The risks of reputation. September 29, 2023

0:07Welcome to Motley Fool Money, the podcast that is 5.2 % more expensive this month. I'm Scott Phillips and with me is the man of straw, the tin man, the lion, the wizard of Oz. The man behind the curtain. The man behind the curtain. Mr. Andrew Page Esquire. How are you, mate? Very good, very good. That was intended as self-deprecating, by the way, because... Or self-revealing. Yeah, that's right. Take away all the fire and fury. There's just a diminutive man behind a curtain who's got no idea what's happening. Correct, correct. But it puts on a good show. Mate, how's your week been? Really good, actually.

0:55Yeah, it's nice. You better? Yeah, I am. I'm 100 % better. School holidays is here, so it's kind of nice to have the kids around. It's harder to get work done, but it is nice. It is lovely. It's just a bit more relaxed in the morning. You're not up first thing. making sandwiches and yelling at children to put shoes on and that kind of stuff. So it's a little bit more relaxed. And the weather's turning. We're on the cusp of daylight savings. Yes. You know, yeah. God, I love daylight saving. I know farmers hate it. I live for daylight saving. It just makes me happy. It really, really does. Oh, yeah.

1:33Yeah, me too. Yeah. I was going to say something about farmers. I won't because I'll get in trouble. Thank you. Shall we move on then? All that I'm obviously then required contractually to do is ask you what straw man is. Of course, let's do that. It's a private online investment club. I am shocked as always. Mate, this week, you've lit the fuse here because the big news of the week, as I mentioned at the very top, was the CPI number of 5.2%. And listen, before this, Andrew says, I saw your tweet. And I thought, oh, I can't wait to talk about that on the podcast because we're going to have a big disagreement on that one.

2:11So just so you know, this could be a one-hour podcast about the CPI number from the sound of it, depending on how long a run Andrew's off on the CPI rant. I will... And knowing that, it's even more stupid of me to then therefore say, so here's my view on CPI, knowing that Andrew's going to disagree with it and go in some other different random direction. However, because I can't help myself, I will say that this was my tweet during the week. Quote, With the glaring exceptions of fuel and insurance, brackets, the former always volatile and the latter likely lagging as it catches up to higher repair and replacement costs, close brackets, today's monthly CPI was an excellent result.

2:50Rent, gas and electricity still way too high, of course, but food going up by 4.4 is excellent, at least in a relative sense. Future prices will still be bumpy, but the direction is very, very good. The watch out is where the fuel plus 13.9 % feeds into other prices in coming months. I will add the brackets because this is maybe where Andrew's going to try and get me. So I'll get in first. I then said brackets. And because this is Twitter and someone will be gnarky, let me be clear that inflation of 5.2 % isn't good in any absolute sense, nor are any of the subcategories that are over 3%. But given where we've been and where we could otherwise be, these are very welcome numbers, close bracket.

3:28And then I will step back, make room, put on the crash hat and say, Andrew, what do you think? I did. I was sort of scrolling, doom scrolling is a proper, and I was out to doom. I mean, I want, is there some part of me that likes to get angry? Some part of you. Allison has been here way too long, you know, it's not just some part of you. Oh, man. It's like I used to read Miranda Devine articles for the same purpose, right? And so you're looking for these hot takes on inflation. And I guess what gets me too often is that it's so bizarre because we have this thing called the CPI, the Consumer Price Index, which tracks the changes in average prices using a basket of goods.

4:16Yes. It's the only index I know where we talk about it in terms we don't look at what the index chart is doing. We look at the delta of the index. In other words, we look at the change. So imagine if the all ordinaries chart, you and I often talk about the Vanguard chart, bottom left, top right, because that's what the market does over time. CPI, no, no, no. We say, well, what's the change month on month or year on year? And then we plot that chart. And that chart shows you in an ideal world, and again, this is something I have exception with, but in an ideal world, according to the Keynesians, it just sort of goes sideways between 2 % and 3%.

