The Economist on Australia

The Economist magazine has published an article on the Australian economy entitled The next Golden State, which argues that with a bit of self-belief and the right policies, Australia could become the next California. Here’s an extract:

IMAGINE a country of about 25m people, democratic, tolerant, welcoming to immigrants, socially harmonious, politically stable and economically successful; good beaches too. It sounds like California 30 years ago, but it is not: it is Australia today. Yet Australia could become a sort of California—and perhaps a still more successful version of the Golden State…

Australians must now decide what sort of country they want their children to live in. They can enjoy their prosperity, squander what they do not consume and wait to see what the future brings; or they can actively set about creating the sort of society that other nations envy and want to emulate. California, for many people still the state of the future, may hold some lessons. Its history also includes a gold rush, an energy boom and the development of a thriving farm sector. It went on to reap the economic benefits of an excellent higher-education system and the knowledge industries this spawned. If Australia is to fulfil its promise, it too will have to unlock the full potential of its citizens’ brain power…

Australia cannot, of course, do exactly what California did… But it could do more to develop the sort of open, dynamic and creative society that California has epitomised, drawing waves of energetic immigrants not just from other parts of America but from all over the world…

What then is needed to get the alchemy going? Though government should not seek to direct the chemistry, it should create the conditions for it. That means ensuring that the economy remains open, flexible and resilient, capable, in other words, of getting through harder times when the boom is over (a sovereign-wealth fund would help). It means maintaining a high rate of immigration (which started to fall two years ago). It means, above all, fostering a sense of self-confidence among the people at large to bring about the mix of civic pride, philanthropy and financial investment that so often underpins the success of places like California…

Its current political leaders, with notable exceptions, are perhaps the least impressive feature of today’s Australia. Just when their country has the chance to become influential in the world, they appear introverted and unable to see the big picture. Little legislation of consequence has been passed since 2003. A labour-market reform introduced by the Liberals was partly repealed by Labor. A proposed tax on the mining companies was badly mishandled (also by Labor), leading to a much feebler one. All attempts at a climate-change bill have failed… Instead of pointing to the great benefits of immigration—population growth is responsible for about two-fifths of the increase in real GDP in the past 40 years—the two parties pander shamelessly to xenophobic fears about asylum-seekers washing up in boats..

Better themes for politicians would be their plans to develop first-class universities, nourish the arts, promote urban design and stimulate new industries in anything from alternative energy to desalinating water…

Aussies need a bit more self-belief. After that perhaps will come the zest and confidence of an Antipodean California.

Does anyone else find The Economist’s article irritating?

First, consider the article’s claims about population growth and immigration [my emphasis]:

What then is needed to get the alchemy going?… It means maintaining a high rate of immigration (which started to fall two years ago)… population growth is responsible for about two-fifths of the increase in real GDP in the past 40 years.

The article has employed the well-trodden argument that population growth is desirable because it increases Australia’s real GDP. This argument is true on a superficial level – more people, other things equal, does mean higher consumer spending, greater demand for housing and infrastructure, resulting in higher construction, more jobs and a greater number of transactions.

However, from a narrow (materialistic) economic perspective, it’s not real GDP that improves living standards, but real GDP per capita. And if you look at what’s actually happened to real GDP per capita over the years, then Australia’s economic performance is less spectacular.

Take the below chart, which plots Australia’s real GDP against real GDP per capita since 1980:

As you can see, real GDP has grown at a much faster rate than GDP per capita. The difference in growth rates is due to Australia’s high population growth. What’s disconcerting for Australia is that GDP per capita has essentially flat-lined since 2007 at a time when real GDP has continued its upward march. This divergence is, once again, due to Australia’s high rate of immigration and population growth over this period.

Now consider the same data plotted as a rolling annual growth rate:

As you can see, Australia’s economic performance during the Global Financial Crisis, whilst undoubtedly better than most other developed nations, was sugar-coated by Australia’s high rate of immigration. When real GDP per capita is assessed instead of real GDP, you will notice that Australia’s growth rate did, in fact, turn sharply negative in 2009, casting doubt on the Government’s claim that Australia avoided the global recession. Moreover, note the consistent downward trend since the 1990s.

The purpose of this discussion is not to attack immigration or population growth – I will address these issues separately in a future post. Rather, it is to question the Economist’s argument that immigration and population growth are unambiguously beneficial to the Australian economy. While it is probably true that immigration has accounted for two-thirds of Australia’s real GDP growth over the past 40 years, the important question is: what has been the impact on real GDP per capita?

Put another way, what’s the point of inflating Australia’s GDP pie through population growth if everybody’s share of that pie grows at a slowing rate or actually falls?

Another irritating aspect of The Economist’s article is that it seems to worship California as some kind of economic beacon that Australia should aspire to. Nothing could be further from the truth. California is a basket case. To illustrate why, consider the following facts.

