Book revew: Abundance

In the corners of the Internet that I inhabit, one of the most talked about books over the past year was Abundance, by Ezra Klein and Derek Thompson. And now, I have finally finished reading it. The key theme of the book is, unsurprisingly, in its title. Klein and Thompson reject a world of scarcity, arguing that we should instead embrace a world of abundance. What does that mean? In their view, abundance is about "having enough of what we need to create lives better than what we have had", and the process of obtaining abundance is about building and inventing an abundant future.

The book is understandably US-centric, and most of the book is devoted to outlining the various ways that the US has lost its way. The consequences are seen in the housing crisis, climate change and energy, declining research productivity, and many other challenges that are not just apparent in the US, but appear as a constant theme across Western developed countries (as well as many other countries).

Klein and Thompson focus on the key bottlenecks that inhibit the progress towards abundance. One of the bottlenecks they highlight is group conflict and the collective action problem. In that, they highlight the work of the economist Mancur Olson, specifically his book The Rise and Decline of Nations. In that book, Olson wrote:

    ...if organizations and collusions for collective action usually emerge only in favorable circumstances and develop strength over time, a stable society will see more organization for collective action as time passes.

While collective action could be used to drive the economy towards abundance, so often it is used instead to prevent it. To me, this sounded very much like the problem in the theory of public choice around the optimal number of people to be involved in a decision (for example, see this post, where I describe the trade-off between external costs and decision-making costs). The greater the number of people who must agree with a decision, the greater are the decision-making costs. And collective action, which by definition increases the number of people involved in decision-making, can increase costs and paralyse the decision-making process.

The book is written in an easy-to-read style. Those who are familiar with Klein's columns in the New York Times or Thompson's articles in The Atlantic will recognise this. There are also some funny moments, such as one bit on whether it is government inefficiency that means that it is expensive to dig tunnels in the US. Klein and Thompson list other countries with lower costs of tunnelling, then say:

We looked into it, and it turns out that all those countries also have governments.

Indeed, they do. Government doesn’t inherently make infrastructure construction more costly. The problem lies instead in particular ways that government works (or doesn't).

The most disappointing aspect of the book is that Klein and Thompson spend over 200 pages outlining the problems and making the case for abundance, but then they are short on solutions. They wave away that criticism by noting that:

It is easy to unfurl a policy wish list. But what is ultimately at stake here are our values.

That may be so, but perhaps one concrete solution as a starting point would have been good. Maybe a specific example where permitting reform has been successful in raising housing supply and alleviating high housing costs, or where changes in research and development funding have meaningfully improved innovation. Despite the lack of specific solutions, they do highlight the existence of trade-offs, which is refreshing given that other books have unrealistically utopic views of what can be achieved in the face of big challenges. However, there are some clear blind spots, one of which is a failure to engage meaningfully with the arguments for de-growth. While I don't place a lot of stock in de-growth arguments, that doesn't mean that they don't garner a lot of attention. Even if de-growth is ultimately unpersuasive, a book making the normative case for abundance should probably explain why abundance is preferable to sufficiency, restraint, or reduced consumption.

This book has been a bit of a rallying cry for sections of the left since it was published. It is definitely worth reading in order to better understand the problems and their underlying causes. It is also helpful to think about how we might do better in the future. It is just unfortunate that Klein and Thompson leave us hanging, and wondering what to do next.

Try this: The Mother of Econ

US high school student Saras Tolley has created a collection of AI-powered economics tools called The Mother of Econ. The tools include a 'shock simulator', which takes any news headline and determines what the supply and demand effects are, an 'econ paper decoder', which takes any NBER working paper, or journal article in the Journal of Economic Perspectives or American Economic Review, and creates a plain English summary, and ten other tools.

I put the 'shock simulator' through its paces. After all, if an AI can evaluate the economic implications of a news article using supply and demand, what will I do on this blog? Just kidding, there is lots that I could do. But nevertheless, the results were uneven. Faced with the news headline that I blogged about here, the shock simulator correctly drew a demand increase. However, when presented with the news headline that I blogged about here, it drew a supply decrease rather than a demand increase. So, I guess there is still a little more work required before my supply-and-demand blogging is replaced by AI!

Some of the other tools are really good to play with, including the 'shadow Fed', which applies the Taylor rule to determine what the US fed should do with interest rates and tracks that against actual Fed behaviour. There's also a 'US econ dashboard', which tracks economic statistics by state, and allows you to drill down to the county level (but only for some states, and only for some counties within states that have data - I was disappointed to find data on only six counties in New York, for instance).

Nevertheless, this is an interesting collection of tools, all powered by Gemini, and available for you to use at no (monetary) cost. Enjoy!

