Long term readers will know that MB has a simple take on the Australian economy. The basic process of growth is as follows:
- national income is generated in the world by selling dirt;
- that income is narrow but redistributed widely via the stock market, high wages in mining and associated industries and most importantly via low taxes;
- the generalised income is leveraged up in house price speculation which is funded by offshore borrowing in our banks (and more recently our government);
- high house prices generate wide wealth effects that boost activity in the giant services sector.
It is a marvelous machine that has evolved mostly by accident and has served the nation well since the millennium. At certain times the first and second engines have combined differently. In the millennial period the first was under pressure but the second ramped up and offset it. In the post-millennial period both engines revved up simultaneously to deliver an huge boom.
