Swollen Permits? Call Chile!

Permits feel like “just paperwork”, until they quietly become the biggest barrier to building, investing, and even basic economic growth. We use Chile’s fight with “permisologia” to show how bureaucracy creates delay, uncertainty, and political risk even when the stated goal is safety or environmental protection. 
• permits as transaction costs that quietly tax projects and entrepreneurship 
• why bureaucracy is not the same thing as government and why it crowds out market coordination 
• “permisologia” in Chile and how a one-stop shop becomes many counters 
• parallels to India’s license raj and the logic of rent seeking choke points 
• Dominga as a case study in shifting rules, scandal, and investment held hostage 
• documented GDP and jobs costs from permitting delay and collapsed processing capacity 
• Chile’s LMAS reform plan including deadlines, digitization, and sworn declarations with sanctions 
• Parkinson’s Law, bike shedding, and why committees obsess over trivial items 
• listener letter on commune life and how transaction costs show up inside “one big firm” 

Links:

What is  "Permisología"? https://comentarista.emol.com/2294117/27242033/Emol-Social-Facts.html

Framework Law (LMAS):  https://www.bluefieldresearch.com/research/chile-takes-another-step-towards-mining-reform/

Parkinson's Law and the "Law of Triviality":  https://fs.blog/parkinsons-law/

Twin Oaks Community:  https://www.twinoaks.org/

If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com !

You can follow Mike Munger on Twitter at @mungowitz 

Transcript

Why Permits Feel Infuriating

Michael Munger 0:06

This is Mike Munger, the knower of important things, from Duke University. This month, the most boring, exciting story you've never heard, or maybe the most exciting, boring story you've never heard. Permits What's up with that? An enormous part of the transaction cost of a building project, starting a new business, or just being allowed to claim title to a house or a car involve getting formal permission from the state. Are permits necessary? Are all permits necessary? I just spent a while in Chile talking to scholars and government officials about a new old diagnosis permisologia, a new twedge, this month's letters, book it a month, and more. Straight out of Creedmoor, this is Tidy C.

SPEAKER_03 0:59

I thought they talk about a system where there were no transaction costs. It's an imaginary system. There always are transaction costs.

SPEAKER_02 1:08

When it is costly to transact, institutions matter, and it is costly to transact.

Bureaucracy As The Real Alternative

Michael Munger 1:20

If the Roman historian Tacitus were alive today, he'd likely say the more corrupt the government, the more numerous are its permitting requirements. What he actually said was the more numerous are its laws, but permitting requirements are the new form of corruption. In Latin and then in old French, permit meant to allow or to pass through, but the English word has two aspects. First permit is the act of approving. The second permit is the piece of paper that certifies that approval has been obtained. And so even though it's one word, it can be a noun or a verb, and the pronunciation differs depending on which it is. The need to obtain those digital pieces of paper and the requirements of satisfying the bureaucratic permitting process behind it is costly, wasteful, and it can be infuriating. It's also the sine qua non of bureaucracy, where the governing philosophy is, well, there has to be a process. If prohibitions are few and specific, everything else is permitted. For governments that's not a process. The ideal for bureaucracy is that everything is prohibited, except the things that they specifically permit, and you have to go ask them. And so the power of bureaucracy is not to decide what. The power of bureaucracy is to decide whether in this specific instance you will be allowed to do the thing that you want. This tendency is so widely recognized it's an entertainment trope. On Yes Minister, Sir Humphrey famously defends this elaborate process as a feature. A late decision is a wise decision. It gives more time to think and more time to avoid making the decision in the first place. As the ambit of bureaucratic control expands, the set of activities for the permitting process becomes enormous, and the capacity of any human actor, much less a bureaucrat isolated behind a desk, working from an outdated book of rules, becomes laughably inadequate. Ron Swanson of Parks and Recreation gave the essential bureaucratic credo with a painfully straight face. I have no idea what I'm doing, but I'm doing it really, really well. The difficulties and wastefulness of permit regimes might seem accidental, a side effect, but in fact they're a direct and predictable consequence of the use of government as the mechanism for organizing and directing social activity. You might think the alternative to markets is government. That's wrong. The alternative to markets is bureaucracy, a system of planning, regulation, and time consuming permitting based on the delegated authority of the legislature. As Ludwig von Mises pointed out, bureaucracy and permit processes are the only way that government responsibility can be carried out. Bureaucratic processes displace market processes. Prices are blocked, private actors are thwarted, often indefinitely, by delayed decisions and by officials who have no idea what they're doing, but they're doing it really, really well. The reason this is important is that, as von Mises recognized a century ago, bureaucracies cannot be reformed to make them more efficient. Elon Musk, I'm looking at you, buddy. The need to follow the rules of delegated authority literally and necessarily exclude efficiency as a goal. Bureaucrats are characterized by their knowledge of and conformity with the rules of conduct and process spelled out in the procedures in statutes and regulations. To protect bureaucrats from corruption and outside influence, it has to be difficult to evaluate their performance and hard to fire them, on any basis other than failure to conform to the permitting process specified by law. But that doesn't mean that nothing can be done or improved.

