:55 GMT</pubDate>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg" width="1024" height="768" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/a3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:768,&quot;width&quot;:1024,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:252237,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3cb8555-3a6f-4fbf-b491-194cb846864b_1024x768.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>I did my introductory economics training twenty years ago. </p><p>Back then,<a href="https://en.wikipedia.org/wiki/Lost_Decades"> Japan&#8217;s </a><em><a href="https://en.wikipedia.org/wiki/Lost_Decades">Lost Decade</a></em> of economic progress during the 1990s after its enormous 1980s economic bubble was a featured case study in many textbooks. Their asset price bubble collapsed and real GDP per capita grew just 7% cumulatively from 1991 to 2000, down from 47% in the 1980s. </p><p>It was a warning. Avoid whatever Japan did to cause that!</p><p>One puzzling change in the global economy since my introductory studies is that there are now many countries to choose from if you want to observe a lost decade of economic progress. </p><p>This is especially the case across Australia&#8217;s peer nations, with Canada seemingly the worst of all!</p><p>Why?</p><p>The main story told about Japan&#8217;s lost decade was that a post-bubble recession was extended by tight fiscal and monetary settings and an ageing population. </p><p>But do these stories fit the current lost decades in Canada and elsewhere that are even worse than Japan&#8217;s on per capita GDP terms?</p><h2>New lost decades</h2><p>As a reference point, Japan grew 7% in real GDP per capita terms in the decade after 1991. This was widely thought in the early 2000s to be the stand-out example of the sudden stagnation of a large modern economy. </p><p>Here&#8217;s some data from the World Bank up to 2023 (in local inflation-adjusted currencies) showing that not only has Japan&#8217;s growth rate increased since, but Germany and Canada have seen <em>much</em> lower growth in the decade up until 2023. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png" width="1456" height="1269" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/c49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1269,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:312490,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc49231a8-17d2-434c-8bc5-959b2dcbe51a_4067x3545.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>But it&#8217;s worse. </p><p>The past year has seen substantial per capita GDP declines, especially in Canada and <a href="https://www.macrobusiness.com.au/2024/10/reserve-bank-urged-to-slash-interest-rates-amid-deepening-recession/">New Zealand</a>, but also in Australia and the United Kingdom. </p><p>Both Australia and the United Kingdom&#8217;s 2014-24 decade was identical to Japan&#8217;s lost decade in terms of seeing only 7% cumulative GDP per capita growth. New Zealand fared better, but Canada&#8217;s real GDP per capita in 2024 is back where it was in 2014. </p><p>That&#8217;s a decade of zero growth!</p><p>In that time the United States has grown 18% in real GDP per capita terms. </p><p>If we extend our timeline backwards, we have the astonishing situation whereby Canada&#8217;s real GDP per capita grew only 0.55% per year on average for the last twenty years, from the end of 2003 to the end of 2023. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png" width="1456" height="1198" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/e3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1198,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:580252,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe3570445-8dc2-48ea-a075-cf0de79a4d5b_4067x3345.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Why?</p><p>The main stories I was told twenty years ago about Japan were these:</p><ol><li><p>Post-bubble recession</p></li><li><p>Tight monetary or fiscal policy </p></li><li><p>Ageing (and lack of immigration)</p></li></ol><p>But I think there are two other potential stories here too, which are:</p><ol start="4"><li><p>Covid disruptions</p></li><li><p>Measurement issues </p></li></ol><p>Do any of these stories help explain recent decades in Canada, Australia and their peer nations? Let&#8217;s dive in. </p><h2>Post-bubble recession </h2><p>The closest example of underperformance following a major bubble might be the United Kingdom. It saw a much larger financial crisis recession, and although there was a strong recovery period up until COVID, real GDP per capita is only 5% higher than the 2008 pre-recession peak. </p><p>That&#8217;s nearly 16 years with less cumulative per capita economic growth than Japan&#8217;s lost 10 years in the 1990s.</p><p>Recently, some groups have claimed that <a href="https://ukfoundations.co">regulations going back to the post war period </a>that prevent energy and housing investment are the main issue with the United Kingdom&#8217;s economic malaise. </p><p>I find that hard to believe. Here&#8217;s why. </p> <p> <a href="https://www.fresheconomicthinking.com/p/oh-canada-you-have-a-joe-biden-economy"> Read more </a> </p> ]]>
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<![CDATA[ Audiobook: Rigged (Ch 7 - Mining Games) ]]>
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<description>
<![CDATA[ Chapter 7: The Great Mining Game ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-7-mining-games</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-7-mining-games</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 30 Oct 2024 21:31:02 GMT</pubDate>
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<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-7-mining-games"> Read more </a> </p> ]]>
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<title>
<![CDATA[ Economic lessons from Freedom's Forge ]]>
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<description>
<![CDATA[ What lessons are there for economic development from the stories of the businessmen who orchestrated the wartime production build-up in Arthur Herman's book Freedom's Forge? ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrial</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrial</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 27 Oct 2024 06:58:55 GMT</pubDate>
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<![CDATA[ <p>One of the big mysteries in economics is how countries become rich. </p><p>There are plenty of theories and stories out there&#8212; &#8220;it&#8217;s the magic of capitalism&#8221;, &#8220;it&#8217;s technology&#8221;, or more honestly, &#8220;it&#8217;s the unexplained residual.&#8221;</p><p>I want to share a glimpse of the economic development story in Arthur Herman's book <em><a href="https://www.amazon.com.au/Freedoms-Forge-Arthur-Herman/dp/0812982045">Freedom&#8217;s Forge</a></em>. This book is an extremely detailed documentation of the story of the key personalities, policies, and business decisions during the wartime economic build-up that massively increased the United States' economic capacity and wealth. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg" width="974" height="1500" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1500,&quot;width&quot;:974,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:173424,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6a100778-f09d-4a3d-bd22-be2caaa2b5c5_974x1500.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>This is not a book review. I recommend reading the book yourself, but you might consider <a href="https://www.noahpinion.blog/p/book-review-freedoms-forge">this</a> review or <a href="https://x.com/misha_saul/status/1441716133057294343?s=20">this</a> great Twitter thread by Misha Saul.</p><p>I want to connect the dots about the economics and the industrial policy options for rapid growth and trasnformation with the stories of the key businessmen and their trials and tribulations in the wartime build-up told in <em>Freedom&#8217;s Forge</em>. </p><h2>The economic outcomes of wartime </h2><p>Let&#8217;s start with the astonishing economic production outcomes. </p><p>Here&#8217;s data from Wikipedia on United States aircraft production showing an astronomical 25x increase in total aircraft production in four years. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png" width="1154" height="864" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:864,&quot;width&quot;:1154,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:585290,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60bec9e0-b4b7-41f0-a3f6-6952cc0e5b2a_1154x864.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Similarly, the impressive scaling of mass production of merchant and navy ships also happened in this period (a good overview is <a href="https://www.mathscinotes.com/2017/12/the-pacific-war-and-manufacturing-capacity/">here</a>), increasing the output of ships by a factor of 20x to 50x over four years (depending on the type). </p><p>These were rapid expansions of enormous parts of the whole economy. Some of the figures in the book are hard to believe on first reading, but they match a variety of other sources.