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[00:00:00] New great entrepreneurs are born every day and we'll continue to see amazing companies get built. But I would definitely advise people who are starting a company to expect a long period of quite high difficulty. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. So the problem is those new entrepreneurs that he talks about, will they get the funding they need
[00:00:29] to be able to take their ideas to market or are we stuck with perhaps less innovative ideas or more protective ideas from the existing small base of industry titans of which he, Elon Musk, is one. So how can we foster more innovation for more people? That's this week. So this week we are looking at how to drive innovation because obviously we need more of it,
[00:00:58] countries need it to try and help their economy grow. But no one seems to be terribly good at it. I mean, there's a lot of innovation obviously coming from Silicon Valley, but what about the rest of the world? So in Australia, for example, all we're doing is building data centers for the companies in Silicon Valley who are rolling out AI. How do we get true innovation? And Steve, the problem is very often
[00:01:22] it relies on government support, doesn't it? Because those early ideas are not going to get venture capital support because it's too big a risk. And governments don't want to take that risk either. So in many parts of the world, there are funds to provide help or to provide loans in reality, slightly more risky loans than perhaps you'd get from a commercial bank, but they are still not going to go for the early innovators. They're going to want to see proof of success. So they're coming in at the
[00:01:51] point where the money is less needed. The seed money to make ideas work or to prove a concept is just impossible to get. So innovation fails. Yeah. And this is the major problem that I think China has actually worked out a solution to, because the problem is the banks will not lend to an entrepreneur. And there's very good reasons not to lend to an entrepreneur because most of them will fail. So even if you have a good idea,
[00:02:15] quite often the idea will be the execution will cause it to fail. Or you'll have four or five competitors in a particular market segment, only one of them makes it through. So a bank simply can't make a profit out of that because if they commit, if they make a loan to five entrepreneurs, say a million dollars each, if they're lucky, one of those will be able to pay the interest on the loan of a million dollars. They're getting $50,000 a year out of that, whoopee-doo. They lose four
[00:02:43] million for the other four that fold. So it's a no brainer that commercial banks will not lend to entrepreneurs who don't have their own capital to commit in case they do fail, in which case the bank takes over your house. And so what we get at the only way that entrepreneurs get funding out of the current situation is that they already own an asset, which they can mortgage and then they get a mortgage and then they use that for starting a business. Now that has been a formula which a lot of
[00:03:11] people have used. But again, it means people are committing to a debt that four or five are going to lose it. They lose their house. You don't get a system which causes general growth in the old economy. So entrepreneurs don't get funding out of the banking sector. And that means there's only really two potential routes they've got. One is the venture capital route. And I've heard enough about what venture capital does in terms of stripping the assets of an entrepreneur, not to even go near
[00:03:41] it myself for Ravel. So it is an extremely difficult situation. And if you have a truly innovative idea, then you've got to get through people who are worried about property prices, rather than people saying, that's a good idea. Let's see if it can actually be developed further. Well, the venture capital route, you only have to watch Dragon's Den, don't you, to see what a bad deal you're going to get from that. Because they're always going, well, yes, I'll take 30% of the
[00:04:09] company and I'll give you 10 grand or something. The figures, you're just thinking, well, this is far from generous. And that is venture capitalists, of course, because they want their skin. They want your skin actually to try and make a profit from it. And they'll act like they're doing you a favor. Yeah. But the other way, in the past, a lot of innovation, this gets back to the whole China thing, a lot of the innovation has actually come from governments. We've talked about this before,
[00:04:35] but you know, like US defense, actually, if we didn't have, if we didn't have wars, we possibly wouldn't have had the internet. Yeah, because the internet, but then that's actually probably the most important example of all. Tim Berners-Lee, wasn't it? Who was working for DARPA. Yeah. Okay. So this is, I don't know, I've got to give, these are details which I know off the back of my head. Most people haven't, really haven't heard of it. So the DARPA, the Defense Advanced Research Projects Authority,
[00:05:05] Tim Berners-Lee was always English, I think, English academic working with DARPA. Oh, was he Australian? I think he might've been Australian. I'm not going to go quite that far. You know, this is not a new, so not a young, not a young, not a young, not working as a capitalist. He came from that vast area, which Americans are unfamiliar with. Which is not America. The vast area of the rest of the world that America doesn't know anything about. Yeah. Yeah. Yeah. So he, he realized, the argument was that during a nuclear war, if you had direct communication