Chile’s Permisologia Diagnosis

Michael Munger 5:24

There is a new movement in South America, built on an old movement but with some new wrinkles. It's going on in Chile. Now, Chile's by far the richest large economy in South America in terms of GDP per capita, largely because of its turn to openness and the use of markets in its economy after nineteen seventy five. Until recently, Chile had consistent large growth rates, but for more than a decade now, growth has stalled, and after a post COVID bounce, the economy has grown at an anemic two percent on average. A new group of reformers, empowered by the Cast administration that took office in March of this year, is arguing that Chile has contracted a wasting but not immediately fatal disease. In English we might call it permititis, swollen permits. I recently was able to spend several days in conversation with key players in the Chilean bureaucracy focusing on a new policy initiative La Permisologia. This is a Venezuelan portmontau, blends permiso permit and logia with a system of study. The expansion of Chavismo after 2003 in Venezuela had brought a ruinous raft of regulations and bureaucratic processes to the point where applying for permits became the defining feature of commercial life in Venezuela. But as early as 1985, Rafael Caldera, who served several disjoint terms as president in Venezuela, wrote an op-ed using the term permisologia in the Venezuelan newspaper El Universal. Now, Caldera was a distinguished member of the Venezuelan Academy of Language, and he claimed that the word was etymologically imprecise. He thought that the reason that permits needed to be studied was that there was too many of them and more were being imposed every day. He suggested an alternative permisaria misery and poverty that comes from a flood of permits. That neologism mimicked the Spanish word for palabraria, a flood of empty words, or gritaria, an endless din of shouting. Now Caldera's suggestions never caught on, but the meaning, the understanding of the misery of a flood of permitting regul requirements that have to be studied is the way that you should understand permisologia, the study of swollen permits. Now, Chile has an open economy. The word, like many things, was imported in 2022 with the inauguration of the socialist government under Gabriel Boric in March. Now Boric had once admired Chavismo himself, but then after he was inaugurated, said a country from which more than seven million people flee, well, one cannot defend something like that, and he was referring to Venezuela. But it seems that Boric couldn't help himself. There were a flood of new bureaucrats and a wave of new permit requirements, just as if Chavismo were being implemented in Chile. So Permiso is a new name but an old idea. For decades, Chile's investment climate has suffered gradual sclerosis, held back by the lengthy, opaque, and often arbitrary bureaucratic process required to obtain authorization for new