4:58So it looks like it's flat. The delta is flat. And so the take has been, it's like, oh, inflation is off the peak. Inflation is coming down. Now, I know technically that's the correct wordage because inflation is a rate of change. Correct. But if you look at the CPI index, it is bottom left to top right. Very smooth line. There's not much volatility there. In fact, go back to 1960. It's just up and accelerating up. So even if you just want to go back over three years, you've lost 15 % of your purchasing power. Your savings have been eroded by 15 % in three years. And so the tweet that I had, which was how inflation is reported versus how inflation is experienced.

5:50So the person in the street, the proverbial man in the street, doesn't really care too much that prices only went up by 5.2 % over the last year. I think what they experience is like, well, a few years ago, I could spend$100 at Woolies and Coles and get this much groceries. Now I spend$100 and I get actually, in fact, because the CPI is a basket of goods. If you look at just the food component of it, it's like, actually, I get a hell of a lot less than I used to get. Or I have to pay$115 for the same basket I used to buy, just to put it in a different way for people to kind of conceptualize. And here's the other thing.

6:27It never goes down. It never goes down, right? Like it might blip down very briefly and then it continues to go up again. So here's the, my, my, my hot take was that, you know, can we, can we actually talk about it in the way that it is experienced and real? And the fact that we just, we've got a melting ice cube here where it's just like, I just lose savings. I lose purchasing power year after year after year. And if everything goes to plan, I only lose 2 % to 3%. But lately, it's been much higher than that. We're now celebrating a 5.2 % annual erosion in my purchasing power, which is just crazy.

7:08But here's the other thing. This is as good as it gets. We will look back in the years to come and go, oh my gosh, remember how much I used to get for$100? And it'll be even less. It's never, ever, ever getting better. And I feel as though, I don't know what my take, my only point is, and my only shake at the fist is I think too often people in the industry, the economists, you know, the kook, God bless him. it's it's too much divorced from the reality of the situation where we can start celebrating and and cheering what is essentially double what what even the target is feels to me a little bit crazy and then the other thing and i'll shut up is is that no you won't no i won't paul krugman right won a nobel prize in economic now you know i don't think there should be a nobel prize for economics but that's a whole other separate thing but he he is out there i mean because the u.s is just like i mean they've got some serious problems with with inflation as well he's literally there with a straight face and on cnn saying well if you strip out housing and insurance and food and this that's actually all under control and there's plenty of people here that have been doing that as well and it's just sort of like this is this is mad can i and it was some really great takes on on twitter you know which is like well can someone strip out my fuel costs like can someone strip out my insurance costs because a hell of a lot hell of a lot more expensive than it used to be so anyway i just i think it's i think it's all a little bit mad and and i just i just frustrates me on how it is reported and it feels like sometimes we just need to step back and just say it as it is yeah fair i um so i i i don't necessarily disagree with anything you've said i think in my in my attempt to to find common ground i think both can be true at the same time um now i will say just for those for those that we we have enough listeners there's at least one pedant who's listening right now who will say if i don't say first by the way and you know this the nobel prize is actually the nobel memorial prize in economic science is not an official nobel prize so you'll be i know you know that but uh not an official nobel prize in the same way should never have been associated that they've tell me why not actually i don't see the big deal about it honestly what what why are you so a genuine question i don't know why you're exercised by what's the what's the unhappiness i don't feel as though it adheres to the spirit of the prize and the reasons why it was set up it was to celebrate real legitimate discoveries objective truths and our understanding of the universe are there noble laureates though in like english and literature and stuff uh that shouldn't be there either i don't think yeah it's like you know what it is it's a bit like the guinness book of world records right so they they used to make money back in the day by selling the book yeah no one buys the book because what well you mean maybe it's in a few school libraries but they don't make any money off that yeah they make money because you say oh i i need a i need a um a novelty thing to to attract people to my small country town so we're going to have the biggest line dancing competition or the biggest spaghetti eating competition or whatever it is and i'll send someone out and and they'll make a big deal of it, and they'll put you in the book.

