Conditioned to borrow, not save

[00:00:00] You and I wouldn't save by stashing a million dollars under the mattress because 3% inflation, that would debase its purchasing power by 30k every year. So we do the opposite of saving. We borrow. For every million bucks you borrow, well, every year, say that with inflation, your wage and salary and rent income all go higher by 3%.

[00:00:25] This is the Debunking Economics Podcast with Steve Keen and Phil Dobbie. Well, he's not wrong, is he? That's from a YouTube channel called Get Rich Education, although who would put money into a savings account that wasn't paying interest? But it does highlight that there are bigger rewards for borrowing money than there are for saving it. The whole finance system is built on us all acquiring debt. So is that a good thing?

[00:00:51] It sounds like a bad thing, doesn't it? That's this week on the Debunking Economics Podcast. Well, you find us this week. I am working off my laptop computer at my mum's house in Cheshire, in England, and Steve Keen is in Sydney, in Australia. So we have switched places, switched continents again. And I've got to stay here. I'm not sure we're going to meet, by the way.

[00:01:20] I'm trying to avoid him, actually. Don't tell anybody, but I'm trying to avoid him. You're doing that very well. So look, this week, I want to look at the problem. One of the fundamental problems we've got, I think, in the way the economy works, is we are being encouraged to do the exact opposite of what we were taught when we were growing up. When we were taught growing up, we were taught to save and save up any day and invest the money that we've saved.

[00:01:46] Whereas now, really, the incentive is to borrow and not save at all. In fact, you know, you are disincentivized to save. So we want to look at that. First of all, though, an email I want to go through today. But before that, Steve Keen, what a fantastic performance on Piers Morgan's show. Thank you, Matt. Thank you. And I looked through some of the comments. I think you got quite a few admirers. So you were there battling against – well, we had two people.

[00:02:15] So talk through the panel as well as Piers Morgan, who actually is not a bad – I reckon is not a bad bloke. There's a lot of people. Look, that's my feeling as well. I mean, he sort of tends to generally fit in the conventional wisdom, but he's a decent human being. And I think that's like, for example, another bloke that I'm very fond of, you know, is George Morgan. George Galloway, pardon me. And George, you know, he's got very different views to Piers on Palestine. I think Piers' views are shifting now.

[00:02:44] George has always liked Piers. So there's a warmth about the guy himself, whatever his views might be at various points in time. And so, yeah, he's a good bloke. I enjoyed – and I think he did a damn good job of chairing it as well. And that's partly, of course, his team too because the questions, as you would have realised, are quite structured. They had a question about Bitcoin in the middle there, which wasn't part of the conversation about America bombing the shit out of the rest of the world. But he was good. And, yeah.

[00:03:11] And so Jiang is – people keep on telling me he's not a real professor. His kids call him professor. He's a schoolteacher. Right. But I think in terms of – it was actually quite funny looking at his face compared to mine and Stephen Moore's because it was quite a poker face. He wasn't reacting to the – you know, the way Moore and I were going at each other, hammer and tongs. But his positions were quite reasoned.

[00:03:38] And we – generally speaking, I agreed with what he was saying and he agreed with me. And he gave a bit of good context to each of the arguments being put forward. So Stephen Moore was a former economics advisor to Donald Trump. And so you've got a, you know, question mark over all of that because he would have been there going – well, some of which you agree with, actually. The idea that, you know, maybe you should try and bring industry back home. You know, if you'd gone – you might have found some common ground.

[00:04:05] But the whole thing reminded me, particularly the clip which has been taken, which I think has gone semi-viral on the internet, which is where you're saying, you know, looking at who's the bad guys. There's a comedy show. I can't remember who it was in the UK. And there's two German soldiers just – Yeah. Are we the bad guys, Pat? Yeah, another one. Yeah, just get on to them. Are we the bad guys? See, this is actually a very important point.

[00:04:34] Because you said – because he said, you know – yeah, Stephen Moore was saying, well, you know, it's as though you are saying we are the bad guys. And you're there going – I said, you are the bad guys. You're the evil empire. Yeah. Yeah. And the intriguing thing is an evil person, unless you've got an absolutely total malignant narcissist status who just enjoys inflicting pain, and those people do exist. Unless you've got somebody that extreme, most people who are fighting for an evil empire,

[00:05:03] like, for example, the Nazis, think they're doing the right thing. Because they define the important part of the world as the German race. And we're doing the right thing by the German race, so we're the good guys. And in this case – I'm sorry, America – you have this position that you are the good guys, so you invade other countries to impose your beliefs on them, and you're being the good guys. And they're being the good guys. Time again. Yeah, yeah. I mean – Absolutely. Yeah. I mean, like – that's like a really –

[00:05:31] We can't say Iran are the good guys, obviously, but they – but it's just another example of another regime that America has tried to – Yeah, America's created the regime they're complaining about. One of my little – I think this is something – like, I became aware of this, of course, during the days of the Vietnam War, because being – I'm 73 now, but I mean, in 1973, I was 20.

