Expect the revolution to grow

Back in May, former Reserve Bank of New Zealand advisor and multiple CEO, Terry “Macca” McFadgen, wrote a guest post on MacroBusiness entitled: Will Aussie housing go bust?. He then followed up in August with Big trouble ahead.

Now Terry is back with another serving of ‘Maccanomics’. In this installment, Terry provides a sobering assessment of the inequality that has been growing within the developed world and what it means for societies and economies. This is a must read article. Enjoy!

The developed countries suffer from two chronic conditions-too much debt relative to the amount of income available for debt servicing, and increasingly visible inequalities between “haves” and “have nots” which are putting social fabrics at risk. The first condition can only be solved by debt forgiveness, inflation or solid growth, and the second only by income redistribution or, once again, solid growth.

Solid growth figures loom large in both solutions. It is the magic elixir but sadly the prospect of a surging recovery is fading further and further from view as Europe digs itself into what will probably be a longish recession, the USA staggers along with an economy short of demand and much of Asia struggles with inflationary pressures. It is looking much more like a five year problem than a two year problem.

This new chart from Calculated Risk tells the story for the USA both in terms of the severity of this recession, and the likely timeline to full recovery:

(To put those projections in context, the USA is currently generating new jobs at the rate of approximately 80,000 per month. New jobs of 115,000 per month are needed just to keep pace with population growth).

The economic challenges are obvious, especially the need for sovereign balance sheet repair, and they are manageable within existing social and political frameworks given time and patience although the Eurozone may be the notable exception to that observation.

What is much less clear to Macca is whether the social pressures from the great financial meltdown are in the same category. They might not be.

Income Inequality

Cast your mind back to 1978 (if you weren’t born then don’t worry just keep reading). That was the year when Jimmy Carter was president of the USA, National Airways Corporation was merged with Air New Zealand to create a full national airline, US senate proceedings were broadcast on radio for the first time ever, and Carly Simon, Barry Manilow and the Sex Pistols were big on the airwaves.

The first Holden Commodore was released that year. Britain still had a car industry and Austin released the Marina (it was awful).

If I told you that American, male, blue collar wages had not improved one dime (in real terms) since 1978 you would be inclined to say I was kidding. But I am not-staggering though that statistic may be. In 1978 there were no personal computers, the internet did not exist, carbon paper as a copying device was finally being replaced by word processors (I remember it happening), China was a backward rural nation and the European Union had not been created!

Since then there has been no growth in male real wages in the USA, despite a massive lift in productivity. To be precise, the growth in labour productivity over the period 1980-2009 was 78%. Workers got zip and the entire benefit flowed to shareholders.

Over the last several decades the “lower middle” of the American workforce has been hung out to dry as manufacturing jobs have been lost to China and elsewhere, Unions have been broken, automation has captured what were once jobs for men, and those without  College degrees have been consigned to the wages dustbin.

Whilst house prices were forging ahead in the early part of this century, home equity withdrawal (“my house is my ATM”) concealed the devastation of working class incomes. But when that game fell apart in 2008 it left those incomes-and the commensurate value transfer to the holders of capital or smart degrees- exposed to the cold light of day.

Take a look at these jaw droppers:

  •  In 2000, the average (median) American family earned $64,200 pa in today’s dollars. A decade later, in 2010, that had fallen to $60,400.
  • Between 1979 and 2007 after tax incomes of the richest 1% of the American population grew by 275%.They rose by only 65% for the rest of the top 20% of Americans. For the 60% of Americans defined as middle class, after tax incomes grew by about 40%, and for the poorest 20% of the population incomes grew by only 18%. In other words the extremely rich grew fabulously richer, the middle class did just okay after adjusting for inflation, and the bottom rung did badly after inflation.
  • The wealthiest 1% of the American population saw their share of the country’s income go from 10% in 1980, to 23.5% in 2007.In other words-nearly a quarter.
  • Today, the richest 400 Americans have more wealth in aggregate than the entire bottom 150 million of the population.

Can any civil society survive very long-at peace with itself- with those disparities?

Many forces contributed to the escalation in income inequality but close to the top of the list were executive remuneration policies where rampant greed pushed common sense out the door-especially in investment banking:

  • It is estimated that in 2007 the five best paid fund mangers earned more than all the chief executives of the USA’s 500 largest companies. The top three made over $9 billion!
  • In 2008 Merrill Lynch lost $27.6 billion and had to be taken over by Bank of America assisted by $10 billion of taxpayer’s money. Yet its management approved bonuses of $3.6 billion that year.

Gorging on remuneration was not limited to the banking sector. Chinn and Frieden (see footnote 2) record that in 1980, the USA’s best paid executives made 100 times the national average wage but by 2007 this had risen to an extraordinary 770 times. By contrast, the ratio in Germany is currently about 40 times.

This madness eventually trickled down through a lot of the global economy. Remuneration committees could point to US trends, argue that their company had to be competitive in the quest for global talent, and pony up the crazy dollars. Even in Australia and New Zealand, CEO remuneration packages moved into the $5m range in quick time-about 100 times average wages and 10 times the amount paid to senior policy makers, medical specialists and senior judges.

It is easy to say that if shareholders want to pay their executives obscene amounts of money then that’s their business and no-one else’s. Macca begs to disagree. Income disparities not based on merit breed anger and incomprehension from those not blessed with largesse. The negative social consequences are shared by us all. Then consider the costs of diverting talent from the pressing issues of the real world including policymaking, academic leadership, medicine, the judiciary-and dare I say it politics. Chinn and Frieden also note that at the height of the Wall St boom in 2007 over 1000 physicists were employed in investment banks working on abstruse mathematical models to value or create financial instruments. Would any sane society allocate resources in that manner?

But stating the problem is easy – getting effective policy responses is not because big money owns Washington – it’s a simple as that. President Obama is reportedly targeting a re-election fund in excess of $100m. You can be sure that families on $60,000 a year are not the funders, and those that are contributing want their patch protected.

In fact, between 1990 and 2010 the financial services industry, including real estate, spent an incredible $2.3billion on federal campaign contributions. How could any politician resist?

The Club Med

Now please cast your eyes eastward to Spain and Italy. Greece captures the headlines but in truth it matters little in money terms representing only 2% of Eurozone GDP.

The larger Mediterranean economies matter a lot. Both economies are perilously poised in terms of their ability to fund themselves as their bond rates have escalated in recent months. In response they are drinking deeply from the cup of fiscal austerity. Further economic contraction seems guaranteed in a process that leads ultimately to self destruction. As each economy cuts deeper to achieve better fiscal balance in the short term, leaving core labour market and competitiveness issues untouched, the young and disaffected vote with their feet.

In Spain, unemployment overall sits at around 21.5%, but youth unemployment is close to 50% and there are 1.4m households where no-one has a job. Unemployment benefits are adequate, but a generation of Spaniards is growing up who have never experienced employment outside the black market and who are unlikely to any time soon. In the meantime, those with jobs are secure-put beyond the reach of normal market forces by laws which protect incumbents.

In May this year the “indignatos” protest movement took to the streets and since then around 7 million Spaniards have participated in protests in over 58 cities. The goals are largely indistinguishable from those espoused by the Occupy Wall Street movement. Indignatos aspire to” upgrade democracy and reduce the influence of economic powers in politics”. They share with OWS a strong antipathy to unemployment, the current two party political system in Spain, capitalism, banks and bankers. It’s all amorphous stuff-gut driven and vague- but compelling enough to get millions onto the street.

How the Spanish situation will resolve is unclear. New elections are scheduled for this month and we will then see the lie of the land.

Now take a look at Italy. This is not a peripheral economy by any means. It’s the 7th largest in the world and what happens there matters everywhere. It is burdened by substantial but not overwhelming public debt (net public debt is 100% of GDP), very low growth, and a political system which is at best”dysfunctional”. For a decade Italy has produced average annual growth close to zero(0.6%pa to be exact) whilst borrowing freely to support an economy marked by terrible productivity, patronage, closed shops, widespread corruption and a black economy thought to be as large as 20% of reported GDP.

