The problem with modern-day economics. November 29, 2024

24:49And valid question, by the way. I'm not dismissing it. But the other end of that was we didn't do anything about it. So the removal of QE more quickly. I will bang on this. Speaking of hobby horses, mate, the structural budget balance, right? I've been very, very critical of the government for not doing more actively to help with fiscal policy. So monetary policy didn't have to do as much. But even if you say the government did or shouldn't have done enough or did enough or whatever, However, if we'd had a structurally balanced budget, what they call the automatic stabilizers would have actually done the government's work for it.

25:22This is what, you know, these kind of deficit budgets and surplus budgets are designed to do, which in the bad times, you kind of fill in the trough. In the good times, you lop off the peak. You collect more tax. You know, you pay less welfare. Money comes out of the economy to slow things down, to lop off the peak. Now, the problem here was governments, plural, the first, you know, Morrison's lot and then Albanese's lot, basically said, yep, yep, fill your boots, let's do the deficit spending bit to try and prop up the economy. Good, mission accomplished, well done. I will say very quickly, you know, the big cash splash up front was big, fast and ugly.

25:58They should have learned from it, didn't, so I'm not supportive of everything and all the criteria they used after the first, you know, let's just get something out there. But what you then do is say, all right, cool, well, this has got, not even it's finished, this is going to finish soon. And at some point, it's towards the end of it or after it or right at the point it stops or whatever time we feel appropriate, let's make sure we take that money back out. Now, we've had enormous boosts in tax revenues, right? The inflation you mentioned, mate, has come through in prices, has come through in wages, has come through in company profits, has come through in, right, bracket credit?

26:31So the company's got coldest money, which is kind of exactly, had the automatic stabiliser, had there been a structural budget balance in 2019 and or in 2022 when the new government took office. And they said, right, well, what's going to happen when we get the fiscal benefit of all this stuff? We're going to use that to pay off the debt, which will A, pay down that government debt, and B, actually make sure that we take the money back out of the economy. It will be an automatic handbrake on the economy at a time when it's needed. And yet we had a, what,$9 billion surplus,$12 billion or something, which sounds like a lot of money.

27:04It's bugger all. But because there was no deliberate choice of actual action from the government saying we will do these things now or the automatic stabilizers left to do their thing, this is why we're in this hole. You probably wouldn't have stimulated as much. I was happy with the stimulus, but you've got to take away the punch bowl. And we simply said, well, we'll stop feeling it, but we're not taking it away. But that's crazy behavior. I 100 % agree. I mean, we're on the same page. And by the way, something had to be done, right? I mean, I would have done it differently. I would have pulled the punch bowl away much sooner.

27:36Right, exactly. Jerry Harvey can go fly a kite. There's no way he's getting any money. You know, they'd like, handouts for billionaires was just the dumbest thing in the world. But anyway, like, no, I don't disagree with anything. But you're kind of arguing my point. You're saying, in theory, they should do this. And I'm saying, yes, they should. But then I'm also saying, show me one example of a Western democracy that did. Sure. Ever. So it's not like, usually they're okay, but they've dropped the ball on this. told like never ever ever ever and in fact if you take the us which is a quarter almost of the entire global economy they're now spending more just on servicing the debt than they are on their defense and they've got a monster of a defense bill like it is it is so out of whack and it's just like yeah this is what needs to be done but no one's gonna do it and they can't do it because it's political suicide so the game theory just says just it just so if we want to talk about theory then okay i've got some sympathy if we want to talk about practicality and results and what actually happens in the real world it just never does and so i don't know why i just i just don't know why we advocate for something that that is demonstrably failed as a as an as an ideology So I have two quick thoughts, then we'll move on.

28:56I'll give you a right reply and we can move on. Two quick thoughts are I understand that approach, but I think that's a little bit ideological, only in the sense that democracy isn't perfect either, but we don't junk it because it's not being used properly. Accepting a least worst or a most best or something, there's some element of every system has its phase and we don't junk it because it doesn't do exactly what it promised to do on the tin. We would say, well, democratic capitalism sucks in all these ways, except it's the least worst option, so we should do it. I'm just saying it's not the least worst option.

29:29I'm saying it's the worst option. There are least worst options. We disagree on that one. But I guess what I'm saying is you're saying it hasn't worked. It's like communism hasn't worked, so don't do it. I would say, well, where do you draw that line between something? Nothing works, right? It's all faulty in degrees. Democracy works better than communism. Oh, sorry, free market capitalism works better than communism. Yes. Yes. Well, I'm just making the same comment. But the extremes don't apply, right? We don't therefore say free market. The opposite of communism is anarchy. So let's do that.

29:59No, no, no. There's places in between those. But I'm not saying that. No, no, no. I'm making your point. I'm saying that's the point, right, is that the one thing doesn't work as well as it could, but it doesn't mean we don't go to the extreme. But I know you're not saying that. I'm agreeing with you by saying we find a midpoint, which is, you know, communism doesn't work, therefore we should do anarchy. No, no. Anarchy doesn't work, therefore we should do communism. No, no. We find a place in between that makes some sense is my point. Yes. The second one I want to say very quickly is I think it does.

30:27I think it does. I think it has worked. I think if you look back at 2007, I think, thanks to mining royalties, to be fair, and they were screwed away, and that was kind of the beginning of the end for fiscal responsibility, actually, under Howard Costello, the Australian budget actually did work reasonably well on that kind of – Keynesian economics is hard because it embraces a whole lot of things, But I'll say there's Keynesian budget management to separate out from money printing. The budget management bit actually worked in Australia up until that point. So I think we have got – now, we should stop doing it if it becomes, you know, not the least worst because it's being misused.

31:05I think that's where I've got some sympathy for your point. But I would say fix the problem rather than junk the idea. You would say opposite. That's completely fine. Anyway, that's all I'll give you right up. We'll go around in circles. But don't forget, it's not that – you say 2007. Like, the current inflation targeting mandate from the RBO was only introduced in 91 or something. It's a blink of an eye, this experiment. I'm sorry about budget management, just to be honest, not the central bank stuff. But it is the central bank that acting as a buyer of last resort backstops the deficit spending.

31:42In a real-world hard money economy, they would say, we're going to spend more than we take in. and you go, okay, great. And then they'd run out of money because no one will buy the bonds because they're not responsible. And then, okay, we don't have money. We can't spend it. But in our system, we go, all right, well, I guess we'll buy it. We'll call it quantitative easing because that sounds really sophisticated. When I say we, the central bank would make it and there you go. And we introduce a bunch of more money into the system. We don't introduce more goods and services. Prices go up. and so on and so forth.

32:20I'm not advocating for laissez-faire capitalism. I think that's always the criticism that gets leveled. By the way, a hard money standard is not at odds with a socialist agenda, not at all, but it does put constraints on spending. It is the unfettered spending that is the problem. If we lived in a world where everything that was spent had to be taxed, I think we would be in a much better world. Not that I'm saying let's increase the taxes, but it puts a real world limitation on things. And the real world does present us with real world limitations. If printing money ever solved a problem, Romans would have figured it out a long time ago and they'd still be around as a civilization.