SEIA And The One-Stop Shop Myth

Michael Munger 8:46

product. So Chile's core permitting architecture traces back to law number nineteen point three hundred on general environmental bases, enacted in nineteen ninety-four in the creation of the environmental impact assessment system, which has been in force since April 3rd, 1997. The Environmental Impact Assessment System channels investment projects through a process that requires either an environmental impact study for major projects or a simpler environmental impact declaration for smaller ones. But beyond that environmental gateway, which is enormously time consuming and expensive, investors also have to navigate a thicket of permisos ambientes sectorales, that is sectoral environmental permits. There's a sprawling army of line ministries, regional authorities, technical agencies, all of which have different requirements, different forms, and different websites, different people you have to get information from about how to get these permits. Some of the permitting requirements are literally contradictory, and a lot of them are certainly inconsistent. Worse, many of them are so redundant that you end up submitting essentially the same information over and over again, but having that information evaluated by different people who impose different requirements about how you have to change the project. So the SEIA was trying to create a one-stop shop permitting philosophy, but in practice the shop just has many different counters, each which has its own cue and its own arcane sequencing requirements. It's hard not to compare this morass with India's famed license Raj, a system something like 1947 to 1991, under which virtually every significant business decision, from opening a factory to importing machinery to hiring consultants, required a cascade of government approvals issued by different ministries with inconsistent standards and no coordination. The result was an astonishing carnival of what economists call rent seeking, with chronic underinvestment and an entrepreneurial culture warped around compliance rather than creation. The most creative people were the fixers who would get these applications through the compliance process, not create new products. So in many cases, rank and file Indian bureaucrats had negative effective salaries. Each permitting job was in effect a franchise, allowing use of the permit veto as a choke point in the process. That meant that you could hold things up until you received a payment, at which point you would sign off on the permit, but then it would just go on to the next person with their handout, demanding payment in order to pass the permit. So a steel plant might need permits from the Ministry of Steel, Ministry of Industry, State Governments, Environmental Bodies, Labor regulators, each capable of blocking the entire project indefinitely. Now, Chile's system is less politically motivated than India's license raj, which was partly ideological, frankly. They were reflected postcolonial suspicion of private capital. The idea was if you were going to earn profits, you must be doing something evil. And that's not primarily Chile's viewpoint, although there's a lot of people in government who have exactly that view. In any case, Chile's system has structurally produced similar outcomes. So in Chile, the analog can be seen clearly in sectors like mining and infrastructure. First project that went through an environmental impact assessment in Chile was the Guanaco Gold Mine, which conducted a landmark voluntary assessment in 1992. Since then, the system has grown in complexity without expanding institutional capacity. A large mining project today must obtain authorization from multiple entities simultaneously. Environmental permits, water rights, fisheries, if coastal areas are involved, municipal building authorities, sectoral agencies for operational permits, each with its own timeline and standards, none coordinated with the others. So like the license roj requirement for separate industrial licenses, import licenses, and capital allocation approvals, Chile's permitting requires investors to run the same gantlet multiple times with different gatekeepers who speak different regulatory languages. The structural cause is an institutional design that distributes permitting authority across thirty seven services and sixteen different ministries, with no single authority empowered to coordinate, accelerate, or resolve conflicts. So the Le Marco de Autoracionis Sectoralis, the framework law, modifies three hundred and eighty sectoral authorizations belonging to all of those different ministries, a number that illustrates how fragmented the system had become. The ambition of the Environmental Impact Assessment System to serve as a consolidated one stop shop has been undermined by multiplying the agencies operating outside. What is needed is a study of the permitting process with someone who is who has the authority to combine and streamline it. Now there have been previous attempts to solve the problem of the bottleneck.

