The road not taken


So, with our Federal election mostly over, at least enough to get a good sense of where we’re going, I think it’s fair to conclude that we are not going to get out in front of the primary economic issues of our time. On the contrary, we’re going to make things worse for ourselves.

The only issue that this election should be about is the management of Australia’s post China boom adjustment yet it is barely mentioned. Where does this leave us then? First, let’s describe the issue once more.

Following the housing and mining booms in the post-millennium economy, in structural terms Australia finds itself with very high household debt but low public debt, very high asset values and historically low competitiveness in all industries including large swathes of mining and still high but falling terms of trade. In cyclical terms, we face big falls in the terms of trade, very big falls in mining investment, a probable stall and possible fall in national income, a still very high but falling currency and ongoing weak nominal growth as well as fiscal instability.

There have been two sensible policy matrices from our eminent economists aimed at managing the problems ahead. The first is by Warwick McKibbin, who has suggested that we both:

  • lower the currency asap through targeted money printing and
  • support economic growth, incomes and productivity through a large public infrastructure program.

These two make sense together because they simultaneously support weak private sector investment, boost competitiveness through the currency and productivity enhancements and prevent asset bubbles. However, it does risk a widening current account deficit and may leave you still uncompetitive at the end of it.

The second matrix of policy suggestions has come from Ross Garnaut and Peter Johnson who have focused more directly upon the issue of competitiveness. Garnaut argues that a nominal exchange rate adjustment (via the currency) is not enough. He sees our lack of competitiveness as so extreme – and it is hard to argue that it is not – that a real exchange rate adjustment is required. That means not only must the currency fall a lot, but as tradable costs rise, wages must not. He argues:

  • we should slash interest rates to lower the currency as soon as possible;
  • use macroprudential controls if low rates cause credit to rise too fast;
  • contain wages through a national program of burden-sharing and
  • deploy budget discipline as well as launch an unfettered productivity drive.

Johnson sees the same competitiveness issue but argues that monetary policy cannot serve two masters (addressing both currency and inflation) and prefers that we:

  • install capital controls to lower the dollar as soon as possible;
  • use interest rates to prevent asset bubbles;
  • deploy budget discipline as well as launch an unfettered productivity drive and
  • thinks recession is inevitable as a mechanism to lower costs.

My own view is that a combination of the McKibbin and Garnaut approaches is the way to go:

  • undertake a moderate, productivity directed infrastructure public spend to support growth, jobs and income;
  • slash interest rates to lower the dollar;
  • install macroprudential tools to ensure no credit blowoff;
  • undertake a national burden-sharing narrative to ensure wages don’t rise. We may not able to get a new wages accord but I would still bring everyone together and reframe the conversation, and
  • push for productivity anywhere and everywhere.

This approach ensures assets don’t deflate too quickly as we restore competitiveness in real terms. To my mind  it is the basic minimum of policy innovation required, before we even get to tougher questions about Henry Review tax reform, cutting housing speculation incentives and making supply side reforms, increasing savings and taxing resources properly that will help us transition permanently towards a more balanced economy as well as tackle our long term demographic challenges.

Turning to the real world, what do we have from out elite currently?

  • the RBA is slashing interest rates too slowly to bring down the dollar fast enough;
  • it has explicitly repudiated macroprudential tools thus risking an even bigger asset bubble;
  • both political parties are ignoring the adjustment ahead in narrative terms
  • both parties are focused on long term spending but little on medium and short term productivity measures
  • both parties are ignoring probable ongoing fiscal instability and supporting interest groups over national interests

Where will this lead? It means we face a longer and ultimately more debilitating decline. The lack of redress for the dollar and inflated input costs ensures no big rebound in our tradabale sector investment, exposing us all the more to the mining cliff. Credit and asset prices will bubble up more than they should, inhibiting a tradables recovery and ensuring further hollowing out of the industrial base.

The lack of budget discipline ensures ongoing fiscal instability as promises are repeatedly broken, spending is cut and taxes jacked chronically. This will be an ongoing weight upon private sector confidence as policy fails to cope. It will also be a red rag to the rent-seeking bull as each round of cuts and hikes involves public campaigns by those effected, retarding competition and productivity. With no honest narrative of the issues, government will be reduced to stakeholder management.

In sum, it means a longer and far more destructive path at risk of repeated recessions, the entrenching of rentier capitalism, lower than otherwise asset prices, falling standards of living and broad disenchantment. Whocouldanode?

Houses and Holes
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  1. Being a politician or central banker isn’t a calling, it’s a job. The primary consideration being the same as most jobs – to remain employed. Very few CEO’s have the courage of Michael Woodford; to flout the status quo and do what has to be done. We need a PM/Government with just such courage, but as you write, aren’t going to get it…..

    • “Being a politician or central banker isn’t a calling, it’s a job. The primary consideration being the same as most jobs – to remain employed.”

      Take today’s headlines about Rudd and the makeup artist and the problem is THERE. There is no thoughtful commentary like these posts but unending drivel. Easy to criticize politicians but the majority vote them in based on this drivel.

      Modern politics is about to winning the swinging voter who’s sole priority is “what in it for them”.