33:05They're not because they started clipping all the coins and we know how it ends. And it just happens periodically. And we're going through an experiment where we're trying to, maybe it'll work this time. I'm just saying it's not going to work. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

33:28Hey, let's speak of not going to work. Can we talk about some tariffs for a second? Another thing that history will tell you without any, you know, definitively, this is a bad idea. Can I say the best thing? You know, sometimes, you know, for all of the bad stuff in life, Sometimes life just, you know, you would say chef's kiss. I hear you say that in my head, right? And the chef's kiss on this one is the small snippet from Ferris Bueller's Day Off where the teacher is explaining the tariffs and the Smoot-Hawley Act. Do you remember that? Yes. And the kids are looking just absolutely dead bored and I get it because it's boring.

34:02Anyway, so it's the setup for Sloan being pulled out of class if you watch Ferris Bueller's Day Off. Anyway, the teacher's talking about this. So in the context of Trump having these tariff announcements, Everyone's been able to say, we've watched Ferris Bueller's Day off. We know how this is. It's just like whoever I read or whoever I can find it, but I don't know who it was, wrote and produced Ferris Bueller's Day has just done an absolute solid by, what is it, 40 years ago, saying, I'll leave this here for you, future. In 2024, you're welcome. And so we got that. This is not even really economic at some level, right, but it impacts the economy.

34:38So Trump had gone to the election saying, 10 % tariffs on everybody and 60 % on China. And that was the policy in quotes, which I don't think is really a policy, but, well, you know. Populist talking point. Vote by, correct, exactly, yes. And then, so that was what he went to the election with. This week, I think it was Monday or Tuesday morning, came out and said, oh, so what am I actually going to do? I'm also now going to throw a 25 % tariff on Canada and Mexico, and I'm going to put another 10 % on top of whatever tariffs I put on China. I guess he couldn't add 25 % because at some point it gets silly.

35:13And the argument this time was fentanyl import and illegal immigration, people crossing the border undocumented. And there is – so that is not – tariffs – he pretended tariffs were about trade and about the economy during the election. Now it's just literally – and I've used this example on radio and TV this week. He's found this stick that he likes. And it's like – I'm talking about man with a hammer. It's like, I'm going to use this stick. What things can I hit with this stick? Ah, this is the tariff stick for those who I've been too vague about. What can I hit with the tariff stick? Oh, I don't know.

35:47Fentil. I know. Immigration. And there'll be something else. There'll be something else. There'll be something else on top of that. It's ceased, if it ever was, to be even slightly tangentially related to the reasons why you use tariffs, which are, you shouldn't do it, but what countries have in the past, economic protectionism, supporting local industry, supporting local employment. This is just literally, I've got a tariff stick. And as soon as I see a problem, I'm going to yell tariff and we're going to solve the problem. Now, I've said this before. I did one of those. You know how the cool kids do the clappy thing on socials?

36:18You know, when you kind of every word in the sentence, you do that clap emoji in between them. I've never done that because I'm not cool enough. I thought I'd give it a try this weekend. This is the way that, you know, et cetera. Thank you. Perfect. There you go. Get rid of the central banks. Andrew is now banned from using the clappy thing. So I tried the clappy thing on social media and I said, tariffs are a tax on your own people. I went to the claps in between it, but you get the idea. So, yeah. So why are we talking about it? That's immigration and drugs policy, right? It's law and order and whatever else.

36:51The problem is that the tariffs are every bit as damaging regardless of why they're put in place once you put them in place. And that's kind of why I wanted to raise it, mate, because now I will say I think most people believe this is not really even about the tariffs. This is about the big stick threat, which is Trump 101. I will hurt you unless you stop doing the thing I don't want you to do. It's the schoolyard bully thing. Give me a lunch money or I'll bash you. It's exactly what Trump is doing. He's using tariffs to – or threatening to use tariffs to do that bashing. The challenge I suppose is – and look, if you get away with it, if that's how you want to run a country, an economy, and a society, then youngs can choose them for themselves.

37:29They kind of have, I suppose. But economically, even if they were partially implemented, tariffs are just awful, awful, awful financial instruments. We know this. Speaking of, again, White Nations, I don't want to make it all about the podcast, but I'm at the point now where they're writing and talking about the tariffs. There were bans on silk from Asia, right, because silk importers from somewhere else wanted a ban. You couldn't make cotton. You had to use wool because the wool spinners in England wanted their wool being used. Tariffs are horribly, horribly bad. Why? Because they put prices up for consumers.

38:04Isn't that the irony of ironies? Right? Yeah. They make your local industry less competitive because if you would kind of make it for 10 and China's product was being sold for nine, you put a 10 % tariff on, you're still selling for 10. So you're still uncompetitive. You're still inefficient. You're still – so that's that. That then takes money away. And just to underline that point, because I think a lot of Trump voters missed this. Yep. They're paying the tariff. Yes, that's what I was - It's not China that's paying the tariff. Right, exactly. It's not Mexico that's paying - They're just selling it whatever they were going to sell it for.

38:39Yeah, yeah, yeah. And then a tax gets added on to the consumer, to the purchaser. Yes. So you pay. That's the key thing. Or if you don't buy it because it's more expensive, you buy the American one instead that was already more expensive. Right. You're still paying more either way. Prices are up. You're either paying the tariff or you're paying a higher price to a local producer. Either way, you're paying more. Now, if you pay more, guess what happens? You have to buy less because you haven't got as much money. This will be the inflation problem, surely. Right. So you buy less. Your standard of living falls because you buy fewer things.

39:06The inflation rate goes up. American business and labor is then allowed to, effectively supported to, be in less efficient, less productive areas. So the US economy is not going to be as innovative or as responsive. Why? Because why would you? If I'm constantly over here doing a thing, I get to do this inefficient thing, this unprofitable thing or barely profitable thing, but someone's paying me to do it, so I'm going to keep doing it. Or I could stop doing it and do something more profitable, more successful, and that's businesses and the workers that work for them. It is just an absolutely destructive force right across any economy because protectionism makes your economy less competitive, less reactive, less innovative.

39:45It stifles growth. It is just – you couldn't think of a worse thing to do to an economy if you were trying, or a better thing to do, if you were trying to actually gum it up. If you were trying to make this thing a – it's not going to be a backwater anytime soon. It's massive, right? But efficiency-wise, it's just awful, awful, awful policy. If you don't believe me, go watch Ferris Bueller's Day Off. Yeah. I need to rewatch that, actually. Yeah, me too. Yeah. It's not across the board bad. side, there are various invested interest groups who it's good for. So, you are the uncompetitive domestic producer.

40:23And let's just dig into that a bit more. Why are you uncompetitive? Now, you can talk about different economic structures and rates of pay, and maybe offshore jurisdictions are exploiting whatever human resources. I'm really definitely not trying to gloss over that kind of thing. But the fact is that the baseline economic reality is you cannot deliver a service competitively, not determined by some economic czar that sits in an ivory tower, but just by the market, i.e. people looking, they walk into the shop, there's a bunch of stuff on the shelf and they don't choose your product for whatever reason, quality or price or combination of the two.

41:02Nothing against you. They're not non-patriots. You're just not offering me anything compelling. Why would we support, why would we, despite our own best interests, say we're going to reduce choice and value for you? Exactly what is happening here. It's bad for everyone. There's no one that wins here. Those people in Mexico and Canada, well, again, they're not paying the tariff, but people are going to buy less of it. So, they suffer in terms of volume. right so that's china's tariffs on australian wine is exactly that example yeah exactly you know it's just this is it comes back to that um initial point i was sort of making here you have these big dynamic kind of systems and really the way that we all coordinate it and manage it all in a way that actually just works in some miracle like it is a miracle is because we we we have these ledgers, but they keep track of it all.

