Weekend Reading & Selected Links
Happy weekend! Here are some links to things I've been reading that you might also enjoy:
- My new podcast episode, with Richard Holden and Steven Hamilton. At the bottom of this email, I've included two excerpts from the conversation. They're long but hard to compress, and a lot of interesting information is contained in them.
- 'Australia's State Capacity: A Literature Review'.
- 'Health NZ was using a single Excel spreadsheet to track $28 billion of public money; report outlines ‘significant concerns’'.
- 'The Government Knows A.G.I. Is Coming', from Ezra Klein.
- 'Europe must trim its welfare state to build a warfare state', recent FT article by Janan Ganesh.
- 'Systematic bone tool production at 1.5 million years ago', new Nature article.
- 'Rifling Through the Archives With Legendary Historian Robert Caro', a recent interview by the Smithsonian Magazine.
- I'm now posting video for every episode on YouTube. If you'd like to be notified whenever a new video is published, you can subscribe here.
Have a great weekend,
Joe
Excerpts from my podcast with Richard Holden & Steven Hamilton
1. What explains Australia's high level of state capacity?
JOSEPH WALKER: Right. Okay, so let's all agree that Australia's state capacity could be much better, but relatively, it's pretty good. When me and my friend were doing this literature review, a few of the main international indices of state capacity put Australia at somewhere between 4th and 10th in the world. On one of the civil service effectiveness indices, we are, I think, 5th in the world.
To give some anecdotes that make this a bit more vivid, about 98% of our Medicare claims are processed electronically. That's about 1.1 million a day. I think you can become desensitized to these facts, but they're really amazing triumphs of digitisation and Australia's state capacity. Another example from the Thodey Review: 95% of individual tax lodgements are processed without human intervention, so just electronically. So it's pretty impressive.
STEVEN HAMILTON: Can I interrupt? Sorry. You're gonna hate this, but I came into... I got here yesterday. Flew from the US. And I texted Richard about this at the time, and he said, "That's a great example of state capacity." I literally... The gate… the gate connected to the plane, 30 minutes later, I was on a train to Sydney CBD. And I had checked baggage. Because you walk through the smart gate.
I mean, has anyone gone to the US before? I mean, literally, if it takes less than two hours to get… Yeah. It was like 30 minutes and I was on the train to the CBD.
And what a perfect example of state capacity, right? Anyway.
WALKER: Yeah, exactly.
HAMILTON: Carry on, yeah.
WALKER: So the question is, if you had to boil it down to the most basic scarce resources, traits, factors that mean Australia has relatively more state capacity than, say, I don't know, the median developed country, what are those scarce factors, traits, resources?
RICHARD HOLDEN: Just to say quickly, I have a conjecture about that, but, you know, I looked at this excellent research... And I wasn't familiar with these indices, but I was sort of like, "Oh, hang, hang on. I'm surprised to see, like, Sweden or Norway and, you know, Australia's behind, we're fourth, but, you know, they ha-" And I think a lot of those indices are really sort of saying, well if the state does more, it gets a higher score.
So I tried to recut some of those a little bit. And I got Australia coming out pretty much first, undeniably.
WALKER: Oh, right.
HOLDEN: If you said like, "We've made a political decision about what we're gonna do. How well do we do it?" So I think we're kind of like number one. But in any case, what makes that the case? I think there's a lot of things that go into it. I mean, one, we pay people who work at like Service New South Wales a lot more than people who get, who work at the DMV in, you know, Houston, Texas or Boston, Massachusetts.
But I think probably the biggest thing is we have come to expect it in Australia, and we, think of our administrative state as like an Apple product. It's meant to come out of the box and work. And if it doesn't, someone, a politician gets in trouble for that. So, you know, if your Medicare claims weren't getting processed, someone's gonna, you know, be grumpy about that and someone's gonna pay for it.
I went to Service New South Wales this morning with my daughter to do a certain thing, and, you know, there was a lot of demand and they were under pressure, but like, it worked really quickly. It worked really effectively. It was like, this just works. And I think if people had had to wait an hour...