[00:05:56] And therefore, I faced prescription, because the Australian rule was – and I remember that so well. If you turn 20 between the dates – so, in my case, it was sort of February and April, to 1973, you must register for National Service. Registration forms are available at your local post office, yada, yada, yada. Now, the funny thing was my father was arch-conservative, probably a member of the Democratic Labor Party, which is the right-wing breakaway from the Labor Party that kept Labor in the – out

[00:06:25] of government for 23 years. And they were pro the war in Vietnam. And my dad would sit through and watch those ads sitting right next to me and not say a single word. Same for the whole family. We'd go quiet during the ad. Conversation would continue on the other side of the advertisement. So my dad knew that I was a draft resistor. And when you look back and see what was the provocation for the war, the Americans claimed

[00:06:50] there was an incident where their boat in international waters was fired upon from the Gulf of Tonkin. The Vietnamese fired upon us in international waters. What actually happened? The American was doing an attack in Vietnamese waters. And they're fired upon with the Vietnamese legitimately defending their own territorial rights in their own internationally recognized territorial waters. And then that's what's the excuse the Americans used to invade, bomb the shit out of the place.

[00:07:19] What happened over about – how long did it go on? For about 10 years? And they lost. Literally, people – younger people might not know this, but there's a famous video of people clamoring on the roof of the American embassy into the last helicopter leaving Saigon as the North Vietnamese forces and the Viet Cong forces were invading the American embassy pomp out.

[00:07:43] So America – as I summarized very quickly in that talk with tears – what you do is you make up a false flag, you invade the country, and then you lose. Yeah. And that's really been the pattern ever since Vietnam. The whole thing at all happened. You can't see it. Yeah, yeah. The bizarre thing as well is – I mean, wouldn't it be great if Iran was actually a democracy? Well, it was a democracy, and they made the mistake of saying, well, actually, you know,

[00:08:08] we'd like to nationalize our oil industry rather than American oil companies grabbing the fortunes from our resources. We want to have that. And – Yeah, I mean, I've had American friends of mine push back and say that it isn't as straightforward as that particular story, and I'm not sure about that. I've got to take a look at research. If Americans telling me about history, I've got to go look at the books before I trust what they tell me, okay?

[00:08:34] But, for example, we know, like in the case of Iraq – and I made this point with Stephen Moore in the discussion we had. He talked about Iraq, weapons of mass destruction. We knew there were no weapons there. You invade the place. You bomb the shit out of it. You kill over a million Iraqis, and at the end, you lose control of the system anyway. Afghanistan, the one about Afghanistan, most people probably aren't aware of this. Afghanistan was invaded by Russia.

[00:09:02] There was a Soviet or socialist-style government in Afghanistan. They were losing out to the local people, you know, the beginning of the Mujahideen. Russia invaded. And then America set up the Mujahideen, and I think also the beginnings of the Taliban, to give them weapons to fight against the Russians to undermine the Russian invasion. Finally, the Russians leave.

[00:09:26] And then what the Americans do – and there's a great movie with Tom Hanks called Charlie's War that dramatises this point, because one American politician, Charlie – can't think of his last name – was a great believer in the Afghan people. And he said, we have to help them get rid of the Russians. But he also said, we have to help them fix up the damage to their country and help them develop their resources after we get rid of the Russians.

[00:09:55] The Russians leave, and so did the Americans. Yeah. They just abandoned the country to its fate. And this is argued to be one of the reasons that we had the rise of Osama bin Laden, because he was fighting on the Afghan side, thought the Americans were there to help them. And once the Russians left, the Americans pissed off as well and left them to the devastation of the post-war, and that's what led to 9-11. So you see all the way through, America creates. It intrudes.

[00:10:24] It creates the enemy that it then copes with at some point in time. So my little shorthand was, if you want to know who America's current enemy is, it's his most recent previous friend. Yeah. Well, and it's all just bully boy tactics, isn't it? So if they feel as though they can destroy Iran, unless they destroy everyone in Iran, there's going to be enough. I was so thrown by his argument there when he said, we're the good guys.

[00:10:53] I said, oh, so the good guys, they're the people that go in and kill the negotiators on the other side after they've reached an agreement. And then they go and kill 150 school kids. And when the parents turn up, they kill the parents as well. That's what good guys do, is it? Interesting. And then they wonder why the children of those people who've been killed or their relatives have got it in for America. I mean, it's and it goes forever. Forever.