In 2009 each worker in Fiat’s Italian factories assembled an average of 30 cars per year, compared with nearly 100 per year in Poland, while being paid more than three times Polish wages. Hello…come in Italy…that just doesn’t work.

Interestingly the burden of Italy’s sick economy falls mainly on the young. The unemployment rate overall is a not very drastic 7.9% but the youth unemployment rate is 29.6%. Basically the young get locked out of the labour market to protect older incumbents in their jobs.

As a result, 40% of Italians in their 30s still live with their parents.

Italy’s economic fundamentals are not terrible but they are poor and the money men have moved against it. No-one has any confidence that a Berlusconi replacement will bring much change because he is (or was) a symptom not a cause.

The country has led a life of grandeur and delusion for well over a decade and has now ended up with a 30% plus productivity differential with the North of Europe. Short of a political and cultural transformation which is surely beyond them, fixing it will require IMF/Eurozone control of the economy for years. In fact that control is already being ceded as the attached copy letter from the European Commission to the Berlusconi government makes crystal clear!

The streets have been quiet so far because the disaffected young can vote with their feet- but for how long?

So What?

Jump into a helicopter and take a look at the developed economies from a decent height. What do you see? Extreme income inequality in the USA coupled with unemployment approaching 18%on the wider “U6” measure and no relief in sight. In the large Club Med economies you see terrible youth unemployment and the looming threat of IMF/ Brussels control. In England you would have seen vicious street riots over this summer before the Coalition’s austerity programme has even started to bite. Then add to this mix the prospect of five to ten years of very limited global growth.

To state the bleeding obvious, that is not a sanguine combination.

But what really makes it dangerous is the breakdown in social equity. The pain of the post financial crisis adjustment is not being borne fairly because the young and the under- skilled are being sacrificed everywhere to incumbents who want their jobs, tax rates, and asset values protected – and who carry the required political clout to get their way. And lest those of us in the commodity belt start feeling smug, have a think about the exclusion of many of our children from home ownership. Family (two bedroom) home ownership in convenient suburbs now starts at the $750,000 level and the required deposit is close to $150,000. This is a level most cannot afford without parental support. We are thus building an ugly two tier society comprising those who have parents wealthy enough to support them into decent home ownership and those who do not. Again, the incumbents are victorious. Property values are supported by supply-side constraints which benefit existing owners, local bodies via rates and development levies, and a host of parasites who feed on the current system. Do not bet on this lasting the next decade.

The past six months or so has been characterized by a remarkable number of spontaneous protest movements across the developed countries including Spain, England (more accurately perhaps riots rather than protests), Israel, and now the USA in the form of the Occupy Wall Street movement. OWS has spawned copycat movements in many places including, somewhat remarkably, Australia and New Zealand.

These movements are currently mostly leaderless, vague in purpose and lacking in credible policy initiatives. But they have deep foundations in perceived discrimination, inequalities and lack of opportunity. And in the USA an intellectual leadership is building quickly amongst academics disappointed by President Obama and sick of Wall Street’s influence in Washington.

Maybe these movements are just a rush of blood to the head and they will fade away. But personally I doubt it. In a recent poll in the USA, 59% of the respondents declared themselves to be “fully” or “strongly” sympathetic to the Occupy Wall Street movement. That sounds to me more like something reminiscent of the anti-apartheid movements of the 1980s or the American civil rights movement of the 1960s, than a passing fad.

Pessimists will say we have been here before of course – high unemployment, a decade of no growth, deep resentments regarding wealth distribution, austerity and currency pressures. It was the early 1930s and on that occasion a nasty little Austrian with no talent other than a superb feel for the mood on the streets came to the fore and wreaked global havoc.

Macca is no such pessimist but he is watching nervously in the hope rather than the conviction that equity will prevail over selfishness – and soon.


  1. One has to consider the immediacy and potency of such youth activities if coordinated by The Black Bloc via social media etc to engage disenfranchised participants. Some inflation is surely preferable in these circumstances to avoid or overcome depression which is evident in youth unemploynment of over 40% in Greece and Spain.

    • Interesting, thanks…but excruciating. Given a little time and a few resources and I’m sure much of what he said could be validly questioned if not debunked.

      A cascade of generalised statements accompanied by scatterplots with almost nothing substantive in-between!

      He lost me when comparing homicide rates USA/Canada to demonstrate the more ‘unequal’ societies have more ‘problems’. Guess what, shock horror USA’s homicide rate is significantly higher – I wonder why…GUNS.

      Jeesh. Conveniently ignores the range of social problems existing in the Scandinavian countries which he so admires nor unique social issues apparent to any that have spent time in Japan.

      The world is not an equal place.

      • I didn’t listen to that talk yet but I agree with 3d1k that all comparisons between countries need to be adjusted for various confounding factors. Alcohol and drugs play a big part in those issues. Despite the low level of inequality compared to the rest of the world Finland for example has a higher rate of domestic violence and suicides than the rest of Europe. Not sure about the homicide stats but probably not too good either. Gun ownership is common due to hunting being popular.

        Drinking problems and mental health issues to my knowledge do increase during economic downturns, leading to more violence etc. I am sure extreme inequality aggravates violence and we may see more of that in the US and Europe soon.

      • Hm I was looking at it more from the point of view of something to think about. I agree…correlations are not causes and I believe the issues run much deeper.

      • No, it isn’t because of guns.

        Countries such as Canada and Switzerland also have very high rates of gun ownership.

        • With very strong controls on the ownership of handguns! The weapon of choice I would suggest.

          Long-guns are subject to similar restrictions to those here in Australia.

        • Exactly, some of the safest places in the US are places with the highest concentrations of gun ownership. Surprisingly increasing the number of guns also tends to make people more polite. Funny that.

          A lot of gun deaths in the US are gang and drug related and not specific to simply owning a gun.

          • MattR

            It may be the case that some of the safest areas in the US coincide with high gun ownership, I don’t know.

            Wilkinson’s point was that the US homicide rate is significantly higher than Canada’s and this was attributable to levels of inequality in society, my immediate thought was “and guns”. As you say, many homicides are drug and gang related, he was speaking of the overall number not the societal groupings!

          • It is true 3d1k – its a paradox, but there you go. Similarly, the highest concentration of gun related murders are in minority populated big cities that have huge poverty problems. In fact, if you strip out this effect from the dataset, the remaining US population has less murder rate than Australia, and about 1/3rd that of the UK (where violence there is actually more endemic)

            This is a structural and racial issue that predates Civil War, and can’t be explained away by “coz they got guns”. It has since been exarcebated by the absolutely ludicrous “War on Drugs” that has fermented violence, particularly in Mexican-bordered States.

            Canada is a different culture to the USA (and both really are a mixture of cultures and histories), and has a significantly different social makeup.

            Cultural differences account for more when comparing nations/populations – e.g why does Aust/UK have a huge binge drinking culture when other non-Anglo Saxon Euro nations have similar alchohol consumptions levels per capita? You can’t just compare legislative/regulatory constraints between populations either.

            Disclosure: I am pro gun ownership, so read into that what you will…

      • Now I actually watched the lecture. It is very interesting and like flawse said the correlations are valid even if causalities remain uncler.
        I have to say the nordic countries take pride in investing in their children, and that attitude is what I personally miss the most from the welfare society of the north, despite having been very critical of the high taxes and low income gaps at the time of living there.

        Investing in kids is investing in the future, and providing as equal education as possible is making the most of the brain power of the society.
        The inequality in education does sadden me here in Australia.

        • In general the nordic approach to education is quite different to our own.

          -Teachers are not paid above average wages but there is genuine respect and appreciation for the ‘vocation’. Teaching course placements at university are keenly sought, attracting high calibre applicants who genuinely want to teach (not in the main those that did not get into their preferred course).

          -The emphasis when children are young is on the true concept of ‘kindegarten’ – children playing (in the garden). A time of exploration, play, fun and the gradual attainment of social skills. Academics are (or at least used to be) reserved until around the age of 7! Makes a mockery the current education-money complex developing here where increasing demands are made for children to undertake more formal education from the age of three.

          I don’t think there is that much inequality in education in Australia, there does exist a frightening range of abilities in the teaching profession with almost not call to account. I have no doubt that earlier education will not in any way equate with ‘better’ education nor produce more ‘brainpower’.