When I first got a driver's license in the US, in Boston, Massachusetts, so this is, you know, big wealthy town in a big wealthy state, and it took me from the time that I had to get there to queue up, to the time that I'd been processed, to all I had to do was, you know, like take the test to get a license that would allow me to go take the actual driving test, took eight hours. If that happened here, like Chris Minns would be out of a job by the end of the week.
Right? ABC would be on about it. Shahri Marks, and it'd be on everyone. It'd be a bipartisan across the board shellacking of somebody.
Or you know, I guess the transport minister already got run out of town this week, so they'd find somebody, probably would be Minns in this case.
So I think when you come to expect this, a bit what Steve was saying about equilibrium, the equilibrium is we expect it to work. So if there's a deviation from that, there's gonna be punishment. Nobody expects it to work in the US.
I mean, in Chicago, there are potholes in the roads everywhere. It's a wealthy town, right? And people just go like, "Oh, you should expect to get a flat tire like once a month here from hitting potholes." And when I moved there I was like, "What do you, what do you mean you get a flat tire once a month?" And they said, "Well, that's just how it works. Like, they are old and corrupt and blah, blah, blah, and we just come to expect it." And so I think we expect a lot, and if you don't get it, then there's trouble. And so we've created an equilibrium with really good political incentives.
HAMILTON: So I think you should think, you know, this is consistent with that, but I think you should think about what are the barriers to getting legislation passed, right? In order to have Smart Gate or single touch payroll or any of these things, there was a... You know, it may not have been legislation, it depends how it was passed, but ultimately the parliament approved it, right? Um, and so I think you ought to ask why does the Parliament approve these things?
HOLDEN: Or delegate the authority to it. So I don't know what would have had to happen for Smart Gate or single touch payroll, but it may well be that a relevant administrative agency just has the authority to do that. But you know, in the US maybe Congress doesn't delegate that authority.
HAMILTON: No, there's a system… I think in Australia there are just fewer, fewer barriers than in many places. I mean that, a lot of this stuff would happen with supply through the budget process, and that was only ever blocked once, as far as I remember. We just pass the budget every year. Now some pieces of legislation are passed separately, but a lot of the budget measures just get passed through. They just get waved through, right? So we have a system where the legislature and the executive are one, right? Which is very different to where I live where basically the system is designed to literally designed on purpose to prevent the passage of legislation, right? And that just takes, you know, that is frictions just lower, right? We just do it. And I think it means that if people... You know, if Richard's right and people have preferences for those sorts of things, there are just fewer impediments for the system to deliver them. That's also important not just on spending measures but on revenue measures. It's very easy for Australia to raise revenue. It's not hard, right? We have, we have an income tax that automatically goes up no matter what you do, right?
HOLDEN: But we're both against that, right?
HAMILTON: I am, but if you want your state to be well-funded under all circumstances, you kind of want revenue to flow freely and easily, right? And in the US again, we've, I mean, literally deliberately tried to make... We've tried to starve the beast, right? And when you try and starve the beast, the beast dies. And that's what it's like being at the DMV for eight hours, right? So it's sort of by design, I think Australians are willing to have... I mean, it's hard because I have a US reference point and the US itself is so strange, right? It doesn't explain why Sweden's different maybe, but I can just say the frictions to passing laws and funding programs are just very low here. Um, and so we do it.
WALKER: So the equilibrium point makes sense, but for me it just pushes the question back one level, because it doesn't explain why our administrative state was so effective to begin with such that those expectations developed. Is that just due to randomness or...
HOLDEN: Yeah, I mean, the cheap answer is its path dependence and it was due to randomness. I think... I have a sense that it was, it was kind of more important for Australia than some other countries to have highly functioning administrative state in some areas. Now, why is that in, say, Medicare versus other things? That's maybe a harder answer, but go to Steve Smart.
So when Steve said, you know, I'm... You know, I said something to you here and he said, "Yeah, you know, it's 30 minutes," blah, blah, blah, the anecdote he related. I said, you know, "Smart Gate's awesome. It's a good example of state capacity."
And then I said, "And you know why?" You know why we have that, I reckon, is because we get a lot of money from tourism, a lot of Australians travel, and a lot of high profile business people in Australia travel a lot, and almost all of them fly commercial.