[00:05:32] between two sites, then it just takes a missile strike and that communication is gone. So the whole idea of the worldwide web was, and Berners-Lee invented it, was that you would break signals into packets and then you'd send the packets. And if the packet didn't send a signal back saying I've been received, then it would go try a different route. So you had, rather than having a wire connecting two installations, which is what occurred before the web, you now had a whole
[00:06:00] bunch of different wires. And to actually stop the communication between the two nodes, you need to attack out the entire country and which, you know, it's simply not possible. So it meant your communications could survive a nuclear attack. And that's why we got the internet. And GPS is a bit the same as well. Came out of the same body, I think. So we wouldn't have Google maps if we didn't have war. Yeah, that's right. Now they think that's an extremely unproductive way to inspire innovation,
[00:06:28] but that's about all we really have at the moment. You know, if we want to blow the shit out of each other, then we've got funds for that. And if we can use them for an ancillary purpose, like for example, knowing how to park our car, then we get the ancillary benefit, but it's a side effect of trying to blow each other up. So the ideal, of course, is that governments would do this research, not for reasons of war, but for reasons of good rather than-
[00:06:54] And infrastructure. So yeah. So again, and that's, it seems what the Chinese government is generally doing. I think the last time they invited the country was about what, 40 years ago? Their war with Vietnam was in 1979 or something like that. The last time they bombed anybody else. America, of course, is made up for the absence of Chinese bombs landing on other parts of the world. But yeah, the Chinese would say we need this infrastructure for the commercial sector, so we'll build it, not trying to make a profit out of it. And then it becomes part of the infrastructure
[00:07:23] that enables the private sector to do its own innovation. So there's, and there's a very neglected role. And this is where Mariana Mazzucato is the main person who makes this case, of course, that the state provides a lot of the funds for innovation. And so the government side has been neglected by all the austerity arguments. So for the sake of not having an unbalanced budget, we decide not to invent the next life-saving device. So we have a very constipated and dysfunctional
[00:07:53] method for getting innovation in most Western countries. And the problem is, even if the government does get involved, they are looking for early returns. So thank goodness they did actually find a resolution to COVID. Because before that, a lot of research organizations like the UK's Medical Research Council, they basically were working on partnerships. Their research was largely driven by how quickly
[00:08:18] it could be commercialized. So they weren't looking for, well, what happens if we've got a pandemic? Because it's hard to commercialize that in the short term. And that becomes a problem when governments are there saying, well, okay, we are going to reward ventures which are able to show rapid commercialization, which is not necessarily the best outcome, not necessarily the most innovative. I mean, it's better than nothing at all. But it's not tackling those really big issues or dealing with
[00:08:46] stuff that might have an outside chance of becoming important, like a global pandemic. Or like all fusion nuclear reactors, for example. And nobody, well, people put money into fusion because they think of that actually work it out as an incredible source of profit. But how many years have we been waiting for fusion to be successful? 30, 40 years of research. And that commercial entity simply can't sustain that scale. Most commercial can't sustain it initially.
[00:09:15] And this is, again, it's a question of timing, which is so badly understood by mainstream economics. In fact, I wouldn't even say badly understood, I'd say misunderstood. The state can take on innovations that are beyond the capacity of the private sector because they're not going to be profitable. And then because the state has sort of broken the ice, the next stage is easier for the
[00:09:40] private sector to do. So we've seen this in rockets. There would be no way we'd have, you know, Elon Musk and all the rocket companies around the world trying to make money out of private rockets if it hadn't been through the research NASA did to get a person, get people to the moon. So you, the government can be a loss leader in that case. And that's the case that Mazzucato makes, that the absence of the need to make a profit and the source, the fact that it has capacity to create the money that enables this
[00:10:10] funding to occur. Yeah. Yeah. Yeah. That gives the state the capacity to fund large scale ventures. And then once they've done the fundamental research necessary to make it actually feasible, then it's possible for the private sector to take over and commercialize it. Yeah. Well, that actually gave me my next point or my next question. I mean, should, if we are looking at innovation, should it come from new money?
