Transcription
Good day everyone. I'm Ebony Bennett, deputy director at the Australia Institute. Welcome to our webinar today, why democracies need to collect more corporate tax with Professor Joseph Stiglitz.
Today I wanted to begin by acknowledging that, uh, we live and work on Ngunnawal and Nambri country and pay my respects to elders past and present. And I also wanted to take a minute to acknowledge the deeply distressing news of the terrorist attack on the Invasion Day rally, uh, not that long ago, and how awful that was for the Indigenous community across Australia, and our thoughts are with them at this time.
Uh, before I introduce our guests, I did want to do a little bit of housekeeping. So, we do encourage everyone to participate in today's conversation in the chat, but a reminder to please keep your comments civil and on topic, or we'll boot you out. You can type in questions for Joe and Richard today into the Q&A box, and you should be able to upvote other people's questions. Um, so make sure if you've got a question for Joe or Richard, you pop that into the Q&A.
And finally, a reminder that this is a live event. Today's event is being recorded, and it will go up, uh, on our YouTube page, and you can find it at australia.institute.org.au.
So, I wanted to begin by acknowledging our and welcoming our fabulous guest today, Nobel Prizewinning economist, former chief economist of the World Bank, and best-selling author, Professor Joseph Stiglitz. He's an economist and professor at Columbia University Business School. He's co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and chief economist of the Roosevelt Institute. Uh, he's not only won the Nobel Memorial Prize in Economic Sciences, he's won the John Bates Clark Medal, the Sydney Peace Prize in 2018 as well, and former senior vice president and chief economist of the World Bank. Uh, thank you so much for joining us today, Professor Stiglitz. We really appreciate your time.
>> Nice to be here.
>> And I'm also joined by co-CEO of the Australia Institute, Dr. Richard Denniss, prominent economist, author of several books including *Economism*, *Curing Affluenza*, and *Dead Right: How Neoliberalism Ate Itself and What Comes Next*. Uh, which I think we'll probably get stuck into a bit today. Uh, but, uh, Professor Stiglitz, if I could start first, uh, with, I guess, the, the theme of today's, uh, uh, today's webinar, which is the link between democracies and corporate tax. And if you wouldn't mind, I wanted to start, I guess, with the question, uh, about why corporate tax is important to collect for a democracy and the role that it plays in the economy. If you could start with, kind of, that big picture.
>> Well, let me begin why, why taxation, uh, is important. Uh, a democracy, any society needs to, you might say, spend together. You know, what does we mean by our being a, a society, uh, a democracy is that we do things together. And, uh, there are so many things that in the 21st century we need to do together. Uh, we have to invest in infrastructure, in education, [clears throat] in health, and technology. Uh, it's always been true, you need some investment, but the 21st century is very different from the 17th century. In the 17th century, the level of, uh, necessary public spending was very low. Today, it's very, very high. Uh, that's even more so when we start thinking about some of the other challenges that we're facing. Uh, the climate crisis. We have to protect ourselves from climate change, which is having a devastating effect in Australia and every country around the world. Uh, we have to, we're, we're dealing with an inequality crisis. So, we need resources to help those at the bottom, simply because they don't have the resources to do it, uh, by themselves. We live in a very urban society, and urban societies require more, more investments, you know, very public investments. It's very different living in isolated farms, some places in the outback, maybe that way, but in most of Australia, people live in urban areas, uh, and most people in the world, especially in advanced countries, live in urban areas, and that requires, requires a lot of investment. So, [clears throat] once you realize the importance, the need, the centrality of public investment, you come to the next question. Well, how do we finance it? You know, economics, uh, may be a complicated subject, but, uh, the core of the subject is, resources are scarce, and if you're going to spend money, you have to raise resources from it. It's, it's really that simple. Um, it'd be nice if everybody voluntarily wrote big checks, but, uh, we know that most people will want to be, at least to some extent, what we call free riders. They'd like everybody else to pay, but they, uh, would curb their own support. And that's not true in everything. People are charitable. I don't want to underestimate the importance of charity, but still, for the core investments that society needs, you need taxes.
