Finally, some common sense on Super. October 17, 2025

22:59And I think it's your point. Yeah, you can't. I mean, one thing that we maybe could do is the best I've come up with is just to enforce or mandate a creative destruction regime. It's like every government department gets rebuilt every five years or something like that. Yeah, right, okay. Just get rid of the systemic blow because systems tend to blow. Not just public, all systems tend to, right? Like it's just in the - There's some awful corporate bureaucracies. Oh, yeah. I mean, generally in very highly regulated and therefore protected industries in more competitive dynamic, you don't have that because you have the competitive dynamic that keeps things in check.

23:38So maybe you just add that. Maybe what you say is across the board, we have two departments of defense, two departments of education. Well, Kudlon does the best job. And we do it like every five years, the one that underperforms. I don't know. I'm shooting from the hip here. There's no easy answers here. But what you can observe and what you can say factually is that literally every department in existence basically grows each year in terms of its budget and its people. And it's a natural inclination for that to happen. And there's no natural feedback mechanism that kind of keeps it in check to ensure that things are getting spent in the most efficient way possible.

24:15It just, it happens. And the longer that runs, the worse it gets. So, so, so it's either we get someone in who we all agree is great and is going to, going to fix it and keep everyone happy, which is almost impossible. Or we just say that, you know, every, you are here for five years, you know, and, and then we're going to tear it all down and build it again. I mean, even that sounds stupid as I say it out loud. So there's no easy answer here. There's IT and infrastructure. I mean, you probably can't actually do it, but that broad idea of we will conceptually do that every five years would be enough, I think that's not a bad point.

24:47There's something that's in there, but it needs to be seen. It needs to be something that we have something which is more systemic in its approach rather than or procedural in its approach, more algorithmic in its approach. Because whenever you introduce the subjectivity to it and maybe it's impossible to do it without subjectivity and even in designing a system, the subjectivity in that. It's very, very difficult. You know, I recently started thumbing through an old book I found recently called The Systems Bible, which I highly recommend. It's a very, it's kind of written a bit tongue in cheek, but just talks about the inherent fragility and problems of any system.

25:29You know, any system will break. Any system is impaired. And it walks you through all these axioms. And it's a very dry humour and it's very funny, but there's also a great deal of wisdom in all of it. And it's just like whenever people like us sit there and navel-gazing, oh, we should do this or that, it really is the height of hubris because, you know, the greatest of intentions, the Donald Rumsfeld known unknowns and unknown unknowns and the second and third order impacts. I mean, it's just, it is, it is, it's almost impossible. In fact, the book argued it is impossible to design any system that is, that is sort of perfect and without foresight.

26:08All you can do is sort of minimize it. All I know is that we're a mile away from it is at the moment is all I know. I move towards it in the right direction. We'll never be, even those people you choose, will they be perfect? Yes. Are they even better than what we've got now? Almost certainly. Okay, well, let's do that then. You know, that kind of idea. Go on. So as you want to say, what I really like is I think the best, the North Star here, if you will, is to remember the power of incentives. Shout out, pour one out for old Charlie. Charlie Munger was always talked big on this kind of stuff.

26:42And I'm very fond of the story of the Roman architects whenever an arch was built. When the scaffolding was removed, the architect had to stand underneath the keystone. So you can make, you can, you can believe that they really engineered the hell out of that. And like, is it any wonder that 2000 years later, the aqueducts is, you know, some aqueducts are still going, right? Some of this architecture is still there. And because the right incentive was there. And I think that, that doesn't guarantee that you solve all the problems, but when you have a system where, you know what, if it all goes pear-shaped, there's absolutely no downside for me, feels like a really obvious miss.

27:19When you put someone in charge, and again, we're going to want to give you great authority. We're going to give you great power. We're going to give you huge amounts of money to do this thing. And if you do well, we're going to make sure that you're rewarded. And I'd be the first to say, shower that person in gold, because look at the good things that they did. If on the other hand, they, you know, I don't, maybe I shouldn't name names, but certain people who are architects behind RoboDebt, for example, lead to incredible misfortune, suffering, and let's be blunt, death, right? Like the amount of damage that that caused.

27:58What's the consequences of that? Correct. Zero. It's like, well, I don't have a perfect solution, but I would imagine that they're making - We could probably improve on that. Yeah, we could probably make that a little bit better. And again, it does - The other example, I know I've mentioned this on the pod before as well, but it used to be - Well, there still is. is that working in mines is an incredibly dangerous affair. And a while ago, they made board members of mining companies responsible for deaths and injury on site. Now, it wouldn't happen before that. And does that mean that there are no deaths or injuries?

28:29No. On a mine site? Yeah, of course there are. But man, do they really try and avoid it, right? And far more. When it was sort of like, oh, I'm sorry. Is there anything happened to me? No. Okay, well, okay. I'm sorry, but, you know. When there's a four-ton keystone above your head and you're responsible for how it gets put there, you really make sure it's put there properly, is all I'm saying. The aquac still exists too, just quietly. Like, amazing, amazing. What do you think the odds are of any residential tower built in any of our capital cities is still standing after 30 years, let alone 2 ,000 years, like zero, right?

29:08Maybe we should make those architects live in the bottom floor unit. Maybe that should be their – that's the Australian equivalent maybe. I mean, something like that, right? Like that – it just – there's nothing more. Never think about anything else when you should be thinking of the power of incentives, which is what Munger said, and he was dead right. What was the example he gave with – was it a parcel shipping company? And they – oh, I'm going to butcher this. Maybe I'll look it up when you're talking. But all management did was they were paying people a certain rate per hour. Yeah. I think this is it.

29:47And so what they found was productivity fell because it was like, is it in my personal financial interest to take as long as possible because I'm paid per hour? And all they did was say, no, you get paid per package. And lo and behold, lo and behold, product literally overnight skyrocketed because it was now in my – and again, it's not about trying to punish people. It's just like we want to align our success with your success. And whenever you do that, it just great things tend to not, there's no such thing as perfect, but great things tend to happen. And that's probably the best guiding principle we could have.