      There is no Paul Keating out there who can project the issue while getting Rupert on board by revising the media laws to enable him to have the vast coverage he has today

      • There is no Paul Keating out there

        After the way the last Paul Keating was treated, why would the next one volunteer to step up?

    • True Janet. The electorate has to take the blame when this all falls apart. How does what we’ve been doing sit with people? Are they really that dumb to think we can sell assets, bid housing to the sky to spend the “equity” and everything will be cool. It’s making me sick thinking how this is unfolding. It’s possible in my view that printing will lift assets and devalue my cash. I’ve been telling mates for six years this will not end well, housing will collapse, wages will not rise, populating will hurt us, et cetera. I’m looking like a fool in their eyes but I know it’s simply government prepared to sacrifice Australia’s entire future so they look good. It brings tears to my eyes.

      • Rich42

        So for 6 years your telling your mates that things aren’t as simple as they seem, that there is scary SH*T coming down the line, they take no notice and it’s the Politicians fault.

        Take a simple test and ask them to read this blog for a few week to find out the truth and see how it goes.

        The truth is “They can’t handle the truth”. Ignorance is bliss

  2. The silence of the minions.

    Who does the label ‘elite’ apply to?

    Is it limited to the final decision makers?

    Does it extend to all the back benches and cabinet ministers who sit on their hands and maintain their ignorance and or silence.

    Does it extend to their staffers and policy advisors who say or do nothing even as they watch bad policy be developed and adopted.

    Does it extend down through the ranks of our public agencies – RBA, APRA, Treasury etc. All those well educated and well informed staff who know exactly what is going on.

    Are they silent or silenced?

    If they are silenced what is the most effective way of allowing their concerns to be made public.

    At the very least all public servant advice on policy must be made public – on the web – not via expensive, fiddly FOI requests.

    The public are entitled to know what advice the politicians and senior public servants accepted and what they ignored.

    Public sector policy development secrecy is simply not justified. They are our public servants not the Australian Politicians Service.

      • Some years ago, a friend of mine was enlightening me about a particularly egregious malfeasance in the local bureaucracy, which led to me musing out loud that I simply could not understand why bureaucracies would act so utterly dishonestly in the service of “the public” or the government for whom they “worked”.

        My friend, whose wisdom I respect very much, said something that was an epiphany that has enabled me to make sense of a LOT about the world ever since. He said:

        “But they DON’T work for ‘the public’ or for ‘the goverment’, they work for THEMSELVES……”

        Sorry folks – it is unlikely that anyone will suspect this let alone see it; but all those bueaucracies working away diligently every day in whatever sector of the government, do NOT work “for YOU” and me, the taxpayer. They work for their OWN perks and promotions and job security and salary increases and departmental expansion, period.

        Lee Kuan Yew was such a wise man, he foresaw this and established the “3 year tenure” in the Singapore public service.

        Iron triangles of mutual interests form all the time; bureaucratic empire building; political career advancement/ideology; and vested interests.

      • PhilBest,

        “…But they DON’T work for ‘the public’ or for ‘the goverment’, they work for THEMSELVES …”

        I would presume that “job is a job either be it in public service or private enterprise”, anyone in private or public enterprise is working towards enhancing their career/personal goals. Is there something wrong with it? or is it that ppl who work at private enterprise consider themselves to be “working hard for the greater good” whatever it may be and dont expect a payrise and promotion?

        The only exceptions to this rule should be “politicians” because they are “elected” to do greater good for the nation but unfortunately they act like “employees” (i.e. holding onto their seats, grabing power, climbing the “committees” ladder)

        disclaimer: i work in private enterprise

      • Virus, as Adam Smith pointed out, voluntary exchanges between participants in free markets make everyone better off even if they are all working for their own good.

        But we hand parts of the economy to government to look after precisely because this principle does not apply to some things, there are potential “free rider” effects and “commons” effects. Therefore, the “public” service is meant to work for the interests of the public, and nobody in the public realises that anything other than this is going on.

        There was a time when the public service had a sense of honour, and this tended to work quite well. But this has gone along with all the other losses in this decadent age. The public service are just “troughers” in a different way to Wall Street – but the underlying immorality is the same.

        And the discussion kicked off below by Gunnamatta is really relevant too.

      • +1 Phil

        From Ronald Reagan;

        “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”

        “Concentrated power has always been the enemy of liberty.”

        “Government exists to protect us from each other. Where government has gone beyond its limits is in deciding to protect us from ourselves.”

        “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

    • I can tell you how that has played out

      Once upon a time there were Public Servants who genuinely did believe in working for the public. I know, I met more than a few of them, quite often as I was redunding or performance managing them.

      Over time politicians found themselves unhappy with being given frank and fearless advice and asked to be given something more ‘on song’ with their thoughts.

      The first to become ‘on song’ were the Secretaries of Departments, this happened in the mid 90s and was facilitated by the return of the Libs in the 1990s to discover an APS chock full of people serving up ALP policy.

      Now about this point the Secretaries were put on ‘performance’ contracts – not permanent positions as their predecessors. As someone who wrote more than a few of these contracts I can tell you there was a strong focus on behaviours such as ‘team outcomes’ as well as vaguely worded things such as ‘a balance between outcomes and risk management’ or ‘a focus on strategic goals’ – the upside for the people appointed to the positions was an astronomical increase in pay, the scope for bonus income etc.

