July 2015 – Thomas the Think Engine

Five notoriously brilliant business models Netflix cobbled together into an undefeatable vortex of binge watching.

This story originally appeared over at The New Daily, where I’ve been writing a consumer-focused story each week.

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Netflix – the subscription TV service that launched in Australia this year – is a juggernaut. It drags people in and captures them. And they love it.

Binge-watching TV shows is not just a national pastime. It’s global. The stock-price of Netflix shows the incredible extent of the company’s success. If you’d put $1000 into Netflix in 2003, you’d have $115,000 now. In just one day last week its stock rose 18 per cent as the company revealed more new users than expected.

How did they do it? What’s the secret to turning the globe into zombies who spend all their spare time consuming your product?

The answer is shamelessly appropriating good ideas.

Netflix has swiped the world’s sharpest and most effective business models – some well-known, some well-hidden – and combined them into one unstoppable force.

Netflix owes a debt to big oil, all you can eat buffets, airlines, Microsoft and casinos.

The Oil Industry perfected the concept of owning the whole supply chain.

Think about Shell. It owns everything it needs to do business – from exploration activities that discover where the oil is, to drilling machinery, to the service station where you fill up your car.

When Netflix decided it was going to spend $100 million to hire Kevin Spacey and make House of Cards, it was thinking like an oil company.

Owning the whole supply chain is known as vertical integration and it gives a company power. Oil companies do it to control price, quality and quantity.

Don’t just own the distribution mechanism, because that makes you vulnerable. Own what you’re selling too. Netflix’s most famous house-made products are House of Cards and Orange is the New Black, both of which have proven to be black gold. It has dozens more.

The risk for Netflix is a hit show gets made and someone else wants it. For example, Amazon.com got exclusive rights to Downton Abbey by paying up big. The makers of a hit show can charge a fortune for the rights. By making its own shows, Netflix can’t be held to ransom.

Instead, when it owns content we’re dying to watch, it holds us to ransom. When you call the shots you can raise the prices, which Netflix this week announced it would do.

All-you-can eat buffets perfected the idea of eliminating transaction costs.

In a normal restaurant, you pay only for what you eat. But you do pay for everything. Market economics at its purest.

We weigh up the value of every choice, and get a bill that lists each item. That mental and administrative effort are part of what economists call transaction costs.

Buffets, though, are like an anti-market. Once you’ve paid, it’s a wonderland where the rules of economics don’t apply. Want more lasagne? Go for it!

Humans love buffets. It’s no surprise Netflix acts like a buffet. Who wants to pay every time they click on something? Who wants to weigh up the value of letting the kids watch yet another episode of the Wiggles?

Of course, real world buffets have a problem – if lots of hungry people or lots of fat people show up, they can go broke. To manage this they cut quality and try to entice people into eating bread and potatoes. It’s a fine balancing act.

Netflix, has no such problems. It generally costs them no more whether you watch Seinfeld repeats once or a thousand times. That’s why they are happy to let you binge for hours.

Microsoft perfected the art of bundling.

Microsoft doesn’t care that you never want to make a slide-show. When you buy Microsoft Office, you get PowerPoint whether you like it or not.

This is bundling. You get some stuff you want, bundled in with some stuff you don’t want. Companies do it because it let them make more profit.

The ideaa is simple: imagine I would pay a maximum of $10 for product A and $6 for product B. Your preferences are the other way round.

If the company tries to charge $10 for product A and $1 for product B we each buy just one thing. The company makes $20.

If the company wants to sell two of product A and two of Product B, it must set the price for each at $6. It can makes $24. Better, but not the best.

If it bundles the products into A+B packages costing $16 each, it can sell all four items and make $32! This is their best option.

When you buy Netflix you get a lot of stuff you’ll never watch. Maybe horror films, or BBC murder mysteries. That’s the Microsoft PowerPoint part of the bundle. Airlines perfected the art of price discrimination.