[HT: Marginal Revolution]

Koi Tū's case for a New Zealand population strategy

At the end of last month, Koi Tū Centre for Informed Futures released a report arguing that New Zealand needs a population strategy. The report, by Georgia Lala, Paul Spoonley and Sir Peter Gluckman, received a lot of media attention (see here and here and here), and attracted a response on The Conversation from my colleagues at Te Ngira Institute for Population Research. My view is that the case for a population strategy is strong, not because it would allow New Zealand to control demographic change, but because it would force governments to plan more coherently for changes that are already underway.

Now, Lala et al.'s argument is that New Zealand is facing a demographic inflection point. I’m not convinced that 'inflection point' is quite the right term, at least in the mathematical sense, but the underlying argument is sound. It is clear that New Zealand is facing a number of intersecting challenges, including:

1. Slowing population growth - Lala et al. note that "annual growth dropped to 0.7% between June 2024 and June 2025 from 1.7% between June 2023 and June 2024", and that slowing growth means that New Zealand faces a 'double-edged sword' of a constrained tax base and increasing costs;
2. Declining fertility - This is a long-run trend that all countries are facing, and no country has developed a sustainable policy solution (see here for more on that point);
3. Growing reliance on immigration - Immigration has become increasingly important for growing the labour force and population (but isn't a solution for population ageing), but the problem is that immigration (and net international migration) is very volatile, and New Zealand doesn't stack up well against other countries in the competition for global talent;
4. An ageing population - Population ageing has implications in terms of a smaller tax base, and higher healthcare and superannuation costs; and
5. Growing ethnic and cultural diversity - Lala et al. especially draw attention to diversity in Auckland, but it is a reality that is playing out across the country (it is just that Auckland is ahead of other places in terms of diversity).

The issues are just as important, if not more important, at the regional and local levels, and Lala et al. draw attention to that as well. [*] In the section on immigration, I felt like there was too much focus on citizenship (of emigrants), which misses the point that people leaving New Zealand are also increasingly diverse, reflecting the diversity of the New Zealand population. And the large net outflow of Māori in recent years, which is obvious from Figure 10 in the report, probably needed further comment. That matters because Māori migration patterns are not just another component of aggregate population change. They have implications for whānau, iwi, regional labour markets, and the government's obligations under Te Tiriti o Waitangi.

Lala et al. argue for a population strategy, which they define as:

...both actions by a government to identify demographic trends and, subsequently, actions to address the effects of such change.

This seems like a sensible recommendation, and you might be tempted to wonder why we don't have this already, given that national and local government should be keenly concerned about, and adequately planning for, population change. However, once Lala et al. spell out what would be required for a coherent population strategy, it becomes clear that New Zealand falls well short (and, indeed, they can't point to a single country that does all of the things they want from a population strategy for New Zealand). According to Lala et al., the enabling environment for a population strategy requires three things (emphasis is theirs):

First, a population strategy would help elevate key demographic topics above day-to-day political contestation...

Second, a population strategy would help elevate policy planning beyond an election cycle...

Finally, a coherent population strategy could enable strategic decisions across multiple sectors of government including between central and local government.

The problem is clear. We don't really have any of those elements. Decision-making related to population is highly politicised (think about immigration policy, or support for families, for example), policies are subject to reversal with every change of government, and there is little coherence of planning between central and local government (consider the example of Auckland housing, where central and local government are in constant disagreement).

Finally, Lala et al. argue for an independent population commission to:

...provide a robust governance and implementation model to ensure the effective execution of a population strategy.

There is a lot to like in this proposal for a population strategy. New Zealand definitely needs to be more intentional in population planning. However, there are also some serious challenges, as my colleagues Tahu Kukutai, John Bryant, and Polly Atatoa-Carr note in their article in The Conversation. They draw attention to fertility trends, which have proven stubbornly resistant to policy-induced change. They also point to migration, which is not as easy to control as many politicians believe. This is because New Zealanders have the right to live and work in Australia and vice versa, with large flows between the two countries. There is also a huge diaspora of New Zealanders living overseas, who have the right to return at any time (as we saw during the COVID pandemic). Kukutai et al. also argue that a population strategy should have diversity as a foundational design principle, rather than an afterthought. Finally, they note the challenges of adopting a data-informed policy-making, when the quality of population data is in question with the changes to the census.

Kukutai et al. raise some valid points. However, those are challenges to a strategy that should be confronted during its design and development, not a reason to avoid having a strategy at all. I've argued in public forums in the past that a population strategy may fit into the 'too hard basket', in particular because New Zealand can't manage the international migration flows of New Zealand citizens, and so much population change in New Zealand is driven by the economic cycle in Australia. I now believe that also isn't a good reason for not having a population strategy for New Zealand, it is a good reason for us to have a strategy so that these challenges can be met head-on.