      Of course these Secretaries soon discovered that their minions thought they were Public Servants. Those whom they first discovered it about where the senior echelons (Deputy Secretaries, Assistant Secretaries and the like) so before long these guys too were on contracts (and it was right at the time that behavioural management really took off so almost all these contracts had reference to ‘core values’ ‘team behaviours’ ‘engaging with risk’ ‘leadership ethos’ etc etc etc), which meant that if anyone served anything up to the higher levels which wasnt on song then they blew their bonus and another replacement (often from the private sector) wheeled in.

      Now, without knowing for sure, my guess would be that there would still be people in the APS who thought it their job to serve up frank and fearless advice. But they would be at such a low level anything they said would have the words massaged by a number of layers of management well before it went anywhere near anyone in a decisionmaking capacity.

      Thats pretty much how it happens in the APS.

      • +50
        I’m in the machine at the moment and this is exactly how it is. There are still people who believe the “P” in APS – just outnumbered and not in positions of power.
        To add to this, often (senior) public servants know what their masters want and protect them from having to make decisions by giving them what they want. They don’t need to be ordered, they are willing participants. There’s promotions and bonuses to be won.

      • The question then becomes is this process reversible through constant public vigilance and monitoring by the media (blogosphere) or does it suggest, as some certainly would, that the monopoly of power granted to politicians means the process of co- option of the public service is an inevitable evolution and without striking at the core of the problem any attempts would be unsuccessful.

        PNG – sounds a bit like the way some media proprietors are believed to achieve editorial control without so much as a wink or a nod.

      • “this happened in the mid 90s and was facilitated by the return of the Libs in the 1990s to discover an APS chock full of people serving up ALP policy.”

        The answers lie back in time.

      • Exactly PfH – no direct control necessary. The answer? More open government – don’t hide behind various x-in-confidence screens.

        Also need to change the incentive system, as Gunna noted things changed once tenure was dropped and bonuses introduced. It’s counter intuative but performance based incentive systems are very damaging in the APS. How do you measure performance in policy development? The incentive is always to give senior people what they want and laugh at their inane jokes during meetings.

      • Exactly right, GSM. The lower the level of government services provided, the lower the level of tax revenue required to fund it, the greater our capacity to lower taxes, increase competitiveness. The smaller the scope of our government, the smaller its ability to interfere with our capacity to exert our individual preferences, to let the market exert more capacity to enforce accountability. Govt out of health care, govt out of education, govt out of broadcasting/media, govt out of the business of creating ludicrous levels of compliance, govt (via unions ) out of setting wages.

        This is no more than a matter of political will.

    • This brings to mind another quote from Keynes:

      I work for a Government I despise for ends I think criminal.

      (Letter to Duncan Grant, 15 December 1917)

      • “The answer?”

        Cut the APS to the bone. It is a hideously expensive relic that sucks money from the Public Purse for little or no good end. Expensive empires created by all Govts at our expense.

        Health Dept without a patient, Education Dept without a student, Climate Change Dept that can only spend money having zero effect on climate… the list goes on and on.

        Cut them out altogether where possible and to the bones to maintain functions.

        Put those left behind to service delivery with strict scrutiny on measurable KPI’s. How many Billions saved?

      • I suspect that the central government public servants are aiming to close down their counterparts in the States.

  3. It is fatuous to complain about the outcomes of the election while steadfastly refusing to acknowledge the constitutional features which absolutely guarantee such outcomes will occur.

    I know we’re already given Buchanan an outing once this week, but this article surely demands that he get another say (Buchanan and Brennan, “The Reason of Rules”):

    [S]uppose that a monopoly right is to be auctioned; whom will we predict to be the highest bidder? Surely we can presume that the person who intends to exploit the monopoly power most fully, the one for whom the expected profit is highest, will be among the highest bidders for the franchise. In the same way, positions of political power will tend to attract those persons who place higher values on the possession of such power. These persons will tend to be the highest bidders in the allocation of political offices. . . . Is there any presumption that political rent seeking will ultimately allocate offices to the ‘best’ persons? Is there not the overwhelming presumption that offices will be secured by those who value power most highly and who seek to use such power of discretion in the furtherance of their personal projects, be these moral or otherwise? Genuine public-interest motivations may exist and may even be widespread, but are these motivations sufficiently passionate to stimulate people to fight for political office, to compete with those whose passions include the desire to wield power over others?

    Under such conditions (and in the absence of Democracy) it is perfectly reasonable to expect that:

    a) the system will adversely select megalomaniac politicians who act in their own interests, with minimal regard for the subjects they rule;

    b) such politicians will deliberately misrepresents the state of affairs to the public in their desperate attempts to secure votes;

    c) such politicians will engage in obscene competitions to hand out bread and circuses – each side seeking to outdo the other to secure power – running up unsustainable public debts in the process; and

    d) such politicians will engage in grubby auctions, buying off special interest groups and powerful lobbies piecemeal with gifts from the public purse . . . and look to receive favours in return, either in the form of support in government or employment in later life.