[00:11:16] So if you're a Palestinian and you'd seen your territory completely raised to the ground, you might want to do something. And your family's slaughtered. Yeah. You're going to commit your life to getting even with the Americans. America should – I'm going to put this in French. America should get the fuck out of the rest of the world. Back in the days when it had the – not the Monroe Doctrine, but the idea that they should just keep themselves. And that's why they didn't get involved in World War I until 1917.

[00:11:45] The doctrine was we don't engage in war. Go back to that doctrine because you buggers always see everything in terms of cops and robbers. Because the good guy with the gun, the better gunslingers, the good bloke, the bad guys can't get their guns out of the holsters as fast as the good guy can. Stick with the movies. Don't fucking leave your own bloody country because you screw up the rest of the world. It's worse this time, isn't it? Because they are getting progressively more stupid, the people who are running the country. Yeah. And bloody Donald Trump. And for that – you know.

[00:12:14] I told Stephen Moore to stop living in Hollywood scripts. He thinks he's an Ewok and he's actually a Star Trooper. Yeah. I mean, astonishing. Anyway, watch that. It's worth it. Even if you're not a Piers Morgan fan. And I can understand why some people are not. But I always give Piers Morgan a chance because I just remember when he was on Breakfast TV in the UK and he was hammering at the Tory government during the austerity. I mean, he was not – you know, he was really laying into them.

[00:12:42] So, you know, sometimes he's the good guy, not the bad guy. So, anyway, there's that. So, watch that. Something else before we get on to today's topic. So, we got an email. I think I'd like to do this a bit more because normally after every podcast, we do actually get one or two emails, normally in quite a bit of detail. So, we were talking about productivity last week. Cameron Kalkuth wrote in and said, I'm a quantum computing researcher at Oxford. I have some – I've got some thoughts on your recent episode, improving productivity.

[00:13:12] And we basically leveled two arguments about how productivity can be improved. One is just use more energy. So, you – because whatever you do to improve productivity, you're going to need to mechanize or automate more. And that is – and you made the point that is generally going to mean you've got to throw more energy at it. And he says there's no limit on that. Well, there is a limit on that. But the limit is, you know, is so vast we're never going to get there.

[00:13:43] So, for a society, we've been extremely inefficient at harvesting the energy from our surroundings. For example, harvesting just 1% of the energy from the sun that the sun produces would enable us to increase energy consumption by a factor of – I don't know what that is. But it's 10 to 11. So, that's quite a lot. 10 to 11? Yeah. Now, I've got something to say back to him. Okay. 10 to 11. The limit is 10 to the 4. Well, it's been – let's finish this letter and I'll explain why. Well, okay.

[00:14:13] But whichever – I mean, the point is there's still a load more. But we've got to be efficient at being able to do that. And we've talked about that. And then the other side of it we said was – you know, which is the point I asked you about – is surely we have to be – for the power that we're using, we've got to get more out. And you remember I gave the example of how in the olden days I was editing tape. And now I do it on a computer.

[00:14:39] And so – and actually the amount of energy used to run the tape recorder when I was doing, you know, splicing stuff manually is probably as much energy as a computer uses. So, it's actually a case of using the energy more efficiently. And he makes the point, which is not quite the same thing, that the efficiency limit of computational power, you know, the argument that we're near that is flawed. I'm not sure we quite made that point.

[00:15:07] But his point is with quantum computing one day, if that becomes a reality, we may be able to see a huge increase in the processing power of computers. So, on two levels. One is we've got a lot – we can use a lot more energy. Secondly, for the computers that we use, the automation that we introduce, the computational power for the energy could also increase by a great deal. So, on both levels, we are not constrained.

[00:15:35] Now, when I got his email, I was going – well, and he sort of makes the point, you know, this question is just to what extent can quantum computing solve problems? For all of this, because we talked about the need for innovation, it doesn't matter that the processing power has a capability to do more and more and more, and perhaps with less energy. The question is what? What's it going to do? You still need somebody to write the computer programs.

[00:16:03] You still need somebody to have the now to actually say, well, this is how it's going to improve society or provide an output that we need. It's not just a question of mathematical inputs. You've actually got to say, yes, that's okay. Okay. So, we've got more computing power. We've got more energy. We've got more – we can process more per bit of energy, per input of energy. But what – so, we get more outputs. But what are those outputs? And we were talking about innovation last week.

[00:16:30] You need the innovation to decide what you're going to do with all of that power, and that is going to be the constraining factor. Well, yeah, innovations. But, like, back to the point about 10 to the 11 amount of power. That's – 10 to the 11 is what? A hundred thousand million times. Okay? That's what – that's the 10 by 11 zeros.