First, according to the Federal Reserve, California’s unemployment rate (currently 12.0%) is well above the US average (currently 8.8%):

Second, California has topped Forbes’ latest Most Miserable Cities rankings, with eight Californian cities making the top twenty and four cities making the top five:

California has never looked less golden, with eight of its cities making the top 20 on our annual list…

The Governator [Arnold Schwarzenegger] exited office last month with the state facing a crippling checklist of problems including massive budget deficits, high unemployment, plunging home prices, rampant crime and sky-high taxes…

California’s troubles helped it land eight of the 20 spots on our annual list of America’s Most Miserable Cities, with Stockton ranking first for the second time in three years…

California cities take the next three spots: Merced (No. 3), Modesto (No. 4) and Sacramento (No. 5). Each has struggled with declining home prices, high unemployment and high crime rates, in addition to the problems all Californians face, like high sales and income taxes and service cuts to help close massive budget shortfalls…

The Golden State has never looked less golden. “If I even mention California, they throw me out of the office,” says Ron Pollina, president of site selection firm Pollina Corporate Real Estate. “Every company hates California.”

Third, because of California’s severe constraints on housing supply (both physical and regulatory), its housing market remains the second most unaffordable in the USA, behind Hawaii:

This is despite California experiencing a monster housing crash following a massive run-up in prices:

Finally, Californian Government finances are a mess. California is facing budget shortfalls in excess of $20 billion each year for the next five years, and acquires $25 million in new debt each day (see below chart).

The problem is one of spending but also of stagnant revenues. Pension costs are ballooning in the state thanks to decades of unchecked growth and Cadillac service for many retirees. When things are good, many deals were cut so you have people retiring at 50 or 55 with incredible pensions. No tiny stock portfolio can compete yet it is now clear that the taxpayer is on the hook for these if nothing is reformed. Given the anger from working and middle class Americans, it is unlikely that many will be happy about people receiving six-figure pensions while they are trying to find work. Just like the nation, you can’t cut taxes and expect to increase services. This kind of magical thinking is what got us into this mess. The Pied Piper must now be paid.

Again, the purpose of this discussion is not to attack California. Rather, it is to highlight the folly in The Economist holding-up California as some kind of model economy that Australia should seek to emulate.

Surely The Economist could have found a more worthy example.

Cheers Leith

[email protected]

www.twitter.com/Leithvo

Comments

    • true, the Economist explicitly says in the opening paragraph: “It sounds like California 30 years ago”.

  1. Small Australia

    Real GDP vs Real GDP per capita. Its easy to see how the standard of living has declined over the past 30 years. I remember the days when a man could buy a house on one income have a big backyard time off with the kids and the dog. 2 Cars. That was the golden age – 1950-1985. It was good in the 1970s. Australia didn’t need more people. The economist is just sprouting the high immigration is good for the ecoonomy argument we have been hearing for years. Funny how my wage is still the same 10 years on but the cost of living has increased. The economist has an agenda.

    • Well it’s not completely legal (yet), but anyone can get a medical marijuana license if they go to the right doctor and pay the right fee.

  2. Liverpool st soapbox

    The truthes about labor’s ineptitude since 2003 made up for any irratation I felt reading the article. (read pink batts, solar, First Home vendors grant, $50b semi-white elephant of an NBN)

    • Pink Batts, FHOG and Solar subisidies by labor since 2003 ehh?

      Good spot.

      You don’t believe in AGW by any chance do you?

  3. Dave From Pakenham

    I agree – simple, plodding, page wasting historical description.

    Perhaps aspiring to the Scandinavian ability to increase gdp per capita and capture their respective nations resource and or intellectual wealth may have been a more credible starting point.

    • 8==!!!!!>==O - - - __

      This could be possible for a country like New Zealand where they hold a socialist mentality… well, at least the working class does. Also having lived and worked in N.Z. for 2 years, I can tell you that most people respect, and are happy for others when they achieve things like intellectual property, a mining operation, and so on. Something other than a basic career or local service-based business. Champion those that bring value, cringe at those who leech from it.

      Unfortunately this formula works out poorly for the kiwi’s due to [their stinginess and] everyone placing most of their incomes into property, blowing bubbles and destroying liquidity. Gee, I really need and/or want a second house and a meadow…

      But in Australia?

      Who would be willing to pay with income capacity or taxes so the neighbors kids [may] do better than you or your’s? ((cricket sounds)) Not even if it brings us all forms of wealth and global prestige? (quick, look busy thinking and walk away). This lazy but ultra-competitive business model (read culture) does not permit or care for such a thing.

      It is what its always been: get it while its going.

  4. From the start I was waiting for the analogy to include the downturn of California and how we might avoid their current doldrums.

    Nothing on over-urbanisation, high speed rail as a potential solution, state and federal financial arrangements, infrastructure deficits, indigenous health…

    It’s articles like this that remind you how ideological the Economist can be. And of course we’ll never know who wrote it.

    • Devilled Advocate

      Alex

      High speed rail will never work in Australia not unless we have a population at least 30 – 40M – every time a feasiblity study has been proposed it always comes to this conclusion. To do this we need a big Australia and we know how well that went down last time!

  5. California in its halycon day – alright by me. Thought the commentary about our esteemed political leadership (lack thereof) particularly apt.

    Sounds like Malcolm might have written it …

  6. Imagination…also see’s, a Permanent Working class
    generated to keep the Pigs Flying

    and extra pollution…Thanks UE
    JR

  7. You are absolutely right. While there is much to admire about California (its excellent universities, innovation at Silicon Valley, etc), for the most part the state is a total basket case.