In the US, wealthy people kind of have opted out of the administrative state in a major, major way, which is they, they don't give a crap about the TSA, because they fly private. They live in communities where they have their own garbage collection. They have their own trash collection. They have their own security. They have their own police forces. I mean, it's like they've opted out and there's just no pressure for it.
I think we have... This maybe isn't about state capacity, it's more about service delivery, but if I think about the fact that we have a healthcare system, and I've written about this quite a bit before, which is, you know, we have all these big, I think, excellent carrots and sticks for people who can afford to have private insurance. But everyone has a stake in Medicare, because it's the baseline for everything in our healthcare system. So really wealthy people, not so wealthy people, we're all subject to Medicare.
A lot of people, not everyone, but even a lot of people who send their kids to very fancy and expensive private high schools send their kids to the local public school till the end of sixth grade. We have maybe not a perfect stake in public education in Australia, but a lot of us feel like we have a stake in public education. I think Australians across the board, across the income spectrum, across the... It's related to income, you know, wealthier people maybe have more time or more power or more privilege or whatever you want to call it.... to be able to intervene when they see stuff not going right.
I think we've got that balance really right and it's, I'd contrast it with, it's not like single payer like France, say, in our healthcare system. It's this hybrid but it's not, you know, the disaster that is in the United States. And I think you can ask why, why is Medicare in the US, you know, which is for older Americans, that's got very low administrative costs, seems to work very well even though it sort of exists in a totally dysfunctional healthcare system. But it actually works pretty well. Why? Because if that didn't work well, you'd get voted out of office. Why is Trump not gonna cut that, because that's political suicide.
So I think some of those elements are kind of true as to how we got there, and I think those things have been important for Australia. One is about tourism and travel and stuff like that. Some of that other stuff I think is just important as to how we see ourselves. We see ourselves as we wanna have universal healthcare but, you know, not single payer universal healthcare. That system leads you to the kind of thing that I described with those kind of equilibrium properties and those kind of political incentives. That's my take.
2. Five principles for crisis management
WALKER: So I want to start gently segueing now out of the pandemic and into state capacity more broadly. And one way to read your book is as a general crisis management handbook, but nowhere in the book do you synthesize and summarize those different principles of crisis management. So I want to invite you or give you the opportunity to do that now tonight.
So imagine a political leader calls both of you up, they've read the book and they want to bring you down to Canberra to do a seminar to help some senior members of cabinet and the Prime Minister build up their intellectual capital: learn the principles of crisis management. They can't tell you what the crisis is—they've had early warning, but that's confidential. So you're just giving very general principles. What are the headings or main topics in your curriculum?
HAMILTON: Mate, come on. [audience laughs]
I needed advance warning of this question. Can you go first?
HOLDEN: I’ll go first. I'll get the obvious bits out of the way and then you can try and think of others.
HAMILTON: Yeah, I'll clean up. I'll clean up after you.
HOLDEN: So I think the first thing is you've got to be honest with people. You've got to be honest about what you know and what you don't know. And just say to people, you know... I think an example of what not to do was saying, "Oh, we don't... You know, can you... Don't use a mask, 'cause you don't really need a mask, 'cause it's probably not aerosol. And make sure you wash your hands a lot." Right?
It turns out people were saying that because it's like "we don't think we have enough masks in the healthcare, in hospitals, for the moment", so it's really bad if people go on Amazon, like I did, and order a whole lot of N95 masks.
WALKER: So no more noble lies.
HOLDEN: Yeah. Don't bullshit the public.
WALKER: Right.
HOLDEN: Come out and say, "We need masks... We think masks are very helpful. We need them most in hospital, for obvious reasons. Let me explain why... We'll have a doctor explain what it's like to be in an ER and the viral load and what it means. And so we're just asking you, can you please, like, not buy up a whole lot of masks and stockpile masks because of this." And I think you lose a lot of credibility with people if you lie to them. So first thing is, I think it's really hard, but you've got to be honest with people about what you do know and what you don't know.
Okay. You got one? I'll think of another one if you can...
HAMILTON: This is nebulous, but I will repeat something I said earlier which is, I could not stop thinking about having flexibility in your thinking. You know, just that basic idea of, like, do not...