10:26But you pay them. The revenue from that – The revenue from the Guinness Book of World Records is from people saying, hey, I've got some kooky little record that I want to break, and they'll – well, can I pay you? And can you send someone out and give me a certificate for that? And the reason why that's – I think it's true is that the Nobel Association has realized, oh, this is actually a bit of a thing, a bit of a variety. We can expand this out. And it's not that there shouldn't be celebrations in economics and in literature and the rest of it. But if you go back to the founding of... Anyway, I'm being...

10:57No, I was just curious what you thought was. I will have you know, by the way, don't bag kooky little country towns. I was, for some small amount of time, a world record holder. Okay. We have to get into this. I will have you know. I will have you know, Mr. Page. I won't have you talking down to the Good Burgers of Birdsville in whose locale I set a record as part of the largest group of people to do the nut bush at the Birdsville Big Rail Big Bash I have a certificate somewhere now it's been eclipsed by the bastards at Mundy Mundy Bash who did a bigger one but for a while for at least a year I think it was a couple of years because of COVID actually I was a world record holder I have the certificate at home it's not up on the wall because it's not that important but I was hey five minutes of nut bushing that's not easy I'll tell you is that all it was to break the record well it was the largest group of people oh i just grew up with people it wasn't me personally i was yes we were in we're in a group of people so there was like 9 000 or something all doing that push at the same time it was lots and lots and lots of fun but yes i won't i won't have you speak great great case great guessing point though right because like now it's a thing and now every year someone will try and break it so we'll say funnily enough we'll clip clip the ticket on that you know so funnily enough the organizers chose not to pay guinness for exactly that reason because oh did they it's done it's done as a and this is the good thing about it it's done as a fundraiser for the rfds oh great for the royal flying doctor service and uh and so they just they just said we're not going to pay the guinness for that because that's just stupid and i don't know anyone really cares one of those things you know we don't get a certificate and you don't get in the book exactly well there's some other there's some other bloke who does this australian book of records or something and they they got him to do it and there was a formally certificate but not not a guinness one yeah exactly okay interesting anyway let's move on um so i i think on prices i actually 100 agree with you i think i think both are true at the same time i think there is there is the and and whether whether whether we're canes in or uh or monetarists or whatever is aside uh i think i think both things are true you know and that's you know that was always why the rba was so keen for all of the grief they got from everybody else uh for acting on inflation well it's important inflation doesn't really matter the rba knew we've talked a lot about it that once inflation took off it was never going to go back down so that that was that was exactly precisely why central banks around the world went hey we know what this looks like to your to your exact point when this goes up you buy 15 less worth of stuff now uh than you would have got three years ago four years ago whatever it was um that's exactly why they had to say we need to stamp this thing out because it's going to permanently and seriously erode people's living living standards it really it could push us back by the time it's finished the best part of a couple decades quite honestly yeah think about the gains so that's that's why it was such a big deal so i think that's absolutely true mate i think though and it's probably just a it's probably just a pedantic difference i think and not not on your behalf but just in general um because both things are true right inflation coming down is part of getting to the end of the hyperinflation or the high inflation few years and that is a worth i think celebrating which is the point of my tweet but also worth trying to achieve and so to some degree you know that reduction is a it's a it's a you know it's a it's a midterm report you know how are we going are we getting there are things getting better have the things that have been put in place started to have an impact are we going to get there that kind of stuff i think is the is why the focus is on the rate and you said the delta the change uh in the rate is that that's why it's talked about so importantly i don't know that i don't know that it would be particularly useful as an economic commentary in in the context of managing inflation say hey uh inflation you know the hundred dollar basket's now 118 dollars rather than 115 dollars that's good or bad i mean it just it there's no there's no useful policy outcome or economic um uh basis for having that conversation in and of itself you know it is it is the delta that matters because that's exactly what they're trying to manage and i think if that's if that's the job i guess you could argue that they should be trying to get prices back down to 2015 levels or something, I guess that could be a policy view.