When you go to the Netflix website, you face a decision. Pay $8.99, $11.99 or $14.99.

No matter how much you pay, you get access to all the same shows. The difference is in whether the content is delivered in high definition, regular definition, or ultra high definition, and how many screens the content can be viewed on.

This is what experts call price discrimination. Airlines do it best.

Whether they sell you an economy ticket for $700, a business class seat for $2000 or a first class experience for $5000, you all take off and land at the same time.

Charging people different amounts for the same basic thing works well because of a concept called “willingness to pay”. Not everyone will pay the same amount for the same good.

If a business sets just one price, it misses out on profit. There are some people that would pay more than that. Even more important, there are people who would be profitable customers if the price was just a bit lower. Different prices for different folks is a proven model.

Netflix wants to skim their first-class passengers for as much as possible, but also fill up the back-end of the plane. The great thing for them is their plane has an unlimited number of seats.

Expect even more pricing levels to arrive in future.

Casinos perfected the art of keeping us hooked

The flashing lights on a poker machine are scientifically designed to provoke the reward centres in our brain. Like rats in a cage we get addicted on the dizzying sequence of highs and lows, pay-offs and disappointments.

Just one more spin, says the poker machine addict.

Just one more episode, says the Netflix addict.

Scientist have shown a good film or a good show controls our brain. A director makes a character act in a certain way and cuts the scene. The brains of viewers all release neuro-transmitters on cue. (The same is not true of a bad film.)

With free-to-air TV there was nothing we could do except wait a week to watch the next episode. But with Netflix the next episode is right there, ready and waiting to deliver more brain stimulation.

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Its hard to believe Netflix has only been in Australia for a few months. Its devotees are already wild-eyed with fervour and Google Trends data shows it blowing rivals Stan and Presto out of the water.

Netflix has nearly doubled its subscriber base outside America from 12.9 million to 21.6 million, in just the last 12 months. And it plans to launch in Japan very soon.

The executive at Blockbuster that passed up the option to buy Netflix for $50 million over a decade ago is probably feeling very sheepish.

The Wilting West

A high-vis vest slowly buried in the blowing sands of the Great Sandy desert.

A small business owner awake at 2am, wondering if they should talk first to their bank manager or their spouse.

Fridges, clothes, tables and chairs all packed into boxes, in a freight train chugging east across the Nullarbor.

Four reasons the 53rd President of the United States will be Malia Obama (and one reason we should hope it isn’t).

The 47th President of the USA will be elected in 2016, when Barack Obama leaves the White House. Let’s guess that’s Clinton and she is a one-termer.

If that’s followed by three eight-year Presidents and two one-term Presidents, the 53rd POTUS will be elected in 2052.

By that time Malia Obama, who is seventeen now, will be 53. That’s a very Presidential age. (Her dad was elected at age 47, but the average age for Presidential accession is 54).

Here’s why Malia Obama can be a contender.

1. Her dad will go down in history as the greatest Democratic President since Roosevelt. His progressive achievements – health care, gay marriage, and reversing a giant spike in the unemployment rate – far outweigh those of any other Democrat President in the last 50 years. For impact, they may even outweigh the achievements of Reagan.

2. When Malia Obama is prime presidential age, her father’s presidency will be far enough past to have serious mystique. About half of Americans who will vote in 2052 are minors or unborn now. Meanwhile, the people in positions of power will be the generation in their 20s when Barack Obama was elected, i.e. the people who voted for him and therefore keen to burnish his legacy.

Screen Shot 2015-07-16 at 9.53.25 am — Source: Wikipedia

There is precedent for kids who grow up in the white House to have political ambitions. The last young child in the white house was JFK Jr, who was set to enter politics when he died.

3. The Obama daughters look likely to go down the swottish, nerdy path. Their mum is a tiger mum in a way Laura Bush wasn’t. It seems likely an Ivy League university is in their future, and that can’t hurt. (The last seven US presidential elections have seen 12 candidates who went through Harvard and/or Yale and only two who didn’t). One wrinkle in this narrative is that Malia Obama is seemingly trying to get into film and TV. Of course, that and presidential ambition are far from mutually exclusive. (see Reagan, R.)