30:23You just want to arc towards better. It wasn't perfect, but you proved from where we are. Yep. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

30:37Hey, speaking of spending money, should we talk about the Tomago aluminium smelter? Oh, do we have to? No, but we will. We'll do it quickly. We'll do it quickly. No, we won't. Probably not. I will do it quickly. Andrew made a rant. No, that's not true. I'll probably rant too. Tomago is the aluminium smelter in New South Wales. Single largest energy consumer in the state. They call aluminium solid energy for a reason, which is basically it's aluminium plus electricity and not in that ratio. It's just extraordinary amounts of energy. Aluminum is a great material, by the way, but it's extraordinarily energy intensive.

31:12At the moment, so Tomago is owned by Rio, controlled by Rio Tinto. At the moment, they've got a sweetheart deal with AGL for energy. That expires in 2028. So I will just read you the first paragraph of the article in the Australian Financial Review. Quote, the Rio Tinto-controlled Tomago aluminium smelter in New South Wales is struggling to come up with a plan for affordable power that will prevent its closure at the end of 2028, my emphasis added, despite ongoing talks with federal and state governments on a rescue package, end quote. Yeah, well. We just talked about incentives, right? And like any large, particularly if you're a sort of like quote-unquote blue-collar employer, because that's just really emotive for some reason.

31:56You make stuff, if you make stuff, that's a thing. You're doing stuff with your hand. Like it's just whatever jingoistic nonsense that we all sort of go with here. And I mean, I would do exactly the same. If I were in that plan, I was like, well, those guys got bailed out and they got bailed out and these guys got bailed out. I was like, well, bail me out. I was like, wait a sec, I tick all the boxes here. You know, bail me out. And of course they did. And they probably will be, right? So it just, I mean, who's the, I think people get angry about it rightly, but don't get angry at the smelter.

32:28they're just again they're just being rational who's who's the who's the one at fault here it's the it's the one that's being so easily co-opted you know and corrupted frankly that that like our i.e the people that we elect and it's just like if anyone here was in a position where the government was going to hand you a million dollars how many of us honestly look yourself in the I wouldn't. I wouldn't. I would. I'll tell you right now. I was like, wait, I can. But, you know, despite all my protestations against deficit spending and profligacy in government, I individually, selfishly am going to benefit.

33:09Of course I'm going to advocate. I mean, if there is a program that's out there or easily accessible, I will access it. I almost, from a game theoretic lens, I kind of have to do it just to not be disadvantaged because everyone else kind of will. So get angry, but don't get angry at the smelter. I'm not saying they're saints. I'm not saying that they, not anything like that, but it's just, I'm just making the point that they are just being economically rational. And it is the government's being economically irrational here. And they're the ones that deserve the full force of our scorn. Yeah. A couple of quick things.

33:44anyone who complains about time ago I would ask them whether they're paying more tax than they have to because if you're not then you are time ago and that's again completely fine I have never ever criticised someone who paid if you pay avoid tax you're supposed to pay you should have the book thrown at you if the government says you may claim this deduction then you should claim the deduction because in theory I haven't broken any rules you set the rules and now I'm playing by them and you can't get angry at that This should claim a deduction for this. This should reduce your taxable income. Yeah.

34:15Okay, well, I'll take the event. So when Tom Gau says, you know, I would like some money, you would have some. Yes, you can. Okay, cool. Thank you. You obviously think it's worthwhile. Yeah. I'm justified in asking. Quick one too, mate. You didn't mean this at all, but I want to make it very clear because podcasts are podcasts. You made the kind of jingoistic make stuff with the hands comment and that was absolutely right. We're not for a second being condescending or patronising about or to people who are doing that work. Oh, God, no. I know you weren't, but I just want to be very, very clear because it's, here you go, because I'll talk about yours for you.

34:42Oh, gosh, I'm so glad. Look, if that came across in any way like that, I actually think these are the people that do real stuff. I have nothing. Hey, my fingers get sore bashing my keyboard. Thank you. Look, the rest of us who are sending emails and making PowerPoints all day are absolutely worthless. We just fill our time with busy work. I mean, the people who actually do stuff have my upmer. I'm not having a go at them at all. I'm just saying that if you're a politician and you're a cynical bugger, which you almost always, that's what it is, is because if you stand in front of an investment bank and say, all of these people are going to lose their job, no one cares.

35:17Yeah, exactly. But if it's a blue collar worker, you know, carrying the steel lunchbox in and the thermos and, you know, it's just got that romance to it and it's easier to sell, right? Same with farmers. Farmers is a classic. You know, every, like, I forget the numbers, but it's something like 98 % of us are like urban cafe latte sipping. Yeah, we are. We all live in cities. And then there's this tiny percentage of us that actually ride horses and actually grow stuff and actually do things. But we all have this romantic notion that that's what it is to be Australian. It's like you have never set foot on a farm in your life.

36:00You have never done, you know. We know where to shoot from the other. Yeah, yeah, yeah. I mean, I grew up in the country. This is hard. I'm not even saying I did this. I didn't grow up on a farm, but I can tell you it is hard, bloody work. And again, full respect for it. But it's just when a politician says I'm giving money to these people, it is just more palatable than when it is giving it to a clerical worker or something like that. At agency, yeah. And again, it comes to vote because why do they do it? Because it works. And go, yeah, oh, look at those hardworking. They deserve it. And it's just an easier sell to do it.

36:34100%. So, yes, I'm not having a go. No, I know you weren't. I want to be very clear just for anyone who was listening, just who may have misunderstood that because occasionally, look, we have a lot of listeners and, well, a few, and some of those people are going to hear that and maybe not understand the context. I just want to flesh it out for your sake and for mine. Yeah, and by the way, this is not going to be the last bailout. Not only are they right to ask the question, because why wouldn't you, but also the government has shown with Mount Isa, with Wayala, and I'm in Tasmania too, which I wasn't aware of before now, This has become the way governments work.

37:05They're going to help you throw money at any large organisation who makes a thing and who wants to say we might go out of business. And so if you're in that space, as you say, game theory-wise, you're silly not to do it. The problem is, unfortunately, this is not going to be the last time it happens. And some numbers in the fin this week, a million dollars per job is the average of all those bailouts combined. Not including Tomago, by the way, because it hasn't been agreed yet. A million dollars per job. Yeah, it tracks. It's about right. And it's just extraordinary. Again, where does the money come from?