          We have been hoodwinked by education complex.

          • As an aside, nordic countries experience similar levels of sexual and physical abuse towards their children as most other developed countries. I think this maybe a flaw in humanity that sadly is widespread.

          • dumb_non_economist

            Jeez 3d1k,

            I actually agree with all you said, except there being no inequality . I’m going to actually have to go away and think about this again now.

            Talk about ruining my day!

            I understand there is going to be a push to teach intro calculus in kindy.

      • Ever heard the phrase “The market can remain irrational longer than you can remain solvent”?

        It’s apt. They have been irrationally extracting their wealth to subsidise their lives for nearly 20 years.

        Eventually all unsustainable systems fail. Take a look around you, and realise that for the past 14 years, Australians have been pledging ever higher figures to buy existing housing. That is, they are buying the identical property for 3x more than a decade ago. Is that wealth?
        Or is it an unsustainable and irrational herd movement?

        I can’t say when it’s going to fail. Hell, with enough incentives and no loss of employment, it could go another 5 years.

        It doesn’t look that way though. Melbourne will certainly be interesting to watch. So many tiny “student” apartments in an environment with high rents and a high AUD. So many investors hitting retirement age without tennants.

        It’s looking for a pin, and eventually it will find one.

        • “That is, they are buying the identical property for 3x more than a decade ago. Is that wealth?”

          We pay each other more and more for the same thing and then celebrate the fact. At best, it’s silly. At worst, it’s something that requires psychiatric attention.

  2. What I want to know about the concentration of wealth, is, HOW MUCH of it is the result of successful rent-seeking and zero sum wealth transfers, HOW MUCH of it is money made by providing consumers what they want at a fair price, and HOW MUCH of it is money made by the sector of the economy that actually produces rather than consumes wealth?

    I think it is a tragedy that the “rent seeking” escapes scot-free all the time, while the latter two are most often the subject of punitive political action. In fact, politicians almost inevitably play into the hands of the rent-seeking wealth transferring sector even in attempting to ADDRESS inequality (and in any case creating new opportunities for rent seeking is politicians favourite pastime).

    Attempting to address inequality by penalising PRODUCERS of wealth (and often rewarding rent-seekers at the same time), is like “helping the poor” by sawing off the branch of the tree on which they are sitting, just because the producers of wealth were also sitting on it.

    It has been said that the rightful role of “Finance” is to be “handmaiden to industry”. It is a pointer to everything that is wrong in our economies, that the total share of profits made in the economy by the Finance sector, has grown and grown, crowding out the profits made by the productive sector.

    “…..the growth in labour productivity over the period 1980-2009 was 78%. Workers got zip and the entire benefit flowed to shareholders…..”

    I very much doubt that benefit flowed sufficiently to honest investors in productive investments. I suggest the problem is the “rent” being extracted from the process of wealth creation, by the finance sector.

    “Sharing the Wealth Generated Between Work and Capital and Its Evolution”
    By Remy Prud’Homme, suggests that the returns to investors in things that DO improve productivity is in fact too low most of the time. We need a lot more serious analysis of this type before we start enacting stupid and destructive “policy solutions” to inequality.

    I suggest that urban planning is one of the biggest causes of zero sum wealth transfers in the wrong direction in society.

    I also suggest that taking taxes off the profits of producers BEFORE they are distributed as dividends or drawings, has delivered producers into the hands of the finance sector in so far as the profits so taken away are unable to be used to fund growth. Many businesses that have failed early on while they were growing, would have survived had they had this vital cash flow to fund their increases in stock and debtors.

    • Philbest Great post!
      Surely the evidence in the US (and here) is that the owners of factories producing ‘REAL’ stuff have been disappearing as well which exacerbates the problems of the lower to middle income brackets.

    • The BurbWatcherMEMBER

      Good post….

      Seems the govt-designed system, combined with human nature, is doing what it was always going to do: cause social unrest via inflationarily-based power and wealth transfer.

  3. I think the rich-poor gap will worsen if central banks continue printing money. A Bloomberg report says the cost of a Thanksgiving meal has gone up 13% in one year. “Inflating away the debt” is a destructive course of action that will add to social tension. No more money printing!!

    • Yep!! Anyone who thinks inflation with low interest rates is some solution to debt has rocks in their head. It’s a pity ‘macca’ listed this as an alternative as normally it would indicate someone who has not thought deeply about the subject. The rest of the article surely is a reminder to us that this cannot continue.
      Answers to the problems will be more difficult to come by. To simply confiscate, in some way, the weatlh of the top 400 is not one THE answer. The problem and the solution, in fact, lies with all of us and what we demand of our society.

  4. Yes it is a good article – my only point of disagreement is that this is not a 5 year problem. We are in our fourth year now, and probably have more than 10 years to go before we see any real resolution.

    Our society will never go back to the low debt levels of 1980, but they will need to be reduced significantly, and we have one of the sanest societies when compared to other countries.

    Really the fallout may still be felt in some countries in two decades. There is no silver bullet in the gun in this episode.

    • What makes you so sure we will “never” go back to low debt levels of 1980?

      Sanity compared to other countries….hmmm can’t agree with that. At a time of immense prosperity we have a government blowing taxpayers money with glee.

  5. “Today, the richest 400 Americans have more wealth in aggregate than the entire bottom 150 million of the population.”

    That is just mind blowing.

    • Yes, but what I want to know, is are they successful rent-seekers who have gamed the system and had wealth transferred to them; or are they Bill Gates types who have produced things that people happily buy and gain value from?

      The danger is that there are 20 Bill Gates types and 380 George Soros types among those 400, and the 20 Bill Gates types will get hauled up before Commissions and stripped of their wealth, while the 380 George Soros types will continue to be feted at the top politicians penthouse parties.

      • A bigger problem for america (but not just america) is that over the last couple of decades smart people who may become the next bill gates get lured to wall street to become the next george soros.

        i.e. instead of inventing something the world wants/needs that will improve productivity they are devising algorithms to make money off each other in zero sum game derivatives markets.

        • Further to that I think we might see more ex-bankers going into politics and assuming leadership roles (new Greek PM the most recent example). In an era where the test of every policy is ‘How will the markets react?’ the next logical step is to put market proxies in charge. Personally I think we are a long way from any sort of revolutionary conditions today. But if the the major economies continue down the path of taxpayer transfers (via bailouts) and savings destruction (via QE) for the benefit of a few financial elites, who can say what might happen?

        • RMA, and I have a few engineer mates who rather than pursue engineering took up algo coding for banks and they make a fortune over the last ten years, but more over the last five. I made the wrong choice.

          • A63, the big banks and hedges have trawled the maths departments of MIT, Ivy League U’s and the like for years cherry picking the best and brightest. I read recently that some think infrastructure renewal and related project possibilities in the US will be stymied by a lack of engineers. Perhaps they were lured to far more financial fields of the kind you talk of above!

      • Popular movements like OWS are apoltical in nature. Let us keep it that way.
        With your George Soros example(who is noted for his left-wing views), I guess you are trying to give political colour to these movements.
        Before you do that, remember that Bill Gates (Microsoft) had the biggest anti-trust cases filed (and won) against him for using monopoly market power.
        Also remember that Gates has since reformed himself and now a strong climate change believer and supports carbon tax and green energy initiatives.

        • Carbon taxes and green energy initiatives are just creating another new layer of rent seekers in the economy.

          Gates behaving like this, is making himself part of the problem. I never had any problem with his true business activities. No-one forces anyone to buy Microsoft. I did not agree with the anti-trust decision against them.

      • PhilBest,
        you can research the top 100 starting here

        Among the top ten there’s only one investor/speculator Warren Buffet. With the new industries of IT&T represented by three out of top five. It would be interesting to see the tail end of the list.

        Anyway, I think that rather than a bunch of billionaires the real problem are large international corporation that can only grow large due to freely available debt capital from investment banks and hedge funds. This capital can be used for mergers and acquisitions and effective elimination of many national companies. What happens after a merger or acquisition is that local good producing jobs are eliminated and acquired companies just become sales channels. Having massive resources of their parent companies they can then aggressively compete against other local companies and ultimately eliminate them along with productive jobs. What is left is the sales force, administration and some skeletal technical support. High value add engineering, R&D jobs are eliminated. Large internationals are free to move their production anywhere they want which typically means countries with the lowest cost of production.