4. America is reaching its dynastic era. By 2040 that trend may have increased even further. America’s place in the world may well be threatened by China, and these decades of MTV, Nike, Facebook and Apple may be seen as an American golden age. Returning to that may seem very comfortable. Obama, M was literally born on the 4th of July. In an increasingly uncertain world, voting for her may feel a lot like voting for an America that reigns supreme.

(5. All this is assuming they don’t become basketball professionals. Their dad has a pretty decent game. Their mum’s brother is a coach and analyst for ESPN. The Obama kids are tall!)

6. But there are serious reasons (other than basketball) why we should hope M.Obama isn’t running in 2040. America is increasingly a land of inherited opportunity. Barack Obama has pledged his presidency against that trend. If his reforms in the areas taxation and health endure, they should help ensure someone other than the child of privilege can become president.

His daughter’s gainful employment in some less consequential office than the White House would be a sign of his legacy.

AFL v NBA. Why Matthew Dellavedova earns less than Buddy Franklin

This story originally appeared in Crikey and is now out from behind the paywall. Here’s a quick excerpt:

Delly is not the star of the Cavaliers. Or he’s not supposed to be, anyway.

His team includes LeBron James, named four times the NBA’s most valuable player and a basketballer many say is the best of his generation.

James’ pay is the sixth highest in the NBA. In 2014-15 he made US$20.6 million. His next highest paid teammate on the Cavaliers made US$15.7 million. Dellavedova got US$816,000. Then you have to add in endorsements. James made $44 million this year.

NBA pay is always an issue.

The NBA has a Gini coefficient of 0.52, according to one estimate, making it more unequal than Mexico

Every team has players that make as much as top CEOs, living, travelling, eating and playing alongside players who make a lot less. (The lowest paid player in the NBA in 2014-15 got US$29,000, according to ESPN statistics. David Stockton was on court for 26 minutes this year, took 9 shots and made 7 points).

For comparison, here’s AFL player pay. The distribution has a stronger centre. (And the numbers are a lot lower!)

Please go check out the full version over at Crikey.

Do we really want to be a small business nation?

This story was published by Crikey the day after the Budget and is now out from behind the paywall. Below is an excerpt.

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In last night’s budget speech, Joe Hockey spoke extensively of his father’s property business, and made it sound wonderful:

“I, like so many of my colleagues, grew up in a small business family. That small business put a roof over our heads. It paid the bills. It gave all of the family a chance at a better life. Small business is often a family business. A business of brothers and sisters, uncles and aunts, cousins, parents and children. And for those who work in a small business, who are not related, well they often become family.”

(The future Treasurer’s experience with small business evidently shaped him so much that upon graduating university he went off to work for major law firm Corrs Chambers Westgarth.)

Today, the head of the small business lobby described himself as “gobsmacked” and revealed that his sector got “far more” than it lobbied for.

Small business owners are a powerful voting bloc. But the budget’s unchained enthusiasm for the entrepreneurial class makes one wonder if it is, in fact, devoid of the ideological touch that soured last year’s effort.

Most of us probably have warm thoughts towards small businesses — the people who cut our hair and wrap our fish and chips in paper. But the Treasurer’s current small business obsession — and make no mistake, this budget is obsessed with small business — could have less benign effects than putting a smile on the local cafe owner’s face.

…

Please check out the story on Crikey.

Rich, white, connected. How Uber rolled the taxi lobby and won the world

This story is hosted over on Crikey, where it is now out from behind the paywall! I’m rather pleased with it.

Here’s a little excerpt:

Uber’s marketing department gets a lot of attention for stunts. For example, during a recent promotion, Uber drivers delivered kittens to people who requested them through the app. People would play with the kittens and upload photos to social media.