15:00But if you have a view that that's probably unlikely and maybe not even good for things, so we want to get back to a more moderate level of inflation, if that's the thing you're measuring, which is make sure the price increases are moderate, it is the delta you should be looking at, right? Like talking about pay increases or anything else. You want to be able to go a bit ahead or not go too far ahead when it comes to something else. Measuring the change, I think, is the most appropriate thing to do. But while saying you're also true that for people to genuinely understand what inflation is and what it does, that long-term idea is something you really need to get your head around.

15:33But that's partly why we invest, right? Stay ahead of that inflationary pressure. Oh, I mean, that's the depressing. You have to invest. Yeah, yeah. So the average person has to be an investment specialist these days. You have to. You have to. With the exception, the average person doesn't have enough money to make that big a difference honestly which is also probably the sad part of the story inflation hurts the poor inflation hurts the poor you know poo rolls downhill it is it is it is always copped at the bottom end it's a bit like it's i think there's it's sounds a bit conspiratorial but i think you it's like i heard it mentioned as uh it's like stealing petrol i'm gonna go If I'm going to go siphon petrol out of your tank, I want to take a little bit, right?

16:21I'm not going to drain the whole thing because then you'll wise up to it, right? So the art of inflation is to make it enough that you don't notice it, right? And I think whenever, if ever inflation numbers came out, they put up the 10-year, 20-year, 30-year chart. Politically, it'd be like, what the hell? Like, wait a sec. Like, you know, so it helps to talk about things that I think in the change. That's a little bit tongue in cheek, but not entirely. The other thing that I think that we all miss here again, and I know it's a little bit of a hobby horse for me, but this idea that we, the Central Council of Elders, will get prices down.

17:08not understanding a fundamentally misunderstanding economics and how how the economic the economy works so if you scott phillips are making or producing some kind of service that doesn't have uh a huge moat as buffett would say in other words you're not competitively advantaged it's not a monopoly it's not some special bit of ip that you have you're making bread bread's the classic example right yeah and prices go up well that's a really important signal i mean i hate to keep hitting this point that's like oh maybe i will make some bread too and that will increase the supply and that will bring the prices down i don't need someone to make me pay more on my mortgage for the price of bread to go down but the economy being the economy and capitalism being capitalism will make not instantly because you need the signal and then you need the supply response so it works for all of the kind of things that really matter like if it's a pile of bricks on a patch of dirt, i.e.

18:08a house, if it's milk, if it's bread, if it's, you know, any kind of, if it's fuel, if it's any kind of, and why, by the way, isn't that interesting? Why is fuel a little bit different? Because there's a cartel that runs it, right? So it's when you get these distortions that we, that things get really sucky. And I would argue as a free market sort of advocate not in everything and in all things obviously but but the the commodity style things i think let the market do its damn thing and prices will come back down because the person who who's able to charge a higher price because there is not enough supply or there is too much demand will find a competitive response from that and that someone also go huh he's making great margins maybe i'll do it and then and and and and the beautiful invisible ham hand of adam smith will do its thing i don't need as long as i don't need my interest rates to go up as long as there are no artificial constraints to that happening or artificial as long as markets are working perfectly then your version of life is is spot on yeah yeah which it should which it should for things like milk and bread right sure yes um probably oh well so here's the thing though right i think i i i'm always you're a little more ideological and a little more pragmatic and neither of those are good or bad they're just they just that kind of explains our differences i think to some degree sure you've only got to look at the at the grocers woolies and coals for example and look at the difference between the farm gate prices and the supermarket prices on some of these things yeah i i would argue for example i don't actually i used to work for a bread maker funnily enough so i'll come back to that because i'll ever think about it um but the the milk thing you know it's it's it's not working perfectly at all you know we are paying frankly better prices than we than the market would normally dictate and and farmers are being put out of business because that will is and coals are basically wielding the massive you know acts of if you want to play this game you'll play my my rules now that is not the market operating the way it should in my in my view and left to its own devices you end up with one you know conglomerate milk company because no one else can afford to play and then how does how does competition then you know once i think i think competition theory worked until probably i don't know 1950 or so the industrialization of the economy which has had spectacularly great benefits so i don't want to take it away but that has really changed the playing field because there are certain attributes that you can get that come with size that capitalism sorry the competition in and of itself just simply can't overcome there are obstacles that are too large to compete against at scale to overcome some of those problems and this is where i'm i'm also i don't some just run myself as a free markets guy because that implies an absolutism about it not that you're wrong just that people use that to mean you know everything there should never any right so i don't say fair markets or well regulated markets but i'm absolutely markets guy i think markets are the best way to allocate capital we've talked about that recently actually quite a few times yeah it just makes more sense to let people do what they want to do.