[00:10:37] Yeah. Because otherwise you get the potential for destroying money. If you've got a venture and it's just not going anywhere, whereas if the government is spending money, it is new money that's been created. So who cares if money is spent going to the moon? It's not actually changing the day-to-day economy. In that sense. That's what NASA was all about. That was obviously an additional expense by the American government, which had no commercial return. They didn't make any money out of
[00:11:03] it. But of course, many, many products spun off from that. And then our lives have been transformed by the technologies developed during the NASA program. But again, the government can afford, it's not trying to make money. So it can afford to create money that it effectively loses because all the money that they create goes to the private sector. Because the supplier of the... It's sometimes the case that the government entity will actually make the devices, but quite frequently they'll
[00:11:30] pay a commercial, like they paid Boeing, for example, to make the engines. General Electric and so on and so forth. So the state creates the money to enable the project to take place. It hires the private sector to do most of the construction, if not the actual mathematics behind things like the rocketry equation and so on. And then we get the double benefit. The technology is developed, the money is spent into the private sector,
[00:11:59] that creates private sector employment and further activity. So you get a spin-off effect from the government being a loss leader. And Bill Janeway, who's the person who pushes the private sector's capacity to innovate, says the same thing in a sense that you have to have entities which can afford to lose money to be able to have innovative investments. So the government can afford to lose money because it's created by government deficit spending. And so the venture capitalists with large amounts of
[00:12:26] money they can afford to lose some of it. So like as long as one in 10 succeeds, then the one that does succeed, they get the capital benefit from that. So the trouble with banks is banks make a loan, they get a loan component and four out of five entrepreneurs fail, which is optimistic in some ways. They lose 80% of their principal and only get interest on 20% of their principal. But venture
[00:12:53] capitalists take an equity position. So if they lose four out of five, they lose a million dollars in each of four and the fifth one becomes Amazon. So they make a huge capital gain that way. So what about that innovation which is coming from Silicon Valley with money that Silicon Valley has or is now borrowing? I know, that's the stage we're now in with the IR bubble, yeah.
[00:13:16] Yeah. And so that is not creating new money. Well, the borrowing might be coming from a bank, but by and large, actually, the borrowing is largely coming from other entities. I mean, there's all this circular financing which is going on, which is all a bit dodgy and very difficult to track. Like half a trillion dollars in Nvidia, half a trillion dollars, but it's largely funded by other AI-related entities. But that's not new money. That's money that's already in the economy versus
[00:13:43] innovation which is being funded by the government. If it's not new money, then surely that means other people are losing out. So we're funding all of this vast investment in innovation, which no one's going to argue necessarily that's a bad thing. They might question about how far it's going to go. But that's sucking money out of other areas of the economy, isn't it? So it is problematic.
[00:14:05] Yeah. And this is one of the best intellectual examination of how innovation occurs was by Schumpeter in his book called The Theory of Economic Development. And by the way, anybody reading Schumpeter don't bother reading Capitalism, Socialism, Democracy. That was his retirement plan. It's a useless book. But The Theory of Economic Development is quite brilliant. And what he argues there is that entrepreneurs are people with a good idea but no money. And then he said that the role of
[00:14:33] the banking sector is to give them the money. And so when you have the innovation as well as getting the funds to carry out the project, you also boost economic activity by creating money that is then spent into the economy and causes a generalized boom. And I think that's the phase in the sense that we're in right now with the AI bubble. But of course, it's initially been financed by venture capital. And then in that case, it isn't so much that it's not creating any money, but there's large amounts
[00:14:59] of money in fairly stagnant pools. There were before AI. And the cash reserves of companies like Microsoft and Facebook were astronomical sums out of which they spent very slowly. Now with the AI bubble, astronomical spends have been spent very rapidly. Which is a good thing. I mean, that would create growth for the economy. Yeah. That's what's giving us a boom right now. But of course, the bust will come. Yeah. And this is what Schumpeter argued as well, that once the technology is created and then