And then the third question is, why corporate taxes? Well, you know, there's an old expression, "Follow the money." Where is the money? And, uh, it's not at the bottom of the income distribution. I, [laughter] can tell you that. Uh, it's among the very, very wealthy and among the wealthy corporations. And so, uh, one of the reasons for taxing corporations is, uh, it's where the money is. But there's another reason, uh, and that is equity. You know, we ask working people to give 25, 30, 35, 40% of their income in support of the state. And yet, if you look at the richest people and the richest corporations, they're not making that fair, uh, contribution to the well-being, to, to finance our, uh, what we need as a society. And, [clears throat] that undermines social solidarity, social cohesion. It's, it's fundamentally corrosive to our society. So, I would say one of the reasons is just plain equity.
>> Yeah, I want to build on that, I guess, because I know across your incredible history as an economist, you have done quite a lot of work around inequality, and not only what it does to the economy, but I guess, um, the relationship between inequality and democracy, I guess. So, does inequality harm democracy? And, and what's that relationship between the health of a democracy and the taxes it collects?
>> Well, um, you know, these are, uh, not simple relationships. Uh, uh, but, uh, what I would, the way I like to put it is that, uh, inequality, uh, creates a fertile field for demagogues. Uh, I wrote that, for instance, uh, in my book, *The Price of Inequality*, in 2012, and I pointed out that, uh, there's always, uh, a very strong supply of demagogues willing to till the field of, uh, uh, to take advantage of the, uh, of, of the opportunities that that inequality makes possible. We, in the United States, have been very, very unlucky because we'd wound up with, I think, one of the worst possible demagogues. Not as bad as Hitler, perhaps, yet, but, uh, uh, certainly, uh, if I look across some of the demagogues in Europe, I, I think we've turned out to be pretty unlucky. So, uh, uh, uh, but it was a high chance that we'd wind up with somebody who has no understanding of democracy and a populace, an authoritarian populace, who claims to be representing individual, you know, ordinary Americans, but in fact, as a just an example, enacted the most regressive tax bill ever. So, you know, you just, uh, just amazing, uh, this kind of hypocrisy. Uh, uh, it's a real danger.
So, now, let me talk about the second point of this. I am very, uh, convinced that, uh, excessive inequality, uh, undermines economic performance. Uh, again, complicated. There are examples of countries that have done well, uh, uh, under various economic circumstances. But there are some fundamental reasons why we should expect countries marked by high levels of inequality, uh, not to work well. Uh, first, for instance, when you have a lot of people at the bottom, uh, they, they aren't able to invest in themselves, to get the education they need, the health they need, and nutrition they need, uh, as children, to become as productive members of society going forward. And so, there will be an underinvestment in children. Um, and, uh, I think that's a pretty, uh, why do, uh, uh, observe phenomena? Um, democracies are concerned about their children and, and demand that children, no matter how poor or how rich the parents, should have an opportunity to live up to their potential, and that makes for a better society.
Secondly, um, you know, we always talk about the virtues of competition. [clears throat] But having a more open society, with more inclusive means more people out there, uh, are, are, uh, competing. [clears throat] And that makes for a more dynamic economy. Uh, thirdly, one of the important things that I've seen undermining economic performance is, uh, a lack of social cohesion and social solidarity. I mentioned that a little bit, uh, earlier. Um, you, the, um, uh, when, when societies get too unequal, you won't get that. You won't get the public investments that I mentioned before, that you need for a productive economy. One of the reasons you won't get that productive investment is that the very rich worry that if you give the government enough power to make those investments that we need to be productive, they might use the same powers to redistribute income. And so they say, "I'd rather enjoy my what I can get today. Forget about the future. Uh, I just don't want to, uh, see, uh, uh, uh, government, uh, having any role at all."
>> In mistakes. This has taken a very vicious, uh, turn in development of a, uh, sort of ideology called libertarianism. [clears throat] Uh, you all probably know Elon Musk and people like that. Um, you know, they're, they, they talk about a, a world as if they were a libertarian. But they're willing to accept hundreds of billions of dollars, uh, from the federal government. Tesla got a, a almost $500 million dollar loan from the federal government that sustained it when otherwise it probably would have gone bankrupt. So, um, you know, it's, it's, they're all in favor of corporate welfare. They just don't want to help ordinary people.