        The goal of rent seeking is achieved through capital created out of thin air by different aggressive investment vehicles that skim the real capital through interest rates, capital management charges and asset appreciation pumped up in the process. They do not even need to be shareholders they can just lend money to mums and dads who get suckered into e.g. buying Myer shares from a private equity fund.

  6. There are two separate issues which can’t be bundled into one category of wealth inequality. Wealth producers and rent seekers. As Phil correctly mentions societies producers must be removed from the inequality discussion. They have made their money by adding value to the rest of our lives.

    The rent seekers are the real scourge in our modern societies. They are the reason for this great inequality. I like to think of them as the great managerial elite. There ranks are made up of large companies, politicians, professional bureaucrats, bankers, union officials, large NGO’s.

    They aim to receive rewards that should only be given to societies producers but only seek to take the risk of a government worker.
    These people are the complete opposite to the producers. They are
    wealth leeches. They do all they can to enrich themselves at the
    expense of others. Wealth producers create things which make other people better off ie Steve Jobs. Rent seekers do things which make other people worse off.

    If I was in charge my first order of priority would be to encourage the producers and punish the rent seekers.

    • I really appreciate that someone else “gets it”.

      From the book “30 Second Economics” (Ed.) Donald Marron:

      “Rent Seeking”:

      “From large multinational firms to civil society groups representing the elderly, individuals and organizations lobby governments not simply in pursuit of the public good, but also to tilt the field in their favour. The aim of such behaviour is to capture ‘rents’ resulting from the price distortions and policy measures that come with government intervention. Variable economic resources tend to be expended on the lobbying process, because competing special interest groups attempt to influence the content of policy. In response bureaucrats do not act in the general public interest, but behave in the same self-interested manner as other economic actors and encourage ‘rent-seeking’. The result of this is the risk that the policies implemented in response to such lobbying will favour specific interests rather than serve the broader notion of the public good. It is those individuals and organizations that have more power in the political arena that benefit most from this process. The patterns of growth and distribution by which economic performance can improve are thus hindered by the artificial redistribution of resources through non-economic means. Thus, in the aggregate such a process of rent seeking reduces overall economic efficiency.”

      • Thanks for clarification PhilBest.
        “Rent seeking” as a term has been somewhat unclear to me. I haven’t been sure how it differs from the term corruption.

      • i get what you guys are saying but even bill gates thinks he has too much money. surely at some point, making more money doesn’t matter to these people (they do it because of passion for their ideas etc.) – so surely at that point redistributing their wealth is acceptable without reducing the incentive to still produce new things. does anyone need that much money, whether they’re producing something or not?

        • I take “bill gates” to be a generic representation of people who making things that people use.

          Microsoft itself is more of an imitator (and acquirer) than innovator but nevertheless is making products that people want that add to productivity. On the other hand it has behaved like a monopolist when given the opportunity.

          So it is more of a generic comparison between people who make stuff and people who behave parasitically.

          And the real bill gates address his dilemma of having too much money by giving some of it away to charity (as does Soros to be fair).

          • i agree totally RMA… my point is simply at the 1% type level we’re talking about, if these guys already have too much money to know what to do with, I don’t think the rent seekers and product makers need to be differentiated.

        • Danna it is immense importance to reward the value creators and the rent seekers. Society is better off because of value creators and worse off because of rent seekers. Our problems are cause by rent seekers and can only be solved by the producer/creator. As a result each party must be treated completely differently. Banish the rent seekers to the bottom to pluto and let the producers get on with fixing the mess.

          You can redistribute everything a rent seeker has stolen but the producer/creator is entitled to distribute their wealth how they see fit. I would be pretty confident that bill gates would do a better job distributing 100bn than Tony, Julia and Bob.

          • Have to agree to disagree there Mark. society is better off b/c of the value creators – totally agree there. Does anyone here think though that Bill Gates or Steve Jobs or whoever you want to pick would stop creating value though, because they ONLY had 5 billion dollars? I say emphatically NO. These people are driven by passion and value creation would still be happen because these people have a vision. We don’t need to let value creators make unlimited amounts of dollars for value to be created.
            Japan is one of the most equal countries in terms of income distribution… Do you think value is not created in Japan? People like to succeed in life, and while i think there should be reward for effort, the rewards don’t have to be astronomical to get that result.

            You say the rich would be better at distributing their wealth than governments… but the evidence does not support this. As the gap between rich and poor widens in Australia, philanthropy is dropping. In addition, as a percentage of income, it is actually the lower middle class that contributes the most to charity – not the rich. Warren Buffet thinks the rich don’t pay enough tax.

            I find it hard to believe that the middle class is defending the richest people in the world while the richest people in the world are telling us they do not need as much money as they have.

            Let me be quite clear here – i’m not talking about the entrepreneur who takes out a $100K loan and makes 10 millions dollars. Good on him. I’m talking about the guy that makes 10 billion. he doesn’t need that much money and it’s not necessary economically to give him that incentive (because at that point he’s not doing it for the money)… so economically it makes sense to redistribute that wealth.

    • “The rent seekers are the real scourge in our modern societies. They are the reason for this great inequality. I like to think of them as the great managerial elite. There ranks are made up of large companies, politicians, professional bureaucrats, bankers, union officials, large NGO’s. ”

      This is a bit glib.

      Any rational thought can see the biggest problem in terms of rent seeking is residential real estate, even ahead of the finance nidustry.

      And they are your mum and dad ‘investors, and primarily baby boomers.

      They are rent seeking, most likely unaware they are, and for the most part they feel entitled to it. I say this because I feel if it wasn’t for property, they would just find another vehicle to extract rent. Residential property right now is a symptom, not a cause.

      I have interated this before, this relates to the aged pension and retirement.

      The dependency ratio at the right hand side is too large to government to fund.

      Realistically, it is to great for any party to fund, 15% of the population ceasing to work, but extracting resources is a very harsh burden.

      At the moment the ‘solution’ seems to be accrue financial resources for retirement. All that will do is have great financial resources pursuing less product, as less product comes to market.

      This should impede Gen X & Y to even accrue for their own retirement.

      As long as there will be too great a number allowed to retire with income support, as well as retirement being viewed as long service leave, then a class of people will always feel entitled to extract rents.

      • You are quite right.

        This IS the biggest wealth transfer in the wrong direction.



        Everybody (in the baby boomer generation) is doing it. But I suspect that some of the top 1% are doing it on a massive scale. There is MASSIVE capital gains available in CBD and inner city land holdings during a property bubble – exponentially greater than what is happening in “urban housing”.

        I suspect a lot of the biggest gainers here, are staunch supporters (behind the scenes) of urban growth constraints. The “environmentalist” advocates of urban growth constraint need to work out whose useful idiots they are. The same goes for monocentric transport planning, and anti-competitive planning measures that seek to restrict commercial activity to the CBD.

    • One problem is that a lot of wealth creators turn into rent seekers. Particularly when they run out of ideas and/or obtain a monopoly in an area.

    • You mean “more honest” politicians.

      One of our problems is that we need smart people who are also honest and who work for change. But when people like this, in politics, languish at 1.5% public support in polling, what hope is there? The voters are all sucked in by stupid and/or venal politicians who promise the impossible.

      Human history is full of tragic examples of peoples who followed ignorant and/or venal leaders on the basis of the politics of envy, with rational and intelligent analysis left out totally. Look at Venezuela and the way it is going today. Could this happen in an Anglo country?

      Winston Churchill had a brilliant one-liner about leaders like Vladimir Lenin – he said they were undergoing “the world’s most expensive economics lesson”.

      • I saw a note somewhere in the last few days. The disenfranchised, those with no jobs, no homes, no influence, no hope, will line up behind some youngish bloke who will offer them a new order!!!

        Marc Faber has continually warned that war and dictatorships are the end game if we keep going as we are. I have thought so for a very long time.

