The Failure Premium: Where is the Money Going?

0:00David McWilliams: Coming up on the podcast today, we have the brilliant Sinead O'Sullivan once more talking about, and this is crucial, the problems in Ireland. Yes, we're rich. Yes, we've got all this stuff. But people feel that we're living in a poor country. Why is that? And it all comes down to coordination and organisation. That's all coming up in a couple of minutes.

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1:29David McWilliams: Just an update from the Engine Room, which is the Dawki Book Festival, which is on the third weekend of June. DawkiBookFestival.org, particularly for yourselves who are interested in economics and AI, there's a great, great panel with Jimmy Wales, the man who founded Wikipedia, Sonny Kapoor, who you'll know, and Des, trainer of Intercom. It is called Adapt or Die, Your Future in an AI World, One Not to Miss. DalkyBookFestival.org. To understand the economy, you have to understand human nature. This podcast is powered by Acast. How are you doing there? It is time for the podcast. Hope all is well in your world.

2:19David McWilliams: Now we are going back to talk to Sinead O'Sullivan, who was on the podcast the other week. And I know that you reacted very positively, very alarmingly, but very interestingly in what Sinead had to say. We are going to go to her latest sub stack and we are going to digest. Now, basically, just to recap, the issue here is how come Ireland has so much money, has such an abundance of tax revenue, and yet it feels that we are not a rich country, but we feel that we live in a poor country? Or maybe not a poor country, but a dysfunctional country. Now, lots and lots of people will say, well, hold on a second.

3:05David McWilliams: How can the economy that's growing the fastest in Europe, how can the economy that's attracting migrants, how can the economy that has incredibly low levels of unemployment, how can the economy that has very, very high levels of personal wealth and median wealth, not just extremes, median wealth, how can it be that this country is dysfunctional? Are you just a bunch of whingers? Are you just complaining? Are you always seeing the glass half empty? Look at the glass half full. look at what we've achieved, look at where we've come from, and celebrate this. Now, of course, you know that this podcast has been accused of many things.

3:39David McWilliams: Sometimes it's been over-optimistic and over-celebratory. I think the two thoughts can be kept in one's head at the same time. On the one hand, you can figure out, you can say, look, hasn't the country done brilliantly from where we came from? But that does not mean that we should be above criticism. That does not mean that we should silence the dissenters. That does not mean that we can't look, as the Americans say, under the hood and say, is everything working? And if things are not working as they should, why do we accept that? And again, it's this idea that sometimes in Ireland, we need a solution.

4:17David McWilliams: We're so desperate for something that we tolerate anything. And again, keep our critical faculties going, celebrate the wins, celebrate the success, but also have a look at what can possibly be solved. So let's go and let's talk to Sinead because she has some really interesting ideas of A, what the problem is, and B, how to solve it. Now, last week, we had a blockbuster of a podcast with Sinead O'Sullivan. You will remember it. It was a huge reaction. Listeners, I know you, listener, loved it. And as a result of that, many, many said, look, come on, have Sinead back on because she's really, really focusing in on something extraordinary, which is why Ireland is rich, but feels poor.

5:07David McWilliams: In contrast to lots and lots of countries that would say, if we only had your income, we could do this, this, this, and this with our society. We have the income, but the money appears to be evaporating. Sinead has written another substack, which I'll talk to you about in two seconds. We're going to give you all the details but she is on the line and it's wonderful to see you Sinead how are you I'm still living I'm back I've made it you are now officially enemy number one of official Ireland okay exactly exactly never before John has this podcast been called a safe space it is now it's bad when I'm doing therapy on your podcast exactly back we just lie on the couch here We can talk about this.

5:54David McWilliams: But no, it has been a wonderful couple of weeks for you in terms of getting your ideas out there. They have resonated with people. Absolutely hitting the nail on the head. What I found amongst our listeners, because we have a huge amount of Irish people abroad who left Ireland in the last, your generation in affectionate, who left Ireland in the last 10 years, engaged with the country, want the country to succeed, want to come back themselves, want the place to work, want to raise kids there, particularly the early 30-somethings, and they're finding that there is no way back for them to have the lifestyle that they have in Australia, America, Canada, or even the UK.