>> Joe, on that, like, I guess I want to join a few dots there. You, you talked about how it's complicated, the relationship between, uh, democracy and inequality, and you just talked about competition then. You know, typically, when we teach first-year economics, we use a sort of perfect competition model to get people's sort of brains going in this direction, for good or ill. And when we talk about those competitive markets, there's lots of companies competing, and, and we talk about market power in economics a lot. And in competition in a competitive market, no one's got any market power. So, you know, we don't have to worry about regulating them too much. But most economists kind of draw a line between what's happening with sort of market power and what's happening with political power. And a consequence of that is because we assume that firms will all be small and competitive, not only won't they have much power over consumers, they won't have much power over governments. But of course, in the last 20 years, we've seen the exact opposite. We've seen incredible [snorts] concentration of what we call market power. And yes, that's a problem of monopoly. And yes, that's a problem of price gouging. And, you know, all those economic problems are there. But most people don't want to join the dots and say, "Well, when you've got a small number of monopolies, it, the, the rational thing is for them to cozy up to a demagogue and, and translate that market power into political power." So, yeah. Do you want to talk a little bit about how hard it is to make good policy and good laws when so few people have accumulated not just so much market power, but so much political power with that?
>> So, you, let me first begin with a little bit of, uh, modern economics and where that has really moved on from, say, Milton Friedman writing in the 1960s and '70s and, uh, shaping the kind of economics you may have learned in your college course, but that was out of date even when you learned it. Uh, the, the, the, uh, idea of, uh, very competitive labor and product. In fact, you know, sufficiently competitive that they could, uh, be, it could be approximated well by a world in which no one had the power to raise prices or lower wages at all. Now, uh, there's been a, a, enormous amount of research in, uh, recent years on market concentration. The evidence that actually industry after industry is marked by relatively few firms. But even more telling is the research which has shown first that in industry after industry, and on average, firms are charging substantially, substantially above the cost of production. In other words, they have the ability to raise prices above the competitive level, and they do it, and they do it massively. But the other flip side that economists had not, not paid much attention to is what we call monopsony power. The power of firms to drive down the wages of workers. That is called, rather than the markup of prices above the competitive level, it's the markdown of wages below the competitive level, estimated in general in the United States of around 30%. And you can imagine then, if prices are going up and wages going down, that's an enormous amount of inequality, and, uh, it's been growing and growing and growing.
Now, uh, the point that you made, I think, is absolutely essential, that, uh, it is almost inevitable that when you have concentrations of economic power, those concentrations of economic power get translated into political power. And the reason is, why this is so important is, like in any game, the rules of the game matter. And the corporations, the wealthy know this. So, for instance, if you are a monopolist or an oligopolist like Apple or Google or Amazon, and you're engaged in really naughty behavior that you shouldn't be doing, uh, uh, taking advantage of, uh, customers, of your, of the, stealing data or, uh, from others, or doing all kinds of things, uh, they've been convicted of this, violating privacy. I mean, in Europe and the United States and in other countries, um, you're going to try to make sure the laws allow you to get away with your bad behavior. It's that simple. So, uh, you could have a, a law saying no accountability for scamming that goes on, uh, on your platform. Well, you can make money out of scamming. The people who, who want to scam will give you a part of their commission, a commission on the, uh, money they make from scamming. Scamming is evidently profitable, socially destructive. So, you know, Adam Smith, the far right often talks about how Adam Smith talked about the pursuit of self-interest leading as of an, as if by an invisible hand, to well-being of society. But Adam Smith was far smarter than that. What he meant by that is that there's a force going in that direction, but if you want to make sure that force works out, he said, you have to regulate. You have to regulate them, especially in the labor market, uh, and in so many other areas where they can take advantage of consumers or others. So, uh, uh, unless you do that, uh, you'll get, they'll get more profits, and society will be worse off. So, that's, there's a clear incentive for economic power to get translated into political power. One of the core issues of democracy is, uh, how do we stop that?
>> Um, in Australia, uh, you know, one of the most profitable industries here is the gas industry. Uh, and, you know, the wonderful thing about Australia, we're a very generous people. We give more than half of our gas away for free to the gas industry. We don't charge them royalties. They don't pay tax on it. Last time you were in Australia,
>> Do that. [laughter]
>> Well, I guess,
>> That seems foolish.