    As noted previously, Buchanan himself concluded:

    In sum, the effects of direct democracy add-ons to existing decision rules surely work toward reducing the range and scope for politicization, a result supported by classical liberals.

    To complain about the inevitable results of “franchised monopoly” government while steadfastly refusing to acknowledge the cause is as useful as sitting in the corner hammering knitting needles through one’s skull.

    As Keynes famously remarked, “The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

    If one is to focus one’s energies, is it not best to focus them on tearing down those destructive ideas? Admittedly, it is a long hard road. But anything else will produce – at best – temporary and cosmetic change, a re-arrangement of the beneficiaries.

    Then again, perhaps that is all that some people are looking for.

    • “If one is to focus one’s energies, is it not best to focus them on tearing down those destructive ideas?”


      Ban usury. Again. Problem solved.

      EDIT: Methinks such would prove a popular policy if tested at a Citizen-Initiated Referendum.

    • It is equally fatuous to repeat the same complaint ad nauseam about others who do not approach the formation of solutions through the same utopian prism of idealised constitutionalism. For those that deal with the real world as it is, and as it will ALWAYS be, there needs to be a more pragmatic, grounded approach. The alternative is to spend one’s life obsessed, unable to accept the ultimate naivety of an idealised framework.

      • “..a more pragmatic, grounded approach” is not one that fails to recognise, much less address, the actual cause of the problem under discussion (outcomes of the political system).

        Thinly disguised ridicule of those who seek to do so as being “utopian” or “idealist” only demonstrates the paucity of your own argument.

      • For those that deal with the real world as it is, and as it will ALWAYS be, there needs to be a more pragmatic, grounded approach.

        Ohh!!! The joy!!!!

        Let us this morning turn once again to Keynes:

        The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

        (From The “General Theory of Employment, Interest and Money”, Chapter 24, Concluding Notes.)

      • Yes, oh joy. There is nothing profound or particularly unique in Keyne’s observation there. Yes, we are ALL – practical or otherwise – subject to some degree to the influence of those who have come before us, unknowingly or consciously. What of it ? If you wish to frame it in the pejorative, you seem to be a ‘slave’ to the view of a very much defunct idealist yourself.

      • Chapter 2: On knowledge and belief

        Section 6: Strategies for resisting disconfirmation of belief

        Part a) Defensive strategies

        Defensive strategies seek to avoid engagement with disconfirmatory evidence and argument. Typically, defensive strategies will seek to divert the threat of disconfirmation or close down discussion of threatening material before it can even begin.

        Defensive strategy 1: diversion

        Defensive strategy 2: smokescreens

        Defensive strategy 3: creeding

        Defensive strategy 4: pre-emptive declarations of victory

        Defensive strategy 5: pre-emptive declarations of futility

        5 c) Panglossian conservatism and semi-panglossian conservatism.

        The term Panglossian, after the character is Voltaire’s Candide, is usually taken to mean incurable optimism: for all its faults, the world we live in is “the best of all possible worlds”. Panglossian conservatism draws the inference that, if we already live in the best of all possible world, then any attempt at improvement is futile. Indeed it may even border on offensive to waste people’s time by raising the topic of improvement.

        We hear Panglossian conservatism regularly in mantras such as: “Twas ever thus”, or “It will never change”, or “the current state of affairs in inevitable”, or “this is the Natural Order of things”.

        [Or: “. . . the real world as it is, and as it will ALWAYS be . . .”]

        We hardly need dwell on the logical difficulties of Panglossian conservatism, and indeed of all fundamentalist conservative belief: if we live in the best of all possible worlds and change is impossible, then how did the world change into its current form? Unless the world is uniformly good or bad over time, or unless it is the most recent in a series of monotonically worsening worlds (i.e. the worst of all worlds up to this time), then there must have been a moment – several moments perhaps – when an earlier “best of all possible worlds” ceased to be such and an improvement occurred.

        Many people – many fundamentalist conservatives even – would look at history and agree that the current world is better than at some earlier time. In some cases the perceived improvement appears to have been wrought by human agency. How then can the Panglossian conservative be certain that now is not another such a moment in history?

        Moreover, it may be observed that many Panglossian conservatives are not Panglossian at all but only “semi-Panglossian”: they will assert that change is impossible – and that it is offensive even to raise the topic – except for a list of improvements that they themselves would like to see. Those changes – but only those changes – are feasible.

        Such inconsistencies in Panglossian conservatism ought not to surprise us: this is, after all, not a logically coherent philosophy but one of the many defensive strategies aimed at pre-emptively closing down discussion of threatening material and thereby avoiding the pain of possible disconfirmation.

      • Goodness me. Well, good luck with your plans to re-make Australia’s constitutional structure as the appropriate philosophical point and pre-condition for ANY other change. I commend your enthusiasm and idealism, and will look out for you at the barricades. In the meantime, those more pragmatic souls will continue the struggle in those areas where there is ample capacity to reshape the nature of our society. First stop, getting rid of Labor.

  4. Ronin8317MEMBER

    ‘Macroprudential’ tools like LVR are full of loopholes, and the RBA only have direct control over banks, not non-bank lenders. ARPA regulates all financial companies, so they should be the one doing it. That being said, it doesn’t excuse the RBA from using their other weapon : the ‘jawbone’.