[00:16:52] Now, if – this is where when you start talking in those sorts of numbers, you start raising issues of energy waste, not because of inefficiency, but because of the laws of thermodynamics. Yeah. And there's a great – what's the guy's name again? Cameron. Cameron. Take a look at the work of Tom Murphy Cameron. You'll find he's got a – he's a physicist, and Tom has done a book on a physicist approach to global warming but also economics.

[00:17:18] And he makes the point that – because what we're doing, we're warming the planet right now through carbon dioxide capturing infrared radiation when it leaves the planet after coming in ultraviolet and visible light form. And that's what's warming the planet right now.

[00:17:34] But he said there's also entropy, the fact that if you're going to do work, you necessarily create more disorder than you do water in the aggregate because of the unbreakable second law of thermodynamics that this disorder increases. It's got the – there's always the thing about whether it's in a contained environment or not. But generally speaking, using energy is going to also create lower frequency energy, which increases waste overall.

[00:18:02] Tom argues that if you look at the – What's the problem, though? In terms of heat or – Simply – yes. One of the best examples, mate, I can give about this. I saw it on the Verisardium show, so I'll acknowledge where I saw it. It is not a case that we take energy from the sun, okay? Because if we got energy from the sun and trapped it all here, the planet would be getting hotter and hotter all the time.

[00:18:27] So in terms of the flow of energy into the planet, which we exploit for our – not just for our civilization but also plants and animals and so on, the flow of energy in has to equal the flow of energy out for the temperature of the planet to be constant, okay? So it's not that we're taking energy from the sun. What we're taking is high-frequency photons.

[00:18:48] And when we do – when we absorb them and use them to do work or animals use them for, you know, growing and so on, they transmit an equivalent amount of energy back out. But it's high-frequency photons coming in and low-frequency photons going out. And for each high – like light, visible light photon that comes into the planet, 40, roughly, infrared frequency photons leave.

[00:19:14] The amount of energy contained in two is the same, but one is highly ordered and one is disordered. That's the transition from high – from low entropy to high entropy over time, as the thermodynamicists explain it. Now, doing the mathematics of that, and Tom's – as a physicist, he can do the math. In fact, his website is called Do the Math, okay?

[00:19:36] So what he says is if you look at the rate of growth – economic growth over the last two and a half millennia, ever since we discovered fossil fuels, roughly speaking, we've increased the amount of energy we've consumed by 2.3% per annum. Now, the 2.3% per annum number is chosen – as well as being roughly right, it's also chosen for a simple reason. If you increase your energy consumption by 2.3% per annum, then every century you increase your energy consumption by a factor of 10.

[00:20:06] Now, at the moment, the amount of waste that we generate in terms of the laws of thermodynamics applied to the temperature of the planet, it's trivial. You don't need to worry about it. But if we increase, I think, 10 to the 4 or 10 to the 5 times, then the amount of heat, simply from the laws of thermodynamics, nothing to do with global warming, will raise the average temperature of the planet to 100 degrees Celsius. Right. Okay? Not going to work because at that stage all the water evaporates and we all die.

[00:20:35] We die long before then, of course. So what that says is, strictly speaking, where we are right now, if we go through another four centuries of increasing the amount of energy, even if we're taking it straight from the sun, okay? No pollution, no resources mined on the planet whatsoever. If we simply absorb that energy and increase by a factor of 10 each year what we use to produce output in a capitalist or whatever economy type we have, even a Star Trek economy,

[00:21:02] we will raise the temperature of the biosphere to 100 degrees Celsius and it's good by biosphere. So you can't go 10 to the 11. If you're going to do that, you've got to go off planet. Now, that is something I believe we should be trying to do and there are ways to do it which are much simpler than Dyson spheres and things like that. So I wish that's what we were doing as a species. We would have a chance surviving. At the moment, we're screwing it all up in the biosphere, not even thinking about these consequences,

[00:21:30] and we've got idiots in charge who don't understand what global warming is, and most of the public has been turned into idiots by accepting their garbage from both the oil industry and economists. So definitely the tide has turned, hasn't it? But, I mean, even without, you know, I mean, I only half understood what you're saying, but, I mean, at a very simple level, if we are using more computer processing power, computers get hot and, you know, we're going to – so the output is heat. And if we do a lot more of it, I mean, my point was, even if you had – Well, that's the argument.