</p><p>How did this expansion happen so quickly? </p><p>Could other nations adopt similar policies and increase their non-military manufacturing output by such large multiples in just a few years by copying the U.S. policy stance of this era?</p><p>Let&#8217;s take a look.</p><h2>The macro story</h2><p>The first important detail to remember about the WWII build-up period was the enormous underutilisation of industrial capacity across the United States. As Herman notes in the book:</p><blockquote><p>In 1939 the American steel industry was at its lowest capacity in twenty years. </p></blockquote><p>President Roosevelt&#8217;s New Deal projects had been ramping up throughout the 1930s, building major public works and fostering state capacity for managing and coordinating major projects. Yet even still, total industrial output did not exceed 1929 levels, as the below chart shows. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png" width="1456" height="1262" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1262,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:844624,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F361d4cd6-8b54-4a1a-8fb8-27afba0d82c8_1742x1510.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Any economic policy lessons from this period must remember the context of the momentum of post-depression expansion, following a previous macrocycle that involved enormous technological leaps in mass production. </p><p>But this doesn&#8217;t help explain a 25x increase in output of complex capital equipment like aircraft and ships in just four years, alongside the vast array of associated production inputs to them (such as steel and metal alloys, rubber, oil, and so forth). </p><p>New Deal projects already attempted spending to kick-start activity. Was it just the scale of defence spending relative to the New Deal that made a difference? Or are there other hidden but important lessons that countries trying to industrialise can observe?</p><div id="youtube2-Wc5u4KUh01A" class="youtube-wrap" data-attrs="{&quot;videoId&quot;:&quot;Wc5u4KUh01A&quot;,&quot;startTime&quot;:null,&quot;endTime&quot;:null}" data-component-name="Youtube2ToDOM"><div class="youtube-inner"><iframe src="https://www.youtube-nocookie.com/embed/Wc5u4KUh01A?rel=0&amp;autoplay=0&amp;showinfo=0&amp;enablejsapi=0" frameborder="0" loading="lazy" gesture="media" allow="autoplay; fullscreen" allowautoplay="true" allowfullscreen="true" width="728" height="409"></iframe></div></div><h2>State-funded, privately organised, development</h2><p>The scale of public spending of course mattered. You can see just how transformational this spending was, even relative to the New Deal, with over a third of total economic activity diverted into the military build-up.</p><div class="captioned-image-container"><figure><a class="image-link image2" target="_blank" href="https://www.cato.org/blog/century-federal-spending-1925-2025" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png" width="989" height="726" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/53dcd273-503b-4f50-932d-e396c1359797_989x726.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:726,&quot;width&quot;:989,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:29370,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:&quot;https://www.cato.org/blog/century-federal-spending-1925-2025&quot;,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53dcd273-503b-4f50-932d-e396c1359797_989x726.png 1456w" sizes="100vw" loading="lazy"></picture><div></div></div></a></figure></div><p>The basic model of how that spending was used productively is quite standard in non-military development&#8212;state funding of privately organised capital investment and production. </p><p>But I think the most interesting part is hidden in the details of how the spending was directed to reorganise production. </p><p>Here are the big economic lessons for growth that I saw in the stories told in <em>Freedom&#8217;s Forge</em>. </p><ol><li><p>Expertise sits within organisations that <em>do</em> the tasks (production knowledge is <em>embedded</em> in people and their organisations)</p></li><li><p><em>Adjacent industrie</em>s can be entered by people and organisations with similar expertise when there is a clear motive to do so.</p></li><li><p><em>Economies of scale</em> matter.</p></li><li><p><em>Discipline</em> over deliverables matters&#8212;something for something, not something for nothing.</p></li></ol><h4>Embedded knowledge</h4><p>The idea of <em>embedded knowledge</em> shines through in the stories told by Hermans. The main characters weren&#8217;t MBAs, but proven businessmen who had previously been through the hard slog of building up mass production facilities&#8212;Bill Knudsen, who &#8220;worked his way up from the shop floor to become the president of General Motors&#8221;, and Henry Kaiser, who built up a major civil construction company during the 1930s which even built the Hoover Dam. Or as Herman describes:</p><blockquote><p>Knudsen knew how to make things, especially out of metal. Kaiser know how to build. </p></blockquote><p>The same lesson of capitalising on the embedded knowledge of experienced people applies to any country, state, or region looking to change its economy today.</p><p>The United States has, for example, recently subsidised domestic microchip manufacturing. The actual operations and management of these investments have been done by foreign companies and their personnel with the <em>embedded knowledge</em> and experience to get it done without all the costs that come from learning those lessons the first time. </p><h4>Adjacent industries</h4><p>Sometimes, however, the desired investment and production are new and different from what had come before. The United States built very few aircraft in general before the build-up and few of the type needed to enter the war. </p><p>No one could be called upon who had the specific <em>embedded knowledge</em> for this task.</p><p>To the wartime planners and engineers of the day, it seemed clear that the production methods required were similar to those in the motor vehicle industry. Hence when Bill Knudsen moved from mass-producing motor vehicles on production lines to mass-producing aircraft production lines, he could still take a lot of <em>embedded knowledge</em> with him as he adapted the blueprints and designs from the British and French to local mass-production techniques in which he was fully experienced. </p><p>This is a common problem for countries trying to develop today. Often there is a political desire to skip over basic manufacturing to more high-tech production. But what <em>adjacent industrie</em>s will expertise be drawn from in this case? This can only work if people and equipment are imported whole hog. </p><h4>Economies of scale</h4><p>Another important lesson is that the types of production being paid for with public funds in the wartime buildup were those that had large economies of scale. This was not a case of duplicating infrastructure or building more new roads and dams with ever-decreasing returns per dollar spent.</p><p>This matters long term as the construction of, and production from, these wartime facilities led to a broad build-up of expertise in mass production techniques which would become broadly applied in the post-war period. </p><p>And it is the expansion of industries with economies of scale that helps create robust growth. </p><div class="captioned-image-container"><figure><a class="image-link image2" target="_blank" href="https://www.proquest.com/openview/e46cdd0db729a8441ed76805cca33106/1?pq-origsite=gscholar&amp;cbl=18750&amp;diss=y" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png" width="1456" height="315" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:315,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:162200,&quot;alt&quot;:&quot;&quot;,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:&quot;https://www.proquest.com/openview/e46cdd0db729a8441ed76805cca33106/1?pq-origsite=gscholar&amp;cbl=18750&amp;diss=y&quot;,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F0be9a5ec-50cf-4bb9-9850-d1bdf456f80f_1472x318.png 1456w" sizes="100vw" loading="lazy"></picture><div></div></div></a><figcaption class="image-caption">Many economists note that economies of scale matter for sustained growth (https://www.researchgate.net/publication/270104427_International_Trade_and_the_Economic_Mechanisms_of_Underdevelopment)</figcaption></figure></div><h4>Discipline</h4><p>As you might expect, spending a third of GDP on public procurement of military hardware from private firms comes with a great deal of corruption risk. </p><p>There is a tricky balance. </p><p>To get the people and firms with the <em>embedded knowledge</em> of how to do the required task means offering them an economic return that exceeded what they could get elsewhere. </p><p>But how much more? And how do you ensure that they come through with the goods?