Dominga And Political Permitting Risk

Michael Munger 14:13

There were a number of projects, port facilities, mines that crystallized the tensions and difficulties since most governments have an interest in trying to create growth and jobs. The fact that growth and jobs are being choked off with no benefit to the society mean that this should be something that's fairly easy to try to work on. So the Dominga project, a proposed two point five billion open pit iron ore mine and port facility in Coquimbo, crystallized those tensions. The project tried to invest two point five billion in two open pit mines and a new port facility five hundred miles north of Santiago. Ports planned in an area close to a nature reserve inhabited by vulnerable species. Dominga wound through the SEIA, was approved, and then rejected. During Bachelet's second term in 2017, it became enmeshed in political scandal when it was revealed that Pineta's President Pineta's 2010 sale of his stake in the project was contingent on no change being made to Chile's environmental laws, though there seemed like there was a quid pro quo. The center right Pineta narrowly escaped impeachment on those grounds. But remember, part of the reason why it's so important to be able to guarantee that there's no change in the environmental laws is that a change in the environmental laws will result in enormous difference in the viability of the project. It's not so much the corruption of the system of the fact that it is possible to make those changes ex post after the project has already begun the permitting process. So the saga illustrated, the Dominga process illustrated how politically explosive permitting decisions had become, and how the absence of clear rules and timelines left major investments hostage to the political cycle. So Gabriel Burich took office in March 2022 and announced that he was going to lead Chile's first ecological government, and environmental advocates then hoped for stronger environmental protection, while business groups feared further delays. So in practice, the Burich government position evolved significantly under economic pressure. So there was a failure of trying to impose tax reform in 2023. The Boric government tried to establish an agreement with large businesses and proposed what it called the pacto fiscal, consisting of 20 state reform measures and 38 measures to promote investment, productivity, and growth. And permitting reform became central to that bargain. When I hear 38 measures to promote investment, productivity, and growth, I think these are bureaucrats trying to spend money or give direction, that's a disaster. What you need to do is to get rid of the permitting process. All you have to do is implement Adam Smith's system of natural liberty, and business investors will take it from there. Borich's government then tried a two-track legislative strategy, submitting bills in January 2024. One tried to modernize the SEIA, the supposedly one-stop shop, and shortened the timeframe of environmental assessment procedures for obtaining a permit, including modifications to the environmental liability regime. That means that it made it more difficult to sue and the amount of the lawsuits would be less if they were successful. A second bill, which would become the framework of the sectoral authorizations, La Le Marco, addressed the sectoral permitting layer outside the SEIA. The reform bill was politically contentious, it was eventually deprioritized, the reform bill was removed ultimately from legislative priorities, and the little action ended up being taken in spite of all the attention that it had received.

The Measurable Economic Damage

Michael Munger 18:16

What's interesting is the economic costs, so that this inaction by the state is not hard to explain because states never do anything that involve reducing their power. But the economic costs of the permitting dysfunction in Chile have been documented. The numbers are striking. So Universidad San Sebastian, the Center for Public Policy, produces an index of economic costs of permitting, the Indice de Costo Economico por Permisologia, which is an annual measurement of the direct drag that permitting delays impose on the Chilean economy. According to that analysis, delays in the environmental processing of investments cost Chile 2.2 billion in US dollars in 2024, equivalent of almost 1% of GDP. Now, 1% of GDP may not sound like much, but that's the growth rate. You take 1% off the growth rate of GDP every year, and over time you're getting a very, very large decline in the size of potential size of the economy compared to what is possible, and for no good reason. So there was actually deterioration from the year before. The cost had risen. So the trend's going in the wrong direction. The pace of project processing has also collapsed. In 2024, the bureaucracy processed 111 projects per quarter, which is down uh by more than 40% from the historical average. So it's more expensive. There it's taking far longer to process, and fewer things are coming out, even though there's no change in the quality because of all the fixers and consultants that are employed, the quality of the applications is probably going up. But the number of that's being approved is falling. So it's internationally uncompetitive. In Australia, Canada, the United States take something like six months. In Chile, it can take two or three years to process a uh the these applications. And remember, this is just to start to build a project. So it's years after that before the project actually comes online. So these sorts of delays up front and uncertainty about whether the project will be will be built raise an enormous amount of costs of financing. So I have to borrow money and then I start this process. I'm paying interest on that money for the whole two years that bureaucrats are walking back and forth with pieces of paper and showing them to each other and then talking about where they're going to have lunch.

SPEAKER_01 21:07

Normally, if given a choice between doing something and nothing, I'd choose to do nothing. But I will do something if it helps someone else do nothing. I'd work all night if it meant nothing got done.

Michael Munger 21:16

The employment cost is significant. In 2024, uh there were thirty thousand permanent jobs that could have been created if the projects delayed and environmental permitting had entered operation. Of those, more than half would have come from infrastructure projects and a third from mining projects. So this is what uh many people in the United States call good jobs. These are jobs that are uh manufacturing or extraction. These are in places where the environmental impact would be relatively minimal, and the the problem is just getting the permits processed. So without even considering construction phase employment, the total projected job creation across the The full investment lifecycle of the delayed projects is at least a hundred thousand. In the Chilean labor market, that's pretty significant. The indirect costs, of course, are harder to measure because it's hard to measure the cost of something that didn't happen, but they're probably far larger. Investors who anticipate multi-year permitting processes adjust their decisions upstream. Projects are never proposed. Capital flows to other countries. Chile gradually loses its competitive position in mining, energy, and infrastructure vis-a-vis regional right rivals like Peru and Argentina, and of course there are many other countries also. System has been identified as a key obstacle to investment in Chile.