>> Well, I was gonna say, last time you were here, you said it was a no-brainer for Australia, you know, to, to take a leaf out of Norway's book or Saudi Arabia's book or Qatar's book and, and tax our gas industry. Obviously, one of the reasons we haven't is that overlap. They've turned their economic power into the political power that prevents us from doing something as simple as taxing our gas industry. You've, you've advised developing countries around the world on development as, as chief economist at the World Bank. What advice would you give a poor country like Australia that doesn't know how to tax a gas industry?
>> Well, if you came to me when I was chief economist of the World Bank, and that was 25 years ago, I would have given you a clear, clear advice, and, and it's the same today. Actually, hasn't changed. The, the first thing is, um, auction off your resources for the highest value. Uh, making sure that the person willing to pay the highest value isn't going to pollute or do some other bad things, but, but basically get the highest value from, uh, whoever [clears throat] can extract your resources. Uh, any firm would do that. And I begin with the premise, I think it's important, one, the resources underneath a country belong to the people of the country. The resources under Australia belong to the Australians, and not to the gas companies. And [clears throat] uh, the value of those resources, therefore, ought to be appropriated to the maximum, maximum extent possible by the Australian people. And the first part of that is to have a competitive auction to get the price up. Now, let's be realistic. Even, I said before, markets are not fully competitive. Uh, even the best of auctions does not get you the full value. Um, there are two more provisions that are important. You have to have good contracts, because, um, corporations have really smart lawyers, that I admire them for, and, uh, their lawyers are, uh, really attuned to try to figure out how to get more of that value in the fine print of the contract from you. So, you have to really look into the fine print of the contracts you design. I've seen so many bad contracts. Uh, I think we've, that's the one thing we've learned in the last 25 years, uh, how to design better contracts. The third thing is the point that you make, even after the best designed contracts, even after the best designed auctions, there are excess profits going to the corporations. Those are really profits that, you know, these are returns in excess of the investments that they have made to extract those resources. So, you know, they may invest a billion dollars, and they deserve to get a return on that investment, a billion dollars, but they may be getting $3 billion. And that difference largely belongs to the Australian people. And that's where a natural resource corporate income tax, profits tax would come in. I would argue a very, very high tax rate on that corporate natural resource profits ought to be imposed.
>> I'll just very quickly follow up on that. Why do you say very high? Because it always seems like we're in a race to the bottom on on tax rates. Why would you recommend a very high tax rate for resources in particular, if that's what you're saying there?
>> Well, um, it's basically, uh, related to, uh, what we call the elasticities, uh, of demand and supply. Um, you know, uh, they're making money, excess returns off of taking Australian gas and selling it elsewhere, and they're already getting a normal return on capital. That's what I postulated. And so when I said excess returns, I mean returns in excess of the normal return on capital that they've invested.
>> What we would call super profits.
>> Yeah. Yeah. The super profits.
>> Yeah. So, so, um, if you're told, you know, look, I can get 12% excess returns, you'll take it. If you can get 6% excess returns, that's still far better than nothing. Yeah, you'll take it. So, the point is, firms will come in if there's any significant excess returns. So, um, uh, you know, it's, and this is a lot of confusion. Um, the corporate profits tax is not a tax on corporate capital because you deduct capital.
>> Yeah.
>> It's not a tax on labor in the corporate sector. You deduct the co, [clears throat] the cost of labor. It's an excess return, uh, super profits tax. And, uh, the nature of super profits is, you'll, you know, you'll be willing to do anything that gives you super profits, almost by definition.
>> Absolutely. Um, Joe, we've got over 1,600 people who registered for today's webinar, and I just want to remind people, we'll go soon to questions from the audience. I can see we've got a few in there already. You can upvote other people's questions. Um, but just a reminder, if you put a question in the chat, please put it in the Q&A box. Um, but I did just want to take us back, I guess, to, uh, corporate tax cuts in particular. And I know the United States passed an enormous corporate tax cut during the first Trump presidency. What do we know about the impacts of that kind of tax cut now?