    • What! No Gravy!

      Yep, we’ll take the universities, silicon valley, the wine region, yosemite park and leave the rest. California is to the USA what Greece is to the EU.

  8. Thats why i stopped my Economist subscription YEARS ago. They used to be well thought out and researched, but now they have been junked.

  9. Quote: “Its current political leaders, with notable exceptions, are perhaps the least impressive feature of today’s Australia.”
    They got that bit correct.
    Our ‘democracy’ has been reduced to close to zero. The uber rich minority, running the country via the two PR firms masquerading as representatives of the electorate.
    As for the US State of California. They mistook unsustainable growth for true wealth. We will probably go down the same path with the same consequences.
    Sounds like we are being setup for bubble times ahead by the usual suspects.

    • I agree that the quality of democracy in the two countries is appalling. Strangely enough both countries are essentially run by two major parties where power just swaps regularly between them. There really needs to be a change in the electoral system so that political parties and there numerous lobbyists and donors have less control. My prefered method of democracy is sortition. http://en.wikipedia.org/wiki/Sortition

  10. If you want to see all thats wrong with California, go to http://www.gregor.us

    As Gregor points out, above all California is a state that was built up to function on huge motorways and suburban sprawl with oil at $20/barrel. At $100/barrel it is struggling for survival.

    Australia needs to invest the mining boom in infrastructure that can serve us AFTER the oil age. Infrastructure that can be run on a variety of DOMESTIC energy sources (read: electricity, from your choice of coal, gas, wind, solar, geothermal, nuclear).

    The NBN is a start, now much more needs to be done for rail infrastructure, and a properly implemented carbon tax to diversify our energy mix.

  11. Just think people. If we change course, and try real hard. Then maybe, just maybe, we too can be like an Americans state!

    Its what we’ve always dreamed of.

  12. Yes, I found it very irritating, the sort of intellectual quality you find in the SMH. I am also considering dumping my subscription – The Economist has really lost its way and reads like it is written in airport lounges by 25 year old McKinsey consultants.

  13. The economic conditions may be ripe for Australia to move from a good nation to a great one, but The Economist ignores the one glaring problem Australia faces: lack of leadership. Not just in politics, but in every facet of its culture.

  14. I find it irritating in a number of parts like many other readers. But I do wonder if the economist is fully aware of California’s doldrums and being somewhat prescient if not silently ironic – or sm I giving them too much credit?

  15. michael francis

    The Economist thinks anything that increases GDP is good, including oil spills, eathquakes and Tsunamis.

  16. Real GDP per capita. Well, duh!

    Why does it even need explaining that this is the more important number?

    RE: Leith’s continued California bashing: Again, please spend some time in San Francisco and then in Dallas. There are reasons why people put up with high house prices and a bankrupt government to live in California, and most of them are cultural and environmental. They are much the same reasons Australians love Australia, despite the absurd housing costs and Quarry Economy.

    • Yes Lorax. I have travelled extensively through California from South to North (along Highway 1). Once again, I fail to see the relevance of your comment. California’s economy is a turd no matter how much you attempt to polish it. Maybe that’s why so many Americans are voting with their feet and leaving for greener pastures (e.g. Texas).

      That you can implicitly support California’s ridiculously high housing costs (on par with Australia’s) is also amazing.

      • Relevance?!

        You concentrate solely on the economic issues and completely ignore the cultural ones. Texas is deeply conservative, George W. Bush country. California, esp. the Bay Area, is very liberal. Many Californians would rather live in Siberia than Texas for these reasons, and it doesn’t matter how expensive houses are, or how crappy the Californian economy is, they’ll put up with it.

        Look at the history of the red state / blue state divide in the USA. Conservatives and liberals don’t mix any more. If they don’t like the local politics they get up and move. The entire country has become segregated and extremely partisan, you only have to watch Fox News for five minutes to figure that out.

        • The ones moving from liberal California to Texas are electing to mix with conservatives.

        • The only place a liberal Californian could tolerate is Austin. Remember, the entire political spectrum is shifted right in the US. At least half the Australian Liberal Party would align themselves more closely with the Democrats than the GOP.

          If Leith thinks sane people could tolerate living in a place where 80% of the population are creationist, gun-toting lunatics who want to nuke Iran then whatever. There is more to life than economics.

          Wikipedia has some good stuff on red states and blue states. Note: Texas always red, California always blue.

          • That’s funny Lorax. The last time I checked, Houston has a Democratic Major – Ms Annise Parker – who is also the first elected gay mayor of a major US city.

            Sort of goes against your argument that Texans are gun totting red necks.

            I also notice that no Texan city made the Forbes Most Miserable Cities Rankings, unlike California, which has 8.

  17. Unfortunately, “The Economist” is viewing Australia from the perspective of a foreigner. If they were to come to Australia, stay here for a period longer period than two weeks (the average time a journalist spends visiting a foreign country) then they would see that there’s a myriad of problems that plague our country, many of which have been explained in other comments.

  18. “…sounds like California of 30 years ago”.