[00:15:28] permeates through society, it starts to permeate when its sale undercuts the rest of the economy and starts causing a slump. Yeah. And so with a boom and slump cycle is a necessary part of that innovation. But if you want to make it happen more rapidly, one of Schumpeter's fallacies in his argument was he assumed that banks lend to entrepreneurs. Of course they don't. No, they lend to people wanting to buy a house. Exactly. If you lend to people buying,
[00:15:55] all the people have already got a house and then with the house, they mortgage the house and then they can get the funds for the bank. And now that is a very circumlicuitous and bubble oriented, speculative way of financing innovation. So one thing I propose, which will never happen, but it's the sort of reform I'd like to see to the banking sector, is to allow banks to make what I call entrepreneurial equity loans or EELs. And with those, what they would do is they take an
[00:16:21] equity position rather than a loan position and they created the money. So you give somebody, you've got five entrepreneurs a million dollars each, four of them fail, one of them becomes Amazon and that million turns into a trillion dollars. And the bank doesn't take a capital loss. Now, by the way, every time I've suggested this, I've been told by business people, for God's sake, don't give the bank any voting role on the board. The bank people are by far
[00:16:47] the worst people to have managing a company because they're always worried about losing their money and they have no idea of the technology itself and they've got a short-term perspective. So it'd be, there'd be absolutely have to be sleeping partners if you enable things like that. Yeah, but I don't, you're not going to get banks to do that, are you? Because it, because... You are in China, and this is why I mentioned China beforehand, because most Chinese banks, they're ostensibly private, but owned by the state. That's going to be because they're being told to, that's why they're doing it.
[00:17:16] They're being told to, and if they fold, we'll bail you out. So in a roundabout way, China is providing entrepreneurial equity loans to small companies, which is why you've got this one of the reasons, why for the enormous growth in technology in China. Yeah, well, there is that question, isn't there, about whether the government, because it's very difficult for government to say, well, okay, we're going to start subsidizing projects because governments are notoriously bad at picking winners. But if there are other people picking winners...
[00:17:42] That's a myth coming out of Austrian economists. If you look back and say, is the space industry a loser? Was the internet a loser? Were microwaves a loser? Were photocopiers and fax machines losers? They're all things you can trade back to government initiatives. It's just government funding, basically, fundamental research. And this is the whole idea that research has to turn a profit,
[00:18:09] you mentioned earlier. That's one of the weaknesses in the way we finance them right now. But you need... A lot of the work we do, a lot of the things we use come out of fundamental research. And if you don't fund the fundamental research, you don't get the spin-off products. So you have to have that fundamental research being funded. And if you cut back on the state doing it, it's not going to be done by the private sector because it doesn't turn a profit fast enough. So you do need the state to be involved in providing funding for fundamental research.
[00:18:39] Yeah. Unless there's a way to do jointly both. And I have a cunning plan on that, which we'll do after the break. But just before we go to the break, this whole idea of banks taking equity positions in companies. It may happen in China. It's not going to happen in the West, is it? And in fact, I did an interview at the bank recently, which I do a podcast for, for those of you unaware, where we were talking about the AI bubble. And basically, it was the head
[00:19:08] of the debt markets for the bank saying that funding debt is obviously better, is a safer road than taking equity positions, not for the bank, but for anybody. And because who knows how big the bubble is, but the money that is being spent by these companies is going somewhere. So the debt that's being created by Microsoft and all the others is being spent on data centers, for example. So those
[00:19:35] data centers have a secure return because they've got contracts in place. And with the contract in place, then the bank comes along and says, well, that's pretty secure. That's a safe investment. So we're going to provide the finance. Okay, we'll lose on the upside of the AI revolution, but it's the whole picks and shovels argument, isn't it? We'll provide the money for the data center because it's got a contract in place. We know the money is going to be paid. So that's an easy bet. And that's the space that banks play in. And that's also the way, you know, I guess a lot
[00:20:02] of investors play because they know it's in demand. And, you know, in countries like Australia, that's the only part you can play because we don't have any, you know, we don't have any AI entrepreneurs. We don't have any great AI initiatives, but we can supply the data centers. So we'll do that. We'll fund that. And that's the extent of our innovation. It's not very innovative. It's not very innovative. No, exactly. But that's where the safety is. All right,