</p><p>As Herman explains, previous war experience had led to tight rules to combat profiteering from public military contracts. But some of these rules were too tight for the new situation. </p><blockquote><p>Starting in 1933, congressional legislation had placed sharp restrictions on how much war suppliers could make on their government contracts. During the First World War, cost-plus contracts were common, meaning that the government would pay all expenses relating to making an airplane or artillery gun, in addition to a fixed fee or percentage of cost-8 percent was fairly standard. The postwar reaction against "war profiteers" led Congress and the Treasury Department to impose sharp curbs on the profit companies could make on orders larger than $25,000. They also required an advance audit to guarantee that the company's profit would be no more than 8 percent even before the contract was signed. </p><p>In addition, every government contract for a new airplane or tank or vehicle required bidding companies to pay for the production of their prototype and the new machine tools to manufacture it. No money was ever advanced, even to the winner of the bid. As one executive from Boeing put it, "There was no sound of coin in Uncle Sam's jeans." An aircraft maker looked at an average of a half-million-dollar investment just to enter a bid -with no guarantee of winning. Even if he did and problems or delays developed, the government was not above pulling the contract, leaving the company high and dry.</p></blockquote><p>The same tricky problems happen today. </p><p>This is why governments will often need to adopt contracts that share risks in situations where large capital outlays come with large risks, either in joint ventures, public-private partnerships, or other arrangements.</p><p>Back then, the trick was to change tax laws to allow capital spending to be quickly deducted. The 16-year amortization rules wouldn&#8217;t make sense, since the production facilities might get 16 years of production, with all the production happening in the first few years and hopefully the war being over.</p><blockquote><p>Then there were the tax laws. Every American company's investment in new plant construction, tools, and other physical resources necessary to produce a plane or tank or aircraft, even with a contract, took sixteen years in order to be fully deducted as a business expense.</p><p>Knudsen saw at once that these amortization rules (Knudsen had to get John Biggers to explain to the president and Cabinet what amortization meant) made the short-term investment in plant, property, and equipment necessary for the defense buildup almost impossible.</p><p>"Mr. President," Knudsen said, "do you want statistics, or do you want guns?" If the latter, he explained, then amortization should be drastically shortened to five or six years. Hitler's German companies, he pointed out, worked on a seven-year rule. Companies would get their investment back quicker, and be more willing to take risks on manufacturing things that had no commercial value to them but were crucial to the defense effort.</p><p>"The government can't do it all," Knudsen told Roosevelt. "The more people we can get into this program"&#8212;in other words by offering incentives instead of threats&#8212;&#65279;"the more brains we can get into it, the better chance it will have to succeed"</p></blockquote><p>This came with risks of exploitation of course. Most contracts were then granted on a <em>cost plus 8 per cent</em> basis, and this led to much political bickering over whether value was being received from these contracts.</p><blockquote><p> "Why should the agencies of government in Washington today," said CIO chief Philip Murray, "be virtually infested with wealthy men who are supposedly receiving one-dollar-a-year compensation?" Such men were only using war mobilization to pad their old companies' profits and those of their cronies, the critics said. "Patriotism plus 8 percent," they called it, while others argued that the only way to overcome the conflict of interest was to create a British-style Ministry of Supply with complete powers over all wartime production. </p></blockquote><p>Much of the discipline that led to these contracts working was the personal discipline of the key characters involved, who had to maintain face amongst their communities by delivering what was promised. </p><p>Less so was the discipline arising from the limited opportunities for government agencies to redirect spending elsewhere if outputs failed to be delivered.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg" width="964" height="471" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/d9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:471,&quot;width&quot;:964,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:136024,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd9322759-2d0e-4c63-8040-7841445ddb26_964x471.jpeg 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>These days, <em>discipline</em> in procurement comes from the opportunity to spend elsewhere. Perform poorly on one public contract and you won&#8217;t get another one. </p><p>One problem in modern military procurement is that there is often only one company with the expertise to build a product. So a trick being used now is to foster investment in start-up firms to build their expertise and to provide that discipline alongside potentially new and different products. </p><p>For nations trying to industrialise by subsidising local industries today, a common way to maintain <em>discipline</em> is by linking subsidies to export targets, which ensures that companies are investing in the quality of products that can compete in world markets. If they can&#8217;t, the subsidy is removed or reduced. </p><p>Whichever way it goes in practice, the point is that the private organisations you want to be involved in public investment need higher returns than elsewhere to undertake those projects, but to keep those projects they must be disciplined to ensure they deliver. </p><h2>So what?</h2><p><em>Freedom&#8217;s Forge</em> to my eyes reads like an industrial policy economics textbook. It is amazing to see how these now well-established lessons of industrial played out and the sheer scale of the transformation that took place in the war years. </p><p>On the whole, you come to appreciate both the political pragmatism of the times and the deference to technical expertise, which ended up fitting with the current lessons of how the industrial transformation of economies comes about. </p><p>If you enjoyed this article you will probably also enjoy this conversation on the topic of industrial policy.</p><div class="apple-podcast-container" data-component-name="ApplePodcastToDom"><iframe class="apple-podcast " data-attrs="{&quot;url&quot;:&quot;https://embed.podcasts.apple.com/au/podcast/odd-lots/id1056200096?i=1000670757055&quot;,&quot;isEpisode&quot;:true,&quot;imageUrl&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/podcast-episode_1000670757055.jpg&quot;,&quot;title&quot;:&quot;This Is How Industrial Policy Can Go Bad&quot;,&quot;podcastTitle&quot;:&quot;Odd Lots&quot;,&quot;podcastByline&quot;:&quot;&quot;,&quot;duration&quot;:2979000,&quot;numEpisodes&quot;:&quot;&quot;,&quot;targetUrl&quot;:&quot;https://podcasts.apple.com/au/podcast/this-is-how-industrial-policy-can-go-bad/id1056200096?i=1000670757055&amp;uo=4&quot;,&quot;releaseDate&quot;:&quot;2024-09-26T08:00:00Z&quot;}" src="https://embed.podcasts.apple.com/au/podcast/odd-lots/id1056200096?i=1000670757055" frameborder="0" allow="autoplay *; encrypted-media *;" allowfullscreen="true"></iframe></div><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/subscribe?&quot;,&quot;text&quot;:&quot;Subscribe now&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/subscribe?"><span>Subscribe now</span></a></p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrial?utm_source=substack&utm_medium=email&utm_content=share&action=share&quot;,&quot;text&quot;:&quot;Share&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/p/freedoms-forge-a-story-of-us-industrial?utm_source=substack&utm_medium=email&utm_content=share&action=share"><span>Share</span></a></p> ]]>
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<![CDATA[ Audiobook: Rigged (Ch 6 - Mates) ]]>
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<description>
<![CDATA[ Chapter 6: Mates ]]>
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<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-6-mates</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-6-mates</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 23 Oct 2024 21:30:55 GMT</pubDate>
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<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-6-mates"> Read more </a> </p> ]]>
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<![CDATA[ FET #44: Why bicycle helmet laws are BAD and other violations of Aussie "common sense" ]]>
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<![CDATA[ I speak with insightful commentator Robert Lechte about how many commonsense things like helmet laws, superannuation and paying full price for school lunches a public transport, aren't sensible at all ]]>