42:03And effectively what you're doing is you're coming in and you're saying, no, I'm going to change the price because I, because, and it doesn't matter what the dot, dot, dot is after that. And when you do that, you, you, you introduce a false distortion that, that is taking the sick, what the market is telling you is, is, is you're saying no is wrong. People are, is praxeology again, your, your actions, your decisions are wrong. I'm going to correct them. Now, in the interest of fairness, and just so I, because I always get painted the wrong way, there are some things where that trade-off you might happily accept.

42:36There are non-financial considerations. I know it's a financial podcast. There are some things, there is no great financial return to helping people who are less privileged in a lot of ways, right? But we probably arguably should do that anyway, because it's the society we want. So I'm not saying everything must be viewed in that lens. But when you're talking about consumer products, I mean, there's no underclass of society here that's being lifted up. You are lifting up the unproductive and the uncompetitive. That's what you are doing in terms of businesses. By definition. By definition. By definition.

43:13So, let's run this scenario for, let's say it happens, prices go up, inflation goes up, people demand more wages. So, we get into that wage price spiral again. Because of less spending and everything, we have less tax revenue. So, government deficit gets worse. Treasury is already struggling to sell anything beyond the short-term paper at this point because everyone's like, look, I'll buy some bonds, but 30 years is a bit too long for me. They just can't sell it at the long end of the curve. So, they're only selling it at the short end of the curve. And sooner or later, even other people go, I don't know about it.

43:47You guys are structurally in deficit. And so, the central bank will come in And they will buy it and they'll put more money into the system and inflation will get worse. And that is why I come back to the view that inflation is not going away. We are higher for longer. And that doesn't mean we're going to go back to the peak. But this going back to a 2 % to 3 % world in an environment where deficits are growing and tariff and these insane trade policies are occurring, there's only one outcome to that, which is higher prices and worse economic outcomes. It's kind of inevitable when you set the stage in the way that we're setting it.

44:26There's no other – oh, maybe you can correct me here, but I don't see any other potential outcome. No, I think that's the problem, right? So tariffs – well, I do want to address actually what people will be thinking, some portion of the audience, and for very good reasons. Yeah, but what it will do is it'll put more Americans in jobs. If we create the situation where American businesses can make more stuff or new businesses can start with that tariff protection, they can create American jobs. American jobs is good. More jobs is good. More people employed is good. It is good for the country. It's good for those people.

44:52Let's double the tax and we'll hire everyone else who wants a job. You can go out into the Pilbara and you can dig a hole with a shovel and you'll have a job. Yep. Now, I have just solved any – we'll have 0 % unemployment. Anyone wants a job? Canes – talk about Canes. Canes used to talk about it and say what you should do is put$100 notes in bottles and bury them in the good times. and when things are bad, you should dig them up again. Now, he wasn't being entirely serious, but it's like if anyone – let's talk about the broken window fallacy here because this is relevant. There's a great book called Economics in One Lesson, really simple, easy book.

45:31It's an old one, and it just sort of really gets to some of the foundational stuff. It introduced the concept of the broken window fallacy, which is a shopkeeper comes into work one day, finds that someone's thrown a rock through his window, and a Keynesian would say, isn't that great? Because now they have to fix the window. Fixing the window means the glazier gets paid. The glazier now has income. That's good. That's an extra expense that wouldn't have otherwise happened. Isn't that good? He goes and buys the groceries. The grocery supermarket employs somebody. That person gets their car insurance.

46:04An insurance company gets some money. The insurance company employs a claims adjuster. When the economy gets tough, we should just get a bunch of teenagers with buckets of rocks and just walk down Main Street and smash everything. Now, the insanity of this thinking is that what it forgets, here's one of my favorite economic concepts, which is opportunity cost. So, yeah, he spent money that he might not have otherwise spent, but he was saving that money that he may have decided to expand his business, create a new job. He may have decided to do some R &D and invest in a new product that otherwise wouldn't exist.

46:36He would have spent that money in a way that was more productive. He might have bought a new car. He might have done any number. Now that he's fixed the window, he's not buying that. So it's this idea that, you know, oh, okay, yes. So I'm coming back to your point here. The people who say, yes, but it creates more jobs. It's not about whether it creates more jobs. It's what we're using our productive capacity for. And we're using our productive capacity in a very, very inefficient way. We had this wonderful thing. Well, I'll use Australia as an example because it's nice and easy. We dig up these rocks.

47:11We send them to China and they send us back all these flat screen TVs and electric cars. It's brilliant. It's like an iPhone. It's like, it's the most awesome thing ever. And then we've gone, nah, let's do it in a way where we have to build it all ourselves. Like if you follow this reasoning through, it's like, well, but all the prices go up and they're not as good. Yeah. But look at all the jobs we created. Those people could have been doing like the things that we're really good at and like, and then China would have won and we would have won. And it's not a zero-sum game here. Everyone wins with trade.

47:43But also that money being spent on that, I'll use cars because that's really what we're talking about here, the car industry in Australia in the last few decades. You buy a more expensive Commodore rather than a cheaper Camry. And that money, not only do you get a worse car, not only does people employ it efficiently, but you then get less money to go and spend on the other thing. So instead of buying a$35 ,000 Camry, it's now$40 ,000 because of tariffs. Okay, well, I've got to buy a$40 ,000 Camry or Commodore. It doesn't matter really which one you buy at that point. You're five grand less to go and buy a car and have a holiday.

48:13And so the person who's working at the caravan park or the hotel or the airline doesn't get the business. So actually we're buying fewer things. We're employing one more person at the car industry in an inefficient job that is completely dependent on tariffs or subsidies or both. And in doing so, you actually remove the other economic activity, that opportunity cost you talk about. So I am poorer because I get one thing rather than two. The person I would have spent my money with doesn't get my money spent with them at all, so they lose out. And it's that negative, vicious cycle rather than a virtuous cycle you talked about before.

48:44The other thing I will say quickly is, particularly in America, but also here, in the US unemployment is what, 2.5 % or something? Here it's 4%. How many people do you really reckon of that group would have the skills, experience, education, training to go and do those jobs we're creating? And how long does it take to get them done? And then you put a 10 % tariff on everything. that the other 98.5 % or 97.5 % of people buy so that part of that 2.5 % can have a job. The ROI on that, you put a tariff on Tupperware and cars and chainsaws so that your local paper mill can compete with China and employ two more people.

49:20And you kind of go, but I've paid a tariff on everything or a higher price on everything so I can put one more person to work. And I get that sounds really callous, by the way, right? But that's actually how it works. We are spending less across the rest of the economy. And at some point, the cost to the rest of us, and that was the car industry. There was, I think, a single digit, thousands of jobs, maybe double digit if we're lucky, in the industry. And we paid billions and billions and billions of dollars. We would have been able to pay those people just not to stay home. It would have been cheaper than the subsidies we paid on cars and the extra price we paid on the imports as a result.

49:53Well, everything gets distorted by we get into these games of accounting and it fogs everything up. The real measure of growing prosperity and wealth in a society is that we all either work the same to get more or we work less to get what we've got now. That's progress, right? Yep, exactly. I don't think anyone, that's a contentious statement at all. It's like I have my quality of life, your quality of life, all our listeners' quality of life is better. I'm still working 40 hours a week, but wow, I've got all this money that I can now spend on a whole. That is improvement. And even if it feels, by the way, like we talked about inflation to start with, it'll feel crappy over the last 10 years, right?