>> Uh, we know it didn't stimulate investment. Not a surprise. [clears throat] Because, as I said before, um, it, uh, I anticipated it would not, uh, stimulate investment. It's not a tax on corporate capital investment. Uh, uh, they were very explicit. In fact, that was a law where you could deduct 100% of your investment, uh, out of your, uh, uh, corporate income. So, uh, they made it easy to see that that was the case. So, uh, um, I, I, I, I can, the experience, uh, there, was very, uh, strong. Uh, there was this, actually, a study done in, uh, Australia by Andrew Charlton, uh, that compared, uh, the effect of, you had a provision in your tax, corporate tax law some years ago where you had, uh, something that economists, uh, don't approve of, but occasionally gets into the law, where firms just below or above a certain number face different tax rates. And you could see then whether, uh, you know, if you were above the threshold, you had a 35, you had a higher tax rate than below that threshold. And you use that threshold to see, did it make any significant difference in in investment? And the answer is pretty clear, no.
>> Um, sorry, let me come. So, of course, Andrew Charlton wrote a book with you, Joe, and is now a member of, uh, parliament, a Labor member for Parramatta. Uh, hypothetically, or not, um, in Australia at the moment, we're getting pressure to cut the company tax rate. Again, surprisingly, the big business groups are saying we should cut tax. But Jim Chalmers is our Treasurer, is actually talking about increasing taxes on capital gains. So, Labour's got a comfortable majority. No one really thinks they're going to lose the next election, but how ambitious they are and what direction they go on tax is, is very much in play. Obviously, here at the Australia Institute, you know, we've been saying, you know, ignore the self-interest of business groups. The one thing you can believe is they're talking about what's good for them, by their own admission. But, uh, yeah, if you wanted to give some cheap advice to, uh, either the Australian government and/or the Australian people, should we be listening to the business council and cutting company tax rates, or should we be, uh, or should we be increasing taxes on capital gains and other forms of wealth?
>> Yeah, I, I, I very strongly believe that you should be increasing capital gains taxes. Um, you know, if you don't tax capital gains to, at the right, uh, appropriate rate, uh, it encourages, it just simply converts, uh, income that would have been realized in one way into another way. Uh, the financial markets and the corporate sector are very clever. If there is any way they can get the return to capital in a preferred way, at a lower tax way, they can do their corporate magic, corporate financial magic, and convert, uh, one form into another. So, it's, like a loophole. And, um, the data, I, I don't know the data for Australia, but I do know the data for the United States. Uh, those at the top pay a lower percentage of their income [snorts] in taxes than those somewhat below. And, uh, one of the reasons for that is the low taxation on corporate, uh, on capital gains. Um, there are, a, a variety of ways of, uh, uh, dealing with it. Not only should a capital gains be taxed at a rate comparable to that of workers? Why should somebody has a windfall of, of the value of land at Sydney going up, uh, pay lower taxes than somebody, a plumber, who's worked for his income? Income. I, I just don't get it. Uh, but, uh, uh, the, um, uh, the, the, the, the ways there are additional problems in capital gains that can be addressed. So, for instance, in most countries, capital gains are only taxed upon realization, when you sell the asset.
>> Yep.
>> But that encourages you not to sell the asset because you can avoid paying the tax, and maybe you can avoid paying it for one generation after another generation after another generation. So, uh, I've been an advocate of what's sometimes called constructive realization. In other words, uh, if you have realized the value, what, what profit would you have made?
>> And, uh, you can postpone paying the tax, but your liability is there. And, uh, if you don't pay the tax, then that liability, uh, increases in value with time, just like you don't pay any other tax, you get charged interest on that non-payment.
>> Um, I'm going [clears throat] to go now to questions from the audience. Uh, and my very first one is from Vera Hemmes. And Vera says, "My thoughts are that in Australia, the fossil fuel industry should pay for the impacts of climate change." Vera says she recently survived a bushfire in central Victoria, and it's apparent that it was unprecedented due to heatwave and extreme conditions. Uh, the Australia Institute has done quite a lot of work around how climate change and extreme weather are driving up insurance costs in Australia. So, Vera's question is around, I guess, how do we make the fossil fuel industry pay for the, the externalities of their, their business there? How do we get them to pay for the impacts of extreme weather that are so affecting the community?