It got a lot of press. But these sorts of stunts are the puff of smoke that happens while the magician is busy, not the real machinery of success.

This misdirection is all the more remarkable because what Uber has achieved is enormous. The company took on one of the most powerful industries, in one of the most heavily regulated sectors in the world, and won.

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To read the whole thing, please visit Crikey, who paid for the original story!

How you’ve been buying wine wrong.

This post originally appeared over at The New Daily, where I’ve been writing a consumer-focused story each week.

We’ve all been there. In a bottle shop on the way to a dinner, wondering what kind of wine to buy.

20 per cent of our brain is thinking about the grape varietal, but 80 per cent is wondering if we’ll look like a bogan if we bring something cheap.

Australia has been doing wine wrong for ages. Our approach to vino is getting further and further away from how the Europeans do it, and more and more silly in the process.

The price of grapes has been tumbling.

Source: Australian Government Wine and Grape Authority Vintage Report 2014

Just 15 per cent of grape growers made a profit last year.

But has that meant cheaper plonk for us? Hell no. The average price paid for wine has now risen over $10/litre.

As the cost of grapes falls, we buy more and more pricey wine.

Price per bottle (equivalent).

Source: Coles Report for Winemakers Federation of Australia

Wines that sell for over $15 and over $30 have seen sales grow by about 50 per cent in five years.

(The under $7 category looks big, but remember that will include sales of those commercial-size 30+ litre casks to pubs, restaurants and commercial kitchens, – what you’re left with is a market for bottled wine that has turned quite fancy.)

FLAVOUR SAVER?

It may be hard to believe but a $35 bottle of wine may be no better than something that costs 10% as much. Here’s why:

Scientists showed people rate a wines as delicious if they’re told they’re expensive, and not delicious if they’re told it’s cheap.

Those scientists found real differences inside people’s brains during tasting, just depending on the price point they were told about. (It was the same wine.)

They really experience a difference. But here’s the thing. If you know there’s no difference between the expensive wine and the cheap wine, the trick doesn’t work.

THE BIG TWO

So buying cheap wine and being confident it will taste good should be a winning strategy.

It’s not easy to do that in Australia. Part of the reason is the grip the big supermarkets have on the wine market.

According to a report published by the Winemakers Federation of Australia, Supermarket chains account for 56 per cent of wine sold. Independent bottle shops for 14 per cent. Cellar door online and wine clubs are 11 per cent. And food service accounts for 19 per cent.

When you stroll the aisles at Dan Murphy’s, your eye might settle on a bottle like Silver Moki, a Marlborough Sauvignon Blanc.

Where’s that winery, exactly? Good question.

The answer is there is no such winery and the brand on the bottle is owned by Pinaccle Liquor, which is associated very closely with Woolworths. Pinaccle Liquor essentially makes home brand drinks for Woolworths. Not just wines but also spirits. It also has the license for certain imported brands.

Dan Murphy’s is also owned by Woolworths. But on the shelves at the bottle shop, unlike at the supermarket, these Woolworths brands don’t have the word Select on them.

Owning their own brands gives Dan Murphy’s market power. It can fill its shelves without having to give in to every demand that comes from every vineyard.

Dan Murphy’s success contributed to the 27 per cent gross profit at Woolworths (translating to $2.5 billion of net profit after tax) in the 2014 Financial year.

The company-owned wines are apparently something they don’t like to talk about much. Woolworths wouldn’t send me a list when I asked. But a huge range of company-owned brands (Coles as well as Woolies) is outlined at the independent website whomakesmywine.com.au.

These company-owned wines are not necessarily bad. Some have local wine-makers involved in their production and have great marketing, like this Yarnbomb wine. It’s made in the Pinnacle Drinks production facility, from grapes sourced from across Maclaren Vale.

Video:

But some home brand wines are just mass-produced, like a bottle of Sprite. Pinnacle Drinks also makes the Spanish Tempranillo ‘Lovers not Toreadors’ for Woolworths ($16.99 a bottle), and C’est La Vie Rose ($13.99 a bottle).

