Fresh Economic Thinking

Was voting easy and efficient for you? This is something we should all appreciate.

Australia’s electoral commission makes voting easy. Our preferential system improves on first-past-the-post single-member electoral systems. And all of this happens quietly and quickly for $30 per vote, thanks to the Australian Electoral Commission.

Together with Jonathan Gadir, we riff on the good, the bad, and the ugly of elections.

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Here’s some recent paid subscriber FET content you might have missed:

Theme: Happy Swing by Serge Quadrado Music—Creative Commons Licence CC BY-NC 4.0

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Anna Samson has had a decade-long career in aid, was a US State Department-funded Fulbright Scholar, and has a PhD in international relations and American foreign policy.

In this episode we discuss the inadvertent economic and political outcomes of foreign aid on receiving nations.

What surprised me was Anna’s view on the scale of the rent-seeking across the aid industry and the transformation of the aid project into one of strategic military and economic interests rather than one of humanitarianism.

Apologies for the audio quality.

Please read Anna’s full article below about foreign aid, its failures, and its creeping national security objectives.

As always, please like, share, comment, and subscribe. Thanks for your support. Find Fresh Economic Thinking on YouTube, Spotify, and Apple Podcasts. Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

The United States has had its fair share of Presidential foreign policy doctrines over the years.

The Truman Doctrine underpinned America’s Cold War containment policy to stop the spread of communism and Soviet influence.

After the 2001 terrorist attacks on the World Trade Centre, the Bush Doctrine brought us preventative military strikes and the ‘if you’re not with us, you’re against us’ principle.

Just over 50 days into his second term, the Trump Doctrine is shaping up to be ‘you can’t make an omelette without blowing up the entire chicken coop’.

Nowhere has this approach been more sharply felt than in the dismantling of USAID, a cornerstone of contemporary US foreign policy.

Jettisoning USAID has achieved symbolic and practical purposes; it is both exactly what MAGA fans hoped for and what its critics feared: Trump embracing radical honesty in international relations by saying the quiet bits out loud and rupturing the mythology of the self-limiting guardrails on Executive power.

Moments after his inauguration, President Trump, bolstered by Elon Musk’s analysis of USAID as “not an apple with a worm in it [but] a ball of worms”, froze $60 billion in overseas development aid and then stood down 97% of its staff.

Industry veterans highlighted the catastrophe the Executive Orders caused: polio vaccination programs halted, tonnes of food aid left rotting in warehouses in the midst of famines, and a stop on urgent humanitarian assistance delivered to hard-to-reach conflict zones.

That’s the problem with applying a Silicon Valley move-fast-and-break-things mindset to government policy: you can’t just CTRL-Z your way out of any unintended consequences.

The recent Supreme Court decision ordering the Trump Administration to immediately unfreeze US$2 billion in existing aid contracts only provides temporary reprieve for those relying on American development assistance. The ruling doesn’t apply to billions in planned program funding or USAID jobs that have already been axed, both of which are the subject of separate legal challenges.

To the President’s detractors, gutting USAID is ideological and myopic. But it’s also another example of Trump seeing which way the crowd is moving and running out in front.

Indeed, rather than leaping to fill the void left by the US vacating the field, UK Prime Minister Keir Starmer announced a 40 per cent cut to his country’s aid budget. France and the Netherlands are also cutting their aid expenditure by about a third.

While Western aid workers are wringing their hands and UN buildings are lowering their thermostats as a cost-saving measure, the sector bears a great deal of responsibility for its own demise.

With little evidence to show aid programs are delivering on their grand promises of economic prosperity and development, spending billions on aid is increasingly justified as a tool to advance donor countries’ national security interests.

This connection is not new: the modern aid system was built by imperial powers to help maintain influence even as their former colonial territories were achieving political independence.

It should come as no surprise that many aid recipients are not exactly mourning USAID’s downfall. They point to numerous instances where USAID used humanitarianism as a front for meddling in other nations’ domestic politics.

For all the talk of ‘empowerment’ and ‘local partnerships’, government-funded foreign aid is rooted in and continues to reproduce historical structures of resource extraction, dependence, market distortion and racism.

Explicitly blurring the lines between humanitarianism and self-interest lays bare the iron fist of neocolonialism within the velvet glove of benevolence.

From the perspective of donor countries, all this real-talk about interests over altruism requires the aid industry to demonstrate bang for taxpayer buck.

It’s no accident that among the first casualties in DOGE’s USAID cuts were expat bureaucrats enjoying all the cushy accoutrements that a career in the aid industry guaranteed.

Government donor agencies - including Australia's Department of Foreign Affairs and Trade (DFAT) — frequently administer aid money inefficiently and ineffectively; 40 per cent of Australian aid investments were rated as 'unsatisfactory' upon completion.

If the aim of aid is to bolster our own security, not only should this causal link be established more directly, DFAT should explain why Australia funds aid over other defence spending with a clearer line of sight to maintaining the nation’s middle power status.