50:35So we're not saying better as in this year is better than last year. What we're saying is this year is better than 1974 and 1924 and 1854 for the reasons that Andrew was talking about. So don't get caught in this short-term trap of there is no – I'm not better off. We need tariffs. I'm worse off than I was last year. And that's, by the way, why Trump won. That's the problem. It doesn't even fix the – it makes the problem. That's why I say it's an irony of ironies. You're right to be angry. You are absolutely right to be angry. I'm angry too, obviously. But this is like I'm really annoyed at this bushfire.

51:11Let's throw some petrol on it. It's like, what? No, no, no. Stop helping. That is not going to do it. There's enough petrol. Maybe we'll douse the fire. Maybe add more petrol, see if that works. You just, there is, it's just, I think that is the cleanest way for everyone to sort of think about these things from first principles is how much stuff do I have to do to get the stuff I want? And if I'm having to do more stuff and get less stuff, that is not progress. You know, you can turn around and say, oh, but you've got an iPhone and, you know, a peasant from 1232 in England didn't. So what are you complaining about?

51:46which I've had friends say to me, it's like, what? Such a stupid comparison. Like, no, that we are, and not in a straight line, obviously. There are going to be natural sort of perturbations and dips along the way. That's fine. But we have, as a society, actually been in a bit of a decline for a while now, really, in terms of that. And again, I wrote a two-piece article on it on Stormen recently. It's just, why is it? Why is it that with all our technological marvels, I'm working hard as I ever was. And now it's not just me. It's both members of the household are having to sort of work.

52:24Almost everyone listening, I think, will have a direct experience of that. You know who the exception are? The exception are those of us who have been fortunate, lucky, or maybe let's be complimentary, farsighted enough to try and outpace that by investing, right? Which is also a shame as much as I love investing and advocate for it. It's just sort of like we have created a society where it's like you must do your day job as a butcher, baker, candlestick maker. But at night, you also need to be an investment professional as well because if you don't manage your money well, it's just going to bleed away.

53:00So that's the only escape. And that is what I think that's actually a big part of why we have seen the growth in whether it's residential property investing or just share market investing, which, you know, you know, we're really world leaders in Australia. You know, are we that much more financially prudent than the rest of us? No, I just think like everyone, we are forced to do it. And if you have not felt some of these effects, I would put it to you that it's probably because you've had some assets perform very well. And I would also put it to you that when I say the assets performing well, I mean in nominal terms, also in some real terms as well, because there'd definitely be some value created depending on how you invested it.

53:40But you have this race to the bottom in a lot of ways, where it's kind of like, yeah, things are getting worse and worse. I'm just privileged enough financially that I can outrun that. And that's why, again, it comes back to this growing divide. And when we feel these problems in our bones, we can't always articulate it. We get angry, We vote in a populist. They put some policies in which just make it all worse. It's all compounds and compounds and compounds. And it's just, unfortunately, that's the way it's. Again, I know I come across as such a doomer. But I mean, again, talk me off the ledge here.

54:22How is this administration, and it's not a right versus left thing, but these policies that are being talked about, how does that not take a bad situation and make it worse? I can't see it. I want to be optimistic here. Yeah. I mean, the best case for America is that the threat of the tariffs, effectively the bully boy tactics work. The best case is I will put tariffs on you unless you do what I say. Yeah. And while the Chinese, the Mexicans, and the Canadians don't pay the tariffs, it will affect their industry, as you've said. And if Justin Trudeau and the Mexican president, I think, the Chinese president actually kind of effectively do what they're told and don't call Trump's bluff, then there will be a benefit for the American people not for world trade, not for other things, but, you know, so I don't think it's, I don't know.

55:08It's probably, I don't know what the odds are, mate. Maybe it's 50-50, honestly, because, you know, the other problem with politicians being short-term is Justin Trudeau should be able to say, no, Mr. Trump, I'm not going to play your game. You might hurt me in the short term, but I'm going to wear the pain. The reality is, as a popularly elected politician of whatever stripe, doesn't have to be Trudeau, but he's the current PM, will say, well, hang on, but if I don't – if I call Trump's bluff and he puts a 25 % tariff on me and if in doing so our economy shrinks by 3%, I'm out of office. And so there is a game theory thing here which is as unreasonable as it is and as a society, if we were a benevolent dictator, we might say, President Trump, go take a long walk off a short pier.

55:55I'm going to cop some pain, but long term it's worth it. You might not do that, but you might do that as a benevolent dictator. as a popularly elected prime minister with a three-year term, you're probably going to look at it very differently and say, well, geez, I better get that fixed. So it may work. So long answer, sorry, mate. Maybe it was a rhetorical question. But how could it work? That would be how, that Trump gets what he wants and the tariffs are either not put in place or put in place at much lower levels or a more restricted range of products so it's not as deleterious for America and they get most of what he wants.

56:26Yeah. There's a probability. my response would be one of probability which is yeah like correct theory but how likely is that and as you mentioned the word game theory there as well which is again one of my favorite lenses to sort of look at things through and and it does come to a point where it's just sort of like let's say he does bluff and gets away with it after a while it's like this is a bluff you're not going to do that like and someone will say no okay do it i'll call i'll i'll i will take that you know, and it... It just cannot end well. It cannot end well. Yep. So, and like, why does this matter?

57:03Why are we talking about a country on the other side of the world? You know, they are an important ally. They are an important trade partner. They are an important source of capital in the world. A lot of the businesses and products and services that we use sort of come from there. And we can't not be, we cannot not be impacted by it. The other reason I want to bring it up, mate, was it's actually, it's just relevant for our listeners because politics tends to be global. And at some point, someone will say, we should do that here. And that's by way of education, hopefully. Hopefully, we've got a few things to offer in terms of a bit of thought, a bit of education, a bit of experience.

57:45It's worth, I think, opining on those things because we have become much more prosperous by the removal of tariffs and trade barriers. Let's be really, really clear. And we are potentially going back towards the world. Because we are forced to be productive. Yes. Just to drill into that, the only way you succeed in that world with actual limits and restraints that are tied to the real world reality of situation, there's only so much stuff to sort of go around. Only those who create the most value survive. And again, that sounds very brutal. And there's a lot of nuance and subtlety that we could go in there.

58:24And I'm not sort of saying that I throw everyone to the wolves unless you're like some incredible entrepreneur. But what it does is it ensures better outcomes for everyone. You as a basic, and if you're a retiree, you're much better off. You've got a much better choice of products and services that are cheaper and of higher quality. That's why when Gorbachev came to the US, his predecessor, it's like, wow, everyone's got a color TV. How do you do or how did you manage all of this? Because we didn't. That's the point. We stopped trying to sort of manage it and we allowed the free market and the forces of capitalism to produce the best result.

59:01And the people who voted on it were just ordinary people who voted with their wallets. That's the beauty of the system. And when you play stupid games, win stupid prizes, we're playing stupid games where we're taking this wonderful system that has lifted us out of the dirt. That's right. And we're going back towards ones that just obviously don't work. And it's what, you know, the only bizarre, well, the most bizarre thing about it is that it gets the traction that it does. You know, like there's always going to be some flat earther out there, right? I get that. There's going to be 2%, 3 % of the population that's going to fall for it.