    Then again, expecting ARPA to do ANYTHING at all is just being silly. They should really just scrap the body and put everything under the RBA.

  5. I’m all for increased productivity. But what does this really mean?

    More goods for less labor, I guess that would be the text book definition of productivity. But how does this really happen? especially when so few Australians work in industries that actually produce something tangible let alone tradable.

    A cup of coffee bought by a tourist is certainly a source of foreign income, but it is hardly a tradable product. I’d also go so far as to suggest that the coffee stand sought out by the tourist was definitely not the most productive coffee stand in Sydney.

    In today’s super competitive world manufacturers need to be integral parts of global value chains.
    If I make glass for LCDTV’s I must be integrated into one of 3 (that right THREE) manufacturing chains. There is absolutely no point in supporting businesses that are not addressing a top 3 producer slot.

    Our challenge is to create globally productive manufacturing value chains that leverage Australia’s natural advantages.

    That’s a great “Mission statement” but to be honest its a fools quest because Aussie labor and business still maintain this antiquated adversarial relationship. Add to this the stupid concept that exchange rates are the equalizing valve and to put it politely you’re @#$%ed before you start.

    • Personally, I particularly liked “…the stupid concept that exchange rates are the equalizing valve..” As we can all see, a lower exchange rate doesn’t spur domestic productivity (the lead time beats you), it makes ‘what you have left’ cheaper for others to buy!

    • You and I are on the same page, China Bob.

      It is almost guaranteed that an economy based on Property Ponzi and exporting rocks, will have a shrinking tradables sector. I have seen this in stats again and again, associated with Property-Ponzi epidemics around the world.

      I keep pointing out that Southern and heartland USA is the way of the future for making use of local resources to grow your own value-added, tradables sector. Structuring the economy to AVOID property Ponzi and MINIMISE specufesting is like a prime pre-condition.

      Any specufestors paradise economy will be hell for everyone else out there in the real economy, which at the end of the day is what will be paying the full and final bill when it can’t be avoided any more.

      • “It is almost guaranteed that an economy based on Property Ponzi and exporting rocks…..”

        Unfortunately we are worse than that. Our economy is not based on digging up and exporting the rocks. It is based on selling the natural resources we have been granted in situ. We don’t even work and save so that we export the rocks ourselves. That’s too hard. Foreign interests own and export the rocks.

        P.S. Other than that wee point Phil….spot on!

      • It is based on selling the natural resources we have been granted in situ. We don’t even work and save so that we export the rocks ourselves

        God that’s a depressing 2 sentences.

      • Thanks Phil,

        I keep going over in my own mind what the real difference is between the opportunities in heartland USA and those available in Australia.

        In many ways Dallas Tx can be compared with somewhere like Dubbo NSW, yet people flock to Dallas and run from Dubbo. WHY?

        I dont know what residential land sells for in Dubbo but I’m guessing it is cheaper than Sydney. So what’s the difference? Why dont western sydney’s poor move to Dubbo? The biggest difference that I keep coming back to is actually the Airport, (DFW) is a massive airport with good connections to all other US cities, Dubbo well….Dallas also stands on more than one leg, although manufacturing is important its industrial roots and historical wealth stem from Oil&Gas.

        In many ways Dallas owes its cheap housing to the 1980’s recession the oil industry coupled with “white flight” that occurred after (affirmative action) bussing (south Dallas black kids bussed to north Dallas white schools) was introduced. Clearly land availability played a role but I think it was secondary.

        Anyway, got to go.

      • Interesting discussion. When I came back from OS (I cam originally from Victoria but wasnt necessarily wedded to the idea of coming back here) I came to the view that about the cheapest housing around Australia was either Launceston (TAS) or Ballarat (VIC), but that in a lot of places (including places in NSW like Griffith and Wagga – although I didnt look at Dubbo) it appeared to me that RE costs were severely inflated.

        In the end I opted for Geelong/Bellarine. Close enough to Melbourne, a balance of quality of life, closeness to family friends etc. It certainly has a property bubble (I explained to some mates in Frankfurt not that long ago the fact that 500K AUD buys a 100 year old unrenovated weatherboard craphole – and they were just shocked – noting that politely put Geelong doesnt actually do anything which makes money from outside the system as such [and Melbourne isnt much better for that matter]. I have another mate from Geelong who lives in Milwaukee in the US and often for a laugh we compare property prices (I send him 500K dollar crapholes, and he sends me 300K mansions).

        In the long run I tend to agree with Willy Nily. People just opt to move, or in our case dont commit to staying.

        But I also dont think what Australia has is sustainable forever, and when it goes it goes big. Another mate in the Victorian Public Sector (who deals with land) mentioned to me he has been waiting for a RE meltdown for 6 years, and while I wouldnt say I am expecting it any time soon I would note (from what I have seen OS) that these things tend to come unexpectedly, presumably just when everyone thinks the risk of one happening has passed.

        The final thing I would note is that almost nobody I know – and I chat with a lot of people on this, professionals, family types, mug punters business people etc – thinks that buying RE now makes any sense at all.