Chile’s New Framework Reform

Michael Munger 22:41

Well, the new administration is trying to respond, and in fact, their the response started in 2024, as I noted, the LMAS Le Marco de Autorizaciones Sectorales LMAS in January 2024. The Chamber of Deputies gave final approval to it July 1st of 2025, so not quite a year ago. That initiative tries to optimize and reduce by between 30 and 70 percent the processing times for sectoral permits, simplifying and modernizing administrative processes without compromising the regulatory standards. And some of that can happen just from simplification. President Burich formally wrote out the law as a rule, and the Le Marco was enacted September 29th, and they're trying to digitize the system of spectoral permits and to have a timekeeping process where you can tell how long something has been in process. You can just go to the website and see what the status is, see which office currently has it, and with a contact number so that you can find out information about why it's being held up. The law's main mechanism are common minimum procedural rules that establishes common rules for all sectoral permits, standardized forms, and it sets differentiated maximum processing deadlines between 25 and 120 days depending on the type of authorization. There are alternative enabling techniques, technicas habilitantes alternativas. So that means that they're subject to SX post oversight with strong sanctions in case of fraud. This is really quite innovative and it makes perfect sense. If you're talking about some kind of relatively low-risk facility or some kind of new process that you're going to implement, you can sign a sworn statement saying we are in compliance, go ahead and build it, and then go through the inspection process. And if it fails the inspection process, you have to dismantle it and pay a large fine. But the point is you can operate in the meantime. So there's a club behind the door. Lying won't get you anywhere. But if it is a simple, low-risk process, you don't have to wait to get the permit in order to start it. You can do it after the fact. There is a unified digital platform. Super transforms into state policy the online platform as a single traceable entry point for all permit applications. Each agency, as it stands, runs its own tracking system. Super would be a single tracking system where you could get information about the status of all your permits at all agencies. And some agencies actually just don't have any tracking system at all. They say that they do, but they'll just give a phone number saying you should call this, and the number will just ring and ring. There's sectoral legal modifications. So the law modifies the 380 sectoral authorizations that belong, as I said before, 37 different services, 16 different ministries covering mining and all the other departments. So that law passed with broad cross-party support. All of the ministers were credited having a deliberate strategy of consensus building, but Nicolas Grau, in particular, the Minister of Economy, uh got most of the credit. He emphasized the core diagnosis was institutional capacity, not regulatory laxity. The main reason sectoral permits take so long is that the agencies are overwhelmed. Sworn declarations will allow all the effort to be concentrated on the authorizations that genuinely involve risk, and the others are just ex post examinations. And there are strong sanctions in the case that it doesn't actually pass. Of course, the critics are not convinced. Environmental law experts argue that sworn declarations are simpler instruments and will not necessarily capture the complexity of the projects to be executed. The law may lead to increased conflicts with communities and greater impunity because the bureaucrats may be unwilling to declare a project out of compliance if it's going to have to be closed and people are going to be fired. Well, that may be, but there's type one and type two error, and even if that were true sometimes, for small amounts of being out of compliance, that would probably still be an improvement over the current situation.