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<link>https://www.fresheconomicthinking.com/p/fet-44-why-bicycle-helmet-laws-are</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/fet-44-why-bicycle-helmet-laws-are</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Tue, 22 Oct 2024 21:31:01 GMT</pubDate>
<enclosure url="https://api.substack.com/feed/podcast/150500998/3343f336e0185d408ad891af7752f53a.mp3" length="0" type="audio/mpeg"/>
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<![CDATA[ <p>Robert is an insightful Aussie commentator who has written at Fresh Economic Thinking before about the puzzle of the Labor party refusing to move left politically.</p><div class="digest-post-embed" data-attrs="{&quot;nodeId&quot;:&quot;5a1340c6-e84b-4969-a525-8f84140af8f6&quot;,&quot;caption&quot;:&quot;I highly recommend following Wheel&#8217;s Substack and following them on Twitter.&quot;,&quot;size&quot;:&quot;sm&quot;,&quot;isEditorNode&quot;:true,&quot;title&quot;:&quot;What stops Labor moving further to the left?&quot;,&quot;publishedBylines&quot;:[{&quot;id&quot;:17704570,&quot;name&quot;:&quot;Wheel Reinventor&quot;,&quot;bio&quot;:&quot;Writer on equality, transport, software, voting systems. Workers Against Super founder. Want streets for everybody, not just cars.&quot;,&quot;photo_url&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fe295020b-1b2c-4fe2-b9ca-b1760c9be924_300x300.jpeg&quot;,&quot;is_guest&quot;:true,&quot;bestseller_tier&quot;:null,&quot;primaryPublicationSubscribeUrl&quot;:&quot;https://wheelreinventor.substack.com/subscribe?&quot;,&quot;primaryPublicationUrl&quot;:&quot;https://wheelreinventor.substack.com&quot;,&quot;primaryPublicationName&quot;:&quot;Wheel&#8217;s Substack&quot;,&quot;primaryPublicationId&quot;:1481730}],&quot;post_date&quot;:&quot;2023-04-16T07:31:14.215Z&quot;,&quot;cover_image&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e7d7abb-5c7a-4c71-b2d2-46571e2c1dd4_1628x1268.png&quot;,&quot;cover_image_alt&quot;:null,&quot;canonical_url&quot;:&quot;https://www.fresheconomicthinking.com/p/what-stops-labor-moving-further-to&quot;,&quot;section_name&quot;:null,&quot;id&quot;:114911705,&quot;type&quot;:&quot;newsletter&quot;,&quot;reaction_count&quot;:4,&quot;comment_count&quot;:2,&quot;publication_name&quot;:&quot;Fresh Economic Thinking&quot;,&quot;publication_logo_url&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb51f0756-0396-487b-83be-90fc0297645d_1112x1112.png&quot;,&quot;belowTheFold&quot;:false}"></div><p>Hear Robert&#8217;s thoughts on bicycle helmets, superannuation, school lunches and public transport fares and see if you are convinced by the arguments. </p><p>Find Robert on X <a href="https://x.com/wheelreinvent">here</a>.</p><p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;</p><p>Follow&nbsp;<a href="https://twitter.com/DrCameronMurray">Cameron</a>&nbsp;and&nbsp;<a href="https://twitter.com/JonoLooseCannon">Jonathan</a>&nbsp;on X/Twitter. Buy The Great Housing Hijack <a href="https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&amp;keywords=the+great+housing+hijack&amp;qid=1700341270&amp;sprefix=the+great+housing+hijack%2Caps%2C254&amp;sr=8-1">here</a>.</p><p>Please like, comment, share, and subscribe.</p><p>Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0</p> ]]>
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<title>
<![CDATA[ William Baumol's insights into the construction productivity puzzle explain why my old house would not be built the same way today ]]>
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<description>
<![CDATA[ Have we forgotten how to build houses efficiently? Or are important economic ideas missing from the construction productivity debate? ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/how-william-baumol-solved-the-construction</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/how-william-baumol-solved-the-construction</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 20 Oct 2024 07:00:34 GMT</pubDate>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg" width="1456" height="1071" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1071,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:2320969,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F60f41724-4349-49bc-a98b-4ef787f24906_3762x2766.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>The above photo is of my house in Brisbane. It was built in the early 1880s.</p><p>The original portion of the home is 46 square meters (460 square feet) internally, with a small front and rear verandah. It sat on twenty timber posts dug into the earth and secured by ramming in the dirt around them. It had four doors (two external, two internal) and eight windows. It did not have a single electrical wire, light, or power plug. It had only water piped into external taps and an outside toilet.<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-1" href="#footnote-1" target="_self">1</a> </p><p>Now?</p><p>This same home has six lockable doors and twelve windows with flyscreens, and sits on steel posts on a concrete slab, with earthworks undertaken and retaining walls built to manage stormwater. It has a complete internal kitchen and bathroom, insulation, electric wiring, lights and air-conditioning, a driveway, a garden with edging, a laundry, and a fibre-optic connection. The home has also grown to double its original size due to various renovations over the years. </p><p>What&#8217;s my point?</p><p>A house today is not the same as a house historically. We made our houses better because we are richer now and housing is a great thing to invest in with extra wealth and income.</p><p>These radical changes in the very idea of what constitutes a house are a key issue when it comes to the concept of construction productivity, which <a href="https://www.afr.com/policy/economy/construction-the-drag-on-productivity-20191203-p53gd5">seems to worry</a> so many. </p><p>Don&#8217;t get me wrong. I want more productivity in every sector, not less. But I think we are being tricked by the way we interpret some of the data and we miss the fact that the construction sector, even the residential sector, is so vast as to be its own macroeconomy. It hence contains the same economic compositional effects as we see in the macroeconomy more broadly&#8212;changes that William Baumol explained size decades ago.</p><p>Let me explain.</p><h2>Troubling construction productivity declines</h2><p>It&#8217;s not impossible to get worse at producing something. History is littered with examples of societies forgetting how to make things. We still debate today how ancient mega structures were built because we collectively forgot. Knowledge only persists if it is used and embedded in our activities. </p><p>But as anyone who watches the terrific <a href="https://www.youtube.com/@TheB1M">B1M YouTube channel</a> can attest, we seem to be building more and more seemingly impossible construction projects all the time. </p><p>So what is it that concerns us?</p><p>Measured construction productivity has remained flat while other sectors have grown, or outright declined, in <a href="https://www.afr.com/policy/economy/high-wages-for-low-productivity-is-not-constructive-20221120-p5bzs4">Australia</a>, the <a href="https://bfi.uchicago.edu/insight/research-summary/the-strange-and-awful-path-of-productivity-in-the-us-construction-sector/">United States</a>, <a href="https://storeys.com/canadian-construction-productivity-low/">Canada</a> and elsewhere over the past four decades. </p><p>It is a worry for many. After all, it sure sounds bad!</p><p>So what exactly are we dealing with here?</p><p>Construction productivity is simply a metric that comes from dividing two numbers&#8212;a measure of construction sector outputs and a measure of construction sector inputs. </p><p>Typically output is measured by value, so if a construction contract to build a home is worth $400,000, that is the output measure. It doesn&#8217;t care about WHAT is in that $400,000&#8212;whether a garden shed or a luxury apartment&#8212;just that it is a measure of the market value of the output. </p><p>The inputs are what exactly?</p><p>Well, they can&#8217;t be a value. If they are a value of inputs of labour time and materials, then productivity change is just a measure of the change in margins and declining productivity would indicate an increasingly cost-competitive construction sector. </p><p>For example, if decades ago your $400,000 construction contract required $300,000 of inputs, providing a 33% margin on cost, but it now requires $350,000 of inputs, then margins have compressed to 14%. But that doesn&#8217;t tell us about productivity. </p><p>We need to divide a quantity by a quantity, not a price by a price, to get something more meaningful. </p><p>The most common construction productivity metric, called <em>labour productivit</em>y, gets us halfway there. It asks &#8220;How many on-site work hours did it take to produce $400,000 of construction value?