[00:20:29] let's take a break and I'll tell you my idea, which is sort of a bit related to yours in terms of how you could perhaps get the government and the private sector to work together. We'll take a break back in a moment. This is the Debunking Economics Podcast with Steve Keen and Phil Dobby. So, Steve, here's my thought, right? And I was at Innovators lunch this week. I'm not really quite
[00:20:56] sure what the purpose was or what it achieved. But anyway, a lot of people very excited about innovation. And I was talking to a guy there about how there just isn't any money going in to fund ventures. And I said, what about if the government was prepared to take the risk, if other people were prepared to take the risk? So in other words, one of the problems you've got in Australia, and I think it's the same in other countries, but it's worse in Australia,
[00:21:23] is if you've got some cash, really every single avenue points towards putting it in a house. Because house prices are going up. Yeah. I think that's running out of... That's where it's used by a date, but that has been the concept for the last 50 years. Well, do you know what? But the way it's all structured, the incentive is still there to put it into a house. Yeah. Capital gains, cuts, taxes, yeah. Yeah. But putting it into your own private house. So you might have lost the incentive to
[00:21:50] put it into investment properties. But the idea is... So in Australia, for example, in the UK, if you're paying to a pension, you always get a pension. In Australia, it's means assessed, but your house isn't means assessed. So you've got a very easy strategy, which loads of people follow, is they go, right, okay, well, I'll make sure I've got less than 500,000 sitting in my super, so I can claim the full value of the pension, the Australian pension, the state pension. And I've still got a half a million in super, and I've got a house which might be worth 10 million,
[00:22:19] but that doesn't matter because that's not assessed. So that is a strategy a lot of people take. So the incentive through all of that is to say, if you've got spare cash, put it in the house. That's why house prices... I believe that is why house prices are so high in Australia. For that reason. That's one of the many reasons, but yeah. Yeah. And so if you had a vehicle... So there's nowhere else to put money without paying capital gains. No one really likes to pay capital gains. So in the UK and in America, they've got a similar project, a similar scheme. You've got an ISA, so you can put money into an ISA, and it's capital
[00:22:47] gains free, and it's sort of like 25,000 a year or whatever, maybe 30,000 now. So the government could say, do you know what? We'll introduce this scheme. So we'll give you 30,000 or 50,000 Australian dollars that you can put into a scheme where you can put your investment, but it has to be in an Australian project. And there'll be a risk profile associated with it. But if
[00:23:16] you go for the low risk stuff, we will, for example, halve the loss that you make. We will provide some sort of subsidy. So we're sharing the risk. But the government is sharing the risk. If you are going down that road and you're saying, well, okay, I'll put money into this company, but it's your money. You are going to research the hell out of that investment so you understand everything about the company. So you can say, okay, there's good upside potential here, but I need to know everything
[00:23:42] that there is to know. And the government doesn't have to do that research. You're doing it for the government. There's enough people doing that. And if it fails, then the government's got to shell out to cover your losses. But they are providing basically a guarantee for you to do the work. So they're not picking the winners. People are picking the winners and the government's helping to sort of like subsidize that if it goes wrong. I've had a similar, a good idea. I've had a similar type of concept that is basically we should crowdfund funding of investment, but crowdfunded by government created money.
[00:24:12] Which people get the thing only is to take on an innovative investment. And if the investment fails, then that's no problem because the government carries the loss, which means the government's created money, which is spent into the economy anyway to allow general economic activity to occur. But if you do get a capital gain, then you benefit too. And so what you would then, the reason, one of the reasons I have not become a complete fan of something like a
[00:24:38] Chicago plan where you ban bank money creation completely is because I do accept that there's, when, when private profit oriented individuals are making decisions, then they're likely to assess, you know, if they face a complete loss that they don't work it out properly, they like to do decent research to work out whether the project is worth funding or not. The banks won't do it right now because they know that there's an 80% chance of failure across all
[00:25:05] entrepreneurs. But if they, there's still a reason to have the banking sector as providing that private insight. But you can make the private insight through the wisdom of crowds. And then in that case, rather than trying to guess what the crowds were by, people who are part of the crowd are saying, this is what I'd like, and you get a large enough number providing it, then you get the funding being oriented what people's current desires are for some new product.