6:36David McWilliams: So let us focus on your newest idea. We're saying, okay, if we're a rich country and behaves like a poor one, why is this? Sinead, explain it all to me, a la Substack, which is really brilliant. Yeah, I mean, it's interesting because it just so happened that as this discussion was being had in Ireland, someone in the FT published a piece that said the UK is poor, but it spends like it's rich. And it's just so funny because, I mean, why do we feel poor in Ireland? Because we act like we're poor. I mean, this is ultimately it. and my recent piece kind of explains the various levels and the mechanisms to which Ireland really wholeheartedly tries to act poor.

7:22I don't know like are we just so unused to having money that we're like let's just keep being poor because we might be poor again one day. I don't know.

7:30David McWilliams: Well let's conceptualize the idea of poverty. I think it's really important to reiterate just how expensive it is to be poor on a day-to-day. People kind of get their head around that notion, but you outlined it very, very effectively. So let's start there and then let's talk about the country. So I'll give you a personal story. And this is when I first realized how expensive it was to be poor. When I finished high school, maybe two weeks after my 18th birthday, I moved to England and became a welder essentially for a large manufacturing plant. And I had never lived by myself before. I had absolutely no idea how to be an adult.

8:09I found myself in this new place and trying to do things like open bank accounts and whatever. And I didn't have two pennies to put together, like literally not two pennies. And so I opened this bank account and I was overdrawn by, I think it was four or five pounds. And then I received this letter saying, you now owe us 30 quid for being overdrawn by four quid. And I thought, what? What sort of an injustice is this, I'm poor. Now you're charging me money to be poor. And, you know, it's so funny because you look around and absolutely everything in the kind of modern economy penalizes you so heavily if you do not have the capital to be rich.

8:46And poor people never catch up with rich people. And I'm using the words poor and rich, you know, really flippantly here. But basically, because they're never allowed to, because the poorness compounds so quickly that you can never find yourself rich again. I think in the sub stack, I use the example of shoes. You keep buying cheap shoes because you can't afford the expensive shoes, but you replace them so often that you've spent infinitely more on cheap shoes and you never have the nice ones. So it's this idea of never being able to catch up and never being able to, I mean, you know, in financial terms, you're spending money rather than investing it.

9:24Yeah.

9:24David McWilliams: And I mean, again, the great example, of course, in the case of Ireland, and back to our listeners, is if you can't afford the deposit to buy a house in this country, you end up renting and renting and renting incredibly expensively in comparison to what you would do if you could be rich enough to buy. And you end up with no asset at the end of it. You end up, the money just goes. But I've always said that we know that poverty obliterates the future and the reason it obliterates the future is that poor people's time horizons I've always said this are totally different to rich people rich people create a future for themselves they go to university they can plan for in five years time I'll be this that and the other a poor person has to think about money today and as a result of that their time horizons diminish dramatically because they need the cash and consequently They're always, as you say, running to catch up.

10:19David McWilliams: Now you use this example, and then you explain how a country, Sinead, like Ireland, is a rich country that's behaving like a poor country. Let's get into that. Yeah. So this kind of came about because a lot of people after my last sub stack kind of said, I don't understand. Like, but where is the money going? Because I'd outlined that we have a lot of it, but it doesn't translate into anything useful or enduring. and when people rightly said, but like, but where? Literally, where does it go? And this is the question that I've been trying to answer because people will say things like, well, corruption and, you know, like they will find all of these more complex ways to explain away that the money disappears and dissipates.

11:04And it's actually much more structural than that. The money is spent very specifically with very well drawn out programs, but it's spent in a poor way as opposed to a rich way. So the first layer or tier, and I call this the failure premium, which really is just the cost, the additional cost that we have to pay for our collective failure to translate it into anything. But at the very kind of tier one, first order of this failure premium is very direct. It is that we give money in short-term subsidies directly to people who own assets in Ireland, instead of the government building and coordinating economic activity and owning the assets themselves.

11:50And it inflates the price of assets and creates this really crazy recursive mechanism whereby the rich get richer and the poorer feel poorer. And I use different examples to explain that. But, you know, property is probably one of the easiest ones. And it impacted me when I lived in Ireland because, oh my God, I spent over 14 months going through the rental tenancy boards because my landlord had illegally doubled, essentially doubled my rent over a very short period of time. So not only have I just moved back from the US and I'm thinking, my God, I'm going to have this amazing life in Ireland now.