    The article is clearly not talking of California today (still a great place), but the ‘California Dreaming’ – a better place to be – California. Equating that Californian zeitgeist with both the reality (from an international perspective) and the potential that exists here. Open your eyes.

    It’s up to us what we do next.

  19. Check out the top comments at the Economist. One saying we may becoming Saudi Arabia (more accurate IMHO) and a Canadian’s bad experience of living here:

    http://www.economist.com/node/18744197/comments?sort=recommend#sort-comments

    Are Australians some of the most racist people in the West? Probably. Are we some of the most friendly and warm people? Probably. I’m surprised how quickly the ‘vibey’ comments about a nation’s character enter in to these arguments over economic history and policy.

  20. Alex Heyworth

    I fail to see how The Economist can denigrate the quality of our leaders (which I admit is pretty ordinary at present) without noting the truly abysmal performance of California’s. Compared with their politicians, ours are models of propriety and wisdom.

  21. I am surprised by the level of hostility to immigration. The stats on GDP/capita are informative. But the question remains: what would the trajectory of the economy have been without the migration-driven expansion of the labour force?

    In themselves the stats on GDP vis-a-vis GDP per capita do not explain the reasons for the growth in the economy or its particular nature.

    In a labour-scarce and capital-scarce economy such as ours, it is no surprise we have always sought to import these factor inputs. This just makes good sense.

    It is highly likely that had Australia reduced its intake of immigrants in the 1990’s – as the Liberals intended to do – then the path of economic expansion would have been restricted and, whichever way you look at it, both GDP and GDP/capita would be much less than they now are.

    I think the so-called debate about immigration misses the point: the point is, what kind of investments do we need to make in our physical and human resources to bring about sustained improvements in our living standards into the future?

    • “I am surprised by the level of hostility to immigration”

      Well look at those impacted the most.

      It’s fine for the likes of David Marr to preach tolerance, and scathe white working class people, when in his million dollar plus, leafy green suburb he doesn’t have to ensure the effects of immigration.

      But when the finite resources you are availed become over-extended, such as infrastructure and public services, people will tend to feel aggreived.

      At the same time when the beneficiaries of population growth see their wealth bloom, and the same working class people I gave example to, feel their relative wealth or prosperity is declining, then their reaction is “I’m enduring a greater societal burden to make someone else (cough*Tribugoff*cough) rich” then they will tend to lash out.

      “In a labour-scarce and capital-scarce economy such as ours, it is no surprise we have always sought to import these factor inputs. This just makes good sense”

      We shouldn’t be capital scarce at all. This is a sure sign of a poorly managed economy.

      When we are at 140 record highs for our terms of trade, when inflows of income are unprecedented in their size, then ask yourself what do we have to show for it?

      If we can’t do something amazing now, we can we ever?

      We’ve pissed up a once in a century, perhaps a once in a millenium, mining boom on bidding up the price on our existing housing stock.

      “It is highly likely that had Australia reduced its intake of immigrants in the 1990′s – as the Liberals intended to do – then the path of economic expansion would have been restricted and, whichever way you look at it, both GDP and GDP/capita would be much less than they now are”

      Reduced immigration, and all else remaining constant, then yes. But examine all goals an opportunities and perhaps not. perhaps another “J-curve” is required”

      I met in Perth recently a guy who is known as the investor and designer of the best esky in the world. I mean it is MILES haead of the competition, virtually every single major scientific expedition uses it, I think NASA uses it, various military special forces. it just keeps stuff cold for in the vicinity of 3 months.

      As soon as he designed it, he commissioned a manufacturing plant in Asia.

      This is the model we should be following. There is no use asiring for our people to create these type of factories. It entrenches medicore jobs, and requires a low-dollar policy to maintain.

      The model is that every Australian to have the opportunity to become this designer, this inventor. Then we would have an tremendous GDP per capita.

      There are untold numbers of unskilled labour on our doorstep, all looking for post-agrarian labour sectors to boost their standards of living.

      Now this model requires massives injections of funding in skills and training I agree. But in regards to a mining tax and SWF are vital tools in the longetivity of pursuing this goal.

      There is very little that is enterprising about staking a bit of soil and claiming the wealth for the coal/iron/gold deposits in the soil.

      But looking at the recent BRW 200 list in Australia, we are rewarding them as the height of enterprise.

      • Devilled Advocate

        Rusty penny

        see my post from Leigh Harnesses article

        “One of the things I like about this site is the erudite no BS reponses.

        Leith et al – what we should do is get a library of our better ideas thrash them around for sense and then try and get them into the MSM and accross pollies desks.

        Here is my take – as an immigrant son of immigrant parents I am very grateful that as the lucky country we have everything in the ground that everyone wants to buy from us.

        As the last year would show the whole economy cant nor should be about mining.

        Recent events also show that we cant bank on tourism and especially not “old world” manufacturing so what can we do to build long term sustainable advantage ideally using some sort of rainy day/SWF?

        When I first came to Australia as a 10 year old I was also stuck how innovative Australia was and how we were known for being smart and innovative as well as very can do.

        Over the last 25 years this seems to have been replaced with investing in the property and mining.