37:30Right. And what's the real cost? The real cost is, and again, it would be one, it's still egregious, but it would be at least something less egregious if WIFS was funded. It's unfunded. Yes, yes. We're borrowing money to do this. And we're at the stage now where we're only a hop, skip and a jump before the debt has to be monetized. It's just a fancy way of saying we just have to pay it back in printed money because no one's going to buy it. So we're absolutely going to pay the piper for this. And then you might go, well, at least it's worth it if. And it's like, well, the trouble is it doesn't solve the underlying structural problem here.

38:03And the underlying structural problem is you can't do it in an economic way, which is just another way of saying is that there's no way that you can do this and make something and sell it at a high enough price to cover all your costs. That's what it means. And again, there's no conspiracy here. There's no conspiracy. A rational, anyone out there who needs aluminium, let's go with that, Because I need aluminium because I'm making cars or phones or anything that I need to make aluminium. Like any sane person, whether you're left or right or up or down or whatever, like flavor you person you happen to be politically.

38:38It's like I will be paying the lowest price I can get. I can get a higher, I can get equal or better quality for a equal or lower price from here. I'm going to do that. I'm obviously going to do that. And that is the beauty that we are witnessing here. And that is how we coordinate all of these scarce resources and all of our capital and our capital equipment specifically here and all of our labor and all of our energies and all of that. And we just it's orchestrated so beautifully just by letting people do what they want to do. Right. And then and so it doesn't solve anything. It costs us a bunch of money.

39:18It ultimately leads to worse outcomes for us economically and a whole bunch of inflation and debt to boot. So it's sort of like, it's just terrible in every way you look at it. It's even better than that. I mean, better actually in a positive sense in that why can we not make those things to sell them and make a profit? And in large part, it's because, for example, we have a really high standard of living. We have created an economy and to your point, not they or it has created an economy. We have collectively created an economy. It evolved. Ground up. That's a better word. Where there are lots and lots and lots of high-wage jobs because we've actually managed to find ways to value add and be more wealthy and more productive and have a higher standard of living as a result, such that we have so many people being paid so well, and that's not a bad thing.

40:04If you think wages should be lower, then I don't know where you should get off the bus, but do it soon. What we're actually saying is, can we please subsidise lower wage, lower value add jobs just so we can keep them, rather than letting those people gravitate towards higher paid high-evaluating jobs that make us all richer. Why don't we make cars here? Why don't we make textiles? Because it's being done cheaper somewhere else. Well, let's put people out of work. No, it hasn't. We have 4.3 % unemployment. Those people are employed not directly, but again, the evolution over time. We've now got services jobs.

40:35A lot of those people are the people doing high-evaluate, whatever those things are, jobs, because we've created more wealth. That's a win. When our standard of living is so high, We can't afford to make profit at lower wage aluminium or copper smelting because we're busy doing other things that actually earn more value, create more value. That's a huge win. And people don't ever think about this. Don't put this rationale behind it. What they're effectively saying is, I wish our standard of living was lower so we could do more secondary manufacturing rather than the higher value. By the way, safer, better on the body, better health outcomes.

41:14You're not stuck underground. Again, mine's doing a wonderful job, but they're not going to be as healthy as someone who's out in the fresh air. We are creating a better society, a wealthier society. Now, we argue about, you know, how we use that money and some of us are wage slaves and winning the rat race to sell a rat. There's issues. But the reality of the world, the country we've created, we have high savings in other countries because we have higher wages. We have higher wages because we found more evaluating things to do. It's just to somehow, no one ever thinks it this way, but to, if you're actually saying we should do a thing to make copper smelting cheaper in Australia, what you're saying is I want workers to be paid less than they could get everywhere else.

41:53And that is madness. That is madness up and down the chain. Yeah. And let's just stop the BS in that it's helping the workers. It's not. The workers are trapped in an uneconomic venture. There's no long-term prospects there. You're not going to get a pay rise. You're already uneconomic. And you think you're going to get any kind of meaningful pay rise? You think there's going to be any longer-term opportunity here? This isn't about the workers. It's about the billionaire owners of this. That's who it's about. That's who's getting bailed out. People take these comments and go, oh, so you're going to throw all these people under the bus.

42:22I made this pain point last week and the week before, and I'll make it again, I'm sure. But it's like no one's saying don't offer generous redundancy packages and retraining. I'm all for that. Sign me up. As you say, we're already spending a million dollars per worker. That's right. Guarantee people. A third of that. Here's$300 ,000 to quit. Do you want it? Yes. There's no tax on it, 100%. But I might have to move. Okay, knock yourself out or I can find a job somewhere else. Great, do that. Go ahead, go ahead. Go for it. You know, just stop bailing out the billionaires. It's nothing other than corporate socialism, you know.

42:55And both buying, by the way. So it's worse than both worlds. And again, I'll give it a shout out. On the strawman.com forward slash blog, there's an article there called In Defense of Capitalism. I'm just making this exact kind of point. Good article too, right article. Oh, thanks, mate. It could have easily been 400 times longer. So I'll give you a wrap. You don't have to. It's long and it's very, very worthwhile because it really lays out beautifully where the critiques, and you know I've talked about this before on the pod, so I was already on the page of listening to you, but you've written it beautifully.

43:26It's a really nice summary of why capitalism works, why it's useful, why we shouldn't throw the baby out with the bathwater. It's simply to look at the failures and go, and therefore capitalism is broken. It might even be, but fixing it rather than junking it is the absolute answer. Like people say superannuation is too generous. We just talked about it. Of course it is, yes. Should we throw it away? No, that'd be stupid. That's giving away all the good stuff because there's some bad things. You don't kill a patient because they've got a disease. You cure the disease, right? Rather than, oh, they've got the disease.

43:53If we kill them, the disease will go away. Yeah, it will, but that's a stupid idea. So in defense of capitalism, strawman.com forward slash blog. Have a read. Really worthwhile. Yeah, I'm just making the point that people are right to be angry. Are you angry? Yes. Are things broken? Yes. Just don't blame. It's the crony capitalistic dimension to it. Anyway, and this is exactly what we're talking about here with all of these bailouts. The other one that I saw read just last night, Albo had any social media team. I'm not even having a go at labor or anything because they both do it. But now we're giving$10 ,000 to every tradie to incentivize them to come into housing.