>> Well, I think there are, are, uh, three things. Uh, one, you tried. I think it was right what you did, but you rolled it back. That was wrong. And that was a carbon tax. Uh, and you make them pay related to how much the emissions is. And, uh, we are increasingly aware of the cost of that, the social cost of carbon as export. Uh, the second, uh, thing is, uh, even if you don't, uh, do that fully, you can regulate. Uh, you can, uh, require, um, electricity generators to use, uh, renewables. You can, uh, require cars to be EVs. Um, you can, uh, force the green transition because there are high, high social costs, uh, associated with, with these carbon emissions. You've experienced it. The third thing you might be someone interested in is something we, several states in the United States have done is called a superfund bill. New York, Vermont, uh, have done it. I just testified this week, uh, for Oregon. Um, and, um, the superfund was an idea that was related to what we did, um, when we discovered the, the huge toxic waste that to which many companies had contributed, and we said they were jointly and severally liable, and [clears throat] they were liable in proportion to their contribution to the toxic waste. So, you go to the Australian companies, you say, "Look at this is the damage that Australia has been suffering from climate change. Here's your share of that." And, you know, uh, this is your accountability. You've cost every Australian this much money. Now, pony up.
>> Yeah. Richard, anything you'd want to add to that?
>> Sounds good. Joe, I'd just say in Australia, there is an important fourth factor, and that is we actually have to stop subsidizing the fossil fuel producers and consumers.
>> That's also true in the United States.
>> Because in Australia,
>> Yeah.
>> Yeah. In Australia, not only don't the gas industry pay tax, we're so generous that we pay them, uh, for, for coming. And, you know, we, we recently spent over a billion dollars to help a new gas development in Darwin. Um, so, yeah, agree with everything you said, but in Australia, there's the fourth one: stop paying the people doing the damage.
>> Um, and Richard, I wonder, just for people on the line, the impacts that our research has looked at on insurance. That's one way that people are seeing that cost show up, apart from people like Vera who've experienced the actual bushfires.
>> Yeah. So, there's very strong data in Australia. We often say, Joe, that it doesn't matter whether you believe in climate change, your insurance company does. Uh, so insurance premiums are rising very rapidly in Australia because the, the number and the cost of disasters has risen very rapidly in the last 15 years. Uh, the consequence of that is twofold. On the one hand, it's driving inflation. Uh, it's, it's making the cost of living higher. Bizarrely, our Reserve Bank then counters with higher interest rates, uh, which does not push down the price of insurance. Uh, so on the one hand, we're pushing up the cost of living for people with insurance, but then, of course, a whole segment of society is coping with that by not buying insurance. So, while their expenditure on insurance then declines to zero, they're 100% exposed to catastrophic risk when increasingly likely events, like particularly floods and storms and fires, occur. And just one last point on that. Uh, you know, unfortunately, I think governments in Australia and around the world think you can insure your way out of a climate crisis. But insurance companies only insure against unlikely events. The minute something becomes likely, the insurance company just doesn't offer the contract again. So, you can...
>> Or another way I would put it is, all that insurance ever does is move the costs around.
>> Yeah.
>> From those who are least able to bear it to those who are better able to bear it. But it doesn't eliminate the forest fire. It doesn't eliminate the house that's burned down. It, it doesn't solve the real physical destruction and the cost of rebuilding.
>> Uh, that's the reality, and it's, we're dealing with it now.
>> Well, maybe we can put a link to our submission, our, our petition for a levy in the, in the comments.
>> Yeah, absolutely. Um, the next question I've got is from Steve Parin, and he says that here, the major political parties in Australia are very obsessed with being the lowest tax parties in order to please markets and so-called mainstream media. Um, and we see that, I guess, around the world as well. Why is that? Why are the political parties so keen to be seen to be the lowest taxing?