Parkinson’s Law And Bike Shedding

Michael Munger 27:33

Whoa, that sound means it's time for the twedge. This month's joke is going to be Parkinson's loss. And I actually thought that it was appropriate to talk about Parkinson's laws in this context, in the context of permiso logia. So first, the first version of Parkinson's law is that work expands so as to fill the time available for its completion. So if you have uh twenty minutes to do something, you'll do it. If you have all day to do something, it may take you all day. And the same thing is true about bureaucrats. We try to give them enough time so that they can be careful, and they feel they have to be careful, or at least to appear to be careful during that time. So politicians and taxpayers, quoting now, politicians and taxpayers have assumed, with occasional phases of doubt, that a rising total in the number of civil servants must reflect a growing volume of work to be done. The fact is that the number of officials and the quantity of the work are not related to each other at all. The rise in the total of those employed is governed by Parkinson's law, and it would be much the same whether the volume of the work were to increase, diminish, or even disappear. And one of his other laws is what he calls the law of triviality, and you'll recognize this one if you've ever been to a meeting with a group of people. The law of triviality says that time spent on any item of the agenda will be in inverse proportion to its importance or to the sum of money involved. And he gives this a dramatic form. He says to imagine a meeting. The chairman says, We come now to item nine. Our treasurer, Mr. McPhail, will report. And McPhail says The estimate for the atomic reactor is before you, set forth in Appendix H of the subcommittee's report. You'll see that the general design and layout has been approved by Professor McFission. The total cost will amount to ten million dollars. The contractors, McNabb and McCash, consider that the work should be complete by April of nineteen fifty nine.

unknown 30:01

Mr.

Michael Munger 30:01

McPhee, the consulting engineer, warns us we should not count on completion before October at the earliest. In this view, he is supported by doctor McCeep, the well known geophysicist, who refers to the probable need for piling at the lower end of the site. The plan of the main building is before you, you can see Appendix nine, and the blueprint is laid out here on the table. I shall be glad to give any further information that members of this committee may require. Now pause quote for a second. So that's a really complicated proposal. There's a bunch of information, there's a bunch of uh experts that have given sort of tantalizingly vague opinions that border on objections. Back to the quote. Chairman, thank you, Mr. McPhail, for your very lucid explanation of the plan as proposed. I will now invite the members present to give us their views. Now this is Parkinson, saying, as a kind of aside, it is necessary to pause at this point and consider what views the members are likely to have. Let's suppose that they number eleven, including the chairman, but excluding the secretary. Of these eleven members, four, including the chairman, do not know what a nuclear reactor is. Of the remainder, three do not know what it is for. Of those who do know its purpose, only two have the least idea of what one might cost. One of these is Mr. Isaacson, the other is Mr Brickworth. Either is in a position to say something. We may suppose that Mr Isaacson is the first to speak. Now back to the drama. Mr Isaacson says, Well, Mr. Chairman, I could wish I felt more confidence in our contractors and consultant. Had we gone to Professor Levy in the first place, and had the contract been given to David and Goliath, contractors, I should have been happier about the whole scheme. Mr Lyon Daniels would not have wasted our time with wild guesses about the possible delay in the competition, and doctor Moses' bullrush would have told us definitely whether piling would be wanted or not. The chairman says I'm sure we all appreciate Mr Isaacson's anxiety to complete this work in the best possible way. I feel, however, it's rather late in the day to call in new technical advisors. I admit the main contract has still to be signed, but we've already spent very large sums. If we reject the advice for which we have paid, we shall have to pay that much again. Other members murmur agreement. mister