[00:22:00] You actually do understand the point by saying that. That's the point. So – To use energy, we have to generate waste tape. Yeah, yeah. And – but I think my other point is still just equally as valid as well because we've, you know, this ability, if we could harvest more energy and we had processes that can operate more output for the same amount of energy, that's all fine, but there's still the human problem about what are you doing with it and we can't – Yeah, what do we have? Yeah. And, you know, what problems are we solving?

[00:22:29] Because at the moment we've got a lot of AI, which is generating a lot of pictures for Facebook, which is not really helping mankind very much. But also, interestingly, just this last month, the – in the United States, the labour share of income fell to 54.1%, which is the lowest since the series began in 1947. So I wonder whether that's the influence of AI, that we are now outputting more with less people.

[00:22:58] And so, I mean, that would be a productivity gain, I guess. It would. And we'll talk about it after we come back after the break. But – Well, no, let's just say quickly because I've got something else I want to talk about. But, I mean, that's – Okay, okay. Just the follow-up. What it's showing is the distribution of income matters. Workers used to get 70%, 75%, in fact. And what's happened to all the gains from productivity, given the power structure of capitalism,

[00:23:27] and particularly the finance sector, which we've let run rampant, all those gains have gone to either financiers or capitalists. They haven't gone to the workers. And AI could make that go from 54% to zero. And that's not the AI, but robotics as well. And that's the real danger. We have to say, what is the economy for? Is it for the ultra-rich and screw the rest of us? Or is it for the whole – or is it indeed for the planet itself? And that's what we've completely mistaken. Well, you think we can continue exploiting the rest of the planet?

[00:23:56] We're finding out the hard way, and we're going to find out this year in particular. We can't do that and survive. Well, it's already showing up in the numbers, in those numbers from the Bureau of Labor Statistics in the United States. Right. We're going to take a break. And then we're going to look at the incentive for us to borrow rather than save in just a second on the Debunking Economics podcast. This is the Debunking Economics podcast with Steve Keen and Phil Dobby.

[00:24:26] So, Steve, I've been doing a bit of groundwork for my return to Australia. And I think this demonstrates part of the problem that exists in Australia and other parts of the world. So, I'll have a small slug of money to buy an apartment in Sydney, which is obviously horrendously expensive. And I could make a choice. I could say, right, I'm just going to use the money I've got to basically buy most of an apartment

[00:24:56] and then any excess money that I have left over each month I put into shares. The problem is the money that I put into shares, I'm going to get charged capital gains tax when I cash them in because they are capital gain. The money I put into the house, into the mortgage, if it's my own property, I don't get charged to capital gains.

[00:25:21] And in fact, if I use the excess money to buy a bigger apartment and then I use an offset account, then basically the money that I'm putting in is offsetting. And it's, in effect, almost like a tax-free return that's equal to the mortgage rate. So, there's every incentive for me to say, right, it's worth piling money into property rather than putting it into anything else,

[00:25:49] whether stocks or shares or investing into a new startup business, which would be the ideal way as far as the economy is concerned. And I think it's the same around the world, isn't it? We are incentivized to borrow more rather than invest more, which is the exact opposite. I'm sure your parents brought you up to say, well, your dad was a banker. So, I'm sure, an old-fashioned banker, I'm sure it was the same.

[00:26:14] My dad was an accountant and it was all about save up as much as you possibly can, saving money for a rainy day. Now, that old-style thinking is gone. We are given a lot of incentives the way the economy is structured for us to just borrow more rather than invest. And that's exactly why we've got a screwed-up economy in the West, because we've let what Marx brilliantly called the roving cavaliers of credit take over the financial system.

[00:26:43] Anybody who reads Marx doesn't understand money, you haven't read enough Marx, read volume three of Capital and the three volumes of the Theory of Surplus Value. See, he's got a very sophisticated view of how the financial sector operates. And his argument is exactly the same one that I make. When the financial sector runs, the economy gets screwed up, because what the financial sector does is encourage us to borrow money off them, pay them interest, and then buy an asset. The asset price rises in value. We think we're better off.

[00:27:11] And some of us who are large-scale speculators, property developers, newspapers in the old days, they do benefit. But what it means is the cost of buying residential property becomes impossible over time, because the only way that that process works is the person who buys the house off you borrows more money than you did. Now, what that does is, over time, it reduces the number of people who can afford to buy a house. And we're seeing that in the statistics.

[00:27:40] I don't have the Australian ones to hand, but I did back in 2022 when I ran for election and abjectly failed over here to do so. The government policy was to increase home ownership. You take a look at the statistics. The number of people who owned a house outright fail from about 60% to 30%. The numbers who owned with a mortgage rose from about 20% to 40%, and the balance is more people having to rent.