21:14The role of, I'll say society, we say government, because that's the tool we choose to use to do it. But the role of society is say, hey, is this actually working properly in our benefit or is there a better way to structure things to make sure they work? And so what we generally tend to do is say, yes, markets are still the right thing. Where there are excesses or distortions, to use your word, or something else, we make changes. We say, okay, well, let's not let that happen. Let's make sure there are more than one player in this field or two players in this field, let's do these things. So I think you're broadly right, mate.

21:45I think that's absolutely true. In the bread business, for example, and this is fascinating too, the supermarkets demand, effectively used to, I've been at it now for quite a while, used to demand national coverage. And because bread is a perishable item and goes start really fast, you had to have a bread bakery within Cooey of almost every supermarket in the country, which actually means that most of them run at sub capacity. So if you want to have a national brand and Woolies will take you if you have a national brand and carls, you need it back then at least to be able to supply them entirely, everywhere other than Far North Queensland and Far East WA and that kind of stuff with product nationally, less than a day after it was baked.

22:27Because you're in this really weird situation where there were sub-economic bakeries around the country that just had been put there because that was the price of admission, even though to your point, it didn't attract more competition. and in fact if i remember rightly i don't think this is proprietary and again it's years old i have if i'm right the cost of transport exceeded the cost of of the product because it's bread right we know how cheap that is but because you've got a trucker from a you know you're not buying it from the baker next door or the the bread hot bread shop we used to in the old days you know that's the kind of reality so i think that i think you're absolutely right um except where there are distortions and i'm i think they're getting worse rather than better and i'm not a pessimist and i'm not um i'm not a conspiracist and i'm not someone who doesn't think there's better times ahead but i do think that the industrialization processes and scale which is such a beautiful thing in the companies we're looking for we love it at an individual level we love it but i can actually wear both hats and say you know i would love to it's like um like mining right i own shares in fortescue everyone knows that i'm also deeply in favor of getting more resource rents from miners which would hurt me but i can i can wear both hats and i think a decent person can say self-interest would say screw it don't don't you know don't make Fortescue pay any more for their iron in fact give it to them free because that'd be better for me um on the other hand I can say as someone who actually cares about the society and the country we live in you know what it would hurt my Fortescue shares but I think Fortescue should pay more for the iron it extracts and I think that's the same with competition I'm a massive fan of competition I want businesses that can that can extract economies of scale that can benefit from being bigger than their competitors or better in some way but when that ceases to become useful as a way for a market or act or operate that's when i think governments actually need to say hey or society we say governments like this like they're them governments aren't them governments are us they just they represent us right so as society we say yeah that's having some pretty negative outcomes we should change some of that stuff yeah yeah it's no there's no easy fix i mean the part of the advantage that the big guys have is the i think you need to look at things from a value chain perspective yes we just look at woolies and go that's where i go and that's where i get my bread and my milk and my meats and everything.

24:35Yes. Like, no, there is all the way from the farm, even before the farm, because the farmer has to buy raw materials and John Deere tractors and all of this kind of... There's a massive, incredibly synchronized, coordinated economic machinery at play in all of that. And if you ever study... Pardon me. If you ever study any industry, when you look at those value chains, there's usually one or two links in those chains where all the value is accrued. Yes. Everyone makes the thinnest and thinnest of them just enough to make sure that they are still there. Because otherwise, if they go out of business, the chain breaks, right?