        Why cant we set up a smart fund and using lots of very strong future trends data start backing the next mega industries and develop the smarts around them – by smarts I mean IP, know how, brand etc to develop the Cochlears, CSL’s of 2050

        These are all highly sustainable advantages and are very hard to erode once we have critical mass.

        To do this we need to educate and keep our best and brightest scientists, engineers and entrepreneurs from going overseas due to the blank looks you get (speaking from personal experience) when you pitch something that isnt mining to the Australian business community.

        I reckon old Malcolm would be shoe in for PM if he rode on this smart lucky country platform and put in a smart lucky framework that no future governemnt could unwind.

        It would be objective and transparent and backed by the best data and experts available.

        It would be expensive to set up and run with the payoff at least a few decades out but I think could be as big as our mining business is now.

        I’d back such a venture with tax deductions and even ivest directly even knowing I would lose money knowing that my kids and grandkids woudlnt have to take thier newly minted PHD’s and world changing technologies to California to get them of the ground.

        How about the smart lucky blog anyone?

        DA

      • The proposition that reducing immigration will improve the living standards of working-class Australians is easily made and yet completely contrary to the evidence.

        To state the obvious, the economy is not a static, zero-sum system. Immigration adds both inputs and outputs to the economy. It expands the productive capacity of the economy by means of the addition of extra labour and extra skills. Immigration also adds to demand for goods and services, which creates opportunities for those already present in the economy.

        As well, in many economic pursuits there is such a thing as increasing returns to scale. So as the economy is scaled up in terms of the size and skill dimensions of its workforce, the economy can become more diverse, more capable of innovation and more able to both fund new enterprises and to assume the risks of new investment.

        These things have occurred in Australia. Together with the liberalisation of capital markets, the liberalisation of the labour supply has helped transform this economy – driving changes in relative productivity and the real income horizons of the Australian population.

        If anyone really seriously thinks immigration is a net negative for living standards, they could speculate on what the country would be like if the great post-war immigration intake had never occurred.

        We would have a population of around 16 million. We would be decidedly older (on average) and the tax-paying labour force would be decidedly smaller. Our schools, hospitals, universities, ports, roads and rail systems would be lodged firmly in the 1960’s or 70’s. That would indeed be a small Australia.

        • david, not only is the economy not a zero-sum game, it is also not restricted to our national borders and more than it is restrcited between State borders.

          I’m not sure why we need more domestic population to increase the scale of industries which already export a significant portion of their products.

          Further, your argument applies no matter what the population. Even if we had 150million you could argue that double is better because ” as the economy is scaled up in terms of the size and skill dimensions of its workforce, the economy can become more diverse, more capable of innovation and more able to both fund new enterprises and to assume the risks of new investment.

          • Thanks for your comment Cameron.

            The markets for some of our products are not confined to our national borders (though this is not at all true for most of our output). But in any case, wherever we sell our output, our capacity for production is by definition confined to our own turf. This is where we have to earn our crust. So anything that helps us compete – helps us attract capital, helps us produce goods and services that are competitive in terms of price and quality – is generally desirable and we should seek more of it.

            Your point about population size is apt, however. By thinking about the extremes, we can gain some insight into the choices that do actually exist. We could have an economy with almost no-one (say 150 persons in all) or a heavy-weight (your 150 million). The issues would not be the same in each case. The micro economy suffers from lack of scale and faces possible extinction.

            Simply by virtue of its size, the mega economy has more choices open to it. Success is not assured, but at least it may be able to achieve competitive specialisation in more than one area of activity. To take an equally extreme case, I would rather have the problems of Germany than Guam.

        • “The proposition that reducing immigration will improve the living standards of working-class Australians is easily made and yet completely contrary to the evidence.

          To state the obvious, the economy is not a static, zero-sum system. Immigration adds both inputs and outputs to the economy.”

          I’m not anti-immigration in the slightest. You just asked what was the cause of hostility. I answered.

          To rehash your words, working class people perceive themselves in providing a disproportionately high level of inputs, and on the receiving end of a disproportinately low level of outputs.

          Whther this perception is real, or boganomically “doin’ it tough” is another debate.

          “It expands the productive capacity of the economy by means of the addition of extra labour and extra skills.”

          Only if they have skills that are required. If they are skills that are in abundance, then it’s a drag on real wages, and ultimately aggregate demand.

          If they have no skills, then there are many inputs required by the prevailing population.

          In both cases, a decline in GDP per capita.

          “Immigration also adds to demand for goods and services, which creates opportunities for those already present in the economy.”

          If the services to provide are menial and low skill, low wage, it entrenches mediocrity. Goods are in abundance as Gerry Harvey is finding out.

          Innovation and creativity are scarce however.

          “As well, in many economic pursuits there is such a thing as increasing returns to scale. So as the economy is scaled up in terms of the size and skill dimensions of its workforce, the economy can become more diverse, more capable of innovation and more able to both fund new enterprises and to assume the risks of new investment.”

          Well we can all play textbook economics. We also come to diminishing return when your inputs reach a critical mass.