&#8221; </p><p>It still uses value as an output metric, but a quantity of the important labour input as the input metric. </p><p>But please note that some <a href="https://www.constructors.com.au/wp-content/uploads/2022/11/Disrupt-or-die_November-2022.pdf">analysis of construction productivity relies</a> on a metric called <em>total-factor (or multi-factor) productivity</em> which merely adds to the measurement issues at play by trying to count the input quantity of labour <em>and</em> every other input such as capital (equipment usage) and materials. The layers of measurement issues make this <em>total-factor productivity</em> metric a <em>very bad way</em> to understand construction.<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-2" href="#footnote-2" target="_self">2</a> </p><p>Sometimes in housing debates people will measure dwelling production per worker, or total dwelling square meters built per worker, focussing more narrowly on housing and on quantities or output and inputs. </p><p>So keep an eye out for what exactly is being talked about when you read about declining construction productivity. </p><p>The puzzle for many is that <em>labour productivity</em> in manufacturing and many other sectors keeps increasing&#8212;we get more cars per car factory worker, more bottles of soft drink per Coca-Cola worker, and more agricultural produce per farm worker&#8212;but in construction, we get the same output value per on-site construction worker. </p><p>Why?</p><p>I want to focus on two things in this article&#8212;1) measurement issues and 2) the economics that helps us interpret those measurements. </p><div><hr></div><p><em><strong>Advertisement</strong> &#8212; <strong><a href="https://novacad.org/event/bootcamp-in-australia-with-gigi-foster/">Academia Libera Mentis Bootcamp with Gigi Foster</a></strong></em></p><p><em>Join us for an Academia Libera Mentis boot camp in Australia this December. You will experience 5 full days of academic immersion in the morning, focussing on economics and policy, free speech and the media, health systems, and individual human health &#8211; followed by aesthetic, physical and personal development activities in the afternoon, focussing on creative writing, music, dance, and martial arts.</em></p><p><em>To express your interest in the boot camp, please email <a href="mailto:admissions@novacad.org">admissions@novacad.org</a></em> </p><div class="captioned-image-container"><figure><a class="image-link image2" target="_blank" href="https://novacad.org/event/bootcamp-in-australia-with-gigi-foster/" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png" width="1456" height="774" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:774,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:9450055,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:&quot;https://novacad.org/event/bootcamp-in-australia-with-gigi-foster/&quot;,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5e1aafa6-9745-497c-bf8b-4f15b6736506_3332x1772.png 1456w" sizes="100vw" loading="lazy"></picture><div></div></div></a></figure></div><div><hr></div><h2>Measurement: Inputs and outputs</h2><p>The measurement of productivity faces some challenges. The <a href="https://www.resiclubanalytics.com/p/cost-breakdown-constructing-singlefamily-home-told-one-pie-chart">table belo</a>w shows the breakdown of construction costs for a typical detached home in the United States in 2022. </p><p>My question is this. </p><p>Are these itemised components the same as the components of a typical new detached home before the decline in measured construction productivity in the 1960s?</p> <p> <a href="https://www.fresheconomicthinking.com/p/how-william-baumol-solved-the-construction"> Read more </a> </p> ]]>
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<![CDATA[ Audiobook: Rigged (Ch 5- Superannuation) ]]>
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<description>
<![CDATA[ Chapter 5: The Great Superannuation Game ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-5-superannuation</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-5-superannuation</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 16 Oct 2024 23:00:50 GMT</pubDate>
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<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-5-superannuation"> Read more </a> </p> ]]>
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<![CDATA[ FET #43: Australia's burnout economy with Tarric Brooker ]]>
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<description>
<![CDATA[ We are sitting on the economic accelerator and brake, leading to an economy with lots of heat and noise that's not going anywhere. Can we change this and get moving again? ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/fet-43-australias-burnout-economy</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/fet-43-australias-burnout-economy</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Tue, 15 Oct 2024 23:01:08 GMT</pubDate>
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<![CDATA[ <p>Today we talk about the ongoing mystery of how to get sustained economic growth in Australia and peer nations and some of the political challenges we face trying to break out of this stagnation.</p><p>Australian journalist and economic commentator Tarric Brooker coined the term &#8220;Burnout Economics&#8221; and writes regular analysis at <a href="https://www.burnouteconomics.com">burnouteconomics.com</a>. </p><p>Find Tarric on X <a href="https://x.com/avidcommentator?lang=en">here</a>.</p><p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;</p><p>Follow&nbsp;<a href="https://twitter.com/DrCameronMurray">Cameron</a>&nbsp;and&nbsp;<a href="https://twitter.com/JonoLooseCannon">Jonathan</a>&nbsp;on X/Twitter. Buy The Great Housing Hijack <a href="https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&amp;keywords=the+great+housing+hijack&amp;qid=1700341270&amp;sprefix=the+great+housing+hijack%2Caps%2C254&amp;sr=8-1">here</a>.</p><p>Please like, comment, share, and subscribe.</p><p>Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0</p> ]]>
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<title>
<![CDATA[ Australia's gambling mates cost us billions ]]>
</title>
<description>
<![CDATA[ You can't bet on online poker but you can bet on sports via phone while tipping cash into poker machines at the race track after cleaning bags of unaccounted for cash at the casino to buy a house ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/australias-gambling-mates-crafted</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/australias-gambling-mates-crafted</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 13 Oct 2024 07:00:59 GMT</pubDate>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg" width="1024" height="768" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:768,&quot;width&quot;:1024,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:267453,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/jpeg&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F781438c3-fa27-4654-a3b2-93881f601174_1024x768.jpeg 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Imagine you are trying to craft a sensible gambling policy for the nation. You don&#8217;t want to outright ban all forms of gambling, but you want to minimise overall losses and understand that some people will find the risk-taking somewhat addictive, leading to bad outcomes for them and their families.</p><p>What do you do?</p><p>If I were tasked with this problem I would consider each type of gambling in terms of its <em>effort-to-loss ratio</em>, whether casinos and their various games, lotteries, poker machines, or sports betting. </p><p>Low-effort gambling games with a risk of high losses would be more tightly regulated and relatively inaccessible. On the flip side, high-effort types of gambling with lower risks of high losses would be more loosely regulated and accessible. </p><p>Australia seems to have it backwards. </p><p>Low-effort poker machines are widely available and accessible throughout our cities and towns. High-effort card games, like online poker, <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/OnlinePoker/~/media/Committees/ec_ctte/OnlinePoker/report.pdf">are banned</a>. And in between we have casinos, sports betting, and racing, all widely available. </p><p>The result is that Australians have the highest gambling losses in the world, with the best estimates of around $20 billion lost in 2019. </p><p>For perspective, South Australia&#8217;s total state budget in 2019-20 was $20 billion!</p><p>The distribution of gambling losses is enormously skewed, meaning there is a small cohort of adults losing thousands per year in poker machines alone. </p><p>How can we make sense of this situation?</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png" width="1280" height="1639" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/b8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1639,&quot;width&quot;:1280,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:358339,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8af63d0-f209-4018-b8ad-9ff967a9912d_1280x1639.