25:10So you need to keep them viable. But there is one that captures it all. And in this particular one that we're talking about, it's Woolies and Coles. Now, I know people like to say, oh, yeah, but look, they only make 6%. It's like, yeah, well, globally, supermarkets make 3%. So they double the profitability. And that's because of their oligopoly kind of status. I would say where things get a little bit perverse is that with that scale comes certain advantages that you're getting at. But the other advantage is that you actually form very powerful lobby groups. Where you then start getting the government, the society that should be looking after the people's interests, giving them preferential treatment, giving them special bailout conditions, bending paying condition awards, just any kind of where there's legislation that can touch them.

26:01They have a seat at the table, you know, and there are plenty of people who don't have a seat at the table. We're going to go to a referendum on this exact issue. But let's not go there. But they do. They have a seat at the table. Now, you want to run your small little business, Scott Phillips newsletter service, you don't get to sit down with Albo and nut it out. You know, they do. And they have – and this is, you know, so one thing I would fix just to, you know, while we're solving the problems of the world is like, no corporate donations zero boom done yeah i got absolutely god easiest thing in the world right people always say yeah what about the unions fine no no no donation from anybody just just individuals yep absolutely yep i might not go further actually i'd go public i would i would bad donations altogether yeah i would i would literally go straight public funding yeah i just think you know and and i would do i mind as individuals not really except if you're well frankly malcolm turnbull gave a million and a half dollars to the liberal party if i remember rightly and i can have no beef with malcolm at all so it seems like a nice enough bloke But, you know, individual donations.

27:01If a union gives them 50 grand, a market gives them one and a half million. You know, it's still at an individual level. I think there's the potential for distortion. Imagine, we'll take the billionaires, right? Yeah. What do you think of Gina and Twiggy and Mike Cannon-Brooks? And they probably cancel each other out, quite frankly, but equally, we don't want a kleptocracy or a, you know, kind of a, what's the word? Is it plutocracy? It might be. Where just the, you know, the rich and famous get to decide election. 100%. Maybe you cap it or something. Yeah, exactly. Yeah, so that's a really easy one.

27:32The other thing, too, I feel is, though, that they're – and this is where having that political sway helps because generally the response to the fairness of things being tilted by scale advantages has been collective action, right? So the union movement was a response to that. Like capital had too much power over labor, and the response was, well, let's coordinate our actions. and because here's the thing right i'm not trying to come across as some you know socialist lefty or anything like that just just that they're both both need each other right it's a mutually beneficial relationship and you need there's always going to be it's like any employer employee relationship the employer wants to pay as little as possible the employee wants to get as paid as much as possible and i think you know that there is there is natural tension there should be a tension there's a dynamic and the pendulum will swing back and forth but you but you need to sort of have that so we figured that out right but again when you can sort of politically suppress some of that stuff now how does this relate to Coles and Woolies well if I was if I was a dairy farmer yeah it would make a hell of a lot of sense to have a a collective response because you know what at the end of the day we got the milk Woolies you want milk you know that's right That's right.

28:53And you just don't want the, what's the term? The scab that will go around and sort of break the solidarity there. And that has been the response from the dairy industry where they have got these groups that have got together and coordinated because at the individual farm gate level, I don't have that advantage. So again, I'm not trying to solve the problems the world, but I just say I think a lot of the time that while in theory the government as should be the solution to it it's not because it gets perverted unfairly and that is that is the issue and i would imagine if you go back almost to a guild kind of system you know back back to antiquity which then i'm terrible idea frankly whereas it's like you allow all of these economic actors to coordinate and negotiate and have a good healthy tension these things would probably work out in a lot better of of uh in a much better way i guess and my point is let's go back full circle here my point is someone of 12 individuals who are incredibly privileged by the way um to dictate the the availability and price of money is not the best tool and that's what that's what i'm getting at i i think i you know just fundamentally disagree on that one.