59:40But it's like, how do we get to a place where it's like half the population seems to accept these obvious mistruths as fact. That's the real worry with it. I guess it comes back to we just like easy answers. You know? I think that's right. Easy and wrong or complex and right. What do you want? And I think we started talking about communism and capitalism and probably I think we'll finish on this topic because we're running over an hour now.

1:00:10Those who would look at the system and say, but capitalism leaves some people behind, wouldn't it be nice if there was a better system? I think 100 % of us agree. Wouldn't it be nice if there was a better system? Yes, it would. Well, let's do the better system then. Okay. Oh, there isn't one? Okay, well, I guess we're stuck with what we've got. And that's kind of – you mentioned Russia. This is a really, really important one because I've got a lot of sympathy for people who say, okay, but capitalism means there's unemployed people and everyone should have a job. Okay, well, how do you do that?

1:00:36Well, you had tariffs or you have subsidies. And then what are the impacts of that? Where do you go from there? This is the problem of the pragmatic reality, right? I don't love that people earn below minimum wage. I don't love where the minimum wage is set. I don't love that people are out of work. I don't love that people can't find jobs. Those things are not - Of course not. Right? And so I get, I absolutely have a lot of people say, we should fix that by doing X, Y, and Z. The problem is there is no better fix. It doesn't work. And so, you know, do I wish there was? Yes. Am I pretty appreciative and kind of pretty, you know, I like the fact that people are like, but what if we could, what if it could be, could we make it better and fix it and we should just do that then and like yeah i agree except that you know as churchill said about democracy and i have subverted to be about democratic capitalism it's the worst system except for everything else we've tried in other words careful what you wish for we can fix in air quotes those problems but we do so by making things worse overall not better and worse in the long term rather than better and that leads to actually even worse outcomes for all of us.

1:01:40So now, people will then hear me say that because I've had this conversation, say, so what you're saying is you don't mind if those people are out of work because you've got a better, you've got a colour TV. And it's not about that at all. It's really, really not. This is literally, you know, we've got to have better safety nets. We've got to look after people who fall through the cracks because of the system we've done. They're not mutually exclusive. That's the point that I want to make. Because people take sort of free market capitalism to mean throw everyone to the wolves. And there are versions of that, but it's such a loaded term.

1:02:09I hate it. We need to come up with a different word that separates all of this kind of stuff. You might be very socialistic in your political tendencies. And I got a lot of sympathies there, by the way, right? I think there is absolutely a role. Now, I'm a big believer in public schools. I'm a huge believer in public health care, right? So don't paint me as some laissez-faire capitalist. All I'm saying is there need to be real world constraints on all of that. And while your intentions are right for fairness, A, the world just isn't fair. That's just it, right? There is that aspect to it. But what you're suggesting, if we were in a university setting and we were debating theories that haven't been tested in the real world, it's really interesting.

1:02:53But we have hundreds of years. What if we tried communism? They did. Yeah, they did. Here's a really cool new idea, guys. Let's try this. Super compelling, right? Yeah, yeah. Again, you look back in hindsight and go, why would you do that? Well, at the time, it was actually - Marx was super smart. Lenin was super smart. And then theoretically - Absolutely mighty intellectuals. But we tried it. We tried repeatedly. So it's like, hey, this system that you like is unfair. Yes, it is unfair. We should try this. That's more unfair. It's more unfair and it leads to worse outcomes. So should we try it?

1:03:26Should we aspire for something better? Yep. But all I'm saying is let's not do that thing. A hundred years ago, yeah, let's give that a crack. But now you just can't do it anymore, right? Anyway, that false dichotomy of if you're for free markets, you are not for things like social security nets. No, it's not. It's not that at all. There is a spectrum along pure sort of anarcho-capitalism on one end and pure communism at the other. Both of them are dumb ideas. Like both of them are stupid ideas. I just tilt the slider more to the former because, not because of ideological preferences, but because of empirical evidence.

1:04:18And if someone wants to come along and say, actually, there's another way. It's like, wow, no one thought of that. And let's give it a go and it works better. I'm all in, right? Yeah. So anyway. It's complex. That's a very, very good way to put it. I will do a quick just couple of minutes on Black Friday, actually, just as we finish off. Today is Black Friday is when this is going to air. And it has been an absolute juggernaut. I just thought I'd talk a little bit about the economic kind of implications and circumstances. And you can jump in and we'll wrap up. Just warning listeners, I've got some thoughts here.

1:04:50Oh, no, Black Friday as well. Yeah, I do. Okay. All right. There you go. I told a lie. We're going to go for a very long time. I'll tie it back to what we're talking about. Oh, no. Is it going to come back to Bitcoin again? No. No. It's one, but no. If I want. So, look, I just wanted to kind of reflect on the phenomena that Black Friday has been economically, again, the economics of it. So, Black Friday in the US was a day. It was literally the day after Thanksgiving, I think, when everyone went to the shops and got specials. And it was called Black Friday because it was the time most retail businesses, particularly discretionary businesses, would lose money all year and then finally get into the black on the day after Thanksgiving.

1:05:29even when people bought presents for the Christmas trading period. And then kind of that was they made all their money in December. Now, that was a bit of a, you know, it's an easy exclusion. It wasn't every business and it wasn't always that way, but that was kind of the origin of the term, right? So Black Friday was this one-off day, a bit like our old Boxing Day sales. Black Friday, you go to the shops, you buy some stuff. It was on discount, good deal. Okay, let's do it. Particularly after that, because of, as it turns out, largely logistics originally, the online retailers decided, well, we like that idea.

1:05:57We're not going to try and compete with Black Friday. This is the very early days of online commerce. We're going to do a thing called Cyber Monday. And so all the physical retailers do their sales on the Friday, but wait till Monday and you'll get your cheaper stuff from the online retailers. And that was kind of the origin for 80s, 90s, 2000s, as we kind of rolled into where we get to now. The Australian market kind of picked it up actually from the online retailers. You went, hey, we're doing it overseas. We'll do it here as well. So Cyber Monday became a thing. And then Black Friday became a thing.

1:06:24We should rename it now Black November Ram, because I reckon the sales started about the beginning of November. There's always sales. Sales are meaningless at this point. Well, the amount of money that was phenomenal, right? And so you're right that the word sale is meaningless, but the dollar value, if you look at the last few years I've done this, of retail sales in November and December, I'm pretty sure I'm right in saying the last two years in a row have had really strong year-on-year growth in sales in November and really negative, not massively, but decently negative sales growth in December.

1:06:56for the last couple of years, year on year. And it's that just people are pulling forward purchases into, like it's genuinely, I was going to say reshaping the economy sounds a bit too grandiose. But if you're a retailer, you are actually selling less in December year on year, even though it's the Christmas period. And Black Friday or Black November or Black second half of the year eventually has just become, it's become massive. And I find it in some numbers, and it's all guessing speculation. They reckon about$7 billion was spent on the sales up to today. And then today and Monday, people spend another$6.8, I think, or$7.2 billion on the actual kind of days of those sales.

1:07:35It's worthy, I think, we'll see retail sales numbers come out, Ram. And again, despite the relevance or otherwise, those policymakers will make decisions on the basis of them, but people will opine. And so I want our listeners to be informed. Just be mindful, you'll probably, again, see a pretty significant November jump up in sales year on year, but wait till you get December's data. And increasingly, we've got to look at both those together because people are pulling forward sales. It's effectively the Christmas purchasing all being done in November. And again, the month of November as much as the day itself.