44:30So I looked, I almost went on a tweet rant and I thought it's not healthy. So I didn't. But I looked it up, right? You thought, I'll wait for the podcast. So the housing construction industry is one of the largest industries in Australia, and it's growing at about 4 % per annum. If you just look at the component, and it's hard to do because you've got to sort of tease apart some of the ABS sort of numbers and stuff there, but there's somewhere between 700 ,000 and a million people who are involved in building houses. Right. There's only 10 million households. Yeah, that's right. That is a big number.

45:08It's even bigger if you look at civil construction and commercial construction and all of that. But just on the residential component, I got to that number. And as I say, it's growing really fast. Now, again, Economics 101, back to incentives as well. Is there an incentive for a young person to get into this industry? Yes, there is. In fact, without this, it's already growing. Why? Because there's opportunity. There's work there. There's opportunity there. There's jobs there. There's money there. You look around, the tradies are doing just fine. I'm not even having a go at them. Again, they do real work.

45:45I have utmost respect for them. But I'm saying, do you think giving$10 ,000 of taxpayer money is the difference? But is there any kid out there that's going, you know what? I was going to go into HR, but now I'm going to be a chippy. Like, no. Like that may be on the margin. We're going to spend however many billions of dollars and we get 300 more people that otherwise wouldn't have done that. What is the payback on that expenditure? And what is the problem that you're trying to solve? I get that there's not enough houses being built, but it's not because of this, right? Like it's not because there's not, there's all, I mean, we could go through the litany of reasons.

46:25But again, it's unfortunately we're at a stage of our civilization where whenever there's a problem, the only, our imagination extends only as far as the government should throw some money at that. Yes, exactly. And it's like, like sometimes funding is a real, and often is a real issue, but it's just like, it's more than just that. And this is, of all of the problems in housing, attracting more people to become a builder is not, we've got a lot of them. And we've got more of them. And it's one of the fastest growing sectors. And we're just going to throw a bunch of money that, I mean, people will take it.

47:05Again, like before, would I take it? Oh, I mean, I was going to be, I was going into this space anyway. And now you're going to give me 10 grand? Yes, thank you. I'll take it. You know, it's just pure madness. It's dumb. It is. The other thing I kind of want to add, and this is, you know, it's a bit of a tangent, but it's not. And it's about when you spend money to incentivize something, you should measure it against not the total, but against the incremental outcome. You can always measure it easily. I complained about the electric vehicle subsidies for a long time. Mostly on Twitter. I don't think we've done it here.

47:37I'm not sure. Maybe we have. Probably have because we rant a lot. I think we mentioned it. Yeah, and it was just that idea of the, you know, do I want EVs? Yes. Do I want action on climate change? Yes. Do I want it fast? Yes. But if 90 % of people are going to buy EVs anyway, and you're paying an amount of money to people who buy EVs, yes, you'll get the 10 % who do it, but it's actually cost you 10 times more per incremental car sold because you're paying everyone, let's say, 10 grand, but none of those 10 people are going to do it anyway. So I think if you're paying 100 grand for each new car sold, you've never just given out free cars.

48:07It's going to cost you less. to actually give out a free car than it subsidized everyone who was going to buy one anyway. And that's kind of... Of course, more people will buy the free cars if they get them. But broadly, that's what you need to do the maths against, not just how many cars, how much per car, that sounds okay. It's like, well, how many cars are going to be sold anyway? And by the way, early in an adoption curve, like super early, you absolutely need to prime the pump, as they say in economics, right? To get it ready. By the way, prime the pump, very manufacturing thing. Most people have no idea what that means.

48:34What's priming the pump mean? but that you know get it ready to start producing makes perfect sense once it's going putting more for the sake of it doesn't achieve anything because it's already going and that's the if you want to start the EV I mean frankly I would put money into charges if anything right give people the the opportunity to use them and buy the cars so they feel good about range anxiety for example but if I'm going to buy an EV anyway and you give me 10 grand of course I'm going to take the money that's your point about being a chippy if you're going to be a chippy my nephew's a chippy right if you said to him hey you're always going to be a chippy would you like another 10 grand yes Why would I not?

49:07Will you be more of a chippy if I give you 10 grand? No, I'm already a chippy. That's what I do. Oh, he's 10 grand anyway. It's just, it's dumb. And look, it also, I'm not going to go this way, down this direction, other than to say, they are trying to, quote, solve, unquote, the housing problem in ways that are just dumb. And it makes absolutely no sense. Not only that, by the way, it's a five-year plan. How long is it going to be a chippy? Three or four years? I mean, come on. Seriously? Now, will it be worth it in 10 years' time if it works? Maybe. But to your point, depends who's going to do it anyway.

49:34what money you're paying to make it happen. This is just a government. And if I got a criticism of the current government, it's they have not yet found a cause they believe in they couldn't throw money at. Yep. And that's just more of the same. Well, here's more taxpayer dollars to do a thing I want you to do. Why? Because it gets it done. I'm not accountable for the money and it gets me some votes. And that's just lazy policy. I may have mentioned it before. So our household's a benefit of government like Jess. my wife straw man subsidies you'd all be very hard for those yeah right my wife's a teacher I've mentioned that before the government paid us$30 ,000 and then taxed it which is always funny right why are you taxing government money the left hand's taking the right you know why because then the amount sounds bigger I'm not going to give you 20 grand I'll give you 30 grand and tax it that's the same thing so to pay her to do the what used to be a one-year dip ed is now a three-year master's degree which was about 70 completely useless stuff that complete now that she is a teacher she will tell you in no uncertain terms you're completely ill-equipped for the job i spent so much time doing these ridiculous assignments that had nothing to do anyway so they they paid us that money because there is a desperate shortage of teachers that is out there it's like well let's get people who've already got degrees, let's encourage them back into this kind of thing.