Isaacson. Nonetheless, I should like my observation to be minute, that is to put put into the minutes. He's not going to object, he's not going to vote no, but he wants it to be put into the minute so that if something goes wrong he can claim credit. Chairman says, Certainly, perhaps Mr Brickworth also has something to say on this matter. Now, as an aside, Mr Brickworth is almost the only man there who actually knows what he's talking about. There's a great deal he could say. He distrusts a round figure of ten million dollars. Why would it come out to exactly ten million dollars? Why do they need to demolish the old building to make room for the new approach? Why is so large a sum set aside for contingencies? And who is this McCheep anyway? Is he the man who was sued last year by the Trickle and Dried Up Oil Corporation? But Brickworth does not know where to begin. The other members couldn't read the blueprint if he pointed to it. He would have to begin by explaining what a reactor is and what it's for, and no one there would admit he didn't already know, and they would all act impatient. It's better to say nothing. Mr Brickworth. I have no comment to say. Chairman. How does any other member wish to speak? But very well then. I may take it that the plans and estimates are approved. Thank you. May I now sign the main contract on your behalf? Indeed. Thank you. We can now move on to item ten. A few seconds of rustling papers, unrolling diagrams, the time spent on item nine has been two and a half minutes for ten million dollars for a new nuclear reactor in a place that they're not sure the site is acceptable. The meeting is going well. But some members feel uneasy about item nine, the reactor. They wonder inwardly whether they've really been pulling their weight. It's too late to question the reactor scheme now, but they would like to demonstrate before the meeting ends that they are alive to all that's going on. They're no fools. Chairman Item ten bicycle shed for the use of the clerical staff. An estimate has been received from the contracting firm of Bodger and Woodworm, who undertake to complete the work for the sum of two thousand three hundred fifty dollars. The plans and specifications are before you, gentlemen. Mr Softley says remember he said Softly said nothing on about the reactor for ten million. And he doesn't know what a reactor is. Mr Softly, surely, Mr Chairman, this sum is excessive. I note that the roof is to be of aluminum. Would not a asbestos be cheaper? Mr Holdfast. I would grieve with Mr Softly about the cost, but the roof should in my opinion be galvanized iron. I'm inclined to think that this shed could be built for two thousand dollars or even less. Mr Daring. Mr Chairman, I would go further. I would question whether this shed is even really necessary. We do too much for our staff as it is. They're never satisfied. That's the trouble. They'll be wanting garages next. Mr Holdfast. No, no, I can't support Mr Darring on this occasion. I think the shed is needed. It's just a question of material and cost. Well, the debate is fairly launched. A sum of two thousand three hundred fifty dollars is well within everyone's comprehension. Everyone can visualize a bike shed. Discussion goes on therefore for forty five minutes, with the possible result of saving some three hundred dollars. Members at length sit back with a feeling of achievement. They have earned their position on the committee. Chairman Item eleven. Reflect refreshment supplied at the meetings of the Joint Welfare Committee. Monthly four dollars and seventy five cents. Mr. Softly, what type of refreshment is being supplied on these occasions? Well, coffee, I understand, says the chairman. Mr. Holdfast. And that means an annual charge of let me see, he's multiplying. Fifty-seven dollars. Chairman says, Well, that is so, yes. Mr. Daring, well, really, Mr. Chairman, I question whether that's justified. How long, after all, do these meetings last? That's the end of the quote from Parkinson's book. Um this is actually called bike shedding. You may have heard of that. That's the origin of it, is that story. Um bike shedding is when a committee uh immediately approves complicated, expensive things, but compensates by holding up the permit for much less complicated, much less expensive things. And as a result, they get almost everything wrong. And it struck me that that was pretty much a perfect way to think about the problem of permisologia.