        • The BurbWatcherMEMBER

          I wish i could say i didn’t think that EXACTLY that wasn’t going to happen – ie. lining up behind some charismatic, intelligent, smooth-talking man, how has global influence.

          Heck, they will even bring about some sort of global governance and peace, i’m sure….but at what cost?

          Just a waiting game, IMHO – our time is ripe for picking: so muc “wrong”, and so much instability (we in Oz don’t get it yet).

          My 2c

          • Burb You seem to suffer my disease wrt typing I always type ‘teh’ for ‘the’ and ‘who’ seems to be particularly difficult to type 🙂
            Yep! It seems strange to quote Faber who has been one of the ‘smarties’ to a large extent. Yet he has always seemed to argue for ‘REAL’ stuff and I have the impression his attitude is ‘well you make the rules of the game so I’ll play by them’
            Bit like I’m an importer. I’d rather be a manufacturer or, as per originally, a farmer. But a long time ago the rules for Aus were set and i play by them.
            I just wasn’t smart enough to get into Real Estate!

            I will say that my conclusions re wars and dictatorships were set a long time before I heard Faber discuss it.

  7. I really appreciate Macca McFadgen “getting it” so comprehensively on THIS point:

    “….The pain of the post financial crisis adjustment is not being borne fairly because the young and the under- skilled are being sacrificed everywhere to incumbents who want their jobs, tax rates, and asset values protected – and who carry the required political clout to get their way. And lest those of us in the commodity belt start feeling smug, have a think about the exclusion of many of our children from home ownership. Family (two bedroom) home ownership in convenient suburbs now starts at the $750,000 level and the required deposit is close to $150,000. This is a level most cannot afford without parental support. We are thus building an ugly two tier society comprising those who have parents wealthy enough to support them into decent home ownership and those who do not. Again, the incumbents are victorious. Property values are supported by supply-side constraints which benefit existing owners, local bodies via rates and development levies, and a host of parasites who feed on the current system. Do not bet on this lasting the next decade…..”

    The danger is that what will not last the next decade, is civil society – not the underlying problems that most people are not intelligent enough to understand, and the politicians are too venal to address, no matter how much they are lobbied by wise and honest people.

      • Hugh PavletichMEMBER

        Couldn’t agree more Leith.

        These political parasites must be dealt with. They are simply wrecking peoples lives – and it must not be tolerated.

        Housing should be no more than 3 times annual incomes – with mortgage loads of about 2.5 times annual incomes.

        It is of course a basic human right – to have the opportunity to affordable (whether renting or owning) housing.

        No if, but’s, maybe’s about it.

        • The problem with Australia is that the majority of population thinks that they will be better-off with high priced residential property. Remember the so-much mentioned distribution of 1/3 home owner, 1/3 paying mortgage and 1/3 renters.

          So, in Australia the young generation with less income and capital and no hope of home ownership tend to be the minority hence not be able to say “We are the 99%.” …the best they can say “We are the 33%” 😉

          Sorry, just a light-hearted joke for Friday.

          • That would be the case if the damage was limited to the 33% of renters.

            However it isn’t.

            The damage is now impacting retailers, small businesses, domestic tourism.

            They suffer to to a decline in discretionary income, they suffer because commercial and retail property space does have similar utility o residential property space, thus must extract smilar wealth.

            Where people like Heather Ridout and Gerry Harvey display their utter uselessness, was someone in their positions should have been decrying the bubble on the way up.

            Retailers may feel good drinking the Kool-Aid on the way up, but they do require sound economic advice about what happens on the way down.

            They didn’t, what they expected was to privatise all the gains in the bubble, and lobby to socialise the costs on the way down.

            They lost out to other interests, and now they face extinction.

          • One of the BIG ironies in the mass economic illiteracy in our societies today, is the numbers of people who THINK, wrongly, that “trade” between willing participants in a free market is a “zero sum game” – and on the other hand, the numbers of people who THINK property Ponzi “creates wealth”.

          • Hugh PavletichMEMBER

            You are spot on Rusty.

            Take it from me – (as a former property industry leader) a lot of these biz guys are NOT the brightest lamps in the street.

            Put another way – too many of them are clueless about what their social responsibilities are and just how important it is for business groups, to be seen as acting in the wider public interest.

            Its past time a lot of these industry groups got their snouts out of the political trough – and woke up. As Rusty points out superbly – this political crawling by these dimwitted biz guys, comes round to bite them in the rear end before long.

            So grovelling to politicians and the cancerous bureaucracies, is not in their own self interest either. Too many of them are too thick to realize this.

  8. Hugh PavletichMEMBER


    Well done Leith and Terry! An enormous contribution indeed.

    It really is a matter of going after the protected, well connected and those on the political gravy train.

    Nothing beats good solid competition and open markets, to clean these guys out – and reverse the rot.

    Hugh Pavletich
    New Zealand

  9. Really good article. The level of youth unemployment in the West is a disgrace. If politicians believe that such a large, well educated, technology savy group can be disenfranchised as they are now, then they are in for a shock.

    Not only are the young bearing the brunt of the GFC currently (through disproportionate unemployment); they will also have to wear the long-run costs (reducing sovereign debt). There is no burden sharing between the generations here at all.

    As if this wasn’t bad enough; youth unemployment is now being caricatured as a supply side problem stemming from welfare dependency. I guess this makes sense, if you are willing to believe that the youth suddenly decided to go on the dole at exactly the same time as a little AD shock (otherwise known as the GFC) occurred. And are also willing to believe that youth unemployment increased across a whole range of labour markets, at the same time, simply by coincidence.

  10. It think a Krugman post has also pointed out the huge inequality in US between X/Y gen and BB/retirees.The gap is the highest ever.

    • dam, I think this is exactly the same as the BB generation in the 60s. Gen Y is emerging as a demographic new power and they do not like what they see is the world. If the trend of deflation is real and ongoing issue the BB who are retiring will be worst hit, as the need income from assets.

  11. Seeing as Washington and Canberra have the highest average incomes and most wealth of any suburb in their respective countries, its pretty clear that the top 1% are the government, the banksters, the military contractors and lobbyists.

    If you cut the government in half and took away most of their unnecessary powers, as well as shutting down the central banks and replacing them with a free market in banking, you’d reduce inequality between those who have close ties to the state and those who don’t.

  12. One more thing to add… inequality in and of itself is not an evil that will cause social unrest.

    If the poor see people earn their wealth like Steve Jobs, there is no grounds for resentment.

    When the poor see Wall Street banksters get billions in bonuses from government bailout money for leveraging up 50-to-1, then thats the source of your social unrest.

    Of course, capitalism is not the same as meritocracy. You don’t always get a reward commensurate with your effort. But it does create the best incentive structure we can think of.

    The last 3 years has seen the Fed expand its balance sheet by trillions and they hide their assets from public scrutiny. European and Australian banks are reportedly beneficiaries of this policy.

    • If the poor see people earn their wealth like Steve Jobs, there is no grounds for resentment.

      Well this is really strong argument. I doubt it that many poor people will see Steve Jobs, however talented he was, to be so “deserving” that kind of wealth.

      Wealth creation in capitalist system is relative value. Yes, rent-seeking and corrupt conducts are universally condemned by society but even getting rich by fair talent and hard-work does not guarantee free of resentment from the poor majority.

      For example, with Steve Jobs as our sample, I am sure many Chinese factory workers who help producing components and assembling its IPhone /IPad would not think that Steve Jobs is so deserving that much wealth while they are working hard in the factory floor with so pittance wages and under harsh environment. In addition, Google and Samsung would not necessarily agree that Steve Jobs and Apple were so talented / innovative to gain that wealth…maybe they view Apple just like a bully which try to stifle similarly innovative product from competitors.

      As someone up there mentioned, even Bill Gates or Steve Jobs or Warren Buffet and other talented rich entrepreneurs should think hard and ask themselves: Do they really that much talented and superior compared to the rest of world’s population to earn that kind of incomes and to have that kind of wealth.

      I am not a Socialist, that label will be an insult to me, but even a person like me cannot think that those “talented” people have “earned” their wealth fair and square.