[00:28:10] And we're seeing that right now. Basically, if you're not a billionaire, you're a renter, and you're being squeezed by rising rents as well. It's a deadly, stupid use of the capacity to create money to simply drive up asset prices. But that's what we've done with it. And it's because the financiers benefit. The rest of us get screwed. And we think we're getting screwed, and we think we're being given pleasure.

[00:28:37] Well, it might mean that we're paying $2 million for a house that might only have been worth a million. But actually, if your whole rationale for that $2 million house is that you want to see an increase in value because you want to pass on money to the kids, ultimately, then you don't care because it's just the increase in value that you care about.

[00:29:02] You don't care personally whether your house is overvalued so long as it's overvalued when you sell, when you die. And that's exactly it. Yeah. Yeah. Like I've seen- Because all you're caring about is you are in that property to avoid capital gains tax. Yeah. Yeah. And that's one, like, exempting the family home from capital gains is one of the many legal structures in the Australian system. I think it's actually fairly common around the rest of the world as well.

[00:29:30] What it means is you get all the reason in the world to bump up the – you do some development of the property as well. That's how you evade taxation. So we get an enormous increase in the elaborateness of houses. But more elaborate houses don't produce smarter children or more children. So it's – whereas if you're putting that money, if you're borrowing the money to build, design new capital equipment, make new technology, then you do get an increase in physical output.

[00:30:00] And therefore, that's the ultimate form of productivity. And this is one reason of being back to our questioner's comment from the first half of the show. You want to direct as much of that to increasing the sophistication of your production system. And you don't want that to be increasing the price of your land.

[00:30:20] And so if you take a look at the really relatively far more successful Southeast Asian nations and China as well, what they've largely done when they have been successful, and that's, say, Singapore versus Thailand on that front, they've stopped land speculation. So the Singaporeans, a large part of the land is publicly owned. And large public – a lot of people rent a home from the state rather than from private landlords. Yeah, exactly.

[00:30:49] And Singapore is one of the absolute – I mean, Singapore was very run – not run down, but it was a real third world country until Lee Kuan Yew basically increased wages in one year by 27%. Most people would not know that particular factoid. I was working in overseas aid, this Freedom for Hunger campaign at the time, and his decision was that we want to – if you can't afford to pay a decent wage, then leave.

[00:31:17] So what it was drive out the low-wage, low-cost elements of the system partly had to do with the break of Singapore leaving the Malaysian Confederation. Malaya became Malaysia, Singapore was included, and they broke away. But the effect of that on Singapore was to drive out low-level wage industries. The only industries remaining were more high-tech. The skill level rose dramatically. Singapore is now one of the richest nations on the planet.

[00:31:46] I think, on average, Singapore has a higher GDP per capita than America does. All the success story, and a large part of it, was preventing all that increase in wealth going into land prices. And that is the problem in Australia, and I think it's the same in a lot of other Western countries, isn't it? Because the incentive is there for you to invest in property, you're not going to invest in other stuff because you're going to be here with a capital gains tax. So it doesn't matter whether it's worthwhile or not.

[00:32:17] So that's hitting our productivity, ultimately, because there's no money going into finding the smart solutions to stuff. Because if you find the smart answer to stuff, the people who put the money into that are going to make a profit, which, you know, they're going to get – the capital is going to increase, and they're going to get hit with the tax for it. But – And it's even worse than – yeah, even worse than that. I mean, my personal – obviously, I spent most of my life in Australia, and I was always a fan of innovation.

[00:32:47] Australia does have a record for innovative technological developments, the photocopier being an example of one Australian invention by the CSIRO. We don't – A lot of it's coming out of the public sector, though, isn't it? That's the – Yeah, it is. And also, I think his name is David Green, Professor David Green at the University of New South Wales. His research group led the world in the development of amorces crystals for absorbing solar energy.

[00:33:14] So all these advances were being made by Australians. Wi-Fi is the Australian invention, isn't it? Wi-Fi is Australian invention, part of it, not the whole thing, but part of the Wi-Fi system. So what happened is that David was trying – Professor Green was trying to get his research to be turned into an industrial industry for Australia, because we were the world's leaders in the development of solar cells that could absorb more energy than anywhere else in the world.

[00:33:44] He said about – I'm not sure how many there were, but about 10 or 15 records over time of the percentage of energy absorbed and turned into electric current. Now, he couldn't get – couldn't persuade the New South Wales government to provide any funding, couldn't get money out of the banking sector. He had a PhD student who was Chinese. That PhD student returned to China, and that's where China's become the world leader in the manufacturing of silicon cells. And that's only one story. I'll give you two more.