12:22I think, well, actually in the US, I didn't spend 14 months haggling with landlords. But it ultimately came down to the fact that the landlord had increased my rent by the same amount that the government had created a subsidy for. And...

12:38David McWilliams: Explain that to me. This is the HAP system. Yeah. I kind of came across it when I lived in Ireland because I was impacted by it. And I kind of thought, what sort of crazy short-term mental thinking is this? So, you know, again, people are kind of nitpicking, oh, you got the numbers wrong or whatever, right? So let's imagine my rent was 1 ,500 euros a month. I'm literally just making up numbers here. Then let's say that the government says that the HAP, what does it Stanford, the housing assistance program, I think. And so the government says, we're going to subsidize rents because rents are too, no one can afford to rent.

13:11We're going to subsidize rents and we're going to give you 800 euros a month in subsidy. So then you kind of think, great, 1500 minus 800. Well, you know, I'm going to save 800 euros a month now in rent. But that doesn't happen, David, for the obvious reason that the landlord increases the rent by 800 euros. And so now the only thing that has happened is that firstly, my rent stays the same, but the landlord is getting 800 euros a month from my taxpayer money, which makes my landlord rich, which makes it harder for me to buy a house because it inflates asset prices because my landlord just goes and buys more houses because he can.

13:50So in the best case scenario, because I was not able to get half. Two things happened. One, I effectively paid my landlord through taxes an additional 800 euros. But then I am also now unable to buy a house. I'm in a worse situation for trying to buy a house because the asset has inflated by the same amount. So it's a double whammy. The government has intervened in a way that has made it spectacularly improbable for me to get out of the situation I'm in and has massively helped the landlord for no real reason.

14:24David McWilliams: And so this is, again, we have a well-meaning but badly designed policy, which is housing assistance, which in effect lines the pockets of the existing landlord because they take the whole subsidy. What they basically say to you is, look, it doesn't really matter because frankly, the government's paying X amount. But what it actually does is it increases your rent, it increases the asset, it concentrates the wealth in the hands of the landlord, and ultimately it reinforces this gap. And it's the gap we're talking about. And this is a practical example. In other countries, the state builds the homes, I presume.

15:05Yeah. So why are they doing this? Why are they giving subsidies? And again, I'll go back to what I said in your last show. There are two things a government can do. They can coordinate economic activity and creates infrastructure and industries such that the private sector can flourish. The other thing that they can do and should do is distribute resources and capital through subsidies and whatnot. Ireland has only ever built this muscle for distributing capital. We have never really built the coordination of creating these underlying things ourselves. And so when the government, when faced with this housing crisis, you know, any other government would say, oh, there's a housing crisis.

15:44We should coordinate the build and own an investment of more properties that the state owns, that taxpayers collectively own. You know, it's a national asset. Ireland doesn't have the ability to do that because we've never really done it before. So they say, well, the only thing that we can do is distribute. So we'll subsidize and subsidize and subsidize. But this actually makes the problem worse, not better. And that is the gap between, I mean, it's collectively many of these over every single sector. But that is the gap between how much money we have and what we collectively own.

16:17David McWilliams: And it's because we've outsourced this basic function of home building. Yeah. And rather than actually build the homes, we treat the symptom of the problem, which is the price of rent. But that is not the problem. That is the dashboard that is signaling there's a problem somewhere else. and by intervening in the symptom, we actually make the underlying problem worse. Yeah, and this is a failure that we've seen over and over and over again. And so, I mean, I want to just stick with this if you don't mind quickly, because zoom out, right? So exactly what you said, we have treated the symptom instead of the problem.

16:57But I would argue this happens all day, in nearly every facet of Irish life, including me writing my last and this current sub stack. And so one of the, one of the really funny things is that so many people, when I wrote these sub stacks said, great, fine. We already know the problem. What's the solution if you're so smart. And it's just really funny because it's like, do we really know the problem? I mean, there's a lot to unpack, but it's like, are we treating and have we just spent 40 years throwing band-aids at symptoms? And it's funny because there are two different responses within that.