Something we touch on with the economic chapters a lot is everyone's fighting the last war. They want to pull a book off the shelf and just implement the plan, right? So much of the economic response early on, when I started seeing people on Twitter say, you know, "Checks, checks, checks," the reason they were saying "Checks, checks, checks" is because the failure of 2008 in the US was not getting money out the door, not getting enough money out the door, not getting it directly to people quick enough. You know, that was the focus. Everyone thought, "2008 crisis, we need to get cash out."
So they come to the pandemic and they think, "Oh man, we need to get cash out the door." And you're like, hang on, it's a completely different crisis, right? I mean, you have a massive supply contraction at the same time that you have a demand contraction. So you have to think about this differently. So, yeah.
HOLDEN: Don't fight the last war.
HAMILTON: Yeah. Well, there you go. That's glib. Yeah, I like that.
HOLDEN: Not glib. We're talking to politicians. You have to be, direct and like a little-
WALKER: You need slogans.
HOLDEN: ... morsels. Stop the boats, axe the tax, you know. This is like, this is their language, man. So-
HAMILTON: Democracy is on the ballot. No, I'm sorry. Hang on. One second.
HOLDEN: That didn't work so good. Too many syllables.
Yeah. So, don't lie. Don't fight the last war. Optionality.
So, option value's an incredibly important concept here and that would cover a lot of things, but don't give away optionality. Keep your options open, something like that, and I think that would apply to a lot of things.
And you know, one way to think about what we did with the vaccines is we cut off that option value. Had we bought everything, we had the option to use it, we had the option to use it as foreign... You know, the ones that were maybe still really good but we didn't, you know, weren't gonna need 'cause we had enough doses of the other stuff. You know, we coulda helped with our Pacific allies and neighbors or other countries and so on. And I think that's a very broad concept that applies to alot of different crisis management.
HAMILTON: I think there's also something about... like, the thing in economics is like it takes a lot... This is super nerdy, but, like, it takes a lot of Harberger triangles to fill an Okun's gap.
HOLDEN: Oh. Very good.
HAMILTON: Okay? I don't know if anyone knows what that means, but, you know, the point is—
HOLDEN: Who said that? Was that Marty?
HAMILTON: It's, um, it's from... It's... I cite this paper in my paper. Anyway.
The key thing is to say: in a recession, the welfare loss of unemployment, of some big contraction, is massive. Don't sweat spending money in that circumstance. In normal circumstances we're worried about sending money out the door because we get welfare losses in trying to collect that money back. But in a recession, you're dealing with such a mass market failure on a massive scale.
HOLDEN: So, I think that's a great way to put it. So I would use the, you know, Harberger's Triangles and Okun's Gap thing.
HAMILTON: Yeah. Albanese wouldn't know what that means, but you know.
HOLDEN: Well, he didn't do proper economics at Sydney Uni. So that was a mistake... And a shame.
But I think, you know, we wrote about this a lot during the pandemic and to be honest you made me think about this really, really hard. I think I knew this but you made me really focus on it, which was when you think about government spending on a whole lot of things, a lot of it's just being transferred from one group of Australians to another group of Australians. Okay, you've got to raise the money, so what's the distortion that you create when you raise the tax revenue to do that? Well, smart public finance people like Steve told me that's about 20 cents on the dollar.
HAMILTON: Yeah, order of magnitude like that.
HOLDEN: So, you're saying well if this money's going from here to here, don't think of that as $100, think of that as costing you 20 cents.
And that's a very different frame of reference than like, "but the budget is gonna be like $100 worse off". That doesn't matter. That's just the Commonwealth budget. That's just, you know, one set of books. Think about the whole set of books.
HAMILTON: It's sort of like don't be penny wise, pound foolish. How about that for something? Is that alright?
HOLDEN: Yeah, yeah.
HAMILTON: Think about... Be willing to spend money if you need to spend money. It's not a big deal. The costs are so much larger. That's frequently the case.
WALKER: Okay. So no noble lies. Maintain optionality. Don't be penny wise, pound foolish. And don't fight the last war. Anything else?
HOLDEN: No, if you have too many things, then...
HAMILTON: Yeah, don't have... And the fifth one is don't have too many points. [audience laughs]