[00:34:14] One is this Australian company called Dolmysin, based in an absolutely raging high-tech hub of Gosford. Okay? And you had a bunch of engineers there who decided to make – they were going to go for broke. They were going to make the world's first genuine portable computer. And this is back in the 1980s, I think. It might be the early 1980s. The Gosford is in central case, north of Sydney.

[00:34:42] It's not a particularly wealthy area. Yeah. But they came up with a machine which had – it had an eight-line by 80-character display. So they eventually got to 16 and then 24 lines, but that was the size of the LCD that gave you the signals. It weighed four kilos. It had memory. You put programs into it in what they call read-only memory, ROM capsules. Beautiful piece of design.

[00:35:12] They could never quite get the bugs out because there's always bugs in hardware as well as software. They were forced. They tried to get money to continue the development to get over the bugs. They failed to get the money, so they released it into the market too early.

[00:35:25] I bought two of them, three, I think, ultimately, and they collapsed and they ended up being made as a machine called the Kookaburra, which is used by the Indian telecommunications company to maintain telecommunications in India. But Australia – this thing came out. It weighed four kilos. You could put it in a briefcase. At the same time when the IBM PC was invented, when the IBM PC came out, it had 64K of memory.

[00:35:55] It didn't even have a floppy disk. You kept it on a cassette tape, okay? And the terrible CRT and huge monster thing. This thing comes out. Not only did it have more memory, 256K versus 64K in the IBM PC. It was portable versus the bloody IBM PC and needed a truck to move it from one room to another.

[00:36:18] And the IBM PC used what's called the 8088 chip, which is an 8-bit processing chip. And then the next stage of the – they had what they called the 8086, which is 16-bit input, 16-bit internal calculation. Dolmite made the decision – Dolmison made the decision to go with the 80186 chip, which was far more advanced.

[00:36:42] So they had two generations ahead in terms of the processor, portable rather than luggable at the very best, magnificent design, and they failed. And so that's another. But my final example was a telephone called the Tytel by a company called Tysom. And that was a beautiful phone. I worked in the government department at the time. I equipped my entire office with Tytel telephones.

[00:37:08] They had – it was a liquid crystal display for the – this was back in the 70s, like early 80s. Beautiful piece of technology. Rather than like a physical thing to turn the phone off, it was a magnetic switch. They had a – you could put a Teledex to the side of it to make your telephone calls just by pressing buttons. This was long before the internet. Beautiful piece of technology. It was undermined by the Australian government, quite literally.

[00:37:39] Telstra, I think, imported a phone from Malaysia and claimed – sorry, they imported a Japanese phone, which is not as good. And they claimed it was coming from Malaysia. And they undercut Tytel and sent them broke. That's what we did at Innovator. We screwed them in Australia. So here's – what about this then as an idea, right? So, I mean, this would upset a lot of people, but it seems like – Oh, we can't do that. This is the debunking economics podcast. Exactly. Everyone's on our side.

[00:38:08] But you – Absolutely. But you say, right, we are going to apply a capital gains tax to your residential property. And we're still going to apply a capital gains tax to your shares. But we will not apply capital gains tax if you invest in an IPO. Yeah, something of that nature that encourages genuine investment because we've made the mistake of – we've confused speculation for investment.

[00:38:37] And that's what people are doing. The opportunity for Australia, if you were to do that, is huge because, first of all, there's a lot of smart, educated people, as we've demonstrated with the inventions that have happened and failed. And there's a lot of resources. So, with all the energy we've been talking about, there's obviously all the energy potential that Australia has. There's all the space that Australia has. There's the resources which are being dug out of the ground, the mineral resources.

[00:39:05] Everything you need exists in Australia. It's just that we don't add value to it. We dig it up and ship it out because there's not that incentive to invest in the smartest stuff. So, give the incentive. And then on top of all of this as well, Australia is the fourth biggest superannuation fund resource in the world because everybody has been encouraged to put money into their super.

[00:39:31] And that is being – a lot of that is now being increasingly invested overseas. More than half is being invested overseas because there's a lack of opportunity for investment within Australia because they've sort of like saturated the opportunity to invest in Australian resources. So, you know, so there's all of that money as well. I mean, it just feels like it's just being mismanaged because – Oh, totally. It easily affects with tax policy. Tomorrow, if they're – This is – yeah.

[00:40:00] And this is back to Donald Horn's brilliant coin about the lucky country, which people think, oh, we're the lucky country. What he meant – what he actually said was Australia is a lucky country managed by second-rate people who share its luck. Yes. And so we've relied upon – we've relied upon luck rather than actual capacity to innovate and think. And like, again, a couple of personal examples I know from that front.