[00:25:30] So, or both schemes. So the benefit of your scheme is that it is newly created money. So it's incremental money for the economy. Yeah. For the private sector. And we're talking newly created money by the government sector as well, for this, but both our ideas in that case, yeah. Yeah. So, so, so that's great. So the, anything is if, if it's newly created money, it's money you didn't have before, have you, I mean, you've got the potential to win, but have you got as much skin in the game as if you are actually putting your own money into this?
[00:25:59] I don't know. A philosophical question. I mean, the idea is that it's money that you've got, which could produce a lot more. So you are obviously going to want to get the best return. So you're still going to have that incentive to research, but it is, it's like, um, as you say, it's the crowd, the power of the crowd, isn't it? To actually determine what's a good idea. Yeah. And potentially also with crowdfunding, not only if it's a good idea, but they might actually become a customer as well. They might be putting money behind something that they actually want to buy ultimately. Yeah. Yeah. As well.
[00:26:26] And then, so you, uh, and you need the development of new technology is what's given us the world in which we live. So the fact that we do it badly is, uh, you know, an interesting comment on, on, on how ineffective our attention is to one of the most fundamental aspects of the progress of a capitalist economy. If we did do something like that, but all just generally as well, you know, uh, if, if government is putting money into stuff, should we be distinguishing between stuff which is
[00:26:57] good for the economy and good for mankind versus stuff which isn't? So I'm thinking, uh, for example, you might say, well, okay, we'll put money into a clean energy startup, but we're not going to have the same sort of scheme available for gambling, for example, which is just one of the ills of society, but could make a lot of money and could, could have an innovative way to suck more money out of people. Yeah. And therefore you're putting, you know, a social, uh, objective as well as a
[00:27:23] capitalist objective and they're not necessarily compatible. Now, um, so you, you, you, you have to have an, like, that's why I rile against the idea that there's a government not picking winners, uh, because of the, you look at the history and I, uh, most of the things the government, not most, but a lot of the things governments have funded have become absolute winners and they're integral parts of our society these days and private entrepreneurs have made profit on top of it. And we then associate the success with the private entrepreneurs, not seeing the state's
[00:27:51] roles or loss lead in developing the technology in the first instance. Uh, and again, that's why I think China is doing better because it's, it's, it's control of the banks and the fact that underwrites the banks tells the banks that they've got to be going out trying to find the entrepreneurs are going to have good ideas. So the, even though they're like a state owned in that sense, they're more capitalist than Chinese banks and how they look out for new potential, uh, successful entrepreneurial ventures than the Western banks are.
[00:28:20] And there's the balance of trade as well, I think is, uh, a benefit which is often ignored. So, uh, I mean, I, I make money, I'm not an innovator at all. I do podcasts for a living along with 75% of the population these days, but when I was living in the UK, uh, it does seem, doesn't it? But when I were not all as good as this, of course, Steve, you know, there's, uh,
[00:28:43] I'd say only 60% are better than this. Uh, but when I was in the, uh, the UK, I, uh, and all the money I earned was from overseas. So I actually was helping the UK's balance of trade. And I just wonder whether in fact, you know, innovative ideas, whether they're going to help the balance of trade should be more of a priority for a government because the government does actually win. The economy gets a win from that more so than if you are coming up with innovative ideas,
[00:29:11] which is just feeding the domestic economy. Well, this raises a little bone of contention of mine, which is modern monetary theory is idiotic attitude towards trade. Cause I completely agree with you. Expert revenue adds to domestic money supply. And, uh, if you have an export, uh, success, then you have more funds available for investment domestically. And so this is the opposite of what MMT argues in this particular case. I think MMT is off with the bloody fairies.