51:01She was going to do it anyway, right? Right. Hey, she was going to do it anyway. But interestingly, of her cohort that she went through her studies with, something like 60 % of them have quit. Right. Because it's so onerous and difficult. Now, they have to pay some of this money back in theory. But it was like, here are people who want to be teachers and you've given them a little bit of incentive but you've made it so difficult and so bad and then when you actually land in the job so oecd rankings came out the other day australia is at the very bottom of the table in terms of overworked and unproductive for teachers not because the teachers are useless but because of the bureaucratic burden that is the amount of like you know she's she's doing all this stuff at the moment that she has to do that no one will ever read or verify but it has to be done to prove that you're teaching kids i would argue it's probably the exam at the end of the year that might give you a signal on that but hey let's yeah they got plenty like she every night she's she's on the couch with the laptop working for hours and hours and hours and she's already talking about i need to quit right and so like and so my point is is that all of this money was spent for absolutely no it didn't solve the problem more than half quit and the other ones were gonna do it anyway you know and it's kind of like but on paper we need more teachers let's encourage them to come I mean, let's throw a bunch of money at it.

52:20And it's been completely counterproductive, right? And anyone out there who is a teacher, you know, I know that you are furiously nodding right now how difficult that it is. And I'll tell you one more story. She used to work when we were in town. She used to work at, I won't name the school. It was one of these selective schools. It was really desirable. There wasn't sort of issues with behavior as much as there is in other kinds of school. very very desirable uh uh place to work as a teacher um and she's still in contact with her mates there they they having all kinds of trouble finding teachers now this isn't where she is at the moment where there are knives knives and connumely you wouldn't believe dude like oh my gosh they they can't get it and and you think how how is that possible well no one no one on a teacher's salary can afford to live in the area.

53:15And so you either have to live at Penrith and be prepared to commute two hours each day or your work. So it's sort of, it's like there, this is one of them sort of dovetailing into another issue here, but this is, this is why housing is such a big problem. It's not just being able to live there. It's the knock on economic consequences of it is that they're, you know, the, the, the, the, the fireys, the nurses, the teachers, the, again, all the people doing the real sort of stuff that's out there can't live in many suburbs so we have to have we have to have this um sort of mass intercity migration every day where people way out in the quote-unquote poor places travel in to service the rich places and the whole thing is completely broken because no one can afford to live where they need to live and it just everything feels really broken right now to me or is that just me am i being too too cynical i think i'm getting better every everything's a lot uh but it's not getting better as you say that yeah yeah and there's there's more than enough to fix it probably no whether it's everything or not there is enough there to fix that you know counting how many things are broken is probably less relevant than just saying just fix some of the broken things and i guess i saw where i went off topic well reservation a little bit there but but the point being is that when when if there is even a recognition of the problem the solution will be oh i guess we'll throw some more money at it and again yes that will help yes it is chronically underfunded i'm not saying but it's not a silver bullet and it's got to be one that's done with the proper incentive mechanisms at place and more holistically designed with all the other contributing issues that are around it you know um and and teaching is just one of those like nursing homes again like health care you know uh like so many things it's just sort of like yeah you you're too myopic and just looking at it from a funding standpoint here there are bigger bigger more structural issues at play yes i think it's really important mates um let's

55:0954 minutes into the podcast i'm gonna open a conversation to see how we go um we were talking this is this is random this is entirely random not news driven or anything else we talked about this uh we're just chatting in general you in fact you're talking about the fact you had a delivery arriving at your place and we had to start the pod after you accepted delivery and you mentioned yeah you probably had the same yourself had the same you know trucks arrive at the house. And I kind of, I've been thinking about this on and off for a while. And it's the fascinating, it's kind of a microcosm of business and competition and regulation and monopolies and all sorts of stuff.

55:41Think about the last mile, the so-called last mile of deliveries. What often causes most challenge for delivery business, online businesses, just businesses that deliver stuff in general, is the last mile is really, really diffuse. Because you've got one warehouse, maybe there's one in a state, maybe there's two in a city if you're really big. But maybe it's only one nationally because that's all you've got. And you've got to get stuff from there to a consumer. And the main legs are easy, right? You have a warehouse in Brisbane and you send it to a Brisbane distribution centre. Sorry, Sydney distribution centre.

56:09That's easy. One truck full Brisbane to Sydney. Or more likely a container arrives from China, gets to the port, the port takes it to the warehouse. Perfect. And now you've got to break it up into 10 ,000 little bits and spread it all across suburban whatever city you're in. and so the last mile is really really expensive and as a one-off delivery because you get all stuff comes in a single container from china maybe it goes in a half container from brisbane to sydney and then in sydney it goes to a couple of regional distribution centers then from there it goes to individual addresses and at some point someone's driving across the country from again pick pick disparate suburbs in your area now if you didn't use a freight company it would kill you you couldn't possibly do it if i imported widgets from china and i deliver one widget to new farm in Brisbane, one widget to Dubbo, one widget to Fremantle, one to Adelaide Hills, insert your state here if I missed you, one to Launceston.

56:58The cost of that would be extraordinary. So what do you do? Well, you use freight companies, right? You use distribution companies. That's why they exist, to start consolidating some of this stuff. So all of a sudden, your half container from Brisbane goes to somebody else's half container, so it's a full container. And then you send your stuff to the regional distribution centre, but there's actually 15 other companies at that point send this. That's almost a full container. Where it really breaks down, it doesn't break down, where it gets complex is that last mile, because there are individual single delivery points.

57:22I don't want my stuff delivered to my neighbour's house five doors up. I want it to put in my Marbox or, you know, my front door. And that last mile is really fascinating because it kind of lends itself to, by the way, if this feels like Australia Post, it is, it lends itself to consolidation. It lends itself to even if you use a freight company, the last mile is done by each individual freight company, including Australia Post, as a portion of that. And so you've got Star Trek and FedEx and Australia Post and insert freight company here, all driving down the same street on the same day. One stops at my house, one stops at your house, one stops at the house after that, and they all drive back.