1:08:03This year's a little bit different. The 2nd of December is the Cyber Monday, so that may be in December's numbers. And again, does a day matter? Not really, except that people will tell you it does. And at some point, someone will say retails are up or down, therefore the economy is doing this or that. Just be mindful of the arbitrary Julian calendar won't necessarily tell you everything. No. What are your thoughts on this? Why I love this is because it's a perfect data point that refutes one of the core tenets of modern Keynesian economics. How's that for a setup? How is that for a setup? It's ambitious, but I'm looking forward to it.

1:08:37So everyone will tell you, go to uni, study economics. There'll be a professor there who's never had to work in the real world. And he will say, we need prices to go up. because if prices didn't go up, people wouldn't spend. And everyone nods, yep, yep, inflation's good, inflation's good. Now, here we have a scenario where retailers, purely on their own desires, no one's forced them to do it. There's no law that says you must put things on sale. They put things on sales and people spend more. You just use the term, you pull forward sales. Yep. People are more likely to spend in an environment where prices - but yes have fallen down absolutely do you see the disconnect no i disagree with you fundamentally but go for it so so you you ahead of these sales right no things are going to be cheaper yeah so you defer your purchase a little bit and you buy and you bring it forward that otherwise you would have spent now a whole bunch of stuff where it may have got a bit cheaper as well if you'd waited to the Boxing Day sales, right?

1:09:49But you're still going to buy it. Why are you going to buy it for? Because you want it. Because human demand is unlimited. I have unlimited capacity to consume as a human being, as all of us want to do. Same with technology. Flat screen TVs are the best example in the world, continually price deflated, and we all buy them hand over fist. And just no one has been able to square this circle. Maybe you can do it. And I know I've gone in a different direction that you wanted to go here. No, that's fine. But explain to me how we can observe all of these consequences of lower prices, stimulating spending, stimulating growth.

1:10:25Retailers doing it because they want to do it because it's good for business. And then some stuffy economists telling you that, oh, if there was any modest deflation that the world would end and no one would spend and no one would invest. It's patently, absurdly, evidently wrong. So I don't think it is patently, absurdly, evidently wrong. I think, but as always, and we kind of talked about this a little bit a little while ago, it's the, no one knows. And that's the big, for me, that's simply the big question. We don't know what happens in an environment where products on special and going back to another price is a very different story.

1:10:59I can get my new laptop for$100 cheaper or$500 cheaper in November than I would have in October or December, but it goes back up in December. It goes back up in general. Whenever it goes back up, I'm buying a short-term discounted product, knowing that it's on special, knowing the price goes back up. And so if I want it at some point, now, not for everything, you buy a new pair of undies when the old one's got holes in them, right? And if you get them on special, then great. You might buy an extra pack because why not throw them in the drawer? Because, you know, you've got them and, you know, but why do you buy the extra one?

1:11:25Why do you pull forward the sale? Because you're making a purchase at a price lower than it is going to subsequently be. TV is a different thing, by the way. So I'm talking about Black Friday. But what about in August? It's just like, I need this new thing. If I just wait a little bit, it'll get cheaper. Well, so I'll give you an example. my phone is a Pixel 6 Pro and it's just starting a little bit dicey, right? It's just the charge is not working as well as it should every now and again. I'm like, I probably should replace it at some point. Now, I'm probably going to at some point, so I need to replace it at some point.

1:11:54It's going to happen. Would I rather wait for the 10 or the 11 or 12? Yeah, because why wouldn't you? But at some point I'm like, okay, well, am I going to buy the 9 maybe? I was on special now. Literally, Ruth and I had the conversation this week. Should we buy it now? And I kind of went, well, no, it's okay. it'll last for a bit longer, I'll wait and see. So we're not, right? So one of October or August, it can also depend whether it's a tumble product or not. So we're talking about different things a little bit. If I knew that the price of the next car I buy was going to get cheaper the longer I waited, I would wait as long as I could to buy the new car.

1:12:27If only I could save$1 ,000 a month,$500 a month moving forward, I'm going to wait until it keeps falling further and further and then eventually I'm going to buy. And so the risk is, and you're right to say, that there are some commentators, I don't know how many, I don't know the numbers, who say deflation is obviously permanently definitely bad. We should never, ever do it. 90 % of modern-day economists, yeah. And I'm not going to defend them because it's not my view. But my view is there is a meaningful risk that if you know something's going to keep getting cheaper, you delay your consumption.

1:12:58Now, that's not even necessarily permanently problematic. Put that around, though. We know things are going to get more expensive. We just talked about how things got 3.5 % more expensive on an underlying basis, right? So by that, under that scenario, you should buy it right now. You might have an occasional sale where things dip down, but that thing's only going to get more expensive under that worldview. So why are you waiting for? Yeah, well, because you don't need it yet. And so there's a trade-off between - You don't need it yet. Correct. There's a trade-off between what you have got and what you can spend.

1:13:28If I - Well, what I'm saying is if the only - None of us are this economic calculating machine that economists love to think we are. I want something. Can I afford it? Now, look, if you want to talk about serious deflation, obviously bad, right? In the same way that 10 % inflation is obviously bad. So I'm talking about the kind of people who would tell you that 2 % inflation is good, 2 % deflation is bad. I say to you, and I ask everyone to look honestly in the mirror, if you want something now because you're a human being and you want it, right? Whether it's something that's essential or it's something that's just a bit of a toy for you to play with, if it's going to be 1 % or 2 % cheaper next year, how much of a factor is that in your calculus?

1:14:14It's almost a zero factor in my humble view. And yet, this is where we're told that not only should we desire a consistent, modest debasement, but without it, things get really, really, really, really, really bad. And in fact, we're going to have an institution whose core mandate is to make sure that it goes up at 2%. And I just think it's intellectually flawed. It's demonstrably flawed because people will buy things when they need it. Now, at the edges, at the edges where there aren't urgent things and you can see, if I just wait six weeks, I will get it a bit. Obviously, right? But I'm talking just as general consumers in the economy.

1:14:57We've got unlimited wants. There are things that are there right now. I mean, if we were all of this hyper-calculating machine, none of us would have bought any electronics for the last five years because we know it would have gotten cheaper. But guess what? You know what the biggest selling in terms of mobile phones, which is the classic example, is it last year's model or the old secondhand refurbished models on Amazon that sell better or is it the brand new one that sells better? It's the brand new one that sells. It's the more expensive one. All I'm saying is that these talking points get thrown out there and there is zero evidence.

1:15:29And I've hijacked your talking point on Black Friday sales because I think it's such a neat little test tube to sort of say, hey, we have all these examples of things getting cheaper. And we see the way that businesses and consumers react to that. And they react in a favorable way. So, it's like, wouldn't that be a great world? Wouldn't that be a wonderful world where instead of like continually losing my savings and purchasing power, it grows, right? I just think, to me, that just seems such an obvious statement. I don't even know where to support it. Who doesn't want to live in that world? I think my biggest concern is actually the two parts of it.

1:16:11And this is one of those, can't really just care for what you wish for problems. So I think we have the deflationary risks, and they're not absolute outcomes. At least I don't believe they are. They are risks because we can't know the future in either way, as you say. First is the path to getting there. And I suspect that we end up with a Great Depression-esque transition if we were to go to that model because of, as we well know, the economy writ large spins really significantly on very small numbers, right? When economic growth is negative for two consecutive quarters, we end up with 10 % unemployment.