          Now various inputs include schools in the western suburbs of Sydney/Melbourne, transport infrastructure in the western suburbs of Sydney/Melbourne, health care facilities in the western suburbs of Sydney/Melbourne, etc, etc.

          Inputs borne by the residents of the western suburbs of Sydney/Melbourne, with little in the way of leighton/Mirvac dividends ending up in the western suburbs of Sydney/Melbourne, nor these dividends being taxed to increase to inputs of schools/transport/health services.

          “These things have occurred in Australia. Together with the liberalisation of capital markets,”

          Well this entire site discusses the impacts th wider scale impacts of financial liberalisation. They aren’t all positive.

          “the liberalisation of the labour supply has helped transform this economy – driving changes in relative productivity”

          ??

          We are extremely unproductive compared to 15 years ago.

          We are losing real skills and real high end industries.

          It is being masked by the highest terms of trade in 140 years. Any business in the world looks good if your customers all of a sudden pay triple for your goods, and in our case it is mining.

          Our benefit isn’t borne from enterprise or innovation.

          “and the real income horizons of the Australian population.”

          REAL incomes are measured against published CPI numbers.

          It’s quite clear now that these CPI numbers have not been accurate, and this ‘real income growth’ needs to be recalibrated.

          “If anyone really seriously thinks immigration is a net negative for living standards, they could speculate on what the country would be like if the great post-war immigration intake had never occurred.”

          Strawman argument.

          “We would have a population of around 16 million. We would be decidedly older (on average) and the tax-paying labour force would be decidedly smaller.”

          Erhh no, upper dependency ratios are a prescriptive situation and do not mean this at all.

          “Our schools, hospitals, universities, ports, roads and rail systems would be lodged firmly in the 1960′s or 70′s.”

          LOL, you could argue they are now.

          “That would indeed be a small Australia.”

          The same way as Singapore, Sweden and Switzerland are small?

  22. The main thing that’s annoying about this article is the suggestion that Australians as a whole have the foresight, motivation or progressiveness to actually develop our country to anything close to it’s potential. We are too clueless and isolated from the rest of the world to do anything world-class with our economy. On the plus side, we are absolutely fantastic at self-congratulation even when it’s unwarranted.

    • I wouldn’t say isolation is a problem any more.

      I’d say we’re in the box seat, location wise, of the anglosphere countries.

  23. Devilled Advocate

    Folks what I am seeing on MB is a groundswell of highly erudite, articulate, passionate people who are frustrated with the present and what it means for the future.

    We all claim we need to have good leaders etc but ultimately someone needs to put their hand up and start a thought process that a future leader can seize on.

    Can we not harness the collective thoughts on how we might make the future better, thrash them for sense and let the internet do its work and actively court the MSM and politicians on this?

    Otherwise we are all going to be a e-llective of passive aggressive posters and 20 years from now will still be railing against the same issues.

    How about we take the thorny problems that have lead us to this blog and propose some solutions – shoot them down refine them and when the collective brain cells have sanity checked them start writing to all and sundry about how we might initiate change.

    I know I have some ideas and would like to get some objective critics to debunk/refine them and then agitate for change.

    I know I would get some serious warm fuzzies about being a small part of the process that made the world a better place for my children.

    Anyone?

    DA

  24. DA

    Maybe try and change things from joining a political party and one that although it has no representatives, they are all about political and economic reform and are looking for good people.

    http://democrats.org.au/news/NatJournalJune2011.pdf
    Also tax deductible before the 30th of June.

    Sorry to spruik, but its an answer to DA’s question

  25. Interesting – a blog which completely missed the point of the article. The investments made by California during good times ensured that they came out with an innovative and diverse economy which doesn’t depend on a finite resource.

    All economies go through their ups and downs but far worse awaits Australia if we think we are going to carry on digging metal out of the ground and getting fat. What becomes of us after the boom, I for one am keeping a back-up plan of getting out of here down the track if needs be – possibly to California, who knows.

  26. Devilled Advocate

    Jack

    I already have/am but to be honest am rather disillussioned with the populist approach they have (such is politics I guess).

    There are a few notable exceptions who actually have the testicular fortitude to stand for something even at great personal expense but they are few and far between – Andrew Wilkie for example.

    What we need is the MSM to add momentum to the groundswell and let it take up a life of its own and let the political machine work as it does – imagine 6 weeks of press on what had caused the property bubble to occur in all of the major newspapers?

    I consider myself reasonably well read but other than a general discomfort that property prices arent sustainable I had no idea about the root causes of the bubble until Leith et al broke it down with cold hard facts and logic – I have now disseminated as much of this as I can to all my friends and family in the hope they escape the sheeple paddock – i’m happy to report that a lot have.

    If we had a list of the problems and solutions that were well backed up then journos pollies all have the foundation to ask the right questions and my view is that it would snowball from there.

    Imagine an Andrew Wilkie type starting to ask hard questions about the property bubble? heck they toppled a 60 year dicatorship using Facebook need I say more?

    DA

    • Well after your 3 posts here, and the one on the Leigh harkness thread, it appears to me your putting your toe in the water for various people here to form a political party.

      A party with policies that are non-populist, economically prudent and minimal interventionist. Albeit in a very dilute form, probably more out of disenchantment than anything.