      • I think one of the problems with “free trade”, is that the benefits are lower than they should be for the “developed” economy, when the “less developed” economy has serious cultural and political barriers to social mobility, so THEY ALWAYS have an endless supply of exploitable low income workers.

        IF “free trade” ALWAYS lifted all boats in the lesser developed nation, the developed nation would see benefits from the free trade that it should. But when you are doing free trade with lesser developed nations that play dirty, including with their own people, all you do is import the consequences of that.

      • You are right, there is no way anyone could have actually earned that kind of wealth on their own. Dean Baker wrote a book called “The Conservative Nanny State” covering some of the ways they make their money. I have seen a few libertarians make some of the same points.

  13. Hugh PavletichMEMBER


    The major reason for getting the Annual Demographia International Housing Affordability Surveys http://www.demographia.com underway back in early 2005 (7th Annual Edition released late January), was because I detest seeing people being taken advantage of.

    Prior to this, Aussies and Kiwis simply didn’t have a clue just how unaffordable housing is in this part of the world.

    The political and commercial elite were in no hurry to tell them either.

    One has to be a pretty callous moron, to stand idly by, when the young, poor and disadvantaged are dealt to by being screwed on housing.

    Which is exactly what the political and commercial elites are. Including the established Churches sadly – simply because they have been corrupted now having to rely on government welfare for their survival.

    If the Churches were self reliant and doing their job properly, they would be actively involved in these issues – pressing for sorely needed change.

    Interestingly – this is exactly what happened in Houston to shut zoning out.

    The Churches and the real estate interests banded together, to fight it, – leading the charge there. The Churches were particularly concerned that zoning and regulatory intrusions would hamper their growth and ability to get new facilities in place.

    Its worth noting too, that Houston is a “Democratic town” with its current Mayor Annise Parker being the first openly lesbian mayor of a major US city. All the previous mayors Im aware of have been Democrats.

    The point here is that Houston is a very open and tolerant society where people have hope and opportunity.

    Whatever happened to our “fair go” culture in this part of the world – something that we had historically been very proud of?

    Hugh Pavletich

    • “One has to be a pretty callous moron, to stand idly by, when the young, poor and disadvantaged are dealt to by being screwed on housing.”

      My discussions with those already established with housing is, they don’t tend to be callous.

      Morons, yes, but that’s the boomer par for course.

      They think that the playing field hasn’t changed, that the same level of difficultly exists now as it has always been.

      I would say it isn’t delusion, the sentiment is genuine.

      • Hugh PavletichMEMBER

        Rusty Penny – thank you for your comments – but I do think “callous morons” is apt.

        The consequebces of these housing bubbles should have been obvious to them – particularly those in positions of responsibility. And of course I include Church leaders as well.

        Affordable housing just happens to be a basic human right – or more correctly the opportunity to it.

        Im probably a bit old fashioned or quaint in this regard – but come from the school that if there is an obvious injustice, as citizens, we have a civic duty to do something about it.

        Hugh Pavletich

          • Hugh PavletichMEMBER

            Just on a lighter note – through 2007 / 08 I had given the NZ Nationals (Liberals / Republicans ) while in opposition a very hard time.

            They had (prior to the NZ Planning Institute coming on board with me early 2007 – refer left column my website) late 2006, told me where to get off.

            In the run up to the late November 2008 election, they were very much with me. they had gotten the message.

            I got Parliaments Commerce Committee to get a Housing Affordability Inquiry underway during 2007 / 08 as well.

            The then Opposition Housing Spokesman Phil Heatley (now Minister) phoned me, to say my efforts were successful. He also told me that they would like me now to piss off and that they would organise “a gong” (award) for me in due course.

            With all due respect to Minister Heatley – he knows where he can shove his gong.

            I would consider an award from those losers an insult. And Im a very sensitive type!

            Winning will be reward enough – thank you.

            Hugh Pavletich

  14. What never ceases to amaze me in this discussion on relative wealth distribution is that nobody wants to realistically discuss limitations on wealth or income in this capitalist system.

    For example, is any CEO really worth 770 average workers in the system? I believe the problem is more philosophical i.e. people accepting a system without limits.

    It is ludicrous that 400 earners at the top of the pile should earn the equivalent of the 150 million at the bottom.

    This obscene, unbridled greed which knows no bounds is sickening and ultimately indefensible. A revolution is in the making if this trend continues unabated.

    • What never ceases to amaze me in this discussion on relative wealth distribution is that nobody wants to realistically discuss limitations on wealth or income in this capitalist system.

      Agreed that the question of limit is important to discuss though most difficult to agreed-upon. I mean it will be hard to have universal agreement how much wealth / income is reasonable for certain role / work / talent / contribution in a society. It is very much subject to debate whether medical doctor’s work should be valued more than let’s say university lecturer or real-estate agents 😉 and if it is considered as more valuable, how much more valuable is reasonable ?

      The other big ethical question in current big mess of social-economical problem is the other side of the coin. Yes, we have condemned the greed of the rent-seekers and the rich in general. But, how about the other side of the coin i.e. the problem of dependency of welfare and donation recipients and the perpetuity of such dependency to next generations.

      I mean to be fair, should we ask, how much is fair to pay for such “mandatory supports” through tax and welfare policy ? This is to differentiate with “voluntary support” by charity act which is personal decision.

      Do we also have “greed” problem in the charity / community or social support industries in developed countries ? I don’t think they are free of rent-seeking activities by lobbying governments to increase the welfare-budgets every year. In the end the welfare dependency is also a big factor in the economic downturn of European countries.

      Where is the voice of the top 1% rich people in this situation ? 😉

      • I have always believed that there would be many people capable of doing at least as good a job for MUCH less. I would like to know how the CEO class manages to monopolise the process like it does.

    • Why shouldn’t CEO’s pay themselves that kind of money if shareholders approve?

      Simply complaining about how much a business leader gets paid without offering a legititmate reason why they shouldn’t get paid that much, or wouldn’t get paid that much if the market was free, then your comment is pure politics of envy and belongs in mid 20th century Eastern Europe and Asia. If shareholders approve of it, if the business is making money by being more productive, if you don’t like it tough.

      If, on the other hand, the business ISN’T more productive and if it wasn’t for government intervention they WOULDN’T be getting paid that much THEN you have an argument. In this case you should be complaining to the government, not the CEO’s, because I can guarantee it, in the same position you would do exactly the same thing, as would 99.9999% of the humans on the planet.

      Revolutions are for communists. Free people voice their opinions in protest then at the ballot box.

      • How does the CEO class manage to manipulate things so successfully? As I say, I am sure there are always plenty more people who would do a better job for less.

        I have come to believe that one of our problems today is that larger numbers of people than at any other time, have been intelligent and hardworking enough to make money to invest, but they are NOT very clever as “investors”. Hence they get taken for a ride by “wide boy” manipulative finance operators and CEO’s.

      • “Revolutions are for communists”.

        I think the Libyans, Syrians and Egyptians would beg to differ. 😉

        Anyway, it is not inconceivable that people could be driven to violent revolution when they realize their vote is meaningless at the ballot box, and that the vested interests have politicians of all persuasions in their pocket.

        Revolutions are borne of long term, festering resentment, particularly when people’s dignity is trampled upon – a bit like when you impoverish the majority, so 400 people at the top can have incomes equivalent to the entire GDP of smaller nations around the world.

        I think you are being naive if you believe that this kind of growing income disparity will not lead to long term (and serious) societal consequences – potentially violent.

      • Here’s what to do about CEO pay and bonuses.

        Limit maximum CEO pay to some multiplier of the MEDIAN income of the business’s employees.

        Make it necessary for bonuses to be paid to EVERY EMPLOYEE in the same ratio as the CEO.

  15. Absolutely outstanding piece.

    It is sad that there is a prevailing view in Australia that the ‘99%ers’ have nothing to complain about, because they live in the lucky country.

    Also sad that most of the 99%ers spend their lives trying to become (or at least appear to live like) a 1%er.

    This is happening in Australia too, whether people like to admit it or not. The fact that our debt-driven wealth facade hasn’t yet crumbled doesn’t change that.

    I look forward to the time when intelligent, informed people who can see what is really going on, are inspired to move into politics to address the situation.