17:38There's the official Ireland response, which is that this discomfort of sitting in the limelight of failure is so acute that they say, well, hurry up with the solution because then the clock resets. Whether it's a good solution or a bad solution. The pressure that has been building deflates. And they need that to deflate ASAP right now. So they're saying, well, if you're so smart, solve it. And I'm kind of saying, well, firstly, I have a full-time job. No one is paying me 300 ,000 euros a year to pretend like I'm doing something.

18:10David McWilliams: Don't talk about the housing czar like that. Don't talk about the various different quangos like that. But you're absolutely right. I mean, the other issue, so number one, official islands as well. If you're so clever, You figure it out. But the second thing is that it's always a short-term band-aid. That is what you are looking at. That the gap between being rich but feeling poor is a choice that we have made as a society by not having enough government, ironically. It's not that the government is actually too much government. It's too much of the wrong type of government is what you're saying.

18:48Yeah, so this is what people... I mean, so in the current kind of economic discourse, there are kind of very binary way of thinking about it. We either want more government or we want less government. And less government would be kind of this idea of neoliberalism, let the markets do everything. More government would be moving more towards socialism and intervention. I'm actually saying something slightly different. I'm saying we want and need government, even for a neoliberal economy. We need the government to do something, and that is to coordinate, not just distribute. If you look at any of the most ambitious government policies over the last five years, I mean, I worked on Biden's, the CHIPS Act, and any of Mandami's solutions, Mariana Mazzucato, all of these big ambitious policies have all been distribution policies.

19:44and not a single economist has said, hang on a second, the thing that's actually broken is the coordination. And I don't care if it's a left or a right policy, it's not going to work until there's coordination. And so I'm not saying we need more or we need less government. I'm saying that whether the markets are coordinating something, which they're not anymore, the government coordinates something, someone somewhere has to coordinate this. And in Ireland right now, it should be the role of the government and they're not just doing it.

20:13David McWilliams: So the direct failure is something like HAP. It's so obvious that your rent was matched not by the scarcity or abundance of flats, but your rent was in effect matched to whatever subsidy the state was giving the landlord, and that was that. So the entire market is completely confused. But then you say that once the gap exists, there is then an adaptive problem. So there's a direct subsidy. But once the direct subsidy is in place, whether it's, you also cited nurses and nursing agencies, which I thought was very interesting, that basically the cost of hiring nurses in Ireland goes through the roof because we outsource it to agencies.

20:55David McWilliams: And those agencies then go to the Philippines and wherever and they find nurses, but they take a massive chunk of the premium and the nurse isn't getting paid more. The agency, the little, so basically an entire industry adapts to and emerges from the subsidy. That's the first thing. But the second thing, as you said, the adaption even goes deeper than that. It's about expectations, what we think is right or wrong. Yeah, this is a really critical point because, you know, the average Joe in the street, if you're, you know, unless you're an economist or you're really interested in these things, you can get - Luckily, we're a weird bunch.

21:29David McWilliams: There's only a few of us knocking around. Yeah, and we're very interesting people, by the way. So, you know, most people do not see the direct failure premium play out. Most people do recognize the second, even if they cannot name it as such. So this is the adaptation to these complete lack of coordination all over the country. And it is, I mentioned it in my first article, it is the fact that people buy health insurance to reroute around having to go into the public system. But I want to use the example because it was such a good example playing out in real time, which was the kind of the sheds policy in Ireland.

22:11And, you know, this was kind of, I think, put forward by Progress Ireland, a think tank who, you know, I know the guys running that, they're great. But it's a perfect example of how we adapt to these failures. We're so used to them that we don't even see them anymore. We think it is completely normal and legitimate to build these weird workarounds towards a system that we are convinced will never change. And building sheds in our parents' homes for people to live in is one such adaptation. And okay, so in the first instance, you have people living in gardens that probably should in a wealthy country, not be living in gardens.

22:51But what this actually does is structurally much bigger. And I kind of mentioned it last week in my Irish Times column. it creates this idea of a false binary right so what does it actually mean to be wealthy I mean it just in a general basis like your wealthy friends can do whatever they want right like they're not stuck or beholden to people or ideas or or they have people say kind of fuck you money it's like I can do what I want I can be here and there do this and that poor people can't do that they have to they are so heavily constrained and that is what it means to be poor you have constraints and trade-offs that rich people don't have.