30:16We won't drag it out any further. I think, again, the idealistic versus the pragmatic for me, I'm happy to use those tools to aid the corrective processes. And I think net-net, it's a benefit rather than a cost. You think the other, which is cool. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

30:41Here's the ultimate challenge. Will the Coles make about three percentage points of margin more than their international competitors in other words on a whole basket of on a hundred bucks worth of groceries there's three bucks in all these profit margins in excess of somewhere else that is not the smoking gun here here is the here is the really perverse part of this the farmers get screwed over at the farm gate for milk right by actually you and me and everyone else listening because Woolies and Coles screw the farmers so they can sell us cheaper milk to beat they're competitive by a little bit and so the percentage margin that Woolies and Coles make is actually not the issue in my mind part of it if they yeah let's say they reduce their margin by three bucks okay fine we frankly they'd give it to us probably with three dollars cheaper or maybe the farmers are getting extra two cents a liter for milk because that's all it'd be you know it's it's fundamentally the fact that you know Woolies and Coles said I want to I want to beat Coles because I want to beat Woolies so what do they do they screw their farmers down so we can get a slightly cheaper price but we say thank you very much Woolies we really appreciate that and that's Actually, the irony of everything we just talked about is that there is no, speaking of your Wizard of Oz, there's no man behind the curtain raking in the cash, right?

31:49It's actually going to us. We are buying milk more cheaply than it should be able to be sold to us. Very happily, speaking of inflation, a lot of the benefits of inflation have come from two things. One is, ironically, that industrialization of production and distribution because the scale has pushed down prices below where they would be. If you got the milk from the farmer up the road and you bred from the hot bread shop next door, we'd be able to buy fewer things. It would all be more expensive because it's more labor intensive. There's no economies of scale coming to play. We are the ones and we're benefiting from it.

32:24So let's not throw that benefit away quickly. but when when the farmer gets paid less woolies aren't woolies aren't no coals aren't grabbing the i don't own shares neither by the way so there's no doing this fight they're not grabbing the benefit here so again same with bread as i just talked about right there is a bread reality i worked for a bread maker and the bread maker largely was very very very very very thinly profitable for exactly that reason you know we're getting cheap bread we'll just want to sell one dollar loaves and one dollar liters of milk uh we are absolutely uh benefiting from that and that's you know is it a is it a good thing i don't know i guess we can argue about it we probably have already we're probably going to move on but uh that that's the that's the simple reality of this one is the other thing by the way in terms of living standard improvements has been the wage arbitrage and that's a whole different conversation but you know when you get your shoes and shirts made in bangladesh or india or thailand rather than here they get cheaper you can buy two or five dollar shirts in kmart because you buy them overseas if you got them here to be a forty dollar pair of you know forty four pair of shorts rather than a ten dollar pair of shorts you pay five bucks for your bread rather than three bucks for your bread you pay two dollars fifty for your milk rather than a dollar that's that's what would happen and we buy less stuff but that's a society we've chosen directly or indirectly to be part of and that's that that's the real conversation i think worth having around you know where's the money going there's no there's no mysterious middleman making a squillion dollars in the middle oh so many avenues to go down i i would i guess i would quickly just argue that those prices should have come down far more significantly than they have.

33:57But who's making the money? There's no sense that on a marginal basis, the cost of running the supermarkets, for everything, they sell 100 bucks with the groceries, they make$6 in profit, that's it. If it was three, okay, we'd be three dollars better off, but that's not the difference, right? So it's not Woolies. The farmers are going out of business and struggling, they're not making the money. So where's the money being made? I think it's largely standard of living. I think we're paying less, we're taking advantage of the buying power of some of the middlemen who want to be our preferred option.

34:25And you made the point about prices coming down because competition works. That's exactly what's happening. That's how Woolies and Coles got big. They forced out Jewel and Fleming and Franklin's and name your favorite local grocer. Some independents still survive. Drake's in South Australia and Richie's in Victoria, as far as I know. A couple of super IGAs around some of the regional areas. But the big guys have gobbled up market share. Woolies and Coles in between them was about 40 % market share, I want to say, in the early 80s maybe. Now about 85 % depending on category. They've just done the corporate Pac-Man thing.

35:00They're making more dollars in total, but largely because they got bigger rather than because their margins have expanded significantly.