The future may be uncertain, but the future demographic challenges that New Zealand will face are already visible. A population strategy would help New Zealand to grapple with those challenges in a more coherent way. At a minimum, such a strategy would need to connect migration settings, regional planning, infrastructure, housing, health workforce planning, Māori and Pacific population futures, and the future of population data. Good on Koi Tū for making this case, and hopefully the government is listening.

*****

[*] And Paul Spoonley (one of the report's authors) and I will be working together on some further research looking in greater detail at regional population change, in the near future.

David Oks on the bad business economics of airlines

Airlines are a strange business. They seem to have huge numbers of passengers, and yet we routinely hear about airlines struggling financially, entering administration, or shutting down. For example, in 2024 in Australia, Bonza collapsed, while Rex withdrew from major intercity routes after entering vountary administration (see this post for more on those examples). The most recent example is Spirit Airlines in the US, which shut down this month, after its second bankruptcy process in less than two years.

I just discovered David Oks's Substack, which has overnight become one of my favourites. The post that first attracted me was this one titled 'Why airlines are always going bankrupt', inspired by the Spirit Airlines story. Another recent post titled 'Why ATMs didn’t kill bank teller jobs, but the iPhone did' is also excellent, as is 'How funerals keep Africa poor'.

Oks's airline post has a huge amount of depth, so is difficult to summarise without losing part of the story. However, I'm going to try (but I really recommend that you read his entire post, as it is truly excellent).

Oks first notes that airlines are not just badly managed, they are structurally vulnerable and often fail to earn a positive return on capital. He then turns to the game theory of airlines, noting that there is an 'empty core' problem, meaning that there isn't any subset of the airline industry that can form a stable coalition, because some part of the coalition would always be able to make themselves better off by breaking away from the coalition. In other words, no group of airlines and routes is stable for long, because whenever capacity is tight and fares are high, another airline has an incentive to add seats. However, once those seats are added, the market can quickly become unprofitable.

The 'empty core' arises because airlines have high fixed costs, low marginal costs, volatile demand, weak product differentiation, and large minimum efficient scale. All of that means that adding one extra airline on a route, or one extra aircraft, can swing a market from being undersupplied and profitable to being undersupplied and unprofitable. So, what happens in the airline industry is that when there are few airlines, they are profitable and happy, but that encourages new airlines to enter, after which profits decrease until one or more of the airlines shuts down. And then the cycle starts over.

As you can see, there is a lot to unpack from Oks's post. Again, I encourage you to read the whole post. But the key points are, first, that airlines are always going bankrupt because the nature of the airline industry lends itself to a boom-bust cycle when airlines compete with each other.

Second, from the perspective of airline consumers (and, probably, governments as well) there is an uncomfortable trade-off. We want low fares from competition between airlines, and we also want airlines to be financially stable, but it may be difficult to have both. The pursuit of low fares can set off the cycle described above, with competition pushing fares down, leading to falling profitability, and eventually one or more airlines exiting the market. Airline financial stability, on the other hand, probably requires some limit on competition between airlines. One way of achieving this is to regulate airlines more closely, closer to the equilibrium that existed before deregulation in the late 1970s and early 1980s, when regulators had much greater control over fares, routes, and market entry. Airlines segmented the market, flew fewer routes, and were profitable in part because they were not actively competing with each other. The other alternative is to recognise that airlines can diversify into other markets. Oks’s most striking example of this is Delta:

...the most profitable airline in the United States, which started a fruitful partnership with American Express in 1996 and launched a co-branded card with them in 2008. Annual spending on Delta-branded American Express cards comes out to about 1 percent of U.S. GDP. In 2025, this produced about $8 billion in revenue for Delta, accounting for more than the entirety of its profit. That means that without the American Express partnership, Delta would be operating at a substantial loss. In effect, Delta’s aviation business is a loss leader for a much more profitable credit card partnership. So to the extent that Delta is now a good business, it is because it escaped the basic instability of the airline industry by becoming less of an airline.

Allowing airlines to operate in a cartel-like equilibrium, as airlines effectively did prior to the 1980s, doesn't strike me as a very positive solution, especially from the perspective of consumers. Having airlines shut down at short notice, cancelling thousands of flights, is clearly not good for consumers either. Perhaps then we need to tolerate airlines that try to sell us financial services, or unbundling the airline package and separately selling seat selection, checked baggage, meals, and so on (see this post about Jetstar's business practices, or this one).