We love the stories of independent winemakers. We love to visit cellar doors and see a few generations of one family at work among the intoxicating smell of the barrels. But we refuse to admit most wine is not made like that.

We are paying a premium for home-brand wines, and kidding ourselves.

LA DOLCE VITA?

Australia is like America in this respect.

Because our nation is relatively new to wine, wine is a source of fear as well as delight.

In Europe, families might take a plastic bottle to the supermarket to fill up with a litre of table wine for a euro or two.

Meanwhile we worry about being seen drinking the wrong kind and worry that we are insufficiently expert. We do wine appreciation courses and we spend up big to compensate.

We weren’t always so fussy about wine. It used to be acceptable to get wine in a box. But around about eight years ago the cask became a minority item.

But maybe it’s time for the comeback of the cask. If we’re going to be drinking wine that’s made much like Sprite, why kid ourselves that it’s fancy?

Two crazy ideas for the asylum seeker problem

Asylum seeker boat arrivals – fairly inconsequential in real terms – are a major political problem.

Last night on QandA a Labor minister indicated that the “journey” would not be “re-opened” for asylum seekers, indicating a maniacal desire to “stop the boats” is a bipartisan ambition.

The racist pandering to Western Sydney inherent in “stopping the boats” was always called out as the bullshit it was. Until the video of the drownings of asylum seekers on the coast of Christmas Island in 2010. Suddenly it was possible to say preventing asylum seekers from arriving in Australia by boat was a moral imperative.

That’s an extreme idea, requiring the sort of broad view of morality that would also support fencing off Australia’s surf beaches to prevent drownings. Most people would say imperative #1 is to not harm people with your actions.

One year ago I wrote about how powerless and ineffective I feel when faced with asylum seeker policy. What’s changed is that the extreme nature of the “solution” – including laws preventing reporting of child abuse – permits a broader range of alternatives that might previously also have been seen as “extreme.”

So is it possible to solve the boat arrivals “problem” without spending billions and becoming a police state? It must be. Lets think outside the box.

1. Make a queue

People are always fighting about queue jumpers, and whether there is a queue. What if we made an actual queue on the shores of Indonesia, where the boats are leaving from?

Asylum seekers get on a boat because that’s how they imagine they can get into Australia. What if we let them get into Australia without getting on a boat?

Could we rent some space from the Indonesians, bring it inside the migration exclusion zone and process refugee claims up there?

Budget impact score: 9/10. No more detention centres, less need to police the seas for boat arrivals, etc.

Political acceptability score: 5/10. Should diminish boat arrivals so long as the applications are processed swiftly.

Direct morality score: 8/10. Assuming they are able to live in the community in Indonesia, there need be no imprisonment.

Indirect morality score: 9/10. No more drownings between Indonesia and Christmas Island.

2. Open slather.

Embrace boat arrivals. Stop turnbacks, Close off-shore detention; close on-shore detention; visas to live in the community while refugee applications processed.

This is about stopping boat arrivals from being a political problem. If you wanted to change the narrative on boat arrivals, you’d have to own the arrival of each boat. Get a video crew, translators and a government minister onto each boat as it arrives, so we can see them shaking hands with the asylum seekers, chatting and smiling. Interview the people, find out their stories and their names. Publish lists of asylum seekers, their smiling photos, and key quotes from them. Humanise not dehumanise. Let’s hear about their desire to live in Australia, their interest in what they’ve heard about us, their qualifications and jobs in their home countries, what they’re fleeing, what skills they bring, etc. This would absolutely freak everyone out for a while but the rate of repetition and the volume of boat arrival footage might eventually make boat arrivals very very boring.

(I think this approach could be helped along by some sort of non-government work to try to humanise asylum seekers. Greenpeace made us care about whales by having little inflatable boats out there and video cameras showing what was happening. Can we do the same with Asylum seekers? Could Sea Shepherd open up a northern Australia branch, for caring about humans? )

Budget impact score: 10/10. This is cheap.