[00:29:38] Um, they're quite right about government spending. They're completely wrong about, uh, exports. So, yes, exports increase investment revenue. And, and that is a major reason why a trade surplus is positive for the country running the trade surplus and a trade deficit is negative for it. So, so pure and simple, someone says, I've got this idea. It's a bit of a risk. Uh, let's, let's evaluate the risk, but it is largely for exports. Uh, we want to keep it in the country
[00:30:05] rather than it going off to America. The government should be saying, cool, you are exactly the sort of industry you want to subsidize. Don't go to America. We want to pay to keep you in the UK or in America or in Australia or wherever you are. That should be a focus, shouldn't it? For, for government funding for innovation. Yeah, it should be. Because again, like I see three basic sources of money creation in a domestic economy, government running, spending more than it takes back in, uh, taxation. So government deficit spending, uh,
[00:30:32] private sector lending, uh, banks lending, okay. Which creates money, but creates debt at the same time and an export surplus, which gives you money that, uh, in, you know, you need, you need to hold the money in foreign form or you, which the, or the MMT think about, or you can then get that money converted to domestic currency, which effectively forces money creation by the central, uh, by the central bank when it, uh, does the monetary swap for you. And that increases your
[00:30:58] investment revenue. So an export surplus gives you export, gives you additional funds for investment. And given the cost structure of most, of all firms in the real world, um, the export revenue actually comes at a higher profit margin because the higher volume means you have a lower, uh, per unit production costs. So yeah, those are the three sources. Yeah. So stands to reason, doesn't it? Another good reason for, for engendering some domestic innovation and putting some government money
[00:31:26] behind it. Uh, if you can show that you've got a market overseas for it. So, uh, one final point that we're getting all of this sort, it seems very simple and straightforward, Steve. I don't know why. It's just, you know, just listen to this podcast, take notes, governments, and, uh, and get cracking with it. The final point is, uh, competition always seen as a good thing, but not always, uh, particularly when you're talking about innovation. So, uh, and we are
[00:31:52] actually seeing quite a bit of collaboration going on between various AI companies. I think because it's true that they realize that, uh, if they don't collaborate, then some of them are going to get burnt because they are all going to assume this market share, which is going to be 150% of actually what people are prepared to buy, which is the classic case of what happens during bubbles. But also, there's lots of cases in history where, uh, governments have stepped in to help
[00:32:17] collaboration. So in 1987, the U S government helped create, uh, is it Sematech, which is a consortium designed to revive semiconductor manufacturing in the United States. So the government funded it, but they basically funded it for firms to collaborate on producing the, um, the, the, a self-sustaining technology for America, which is very much a China approach.
[00:32:47] Yeah. And maybe, maybe we should see more of that. Yeah. I mean, again, like there's the competition, the conventional economic theory, neoclassical economics obsesses about competition and ignores cooperation. Uh, and it basically treats every individual entity in the economy as independent of all other entities. Now in computing, that's simply false because, you know, if you're going to, if you're going to want to bring out a new piece of software that gives you a brilliant graphics, then you want physical cards in the
[00:33:17] machine that can display brilliant graphics. You want high resolution displays. So one system, one segment relies upon other segments, uh, innovating in different ways. And you, some coordination actually helps on that front. The classic, I think that for most people, you know, it's the, uh, it's the cables that we link things together with you. You, you, maybe you, you're old enough to remove parallel and serial cables, aren't you? Of course. Yeah. Yeah. Okay. Yeah. The ancient technology we
[00:33:43] used to use to link machines together. Then we went to USB. Okay. And USB, uh, there had to be a, the standard had to be created. All the firms had to work towards the same standard. Now the one company that didn't do that, we all know was Apple. Yeah. And Apple has been forced to conform to the rest. Um, so you know, the Apple connector is now the same, you know, USB-C connector. So you do need collaboration and even in highly competitive industries. So the ways governments have, uh,
[00:34:11] have, have tried to, uh, engender innovation is just stuff like, yeah, it's small policy stuff. So like, uh, credits for research and development, but that can easily be, people can game that system and, and, and, and often do by saying it's R and D for something that they developed years ago. Sort of accelerated depreciation of, uh, of equipment. Uh, so it's all, you know, in the first year. 150% depreciation rates. Yeah. But why not just do that anyway? I mean, it's like you
[00:34:41] should be, you only benefit from that if you're making revenue in the first instance. Yeah. And so if you're not making revenue, you can't take advantage of the tax break. Yeah. Yeah. And then all these things work against the initial funding entrepreneurs know. Exactly. So the same with, you know, tax credits, same, same deal for that very same reason. And then patent protection is the other one. And that's actually quite destructive. I think, you know, that can, that can backfire. You say, well, yes, you should, it's worth investing