      It is a noble thought, however in his(their) crude and somewhat elitist approach, boganomics have pointed the problem.

      Bogans.

      The don’t care, or even understand. Right now, they have what they want.

      Unfortunately, and it doesn’t get addressed much, is that there is a higher concentration of bogans within the baby boomer demograph that any other.

      And now at this stage of their lives, they are determined to enjoy their fruits of ‘their’ labour.

      Wage share is continuing to shrink in favour of profit share, because they are the highest holders of equity and recipients of the greatest proportion of capital growth/dividends. not because they are special, it’s just chronology.

      Property prices are through the roof so that increased debt levels are borne by young home buyers, to give increased lump sums to those that own the stock, baby boomers. Not because they are special, it’s just chronology.

      Services for young (pre-school) children are at their lowest funding in 40 years, now that baby boomers are no longer fertile.

      The old aged pension has risen from 12% of the average wages to 27% of the avergae wage, with pressure to increase it more.

      Baby boomers can start their exclusive car insurance funds because the young place more cost pressures upon it, but young people can’t opt out for their own health insurance funds.

      Unaffordable tax breaks for pension accounts, tax breaks for working past 65, pension health care cards for over 65 millionaires, etc, etc.

      I can repeat this theme in many, many areas, only to be told this intergenerational warfare is misplaced.

      Unless young people collectively come to a realisation that this generation that has always been at the focal point of welfare and fiscal spending all along their demographic progresion, and has developed a sense of entitlement from this, then it will continue with their force at the ballot box

      Now, ask a young person of very capable ability and talent to start up a political movement.

      It’s easier and probably more rewarding, to move to a low tax, low welfare environment in Asia to be honest.

      • Devilled Advocate

        Rusty

        Not really trying to form a political party – in my view the only way you can initiate change in mature democracies is via one of the major parties – Andrew Wilkie may be a man of conviction but he is only one small voice in the wilderness.

        This blog has given me a new perspective and insight on many things I took for granted and if repeated on a large scale would educate and inform and (hopefully) lead to change.

        On a micro level three people who I have reffered to this blog are now sitting on thier hands for what they can now see is an inevitable property price correction – imagine this repeated for everyone who visited this blog?

        A groundswell becomes a tsunami….

        Cynicisim aside, politics being what it is, if the movement got big enough the parties would sit up and take notice.

        As for baby boomers I’m not sure I agree, most of the ones I know work/ed pretty damn hard to get to where they are and dont for the most part have much of a sense of entitlment – they are also parents, grandparents etc – quite frankly who would want thier kids not to be able to put roots down in thier own country if they wanted to?

        If prices kept “doubling every 7 years” my kids would have to go to another country to buy a house – who would honestly want that?

        While I bemusedly share your view re bogans even they can be educated – it does however take time and effort (or a massive crash).

        The trick is to leverage the most powerful change tool in the world (the internet)to counter the snake oil salesmen and charlatans….

        Maybe I’m young and ideal enough to believe that education and action can make a difference

        I have posted a lot as Im thrilled to e-meet people who share a common mindset and I’d like to see something become of it for the better of the country rather than see the same railings in 2, 10, 20 years from now.

        DA

        • “As for baby boomers I’m not sure I agree, most of the ones I know work/ed pretty damn hard to get to where they are and dont for the most part have much of a sense of entitlment”

          This is a false argument to claim they ‘worked hard’ because everyone one, every generation works hard. It is also a blatant falsehood to use this a comparitive.

          The parents of the baby boomers definately had a lot tougher lot handed to them in life than the baby boomers.

          Prior to Ben Chifley, 6 day working weeks were the norm. The 1880’s typically saw all 7 days.

          The 5 day, 40 hour week was institutionalised after WWII. However the last decade has pretty much seen a return to 50 hour weeks and half day saturdays across many sectors.

          So it would appear every generation prior to the baby boomers worked harder, and every generation after the baby boomers look relegated to working harder.

          So I can’t really tick the ‘worked hard’ box for them.

          “– they are also parents, grandparents etc – quite frankly who would want thier kids not to be able to put roots down in thier own country if they wanted to?”

          Very few parties pursue bad outcomes for society out of informed choice. You think people in Weimar Germany in 1933 voted Hitler thinking “I can’t wait for the ruin upon us in 12 years time?”

          Peple make innocent enough decisions that end up catastrophic. The Boomers are doing this.

          “If prices kept “doubling every 7 years” my kids would have to go to another country to buy a house – who would honestly want that?”

          The baby boomers do. What happens here is a transfer of wealth, from young and poor to rich and elderly. With that wealth comes power.

          They will opt to assist their children obtain a house, a really poor social outcome for an immigrant nation however. With their wealth comes their input in allocation. Their children don’t go without a house, so they aren’t ‘losing’ in that aspect.

          “While I bemusedly share your view re bogans even they can be educated – it does however take time and effort (or a massive crash).

          The trick is to leverage the most powerful change tool in the world (the internet)to counter the snake oil salesmen and charlatans….”

          The wallet is much more powerful than the internet.

          “Maybe I’m young and ideal enough to believe that education and action can make a difference.”