57:59So three trucks, one delivery each in one street. And it kind of just got me thinking about both the competitive dynamics and the tendency towards monopoly. Now, why don't the big guys want to share? Well, because they want their own business. And if they can crowd out the other guy by being slightly more efficient, they get to charge a lower price per parcel because they've already got three in the street he's only got one so my last mile's stupid his last mile he can't pass on the same price i can so i get his business now i've got four parcels in the street he goes broke the other guy's got two parcels in the street because he was always already bigger i eventually absorb his business and that's where competition tends to or capitalism tends to move towards monopolies if it's allowed to in certain areas and for very very good reasons and economically efficiently while ever there is that kind of competitive creative destruction going on you know woolies and coals weren't once the two big behemoths they were two of probably a dozen decently sized grocery chains but at some point scale wins out and scale wins out and scale wins out right now consumers are still getting a better deal despite the stupid arguments about about profiting which is nonsense we are benefiting because woolies and coals are still beating there was an article on paper last this week Coles are going to cut prices to match Woolies because Woolies cut prices.

59:11That competition really works for us. Why do they do it? Well, they want to eventually take share off the other guy. And either you end up with this stalemate in a perfect world where there's enough competition and everyone gets better prices because they just compete and the marginal winner is the consumer. There's no so-called consumer surplus. We all get the benefit. Or in some cases, they put the other guy out of business and there can be only one Highlander style and that's when monopolies become problematic. I don't really have a so what. I just think the last mile is a fascinating, fascinating example of all these dynamics at work.

59:42There's no solution. There's not even a problem. It's just a really interesting way to think about how competition works, how they tend towards monopolies, but equally competitors have options, how we think about servicing some of this stuff where scale matters, where the benefits of consolidation matter, where individual middlemen pop up. Why do freight companies exist? Because the business didn't want to do it themselves. So there's all that stuff. I just don't have a point, mate, other than I want to throw that out and get your thoughts. And where does that lead your thinking? Yeah. I mean, for me, it's not a problem until it becomes what economists call rent-seeking, which is the exploitation of market dominance to charge rates well above what is required economically, or put more plainly, required to make the business viable.

1:00:28Again, you need to be able to take in more than you're spending. Otherwise, why would you do it? Yes. And it needs to be to a sufficient degree where the return makes it worthwhile. I mean, otherwise, I'll just put it all in. If I'm going to get 5 % risk-free in the bank, let's say, I need a better than 5 % return to set up this business. I'm going to take all this risk. I don't know if I'm going to be successful. So, again, profit's not a bad thing here. It's a very important kind of signaling kind of thing. So in theory, is it really a problem to have a monopoly if that monopoly is delivering an incredibly valuable surface at a cost to the consumer that is far lower than any other alternative competing sort of process that's out there?

1:01:10Yes. And that you could objectively look at and go, well, you're not making what any reasonable person would call an excessive return on capital. You're actually making what you might be able to make in other sectors. And I would actually say, well, there's no problem there. where it becomes a problem is then people go wait a second we can double the price that's right yeah and and even that's not a problem longer term provided there are no barriers to entry and that's really what the key thing is here is and that is the check on the whole system and the whole damn thing um you know made a point in the article right is is like that that's what keeps the bastards honest is that the fact that let's say that let's say that it's dhl for whatever Maybe they just do a loss-leading strategy.

1:01:54You know what? We've got a huge balance sheet. Money's nice and cheap at the moment. Let's just do everything below cost and drive everyone out of business, and then we'll ramp up the prices. Now, if they do that and then for whatever reason there's a regulatory mode or something around that that stops me going in and competing, that's a problem. But there will be a point where it's just like someone will go, well, I've got a van and someone could pay me. Jeff Bezos's line was your margin is my opportunity. You guys are making a 30 % margin. I'll do over 20%. That's still good for me. And then that will prevent that sort of thing from happening.

1:02:33So I guess I'm trying to not be ideological in the sense that, like, I do think monopolies are bad because they have the potential for exploitation. But they're only bad when they're protected monopolies is how I guess I would kind of distinguish it. And that's, I mean, Australia is interesting in a lot of ways like this, because we do have two supermarkets. We have two airlines. We have four banks. We very naturally trend towards oligopoly. And in a lot of those sectors, there are problems, but it's not the fact of the concentration in and of itself, right? And that's why I'm saying, like, don't be against the monopoly just because it's a monopoly or an oligopoly.

1:03:17Be against it because once they have that power, they use that power to lobby for additional protections, usually in the name of jobs or something that sounds good to the punters. And then that stops that natural corrective mechanism. That's the issue for me. It's largely true. I'm probably not as sure as you are. To take the last mile example, let's fast forward to a future where Amazon owns the iron shares. Amazon owns the market because they're just so big, so dominant. They're delivering five parcels of my place, five to your place, and five to each of 10 other places this week. And everyone else is doing two parcels or one parcel or every second house or whatever, just because that's the way it moves.

1:03:59At some point, and maybe they always charge a reasonable profit. Maybe it's always a reasonable return on capital. That'd be the lovely outcome. In a situation where they start to profiteer, hang on, we can triple the price of Prime we can double the cost of our products because no one can come close to us it's fine saying you might jump in a van but you wouldn't jump in your van you've got one customer in one street you can deliver to you're never going to compete with Amazon there was some point at which scale becomes just too big I mean the antitrust kind of breakups in the US they broke up AT &T they broke up the rail networks at some point the scale itself begets such opportunity that it's almost impossible for anyone to compete with.

1:04:38I mean, Amazon, for example, must be already super wealthy. Buffett could decide to put half his worldly fortune in trying to compete with Amazon on deliveries. Very few people have got the scale and the heft to accept those losses for long enough to try and compete with and beat an established incumbent with a massive monopoly advantage where the economies of scale are so overwhelming. You just can't compete. That's the example where I agree with you to a point. And this is why I find the last mile fascinating, because at some point, it still may be that their monopoly profits are better than the higher prices I would pay with two competitors, each who have a different scale, right?

1:05:16And that's your point about return on capital. There's a question about, and that's why I mentioned consumer surplus. It's an economic term, but it basically means the advantage should go to the end consumer if capital is working properly. If it's not and there's a consumer surplus captured by someone else, then that's when you end up with less competition. in some circumstances i guess my my concern most broadly is not that i have a particular view what we should do but i do think you've got big companies getting bigger so i mean australia is a country of duopolies right and and we see that i mean virgin and kwanis arguably i'll say arguably to keep myself hoarding landing slots at the airports now they can pay it someone else could could choose to outbid them for the landing slot if they wanted to that would be competition nothing's stopping anyone outbidding them for those landing slots but do you do you take the are you prepared to risk that given the sheer scale and size of Qantas?