Political acceptability score: 2/10 in the short-term as boat arrivals will go up up up.

Direct morality score: 10/10 (No more taxpayer-funded imprisoning of innocent people)

Indirect morality score: 5/10. (Some drownings still likely).

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I’d be very interested to hear any other crazy ideas people have. Please share them below!

How one internet hater made me learn something important.

On Sunday, I found a whole lot of traffic coming to my site.

This would normally be great news! The clicks were leading to a piece I wrote a few weeks ago about the ABC documentary The Killing Season. It was a scathing attack on how the media airbrushed itself out of the political intrigue. I knew it might lose me some friends in the media establishment, but I thought it was a story worth telling.

But when I traced back the link that was directing all the clicks, I found this:

The piece had been fairly well received. Until yesterday.

The author of these epithets is not some lonely nut-job. His blog is otherwise quite good and he has a lot of readers.

But he had quite mistaken my take-down of the media.

I had a bit of trouble grasping what had gone wrong. How could what I wrote be seen as a defence of the media? It made no sense.

I drafted several extremely rude and contemptuous replies to his blogpost but then deleted them and spent more time pondering.

I believe I’ve unwound the problem. And in doing so came to a sort of epiphany.

The problem for this reader started when I tried to do a bit of structural analysis of why the media behaves as it does.

I wrote:

“The political journalist’s job is absurdly stressful and difficult. I doubt many people could imagine how precious time is for a working journalist. Deadlines don’t just loom. They crash down. There is scarcely time for typing, let alone time for reflection.

Pondering the role of the media in shaping political events is a job for retirement. Their job is to get stories out the door. Now.”

He interpreted this as me excusing the behaviour of the media, and that set him off.

Explaining is not excusing.

You can do analysis that says: Behaviour X is prevalent in a certain population because of these structural factors, and still condemn each instance of that behaviour.

For example, domestic violence in indigenous communities, killings in America’s inner cities, obesity in contemporary Australia, lying among politicians.

In each case, the people who bash their partners, kill their neighbour, eat so much they get fat, and tell untruths have done the wrong thing. They should change their behaviour.

But the heightened prevalence of these outcomes in these communities is not because they are a uniquely vile set of people.

There are structural explanations – things about their economy, society and unique incentives that make these transgressions more likely. Not inevitable for any individual, but likely in a population.

Pointing out structural explanations is risky: It has an extremely strong history of making people very upset. People think you’re letting bad people off the hook. I disagree.

I think explaining why problems exist is more useful than berating wrong-doers.

Berating can only get you so far when the incentives haven’t changed. Pointing out structural problems helps us improve our society.

To see why berating won’t work, let’s look at it statistically.

Let’s agree the government does a lot that is wrong. What are the odds that the entire parliament is composed of people with a sense of ethics that falls far below the national expectations? The odds seem low that all 150 MPs are selfish liars. In fact politics, with its lower pay and higher scrutiny, ought to attract more ethical people than some other careers. A structural explanation for their behaviour is likely more useful. Same for journalists.

The circumstances/context of a group of people are important to understand because:

1. We can potentially change the circumstances;

2. They have a big influence on people’s behaviour.

It turns out, despite what our fundamental myths like to tell us about the nature of character, that human behaviour is shaped far more by circumstance and priming than we like to admit. Personality and character have a role. But not always a defining role.

This is where I got excited.

Spending a lot of time around the internet, one often falls into debates where good behaviour goes out the window. I’m guilty of this. I see someone saying something factually wrong, and I type a mean response. I swear I’m trying to be nicer, but without always being successful.

So is the internet bringing out haters who always existed? I say no. It’s the circumstances that make haters.

Something about anonymity, the invisibility of intentions, and the ability to dredge up someone’s history to make a neat little narrative of their motivations can turn good people quite nasty. They can turn especially nasty if they think you’re providing excuses to their sworn enemy.