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><h2>The bizarre politics of gambling </h2><p>Consider current political conversations. </p><p>We are looking to ban children from accessing social media because their toxic algorithms are &#8220;like pokies for kids&#8221;. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png" width="1018" height="318" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/090300ab-0735-450c-9b99-664992f71f33_1018x318.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:318,&quot;width&quot;:1018,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:70234,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F090300ab-0735-450c-9b99-664992f71f33_1018x318.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a><figcaption class="image-caption">Source: https://x.com/JasonClareMP/status/1833283744637325487</figcaption></figure></div><p>We are also considering banning or limiting gambling advertising.</p><p>That sounds like we care about the social problem of widespread gambling, right?</p><p>Yet at the same time, prime real estate in our capital cities is devoted to casinos that only stay in business because their main product is <a href="https://apple.news/AwGAzOAFxTNKrTAEcvIyuTw">laundering dirty money from across Asia</a>. The New South Wales and Queensland governments both orchestrated real estate deals to get major casinos on their most prime city waterfront real estate and exempted them from lock-out laws. </p><p>There is now a weird <a href="https://www.nicc.nsw.gov.au/casino-regulation/bell-review-of-star">sideshow</a> of an <a href="https://www.nicc.nsw.gov.au/casino-regulation/bell-review-of-star">inquiry</a> in New South Wales about the &#8220;suitability&#8221; of Star Casino to operate. But surely it is no secret that <em>any</em> company running a casino will end up laundering money at the edges of regulatory oversight. Perhaps these companies themselves are the product of laundered money&#8212;they certainly <a href="https://www.youtube.com/watch?v=VfzTzMCXA1g&amp;feature=youtu.be">seem incapable of running what should be a lucrative business</a>. </p><p>A constant battle with casino operators was what state governments signed up for when they orchestrated the development of these casinos. Let&#8217;s not kids ourselves.</p><p>Worse than the few casinos on prime real estate is that Australian suburbs are filled with <a href="https://www.aihw.gov.au/reports/australias-welfare/gambling">over 190,000 poker machines</a> costing us billions per year in gambling losses, or nearly $500 per adult lost on poker machines alone. </p><p>Then there are Australian sports. </p><p>Easy mobile access is available to bet on all sorts of sports, and betting agencies now sponsor major sports codes. But hey, don&#8217;t forget to &#8220;gamble responsibly&#8221;!</p><p>Each Australian state has a Minister for Racing and Gambling (though the word &#8220;gambling&#8221; is now often replaced by &#8220;gaming&#8221; in a stroke of genius propaganda) to ensure the continued operation of the horse and dog racing industry. </p><p>I&#8217;m not against racing horses, dogs, ostriches, humans, or any other animal. I&#8217;m not against people betting on these races. </p><p>Yet here we are, <a href="https://www.acma.gov.au/about-interactive-gambling-act">banning playing poker online</a>, considering banning gambling advertising and even social media for children, but promoting the addictive gambling activities in casinos and allowing poker machines in clubs across our suburbs, while protecting the ongoing existence of horse and dog-racing industries.</p><p>How can we explain what looks like a completely inconsistent policy where we seem to worry furiously about gambling yet fundamentally support it with policy and spending decisions?</p><div><hr></div><p><em>Please help support Fresh Economic Thinking with a paid subscription and get access to the audiobooks of <a href="https://www.fresheconomicthinking.com/i/146901970/the-great-housing-hijack">The Great Housing Hijack</a> and <a href="https://www.fresheconomicthinking.com/i/146901970/rigged">Rigged</a>, as well as high-quality articles like this recent deep dive into housing economics.</em></p><div class="digest-post-embed" data-attrs="{&quot;nodeId&quot;:&quot;d50ef609-1553-4420-9cb0-1723eaf0a28f&quot;,&quot;caption&quot;:&quot;Note: Monthly FET subscription prices are rising for new subscribers. This is intentionally to make an annual subscription much more attractive. Current monthly paid FET subscribers are unaffected and will always keep their original price. Yearly prices remain unchanged.&quot;,&quot;size&quot;:&quot;sm&quot;,&quot;isEditorNode&quot;:true,&quot;title&quot;:&quot;Explainer: Markets efficiently delay building feasible new homes&quot;,&quot;publishedBylines&quot;:[{&quot;id&quot;:8540605,&quot;name&quot;:&quot;Cameron Murray&quot;,&quot;bio&quot;:&quot;Economist. Corruption and property market specialist. Blogger. Independent thinker. Reckons economics could be better. \nBook: https://t.co/5JxjX5n2al&quot;,&quot;photo_url&quot;:&quot;https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/64657b55-0d7d-446d-87b7-8bccd0c1c457_1873x1333.jpeg&quot;,&quot;is_guest&quot;:false,&quot;bestseller_tier&quot;:100}],&quot;post_date&quot;:&quot;2024-09-22T07:01:12.053Z&quot;,&quot;cover_image&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa677f2d2-02c8-4eef-8782-bcd59b7a0dfc_1024x768.heic&quot;,&quot;cover_image_alt&quot;:null,&quot;canonical_url&quot;:&quot;https://www.fresheconomicthinking.com/p/explainer-markets-efficiently-delay&quot;,&quot;section_name&quot;:null,&quot;id&quot;:145779153,&quot;type&quot;:&quot;newsletter&quot;,&quot;reaction_count&quot;:5,&quot;comment_count&quot;:11,&quot;publication_name&quot;:&quot;Fresh Economic Thinking&quot;,&quot;publication_logo_url&quot;:&quot;https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fb51f0756-0396-487b-83be-90fc0297645d_1112x1112.png&quot;,&quot;belowTheFold&quot;:true}"></div><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/subscribe?&quot;,&quot;text&quot;:&quot;Subscribe now&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/subscribe?"><span>Subscribe now</span></a></p><div><hr></div><h2>The social logic of gambling policy</h2><p>Many parts of Australia&#8217;s political apparatus are captured by mates. </p><p>I wrote a book about this phenomenon called <em><a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians/dp/1761067664/ref=sr_1_1?qid=1700353264&amp;refinements=p_27%3ACameron+K.+Murray&amp;s=books&amp;sr=1-1&amp;text=Cameron+K.+Murray">Rigged: How networks of powerful mates rip off everyday Australians</a></em> (originally Game of Mates). The audiobook is being released <a href="https://www.fresheconomicthinking.com/p/books">here</a> with a new chapter delivered each week to paid FET subscribers.</p><p>The only consistency I find with Australian gambling policy is that vested interests and their political mates always seem well looked after. </p><p>If you want to bet on future gambling policy changes, keep this in mind.<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-1" href="#footnote-1" target="_self">1</a></p><p>Here&#8217;s why.</p><p>Australia&#8217;s $20 billion per year in gambling losses are the incomes of owners of gambling establishments. </p><p>For the racing and gambling industry to succeed, for example, requires more punters to lose money gambling. The less we lose, the more the industry suffers.</p><p>The important part is that only selected mates are allowed to profit from gambling losses. Sometimes those mates are casino owners, sometimes they are pubs and clubs. But they aren&#8217;t other online poker players or international online poker operators, nor are they international social media companies. </p><p>You can glimpse the social game at play via the rotation of personnel and political donations. As I explain in my book <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">Rigged</a>, donations are used as a <em><a href="https://en.wikipedia.org/wiki/Signalling_theory">costly signal</a></em> of social loyalties, while revolving doors provide opportunities for back-scratching within a group. </p><p>In terms of <a href="https://www.abc.net.au/news/2022-05-10/gambling-industry-political-donations-to-states-and-territories/100988954">state-level political donations</a>, hotels, clubs and gambling firms have been major contributors, far exceeding even property developers. They are trying to burn money to give a costly signal that politicians and groups that look after their interests will be rewarded in the future. They want to show their credit is good and participate in the hidden favour exchange game. </p><p>The revolving door tells us more, and we can observe <a href="https://michaelwest.com.au/australia-gambling-lobbyists-luke-stacey/">senators and senior party officials rotating</a> into positions in the gambling industry with great regularity. These jobs provide a glimpse into the favour exchange game, as they often are a way to reward people with what looks like legitimate employment income. </p><p>We catch a glimpse when we see major gambling firms <a href="https://www.smh.com.au/politics/federal/gambling-bosses-blocked-from-speaking-to-pm-rowland-despite-110-000-platinum-membership-20240807-p5k0dd.html">entrenching themselves in political activities</a>:</p><blockquote><p>Betting giant Sportsbet has paid for a $110,000-a-year "platinum" membership that gives it access to Labor's fundraising forum, whose major gathering, which started on Wednesday night and finishes on Friday, is attended by the prime minister and his cabinet.