[00:40:21] I brought a group of Australian – of Southeast Asian journalists out to Australia for a set of seminars, which were a failure because I couldn't get the Australian media to pay their way for the – they'd pay away for a junket to China, which they did, but they wouldn't pay to go to a local seminar. But anyway, at one stage, I got them to meet the board of BHP. And we're talking away with the – each of the different divisions inside BHP. And this actually relates to the modern China story as well, by the way.

[00:40:49] And when they asked the – each of the leaders of the BHP, the board of BHP, you've got to be pretty wealthy. You'd think you'd be bright. They asked like the iron and steel division, the – you know, there are about half a dozen divisions in the company. What's your idea for the future? Oh, well, it's pretty hard to say what to do because, you know, it depends on what the market does and the market. You can't really pick the market. But – and it was just all about bloody luck.

[00:41:18] And then that's how they found Bastrate oil as well because a geologist they brought to take a look for oil off Newcastle in Wollongong, where they used to have an iron and steel plant, said, can't find any there, but I reckon you might find some in Bastrate. That's where they are. Anyway, but the one guy that we spoke to, which I was impressed by, was involved in BHP's attempts to do oil mining off the coast of China. And he was describing the Chinese system at the time. This is 82, 83.

[00:41:48] And the Chinese system had a form of competitive pressure on the bidders to pay as much of a price as possible to actually be able to prospect in these particular regions of the South China Sea. And I could see the guy. He's saying, we're getting screwed by the Chinese because they've set it up in such a way that they get the maximum possible price out of these foreign enterprises trying to – And I said, what's your opinion of the Chinese system? He said, it's brilliant.

[00:42:16] He said, I hate the fact that they're getting too much money out of it, but I'm so impressed with how well they've thought out their licensing, that they're getting the maximum possible amount of money for the Chinese economy out of us. And of course, that's – and so that's – Australia lacks that sort of thinking. But it's not just Australia. A lot of listeners, the rest of the world. And you're exactly. I've done almost everywhere. Everyone is investing. Property rules. Yeah. And it seems like it's very simple to fix that.

[00:42:44] Just go, yeah, you're going to pay capital gains on – I mean, just equalizing everything. So, unearned income should be taxed at the same level as earned income. Capital gains should apply to everything except where you want to incentivize it for the good of growing the economy, which would be saying, yes, if you're investing in new startups rather than investing in – because if you invest in existing shares and incentivize that, all you're going to do is push up the asset value of those shares.

[00:43:11] I'll come back to Carl and my finishing comment on this one, relatively speaking. And that is he said that the situations of – high rate of interest can show, as it did in 1871, I think it was, that the economy is dominated by the roving cavaliers of credit who make great wealth by gambling with other people's money.

[00:43:33] He said periodically economic crises let the financial sector and the parasites hanging off the Islam – he literally said parasites – to despoil industrial capitalists. And this gang knows nothing about production and should have nothing to do with it. We have let the roving cavaliers of credit take over, not just the Australian economy, but the global capitalist economy. When was that? He wrote that in, I think, in 1871.

[00:44:02] Yeah, there we are. Nothing has changed. We haven't learned. Nothing has changed. Yeah, there we are. Well, very good. Interesting stuff, as always. Look, I had lunch with a friend of mine today who listens to the podcast or watches it sometimes. And he says, the end thing he puts him off, he says, sometimes you just look a bit bored. I hope – no, not you, me. Ah, okay. I mean, no, it's just my natural – Well, I do go on. Natural resting face, that's what it is. But anyway, so I'll try and look more animated, although it is getting towards midnight here,

[00:44:31] so that's my excuse this week. We'll talk again next week, Steve. Thank you. Indeed. We might even be in the same country. Actually, we won't. I've got to stay back here a bit longer, I'm afraid. Ah, okay, okay. For tax reasons. So we'll go into that sometime. But anyway. I think you just shot our show on the foot, mate. That's right. Well, you know, yeah, it's complicated. But everything takes – you know, it's like in the UK, everything takes a long time.

[00:45:00] Things that – you know, and part of it is because I'm moving money around in my pension fund, right? And you put money into your pension fund. So my business has put money into the pension fund. And you think, well, that's going to clear tomorrow. And here I am a week later and it's still not cleared. And I did talk to somebody who runs a share trading platform and they said, actually, we make most of our money for money that's sitting in cash. If it takes five days for them to clear money going in, then, yeah. So much better for them.

[00:45:28] Five days for a large volume of money, yeah. Absolutely, yeah. That's the business model. Anyway, we're not going to fix that one today. We'll catch you next week. See you then, Steve. See you then, mate. If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve. Each week, Roger Hearing and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative.

[00:45:57] What more could you want? So search The Y Curve in your favourite podcast app or go to ycurve.com to listen.