Current approaches to aid program evaluations, including in DFAT’s most recent Performance of Australian Development Cooperation Report 2023-24, do not provide that level of accountability. Taxpayers are expected to accept measures like “capacity building” and numbers of individuals “supported” or “reached” in pursuit of development goals.

USAID’s abolition, while confronting in its audacity, should not be met simply with self-righteous indignation about the supposed nobility of aid work or showing how aid can be weaponised to undercut the West’s rivals.

Instead, it should be seen as an opportunity to rethink the whole foreign aid system. It's a chance to create a world where countries drive their own development and self-interested ‘generosity’ and donor dependence are no longer required.

Decoupling foreign aid from national security will allow this money to do what it does best: humanitarian action based on foundational principles of humanity, impartiality, independence and neutrality.

Richard Tooth has a plan—save 300 lives a year on Australian roads. How? By using economic ideas to align risks and incentives better.

Take a look at the chart below.

People who die on Australia’s roads are young. Preventing a road death would save 40-50 years of life on average. That’s big. Cancer treatments typically save 4-10 life years, then we get five to ten times the life gains from preventing a road death as many deaths from diseases.

I learnt from Richard that people will change their behaviour on the roads, either by driving more carefully, choosing a safer vehicle, or choosing not to drive at all, given the incentive to do so.

But how to improve people’s incentives?

Richard argues we can do this by changing how we regulate insurers. Give the insurers the right incentives for road-safety and they’ll encourage people to make better safer choices.

And it works.

He points out that relative to Australia insurers in the United Kingdom have greater – but still not optimal - incentives for road safety. In the United Kingdom insurers try to save money on payouts by offering discounted vehicle insurance to young drivers who opt in to telematics, a tool on your vehicle or phone that tracks your driving behaviour (braking, speed, acceleration, etc), which changes behaviour and only the whole reduces risks for all road users.

Here’s a working paper of Richard’s about changing the way insurance functions to align the incentive of insurers with reducing road injuries and fatalities, using the insurance relationship to incentivise safer driving choices.

It makes sense. Although I sometimes wonder whether such marginal changes make big differences, the fact that risk on the roads is heavily skewed by age and across people means that such incentives can have tangible effects on aggregate risks by focussing on those key people.

To give a sense of the scale of the benefits, Richard reckons that such incentive changes through insurance could reduce the road toll in the range of 20% to 40%, saving 300 lives of the 1,300 lives taken on the roads each year and preventing a similar proportion of the 40,000 road injuries.

In all, he reckons there are about $20 billion of benefits from better incentives to reduce overall road risks, while the cost of these changes would be extremely low.

If you have an interest in this policy area, please reach out and I can put you in touch with Richard.

For those who want to dig more into the topics we discussed, try these links

* The 2021-22 Parliamentary Inquiry into Road Safety. Note its the Committee’s Recommendation 26:

The committee recommends that the Australian Government work with state and territory governments, the insurance industry and other road safety stakeholders to investigate opportunities to reform motor vehicle insurance and to develop a roadmap towards policy and law reform.

The Government responded in October 2023.

The Australian Government will raise this recommendation with the state and territory governments, who are responsible for compulsory third-party insurance.

* The Bureau of Infrastructure and Transport Research Economics (BITRE) publishes an annual report that compares Australia's road safety performance with that of other OECD nations. Find it here. The BITRE also reports on the social cost of road crashes, and you can find that here.

* We spoke of the Tullock Spike and how decreasing risks for drivers in the road makes them behave in a way that increases the risks for others. This article on the Peltzman Effect describes the incentives at play.

As always, please like, share, comment, and subscribe. Thanks for your support. Find Fresh Economic Thinking on YouTube, Spotify, and Apple Podcasts.

Paul Frijters runs Academia Libera Mentis from a castle in Belgium. After a distinguished academic career in Australia and Europe, he is creating an academic oasis in the Ardennes for thinking, learning and growing.

I’ve written before about this project.

Today, we reflect on five years of the corona panic debacle, the economic and social fallout we are still experiencing, and what we could have known early on but refused to collectively acknowledge due to the madness of crowds.

We discuss in detail the enormous cost to our lives of lockdowns, the fact that the low-risk nature of COVID was clear early on from things like the Diamond Princess event, and how to minimise panic in the future when the unexpected happens.

You can read the full story of my COVID experience in these two articles:

Unfortunately, here in my city of Brisbane, we are going through another panic and lockdown. We are so far a week into a “cyclone lockdown”.

There have been two days of school closures in a large part of the state, deferred hospital treatments, extra delays of construction work (beyond justified by the weather), and shortages at supermarkets (especially toilet paper, the preferred emergency ration).

It is okay to prepare for potential power losses and strong winds. But “potential” is a key word here. Why did we panic early rather than waiting for better information?