23:30And this is exactly what we have in Ireland now. And Leo Varadkar outlined this so extraordinarily well in the podcast he did, when he basically alluded to the fact that rural Ireland or the kind of indigenous economy of Ireland was a burden to the multinational tax regime at play. And it's like, why is it one or the other? That is such a poor country way of thinking. We should, if you look at Norway, a wealthy country, have multinational tax and indigenous economy. We should be able to have homes and not have students living in gardens. And so this adaptation is such a well-disguised race to the bottom in terms of dignity that a wealthy country should be ashamed of.

24:18It's so interesting because I used to teach at a university in the US called the Neubauhaus, which was kind of design architecture, and I was teaching engineering there. And I can walk into a city and immediately visually tell how well coordinated that government or that state is by looking visually at what does a city look like. And this is where you get this kind of adaptation failure in Ireland. We have ugly buildings, ugly streets. We have, I mean, hollowed out city centers, villages that are dead and dying. And this is because of the fact that we have adapted our policies and our frameworks and our mindset to being poor, that we allow this to happen because we think, well, there's nothing that we can do about it anyway.

25:02David McWilliams: And the contrast would be you walk into a city, let's say like Vienna, which is so well organized. And you can just sense that they have an intolerance for any of these failures. Now, what you're saying in the case of Ireland is you can see in the way Ireland presents itself that we don't have this coordinating culture behind us. Yeah, and we have gotten so used to the idea that we, even though we're rich on paper, act poor, that we allow this. No other wealthy country would be okay with Dublin city centre being the way it is right now. And this is an adaptation. And again, what you're saying is this is, it's kind of a psychology.

25:47David McWilliams: It's more of a bizarre psychology that once you allow these things become the norm and you tolerate them, then psychologically we adapt to them. We still have the subsidies which are basically plastering over the cracks, but the cracks are evident in the architecture and the quality of life and the transport system, et cetera. But you've also made a fascinating point. I think people really, really appreciate that is on, for example, deploying hotels to sort out a refugee issue when other countries don't. You said in your sub-stack that it costs€99 per night in Ireland to house a refugee and€13 per night in Netherlands.

26:29David McWilliams: Why is that? Explain that to me. I mean, I've explained it before and look at any example I've given. It's exactly the same thing. It's because we outsource it to private landlords. The landlords, in this case, happen to be hotel owners. In the Netherlands, this is state-owned capacity. So we, and this is a much bigger issue, so we won't get into it today, but we enabled an immigration strategy that our economy could in no way uphold. And when you talk about breaking the social contract, the government greenlit an immigration strategy that the infrastructure knowingly could not uphold and said, okay, we're going to take away, and maybe it wasn't a direct removal, but we're going to take away local businesses when these hotels are no longer used as hotels.

27:19We're going to take away local tourism. Restaurants and bars are likely going to close because guess what? Tourists are not going to be here anymore. And this has hollowed out what, again, goes back to the indigenous Ireland, the indigenous economy that we need. The tax money might stop one day. Donald Trump is not super stable. No way. So I hear.

27:44David McWilliams: But this is the point. This is the point. And this is what gets the crux of economics. And I've always said, we've said it on the podcast a hundred times if we've said it once, that the economy is a fragile ecosystem. And it looks and feels and behaves like an ecosystem. And this is genuflecting to John's knowledge, of course, of the environment. If you have a rainforest and you take away certain plants, what actually happens is this cascading effect that changes profoundly the lifeblood of the forest, right? And that's why rainforests are so precious. And when you tinker around at the margins, it changes things.

28:23David McWilliams: economies behave in the same way. If you change something that looks as if it is unique, what you forget is that every single hotel in this case probably employs local people as we know. Those people go to the local bar. The local bar gets wealthy. Why? Because the American tourists arrive in the summer and they spend more than the locals, right? And the American tourists have to be bussed around and there's a little transport company busses them around and that guy gets rich and then his income. It's that idea that your income and your spending is my income and my spending is your income. And if you change that infrastructure for, for example, the hotels, what you're saying, Sinead, is this impacts a whole variety, a whole subsector of the economy that doesn't have any way of articulating the pain that it's feeling.