</p></blockquote><p>There is also a strong economic alliance between usual gambling suspects of clubs, casinos, and sports betting, <a href="https://www.thesaturdaypaper.com.au/news/politics/2024/08/10/the-commercial-broadcasters-stalling-gambling-advertising-reforms#mtr">with the media itself</a>. After all, selling advertising for gambling activities is a lucrative business, and any attempt to ban or limit gambling advertising will cut off that revenue stream.</p><h2>Gambling and the state</h2><p>This state&#8217;s interests add complexity to the social logic of gambling policy. </p><p>Lotteries have long been a way for governments to raise money, ever since their successful introduction by famous Italian playboy Giacomo Casanova<a href="https://press.uchicago.edu/ucp/books/book/chicago/C/bo173083204.html"> as a funding source for the French Treasury in the 1750s</a>.</p><p>In Queensland, Golden Casket lotteries and scratchies funded health services for returned soldiers, and after the state took over the lottery in the 1920s, it <a href="https://en.wikipedia.org/wiki/Golden_Casket">raised the money to build to Royal Brisbane Women&#8217;s Hospital</a>. Profits from scratchies still fund many medical services and research today. Charities, schools, and all sorts of organisations also use gambling in the form of raffles as a source of revenue. </p><p>Today, states impose <a href="https://www.treasury.nsw.gov.au/budget-financial-management/revenue-and-taxation/casino-duty-rates">special taxes</a> on poker machines and casinos, raising over $9 billion in 2022-23 (a jump from the 2015-19 level of around $6 billion per year). About a quarter of gambling losses end up in public hands via various special taxes. </p><h2>What changes would be positive?</h2><p>Before I consider how change might come about, I want to make sure you are convinced that change is desirable. </p><p>Imagine that private gambling was banned but a public agency operated poker machines and casinos that raised $20 billion per year in revenue. </p><p>This would seem unscrupulous and unfair. A tax on stupidity you might say. </p><p>If you agree, then it makes sense to apply that logic to private gambling operators too. </p><p>But banning all gambling seems likely to fail. Few nations ban all gambling and generally do so for religious reasons and hence have the backing of religious institutions to foster a culture that avoids gambling. </p><p>On the flip side, allowing gambling to occur completely unregulated seems likely to have poor social and economic outcomes on the whole.</p><p>Is there a way to navigate the interests of states and mates in gambling in Australia to get substantial change that would reduce gambling losses by $10 billion per year to get us closer to global norms?</p><p>We do see small wins occasionally, such as carded play. That&#8217;s positive. But check out <a href="https://apple.news/AfO_AyxmZQSaAn5rfHbcE1g">the effect of this policy change</a>. </p><blockquote><p>The introduction of mandatory carded gaming at Star&#8217;s casinos in response to money-laundering concerns also was expected to hit the company&#8217;s bottom line. With carded play, punters set gambling limits they can&#8217;t change for 24 hours and get an email each month stating how much they have lost.</p><p>&#8220;Carded play is having a bigger impact than expected,&#8221; Mr Hewitt said. &#8220;Since its limited introduction in Sydney on August 19, daily average revenue is down 11 per cent for mandatory carded play and $5000 cash limits compared with the four weeks prior.</p></blockquote><p>The economic reality is that limiting losses for gamblers means limiting profits for casinos. </p><p>Maybe we can look abroad. The United States shows the range of different approaches that states can take when it comes to gambling. </p><p>Many U.S. states do not allow casinos or many forms of gambling at all (usually a state lottery is allowed). Some allow casinos on Indian reservations, which is another form of revenue raising for the government apparatus of these communities. </p><p>National laws in 1992 effectively banned sport-betting in many states, but a 2018 Supreme Court decision overruled this and l<a href="https://www.forbes.com/betting/legal/sports-betting-state-statistics/">ed to an explosion in online sports betting in many states</a> (this is why the 2016 data in the above chart showed very little betting losses in the United States).<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-2" href="#footnote-2" target="_self">2</a> </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png" width="1292" height="1142" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/ac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:1142,&quot;width&quot;:1292,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:252741,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:true,&quot;topImage&quot;:false,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fac0449e4-662e-4fa4-959e-c824e3fa5275_1292x1142.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>Maybe Australian states could experiment a little? </p><p>Banning gambling advertising seems sensible to reduce the take up of sports betting. Ensuring that horse and dog racing pays for itself and is not supported by real estate deals makes sense too. </p><p>A cap and trade licensing system could limit poker machines. Rather than 190,000 of them, we could cap it at 50,000 (a quarter of the current number) and require those who want to operate a machine to bid for a state license to operate. </p><p>Any way to limit daily spending at all venues seems sensible, though I expect some experimentation is needed.</p><p>Like every country today that allows gambling, we will muddle through. </p><p>What we must be fully aware of is that effective gambling policy change in Australia to get us closer to global norms means about $10 billion in revenue forgone from gambling companies, who are politically entrenched mates, and about $3 billion in lost public revenue from special taxes on gambling. It means that the gambling industry will shrink by half, knocking out many existing businesses. Lobbyists will cry about job losses. </p><p>Change will occur only when there is a strong electoral risk to not acting on gambling policy. </p><div><hr></div><p><em>I&#8217;m interested in reader thoughts on this topic. Please leave a comment and share this article to keep the conversation going.</em> </p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/subscribe?&quot;,&quot;text&quot;:&quot;Subscribe now&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/subscribe?"><span>Subscribe now</span></a></p><p class="button-wrapper" data-attrs="{&quot;url&quot;:&quot;https://www.fresheconomicthinking.com/p/australias-gambling-mates-crafted?utm_source=substack&utm_medium=email&utm_content=share&action=share&quot;,&quot;text&quot;:&quot;Share&quot;,&quot;action&quot;:null,&quot;class&quot;:null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://www.fresheconomicthinking.com/p/australias-gambling-mates-crafted?utm_source=substack&utm_medium=email&utm_content=share&action=share"><span>Share</span></a></p><div class="footnote" data-component-name="FootnoteToDOM"><a id="footnote-1" href="#footnote-anchor-1" class="footnote-number" contenteditable="false" target="_self">1</a><div class="footnote-content"><p>Don&#8217;t forget to gamble responsibly! (Am I doing this right?)