>> Well, I, I, I think it's a mistake, and there are some countries where that's not necessarily the case. Uh, and there are some places in the United States where it's not the case. Where, uh, here in New York City, for instance, our mayor said, our newly elected great mayor said, it was important for every young New Yorker to have pre-K education. The evidence on the effect that that education could have on the rest of their life was enormous. The returns on that investment were enormous. And he said, "We have to raise that money." And he proposed taxes to do it. And the New Yorkers said, "Yes, we want that tax because we believe in the future of New York City. We believe in fairness. We believe every New Yorker, no matter how poor, should be have the potential to live up to their ability." So, we made that commitment, and he didn't shy away from saying, "I don't want to do this taxation." He said, "Here's what we need, and here are the taxes that we're going to need to finance it." Now, I think that should, uh, be an example. Finland, I've talked to a lot of people there. They're proud that they have a very high tax rate. They believe that that high tax rate has sustained a high standard of living and a kind of social solidarity. They also believe that their government spends the money very well. Now, I think, uh, we need to tell, uh, do a better job of explaining how well we do, we as government do in spending money. You know, what gets all the attention is when a mistake is made. But, uh, what is the expression, uh, uh, uh, "All humans are fallible to errors, to be human," or some, uh, expression like that. Um, uh, I look around in the financial, private financial sector, uh, in the United States in the years before 2008, no government had ever wasted money on the scale in which our Wall Street had wasted money. We don't say, "Let's get rid of the financial sector." We say, "Let's do a better job with our financial sector." Um, I look around and say, how are we communicating across [clears throat] the Pacific, uh, on the internet? Well, who invented the internet? The US government. DARPA. [clears throat] That was an achievement. We're here partly because we found a cure for COVID-19. Who did that? Well, it was US government-financed research at our universities, not private, that created the mRNA vaccine platform, and then it was mostly government money that, uh, Frank had that platform into an active vaccine for COVID-19. Now, you know, when I was chairman of the Council of Economic Advisers, it was a long time ago, but, uh, even before these successes, we did a study of returns to government R&D and government investment, and it was so much higher than in the private sector. And more recently, Mariana Mazzucato has done similar analyses. So, there's no doubt that that, uh, government spending can be very, very productive and be complementary to the private sector. I, I view this as not either/or. I say, you know, you have better infrastructure, companies can do a better job shipping. Uh, you have better systems of courts, not what's happening in the United States, but really a law and order, the law, a rule of law, uh, then you can, that facilitates [clears throat] commerce. So, uh, the, the, uh, taxes are, uh, at the core, as we said at the beginning of our conversation, of a well-functioning society. [clears throat] And therefore, if you want a well-functioning society, you, you just, ex, you want to have enough taxes. Um, what the exact amount is going to be difficult, but I can tell you both in the United States and most other countries, we're nowhere near the optimal point. We're way below. So, we don't have to, uh, sharpen our pencil there and decide, should it be a little bit higher or a lot? You know, uh, we're, we, we know which direction we need to go.
>> Yeah. Richard, I was just going to ask you to kind of extend that to the Australian context, that race to the bottom on tax. We see that play out in Australian politics.
>> Yeah. So, Australia is one of the richest countries in the world on a per capita basis. We're very rich. But even just in absolute terms, we're the 13th largest economy in the world. But Joe, we're just told we're poor all the time in Australia. We can't afford to have the health system they have in Finland. We can't afford to have the education system they have in Norway. And so much of what we do at the Australia Institute is to remind people that, well, in Norway, they tax their gas industry and give their kids free education. In Australia, we subsidize the gas industry and charge our kids a fortune to go to uni. Like, democracy matters. These choices matter. So, I guess my, my last question to you, to try and tie these themes together. You know, we've talked about corporate power and the influence it has over politicians. We've talked about inequality and the harm that does to economies. We've talked about climate change, and we've talked about tax. You know, you live in the US at a fascinating, and for us, terrifying point in world history. But,
>> For us, terrifying.
>> Exactly. And you're in New York. So, your president is Donald Trump. Your [clears throat] mayor is Eric Adams. You know, there are clearly different ways that we can organize our society. There are clearly different visions for how we can organize our economy, not just between Finland and Australia, but between New York and Washington. So, uh, so much of what we do at the Australia Institute is try to give people a bigger menu and say, there are alternatives, there are choices. We've only got time for another five minutes or so, but can you just kind of wrap up by giving us your thoughts on the role that collecting more tax plays in building stronger democracies and societies?