29:16absolutely and what's really i mean i i call this the tier three failure premium is this cascading one and the the really unfortunate thing about this is that you can never directly point it towards a single line item in the budget right but i mean it's there so so david you wrote recently about entrepreneurs in ireland and why do we have the lowest number of entrepreneurs in Europe, in Ireland. I mean, you know, all of this is connected. And the issue is that our government is kind of designed to create a policy for this thing in that sector. But how, if I'm trying to fix the number of entrepreneurs, trying to increase the number of entrepreneurs in Ireland, can I say, actually, I need policies in housing and transport and health.

30:05And it's so complex and intermingled and fragile. And we have allowed what was initially started as, okay, well, let's just give the landlord a subsidy and make the problem go away. It has cascaded so deeply through the economy, through people's lives, through industries, that we can no longer figure out. This is the confusion that people think. There's so much that's wrong at the minute that it overwhelms them and they are unable while they're in the middle of it to pick out what is going wrong and how to fix it and why. And this cascading effect is exactly that.

30:40David McWilliams: So what we're talking about is an absence of what they would call in old money joined up thinking. That there isn't a governmental institution that's dealing with the complexity of the ecosystem that understands or at least tries to understand the various different iterations of what it is to be a modern economy. And yet at the same time, we have a sector, the multinationals, which is incredibly well organized, which is incredibly well managed, and is throwing off all this money. So this gives us the illusion of wealth. And what you're saying, Sinead, if I can grab it, is that the very wealth, because it is actually enabling the subsidy mindset, is actually making us poor.

31:24Oh, God. I mean, yes, you've arrived at exactly the conclusion that I have not put on paper yet, because I actually don't think people are going to be able to accept it. And it is just this idea. On the one hand, you have the government that's saying we have 126 billion euros. But if you follow my thinking to what is and could be an obvious conclusion, not only, you know, are we not using that money, which in itself is a shame and a damn shame and and an actual disgrace. But worse than that, for every single euro that we put through this broken system, we are making ourselves poorer and poorer and poorer.

32:06And poverty is well known in economics and people don't need an economist to tell them it's a trap. It is nearly impossible to get out of it once you're in it. And it is an addiction. And we are throwing ourselves down into this poverty hole. Because what is going to happen is that it is now becoming so expensive and so complex and so difficult to fix any of this. And the solution, here's another subsidy. Here's another program to financially help you in the short term. We are learning very quickly that subsidies do not remove cars from the M50. They do not build buses. They cannot coordinate water systems to put into the housing that we need.

32:48And so the government has run out of tools. and soon the government is also going to run out of money because the multinational windfall is going to decrease and could, I mean, I don't think it necessarily will end like this, but it could end quite radically overnight. And so what happens then with the money that we never use, the infrastructure that we don't have? And I think you'll find to claw out of this is going to cost more than we've put into it. And then you realize, oh no, we're actually already in an infrastructure deficit. And right now, no amount of money is going to fix that.

33:22David McWilliams: That's a pretty sobering way to conclude this podcast. Because usually, I've been accused of being too optimistic regularly. They say, oh, Mike Williams is too pan-glossy and etc. No, but Sinead, again, I think that this needs to be said. And it needs to be listened to. It needs to be analyzed. It needs to be reacted to. Just very finally, what are the political implications of what you're saying? I think, and this is, I think, why Official Ireland are struggling with this. I think the political implications are not good because from their position, and this is kind of why they say, well, come up with a solution.

34:05You know, normal people want the solutions because they've been crushed so badly by the system that they need a solution. Official Ireland, for very different reasons, need a solution because they are fully aware that if we spend any more time actually looking at the monsters under the bed, we're going to realize that there are, in fact, monsters under the bed. And they do not have the institutional or political tools to deal with them. And that is a scary thought for the political class at the minute. The next election, I'm not sure we're going to see anything other than, you know, parties offering more and more subsidies.

34:39and this is the crux of the issue.

34:42David McWilliams: And nobody's talking about, I think you're right, I think, because what we'll see is everyone on the left will say more and more subsidies, more and more subsidies. The center will say more and more subsidies and nobody's saying, whoa, whoa, whoa, hold on a second, we need to have a complete retooling, reimagining, reanalyzing, rethinking. It's as if we've kind of run out of thought and once you run out of thought and you have lots of money, you just throw money at the problem and you just hope it's going to go away. Yeah, there's a hole in the pipe. I mean, at some stage, we've got to fix that hole in the pipe because the more pressure and the more water you put through that pipe, the bigger the hole is going to get over time.