Acknowledging the internet incubates nastiness is an important first step. It allows people who want to male the internet more civil to introduce changes, like using our real world identities more, doing reporting and moderation of comments, and hopefully many others that haven’t been invented yet.

So I don’t hate the guy who misunderstood my blog and called me all those names.

I bet if he and I sat down face-to-face we’d get along just fine.

Speech – Prime Minister Wyatt Roy. January 26 2038.

Speech – Prime Minister Wyatt Roy.

January 26 2038.

[check against delivery]

My fellow Australians.

On this 250^th anniversary of the arrival of the First Fleet on this continent, I want to make a few comments about our society and economy.

Arrival Day, as we’ve known it for several decades now, has become a day to look back on things we’ve done wrong. Dedicating a day to critical self-reflection is one of our nation’s finest achievements. We can’t undo our mistakes. But we can learn from them and use that to set the future on the right path.

That’s why it’s very important we think about house prices. How did we get to this point? When I travel across this country, I see three disappointed generations – one owning homes that have slumped in value; one owing giant debts on low-value homes, and one perhaps able to buy a home, if they were not wounded by the economic shrapnel that came from the explosion.

We were like butterflies. We thought our brief glimpse of the world told us everything we needed to know. House price crashes had never happened in our lifetimes, so while rates were low, we treated the banks like an all-you-can-eat salad bar.

Interest rates were low for so long that we began to think they’d never go back up either.

When the RBA raised rate in 2025, after so many years of inactivity, perhaps the house price upswing might have stopped. That was our chance.

But fate intervened.

We now know that China’s overstretched financial system was, at that exact moment, about to burst. The failure kept interest rates low, even as Chinese funds flowed out of China and found their way to Australia.

RBA Governor Stevens repeated his now infamous signature move and cut rates. The price of housing in Australia continued to rise. Median prices in all major capitals topped $1 million. Sydney’s average price rose over $2 million.

A first home loan of six figures was de rigeur. And why not? With rates at 1 per cent, young people around Australia could afford that sort of debt to obtain their own home.

Their parents, in most cases, had done likewise. Who would talk them out of it? I saw my own children – Morgan and Orbison – make the exact choices I had, and although I felt a tremor of unease, I didn’t want to dictate their lives to them. Personal freedom is one of the strands of philosophy that enlivens the Libor Party I lead, and I try to live it out in my own life too.

At home I bit my tongue. To my shame, I did the same from the opposition benches in Parliament.

Treasurer Bandt seemed to have a firm grip on the economy. House price appreciation was as Australian as a Golden Gaytime on a 45-degree day. Who was I to argue with a trend that had run my entire life?

Environment Minister Irwin read me a quote the other day that I knew I must use in this speech.

“That men do not learn very much from the lessons of history is the most important of all the lessons of history,” she said. That’s from a science fiction writer from last century. He saw something of the future, Bindi told me, but only by paying careful attention to the past.

That’s our job, from hereon. To make sure we pay attention to the full sweep of history. We must not only be obsessed with what’s right under our noses. The more things change, the more they stay the same. The lessons of 5 years ago may glow more brightly than the lessons of 105 years ago, but they are not always more pertinent.

We should make sure our memory of the excesses of the mid 20th century inform our debates on government over-reach. Make sure our memories of the 18th and 19th centuries inform our debates on unchecked poverty. Make sure our memories of the rise and fall of civilisations long past informs our thinking about our permanence.

On this day, above all others, I commend the study of history to all of us.

So, should you spend a bit more to get a fancier car?

This story originally appeared over at The New Daily. (They’ve asked me to write a consumer-focused story each week, which I will also post here)

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I recently looked up the cheapest new car and the most expensive new car being advertised in Australia. I was gobsmacked at both ends of the spectrum.

At the very bottom end was a Mitsubishi Mirage, 2014 model, with only 15km on the clock. It cost $9,880 before on-road charges.