    • “That’s a great “Mission statement” but to be honest its a fools quest because Aussie labor and business still maintain this antiquated adversarial relationship. ”


      Quite right. Unless and until this toxic destructive situation changes we cannot prosper in the real sense. Our Unions are controlled mostly by moronic Neanderthals who are fighting a class war of almost 2 centuries ago. You only have to look at the family heritage of every Labor PM since Federation to see how Unionism and Socialism has choked our development. Business must improve to, but it’s a no brainer that the Capitalists will only invest to reap the low hanging fruit when confronted with such a nasty and far too powerful ANTI Business landscape. Or, they go elsewhere. Investing to manufacture here is a pipe dream within our current Union/Business environment. That is not an advocation for open slather exploitation of workers. But workers who want to work are getting dudded royally by this 19th century UK imported Union domination paradigm.

      • Our Unions are controlled mostly by moronic Neanderthals who are fighting a class war of almost 2 centuries ago.


        The person here who has most experience with the relationship between capital and labour put equal, if not more blame, to the other side of the table.

        But you can’t see that.

        You only have to look at the family heritage of every Labor PM since Federation to see how Unionism and Socialism has choked our development.


        Two prime ministers has implemented the overwhelming level of policy that has enhanced our development

        Chifley and Keating.

        These two have done more than virtually every other PM combined.

        I see their crednetials, and they definately don’t reconcile with the garbage you posted.

      • China Bob, I put it to you that GSM may have a point with his observations about Unions.

        But I would also put it to you that the general level of competence of the vast bulk of Australian management would well be encapsulated too by the expression

        …’moronic Neanderthals who are fighting a class war of almost 2 centuries ago’

        Although there would also be a subgroup of vested interest lickspittles that thought selling out their mothers or daughters would be a good capitalist enterprise.

        The simple fact of the matter is with Australian Industrial relations is that you never get morons on one side without having morons on the other. There are intelligent people on both sides and morons on both sides. The intelligent ones get together and sort out their issues. The morons bang on about the morons on the other side.

        Then of course there are those small business types who for whom basic interpersonal skills are essentially a socialist concept.

      • Rusty, whatever you say oracle. When you cannot see what is plainly before your eyes , you do need help. Seek it. Your defense of Unions and hate of Business in all matters is clear. But it won’t get you into a house I guarantee that.


        When you can put up your money at risk in Australia then critique of Australian Business and entrepreneurship is valid. You and many on MB rail on every day about our lack of a diversified economy yet stand enthusiastically ready with the big stick to belt it at every opportunity. While you sit in the spectator seats. Go on, have a go yourself. This blathering on about how terrible Aussie businesses are is tiresome. They are the ONLY businesses we have so they do need positive nurturing to grow and EMPLOY – despite their recognized deficiencies. If you believe the content of this article , business will need all the help they can get if we want the jobs only they can provide. Suck it up ffs , whining won’t win this.

      • When you cannot see what is plainly before your eyes , you do need help. Seek it. Your defense of Unions and hate of Business in all matters is clear.

        I am not a union member.

        I registered my 2nd business venture 3 weeks ago.

        What you ‘see’ rarely reconciles with reality. You still call me a raving welfare statists, even though I call the abolition of most welfare.

        your labels are borne out of flights of fancy, not dialectic conclusions.

        But it won’t get you into a house I guarantee that.

        I am a home owner, which is my PPOR.

      • General Disarray

        Our Unions are controlled mostly by moronic Neanderthals who are fighting a class war of almost 2 centuries ago

        They would be the minority by a big margin.

        What unions do you have experience with. GSM?

        In my experience it’s only ever been a few of the usual suspects that are much of a problem. The vast majority spend most of their time dealing with the usual workplace flare-ups/arguments and safety issues.

      • GD,

        You are ignorant.

        Go and read up on the Unions who have the biggest control of current Govt. Read up on Howes, Ludwig,Sheldon et al and the MUA, Shorten and his cronies. CFMEU and its militant numpty bosses with their thug style of PR.

        Labor, the Govt, has prostituted itself to these ANTI Business Unions and Unionists to the point now where OUR future (if Labor are Govt) lies in their hands and their decisions. Study the extent of their influence and power, how they select THEIR MP’s. It’s all rigged. Then work out how much money is filtered through their hands; contracts, fees, and superannuation fund board member incomes. Study how these 500 odd pieces of Labor legislation most of which have embedded compliance costs favoring Unions.

        Then convince me and anyone Unions have little or no influence.

      • @GSM,
        I’m not really against unions because I believe that unions have a very important role to play in any successful manufacturing country.

        The only union I have ever belonged to was many years ago in Germany. Even back all those years ago the German unions were the real drivers of increased labor productivity. They were fully aware that global prices were not set by their immediate employers but rather by the global market place. So if workers wanted continuous employment it became the job of the unions to discover/implement changes needed to increase productivity. The unions were active in educating their members on the absolute need to maintain production efficiency.

        I’ve seen and even presented union proposals to expand production capacity that focused on maximizing/best-utilizing the skills of their work force.

        I realize this sounds like some sort of socialist utopia (let me get the bucket to puke in) but this is kinda how I remember it.