35:20David McWilliams: That was wonderful. Thank you so much. Again, we will be watching and waiting for the next missive to be drawn. This episode of the David McWilliams podcast is brought to you by Long Angle. Mark, have you ever come across Long Angle? Do you know what, John? I have heard of them. It's a private vetted community for people who've built serious wealth and are navigating what comes next. You know what strikes me about doing this show is every big economic story eventually lands on someone's kitchen table somewhere. A recession isn't an abstract thing if you're deciding whether to sell an asset. A housing crisis isn't academic if you're trying to figure out what to do with capital.

35:58David McWilliams: The macro becomes very personal very quickly. And most people are navigating that without anyone who's actually been in the same position. You're absolutely right, John. And that's what Long Angle is. It's a vetted peer community, 8 ,000 members, no membership fee, where people at that level of financial complexity just help each other out, help each other to think clearly. Someone who's made the call you're about to make. You do need to qualify to get in. Which is the point. Longangle.com slash David. longangle.com slash David. Parles-tu français? Hablas espagnol? Parli italiano? If you've used Babbel, you would.

36:43David McWilliams: Babbel's conversation-based technique teaches you useful words and phrases to get you speaking quickly about the things you actually talk about in the real world. With lessons handcrafted by over 200 language experts and voiced by real native speakers, Babbel is like having a private tutor in your pocket. Start speaking with Babbel today. Get up to 55 % off your Babbel subscription right now at babbel.com slash acast. Spelled B-A-B-B-E-L dot com slash acast. Rules and restrictions may apply. My wife won't stop talking about Jerry. Jerry. Says he saved us money on car insurance. Mine too. Found her a better rate and didn't waste her time.

37:26David McWilliams: Who is this guy? Babe. Jerry checked again and found us an even better rate. pulled 20 quotes from top insurers, showed them side by side, and helped me switch policies in the app. It's a car insurance app. Yep. Let's just... Never happened. Do yourself a favor. Visit jerry.ai slash acast. Hopped on the, now I was going to say unsuspecting public, but the suspecting public at this stage. But anyway, as I said to you before, screw the begrudgers. Don't worry about the nitpickers. Don't worry about them. You are doing a great service. So thank you very much indeed. Thanks, David.

38:10David McWilliams: It's great having Sinead back on again, Mac. She's brilliant. And it's kind of right up our street, the kind of stuff we're talking about all the time. But it seems like that, you know, to sum up what she was saying is that we seem to be confusing the symptoms for the problem. Yeah, exactly. You know, it's a little bit like, you know, when she was talking there, it was a little bit like, you know, the way people go on about Trump and Trump... No, you go on about Trump. No, no, you do too. But, you know... Not as much. Trump is not so much the problem. Well, he is a problem, but he was the symptom.

38:44David McWilliams: He was the symptom that came out of a much wider problem. I think you're right. That Trump is a sign of something else. And so our housing and our lack of infrastructure and our dilapidated cities and towns... are also a sign of just shit ain't working. Yeah, and it's a tolerance. I mean, I think the example that she gave at the end of saying we are going to take in Ukrainian refugees for all the right moral reasons, right? That's a good thing to do. These people are at war. They're fellow Europeans, et cetera, et cetera. But we have no place to put them. So what we do is we say, okay, well, why don't we commandeer the tourist section?

39:25David McWilliams: And why don't we give subsidies to hotel owners to, in effect, close their business down. And once they close their business down, and we keep that business going with a subsidy, a lifeline, it closes all ecosystem that I spoke about down. And then the ecosystem, part of the ecosystem is dilapidated towns. Why? Because a hotel on the outside of the dilapidated town is a massive employer, but not just an employer, it's a psychological boost to the area. When tourists come into your area, it's like, it's nice. You like it, et cetera. So what you see is you have this worthy policy, which is then being subsidized.