</p></div></div><div class="footnote" data-component-name="FootnoteToDOM"><a id="footnote-2" href="#footnote-anchor-2" class="footnote-number" contenteditable="false" target="_self">2</a><div class="footnote-content"><p>One <a href="https://elsevier-ssrn-document-store-prod.s3.amazonaws.com/2024/10/2/4938642.pdf?response-content-disposition=inline&amp;X-Amz-Security-Token=IQoJb3JpZ2luX2VjEBUaCXVzLWVhc3QtMSJGMEQCIE%2F3PL3HvJWsNMg4yC58d229BLxv8PHWljz0BdqIg17kAiBuk6hdNd5XGMcNolHnBxtmkXTnTQX5iI%2BVGoTLNkOIaiq8BQhuEAQaDDMwODQ3NTMwMTI1NyIMSXxAOvMys3e28iGJKpkF8Bco5RhmXdMdvcxetV1Q2f3AfFvCjsZI3iwper43DxIzgJR9VGR1FEj7j9BOXTPUdPizSprYOVPmD8Uti8pSIr0mfnsos9FMA1Xqx%2F8fk7rc5%2BbjL%2FmwBywQav%2FiuUb9PWZOd1hPqVC4Vd6jTT2vXCEcMRIX89%2Bp2Ff1tnij76InHM%2B6b9ZGj9jd5jdmlJK5O5W1vl2LPlyJgZXBQgzXM4%2FkLm6aaRnRxfrHO2arf67z4n4jS3c6%2Bunn4gEm%2FuzATbEh8jdjWMlhBn2ty3wh9%2BRSuRMnyR0wGljEB7XKTgdvvPWyQbw8iAHxcPdATc9tAof4Vt%2F5x33mEfHhjzDS%2FmNqTFMYhYdFKjeUWz%2FE3o%2BAoOr0QGiIR1ZX9sniC%2FypBwmEx%2BB7Lg3tIvyTluREWKAAA7OIVQNK6ix3HWMRvwzviVTKw8xPBts5gwhp5uBAL08eydtqj7YWWHFoIINV1dAioesHei9Zb%2FSHfUx4NOcFISV7QlhS6a4nOzdeJh9C%2BQfE23lOpaEiceEy5fzWoviwAqBFATENpHV7x1koiEYyY4XIpDScciPiE1CrBraW2LRI1g3%2BS3lvaTUNEwQcTPiN4ezXjzv6MSQRDr2lBxWj0Qntvcy12Kf0w%2FNH3gVCQGN3v%2FzMufynLnnCs%2FPpCdfwTh3vdG7kv%2FvGs%2FNQQXJVsBoUXL9iqks4ln8o8GL%2FCc%2BkiTnOcTP5Go93WYjlE5gjI2PMwcvohbeTrN4AiTmH8K6BDZEOrrYSDfHM7Dk%2FfjgrWoRj4y8e5vnImWmGaAsI4nVnOgSDk%2BPb6bD%2F8rVA7km6F4AwY4lGd%2F1w0K9ymP7k1OCoEQGmMQ1cTd38MjTGkq%2FOlF2LmQGnE3kID8EHkDhQ9cJ5Jacwh7iduAY6sgEcyFiOrazqr0tmgJvzd92vNC4SooIAWslK3y3mrF3QDMfvrgM0b%2BjIJSvbhDWHY5V0xh3Jzy5DamMnhX7NDYNtocYcDHVl78eebIP6Qyd%2BqMFmIiqZFMufCe8nLETamUpKwdfwwtAxpW1HJDRbchBDNxBXu4fiLZWghoXtRdUuA0LmBh2fROFJNjswoofsi6sh3KIZQVHvIMU%2B%2BDQFJ3%2FthMJhMt%2B1s2l5FMoeGPgIBJzX&amp;X-Amz-Algorithm=AWS4-HMAC-SHA256&amp;X-Amz-Date=20241010T060651Z&amp;X-Amz-SignedHeaders=host&amp;X-Amz-Expires=300&amp;X-Amz-Credential=ASIAUPUUPRWE66U6C6DB%2F20241010%2Fus-east-1%2Fs3%2Faws4_request&amp;X-Amz-Signature=e0984ba5681c660fc10748c3fab00c595ad0fe31408c27ee4959406ad3f442ec">recent study</a> has used timing differences in the phase-in of sports betting between US States to estimate the effect of sports betting on intimate partner violence, showing that unexpected team losses after sports were legalised were associated with higher rates of domestic violence. Whether that result will replicate, I don&#8217;t know, but the long <a href="https://anrows.intersearch.com.au/anrowsjspui/bitstream/1/22803/1/RP.17.01-RR-Hing-GamblingDFV.pdf">history of studies</a> on how gambling losses result in detrimental household outcomes seems quite clear.</p></div></div> ]]>
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<title>
<![CDATA[ Audiobook: Rigged (Ch 4- Grey gifts) ]]>
</title>
<description>
<![CDATA[ Chapter 4: Grey Gifts ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-4-grey-gifts</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-4-grey-gifts</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Wed, 09 Oct 2024 22:30:26 GMT</pubDate>
<enclosure url="https://api.substack.com/feed/podcast/149691009/1efb442677850e0b58c0d3c72e27bbfb.mp3" length="0" type="audio/mpeg"/>
<content:encoded>
<![CDATA[ <p>Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of <em>Rigged: How networks of powerful mates rip off everyday Australians</em> via their favourite podcast app.</p><p>Chapters will be released weekly over the coming months.</p><p>A physical copy or ebook can be bought <a href="https://www.amazon.com.au/Rigged-networks-powerful-everyday-Australians-ebook/dp/B09ZF3H324?ref_=ast_author_mpb">here</a>.</p><p><em>Rigged</em> was originally published in 2017 under the title <em>Game of Mates</em>, but was &#8230;</p> <p> <a href="https://www.fresheconomicthinking.com/p/audiobook-rigged-ch-4-grey-gifts"> Read more </a> </p> ]]>
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<title>
<![CDATA[ Can money TIME TRAVEL to pay for our retirement? Pension bonds reveal the trick that makes many economists believe so ]]>
</title>
<description>
<![CDATA[ This financial instrument show there is no flux-capacitor, only economic trickery, at the heart of pre-funded retirement systems ]]>
</description>
<link>https://www.fresheconomicthinking.com/p/can-money-time-travel-to-pay-for</link>
<guid isPermaLink="true">https://www.fresheconomicthinking.com/p/can-money-time-travel-to-pay-for</guid>
<dc:creator>
<![CDATA[ Cameron Murray ]]>
</dc:creator>
<pubDate>Sun, 06 Oct 2024 06:31:11 GMT</pubDate>
<enclosure url="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png" length="0" type="image/jpeg"/>
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<![CDATA[ <div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-imag" target="_blank" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 1456w" sizes="100vw"><img src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png" width="1456" height="958" data-attrs="{&quot;src&quot;:&quot;https://substack-post-media.s3.amazonaws.com/public/images/81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png&quot;,&quot;srcNoWatermark&quot;:null,&quot;fullscreen&quot;:null,&quot;imageSize&quot;:null,&quot;height&quot;:958,&quot;width&quot;:1456,&quot;resizeWidth&quot;:null,&quot;bytes&quot;:7339981,&quot;alt&quot;:null,&quot;title&quot;:null,&quot;type&quot;:&quot;image/png&quot;,&quot;href&quot;:null,&quot;belowTheFold&quot;:false,&quot;topImage&quot;:true,&quot;internalRedirect&quot;:null,&quot;isProcessing&quot;:false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 424w, https://substackcdn.com/image/fetch/w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 848w, https://substackcdn.com/image/fetch/w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 1272w, https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F81d5f162-1503-461b-8a07-ed594ec18a29_2656x1748.png 1456w" sizes="100vw" fetchpriority="high"></picture><div class="image-link-expand"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></a></figure></div><p>The logic of pre-saving for our collective retirement&#8212;whether with superannuation, 401K accounts, or social insurance funds&#8212;is that we are transporting money from the present into the future. </p><p>But money can&#8217;t time travel. </p><p>All money can do is be swapped for other things today (or not).</p><p>This is extremely important for understanding the potential social value of various national approaches to retirement funding, which unfortunately most economists and major economic institutions get wrong.<a class="footnote-anchor" data-component-name="FootnoteAnchorToDOM" id="footnote-anchor-1" href="#footnote-1" target="_self">1</a></p><p>I want to demonstrate how these mandatory saving funds make it look like money is time travelling, when in reality they are shuffling the financial deck of cards without adding to our ability to pay for collective future retirements. </p><p>The way to make this clear is with an idea I have mentioned a couple of times before (<a href="https://www.fresheconomicthinking.com/p/ownership-illusions-retirement-income?utm_source=publication-search">here</a> and <a href="https://www.fresheconomicthinking.com/p/compound-interest-is-not-magic?utm_source=publication-search">here</a>): <strong>Pension Bonds</strong>. </p><p>I don&#8217;t think I have fully and deeply explained how this idea shows that pre-funded accounts have nothing special in them that helps pay for future retirements. </p><p>All that is in these funds are claims over future income that we mark up at a price based on the last trade of similar claims. But an age pension is also a claim over future income that could have a price today if it was traded. </p><p>Let&#8217;s see how that works. </p><h2>What is an asset?</h2><p>Anything that creates a legal claim on future economic value is an asset. Collectibles can be assets. Treasury bonds, which are the debts issued by state and federal governments, are assets to their owner. Company shares (stocks) and bonds are assets as they represent a legal claim to the residual incomes of the company. </p><p>These assets are all tradeable. </p><p>Sometimes assets are not. Your own business might be very difficult to trade, even though your ownership of it represents a claim on the future income of the business. Incorporating a company can help to create a legal entity where part or full ownership of your business can be more easily traded. When it is traded, the value of that legal claim to owning the business will be priced by that trade.</p><p>However, some legal claims on future economic value are not tradeable. </p><p>My children were born with a legal claim on the future value of a free school education in Australia. We sometimes call legal claims of this type a <em>right</em>. </p><p>But <em>rights</em> can also be priced if we change the institutional setup to allow them to be traded. </p><p>The conversation about school vouchers shows there is a way to do this. By changing the institutional setup of the <em>right</em> <em>to public school</em> to be one of a <em>right to funding for a school, </em>vouchers create the opportunity to trade (choose to allocate) that right to different schools within the jurisdiction. </p><p>It is not much of a leap to imagine that it would also be possible to allow school vouchers to be traded between people&#8212;one parent might want to sell their child&#8217;s school voucher that year to another parent because they want cash instead, and the buying parent is choosing a school that costs much more than their single voucher provides and is now using two vouchers to pay for that school. </p><p>Let&#8217;s say that a school voucher provides $10,000 per year to the school the child attends. In this example of the trade to another parent of a single year&#8217;s voucher, that would likely happen at a price a touch below $10,000. </p><p>You can see how modifying the institutional setup to allow more trades&#8212;both choosing which school to spend the voucher on, and which parent owns a voucher&#8212;starts to allow more pricing opportunities of what was initially just an abstract <em>right</em>.</p> <p> <a href="https://www.fresheconomicthinking.com/p/can-money-time-travel-to-pay-for"> Read more </a> </p> ]]>
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