1:06:06It's not 15 tiny airlines all over the slot each or two slots each. Some of us will have one of those. It's Qantas and Virgin with 80 % or 90 % of the slots in Sydney Airport saying, we've got all the money, we can afford to have that slot unproductive. We can pay more than you can pay because you can't fill the plane. There is an incumbency advantage which I'm not convinced will get competed away just because you remove the artificial attributes. Sometimes the natural attributes, you're in it with natural monopolies at some point. Optus and Foxtel, again, I think I mentioned this before, people are old enough to remember way back in the early cable days when Foxtel turned up, then Optus Vision turned up.

1:06:45And in some streets, they laid cables, literally laid them. They strung between telegraph poles, and one was about a foot above the other. You've got these sort of parallel lines that snaked their way through plenty of suburbs in Sydney. I'm sure it was the same elsewhere. where, you know, effectively, and what happened when it broke and the one that's left over sold, you know, packages for$150 a month because they could because what else do you do if you want that? There's nothing stopping Optifix and someone's competing other than the fact that it just couldn't do it at scale because the incumbent had sufficient advantage.

1:07:14That's my only pushback on that is sometimes the beauty of the simplicity doesn't necessarily, I don't think, prove out in reality. And that's where governments probably need to jump in and say, hey, this has got to a point where no one can reasonably compete on a level playing field. I mean, they could have had enough capital, but the absence of capital is just the problem. I don't know. Qantas is a good example because they enjoy all kinds of government protections, right? There are slot allocation rules. There are bilateral government agreements that are negotiated. Again, I mean, this is the worst kind of business in the world in so many ways.

1:07:56And yet, every other person who owns a business, you have got the sovereign nation state actively helping you by limiting international carriers coming in. And so you and I, if Qantas starts, let me choose my words carefully. If Qantas were allegedly to start exploiting their dominant power, now you and I can't start up an airline and compete effectively. Singapore Airlines could. Qatar could. British Airways could. And if they look at the Australian market, again, through pure self-interest, they go, wait a second. These guys are getting an insane margin here. They'll do it. they'll do it except they can't do it because the government says no you can't do that because because because Qantas it's Australia I was like I don't I don't get it here's the lesson anyone starting a business whack a kangaroo on your logo you know and just like I don't know it's pretty romance right with the manufacturing there's nothing more romantic than air travel I get it if it was the year was 1950 I get it in the year 2025 when it's really just a bog standard commodity type play and the fact that we have this really has anyone been to an airport recently flying in a plane is just it's almost up there with being stuck in a call center it's the worst it's the worst thing it's not this notion of where i'm being served a wonderful meal with all this leg room and i'm sitting at the bar up 40 000 feet above the earth it it's it sucks yeah and yet we all look at it with some starry-eyed you know nonsense and then and then expect the government to sort of allow them to further entrenched there.

1:09:39It doesn't make any sense. To bring it back to the last mile kind of place. Yeah, I was a bit flippant with sort of saying, you know, a person with a truck can just rock up and start competing. But I bet you FedEx in the US, every business is out there looking for growth, particularly when you're a big dominant player in a big market like the US and you go, gosh, we're kind of mature here. We've got all this cash flow that we need to deploy. Where do week. I was like, hey, boss, have you seen the Australian market? Our players who do what we do, and we do it really well, we know how it works. They're getting a 30 % net profit margin.

1:10:12It's like, well, let's go in there. We can absolutely do it. And we can actually do it at a loss until we're up the scale. So again, we have a habit with economics of looking at things as a point in time and forgetting that it's actually a process. You know, the economy is a process and it's always changing. It's always dynamic. And sometimes you do see the pendulum swing too far. It's only when we put our finger against the pendulum and stop it swinging back that the problem happens. So things can certainly go in a given direction. It's when we interfere with the natural mean reverting corrective nature of capitalism to address that, not by any grand design, just by the fact that people like making money.

1:10:58And if there's an opportunity to be had, they will pursue that and that will keep the whole thing honest. I agree with you at a scale that makes it harder. But when you look, when you really stand back, there are a lot of players who could stand up these kinds of operations, right? I mean, look at, you mentioned Amazon, like one of the best parts of their business is their data centers and server farms and all this kind of stuff. Microsoft was like woefully late to the party. Yeah. But then they saw what they were doing, go, hey, we should do that. And they did. Yeah, they did very well. And that's kind of what keeps Amazon in check on that front there.

1:11:36And you might sort of say, oh, but look, at this exact point in time, it's not right. But again, skate to where the puck is going. Is there something that's stopping this thing being corrected? Or is it actually in the process of being corrected? And also look at it from the consumer standpoint, because despite what pricing power Amazon may have had in that space, and it really did, customers were free to choose, to use Milton Friedman's favorite term, and chose it. Not because I want to make Jeff Bezos rich, but because this is just in my own. I run a business. I need a server. I need this kind of stuff.

1:12:16They offer me the best deal. They're more expensive, but they're more reliable. They're more scalable. I'm just going to do it. And again, so they have, I mean, where's the victim here? There's no, there's no victim. It only becomes a victim when it's just like, then you stop that natural price discovery, value creative process that sort of, that sort of comes in. So I, I don't have a problem with, if it turns out that there's only one last mile delivery van going up and down my street, but I'm getting a really good deal and I'm happy to use it. It's still better than me getting in my car and going down and picking it up.

1:12:49100%, yeah. Yeah. Again, where's the victim here? And even without any competition being able to come in at a point where it's costing me how much to get it delivered, then I will get in the car and kind of do it. So it's sort of – and this is the thing I sort of said in the article here, that capitalism is properly conceived, is in service of the consumer, not the producers, right? Like it's all about us, the people, the consumer. Power to the people, man. That's what it's all about. It's just we flip it around and go, no, it's all about the producers. And that's what the pollies tend to think.

1:13:23It's like jobs, jobs. And it's got to help the producers because we don't help the producers. We don't help the jobs. Thinking, isn't it about the consumers? Isn't it about giving people maximum choice and maximum prosperity? Anyway. I don't know. Back to you. No, I think it's right. I think it's right. I just, I said, I'm less sure that the system will just find its own outputs because we want it to. There are going to be areas and pockets of. and I don't necessarily know where they're yet but you mentioned the Microsofts and the others. They're the ones who could have done it. Yeah. And at some point, who decides to take Amazon on logistics once they get to size X?