Conditional statements seem too advanced. Differential consideration of risks—based on location in this case, rather than age and health condition in the COVID case—seem too subtle. All I hear is that a risk is a risk, so stop complaining.

The craziest part is how much people love it.

Take action, any action. Will that action help? Who cares! It doesn’t matter. And I fear that the collective impulse that makes for a rich and functional society is exactly the impulse that drives this behaviour. What else will we do to be part of the crowd in the next emergency?

Paul predicted in 2022 that as a society we would learn that an instinct for such action has been nurtured and that new lockdowns would emerge.

Here are some of Paul’s early writings on COVID and the nature of the crowd reaction to it from 2020 and 2021 that we mentioned.

* Here’s a March 2020 assessment of the sheer scale of the human cost of lockdowns, border closures and other policy choices.

* Here’s an August 2020 prediction of a baby bust (with some hope of a small boom).

* Here’s a 2021 explanation of how many physical policies probably led to more virus circulation rather than less.

* And here are some of Paul’s predictions from the comments section of this article about the likely ways the NDIS will be rorted from back in 2016.

As always, please like, share, comment, and subscribe. Thanks for your support. Find Fresh Economic Thinking on YouTube, Spotify, and Apple Podcasts.

A few weeks back, I had engineer Ben Beattie on the podcast to explain some of the unappreciated costs of transitioning to a renewable electricity grid.

Before this, Aidan Morrison had explained how many of the costs required to deal with variation in when and where energy is produced from wind and solar were excluded from the (in)famous GenCost report from the CSIRO.

Today, Professor Mark Diesendorf, who has studied the electricity grid and energy markets for many decades, provides the counterargument to these claims and makes the case that renewables will be cheaper in the coming decade.

A couple of insightful points I took away were:

* “Baseload” generation still requires some backup for breakdowns and maintenance

* Sometimes expensive electricity in countries with a lot of renewables is just measuring the expense of the country overall (my interpretation of his point).

We tried to get to the heart of where disagreements exist, and where they don’t, rather than talk past each other. I hope we achieved that.

Find Mark’s writings at https://www.markdiesendorf.com and his latest book, The Path to a Sustainable Civilisation: Technological, Socioeconomic and Political Change, here.

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Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

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Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

In a recent FET article, I explained how the rental market adjusts to inflation arising in non-housing goods and services. Find that article here:

The key quote is this:

Another insight from the rental equilibrium is that inflation in non-housing goods means that renter households can pay more for rent because that means giving up fewerother goods and services for an extra quantity or quality of housing. This is the opposite of what many people might expect. Some might think that if goods and services have risen in price then households have less left over for rent, so rents should fall when there is inflation. This is wrong.

In this episode, Jonathan and I discuss the mechanisms at play, whether housing is different and more important than other goods and services, and more.

Enjoy.

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Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

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Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

Electrical engineer Ben Beattie runs The Baseload Podcast, providing “common sense and unfiltered commentary” on Australia’s energy sector. Given the enormous investments taking place now (and planned in the next decade) to transition Australia’s electricity grid to predominantly renewables, it is worth keeping a close eye on the engineering and economic realities at play.

To know if the costs of the planned energy transition path make sense given the benefits, we at a bare minimum need to know the true costs.

Follow Ben on X here and read his articles on energy issues at The Spectator here.

In the podcast, we discussed the graph below showing the total generation and demand in Australia’s electricity network (link here). Notice the enormous increase in nameplate generation capacity in the past decade while grid-electricity demand has remained flat. This shows that there has been very little extra energy generated for all that extra investment in capacity, as most of that new capacity is highly variable.

You can find data here on the daily generation from different sources in Australia’s grid. Below I show a typical day with the features we spoke about in the podcast:

* Coal (brown and black in the chart) is being curtailed during the day to make room for solar generation.

* Gas (pink) fills up the even period when solar generation quickly drops off.

* Wind (green) is variable and unpredictable throughout the period.

* A baseload of about 18,000MW of generation needs to be delivered 24 hours a day.

The Frontier report discussed offers an alternative to the Integrate System Plan (ISP) (in the jargon we used, this report shows what Toyota has for sale, not just Ferrari). You can find it here.

Lastly, find below a previous FET article by Aidan Morrison explaining some of the deceptive analysis behind the story of a renewables grid being the cheapest option.

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Follow Cameron and Jonathan on X/Twitter. Buy The Great Housing Hijack here.

Please like, comment, share, and subscribe.

Theme music: Happy Swing by Serge Quadrado Music under Creative Commons Licence CC BY-NC 4.0

Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …

Paid Fresh Economic Thinking subscribers can enjoy the audiobook version of Rigged: How networks of powerful mates rip off everyday Australians via their favourite podcast app.

Chapters will be released weekly over the coming months.

A physical copy or ebook can be bought here.

Rigged was originally published in 2017 under the title Game of Mates, but was …