1:16:48You know, so there is, I think, a very real question as to care for what you wish for on – even if you're right that a future in a deflation world is fine, whether it's good, bad, not as bad as we think, you know, some version of that. The transition to that, I think, is a very risky one. I think we want to be a little bit careful how hard we push for intellectual absolutism and perfection rather than, again, in the least worst world, how many people would be put out of work so we can get to that point. And I don't know the answer to that. No, no, no, no. Why are people being put out of work? I'm not saying you wave a magic wand and we've gone from 3.5 % inflation to negative 10%.

1:17:29Like that's, that's, those deflationary busted, that's what you call demand driven deflation. And that's a bad thing. That's a very bad thing, right? Productivity driven deflation, which is only ever going to be one or 2 % because, you know, productivity jumps aren't that great, is a different thing. And a transition from, let's say, an idealized world of 2.5 % to negative 2 % over a 10 year period. Why is that? Why is that a dislocation that we could never endure or? Again, I'm saying I don't know. So I'm not saying it will be. I'm saying I don't know. The risk I foresee is that transition. The answer is, as we well know from a couple of cycles of recessions, was there a growth of plus 1 % or minus 0.5 % for two quarters?

1:18:128%, 9%, 10 % unemployment. So I think it's easy to say plus 2, minus 2, kind of the same thing, right? Who cares? It's not going to be a big deal. What would be a problem? We should be able to say the same thing theoretically about that economy, right? Plus 1 % GDP growth, minus 0.5 % GDP growth. I mean, it's always the same thing. What's the big problem? We know from the, again, we can tick off the recessions over the past, you know, 40, 50, 60 years and go, actually, every time we've had that, it has been an absolute you-know-what fight and seriously dislocating the seriously destroying of jobs and lives and people and businesses.

1:18:40And, again, I'm not saying it would happen at all. I'm saying what seems like a small, at a macro kind of aggregate level, oh, how bad could it be? What could seriously be the problem? Theoretically, I actually don't even disagree with you, but we would say, had we ever had a recession, Someone would say, we should have a recession. And we'd sit here and go, come on, it's growing 1%, but it's growing minus half a percent for six months. I mean, seriously, how big a deal could that be? It'll grow again. Who cares? Like, what are we worried about? I think we know the answer. So I'm allowing for a world in which the intellectual purity of deflation, even if it is, and my second response, it might not be what you expect it to be, but even a transition to that world would be painful.

1:19:22Should we try it? Should we try and get there? I'm not entirely sure we should. the biggest impact on inflation - You like paying more and more, HU? Well, it doesn't matter, right? It's like if my income is growing at the same pace of inflation, I'm not worried about it at all. It's the same thing, right? As what? So you're saying it's not really inflation because I get a pay rise every year. No, I'm not saying it's not really inflation. I'm saying do I care about paying more and more? The degree to which I care about paying more and more depends on the degree to which my wage keeps up with that.

1:19:49So as long as you are fortunate enough to be able to be valued enough so that you can negotiate in a way that will always ensure you keep up with your cost of living, then it's not a problem for you. Yes, but also economy-wide. The average wage growth at the moment is exceeding inflation. So do we have a particular problem? Does wage growth ever front-run inflation or does it always lag inflation? No, it always lags. It always lags. No, no. It does. Okay. All right, so you're telling me that real wage growth over the last 50 years is negative. Is that what you're telling me? Because if you're not, then wage growth overall is greater than inflation.

1:20:26So real wages have grown. Yeah. So look at it this way, right? So because you've got various things impacting the same measurement here. Yes. And the way you square that circle is that you have this pernicious system that erodes things, but it's only – it's been acceptable, depending on who you are, because the productivity explosion over the last 50 years has been so insane. So insane. In all else being equal, if we didn't have the environment that we did, we would have actually seen all that productivity gains accrue to us as individuals. We were all richer. When I say richer, not nominally in whatever number is in your bank account, but we're all working less to get more.

1:21:12Standard of living and improved. Absolutely.

1:21:17And I think that's what people miss. They look at these improvements and they go, see, therefore, it's not bad. It's like, you know, I'm going to do cocaine every day, but I'm also going to eat really well and go to the gym. Now, I probably will be able to hold the body together a lot longer than the person who's going, I'm going to do cocaine every day as well, but I'm only going to eat Maccas and I'm never going to leave the couch. Maybe it's hard to do while you're doing cocaine every day. I don't know. But my point is that it's muddying the water. So this is the perennial problem with economics is to have a pure experiment where you can control for all the variables and you can't do it.

1:21:55But just to that point, though, I feel as though, thank God for our technological improvement and marvel and productivity gains. Because without that, it would very much be obvious. And just to that point of unemployment, generally speaking, after credit booms and after these periods where, as you say, GDP goes back a little, what seems like a modest amount and then 10 % employment. You know what? And again, this is going to sound harsh, but I mean, just from broad macro kind of picture, you tend to get the flush out of the unproductive jobs. We went through it not too long ago where it was all these, every man needs dog was starting some stupid fintech startup.

1:22:33You know, VCs were throwing gazillions of dollars. Unemployment was really low. It's like we weren't doing anything. We're completely unproductive. And then the gravy free money train ended. And then those people lost their jobs. And I've got to say, that ain't a bad thing because they weren't doing anything. And to the opportunity cost and the broken window fallacy point, they were worse than doing nothing. And the future productivity of those people when they go and do something more productive. They're extracting resources from other parts of the economy that were far, far, far, far more productive.

1:23:00So this is the problem to sort of say it's a really bad system, but if we don't do it, there could be a painful adjustment. It's like, yeah, that's not an argument for me not to do it. And if some people who have got a new app that's going to do something completely useless lose their job, it's sort of like, well, again, I'm not celebrating it. But at the same time, it's kind of like, isn't something that encourages the most good and most genuine value creation for society, isn't that what we should incentivize? And if the only reason you're going to spend is because every time you go out into the world and go to the shops, you bring out a calculator and you dust it off your spreadsheet and you do an inflation forecast and then make your decision.

1:23:42B.S. No one is doing that. They are buying it because they want it. And to say that, well, we have to do it for you. I'll tell you why. I'll tell you why inflation is desired. Because on a credit-based system where there's mountains, the amount of debt in the world is something like 20 times the amount of actual money in the world. You can't have deflation. Because I'll say it before someone writes in and tells me. And they're right. Deflation is really bad for people with debt. inflation is really good for people with debt depending on the repayment but yes yep right the dollar value of the debt yes and then and then that sort of said as in okay yeah but therefore there you go as in like all debt must be good it's like no there was still there is always a world in which debt will be desired i i don't have money i've got a really good idea if i've got a really good idea and someone's got excess money they'll give it to they'll lend it to me the cost of capital and those structures change.

1:24:36They definitely change. But it makes the hurdle rate much higher because in a world of free-flowing credit, an inflationary environment, we just incentivize malinvestment. Whereas in a system which is more neutral to slightly deflationary, there's still investment, there's still credit, there's still debt, but you've got a higher bar. In other words, I'm not going to fund your stupid startup idea, Scott, because it's dumb. you know but but oh i'm going to start a business where i'm going to do all of this and it's going to create all this stuff that people love then like you you will that will still happen under that environment so anyway so there's a lot there i feel passionately about it just too many things are said as just an assertion where there's no supporting evidence for it i think that's true i just i think i also think the intellectual debate often muddies the real world implications Well, that's true.