>> Well, maybe I, I'll just echo what you just said about having more revenue gives you more choices of what to do. Uh, uh, as you were talking about the stories about you're being told you're poor, it reminds me, uh, a number of years ago, I, I visited Mauritius. Now, that clearly is a poorer society than Australia. But, uh, they were doing a good job of providing free education, including university, free healthcare. They even had free educa, a free transportation, [clears throat] public transportation for the young and the old. Uh, the young because they were the future, the old because they were the elders to whom they were paying respect. Um, and the point of it was, obviously, each of these ingredients I described, health, education, transport, were done at a level different from what they were done in Finland or Australia or the United States, but appropriate to the economic circumstances that they have. So, every country has choices. The fact that you have limited resources is what economics is about. And the question is, what do you do with the resources? And, um, that's really what we've been talking about. Australia is lucky to have the natural resources, and it's also the human capital, the human resources. Uh, uh, I would say also the societal resources, a well-functioning democracy. Uh, I, I can't tell you how valuable, how important, uh, that is. Um, and then the question is, [clears throat] what do you do with all that? What are the choices you make? And as you put it, uh, do you decide to spend more on the education of the future? Uh, spend more on research and technology, spend more on the green transition, uh, uh, to make an Australia that really, uh, prospers and has a kind of shared prosperity in the coming decades, or do you give away your resources to a few people at the top and cut back on all those investments? I can assure you, 25 years from now, one course, you're going to be a much poorer country than you were would be on the other course, and you will be a more divided country. So, one course is one where you have better economic performance and more social cohesion and more equity and fairness, a better society, stronger democracy. And the other, well, you have a divided society. Um, what I like about the work, the Australia Institute, it's very clear about which of these two visions it's trying to push. We don't try to hide it.
>> Um, [clears throat] Joe, we've only got a few minutes, but one last, uh, quick one for you. Uh, just, you've alluded there to, to some of what the United States is experiencing at the moment. Do you link, I guess, those political climates, uh, to the rise of inequality in the United States and, and the way that has played out to the current politics of today?
>> Oh, very much so. Um, and, and it's, I, it's very clearly related to, uh, the sense of despair, uh, of, uh, a country, uh, who's, that has not shown significant parts of the, uh, of the US, the kind of respect that they think they deserve. And, and they do deserve. Um, it, it, uh, uh, modern social media, TV, makes the disparities so much in front of everybody's face. You know, it may have been 200 years ago, we had a lot of inequality, but you didn't see it every time you woke up in the morning. Uh, you knew it was there, but it didn't stare you in the face. And the second thing that is, uh, different today than it was then is the pace with which things have changed. Uh, you know, I've been following the data now for, for my whole career, and in, during my career, uh, inequality has grown just so fast, I, I could not have, uh, anticipated it. Um, and it's grown in ways that are particularly politically, uh, salient, um, in particular parts of the country, uh, in rural areas, uh, in, non, in, in areas away from the coast. There are parts of the country that are really prospering, partly because of public investments in technology, uh, and there are parts of the country that are not. And, uh, there are well-understood reasons that markets by themselves don't make these adjustments. Well, um, you know, you've invested, uh, your home in a place, and then that place goes down. Uh, you can't move because the value of your home is zero compared to the cost of buying a home in New York or San Francisco. So, you're, you feel like you're stuck. So, the way the market economy works doesn't facilitate the kind of adaptation that is necessary in a very dynamic economy. I think so. And, and then the ideology of neoliberalism really curtailed government from providing the assistance that was necessary, uh, to fill in the gap that the market did not, could not provide.
>> Yeah. Um, I'm afraid we're going to have to wrap it up there. I want to thank, we had, I think, close to 700 people on the line with us today. Uh, so thank you so much for your interest. I'm sorry we didn't get to all your questions. Joe, thank you so much for your time, and you, Richard, as well. We really appreciate it. Um, and I did just want to remind everybody, if you enjoyed today's webinar, we've got other ones coming up all the time. You can find them at australia.institute.org.au. Uh, and don't forget to subscribe to our podcast. We've got one called *After America*, which looks at foreign policy. We've got one called *Follow the Money*, that I host, that examines all things about the economics, and as Joe said, following the money and who benefits. And another one called, uh, *Dollars and Cents*, that covers the latest in economic news. And just a reminder that the Australia Institute recently launched thepoint.com.au, where you can find all the latest analysis and everything that we think is important for you to know about what's going on in Australian public policy. So, check that out at thepoint.com.au. Uh, thank you all for coming along today to this webinar. Joe, thank you again for your time, and thanks, Richard.
>> And thank you, Joe, and hopefully we'll get you back down here to Australia again soon.
>> I hope so too.
>> Wonderful. Thanks, Joe. Thanks, everyone.
>> Thanks, everyone.
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