        What’s more amazing, in Germany, is the respect that average people have for those that work in the big manufacturing industries. I lived about 10 km from my work place but somehow the local shop keepers had made it their business to discover my correct title to address me as: “Herr Dr Ingenieur” Titles are BS but understanding and appreciating the foundational role that global manufacturing has in supporting today’s advanced societies is not BS but it definitely does not exist in Australia.

      • General Disarray

        GSM wrote Our Unions are controlled mostly by moronic Neanderthals who are fighting a class war of almost 2 centuries ago

        That is clearly untrue for the majority of unions. You don’t have a clue what the majority of union people do nor can you speak with any authority as to the quality of their character.

        GSM wrote Then convince me and anyone Unions have little or no influence.

        Here’s a tip; if you have to resort to straw man arguments you have already conceded the point. You’re either just a complete shill or a moron.

      • Bob,

        I agree with your comments about the German style Union mindset. The German Unions in general are very attuned to the needs and competitiveness of the German economy, particularly it’s export sector. German business responds in the relationship by investing in new processes and skills. My impression is that this has been fostered from the post war period when they were all in the same badly destroyed boat and they have found that working co-jointly success breeds success.

        The mindset however Australia has imported is the sick UK variety. It is toxic and destructive.


        I didn’t expect anything from you frankly so hardly disappointed with the inane response.

  6. Sad days. The punters aren’t feeling enough pain for the politicians to face up to the real issues. Most people don’t even realise there is a problem. So why would the politicians present solutions to problems most people aren’t even aware of. That’s not going to win them votes.

    We actually need a bit of hardship before the issues we all debate here will bubble to the surface in the mainstream. At the moment, we have still relatively low unemployment and interest rates steadily marching lower (i.e. most people think that we’re moving into a house price boom). Any attempt to address structural economic issues is dismissed as an ‘inside the beltway’ issue as most people don’t give two hoots.

    The irony is that the politicians are trying to paper over the cracks with even more unsustainable spending in the hope that the punters never realise that there are structural problems and therefor the politicians will be able to avoid doing anything about them for at least another electoral cycle.

    • “We actually need a bit of hardship before the issues we all debate here will bubble to the surface in the mainstream. ”

      This is very true. It was the deep and painful recession of the early 90’s that begot what we saw for a decade later. Then the resources boom kicked in and we all know what happened. But the point is that nasty recession structured what followed for over a decade. We won’t change until we see that hardship. Only when no other alternative is available to us will Australia change.

      What then to do? The only real answer from a practical standpoint is make yourself as small a target as possible and use every tool at your command to better yourself up the salary pole. The status quo will remain, absent the need for change. That catalyst has not yet arrived.

    • The Poms have been going further and further down the path of “pain” for decades but there seems to be no hope of an awakening for them. You have London (finance, bureaucracy) and everyone who is at the trough for a piece of that action; then you have a crushed, strangled real economy kind of scattered around it.

      • We are not the Poms Phil. We have a bountiful resource rich landmass to fall back on with none of the centuries of accumulated class and aristocratic toxic influences to deal with. We can be in a better space than we are but we are not afflicted with the Pommy disease.

  7. The rot started back in the 80s/90s when government & business decided to invest in super-yachts, beachside mansions, $50million share allocations & rampant middle/upper class welfare instead of infrastructure & education. Is anyone really surprised at where we now find ourselves?

  8. So in the end we will have an increasing boom/bust cycle, but in discrete parts of the economy. Volatility is the new norm.

    Overall it doesn’t look good, but I have unbelievable faith in can kicking.

    Who would have thought, the answer to way too much debt was simply print more money and increase debt. When do we start burning economics books?

  9. This is a really superb piece. Thank you for summing it all up so succinctly. I think that the MB readership has possibly grown to take for granted the huge gap in quality between what’s on MB and what passes for serious analysis on Australian issues everywhere else. So from me: Bravo!

  10. The process of rehabilitating our economic situation starts in two weeks. The so called hard working Australian family made to fear the removal of unionised work conditions needs to understand the far worse fate that awaits them if we continue along this path. Whatever the shortcomings in policy announcements, an Abbott govt is our BEST opportunity to start re-modelling.. This is about no more than the political will to reduce the size of government, to reduce taxes, to create flexibility in wages, to give our businesses more incentive to invest and compete. Unions, the bloated legal profession, and the self serving public service need to be called out for the leeches on productive society that they now represent.

    The article on this site yesterday about meaningless jobs fails to properly assess the burden that these ‘bullshit’ jobs are placing on our society and economy. Most of the bullshit IS in the legal and associated compliance professions and groaning public service departments, paid for in the form of less competitive businesses, and the requisite higher inflated asset prices and debt required to bridge the gap between what we are worth and what we now feel entitled to pay ourselves. People haven’t saved, taken responsibility for their lives, because govt has made it clear for too long now that they don’t HAVE to.

    The time to start making govt smaller starts in two weeks. It is delusional to think that there is any other choice, or to think that an ALP govt is going to do anything more than entrench, even more deeply, the kind of dysfunctional behaviour that is now manifest in our attitude of profligacy, self-entitlement and lack of respect for the hard work and initiative of others. An attitude that is blinkered to the reality of the hard work and sacrifice that has come before us, and that is the bedrock strength of our new competitors. The time for self-delusion is over.