Book Pick And A Commune Letter

Michael Munger 37:37

Well, it's time for book of the month. Uh I read got a Christmas present from my sons, and this book is well, I recommend it strongly. Written by David Mitchell, and it's called Unruly: The Ridiculous History of England's Kings and Queens. It was published by Penguin Press in 2024, and it makes for great beach reading. So David Mitchell, Unruly, you'll like it. Got a letter, um which is I'll just read it. It's quite an interesting letter. Hey Mike, I'm not sure how much fan mail a small time podcaster gets, but I hope you have time to read this and I'd love to hear from you. Uh okay. I don't know. Uh pause quote for a moment. Um if you're going to call someone a small time podcaster, I suppose that you're counting on them either to agree or to find that amusing. I find it amusing, so that'll work. I will continue. Back to the letter. I discovered you through econ talk. After hearing a couple episodes with you, I found myself seeking your episodes out and came across one announcing tidy C. Love the show, love your jokes, you mean being. Love your examples, love your social commentary. Wealth of Nations series was really fantastic. I had read it maybe fifteen years ago when I had little other economics knowledge. Hearing your dissection of it was fascinating. I really appreciated the final summary episode. You really did a great job of distilling key thrusts in a pithy and poetic fashion. I have lived on a commune for the past fifteen years. Despite loving my community and my life on the commune, your work has been a really refreshing take against the background of pro socialism thinking that understandably a commune engenders. An anecdote We run a tofu factory. When COVID broke out, our community was implementing pretty strict quarantine practices which stop the flow of visitors and new members to which we were accustomed. Our labor pool shrunk and we found ourselves not able to make as much tofu. We get a lot of our value from scale. Starting a day of production is costly in labor and energy, and tofu doesn't keep that long, so we can't really stock up. Since our production was falling, one member suggested we significantly raise prices. We do have a really strong brand in our region, and our tofu is definitely a premium product, and we would, I think, still have more buyers at the new price than our production would match. But others in our community said no, there's no way we're going to price gouge in an emergency. Listening to your takes on price gouging is encouragement for pro social behavior, that is, leave some for the rest of us, really helped me put my finger on a niggling discomfort I have had since the anti-price increase stance. I'll have you know that our tofu business is basically dead now. It never recovered from that labor shortage. So all that said, I'd like to muse a little bit about the transaction cost in commune life. I find the main economic advantage of living this way is the reduction in transaction costs. We're a co-op of co-ops, and we get all the advantages of sharing or renting out goods and services with few of the transaction cost. We live in big group houses, people are able to move around between them without having to worry about renting or leasing each move. We share a wood shop, tools, bikes, cars. People don't have to worry about individually acquiring these. Purchases are made in bulk, and unlike a traditional food buying co-op, we don't have to worry about many of the transaction cost of distribution. We just throw out bulk foods in buckets, people can come and take them as needed. Even traditional consumer shopping has transaction cost reduced as we send our town trippers to go shop for the whole community. Because our various business and domestic areas are essentially one big firm, we get to reduce transaction cost on accounting and commerce. We still often transact between various areas, that is, our food budget can buy tofu from the business paying wholesale price, but we don't have to worry about establishing trust or enabling transport. We just put a line in the books. Actually, I think the case these days is we don't bother recording a transaction. There's a loss of information there, but at small enough scales it's probably worth the saving in transaction cost. But we also suffer some ridiculously inflated transaction cost in other situations. Part of the story of Twinoaks' success is its bureaucracy. We have a large compendium of written policy and a multilayered decision making process aimed at transparency and the availability of democratic override. This, I think, has helped avoid many of the failure modes of communes of Yore. Now, Twinoaks is a commune of Yor. It was established in 1967. But this means that things could be simple dis that things that could be a simple decision in householder hierarchical firms can end up with a large transaction cost if it's anything controversial. We have so many veto and slowdown points. It can be hard just to do things. And unfortunately, the high cost of some of those transactions, along with a less than punitive social approach to dealing with misbehavior, means there's an incentive to just go ahead and do things. Ask forgiveness instead of permission. Overall, though, I do think the commune life is a net win on transaction costs. We also do fairly well on the information problem because even though we don't have prices internally and all labor is essentially equal wage, we can talk to people and literally just ask about what the trade-offs they want to make. I don't think I do think we're so so on the incentive problem. Cultural norms, as well as a culture of keeping our labor recorded and legible, helps make sure that everyone is doing at least the minimum. But it can be hard to direct labor even into the things that we generally consider the most important because we intentionally avoid putting strong incentives on some labor over others. Thanks for taking the time to read my ramblings and for sharing with the unifying answer to all our economic questions. The answer is transaction cost. AO. Well, thanks, AO. Those are great examples. Um I don't have much of a response. It is interesting that. It was lucky this came in uh about the episode about the costs of permits. Uh you could certainly see why holding things in common if you can all trust each other and if you have some ways of organizing social sanctions for people who act badly, as long as you care about what the community thinks about you, that that might very well work great. I myself would have trouble with it, but it it it sounds it sounds wonderful for someone who wants to live in that kind of environment and feel embedded in that community. On the other hand, uh if you want to try to do something new or different, having to get all those permits with all those veto points, it was AO, thank you. That was a tour de force letter. Bless you. I appreciate you getting in touch. Uh from the heart of this small time economics podcaster.

Wrap-Up And What’s Next

Michael Munger 44:54

Well, that's it for May of 2026. The next episode in June will be the beginning of the weekly episodes for the summer. Looking forward to going back to the shorter format. Until next time.