[00:35:06] because we will protect this patent for you, for your idea. And some of those patents are, you know, like, um, I think Amazon had a patent on one click, a one click order. I mean, really? So no one else could do that. I mean, that is just, that, that is counterproductive and a restraint of trade. And it really does stop collaboration happening and, and other people building on your good idea. I mean, surely the ideal situation is if you've got a good idea
[00:35:36] and someone else goes, oh, that's a good idea. I can build on that. So I'm going to do that. And that forces you to say, well, okay, that good idea was yesterday. We've got to work on the next big idea now that's going to stop them getting ahead of us. And so you have that competitive race rather than just having a good idea, uh, getting, getting a patent protection and just sitting on it for years. Yeah. And like one of the obvious areas where patents would be disastrous, for example, is the layout of, of, uh, of controls in a car, you know, the accelerator on your right foot,
[00:36:04] the brake on your left. We've got a steering wheel in our cars. You're going to have a steering wheel. Yeah, exactly. That's right. Okay. So you have to have things which are shared across the whole system. Otherwise it breaks down. And, uh, like, but even though I've been involved in a patent, I've got a patent for Ravels, uh, the multidimensional data manipulation thing in a Ravel. And without that, you know, why would you bother that there is that side to it, but you can't, uh, then patent, for example, the fact that you display the data in a, in a spreadsheet,
[00:36:34] you know? Um, so there was, there's a limit on what you can privatize and the, the, the neoclassical conventional economic theory pushes the belief everything a hundred percent can be privatized. That is just not the real world because so many products rely upon other products. You have to have some compatibility, uh, across technologies to make that feasible. And therefore you can't patent, you can't limit and you can't make everything private. Yeah. And I bet you, if you're on a computer screen as well, don't you, you've got to stop other people doing that, you know,
[00:37:01] there's kind of a computer screen. No, no, no, no. That's right. Once it's on the, you've done that. Yeah. That's yeah. Nobody else can use it. Yeah. Multidimensional data on a computer screen. There's got it. You've got it. You know, you can do it. If you want multidimensional data, uh, printed out, um, then go for your life. Uh, we've covered, covered a lot of ground, haven't we? It's, I mean, doesn't it seem to you, doesn't it, doesn't a lot of it just seem quite easy, but it's just not happening for whatever reason. And I think there is because
[00:37:30] government, someone spend money. That's why, and they don't want to take the risk. And, and that's the, that's the exact opposite of what they should be doing. Cause they're one of the vehicles in society, which can create money and the whole anti running a government deficit and also letting the bank sell bonds to the private sector, which actually cancels government money creation. We've got to set up a system, which would basically tripping. It's a system designed to make you trip over your own feet. And it's come out of a lack of understanding of how the
[00:37:58] system actually functions. And if you, and if you create money for something that doesn't work, who cares? Yeah. Well, you know, you, there's a limit, but definitely you want a growing economy needs a growing money supply. Now we're in the global warming world as well. So I've got to, you know, always make that caveat, but so many things you don't want to be driven by a profit motive alone. And, and, and that is something which is anathema to neoclassical economics because
[00:38:25] it can't understand the idea of a system that isn't all profit oriented. My approach to economics, the way that I've, I'll show you can derive macroeconomics from macro. One essential thing that comes out of that is if you don't have a government sector, you can, you will have a economy which can collapse into a debt deflation like the great depression. Um, that is not a desirable outcome. So something which is not profit oriented comes out of a natural consequence of
[00:38:49] my approach to modeling, but it's the antithesis to what neoclassical economics teaches. The, all our economic advisors are neoclassical and orientation. So we end up with a system which actually undermines the innovation that a capitalist economy needs. Which is why we have stagnant economies, except when something takes off like AI, which has been funded by companies that have got a lot of money. So they were able to do a lot of that initial research early on. And it was building on something that they were already providing.
[00:39:18] And, uh, and, and they have taken total control of this whole space and we're all going to suffer the consequences of that because we haven't been able to get our fingers into it. Uh, so that's, that's the risk as well. All right. Well, we need more innovation for more people, uh, rather than people sitting at home thinking, I've got a great idea. What a shame. I just can't get it off the ground. Uh, there's no reason why we should be in that situation. Steve, good to talk as always. Good night. The debunking economics podcast.
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