    If people are so concerned about their children’s future (scared up by Labor Party advertising), then they need to ask themselves what legacy they want to create for those children and their grandchildren. The perpetuation of a welfare mentality that means those children will NEVER have to take responsibility for their own lives ? NO. Every adult knows, experiences, understands intuitively that children ultimately need to learn to take care of themselves. And we are now like the truculent teenager who refuses to move out of home because it’s all too easy. Well, it’s time to stop making things so easy for people. Time to grow up, and stop pretending we are incapable of living our lives without the comfort of GOVT. That mentality is a nonsense. It’s time for us all to accept responsibility. It starts by getting rid of Labor.

    • In theory, yes, the Coalition is in favour of smaller government.

      But, based on what’s been proposed in the public domain by Abbott, Hockey and co so far, where is the evidence that they will do anything to bring about smaller government? I’ve seen litte from them that will reduce the size or scope or reach of government. And some of their stated policies will actually increase government intervention. The Coalition is not making any serious attempt to wean the country of its welfare dependency. They even believe in increasing welfare payments (PPL, removing private health insurance rebate means tests). Unless they are going to completely change tack in government (unlikely), you’ve got to go on what’s in the public domain.

      That is not to say that the ALP is going to get us out of this mess or reducing government interference. They’re not. Both major parties are big and wasteful spenders with little to say about how we will tackle the big challenges. A change of government in and of itself will do little to address the big challenges.

      • “A change of government in and of itself will do little to address the big challenges.”

        Can’t agree , sorry Ralph. In the situation we have, it comes down to degrees.

        The LNP on present knowledge will not go far enough to redress the terrible imbalances of our economy or it dependency on welfare, I grant you. BUT, they will head down that road. Timidly.

        However, you can be absolutely certain Labor, just on the basis of their last 6 years of recorded behaviors and how they present right now, will lead us further toward a failed DEBT ridden welfare nation.

        That I think is the choice before us.

        BTW, Thanks HnH for this article. Well presented and no more important a topic. First class IMO.

      • Whatever the Liberal Party’s shortcomings are at the present in their policy announcements (and one has to recognise that these WILL be amended in government, this is the game Labor is forcing them to play, and things are simply too critical for the Liberal Party to risk losing at this election), Labor are simply UNFIT to govern. UNFIT to be making decisions on the expenditure and management of future generations’ money. Do people seriously think Kevin Rudd is a mentally stable, competent person ??? A man who devises and approves as significant an infrastructure project as the NBN on the whim of the union fool Conroy ? This is the man we want laying the foundation of our economy through the next few decades ???

      • “things are simply too critical for the Liberal Party to risk losing at this election”

        i.e. the “lying for Jesus” necessity.

  11. The Road Not Taken.

    We have taken a road, the wrong one. Australia has embraced and accepted, evolved and is now gripped in a confontational economic paradigm that has its genesis in the UK of the industrial revolution, the mills, coal mines and sweat shops. We are now being choked and strangled by it. Over the decades, the Land , above and below it, has bailed us out time and again. That and our fortuitous geographic location.

    HnH is right our luck is fast running out. Unless we have the capacity to change with these competitive times we will steadily decline as a Nation in all areas as national incomes fall away. We unfortunately do not have that capacity for real change, wedded as we are to this Union/Business antiquated lock in. For Australia to change, that situation first must change. Business and investment will demand that change or simply stand still , perhaps go elsewhere. So in the years ahead people who want the security of a permanent job will no doubt be forced to choose where they want that change to occur. Or leave for better prosperity elsewhere.

    Good luck with getting Capitalists to risk their money in an economic locale dominated by Unions and costly Union inspired onerous workplace laws, rules and layers of regulations and their hideously expensive compliance. All of this in a tax jurisdiction designed to milk wealth to almost extinction. Choices to make kiddies, what’s it going to be? Self preservation and an economy for the future or certain decay and decline as we stay locked into this antiquated us/them imported paradigm.

    • What is incredible to me is that, on this site, predominantly intelligent people who have diagnosed and accepted the problems that face us, still countenance the Labor party as the next viable government. The ALP has made Australia a welfare country writ large, a society incapable of contemplating the notion of personal responsibility, utterly dependant on taxing the life and competitiveness out of its citizens and businesses. There is NO other choice at this point in our history than to remove the influence of Labor governments and their union backers.

      • “still countenance the Labor party as the next viable government. ”

        Some even think the Greens are best suited for Govt.

      • “a society incapable of contemplating the notion of personal responsibility,”

        For example, the responsibility for looking after $75,000 that the government pays you for having a child when you’re already earning more than $150,000 per annum.

        “utterly dependant on taxing the life and competitiveness out of its citizens and businesses.”

        For example, taking 1.5% of the franked dividend income from people who save and invest for their own retirement to be splashed on upper-middleclass welfare.

      • “We don’t tax wealth, we tax work. Which is counter-productive.”

        Economically inefficient, technically speaking.

      • Better still if we taxed spending. Wealth that is invested is productive. (That is, if it is invested in business rather than real estate ponzi rent-seeking).