1:25:33And I think there is some element of, for everyone who says we must have inflation, everyone else who says deflation is better. To your point, you made a couple of times during the chat, we don't know for sure. And so my biggest concern is - But that's also not an argument to keep doing something. No, but it's not an argument to change it either. But it's not an argument to keep doing something. Every day I've woken up and I've grabbed a brick and I've punched myself in the face with it. And it's like, is there a better way? I don't know. We've never tried it. We're just going to keep doing it because we don't know.

1:26:02Like, no. Every morning I haven't woken up and hit myself in the head with a brick. Maybe I should start doing that because it might be better. I mean, I take you – you're not wrong, mate. I'm 100 % with you. I'm simply saying there is, I think, an equal and opposite risk on both sides, right? If we keep doing it and it goes badly, could it be bad? Yes. If we do something opposite and it goes badly, could it be bad? Yes. I think my concern is that the dislocating impacts of the unknown, I think we strive for intellectual perfection and we may or may not get there. Like communism, right? Communism, I'm not saying you're wrong.

1:26:38I'm really, really not arguing against your point. I'm high on the risk of someone. Karl Marx wrote a book and Russians have paid for that for 150 years, right? 100 years. And so, you know, it might be a good issue. We try it. Yeah, let's try and see how it goes. Now, again, we'd say, well, they should have stopped earlier and they should have realised. My point is the implications of those decisions of what if we jumped to capitalism and went to communism? That could really work. We should really try that. And, again, I'm not saying it's the only solution. I'm not saying we shouldn't try anything new because it might be bad.

1:27:10So we just keep using the horse and cart in case the sump jump and plow kills somebody. I'm absolutely not saying that at all. I'm saying that we need to acknowledge the risks of a change as much as the risks of the status quo. I agree with that. But by the same token, we cannot strive for something better. When we rationalize and justify massive political and economic priorities that every politician, they're all talking about it. They're all telling you. Michelle Bullock said telling you that this is good for it. Why can't I question that? I don't know what we're doing. And I'm saying, and it's just like, I feel as though the burden of proof for someone who is presenting a certain worldview, if your only argument is, well, this is kind of why we've always done it.

1:27:56It's like, that's a bad argument, right? I agree. I completely agree. So, I'm not saying burn it all to the ground. A little bit I am saying that. You are. But I just think that we have these models and ideologies which I think have only weakened us and reduced our true wealth over time. And it's very tenacious because it is actually very good for you in real terms if you happen to have a lot of assets and wealth. It just happens to really suck if you don't. So I feel as though it's just, if you are poor or just below the median, you should not advocate for this because you don't have the same access to capital as Santos does.

1:28:44Do you think Santos is borrowing on the same terms as you? Like if you're a brickie seller, no chance. Do you think that's an advantage or a disadvantage that they get access to the new money first? right and and and do you think that when the inevitable consequence of inflation comes through from all this extra you know credit-based money creation comes through is is going to be born by who the person with all the assets the access to the cheap credit and capital or the person who doesn't have that that it's it's it's really unfair it's a really unfair system and i'm sick of people in martin place telling me that i need to i need to have this erosion of my spending power and my earning power.

1:29:24And by the way, inflation's high, so I need to make your life more difficult because it's your fault. You're spending too much. And because you're spending too much, I'm going to make you pay. It's incredibly egregious and just out of touch with reality. I know I'm on an island. Well, against the mainstream, I'm on an island. There's a few of you on the island, but you are on an island. Come join the island. You're by yourself, but there's no people off the island on the island. There's a better way. It's actually the way it was back in the late 19th century. It was actually a pretty good system for a while there.

1:29:58But anyway, this is way off your Black Friday point. But I just – you know what I hope we've done? 25 minutes ago, I said we'd have a five-minute conversation about Black Friday. I hope all we've done – and this is, I think, what we can – you and I can only ever hope for in this whole podcast is that when you put the earbuds down, you go – and if you're thinking about this – You're like, God, they're finished. I thank God they're finished. But if you're in the shower thinking about it, if you're trying to go to sleep thinking about it, now I'm not saying you must concur with me and my – but if we have challenged some thinking and we have said that, by the way, 99 % of what all the, you know, the quote-unquote experts are saying, you are allowed to question that, right?

1:30:46And you might – Particularly when it's expressed with certainty. Right. You know, you and I are not in the same place on the best path forward, but we're absolutely on the same path, on the same position, which is when anyone tells you about the future with certainty or a system with certainty or a counterfactual with certainty, then make sure you realise they don't know almost all the time. And the confidence with which they present that is more about their need for certainty than about the reality of the way the system works. Can I, we'll finish here on this point because I don't want to talk about it.

1:31:23I do, but we can't have time about it. But isn't, when Bullock was asked about Bitcoin last, with all the stuff that's happening. There we go. Right. And someone said, what do you think? And she said, I don't understand it, but here's why it's wrong. And it's like, whoa, whoa, whoa. And I'm really not trying to talk about Bitcoin here. If anyone, we could be talking about internal combustion engines or stabilizers on boats or pick any niche topic you want. If I say, hey, Scott, what do you think of the latest quantum computing architecture? And if your answer starts with the words, I don't know anything about it, but I'm tuning out right then and there.

1:32:05And these are the high priests that run the economy. I don't understand anything about it, but I'm going to tell you why it's wrong. It's like, that's just as bad as me going to Michelle Bullock and saying, listen, I don't understand any monetary policy, but you're wrong. She would rightly go, you don't have a right to discuss it after you admit that. And to me, all it does is it reveals, I'm not saying she has to like it or anyone has to like it. I'm really not about that topic, but it's just sort of like, all you do is instantly belie the fact that you have zero intellectual curiosity and zero capacity to question things or think through from first principles.

1:32:37or just be open-minded in any way, shape, or form. No, I don't like it. Why not? I don't know. I just don't. Okay. Right? Is it just me? I agree. I agree. I didn't say the quote, but if it was done as you present, I completely agree with you. Yeah. I did the rounds on a certain Twitter bubble that I belong to. But yeah. Our Twitter to Venn diagrams are not particularly interlinked. There's not a lot of overlap there, I don't think. We follow each other and that's probably about it. Oh, that's been an absolute tour de force, mate. Thank you for the three people listening right now. I shouldn't say more than two these days.

1:33:15Let's end where we started. Read the book that you recommended at the start, and a lot of this conversation will start to click, let me tell you. I was going to say an hour and a half ago, Andrew did say, I'm a bit salty this morning, and I think we've got the full benefit of that saltiness through this podcast. A lot of passion, a lot of love, a lot of energy, and genuine authenticity, which is kind of what we call it for. I love having the debate and the discussion. Good-natured debate is how we all progress. So it's great. I 100 % agree. So, mate, thank you for sharing your good-natured debating points.

1:33:43Thank you for those who've made it through the whole podcast. I think we've set another record. Not something we're trying to do, by the way. We just like to talk. So we hope you've enjoyed it. If you listen on one and a half speed, then good. If you haven't, I hope the last hour and a half was enjoyable. And we will see you. Assuming Andrew is a little bit of salt left in the tank on Sunday. There's always salt. Until then, fool 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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