35:10I'm trying to find it, but I can't. But if you want to take the component of the CBI that is just food and you want to track it over any period, I mean, it's still all gone up, right? right yes despite the productivity gains of of scale and industrialization so you kind of argument is it's it's better than it would have been otherwise oh yeah without those benefits yes and it would have been even better better if there wasn't a big dilution in the currency that we're using to transact with it all which is where you got to go down deeper deeper deeper to the to the base layer of why because why wouldn't it if i if i in the old days had to like mill the mill the grain mix it with water bake it in my stone oven transport it to market and buy me yeah obviously now i can do it in a massive factory i can make a schoolion loaves of bread for three you know it's like that brilliant brilliant like it's fantastic but now we've done that right so it's like well correct every incremental gain is is much much harder yes and yet so it's still getting more so once you get that hit right oh now we can do it this way and there's there's big There's refinements, but the low-hanging fruit has been taken.

36:17So unless you... It's like the internal combustion engine, right? So the very first one was really inefficient. And then we started getting much, much better. Now, year on year, the efficiency of the ICE is not that great. It's like this sprinter who's really trying to wear the special suit that will take off 0.001%. saying like, yeah, we can get better, but it's not getting much better. And so we get these big wins from technology. That's what drives productivity and that's what drives prices down. But in the face of it though, just the sheer dollars in circulation has increased. We get it, as I said last week, we get it when we're talking about shares.

36:58We don't get it when we're talking about units of currency. And I think that's the deeper thing at play here. So where's all that going? Where is all that extra money going? That's who's benefiting from it. That's the cantillionaire who is unfairly extracting value from others, I would argue. Yeah, and I don't want to keep going too far down the path other than to say, I think the place we meet in the middle is looking at the real, i.e. adjusted for inflation, values of the things that we exchange. so you know wages have also increased at the same time and so it's it's that it's that comparison between you know the prices are we've said before money is this artificial thing prices are just a relative measure of how many units of labor i need to expend to buy the thing and we express them in dollars because it's easier to do that than tot up how many hours of work i gave you for this now you can swap for that that's why money was invented yeah to my mind the real change in any index after inflation is accounted for is really the thing we're talking about here otherwise it's money you know i think that's so much truth in the idea of time is money right because yeah money is time like it really is that's i try to explain it to my kids when i say can we get this like well you do know that that you know if you want that that mommy and daddy are going out and doing like three hours of work for you to have that so it's it's not this abstract number and I think that is exactly, exactly the way to think about it.

38:30But as you say, this is old ground. Let's talk about something else. Let's talk about Qantas. Let's talk about... We'll just talk about the same thing each week. But yeah, let's do it. So I wanted to do it in the context of PwC this week in particular. I don't know if you've been following the PricewaterhouseCoopers, as it used to be called, Palava. But I wanted to talk about reputation, actually. And this is kind of where I'm... We've talked about Qantas before a little bit. And I've made the point that there are very, very, very different options available. So I'm going to quickly just make a case or make a couple of statements.

39:12And you can then tell me where I'm right and wrong. I want to start with the... So if you're Qantas, on one hand, the public hates you or just dislikes you more than they used to. you've got baggage handling scandals you've got customer service complaints you're on hold for 85 years if you want to change your flight with Qantas they are cancelling flights all over the place people are really unhappy which is the pg way of saying really really unhappy and yet they delivered two and a half billion dollars in profit last year and there is depending on where you sit on this particular journey there is a range of potential outcomes decisions points of view you can take one is that we've talked about competition in a duopoly where both are being uh self-interested prices remain high capacity remains constrained why would you over invest if you're a Qantas in customer service why would you bother caring about your corporate reputation if you simply didn't need to because who cares?

40:19You're filling every plane. You're charging a squillion dollars a ticket. Some people hate you. What else are you going to do? Fly the urgent? There's no seats over there and they're charging a fortune too. So sure, make your choice. But if you don't want to fly, that's okay. If you do, it's us all them and we're kind of both the same. And that's a pretty dystopian way of looking at it. But I'm not entirely convinced you couldn't make an argument. I'm not making this argument directly, I'll say why in a second. I'm not convinced you couldn't make an argument to say we are in the business of not providing frills we don't need to provide.