    • “I look forward to the time when intelligent, informed people who can see what is really going on, are inspired to move into politics to address the situation.”

      I suspect you may be waiting for a very long time.

      The greatest reformist of our era was voted out in a landslide in 1996.

      Malcolm Turnbull could not get any voter traction according to polling.

      When young people of similar ability look at their fates, I think more than a few will say “Hmm, maybe that’s not for me”.

      After all, flip houses or put some stakes around a patch of dirt to dig up, they are who we reward the most in this country.

    • Lol – it is true, much of the 99% are busy trying to become or emulate the 1%!

      Alas, I tend to hold the view that here in Australia there is not too much to complain about although god knows a lot of complaining goes on.

      In a sense rent-seeking behaviour whilst more overt in some sectors permeates throughout society even eventually to those dependent on welfare, seeking more diverse and increased government assistance; the middle class expectations of child care, family payments, maternity/paternity leave etc; the public services seeking higher wages and even better conditions (when statistically higher paid that the private sector) – you get the idea.

      I think it may be human nature!

      • The extraction of welfare has been a result of the claims of wealth extracted by the rich.

        It is virtually impossible to exist as a one income family on a median income, or even 15% above the median income.

        Now ere is a stunning claim, the fertility of a woman if limited to a short window of time. This window also coincides when most people couples attempt to establish themselves.

        Thus in many circumstances, one income will be withdrawn.

        Now, and I understand the call to allow this to happen.


        But familie will have greatly reduced demand. This fall in aggregate demand will impact on;

        Housing prices (which doesn’t benefit young couples)
        Share prices (which favours the elderly)
        Proprietry companies (which are held mainly by those approaching retirement)

        etc, etc

        All the aids in welfare ultimately prop up aggregate demand, and prices of assets owned by elderly, i.e. boomers.

        Now, how did this situation arise, perhaps the shift of wage share decling from 62% to 55% since the late 70’s, with a similar increase in profit share….

        (once again propping up the price and yield of shares, owned primarily by you know whom)

        But guess what, despiet all this largese in welfare, the lives of the rich and elite have improved at a much greater rate since the late 1970’s than those who receive welfare.

        If the lives of those on welfare was so great, then many more would be incentivised to become them.

        See it happening much? i didn’t think so.

        • If the lives of those on welfare was so great, then many more would be incentivised to become them.

          See it happening much? i didn’t think so.

          Well this depends on how many is considered quite many more in your first question.

          But let me ask you the counter question:

          If the lives of those on welfare was not so great or at least easy, why does the government need to apply “strict criteria” for people to receive welfare ? Why can’t anybody claim dole benefit at Centrelink ? Why should there be any audit on eligibility of some benefit like disability benefit ?

          Yes, because generally people love to take an easy ride on taxpayers’ expense. Maybe not so many by your standard, but quite many for my liking.

          • Anybody can claim centrelink benifits if they do not have the means already.
            The means testing is to make sure that the limited pot of money goes to those who need it most.

          • What a load of rubbish.
            Anybody can claim centrelink benifits if they do not have the means already.
            The means testing is to make sure that the limited pot of money goes to those who need it most.

            Well, if you try to sound “smart” by saying that other’s opinion is rubbish…

            The fact is there though. People love to be the welfare free-riders. Did you see many Today Tonight or ACA programs showing how tough the ATO and Centrelink work to try and catch the “welfare-cheaters”.

            And, the criteria I was talking about is not mere mean-testing, but others like requirement for dole-recipient to show active effort to seek gainful employment, i.e. having job interviews, etc and also evidence to show genuine current disability to work for disability benefit recipients.

            If those criteria were not set-up to ensure people not to be too comfortable being unemployed and/or disable, then why bother ?

            Guess, it is easier to just “rubbish” some different opinions.

        • Well you certainly draw a long bow!

          I did not comment on the ‘right’ or ‘wrong’ of rent-seeking as it exists (in my view) in various forms throughout society. Simply an observation that it is pervasive. It no doubt performs a range of economic roles.

          “If the lives of those on welfare was so great, then many more would be incentivised to become them.” Ludicrous. You have missed my point.

          The wealth of the 1% does not bother me. Good luck to them if that is what they seek, their lives to live as they see appropriate.

          Here in Australia when basic needs of monetary support, housing assistance, healthcare, education (and probably one or two others I may have omitted) to the marginal or needy in society have been met, I consider most obligations fulfilled. Beyond that I fail to see the obsession with what others earn – makes no sense to obsess about the 1% – be happy you’re in the majority!

          • I do not feel I drew a long bow at all, you’re the one espousing rent-seekig behaviour, particuarly aimed at welfare recipients, and trying to infer upward envy.

            You reiterate this sentiment with “makes no sense to obsess about the 1%”.

            I don’t in anyway shap or form obsess about the earnings ahceived by anyone, as long as it is on a meritocratic basis.

            However, your comments from the previous post highlight your attitude here…

            “Alas, I tend to hold the view that here in Australia there is not too much to complain about although god knows a lot of complaining goes on.”

            A very blinkered view, you obviously do not know how life is for disadvantaged people, or their numbers.

            There is no reason for us to have anyone unemployed. The parents of the baby boomers, after being forced into full employment during WWII, came back from war saw there was no need for 8% of the male population to be bearing arms, but instead could do something productive.

            We had full employment. In 1951, there was a grand total of 1,571 people on the dole. NAIRU has changed this around for no other reason to see wealth and income transfer from the middle class to the rich.

            Measurements such as GINI coefficients and wage share vs profit share confirm this. The trade off is lower productivity and entrenched poverty for some.

            But this doesn’t have to extend to welfare recipients, try the take home pay of retail and hopsitality staff, office administrators and childcare workers.

            Then for the hide of you to say ‘they really don’t have anything to complain about’

            Well look at fatty Rinehart. The last 10 years has seen her wealth grow enormously. While the going got good, it got REAL good for her. Some have even stated that if she listed all her companies, she’d be worth $100 billion. I mean this is Andrew Carnegie or J.P Morgan territory.

            And she complains so much that she bought a television station, and hired Andrew Bolt to do her complain for her.

            For his faults, Mark Latham was very astute in predicting what John Howard was doing to this country. We have become a mean, entitled people, where well to do suffer from downward envy. And we see this where the welfare pool is viewed as something to extract something from, because we put something in.

            Unemployment benefits are now the 4th highest outlay from welfare.

            The top 3 in order are

            Aged pension
            Family tax benefit part A
            Family assistance

            These are all groups that can work, or would not require any welfare if a sound wages policy was in place. We have a history of it with the Harvester judgement.

            “In a sense rent-seeking behaviour whilst more overt in some sectors permeates throughout society even eventually to those dependent on welfare, seeking more diverse and increased government assistance; the middle class expectations of child care, family payments, maternity/paternity leave etc; the public services seeking higher wages and even better conditions (when statistically higher paid that the private sector) – you get the idea.
            I think it may be human nature!”

            As I said, these payments do not benefit the initial recipients.

            They benefit the producers (read: asset owners) of the products they consume.

            The rich are extracting wealth by ensuring their customers have the means to afford whatthey demand.

            Henry Ford thought it was more apt to give them a wage so they could afford it.

            The modern day Australian corporate rent-seeker finds it more appropriate to socialise the means, as well fund an intermediate body of accountants and bureacrats to channel this money merry-go-round.

        • I’d give up every cent of welfare I get (I have a child and am on a single income) for a 50% tax cut and an end to regulations preventing energy investment, thus pushing power bills up. Every single cent.

          I don’t own a credit card and I rent.

          Stop blaming the ‘evil rich’. Blame the people who created the mess, the government.

      • I don’t think we should rest on our laurels just because we live on one of the world’s most desireable environments.

        Our quality of life shouldn’t negate the values of equality, affordability, family units/values, financial stress, societal standards.

        • I see few signs of resting on our laurels, demands on government revenues and expectations of government intervention on any variety of causes are full-throttle…

  16. The Quatar SWF has purchased another $36 million sheep property in NSW, this did not require FIRB due to the level being less than $200 million.