The most expensive was a new Rolls Royce Phantom. The only one of its kind in Australia. Price $994,000, drive away, no more to pay.

That’s 100 times more expensive! Obviously you get big differences depending on which car you choose.

Only one of these cars has a 5-star ANCAP rating – the highest local standard for safety, and a 5-year warranty.

As you probably guessed, I’m talking about the Mirage. Yep. You can pay a million bucks for a car that has no official Aussie safety rating and a shorter (four-year) warranty.

The Mirage’s little motor also boasts far better fuel efficiency, at 4.6L/100km. That compares to 14.8L/100 km for the 12-cylinder engine beneath with the winged lady.

So the cheapest car is winning on some pretty important features. This made me wonder. What is the real difference between a cheap and expensive car?

Once upon a time it was reliability. Mercedes of old ran for hundreds of thousands of kilometres. Not so much any more.

The great industrialisation of Japan, from the middle of last century changed the game. The brilliant standardisation of quality pioneered by companies like Toyota made quality a starting point.

These days the car that endures that is likely to be a Honda or Subaru.

So luxury cars distinguished themselves with features. Leather seats. Sunroofs and electric windows. (Remember how exciting the smooth glide of an electric windows was when they first came in?) Cruise control and heated seats.

But it turned out that when you’re making millions of Camrys, it is possible to cheaply fit them all with an impressive swag of desirable features. So the game shifted again.

Now the luxury car distinguishes itself on some rather weird parameters.

The reviewers dwell on things like the noise the engine makes in a Porsche, or “a rather striking cherry wood inlay in the luggage area” in a new Mercedes.

Do these things matter to anyone who isn’t looking for a reason to buy an expensive car anyway? They remind me of the blueberry notes the labels are always so eloquent about in fancy bottles of wine. Important for an extremely refined few.

Most of us operate at a rather more prosaic level.

Let’s look at two vehicles in the fastest growing category around – “crossover” SUVS. A Ford Kuga costing around $26,000 and a Mercedes GLA costing around $55,000.

Here’s a comparison on some important features.

Okay, I’m being facetious.

There are actual differences. For example, the Mercedes gives you 4.6L/100km, the Kuga 6.3L/100km. And there’s more:

There are lots of other little differences too, in things that are probably good to have. But adding them up, are they worth an extra $30,000+?

The difference in comfort between a $25,000 car and $55,000 car is more slight than the difference between economy and business class on an aeroplane. If you sit in that car for an hour a day for ten years – 3650 hours – a $30,000 price difference means you’re paying a premium of $8 an hour.

Whether that $8 hourly rate looks like a worthwhile investment or a worthwhile saving depends on the person, and their income.

Interestingly, it seems income is a big factor.

Official statistics show the rich spend far more on cars than the poor. Households at the top of the income distribution spend eight times more on cars than the bottom of the distribution.

Maybe they can afford it. Maybe they value the small luxuries of life. But there’s another explanation possible too.

It is called signalling. On the African savannah, the male lion grows a mane which may actually harm its survival. Doing so and still managing to thrive shows it is super fit and healthy – and worth mating with.

Some experts think conspicuous consumption is similar in humans. Throwing money around announces to the world that you are special.

The larger and more frivolous the expenditure, the more effective the announcement. It makes sense – the person who buys that one-of-only-25-in-the-world Rolls Royce is far more likely to be someone trying to demonstrate something about themselves than a person with an extreme passion for fine wood inlays.

So when we see someone insisting they need electric lumbar support and alloy wheels, and the Mercedes is simply the best way to get that, we are probably justified to wonder whether they are falling into the trap of simply showing off.

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Obviously, there’s a minimum price point –perhaps somewhere below $10,000 – where spending less on a car is a risk too big to take. And there’s a point – probably somewhere above $100,000 – where spending more is entirely silly. But where’s the tipping point? What’s too much to spend on a car? What’s too little? Please share your views below!

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