1:14:00I don't know. I mean, maybe someone but you've got to have capital and volume somewhere approaching their scale to be able to compete with them. You know, I'm reminded of Wally and that was a buy and low, I think. that kind of the all-conquering brand. It's not about Amazon, I own shares, I'm very happy, but those kinds of things, at some point, we saw a European grocer was kind of coming to Australia and then just pulled out. It was Calflon, I think it was. At some point, the challenges to overcome because of the sheer size of the incumbent, I mean, there's only X number of companies in the world that even could, if they tried, do that sort of thing.

1:14:42And maybe we're luckier in Australia the most because we are small, so maybe it's the opportunity for an international player to come in and give our locals a run in groceries or air travel, to your point, is pretty good. But there is a point where you're like, well, they already have this much market share. What's the chance I can reasonably compete with them? I don't know, even if I was Walmart or Tesco, would I try and compete with Woolies and Coles in Australian groceries? I don't think, I mean, I would not really, really. Well, Costco and Aldi did. Yeah, but as a full service offering, that's kind of your challenge, right?

1:15:13Yes, they competed, but Willy's stars are still up. There's an argument, well, Willy's price is down a bit in some categories. That's probably positive. I don't know. I'll give you an example. I'm not prepared to assume that capitalism is always going to find a solution without the – it works at a lower scale. At national scale, I don't know if it will work without intervention. Oh, I certainly don't want to make the case that capitalism is the solution to everything. I think that's where you get into the world of ideology. Yes, that's where I'm saying. And I certainly really want to underline that because hearing the stuff that we're saying, I think you could reasonably go, oh, you're one of those guys.

1:15:47Yeah. Really not. Because it is not the solution. There is no such thing that is a coverall, you know. But it is nevertheless a pretty good thing. For most things, it's a good thing, right? That's why well-regulated capitalism is the phrase I use, which is not over-regulated, not just regulated, but appropriately regulated. Whatever phrase you want to use, capitalism with guardrails, I 100 % agree. Yeah. I really just think that the best thing that government should do is to do everything in its power to ensure effective competition. Yeah, that's how I put it. And consumer protections and get the hell out of the way.

1:16:31Because then people will just fix it because they like making money. And if it's properly conceived and it's really the only way to do that is to better serve people. It's like, how can you be against that? That company made a lot of money. Yes, but they did so by creating immense amounts of value for people who, through their own choices and actions, without any coercion, elected to give money to these people because they liked what they were doing. Like, again, who's the victim here? There's no victim in this kind of stuff. It only becomes a victim when that stuff is exploited and that natural process is prevented.

1:17:13It's a subtle point, but I don't know if I'm making it that well. But, yeah. I think it's not true. Again, you've also got to look at, I think, the counterfactual here. And this is where you get a slippery slope towards very dangerous kinds of outcomes, where people see or perceive a certain unfairness and then go, well, the government should step in. And again, it's like, again, I may be 100 % clear there is definitely scope for that. Things like, you know, prisons or the military. I mean, it's funny because these are edge cases that are used to sort of argue against, like, there's a pie chart, you know, which is 98%, like, this is brilliant.

1:17:57and then people love to point the 2 % where it doesn't work. It's like, well, let's not do that in those 2 % of cases, but let's not also throw it out over there. But I've lost the thread of my thought now. What was I saying? I think that was your point. Was that my point? I think that was your point. Yeah, it's take something that we know works extremely well and that only rewards people for doing good. That's the thing. People get upset at other people being successful. And I think that derision is absolutely deserved when that success and those riches have been unfairly gained through political advantage.

1:18:42Like, let's grab the noose and the pitchforks. I'm there. Let's go march. We'll go drag these people out and we'll do what needs to be done. It's probably a little bit harsh. But when it's because, I mean, think about it, right? Why did all, there's this great South Park episode of like when they were talking about Walmart and everyone was in the town of South Park was up against it, the big corporate, let's ban it. And they burned it all to the ground. And then fast forward a year and it was Ted's Hardware or whatever that became the dominant one, right? Correct, correct, yeah. Because everyone shopped there because everyone liked what they were doing.

1:19:16And again, you've got to sort of always look at it through that lens. I'm just waffling at this point. I'm going to shut up. No, it's a very good point, man. It's a very good point. So it's fit for purpose, right? It's where, you know, pragmatism beats ideology every day. Yeah. And that sounds too Pollyanna because everyone's got their own ideology and philosophy. We just do, right? We have instinctive preferences for certain things. I'm not suggesting for a second we can be absolute blank slates, but this is where the politics and political barracking goes wrong. It's like just look at the policy and ask yourself, what impact does the policy have?

1:19:50Is that good or bad? It doesn't matter who brings it, it doesn't matter if it's red or blue. Put the words in the mouth of your favourite either polly or favourite opposition polly and say, now what do I think of it? And if your view is different because someone else said it, then you're not really thinking about the policy, you're thinking about the people who say it. And that's, you know, I hope it's going to do this. I hope it's going to do this. No, no, just switch the parties and the same policies would be the same policies and work or not work just as effectively as otherwise. I mean, it's really part of our core values.

1:20:18It does a little bit rub me the wrong way when we always go, we're about mateship and fairness and that is if everyone, all the other peoples of the world are against friends and fairness. I mean, great Australian values, right? I'm happy to wear that as a badge of honour, but let's not pretend we're there's an Australian exception. Most people like fairness. But that's always, speaking of North Stars, that's always my North Star, right? It's a quality of opportunity, not a quality of outcome. And I think there's a very big point in that. And don't get upset that there is inequality in the world.

1:20:52get upset because some people just have, some people are running with, you know, weights on their feet and other people are being picked up and carried in cars. And it's just like, well, that sucks, right? That's what really sucks. I think that's what people rightly get sort of angry about. Lovely. Speaking of angry, we might get angry on Sunday. We're not sure. It depends what the questions are. But until then, enjoy the first half of your weekend and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation.

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