    • This article is a decent read and highlights some interesting points. Yet, it reads far too much like a socialist ranting about how inequality is evil and the system is broken than a genuine commentry on the situation. Yes there is inequality in the US but so what? Life isn’t equal, inequality in and of itself isn’t necessarily a bad thing. Many African nations are extremely equal in terms of income and wealth, they are also very poor and life is brutal and short.

      Inequality is the inevitible result of getting richer so pointing this out is simply pointless.

      You need to go to the reasons. Why is there inequality? What is stopping everyones wealth from growing? Why are workers losing their jobs and not CEO’s? Is it because shareholders are voting in favour of the management or is it because the government are subsidising the business?

      The article simply skirts over this and says “well you might say if shareholders approve that’s OK, but I say it doesn’t because inequality is bad!” Well no, that’s not freedom, that’s not equality, that’s envy. Unless you can point to a specific reason these people are getting paid so much other than shareholders approval then simply saying “inequality is bad because people don’t like inequality” simply does not cut it. That’s the same, tiresome, rhetoric of early 20th century socialists and communists and look where that got us.

      Saying that, there is a legitimate reason to complain if government regulations are protecting large businesses from failing and the rich from losing money. If the government are protecting the top end of town then not only do people have a right to complain, but they have a duty to do it loudly and repeatedly. But this is what the TEA party is all about, there is no need for the OWS movement because the TEA party have already made it very clear that governments protecting large businesses is unacceptable and it they are right to do it.

      What this makes one ask is, “if the TEA party are already complaining about excessive government control and pork barreling, what are the OWS protesters complaining about.” Despite having no leader a quick glance at some of the placcards and the people makes it more than clear. They are complaining that people are making more money than them, they are complaining about capitalism and free-markets. As such they need to be ignored for the foolish children of the wealthy middle class that they are.

      (getting long so I will continue in a second comment)

      • MattR, why are you so angry? Why the discussion about inequality always becomes so unfruitful? Why some people don’t understand that free market is good, inequality is good, because it creates good motivation for working harder, but EXTREME INEQUALITY WITH TBF is not good for the whole society, even for the richest. A golden measure must be kept for everything. Excess isn’t good it is demoralizing and when the richest don’t create jobs why they should be protected by the government and pay less taxes? Every system has its own homeostasis and if it is broken the society collapses.

        We need a government, we don’t need today’s dysfunctional governments. We need income redistribution through taxes, we don’t need redistribution only for the benefit of TBF. We need regulations so that everyone gets according to his contribution to social and economic progress and well-being, because we are living in a society and without this society there is NO PERSONAL WEALTH at all.

        I am sure none of the writers or the readers on this webpage does not aspire equality in the communist sense, because it is unrealistic. What everyone aspires is moderation of the destructive excesses. This is not achievable with any of the existing parties in USA. They are sick and too corrupted to lead the society in the new age of global world where there is no more national capitals, but global and global capitals do not need anymore any government, they need absolute freedom without regulations and taxes, without anything which is looking like restriction or some kind of social cost.

        • Not sure how you got anger out of that. I certainly wasn’t angry when I wrote it. I was just pointing out some fairly gaping flaws in the logic of the original article.

          I am having a little trouble grasping what you have written entirely, not meaning this to be offensive, I’m just not sure what you are trying to say. So I’ll do my best to respond.
          “but EXTREME INEQUALITY WITH TBF is not good..”

          Please define ‘extreme inequality’. Like I said in my comment, inequality in and of itself is not a bad thing. Humans are heirarchical by nature as all social animals are, inequality is just as certain as death and taxes. What matters is the reason for the inequality. Is it because society is getting more productive or is it because of rent-seeking and political protection/dealings? If it’s the former then complaining is nothing but the politics of envy, if it’s the latter complain, but not about capitalism, complain about excessive government and corruption.

          “We need income redistribution through taxes, we don’t need redistribution only for the benefit of TBF”

          Please read my comment below, this is the LAST thing we need. I can’t remember his name but there was a Chinese commentor who put it perfectly the other day. The issues with Western society (especially Europe) are due to excessive welfare, the taxing of production for non-productive means. Welfare is good, in that it protects the weakest in society and those of us who fall. Where it becomes a major issue is when it creates a disincentive to work hard and produce. In the West it has done this. Welfare is not the answer, less government intervention and less barriers to start a business or incentives to get ahead is.

          I’m really not sure what you are saying in you final paragraph, care to clarify?

  17. …cont

    Which brings us to Europe. Far from being subtle and hard to pinpoint (as they are in the US despite being essentially the same) the fault for the problems in Europe rests squarely on the government, more specifically excessive government spending, regulation and intervention in daily lives.

    Just look at three perfect examples, Greece, Spain and England (of course there are plenty more but going over every single one would take all day).

    Greece’s problems have arrisen through massive government spending on huge welfare entitlements. With all workers able to retire at 55 on full benefits is anyone else surprised that they are now going bankrupt? Who was going to pay for these benefits? The people not working? Then look at the public sector and public worker’s entitlements. Honestly, anyone who says the problems in Greece weren’t entirely the fault of government excesses is dreaming.

    Then there’s Spain, this country, whilst not having the excessively generous benefits of Greece they still had decent ones. However, the issues with Spain can be placed squarely on the government and their pushing of the “Green” dream (read: religion). With the harshest and most stingest regulations in the world, Spain tried to turn themselves in the the “Green” centre of the world (much as Gillard/Brown would like to do to us). All it resulted in was massively subsidised jobs that cost far more than any market job, electricity that was almost unaffordale and HUGE unemployment.

    Once again blame falls squarely on the government.

    Which brings us to the UK, where government spending makes up the majority of the economy and Polish workers need to be imported because young people refuse to do so many jobs that there is a skills shortage. Government ‘jobs’ suck the life out of the economy and not only do people get generous welfare but free housing to boot!

    The overwhelming feeling from the recent riots there wasn’t one of ‘there is something wrong and we want it fixed’. It was ‘where’s a bat so that I can break this shops window and steal their stuff, because I deserve it, rich people are evil!’ By ‘rich’ people they mean small and medium business owners. Talk about an overreaching sense of entitlement. These weren’t people complaining about the system not giving them an opportunity, they were people complaining that the government weren’t giving them stuff and, since they deserve stuff, they decided to take stuff!

    The one common factor in all problems that developed economies are experiencing is excessive government. More specifically, excessive welfare. The GFC might have been because financial markets needed better regulation (not necessarily more, better) but the current problems are because of excessive government, especially in Europe.

    For an excellent article that goes in to this even further in regards to the US:



    • Be careful regarding what you read about Greek pensions. Someone I know has a retired Greek relative via in-laws who worked in the private sector (shipping) and he had to put 30% of his pay into his superannuation fund for a pension that is now being cut because of the problems in Greece. We don’t have to put in anything near that amount.

  18. I certainly agree with MattR and people like him, that it is no solution to NOT have “more successful” people. It is not to North Koreans benefit that they have no Bill Gates or Henry Ford or John D Rockefeller.

    But I stand by what I said earlier – check it out, Matt, about rent-seekers versus value creators. We should not bother ourselves about a spike in the income distribution made up of a few very good wealth creators; but we should look far more seriously at the top 50% or more of the rent seeker class – not just the top 1%.

    • I mean, we should worry about zero sum wealth transfers at many levels, not just the top 1%. Wealth CREATION through voluntary exchange should NOT bother us even if it makes some people fabulously wealthy.

  19. One of the worst rackets today, is the result of the fact that “quantitative easing” is all done VIA THE BANKS and the Finance Sector.

    Read THIS:

    “The Real Housewives of Wall Street” by Matt Taibbi


    What is the difference between this, and Robert Mugabe and his mates being the first to spend the newly printed Zimbabwean currency, while the downside effect, the debasement of the currency, is suffered by everyone else further down the money cycle?

  20. A very good read, as are many of the comments.

    One thing that is not addressed in the article, is how much of present inequality in Western economies was brought about by the neo-liberal sell offs of public assets in the 1980’s and 1990’s.

    Carlos Slim is a prime example of someone who went from “rich” to “mega-oligarchal-super-corporate-fatcat rich” during the financial turoil of Mexico in the 1980’s, culminating with the purchase of Telmex.