          Read more boganomics, take away the obvious preaching of a sneering hipster and examine cause and effect from the observation.

          Education has never been more available, more accessable or more bountiful. I would suggest we are now confronted with tyrany of choice when it comes to education.

          But that essentially is what NIMBYism is, an environment with everyone with knowledge.

          “I have posted a lot as Im thrilled to e-meet people who share a common mindset and I’d like to see something become of it for the better of the country rather than see the same railings in 2, 10, 20 years from now.”

          There is only one real lever of change, and that is politics.

          It however is subject to the whim of the (bogan) electorate who is swayed by media. This is done with great ease by the media because the bogan doesn’t know anything (the push to mitigate AGW is a prime example) yet is vociferous is demanding change in regards to these areas it knows nothing about.

  27. All these micro short term issues don’t matter a jot. We’re in the Western world which is handing over its manufacturing capability and future wealth to Asia.

    We’ll have debts and depreciating currencies and poverty as an inheritance, due to greed and welfare.

    We’ll realise that multinationals and free trade should have been choked while we had the chance along with TBTF banks. How many examples like the continuing rapacious behaviour by Heinz do people need to see?

  28. Devilled Advocate

    Rod

    Thats a view by some but not well supported – would you pay $X for shirt just because it was made here?

    History has shown us that people/economies who start with low value added product and move up the value chain do very well – ergo Singapore, Taiwan, Japan, USA those than dont flounder.

    I have no idea why we support Australian industries like cars and textiles which would collapse but for hefty government support.

    My view is that a judgement call should be made so that in 20/30 X years we wont be in these industries any more as the Koreans can retail a car here for about 1/4 of what it costs us to build one.

    Do you really think it matters whether an Iphone, Cochlear implant etc is made any more – ultimately wealth and competitive advantage stay with those than own the know how and smarts.

    Globalisation cant nor should be unwound we need to embrace it and evolve with it.

    DA

  29. For me the main resonating point of the report is that we have the most politically inept players in recent memory and this has been exacerbated by the media.

  30. “IMAGINE a country of about 25m people, democratic, tolerant, welcoming to immigrants, socially harmonious, politically stable”

    Ha ha! Didn’t that make anyone else laugh?

    Democratic? One dollar one vote. Tolerant, welcoming? If you arrive on a plane with lots of money, and don’t wear funny headgear. Politically stable? On the point of implosion through utter incompetence and corruption of traditional parties.

    “Economically successful” also in danger of imploding, due to excessive levels of debt, which is just borrowing from a future that may not deliver.

    It describes Australia 30 years ago, but not now that Keating/Howard/Rudd/Gillard have done their worst.

  31. Globalisation is breaking down in my view along with keynesian money “theory”. Every country should look after their own 1st, trying to create some socialist world utopia will only end in civil wars or world war 3. I can see Australia being balkanised into 7 countries in the future.

      • Devilled Advocate

        Ponzimania – I’d be interested to know the basis for your comments, my experience has been that the ones against globailisation tend to be those marginalised by it and those on the left fringe.

        On a pro’s and cons the pro’s massively outweigh the cons and while it has and will continue to cause misery for some, their children will be beter for it.

        Look at Chinas experiment with rejecting globalisation starting in the 1500’s? On a more recent note Burma, North Korea – there will be massive ructions when these countries finally move into the modern world and again the people who can least afford it will cop it.

        That then raises the question of whether you can unscramble the omlette (tarrifs) and what would you replace it with?

        DA

  32. In Jim Rogers books he said that as a foreigner he couldn’t purchase property in Australia.

    I spent six months in Australia in 2005 and I recall that they treated refugees from the Solomon Islands quite poorly and there was a scandal about it. I think that’s changed in recent years, but I wouldn’t say that they have an exemplary record on immigration in the past 20 or so years.

  33. Third, because of California’s severe constraints on housing supply (both physical and regulatory), its housing market remains the second most unaffordable in the USA, behind Hawaii

    Always got to get that regulatory canard in there, don’t you?

    It is absolute tripe. There was no supply shortfall, and you’ve never proved that the imaginary supply-constraint was down to regulation.

    I’m not sure what counts as a basket case, but we must be doing something right as the entire world wants to live here. Weather, culture, technology, agriculture… nah. None of that matters. The self-inflicted budget shortfall is all that matters. How dare a state come up short in the middle of a global financial crisis!

  34. I can scarcely believe this excerpt was published in the Economist. Is it the same magazine I think it is? The London publication? Incredible.
    Yes, the argument about population growth is sheer sophistry. (the author must have failed economics 101) If population growth in itself caused economic growth, Bangla Desh would be very rich, while Finland and Norway would be very poor. (you can think of even better instances and contradictions) Besides, as you imply, it is not economic growth we pursue but personal prosperity. I never heard the argument that having lots of kids created prosperity. Has anyone? As for gratuitous, specious comparisons with California, I notice that US State languishes with high unemployment(12% recently), and can only cope with its self-inflicted electricity supply shortage by importing energy from adjacent states. There are plenty of things wrong with California, even apart from its sour economy. It would be easy to pull apart the entire silly, childish article. it would also be tedious.