40:09David McWilliams: And that worthy policy is destroying communities and nobody is actually shouting stop. And what are those communities doing? The kids from those communities leave. They don't come back. They go to Australia. and again the emigration of the kids is a sign. It's not the problem. It's a sign of something else. Yeah. As you were saying, it's this kind of my spending is your income and stuff. So it's actually breaking that multiplier effect that would naturally be in play. Completely. And it's enriching the hotelier. Yeah. Yeah. And the hotelier is actually losing their social capital, but their actual capital, because running a hotel requires you to run a hotel and to deal with it.

40:54David McWilliams: And if you lose that muscle because you're outsourcing it to the state, then eventually that particular skill set disappears. And once that skill set disappears, it's not passed on to anybody else. That's the ecosystem. That's the third and fourth order effects that Sinead's talking about. And that, I think, is where our state is lamentable. Is part of the problem the way the mentality within the various different departments where there is a pot of money and they're all competing for budget? So they're competing against each other. So by competing against each other, they're by very definition, they're not coordinating with each other.

41:37David McWilliams: You're completely right, John. In the bureaucracy, budget is power, right? That's the key. So the amount of money that flows through a department gives us its seniority, its hierarchy. And as a result of that, the entire policy option at the very top of the public sector becomes a smash and grab exercise to get your hands on as much of the American tax money as possible. Because that makes you powerful in the bureaucracy. And as a result of that, the coordination disappears and it becomes a competition between the departments. And the competition ensures that certain departments of power and those departments will never, ever, ever willingly give up the budget.

42:25David McWilliams: And of course, what's wrong is that there isn't a overall department of planning, an engineering economic department that plans. Remember I spoke about working for French companies years ago. They have this thing, the organigram, right? It's a structure. And I'll just, I'll leave you at one thing. A friend of mine is a French guy who went to college with me years ago in Belgium. Marries an Irish woman, comes to Ireland, and he had been a European civil servant. He worked in the European Commission. Comes to Ireland, this is about 20 years ago, and works for one of the Irish public sectors. And I said to him, how's it going?

43:02David McWilliams: How's it going? He says, it's very strange, David. I said, what? He said, there is no system. I said, how do you mean? He said, it's very strange. I said, he said, if there is a problem, Mick calls Pat, Pat calls Tony, Tony calls Mary, and it is solved. But nobody knows how. So that's how the top of the public service works. There's no system in which everything is coordinated. And what we do is it's all relationship. I'll call John, John call Mick. Mick will sort that out. But then they'll call Mary and Mary will call Anne. And then Catherine will have a certain say. And between us all, we figure it out and it's done.

43:36David McWilliams: Yeah. But then again, that is the way Ireland works. Yeah, or not as the case may be. So, John, I think actually to put it into a nutshell is that what Sinead is saying, and I really agree with this, is that it's not that there's an orchestrated cabal of rich people who are gaming the system so that they are enriching themselves and lining their own pockets. And this is where the problem lies. Yeah, the kind of conspiracy theory stuff. Yeah, the conspiracy theory. and you hear it on the left and you hear it on the right, okay? But no, there is a sort of cabal of incredibly rich people who rig the system and now the money goes to them, right?

44:18David McWilliams: What is actually, it's much, much, much less conspiratorial. What there is, is a system that is broken that results in certain people getting super rents and skimming off the top. But those people aren't like, No hotelier rang up the state before Putin invaded Russia and said, look, this is how we're going to do it, and I'm going to get rich. It's just like, whoa, that's a windfall. I'll have some of that, please. Right? Yeah, yeah, yeah. So again, what we do is, politically in Ireland, what you will have is you will have people say, look, if we can only destroy the cabal of the rich at the very, very top who gained the system, everything will be solved.

45:02David McWilliams: It's not. it is the system that is producing the opportunities for a whole host of players and outsourcers in this society. And they are skimming off the top. And that's where the money's going. Yeah, yeah. We'll leave it there, John. We'll talk to you on Thursday.

45:32Thank you.

46:02David McWilliams: in your pocket. Start speaking with Babbel today. Get up to 55 % off your Babbel subscription right now at babbel.com slash acast. Spelled B-A-B-B-E-L dot com slash acast. Rules and restrictions may apply. Still waiting in line? Again? That's time you will never get back. Save time and money with Stamps.com. Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now. Print postage for certified mail, registered mail, and packages in seconds. Then schedule a pickup right from your home or office. For a limited time, go to Stamps.com and use code podcast for a free welcome gift.

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